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 $115.8 million; its shares were traded at around $2.226 with and P/S ratio of 0.1.
Highlight of Business Operations:Cost of sales. Cost of sales, including depreciation, amortization, and depletion, decreased 19.5% to $331.5 million from $411.9 million in the second quarter of 2008, primarily reflecting the decline in sales volume. Our gross margin, excluding depreciation, amortization, and depletion, was (0.1)% for the second quarter of 2009 compared to 16.5% for the second quarter of 2008, reflecting $33.5 million of unabsorbed costs resulting from over 153,000 tons of market downtime taken in the second 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 $33.0 million in the second quarter of 2009 compared to $34.7 million in the second quarter of 2008.
Net cash flows from operating activities. Net cash provided by operating activities was $6.8 million for the six months ended June 30, 2009, compared to $31.8 million for the six months ended June 30, 2008. The decrease in net cash provided by operating activities is primarily due to changes in working capital, which included a decline in accounts payable and accrued liabilities. The decline in accounts payable is related to the large amount of market downtime taken in response to the challenging market conditions. Additionally, an increase in accounts receivable was primarily due to accruals for alternative fuel mixture tax credits. Partially offsetting these negative impacts on cash flows from operating activities was an improvement in performance with net income of $44.3 million for the six months ended June 30, 2009, compared to net losses of $47.8 million for the six months ended June 30, 2008. This increase in earnings includes $142.4 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. There is some possibility that the U.S. government will amend the alternative fuel mixture tax credit to eliminate or reduce its benefits for pulp and paper companies prior to its scheduled expiration on December 31, 2009. Any such amendment of the tax credit could have a material adverse effect on our financial condition, results of operations, and cash flows.
Net cash flows from investing activities. For the six months ended June 30, 2009 and 2008, we used $25.5 million and $41.5 million, respectively, of net cash in investing activities due to investments in capital expenditures. Management has significantly reduced expected annual capital expenditures from $81 million in 2008 to a projected $30 million in 2009, the majority of which were realized during the first half of the year while the mills were experiencing significant market downtime.
Net cash flows from financing activities. For the six months ended June 30, 2009, financing activities provided net cash of $39.7 million reflecting proceeds from the issuance of $325.0 million in senior secured notes net of discount, underwriting fees, and issuance costs, $18.9 million in net borrowings on the revolver, and $303.2 in principal payments on long-term debt. This compares to $0.5 million of net cash used in 2008 due to proceeds from issuance of common stock net of principal payments of borrowings.
On June 11, 2009, Verso Holdings issued $325.0 million aggregate principal amount of 11.5% senior secured notes due July 1, 2014. These fixed-rate notes pay interest semi-annually. The notes are secured by substantially all of the property and assets of Verso Holdings. The notes are secured on a ratable and pari passu basis with Verso Holdings senior secured credit facility. The net proceeds, after deducting the discount, underwriting fees, and issuance costs, were $289.0 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. The write-off of unamortized debt issuance costs related to the term loan resulted in a loss of $5.9 million, which was recognized in Other income on the condensed consolidated statement of operations.
Additionally, Verso Finance has $91 million aggregate principal amount outstanding on its 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. During the second quarter of 2009, the Company repurchased $26.7 million of the term loan for a total purchase price of $5.7 million, which resulted in a gain of $20.5
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