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VERSO PAPER CORP Reports Operating Results (10-Q)

November 03, 2010 | About:
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10qk

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VERSO PAPER CORP (VRS) filed Quarterly Report for the period ended 2010-09-30.

Verso Paper Corp has a market cap of $196.7 million; its shares were traded at around $3.82 with and P/S ratio of 0.1.
This is the annual revenues and earnings per share of VRS over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of VRS.


Highlight of Business Operations:

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $403.6 million in the third quarter of 2010 compared to $371.8 million for the same period in 2009, primarily reflecting the increase in sales volume. Our gross margin, excluding depreciation, amortization, and depletion, was 14.1% for the third quarter of 2010 compared to 14.2% for the third quarter of 2009. Depreciation, amortization, and depletion expenses were $31.7 million in the third quarter of 2010 compared to $33.3 million in the third quarter of 2009.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, increased 16.2% to $1,169.7 million for the nine months ended September 30, 2010, compared to $1,006.6 million for the same period last year, primarily reflecting the increase in sales volume. Our gross margin, excluding depreciation, amortization, and depletion, was 10.4% for the nine months ended September 30, 2010, compared to 7.5% for the nine months ended September 30, 2009, reflecting $70.1 million of unabsorbed costs resulting from almost 320,000 tons of market downtime taken during the nine months ended September 30, 2009. Depreciation, amortization, and depletion expenses were $96.6 million for the nine months ended September 30, 2010, compared to $100.6 million for the nine months ended September 30, 2009.

We rely primarily upon cash flow from operations and borrowings under our revolving credit facility to finance operations, capital expenditures, and fluctuations in debt service requirements. We believe that our ability to manage cash flow and working capital levels, particularly inventory and accounts payable, will allow us to meet our current and future obligations, make scheduled principal and interest payments, and provide funds for working capital, capital expenditures, and other needs of the business for at least the next twelve months. However, given the uncertainty of the current economic environment, no assurance can be given that we will be able to generate sufficient cash flows from operations or that future borrowings will be available under our revolving credit facility in an amount sufficient to fund our liquidity needs. As of September 30, 2010, $152.6 million was available for future borrowing under our revolving credit facility. As we focus on managing our expenses and cash flows, we continue to assess and implement, as appropriate, various earnings enhancement and expense reduction initiatives. Management has developed a company-wide cost reduction program which produced approximately $11 million of savings during the third quarter of 2010, and $30 million in the first nine months of 2010, compared to approximately $17 million in the third quarter of 2009, and $43 million in the first nine months of 2009. Management expects this program to yield an additional $20 million in cost reductions over the next six months and continues to search for and develop additional cost savings measures.

Net cash flows from operating activities. Verso Paper s net cash used in operating activities of $16.2 million for the nine months ended September 30, 2010, was primarily attributable to net losses of $117.1 million net of non-cash depreciation, amortization, depletion and accretion charges of $96.6 million. Net cash provided by operating activities of $59.2 million for the nine months ended September 30, 2009, was primarily due to net income of $87.8 million, partially offset by changes in working capital, which included a decline in accounts payable and accrued liabilities and an increase in accounts receivable. The decline in accounts payable was primarily due to lower input costs, while the decline in accrued liabilities reflected lower accruals for interest payable and incentives and improvement in hedging positions. Additionally, the increase in accounts receivable reflected the improvement in sales and accruals for alternative fuel mixture tax credits. Included in net income for the nine months ended September 30, 2009, was $189.1 million in net benefits from alternative fuel mixture tax credits. The tax credit, as it relates to liquid fuels derived from biomass, expired on December 31, 2009. Verso Holdings net cash used in operating activities was $13.9 million for the nine months ended September 30, 2010, compared to net cash provided by operating activities of $60.4 million for the nine months ended September 30, 2009. Verso Holdings operating cash flows are the same as those of Verso Paper in all material respects.

Net cash flows from financing activities. Verso Paper s net cash provided by financing activities was $26.2 million for the nine months ended September 30, 2010, reflecting $26.2 million in proceeds from the issuance of $25.0 million in senior secured notes including premium and net of underwriting fees and issuance costs. This compares to net cash used in financing activities of $56.2 million for the nine months ended September 30, 2009, reflecting principal payments and debt repurchases of $297.9 million on long-term debt and $101.0 million in payments on our revolving credit facility, partially offset by $288.8 million in proceeds from the issuance of $325.0 million in senior secured notes net of discount, underwriting fees, and issuance costs and $53.9 million in draws on our revolving credit facility. Verso Holdings net cash provided by financing activities was $26.3 million for the nine months ended September 30, 2010, compared to net cash used in financing activities of $62.3 million for the nine months ended September 30, 2009. Verso Holdings financing cash flows are principally the same as those of Verso Paper. However, in 2009, Verso Holdings made additional cash distributions of $11.0 million to Verso Finance One in order to accommodate additional repurchases of debt and paid $1.1 million of expenses on behalf of Verso Paper.

On June 11, 2009, Verso Holdings issued $325.0 million aggregate principal amount of 11½% senior secured notes due 2014. The senior secured notes pay interest semi-annually. The senior secured notes are secured by substantially all of the property and assets of Verso Holdings and each of its direct and indirect subsidiaries. The notes are secured on a ratable and pari passu basis with the revolving credit facility. The net proceeds, after deducting the discount, underwriting fees, and issuance costs, were $288.6 million, which funds were used to repay in full $252.9 million outstanding on Verso Holdings first priority term loan and to temporarily reduce the debt outstanding under the revolving credit facility by $35.0 million. On January 15, 2010, Verso Holdings issued an additional $25.0 million aggregate principal amount of the senior secured notes under the same indenture. The additional senior secured notes were treated as a single series with and have the same terms as the senor secured notes issued in June 2009. The net proceeds including premium, after deducting underwriting fees and offering expenses, were $26.3 million.

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