Verso Paper Corp. (VRS)

VRS 
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Verso Paper Corp. (VRS)

Q2 2011 Earnings Conference Call

August 11, 2011 9:00 AM ET

Executives

Robert Mundy - SVP and CFO

Mike Jackson - President and CEO

Analysts

James Armstrong - Vertical Research Partners

Joe Stivaletti - Goldman Sachs

James Daly - Deutsche Bank

Bruce Klein - Credit Suisse

Tariq Hamid - JPMorgan

Jeff Harlib - Barclays Capital

Richard Kus - Jefferies & Company

Bill Hoffmann - RBC Capital Markets

Gary Madia - Gleacher & Company

Roger Spitz - Bank of America Merrill Lynch

Michael Marczak - UBS

David Ross - Citi

Philip Birbara - RBS

Presentation:

Operator

Good day and welcome to the Verso Paper Corporation Second Quarter 2011 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

Good morning and thank you for joining Verso Paper's second quarter 2011 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 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

Thanks, Bob and good morning, everyone. Thanks for taking the time to join us today. If you could go to slide 3, Verso had adjusted EBITDA of $$4 million or $21 million better than second quarter of 2010. This number was also limited due to scheduled second quarter maintenance outages that impacted our EBITDA by a negative $5 million.

Operating income was $7 million versus a loss of $13 million last year considering some significant input cost pressures, we have continued with our positive quarterly operating results for the fourth consecutive quarter.

Our six month operating earnings were $21 million versus a $34 million loss with the same period in 2010 or $55 million swing. We again saw our price, sales price continued to move in a favorable direction both from a year-over-year in sequential basis. Total paper price net improvement from the first quarter was $31 a ton and that was $124 a ton better than last year.

Coated paper prices were $118 a ton above last year. This continued movement in price was supported by first half market data which showed magazine ad pages up 1.3% year-over-year and catalog mailings up 0.3% over last year.

As we mentioned, we had two major mills down for planned maintenance outages. We were very pleased that they were completed not only on time, certainly on budget, but more importantly during the time, we completed several projects that dealt with some significant and important cost control items. These outages were at our Quinnesec and Androscoggin facilities. And in spite of the outages, Quinnesec set a new record for break loss time in winder quality, while Andro established new daily and monthly craft in groundwood efficiency records as well.

Bob will discuss the details of our input cost a bit later, but clearly everybody on the call knows that it has been a challenge. We have mentioned also for at least the last six months that we needed to build both coated free sheet and coated freesheet and coated groundwood inventory with the busier third and fourth quarters.

You will clearly see this in our financials, but that build of tons is within our acceptable targeted levels and certainly we did have an increase in working capital and the increase is really a combination of those targeted increased levels on a ton basis as well as the fact that has increased cost value of the tons that we produced.

Lastly, before I turn it over to Bob, our safety performance, which we have talked about over the last few years, continues to have results that put us in the first quartile of all U.S. industries and this of course has both short and long-term positive cost inflation for our business.

So with that, I will turn it over to Bob and then I will be back to give you a view as we normally do of what the third quarter looks like from both the market and operating in a cost perspective. Bob?

Robert Mundy

Thanks Mike. If you turn to slide 4 as we mentioned on our last call, volume for the second quarter would be down we said I think between 10% and 15% versus last year and it ended up down 12%. Last year was one of our strongest second quarters from the volumes perspective, as the industry was recovering from the recession and as Mike mentioned, we need to build some inventory to meet the expected demand of the upcoming third and fourth quarters.

Some of this inventory build was necessary due to a very strong sales volume in the first quarter of this year, the second highest in our history. However, revenues were essentially flat with last year as prices were up 13% year-over-year. Sequentially, revenues were down from the lower volumes although prices were a bit over 3% higher. Operating income for the quarter was a positive $7 million versus a $13 million loss last year.

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