Verso Paper Corp. (VRS)

VRS 
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Verso Paper Corp. (VRS)

Q2 2010 Earnings Call

August 11, 2010 9:00 AM ET

Executives

Robert Mundy – Senior Vice President and CFO

Mike Jackson – President and CEO

Analysts

Bill Hoffmann – RBC Capital Markets

Claudia Hueston – JPMorgan

Tarek Hamid – JPMorgan

Kevin Cohen – Imperial Capital

Joe Stivaletti – Goldman Sachs

Bruce Klein – Credit Suisse

Sandy Burns – Sterne Agee

Jeff Harlib – Barclays Capital

Troy Gold – Oppenheimer

Richard Kus – Jefferies

James Daly – Deutsche Bank

Chip Dillon – Credit Suisse

Eric Anderson – Hartford Financial

James Eustice – ALJ Capital

Roger Spitz – Bank of America/Merrill Lynch

Sara Karim – Kingdom Capital

Allen Chachkes – ING

Presentation

Operator

Good day, everyone. And welcome to the Verso Paper Corporation’s Second Quarter 2010 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.

Robert Mundy

Thanks, Lisa. Good morning. And thank you for joining Verso Paper’s second quarter 2010 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Mike Jackson, and myself, Robert 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’d 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

Thanks, Bob and good day, everyone. If you could go to page three, beginning with the volume graphs on the left, you can see that our second quarter volume was very strong. Year-over-year total Verso volume was up almost 36% and up 7% from the first quarter of 2010. Sales were up $37 million or 10% from Q1 and up almost 35% from the second quarter of ‘09.

Adjusted EBITDA was a positive $23 million, which was $32 million better than the second quarter of 2009 and $10 million better than this year’s first quarter.

Beginning now on page four, we will go into some of the specifics that drove the quarterly results and some of the other key second quarter items. As mentioned in our last call, we expected March prices to set the bar and that was the case, as prices in March slowly improved throughout the quarter.

As a reminder, we announced the $30 a ton increase for April on all grades and a $40 increase for coated freesheet and $60 increase for coated groundwood and SC for June. Total pricing was up over 3% from the first quarter, driven by both paper and pulp increases.

Realization of our paper price announcements, although, only seen slightly in our second-quarter numbers, will gain further impact in the third quarter and into the fourth. Second-quarter coated volume-only numbers were up 41% year-over-year and up 4% from the first quarter.

Year-to-date, our shipments for coated freesheet number three and coated groundwood number four and number five are up 39% as compared to industry numbers for coated freesheet number three of 32% and coated mechanical of a little over 19%. Our mills’ performance for the first time in over 13 quarters was below average.

We had two mill maintenance outages and a sub power performance in the month of June drove the majority of that shortfall. We expect the mills to be back on track in the third quarter. And in spite of the two planned mill outages and below average performance, our R-Gap savings are still on track for the year.

Input prices were positive for us in the second quarter, if you exclude the price of pulp. That equated to about $2 million better than the first quarter of 2010. If you added pulp back in, overall input prices were only slightly higher.

Our liquidity continues to be in good shape. And it has improved significantly year over year. It also improved over the first quarter this year which certainly supported, we believe, the decision by S&P in April to raise ratings on all of our debt.

For those who follow us, you know that we always have done a good job on working capital management. And for the quarter, we had a $28 million improvement.

Of particular importance was that, during the difficult times of 2009, we got even better at improving our working capital processes. That work has positively impacted our management of raw materials and our MRO inventory and it certainly showed in this quarter.

One more thing before I hand it back to Bob for some financial details, at the end of June, we, along with many community and governmental authorities, announced an energy project at our Quinnesec mill. This $43 million project falls within our CapEx budget that we committed to for 2010. The total cost of this initiative will be much lower than this as we feel very confident about receiving various grants and other incentives to lower our cash outlay to complete this project.

The project will reduce our costs at this facility by over $15 million a year while, at the same time, reducing our CO2 levels and drive the mills to very high levels of self-sufficiency, which will make a great asset even better. Our outside purchase of electricity will drop by 24 MW per year. So with that, I will hand it back to Bob.

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