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VERSO PAPER CORP Reports Operating Results (10-Q)

May 07, 2009 | About:

VERSO PAPER CORP (VRS) filed Quarterly Report for the period ended 2009-03-31.

Based in Memphis Tennessee VERSO PAPER is a leading North American producer of coated papers including coated groundwood and coated freesheet and supercalendered 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. VERSO PAPER CORP has a market cap of $72.3 million; its shares were traded at around $1.39 .

Highlight of Business Operations:

Our results for the first quarter of 2009 reflect a 36.8% decrease in net sales as volume fell 37.2% compared to the first quarter of 2008. Our average sales price per ton for all of our products was up slightly to $875 in the first quarter of 2009 from $869 for the same period last year, primarily driven by a 3.3% increase in average coated paper prices. Our gross margin dropped to 6.3% from 17.3% for the same period last year, reflecting $31.3 million of unabsorbed costs resulting from almost 140,000 tons of downtime taken in the first quarter of 2009 as we continue to curtail our production in response to continued weak demand for coated papers.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, decreased 25.6% to $303.3 million from $407.6 million in the first quarter of 2008, primarily reflecting the decline in sales volume. Our gross margin, excluding depreciation, amortization, and depletion, was 6.3% for the first quarter of 2009 compared to 17.3% for the first quarter of 2008, reflecting $31.3 million of unabsorbed costs resulting from almost 140,000 tons of downtime taken in the first quarter of 2009 as we continue to curtail our production in response to continued weak demand for coated papers. Depreciation, amortization, and depletion expense was $34.4 million in the first quarter of 2009 compared to $32.2 million in the first quarter of 2008.

Interest expense. Interest expense for the first quarter of 2009 was $27.1 million compared to $33.7 million for the same period in 2008. In May 2008, $152.1 million of outstanding debt was repaid with a portion of the IPO proceeds. The decrease in interest expense was due to the reduction in aggregate indebtedness and lower interest rates on floating rate debt in 2009.

Other income. Other income was $113.3 million for the first quarter of 2009, which includes $104.6 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 during the period of September 2008 through March 2009 and $8.7 million in net gains related to the repurchase and retirement of $12.0 million of our second priority senior secured floating rate notes.

Restructuring and other charges. Restructuring and other charges for the first quarter of 2009 were $0.2 million compared to $1.7 million for the first quarter of 2008. Restructuring and other charges are comprised of transition and other costs associated with the Acquisition; including technology migration costs, consulting and legal fees, and other one-time costs related to becoming a stand-alone business. Subsequent to the Acquisition, we entered into a management agreement with Apollo relating to the provision of certain financial and strategic advisory services and consulting services. Management fees to Apollo for these services were $0.6 million for the three months ended March 31, 2008. Upon consummation of the IPO, Apollo terminated the annual fee arrangement under the management agreement.

Verso Finance has a senior unsecured floating-rate term loan which matures in 2013. In May 2008, the Company used a portion of the net proceeds from its IPO to repay $138 million of the outstanding principal of the term loan and to pay a related $1.4 million prepayment penalty. As of December 31, 2008, $112 million was outstanding on the term loan. The term loan bears interest at a rate equal to LIBOR plus 6.25% on interest payments made in cash and LIBOR plus 7.00% for interest paid in-kind and added to the principal balance. The weighted-average interest rate in effect on March 31, 2009, was 7.50%. The term loan allows Verso Finance to pay interest either in cash or in-kind through the accumulation of the outstanding principal amount. Verso Finance elected to exercise the PIK option for the interest payment pertaining to the 90-day interest period ending January 2, 2009, resulting in a $2.9 million increase in the outstanding balance to $114.9 million as of March 31, 2009.

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