Verso Paper Corp. (VRS)

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Verso Paper Corporation (VRS)

Q4 2012 Earnings Call

March 7, 2013 9:00 AM ET

Executives

Bob Mundy – SVP and CFO

Dave Paterson – CEO

Analysts

Joe Stivaletti – Goldman Sachs

Kevin Cohen – Imperial Capital

Tarek Hamid – JPMorgan

Richard Kus – Jefferies

Phillip Rabara – RBS Capital

Jeff Harlib – Barclays

Melissa Tan – R. W. Pressprich

Presentation

Operator

Please standby, we’re about to begin. Good day and welcome to the Verso Paper Corporation Fourth Quarter 2012 Earnings Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Robert Mundy, Senior Vice President and Chief Financial Officer. Please go ahead sir.

Bob Mundy

Thank you. Good morning and thank you for joining Verso Paper’s fourth quarter 2012 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Dave Paterson; and myself, Robert Mundy, Senior Vice President and Chief Financial Officer.

Before turning the call over to Dave, I’d like to remind everyone that in the course of this call, in order to give you a better understanding of our performance, we will be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from management’s expectations. If you would like further information regarding the various risks and uncertainties associated with our business, please refer to our various SEC filings, which are posted on our web site versopaper.com under the Investor Relations tab.

Dave?

Dave Paterson

Good morning and thank you for being on the call this morning. I’m going to start on page three, fourth quarter 2012 overview. Of course, the quarter was impacted by seasonal factors as our volume was 3% lower than our stronger third quarter, but volume was flat year-over-year basis 4Q 2011 when you take out the idle or closed mill at Sartell as well as Bucksport No. 2 paper machine.

Coated paper prices were sequentially higher. Our inventories are in very good shape at year-end and as we go into the first quarter 2013. Our biggest obstacle right now in terms of operational obstacles is the cost of gas in the state of Maine. This is not the base price of the gas, but actually the cost to deliver the gas, which is seasonally impacted by cold weather in the state of Maine as the state of Maine has a restricted pipeline capacity issue.

We began the process of selling the remaining assets of our Sartell Mill including the Fiber Farm, and the Fiber Farm sale was completed in February of this year. Our Bucksport energy project has started and is doing well. And at year-end, our liquidity was $204 million.

Bob back to you.

Bob Mundy

Thanks, Dave. If you turn to slide four, our overall volume for the quarter was about 90,000 tons below last year’s levels, which is about the same amount of coated groundwood and supercalendered volume we had last year, that has since been permanently closed. Volumes were 13,000 tons below the seasonally stronger third quarter. Similarly, revenues were below last year’s levels primarily due to the volume that we had shut down.

However, if you note on the bottom left hand side, the adjusted EBITDA of $41 million, although down from the $48 million in the fourth quarter of 2011, 2012 reflects a margin almost 1 percentage point higher than last year, which represents some of the improvement resulting from our shutdown of higher cost capacity at Bucksport and Sartell.

Turning to slide five, coated volumes were seasonally lower versus the third quarter and down versus last year’s four quarter, however, last year includes about 45,000 tons of coated groundwood from machines that we have since permanently closed. Overall, our coated – average coated prices were up slightly from the third quarter. However, this was a bit of mixed bag as coated groundwood prices were up, while coated freesheet prices were slightly lower.

Good pulp volume for the quarter. And although pulp prices were lower, over the last few months there have been a series of price increase announcements, so we will see higher prices for our pulp sales in the first quarter of this year.

Turning to slide six, you can see the key changes between our fourth quarter of 2012 adjusted EBITDA of $41 million versus the $48 million in the fourth quarter of 2011. Volume was off about $3 million and price mix about $9 million or bit over $22 per ton.

Operations were favorable, $9 million. A large portion of these improvements reflects the R Gap initiatives and the direct and indirect cost areas as well as the benefits from the Quinnesec renewable energy project and other energy related projects that you heard us talk about in the past.

Although, we did start up the new Bucksport Mill renewable energy project late in the quarter, we are working through some performance issues that will somewhat slow down our cost savings benefit and push more of that into 2013. Higher gas prices, as Dave just mentioned, particularly in the last several weeks of the year, drove the unfavorable input price variance.

Slide seven gives you a view of the adjusted EBITDA changes between the fourth quarter of 2012 and the third quarter of 2012. As you can see all the bridge components are fairly flat between these two quarters with the exception of input prices. And again, it’s specifically the energy component of this area. And although, we had expected higher prices especially at the mills up in Maine, the actual costs were above our expectations.

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