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Verso Paper's Net Sales Down for Q2 2014, Closing of NewPage Acquisition Still on Track

August 14, 2014

MEMPHIS, TN—August 14, 2014—Verso Paper today reported financial results for the second quarter and six months ended June 30, 2014. Results for the quarters ended June 30, 2014 and 2013 include:

  • Net sales of $320.9 million in the second quarter of 2014 compared to $330.4 million in the second quarter of 2013.
  • Net loss before items of $34.3 million, or $0.64 per diluted share, in the second quarter of 2014, compared to net loss before items of $39.2 million, or $0.74 per diluted share, in the second quarter of 2013.
  • Adjusted EBITDA before pro forma effects of profitability program of $27.6 million in the second quarter of 2014, compared to $22.2 million in the second quarter of 2013.

Overview
Verso's net sales for the second quarter of 2014 decreased $9.5 million, or 2.9 percent, compared to the second quarter of 2013, reflecting a 4.2 percent decrease in average sales price per ton and a 1.4 percent increase in total sales volume. Prices for our pulp segment were higher while coated and other segment prices declined. Continued declines in the coated paper market were offset by operational and input price improvements.

"During the second quarter we experienced continued strength in the pulp and specialty paper segments of our business," said David Paterson, President and Chief Executive Officer of Verso. "We experienced double digit improvements in these segments over the previous year, and we expect them to remain strong into the third quarter of 2014. During the second quarter our coated papers segment continued to show weakness in both price and volumes on a year over year basis.

"On the operations side, we continued to reduce our costs utilizing our R-Gap process and managing our SG&A and capital costs. Finally, we continued to make good progress during the quarter on our proposed acquisition of NewPage."

Summary Results
Results of Operations—Comparison of the Second Quarter of 2014 to the Second Quarter of 2013:

Verso Paper 8.14 Chart
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Net Sales. Net sales for the second quarter of 2014 decreased 2.9 percent to $320.9 million from $330.4 million in the second quarter of 2013, reflecting a 4.2 percent decrease in average sales price per ton and a 1.4 percent increase in total sales volume.

Net sales for our coated papers segment decreased 10.9 percent in the second quarter of 2014 to $225.4 million from $253.1 million for the same period in 2013, due to a 6.0 percent decrease in paper sales volume and a 5.2 percent decline in average sales price per ton. The declines in sales volume and price were driven by declining demand for coated papers.

Net sales for our market pulp segment increased 20.1 percent in the second quarter of 2014 to $45.8 million from $38.2 million for the same period in 2013. Sales volume increased 16.1 percent due to additional sales of excess pulp at our Androscoggin mill driven by favorable market pulp prices. The average sales price per ton increased 3.5 percent compared to the second quarter of 2013.

Net sales for our other segment increased 26.6 percent to $49.7 million in second quarter of 2014 from $39.1 million in the second quarter of 2013. The overall increase was driven by a 32.8 percent increase in sales volume, partially offset by a 4.7 percent decrease in average sales price per ton.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $301.1 million in the second quarter of 2014 compared to $320.2 million in 2013, reflecting lower input prices and increased productivity associated with the deferral of annual maintenance outages at our mills. Our gross margin, excluding depreciation, amortization, and depletion, was 14.1 percent for the second quarter of 2014 compared to 11.0 percent for the second quarter of 2013. Depreciation, amortization, and depletion expenses were $25.4 million for the second quarter of 2014 compared to $26.3 million for the second quarter of 2013.

Selling, general, and administrative. Selling, general, and administrative expenses were $17.8 million in the second quarter of 2014 compared to $19.2 million for the second quarter of 2013.

Interest expense. Interest expense for the second quarter of 2014 was $35.7 million compared to $34.4 million for the same period in 2013.

Other loss, net. Other loss, net for the second quarter of 2014 was $9.1 million and reflected costs incurred in connection with the NewPage acquisition. Other loss, net of $0.1 million for the same period in 2013 reflected losses related to debt refinancing.

Results of Operations—Comparison of First Six Months of 2014 to the First Six Months of 2013:
Verso Chart 2
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Net Sales. Net sales for the six months ended June 30, 2014, decreased 6.6 percent to $620.0 million from $663.6 million for the six months ended June 30, 2013, reflecting a 3.6 percent decline in total sales volume and a 3.1 percent decrease in average sales price per ton compared to the same period last year.

Net sales for our coated papers segment decreased 11.9 percent for the six months ended June 30, 2014 to $443.7 million from $503.6 million for the same period in 2013, due to a 7.4 percent decline in paper sales volume. The average sales price per ton of coated paper decreased 4.9 percent compared to the same period last year.

Net sales for our market pulp segment increased 8.9 percent for the six months ended June 30, 2014 to $82.0 million from $75.4 million for the same period in 2013. The average sales price per ton increased 8.3 percent compared to the same period last year due to improved market conditions. Sales volume increased 0.5 percent compared to the six months ended June 30, 2013.

Net sales for our other segment increased 11.3 percent to $94.3 million for the six months ended June 30, 2014 from $84.6 million for the six months ended June 30, 2013. Sales volume increased 15.8 percent for the six months ended June 30, 2014 compared to the same period last year, while the average sales price decreased 3.9 percent compared to the six months ended June 30, 2013.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $629.1 million in the six months ended June 30, 2014 compared to $638.0 million in 2013. Our gross margin, excluding depreciation, amortization, and depletion, was 6.8 percent for the six months ended June 30, 2014 compared to 11.7 percent for the six months ended June 30, 2013, reflecting higher average sales prices in 2013. Depreciation, amortization, and depletion expenses were $51.1 million for the six months ended June 30, 2014 compared to $52.3 million for the six months ended June 30, 2013.

Selling, general, and administrative. Selling, general, and administrative expenses were $35.4 million in the six months ended June 30, 2014 compared to $38.0 million in 2013 as a result of decreased incentive compensation in light of declining operating performance.

Restructuring charges. Restructuring charges for the six months ended June 30, 2013 were $1.2 million and consisted primarily of facility operations and personnel costs for the former Sartell mill site through the date of sale.

Other operating income. Other operating income for the six months ended June 30, 2013 was $4.0 million and consisted of the gain on the sales of the former Sartell mill and the assets of Verso Fiber Farm LLC.

Interest expense. Interest expense for the six months ended June 30, 2014 was $70.2 million compared to $69.1 million for the same period in 2013.

Other loss, net. Other loss, net was $18.7 million for the six months ended June 30, 2014 and reflected costs incurred in connection with the NewPage acquisition. Other loss, net of $2.7 million for the same period in 2013 reflected losses related to debt refinancing.

About Verso

Verso Paper Corp. is a leading North American producer of coated papers, including coated groundwood and coated freesheet, and specialty products. Verso is headquartered in Memphis, Tennessee, and owns three paper mills located in Maine and Michigan. 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.

Source: Verso Paper Corp.

 

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