Verso Corporation (VRS)

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Verso Paper Corp. (VRS)

Q4 2009 Earnings Call Transcript

March 3, 2010 9:00 am ET

Executives

Bob Mundy – SVP and CFO

Mike Jackson – President and CEO

Analysts

Bill Hoffmann – RBC Capital Markets

Bruce Klein – Credit Suisse

Chip Dillon – Credit Suisse

Gary Madia [ph] – Broadpoint Research

Philip Worth [ph] – Zodian Capital Group [ph]

Eric Anderson – Hartford Financial

Richard Kus – Jefferies

Vy Noe [ph] – Oppenheimer

Jeff Harlib – Barclays Capital

Kevin Cohen – Imperial Capital

Presentation

Operator

Good day, everyone, and welcome to the Verso Paper Corporation fourth quarter and year-end earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the call 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 2009 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Mike Jackson, and myself, Bob Mundy, Senior Vice President and Chief Financial Officer.

Before turning the call over to Mike, 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 website, versopaper.com, under the Investor Relations tab. Mike?

Mike Jackson

Okay. Thanks, Bob, and good morning, everyone. If you could go to slide number three, we reported fourth quarter results of $84 million EBITDA as compared to $30 million in the fourth quarter of 2008 and $111 million for the third quarter of 2009.

On an adjusted basis, which primarily excluded $49.8 million of alternative fuel credits and a $7 million gain on early debt retirement, our results for the quarter were $32 million versus the same adjusted EBITDA last year and a third quarter ’09 result of $50 million.

The third quarter, as many of you know, is our strongest volume and earnings quarter. On the right hand side of the slide, you will see net earnings for the quarter of $18 million compared to a net loss of $34 million in 2008. On an adjusted basis, our net loss was $35 million versus $32 million for the fourth quarter of ’08.

On slide four, I’d like to make a few comments on the fourth quarter results. First of all, coated volume was 23% above Q4 of ’08 and down only a bit less than 2% from our seasonally strong third quarter numbers. This, by the way, is less than half of the normal seasonal decline that we would normally see during this period of time.

Although volume, as mentioned, was up 23% year-over-year, during the quarter, we still took downtime of 22,000 tons at a cost to the business of almost $5 million. This number was similar in scope to the downtime that we took in the third quarter, but 52,000 tons less downtime than we took in the fourth quarter of ’08.

Coated prices for the quarter continued to be under pressure, as they were down 3% from last quarter. Pulp prices, on the other hand, were up 18%. Certain key input prices reached an inflection point during the quarter. And on the whole, we see some costs increasing. I believe we indicated this point of inflection was coming during last quarter’s earning call. And you will see the specifics of these costs in a later slide that Bob will cover.

I mentioned the price of pulp going up by 18%. The impact of our pulp sales price versus our pulp purchase price was a net $2 million positive. We continue to manage our cash wisely, and our coated inventories were lower sequentially as well as year-over-year. Lastly, on this page, our liquidity improved by $104 million versus last quarter, and we had no outstanding revolver borrowings at year-end.

With that, I will turn it over to Bob for further details and then I’ll come back to wrap up 2009, spend a little bit of time reviewing our focus areas for 2010 and beyond, and give a brief view on the outlook for the first quarter of 2010. Bob?

Bob Mundy

Thanks Mike. Looking at slide five that gives you a view of the year-over-year changes for the fourth quarter of 2009 versus the fourth quarter of 2008. As Mike mentioned, volumes continue to improve as they were 93,000 tons higher this year versus last year’s fourth quarter. However, due to continued pressure, prices were down just over 17% versus last year or about $80 million.

Currently, prices are off just over 18% from the most recent peak, which is in the third quarter of 2008. Operations, input prices and SG&A are all favorable year-over-year and we continue to get good results in the freight and distribution area through our management of chart versus rail opportunities. Finally, we took significantly less downtime during the quarter, which had a favorable impact on less unabsorbed fixed costs compared to fourth quarter of 2008.

Turning to slide six, you can see the key changes between the third quarter of 2009 EBITDA of $50 million versus the fourth quarter of $32 million. Total volume was less than 2% below the seasonally strong third quarter. We said during our last call that coated prices will continue to be under pressure during the quarter, and a $5 million negative variance is primarily driven by coated prices being down just over 3% versus the third quarter.

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