VERSO PAPER CORP (VRS, Financial) filed Quarterly Report for the period ended 2009-09-30.
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 $136.3 million; its shares were traded at around $2.62 with and P/S ratio of 0.1.
Cost of sales. Cost of sales, including depreciation, amortization, and depletion, decreased 18.8% to $1,006.6 million for the nine months ended September 30, 2009, compared to $1,239.3 million for the same period last year, primarily reflecting the decline in sales volume and the effects of our expense reduction initiatives. Our gross margin, excluding depreciation, amortization, and depletion, was 7.5% for the first nine months of 2009, compared to 18.1% for the first nine months of 2008, reflecting lower average sales prices in 2009 and $70.1 million of unabsorbed costs resulting from almost 320,000 tons of market downtime taken in the first nine months of 2009 as we curtailed production in response to weak demand for coated papers. Depreciation, amortization, and depletion expenses were $100.6 million for the nine months ended September 30, 2009, compared to $100.7 million for the same period in 2008.
Net cash flows from operating activities. Net cash provided by operating activities was $59.2 million for the nine months ended September 30, 2009, compared to $19.7 million for the nine months ended September 30, 2008. The increase in net cash provided by operating activities is primarily due to improved performance with net income of $87.8 million for the nine months ended September 30, 2009, compared to net losses of $29.3 million for the nine months ended September 30, 2008. This increase in earnings includes $189.1 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. Partially offsetting this positive impact on cash flows from operating activities was the negative impact of changes in working capital in 2009, which included declines in accrued liabilities and accounts payable, primarily due to lower input costs, and an increase in accounts receivable, reflecting the recent improvement in sales and accruals for alternative fuel mixture tax credits.
Net cash flows from financing activities. For the nine months ended September 30, 2009, financing activities used net cash of $56.2 million reflecting principal payments of $297.9 million on long-term debt and $47.1 million in net 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. This compares to $1.1 million of net cash used in 2008 due to principal payments of $153.3 million on outstanding borrowings and dividends paid of $1.6 million offset by net proceeds of $153.7 million from the issuance of common stock.
During the nine months ended September 30, 2009, the Company repurchased and retired $12.9 million of Verso Holdings second priority senior secured fixed-rate notes due on August 1, 2014, for a total purchase price of $7.9 million, which resulted in a gain of $4.7 million, net of the write-off of unamortized debt issuance costs. During the nine months ended September 30, 2009, the Company repurchased and retired $61.8 million of Verso Holdings second priority senior secured floating-rate notes due on August 1, 2014, for a total purchase price of $30.1 million, which resulted in a gain of $30.2 million, net of the write-off of unamortized debt issuance costs. In addition, we de-designated the interest rate swap hedging interest payments on these notes and recognized losses of $1.3 million on the interest rate swap. The second priority senior secured fixed rate notes have a fixed interest rate of 9.125% and pay interest semiannually. The second priority senior secured floating rate notes bear interest at a rate equal to LIBOR plus 3.75% and pay interest quarterly. At September 30, 2009, the interest rate was 4.23%. The original principal amount of the senior subordinated notes was outstanding at September 30, 2009. These subordinated notes have a fixed interest rate of 11.375% and pay interest semi-annually. The second priority senior secured fixed rate and floating rate notes have the benefit of a second priority security interest in the collateral securing our senior secured credit facility, while the subordinated notes are unsecured.
Additionally, Verso Finance has $78.1 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 nine months ended September 30, 2009, the Company repurchased $41.4 million of the term loan for a total purchase price of $10.2 million, which resulted in a gain of $30.5 million, net of the write-off of unamortized debt issuance costs. The net gain is recognized in Other income on the condensed consolidated statement of operations. 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, or “PIK,” and added to the principal balance. The weighted-average interest rate in effect on September 30, 2009, was 6.78%. 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 has elected to exercise the PIK option for $8.0 million of interest payments due through September 30, 2009.
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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 $136.3 million; its shares were traded at around $2.62 with and P/S ratio of 0.1.
Highlight of Business Operations:
Cost of sales. Cost of sales, including depreciation, amortization, and depletion, decreased 11.4% to $371.8 million from $419.8 million in the third quarter of 2008, primarily reflecting lower input costs, which includes the effects of our expense reduction initiatives, and the decline in sales volume. Our gross margin, excluding depreciation, amortization, and depletion, was 14.2% for the third quarter of 2009 compared to 20.5% for the third quarter of 2008, reflecting lower average sales prices during the third quarter of 2009 and $5.3 million of unabsorbed costs resulting from almost 26,000 tons of market downtime taken in the third quarter of 2009. Depreciation, amortization, and depletion expenses were $33.3 million in the third quarter of 2009 compared to $33.8 million in the third quarter of 2008.Cost of sales. Cost of sales, including depreciation, amortization, and depletion, decreased 18.8% to $1,006.6 million for the nine months ended September 30, 2009, compared to $1,239.3 million for the same period last year, primarily reflecting the decline in sales volume and the effects of our expense reduction initiatives. Our gross margin, excluding depreciation, amortization, and depletion, was 7.5% for the first nine months of 2009, compared to 18.1% for the first nine months of 2008, reflecting lower average sales prices in 2009 and $70.1 million of unabsorbed costs resulting from almost 320,000 tons of market downtime taken in the first nine months of 2009 as we curtailed production in response to weak demand for coated papers. Depreciation, amortization, and depletion expenses were $100.6 million for the nine months ended September 30, 2009, compared to $100.7 million for the same period in 2008.
Net cash flows from operating activities. Net cash provided by operating activities was $59.2 million for the nine months ended September 30, 2009, compared to $19.7 million for the nine months ended September 30, 2008. The increase in net cash provided by operating activities is primarily due to improved performance with net income of $87.8 million for the nine months ended September 30, 2009, compared to net losses of $29.3 million for the nine months ended September 30, 2008. This increase in earnings includes $189.1 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. Partially offsetting this positive impact on cash flows from operating activities was the negative impact of changes in working capital in 2009, which included declines in accrued liabilities and accounts payable, primarily due to lower input costs, and an increase in accounts receivable, reflecting the recent improvement in sales and accruals for alternative fuel mixture tax credits.
Net cash flows from financing activities. For the nine months ended September 30, 2009, financing activities used net cash of $56.2 million reflecting principal payments of $297.9 million on long-term debt and $47.1 million in net 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. This compares to $1.1 million of net cash used in 2008 due to principal payments of $153.3 million on outstanding borrowings and dividends paid of $1.6 million offset by net proceeds of $153.7 million from the issuance of common stock.
During the nine months ended September 30, 2009, the Company repurchased and retired $12.9 million of Verso Holdings second priority senior secured fixed-rate notes due on August 1, 2014, for a total purchase price of $7.9 million, which resulted in a gain of $4.7 million, net of the write-off of unamortized debt issuance costs. During the nine months ended September 30, 2009, the Company repurchased and retired $61.8 million of Verso Holdings second priority senior secured floating-rate notes due on August 1, 2014, for a total purchase price of $30.1 million, which resulted in a gain of $30.2 million, net of the write-off of unamortized debt issuance costs. In addition, we de-designated the interest rate swap hedging interest payments on these notes and recognized losses of $1.3 million on the interest rate swap. The second priority senior secured fixed rate notes have a fixed interest rate of 9.125% and pay interest semiannually. The second priority senior secured floating rate notes bear interest at a rate equal to LIBOR plus 3.75% and pay interest quarterly. At September 30, 2009, the interest rate was 4.23%. The original principal amount of the senior subordinated notes was outstanding at September 30, 2009. These subordinated notes have a fixed interest rate of 11.375% and pay interest semi-annually. The second priority senior secured fixed rate and floating rate notes have the benefit of a second priority security interest in the collateral securing our senior secured credit facility, while the subordinated notes are unsecured.
Additionally, Verso Finance has $78.1 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 nine months ended September 30, 2009, the Company repurchased $41.4 million of the term loan for a total purchase price of $10.2 million, which resulted in a gain of $30.5 million, net of the write-off of unamortized debt issuance costs. The net gain is recognized in Other income on the condensed consolidated statement of operations. 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, or “PIK,” and added to the principal balance. The weighted-average interest rate in effect on September 30, 2009, was 6.78%. 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 has elected to exercise the PIK option for $8.0 million of interest payments due through September 30, 2009.
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