a5955731.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended March 31,
2009
|
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the transition period from __________ to
__________
|
Commission
file number: 333-148201
Verso
Paper Corp.
(Exact
name of registrant as specified in its charter)
Delaware
|
75-3217389
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
|
|
6775
Lenox Center Court, Suite 400
|
|
Memphis,
Tennessee 38115-4436
|
(901)
369-4100
|
(Address
of principal executive offices) (Zip Code)
|
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
__ü__
No _____
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ____
|
Accelerated
filer _____
|
Non-accelerated
filer ü
(Do
not check if a smaller
reporting
company)
|
Smaller
reporting company
_____
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
______ No __ü__
As of
April 30, 2009, the registrant had 52,046,647 outstanding shares of common
stock, par value $0.01 per share.
TABLE
OF CONTENTS
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21
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30
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32
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33
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33
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33
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33
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33
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33
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34
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35
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36
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|
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
16,993 |
|
|
$ |
119,542 |
|
Accounts
receivable - net
|
|
|
147,501 |
|
|
|
74,172 |
|
Accounts
receivable from related parties
|
|
|
7,553 |
|
|
|
8,312 |
|
Inventories
|
|
|
224,411 |
|
|
|
195,934 |
|
Prepaid
expenses and other assets
|
|
|
5,761 |
|
|
|
2,512 |
|
Total
Current Assets
|
|
|
402,219 |
|
|
|
400,472 |
|
Property,
plant, and equipment - net
|
|
|
1,095,807 |
|
|
|
1,115,990 |
|
Reforestation
|
|
|
12,657 |
|
|
|
12,725 |
|
Intangibles
and other assets - net
|
|
|
84,063 |
|
|
|
88,513 |
|
Goodwill
|
|
|
18,695 |
|
|
|
18,695 |
|
Total
Assets
|
|
$ |
1,613,441 |
|
|
$ |
1,636,395 |
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
85,517 |
|
|
$ |
118,920 |
|
Accounts
payable to related parties
|
|
|
3,830 |
|
|
|
4,135 |
|
Accrued
liabilities
|
|
|
90,628 |
|
|
|
125,565 |
|
Current
maturities of long-term debt
|
|
|
2,850 |
|
|
|
2,850 |
|
Total
Current Liabilities
|
|
|
182,825 |
|
|
|
251,470 |
|
Long-term
debt
|
|
|
1,345,036 |
|
|
|
1,354,821 |
|
Other
liabilities
|
|
|
41,866 |
|
|
|
40,151 |
|
Total
Liabilities
|
|
|
1,569,727 |
|
|
|
1,646,442 |
|
Commitments
and contingencies (Note 12)
|
|
|
- |
|
|
|
- |
|
Stockholders'
Equity (Deficit):
|
|
|
|
|
|
|
|
|
Preferred
stock -- par value $0.01 (20,000,000 shares authorized, no shares
issued)
|
|
|
- |
|
|
|
- |
|
Common
stock -- par value $0.01 (250,000,000 shares authorized with
52,046,647
|
|
|
|
|
|
shares
issued and outstanding on March 31, 2009 and on December 31,
2008)
|
|
|
520 |
|
|
|
520 |
|
Paid-in-capital
|
|
|
211,838 |
|
|
|
211,752 |
|
Retained
deficit
|
|
|
(125,505 |
) |
|
|
(180,048 |
) |
Accumulated
other comprehensive loss
|
|
|
(43,139 |
) |
|
|
(42,271 |
) |
Total
Stockholders' Equity (Deficit)
|
|
|
43,714 |
|
|
|
(10,047 |
) |
Total
Liabilities and Stockholders' Equity
|
|
$ |
1,613,441 |
|
|
$ |
1,636,395 |
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
(In
thousands of U.S. dollars, except per share data)
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
287,074 |
|
|
$ |
453,907 |
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of products sold - (exclusive of
|
|
|
|
|
|
|
|
|
depreciation,
amortization, and depletion)
|
|
|
268,940 |
|
|
|
375,402 |
|
Depreciation,
amortization, and depletion
|
|
|
34,323 |
|
|
|
32,188 |
|
Selling,
general, and administrative expenses
|
|
|
15,387 |
|
|
|
14,194 |
|
Restructuring
and other charges
|
|
|
171 |
|
|
|
1,718 |
|
Operating
income (loss)
|
|
|
(31,747 |
) |
|
|
30,405 |
|
Interest
income
|
|
|
(58 |
) |
|
|
(191 |
) |
Interest
expense
|
|
|
27,085 |
|
|
|
33,716 |
|
Other
income, net
|
|
|
(113,317 |
) |
|
|
- |
|
Net
income (loss)
|
|
$ |
54,543 |
|
|
$ |
(3,120 |
) |
Earnings
(loss) per share
|
|
$ |
1.05 |
|
|
$ |
(0.08 |
) |
Weighted
average common shares
|
|
|
|
|
|
|
|
|
outstanding
- basic and diluted
|
|
|
52,046,647 |
|
|
|
38,046,647 |
|
|
|
|
|
|
|
|
|
|
Included
in the financial statement line items
|
|
|
|
|
|
|
|
|
above
are related-party transactions as follows
|
|
|
|
|
|
|
|
|
(Notes
10 and 11):
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
26,780 |
|
|
$ |
36,189 |
|
Purchases
included in cost of products sold
|
|
|
1,120 |
|
|
|
1,039 |
|
Restructuring
and other charges
|
|
|
- |
|
|
|
847 |
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
|
FOR
THE PERIODS ENDED MARCH 31, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in-
|
|
|
Retained
|
|
|
Income
|
|
|
Total
|
|
(In
thousands)
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
Beginning
balance - January 1, 2008
|
|
|
38,046 |
|
|
$ |
380 |
|
|
$ |
48,489 |
|
|
$ |
(114,100 |
) |
|
$ |
(9,870 |
) |
|
$ |
(75,101 |
) |
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,120 |
) |
|
|
- |
|
|
|
(3,120 |
) |
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains on derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
instruments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,011 |
|
|
|
3,011 |
|
Defined
benefit pension plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
service cost amortization
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
218 |
|
|
|
218 |
|
Total
other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,229 |
|
|
|
3,229 |
|
Comprehensive
income (loss)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,120 |
) |
|
|
3,229 |
|
|
|
109 |
|
Equity
award expense
|
|
|
- |
|
|
|
- |
|
|
|
77 |
|
|
|
- |
|
|
|
- |
|
|
|
77 |
|
Ending
balance - March 31, 2008
|
|
|
38,046 |
|
|
$ |
380 |
|
|
$ |
48,566 |
|
|
$ |
(117,220 |
) |
|
$ |
(6,641 |
) |
|
$ |
(74,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance - January 1, 2009
|
|
|
52,046 |
|
|
$ |
520 |
|
|
$ |
211,752 |
|
|
$ |
(180,048 |
) |
|
$ |
(42,271 |
) |
|
$ |
(10,047 |
) |
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
54,543 |
|
|
|
- |
|
|
|
54,543 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized losses on derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial
instruments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,165 |
) |
|
|
(1,165 |
) |
Defined
benefit pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
79 |
|
Prior
service cost amortization
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
218 |
|
|
|
218 |
|
Total
other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(868 |
) |
|
|
(868 |
) |
Comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
54,543 |
|
|
|
(868 |
) |
|
|
53,675 |
|
Equity
award expense
|
|
|
- |
|
|
|
- |
|
|
|
86 |
|
|
|
- |
|
|
|
- |
|
|
|
86 |
|
Ending
balance - March 31, 2009
|
|
|
52,046 |
|
|
$ |
520 |
|
|
$ |
211,838 |
|
|
$ |
(125,505 |
) |
|
$ |
(43,139 |
) |
|
$ |
43,714 |
|
See
notes to unaudited condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
54,543 |
|
|
$ |
(3,120 |
) |
Adjustments
to reconcile net income (loss) to
|
|
|
|
|
|
|
|
|
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation,
amortization, and depletion
|
|
|
34,323 |
|
|
|
32,188 |
|
Amortization
of debt issuance costs
|
|
|
1,502 |
|
|
|
1,703 |
|
Gain
on early extinguishment of debt
|
|
|
(8,903 |
) |
|
|
- |
|
Loss
on disposal of fixed assets
|
|
|
56 |
|
|
|
117 |
|
Equity
award expense
|
|
|
86 |
|
|
|
77 |
|
Increase
in derivatives, net
|
|
|
(1,165 |
) |
|
|
- |
|
Other
- net
|
|
|
104 |
|
|
|
2,764 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(72,569 |
) |
|
|
(14,076 |
) |
Inventories
|
|
|
(33,143 |
) |
|
|
(16,986 |
) |
Prepaid
expenses and other assets
|
|
|
(2,676 |
) |
|
|
(5,114 |
) |
Accounts
payable
|
|
|
(29,006 |
) |
|
|
(2,284 |
) |
Accrued
liabilities
|
|
|
(30,229 |
) |
|
|
(21,396 |
) |
Net
cash used in operating activities
|
|
|
(87,077 |
) |
|
|
(26,127 |
) |
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of fixed assets
|
|
|
14 |
|
|
|
- |
|
Capital
expenditures
|
|
|
(11,918 |
) |
|
|
(12,816 |
) |
Net
cash used in investing activities
|
|
|
(11,904 |
) |
|
|
(12,816 |
) |
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Repayments
of long-term debt
|
|
|
(3,568 |
) |
|
|
(713 |
) |
Short-term
borrowings
|
|
|
- |
|
|
|
850 |
|
Net
cash provided by (used in) financing activities
|
|
|
(3,568 |
) |
|
|
137 |
|
Change
in cash and cash equivalents
|
|
|
(102,549 |
) |
|
|
(38,806 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
119,542 |
|
|
|
58,533 |
|
Cash
and cash equivalents at end of period
|
|
$ |
16,993 |
|
|
$ |
19,727 |
|
|
|
|
|
|
|
|
|
|
See
notes to unaudited condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2009,
AND DECEMBER 31, 2008, AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2009 AND
2008
1. BACKGROUND
AND BASIS OF PRESENTATION
The
accompanying consolidated financial statements include the accounts of Verso
Paper Corp., a Delaware corporation, and its subsidiaries. Unless
otherwise noted, the terms “Verso,” “Verso Paper,” “Company,” “we,” “us,” and
“our” refer collectively to Verso Paper Corp. and its subsidiaries.
The
Company began operations on August 1, 2006, when it acquired the assets and
certain liabilities comprising the business of the Coated and Supercalendered
Papers Division of International Paper Company, or "International
Paper." The Company was formed by affiliates of Apollo Management,
L.P., or “Apollo,” for the purpose of consummating the acquisition from
International Paper, or the “Acquisition.” Verso Paper Corp. went
public on May 14, 2008, with an initial public offering, or “IPO," of
14 million shares of common stock at a price of $12 per share which
generated $152.2 million in net proceeds. Prior to the consummation
of the offering, the accompanying financial statements include the accounts of
Verso Paper One Corp., Verso Paper Two Corp., Verso Paper Three Corp., Verso
Paper Four Corp., and Verso Paper Five Corp., legal entities under the common
control of Verso Paper Management LP.
Verso
Paper Corp. is the indirect parent of Verso Paper Finance Holdings LLC, or
“Verso Finance,” and Verso Paper Holdings LLC, or “Verso Holdings,” and is a
direct subsidiary of Verso Paper Management LP. Verso Paper Corp. is
a holding company whose subsidiaries operate in the following three segments:
coated and supercalendered papers; hardwood market pulp; and other, consisting
of specialty industrial paper. The Company’s core business platform
is as a producer of coated freesheet, coated groundwood, and uncoated
supercalendered papers. These products serve customers in the
catalog, magazine, inserts, and commercial print markets.
Included
in this report are the unaudited condensed consolidated financial statements
of the Company as of March 31, 2009, and December 31, 2008, and
for the three months ended March 31, 2009 and 2008. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements include all adjustments that are necessary for the fair presentation
of the Company's financial position, results of operations, and cash flows
for the interim periods presented. Except as disclosed in the notes
to the unaudited condensed consolidated financial statements, such adjustments
are of a normal, recurring nature. All material intercompany balances and
transactions are eliminated. Results for the three-month periods ended March 31,
2009 and 2008, may not necessarily be indicative of full-year
results. It is suggested that these financial statements be read in
conjunction with the Company’s audited consolidated and combined financial
statements and notes thereto as of December 31, 2008, and for the year then
ended.
2. RECENT
ACCOUNTING DEVELOPMENTS
Fair Value of
Financial Instruments—In April 2009, the Financial Accounting Standards
Board, or “FASB,” issued FASB Staff Position on SFAS No. 107 and APB No. 28, or
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which increases the frequency of fair value
disclosures to a quarterly basis instead of an annual basis. The
guidance relates to fair value disclosures for any financial instruments that
are not currently reflected on the balance sheet at fair value. FSP
FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after
June 15, 2009. Since FSP FAS 107-1 and APB 28-1 only addresses new disclosure
requirements, the adoption of FSP FAS 107-1 and APB 28-1 will have no impact on
our financial condition, results of operations, or cash flows.
Postretirement
Benefit Plan Assets—In December 2008, the FASB issued FSP FAS 132(R)-1,
Employers’ Disclosure about
Postretirement Benefit Plan Assets, which amends SFAS No. 132(R) to
require more detailed disclosures about employers’ pension plan
assets. New disclosures will include more information on investment
strategies, major categories of plan assets, concentrations of risk within plan
assets and valuation techniques used to measure the fair value of plan
assets. FSP FAS 132(R)-1 is effective for fiscal years ending after
December 15, 2009. Since FSP FAS 132(R)-1 only addresses new
disclosure requirements, the adoption of FSP FAS 132(R)-1 will have no impact on
our financial condition, results of operations, or cash flows.
Intangible
Assets—In April
2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets, which provides guidance on the renewal or extension
assumptions used in the determination of the useful life of a recognized
intangible asset. The intent of FSP FAS 142-3 is to better match the
useful life of the recognized intangible asset to the period of the expected
cash flows used to measure its fair value. FSP FAS 142-3 is effective
for fiscal years and interim periods beginning after December 15,
2008. The adoption of FSP FAS 142-3 did not have a material impact on
our financial condition, results of operations, or cash flows.
Derivatives and
Hedging Activities— In March 2008, the FASB, issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 changes the
disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for fiscal years and interim periods beginning after November 15,
2008. Since SFAS No. 161 only addresses disclosure requirements, the
adoption of SFAS No. 161 had no impact on our financial condition, results of
operations, or cash flows.
Business
Combinations—In December 2007, the FASB issued SFAS No. 141 (revised
2007), Business
Combinations. SFAS No. 141-R establishes principles and
requirements for how an acquirer recognizes and measures identifiable assets
acquired, liabilities assumed and noncontrolling interests; recognizes and
measures goodwill acquired in a business combination or gain from a bargain
purchase; and establishes disclosure requirements. SFAS No. 141-R is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company will apply the provisions of SFAS No.
141-R to any future acquisitions.
Noncontrolling
Interests—In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51. SFAS No. 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This standard is effective, on a
prospective basis, for fiscal years and interim periods beginning on or after
December 15, 2008. The presentation and disclosure requirements for
existing minority interests should be applied retrospectively for all periods
presented. The adoption of SFAS No. 160 did not have a material
impact on our financial condition, results of operations, or cash
flows.
Fair Value Option
for Financial Assets and Financial Liabilities—In February 2007, the FASB
issued SFAS No. 159, Fair
Value Option for Financial Assets and Financial Liabilities—including an
amendment of FASB Statement No. 115, which permits an entity to measure
certain financial assets and financial liabilities at fair value. The
Statement’s objective is to improve financial reporting by allowing entities to
mitigate volatility in reported earnings caused by the measurement of related
assets and liabilities using different attributes, without having to apply
complex hedge accounting provisions. The Statement was effective as
of the beginning of an entity’s fiscal year beginning after November 15,
2007. The adoption of SFAS No. 159 did not have a material impact on
our financial condition, results of operations, or cash flows.
Fair Value
Measurements—In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS No. 157 addresses how to measure fair
value (not what to measure at fair value) and, applies, with limited exceptions,
to existing standards that require assets and liabilities to be measured at fair
value. SFAS No. 157 establishes a fair value hierarchy, giving
the highest priority to quoted prices in active markets and the lowest priority
to unobservable data and requires new disclosures for assets and liabilities
measured at fair value based on their level in the hierarchy. SFAS
No. 157 was effective for financial statements issued for fiscal years
beginning after November 15, 2007. However, FSP 157-2, Effective Date of FASB Statement No.
157, delayed the implementation of SFAS No. 157 for nonfinancial assets
and nonfinancial liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis, to fiscal years
beginning after November 15, 2008. The adoption of SFAS No. 157 did
not have a material impact on our financial condition, results of operations, or
cash flows.
Other new
accounting pronouncements issued but not effective until after March 31, 2009,
are not expected to have a significant effect on our financial condition,
results of operations, or cash flows.
3. SUPPLEMENTAL
FINANCIAL STATEMENT INFORMATION
Earnings Per
Share—The Company computes earnings per share by dividing net income
(loss) by the weighted average number of common shares outstanding for each
period. Diluted earnings per share are calculated similarly, except
that it includes the dilutive effect of the assumed exercise of potentially
dilutive securities. At March 31, 2009, potentially dilutive
securities included options for 152,233 shares. These equity awards
were excluded from the computation of diluted earnings per share due to the
antidilutive effect such shares would have on net income per common
share.
Inventories and
Replacement Parts and Other Supplies—Inventory values include all costs
directly associated with manufacturing products: materials, labor, and
manufacturing overhead. These values are presented at the lower of
cost or market. Costs of raw materials, work-in-progress, and
finished goods are determined using the first-in, first-out
method. Replacement parts and other supplies are stated using the
average cost method and are reflected in Intangibles and other assets on the
balance sheet (see Note 4).
Inventories
by major category include the following:
|
|
March
31,
|
|
|
December
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
Raw
materials
|
|
$ |
34,855 |
|
|
$ |
29,858 |
|
Woodyard
logs
|
|
|
11,712 |
|
|
|
7,970 |
|
Work-in-process
|
|
|
25,080 |
|
|
|
19,001 |
|
Finished
goods
|
|
|
126,397 |
|
|
|
113,050 |
|
Replacement
parts and other supplies
|
|
|
26,367 |
|
|
|
26,055 |
|
Inventories
|
|
$ |
224,411 |
|
|
$ |
195,934 |
|
Asset Retirement
Obligations—In accordance with the provisions of SFAS No. 143, Accounting for Asset Retirement
Obligations, a liability and an asset are recorded equal to the present
value of the estimated costs associated with the retirement of long-lived assets
where a legal or contractual obligation exists. The liability is
accreted over time, and the asset is depreciated over its useful
life. The Company’s asset retirement obligations under this standard
relate to closure and post-closure costs for landfills. Revisions to
the liability could occur due to changes in the estimated costs or timing of
closure or possible new federal or state regulations affecting the
closure.
On March
31, 2009, the Company had $0.8 million of restricted cash included in Other
assets in the accompanying condensed consolidated balance sheet
related to an asset retirement obligation in the state of
Michigan. This cash deposit is required by the state and may only be
used for the future closure of a landfill. The following table
presents an analysis related to the company’s asset retirement obligations
included in Other liabilities in the accompanying balance sheets:
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
Asset
retirement obligations, January 1
|
|
$ |
14,028 |
|
|
$ |
11,614 |
|
New
liabilities
|
|
|
- |
|
|
|
1,091 |
|
Accretion
expense
|
|
|
202 |
|
|
|
156 |
|
Settlement
of existing liabilities
|
|
|
(61 |
) |
|
|
(159 |
) |
Adjustment
to existing liabilities
|
|
|
611 |
|
|
|
2,273 |
|
Asset
retirement obligations, March 31
|
|
$ |
14,780 |
|
|
$ |
14,975 |
|
In
addition to the above obligations, the Company may be required to remove certain
materials from its facilities, or to remediate in accordance with current
regulations that govern the handling of certain hazardous or potentially
hazardous materials. At this time, any such obligations have an
indeterminate settlement date, and the Company believes that adequate
information does not exist to estimate any such potential
obligations. Accordingly, the Company will record a liability for
such remediation when sufficient information becomes available to estimate the
obligation.
Property, Plant,
and Equipment—Property, plant, and equipment is stated at cost, net of
accumulated depreciation. Interest is capitalized on projects meeting certain
criteria and is included in the cost of the assets. The capitalized
interest is depreciated over the same useful lives as the related
assets. Expenditures for major repairs and improvements are
capitalized, whereas normal repairs and maintenance are expensed as
incurred. For the three months ended March 31, 2009 and 2008,
interest costs of $0.2 million and $0.5 million, respectively were
capitalized.
Depreciation
is computed using the straight-line method over the assets’ estimated useful
lives. Depreciation expense was $31.5 million and $30.5 million,
respectively, for the three months ended March 31, 2009 and 2008.
4. INTANGIBLES
AND OTHER ASSETS
Intangibles
and other assets consist of the following:
|
|
March
31,
|
|
|
December
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
Amortizable
intangible assets:
|
|
|
|
|
|
|
Customer
relationships - net of accumulated amortization of $3.6 million
and
|
|
|
|
|
|
|
$3.3
million, respectively
|
|
$ |
9,695 |
|
|
$ |
10,020 |
|
Patents
- net of accumulated amortization of $0.31 million and $0.28
million,
|
|
|
|
|
|
|
|
|
respectively
|
|
|
842 |
|
|
|
870 |
|
Total
amortizable intangible assets
|
|
|
10,537 |
|
|
|
10,890 |
|
|
|
|
|
|
|
|
|
|
Unamortizable
intangible assets:
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
21,473 |
|
|
|
21,473 |
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Financing
costs-net of accumulated amortization of $15.6 million and
|
|
|
|
|
|
|
|
|
$14.3
million, respectively
|
|
|
31,655 |
|
|
|
33,465 |
|
Deferred
major repair
|
|
|
6,896 |
|
|
|
9,543 |
|
Deferred
software cost-net of accumulated amortization of $3.5
million
|
|
|
|
|
|
|
|
|
and
$3.0 million, respectively
|
|
|
2,372 |
|
|
|
2,746 |
|
Replacement
parts-net
|
|
|
4,561 |
|
|
|
5,625 |
|
Other
|
|
|
6,569 |
|
|
|
4,771 |
|
Total
other assets
|
|
|
52,053 |
|
|
|
56,150 |
|
Intangibles
and other assets
|
|
$ |
84,063 |
|
|
$ |
88,513 |
|
Approximately
$0.4 million of intangible amortization is reflected in depreciation,
amortization, and depletion expense for each of the three-month periods ended
March 31, 2009 and 2008.
Estimated
amortization expense of intangibles for the remainder of 2009 is expected to be
$1.1 million and is expected to be approximately $1.3 million, $1.1 million,
$0.9 million and $0.8 million for the twelve-month periods of 2010, 2011, 2012,
and 2013, respectively.
Software
cost incurred as part of a major systems project was capitalized in 2007 and is
being amortized over its anticipated useful life of approximately three
years. Approximately $0.3 million and $0.4 million of software
amortization are reflected in depreciation, amortization, and depletion expense
for the three months ended March 31, 2009 and 2008, respectively.
5. LONG-TERM
DEBT
A summary
of long-term debt is as follows:
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
(In
thousands of U.S. dollars)
|
Maturity
|
|
Rate
|
|
|
2009
|
|
|
2008
|
|
First
Priority Revolving Credit Facility
|
8/1/2012
|
|
LIBOR
+ 1.50% and/ or Prime + 0.05%
|
|
|
|
92,083 |
|
|
$ |
92,083 |
|
First
Priority Term Loan B
|
8/1/2013
|
|
LIBOR
+ 1.75%
|
|
|
|
252,875 |
|
|
|
253,588 |
|
Second
Priority Senior Secured Notes - Fixed
|
8/1/2014
|
|
9.13%
|
|
|
|
350,000 |
|
|
|
350,000 |
|
Second
Priority Senior Secured Notes - Floating
|
8/1/2014
|
|
LIBOR
+ 3.75%
|
|
|
|
238,000 |
|
|
|
250,000 |
|
Senior
Subordinated Notes
|
8/1/2016
|
|
11.38%
|
|
|
|
300,000 |
|
|
|
300,000 |
|
Senior
Unsecured Term Loan
|
2/1/2013
|
|
LIBOR
+ 6.25% to
LIBOR
+ 7.00%
|
|
|
|
114,928 |
|
|
|
112,000 |
|
|
|
|
|
|
|
|
|
1,347,886 |
|
|
|
1,357,671 |
|
Less
current maturities
|
|
|
|
|
|
|
|
(2,850 |
) |
|
|
(2,850 |
) |
Long-term
debt
|
|
|
|
|
|
|
$ |
1,345,036 |
|
|
$ |
1,354,821 |
|
Interest
expense was $25.8 million while $38.5 million of interest was paid during the
three months ended March 31, 2009. Interest expense was $32.5 million
while $51.1 million of interest was paid during the three months ended March 31,
2008.
Amortization
of debt issuance costs, included in interest expense in the condensed
consolidated statements of operations, was $1.5 million and $1.7 million for the
three months ended March 31, 2009 and 2008, respectively.
Verso
Finance has a senior unsecured term loan which matures on February 1,
2013. In May 2008, the Company used a portion of the net proceeds
from its IPO to repay $138 million of the outstanding principal of the term loan
and to pay a related $1.4 million prepayment penalty. As of
December 31, 2008, $112 million was outstanding on the term loan. The
term loan allows Verso Finance to pay interest either in cash or in-kind through
the accumulation of the outstanding principal amount. Verso Finance
elected to exercise the PIK option for the interest payment pertaining to the
90-day interest period ending January 2, 2009, resulting in a $2.9 million
increase to the outstanding balance to $114.9 million as of March 31,
2009.
In March
2009, the Company repurchased and retired $12.0 million of Verso Holdings'
second priority senior secured notes due on August 1, 2014, and recognized a
gain of $8.9 million in Other income on the condensed consolidated statement of
operations.
The
Company maintains a defined benefit pension plan that provides retirement
benefits to hourly employees in Jay, Bucksport, and Sartell. The plan
provides defined benefits based on years of credited service times a specified
flat dollar benefit rate.
The
Company makes contributions that are sufficient to fully fund its actuarially
determined costs, generally equal to the minimum amounts required by the
Employee Retirement Income Security Act (ERISA). In the first quarter
of 2009, the Company made contributions of $0.2 million attributable to the 2008
plan year. In the first quarter of 2008, the Company made
contributions of $1.6 million, with $1.5 million attributable to the 2007 plan
year and $0.1 million attributable to the 2008 plan year. The Company
expects to make additional contributions of $6.8 million in 2009, with $1.0
million being related to the 2008 plan year and $5.8 million related to the 2009
plan year.
The
following table summarizes the components of net periodic expense:
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
Service
cost
|
|
$ |
1,592 |
|
|
$ |
1,494 |
|
Interest
cost
|
|
|
381 |
|
|
|
250 |
|
Expected
return on plan assets
|
|
|
(309 |
) |
|
|
(191 |
) |
Amortization
of prior service cost
|
|
|
218 |
|
|
|
218 |
|
Recognized
losses
|
|
|
79 |
|
|
|
- |
|
Net
periodic benefit cost
|
|
$ |
1,961 |
|
|
$ |
1,771 |
|
The expected
return on plan assets assumption for 2009 will be 7.50%.
7. EQUITY
AWARDS
Simultaneously
with the consummation of the IPO, the limited partnership agreement of Verso
Paper Corp.’s parent, Verso Paper Management LP (the “Partnership”), was amended
to, among other things, change its equity structure from multiple classes of
units representing limited partner interests in the Partnership to a single
class of units representing such interests. The conversion from the
prior multiple-class unit structure, or the “Legacy Units,” to a new single
class of units in the Partnership was designed to correlate the equity structure
of the Partnership with the post-IPO equity structure of Verso Paper
Corp.
In
connection with the IPO and the amendment of the limited partnership agreement
of the Partnership, the Legacy Class C Units of the Partnership previously
granted to certain members of our management were vested as of May 20,
2008. Prior to the amendment, the Legacy Class C Units were to vest
only if certain performance targets were met.
Certain
members of our management were granted Legacy Class B Units, which vest over a
five-year period at the rate of 20% per year on each anniversary of the grant
date. Certain of our directors were granted Legacy Class D Units,
which were vested upon grant.
The fair
value of Legacy Class D Units granted to directors in the three months ended
March 31, 2008, was approximately $0.1 million. The Company estimates
the fair value of management equity awards using the Black-Scholes valuation
model. Key input assumptions applied under the Black-Scholes option
pricing model for this grant were as follows: expected term of five
years, volatility rate of 36.65% based on industry historical volatility rate,
no expected dividends and an average risk free rate of 3.0%.
Equity
award expense was $0.1 million for each of the three-month periods ended March
31, 2009 and 2008. As of March 31, 2009, there was $0.7 million of
unrecognized compensation cost related to unvested Legacy Class B Units. This
cost is expected to be recognized over a weighted-average period of
approximately 2.3 years.
The 2008
Stock Incentive Award Plan, which authorized the issuance of awards covering up
to 4,250,000 shares of common stock of Verso Paper Corp., allows stock awards to
be granted to non-employee directors upon approval by the board of
directors. During the first quarter of 2009, the Company granted a
director, upon his election to the board, 15,200 options which were immediately
vested with a contractual life of 10 years and an exercise price of
$0.71. The Company used the Black-Scholes valuation model to estimate
a grant date fair value per option of $0.22 for this stock option
award. Key input assumptions applied under the Black-Scholes option
pricing model were as follows: expected term of five years,
volatility rate of 31.82% based on industry historical volatility rate, no
expected dividends and an average risk free rate of 1.97%.
Additionally,
the 2008 Stock Incentive Award Plan allows awards to be granted to employees
upon approval by the board of directors. During the first
quarter of 2009, the Company granted 121,833 options to employees with an
exercise price of $1.09, of which 40,613 vest on January 5, 2012, subject to
continuous employment by the participant through the vesting
date. The remaining 81,220 options granted vest over a three-year
period based on achievement of performance criteria which is tied to Verso’s
calculation of Adjusted EBITDA. However, the performance period has
not begun and performance criteria have not been communicated to the
participants for 50% of these options. Accordingly, a fair value has
not been determined and no expense has been recognized related to these 40,609
options. The remaining 40,611 options awarded under performance-based
grants for which the performance period has begun and the 40,613 time-vested
options were valued using the Black-Scholes option pricing model to estimate a
grant date fair value per option of $0.16. Key input assumptions
applied under the Black-Scholes option pricing model were as
follows: market price of $0.70 on date of grant, expected term
ranging from four to five years, volatility rate of 31.82% based on industry
historical volatility rate, no expected dividends and an average risk free rate
of 2.19%.
8. DERIVATIVE
INSTRUMENTS AND HEDGES
Effective
January 1, 2009, the Company adopted SFAS No. 161, which expands the quarterly
and annual disclosure requirements for derivative instruments and hedging
activities.
In the
normal course of business, the Company utilizes derivatives contracts as part of
its risk management strategy to manage its exposure to market fluctuations in
energy prices and interest rates. These instruments are subject to
credit and market risks in excess of the amount recorded on the balance sheet in
accordance with generally accepted accounting principles. Controls
and monitoring procedures for these instruments have been established and are
routinely reevaluated. Credit risk represents the potential loss that
may occur because a party to a transaction fails to perform according to the
terms of the contract. The measure of credit exposure is the
replacement cost of contracts with a positive fair value. The Company
manages credit risk by entering into financial instrument transactions only
through approved counterparties. Market risk represents the potential
loss due to the decrease in the value of a financial instrument caused primarily
by changes in commodity prices. The Company manages market risk by
establishing and monitoring limits on the types and degree of risk that may be
undertaken.
Derivative
instruments are recorded on the balance sheet as other assets or other
liabilities measured at fair value. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date. Where available, fair value is based on observable market
prices or parameters or derived from such prices or parameters. Where
observable prices or inputs are not available, valuation models may be
applied. For a cash flow hedge accounted for under SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities, changes in the fair value of the
derivative instrument, to the extent that it is effective, are recorded in
Accumulated other comprehensive income and subsequently reclassified to earnings
as the hedged transaction impacts net income. Any ineffective portion
of a cash flow hedge is recognized currently in earnings. Cash flows
from derivative contracts are reported as operating activities on the
consolidated statements of cash flows.
The
Company enters into short-term, fixed-price energy swaps as hedges designed to
mitigate the risk of changes in commodity prices for future purchase
commitments. These fixed-price swaps involve the exchange of net cash
settlements, based on changes in the price of the underlying commodity index
compared to the fixed price offering, at specified intervals without the
exchange of any underlying principal. The Company has designated its
energy hedging relationships as cash flow hedges under SFAS No. 133 with net
gains or losses attributable to effective hedging recorded in Accumulated other
comprehensive income and any ineffectiveness recognized in Cost of products
sold. Amounts recorded in Accumulated other comprehensive income are
expected to be reclassified into cost of products sold in the period in which
the hedged cash flows affect earnings.
In
February 2008, the Company entered into a two-year, $250 million notional value
receive-variable, pay-fixed interest rate swap in connection with the Company’s
outstanding floating rate notes that mature in 2014. The notes pay
interest quarterly based on a three-month LIBOR. The Company is
hedging the cash flow exposure on its quarterly variable-rate interest payments
due to changes in the benchmark interest rate (three-month LIBOR) and has
designated the interest rate swap as a cash flow hedge under SFAS No.
133. During the first quarter of 2009, the Company repurchased $12
million of the hedged notes and de-designated the portion of the swap hedging
the interest payments on this portion of the debt. Amounts recorded
in Accumulated other comprehensive income are expected to be reclassified into
Interest expense in the period in which the hedged cash flows affect
earnings.
The
following table presents information about the volume and fair value amounts of
the Company’s derivative instruments.
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
|
|
|
|
At
March 31, 2009
|
|
|
At
December 31, 2008
|
|
Balance
|
|
|
Nominal
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
Sheet
|
(dollars
in thousands)
|
|
Volume
|
|
|
Asset
|
|
|
Liability
|
|
|
Asset
|
|
|
Liability
|
|
Location
|
Derivatives
designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments
under SFAS No. 133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term,
fixed price energy swaps
|
|
5,672,922
MMBtu's
|
|
|
$ |
22 |
|
|
$ |
27,721 |
|
|
$ |
- |
|
|
$ |
26,878 |
|
Other
assets/
Accrued
liabilties
|
Interest
rate swaps, receive-variable, pay-fixed
|
|
$ |
238,000 |
|
|
|
- |
|
|
|
3,877 |
|
|
|
- |
|
|
|
3,677 |
|
Other
liabilities
|
Derivatives
not designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments
under SFAS No. 133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps, receive-variable, pay-fixed
|
|
$ |
12,000 |
|
|
|
- |
|
|
|
195 |
|
|
|
- |
|
|
|
- |
|
Other
liabilities
|
The
following tables present information about the effect of the Company’s
derivative instruments on Accumulated other comprehensive income and the
condensed consolidated statements of operations.
|
|
|
Gain
(Loss) Recognized
|
|
|
Gain
(Loss) Reclassified
|
|
|
|
|
|
in
OCI
|
|
|
from
Accumulated OCI
|
|
Location
of
|
|
|
|
At
|
|
|
At
|
|
|
Three
Months Ended
|
|
Gain
(Loss)
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
March
31,
|
|
on
Statements
|
(dollars
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
of
Operations
|
Derivatives
designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments
under SFAS No. 133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term,
fixed price energy swaps (1)
|
|
$ |
(27,657 |
) |
|
$ |
(25,852 |
) |
|
$ |
(8,448 |
) |
|
$ |
(1,082 |
) |
Cost
of products sold
|
Interest
rate swaps, receive-variable, pay-fixed (1)
|
|
|
(3,221 |
) |
|
|
(3,859 |
) |
|
|
(570 |
) |
|
|
169 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net
losses at March 31, 2009, are expected to be reclassified from Accumulated
other comprehensive income into earnings within the next
12 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(Loss) Recognized
|
|
|
|
|
|
Gain
(Loss) Recognized
|
|
|
on
Derivative
|
|
Location
of
|
|
|
|
on
Derivative
|
|
|
(Ineffective
Portion)
|
|
Gain
(Loss)
|
|
|
|
Three
Months Ended March 31,
|
|
on
Statements
|
(dollars
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
of
Operations
|
Derivatives
designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments
under SFAS No. 133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term,
fixed price energy swaps
|
|
$ |
(2,109 |
) |
|
$ |
479 |
|
|
$ |
(20 |
) |
|
$ |
(3 |
) |
Cost
of products sold
|
Interest
rate swaps, receive-variable, pay-fixed
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
expense
|
Derivatives
not designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments
under SFAS No. 133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps, receive-variable, pay-fixed
|
|
|
(195 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
income
|
9. FAIR
VALUE OF FINANCIAL INSTRUMENTS
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. On January 1,
2008, the Company adopted SFAS No. 157 as it relates to financial assets and
liabilities and nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a recurring basis, and
adopted SFAS No. 157 as it relates to nonfinancial assets and liabilities that
are not remeasured at fair value on a recurring basis as of January 1,
2009. The adoption of SFAS No. 157 did not have a material impact on
the Company’s financial condition, results of operations, or cash
flows.
The fair
value framework requires the categorization of assets and liabilities into three
levels based upon the assumptions used to value the assets or
liabilities. Level 1 provides the most reliable measure of fair
value, whereas Level 3 generally requires significant management
judgment. The three levels are defined as follows:
▪ Level
1:
|
|
Unadjusted
quoted prices in active markets for identical assets or liabilities at the
measurement date.
|
▪ Level
2:
|
|
Observable
inputs other than those included in Level 1. For example,
quoted prices for similar assets or liabilities in active markets or
quoted prices for identical assets or liabilities in inactive
markets.
|
▪ Level
3:
|
|
Unobservable
inputs reflecting management’s own assumption about the inputs used in
pricing the asset or liability at the measurement
date.
|
As of
March 31, 2009, the fair values of the Company’s assets and liabilities measured
at fair value on a recurring basis are categorized as follows:
(In
thousands of U.S. dollars)
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation assets (a)
|
|
$ |
211 |
|
|
$ |
211 |
|
|
$ |
- |
|
|
$ |
- |
|
Regional
Greenhouse Gas Initiative carbon credits (a)
|
|
|
231 |
|
|
|
- |
|
|
|
231 |
|
|
|
- |
|
Commodity
swaps (a)
|
|
|
22 |
|
|
|
- |
|
|
|
22 |
|
|
|
- |
|
Total
assets at fair value on March 31, 2009
|
|
$ |
464 |
|
|
$ |
211 |
|
|
$ |
253 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
swaps (a)
|
|
$ |
27,721 |
|
|
$ |
- |
|
|
$ |
27,721 |
|
|
$ |
- |
|
Interest
rate swaps (b)
|
|
|
4,072 |
|
|
|
- |
|
|
|
4,072 |
|
|
|
- |
|
Deferred
compensation liabilities (a)
|
|
|
211 |
|
|
|
211 |
|
|
|
- |
|
|
|
- |
|
Total
liabilities at fair value on March 31, 2009
|
|
$ |
32,004 |
|
|
$ |
211 |
|
|
$ |
31,793 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Based on observable market data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
Based on observable inputs for the liability (interest rates and yield
curves observable at specific intervals).
|
|
The
Company did not record any impairment charges on long-lived assets and no
significant events requiring non-financial assets and liabilities to be measured
at fair value occurred (subsequent to initial recognition) during the first
quarter of 2009.
10. RELATED
PARTY TRANSACTIONS
The
Company had net sales to International Paper of $26.8 million for the
three-month period ended March 31, 2009, compared to $36.2 million for the three
months ended March 31, 2008. The Company had purchases from
International Paper, included in cost of products sold, of $1.1 million for the
three months ended March 31, 2009, compared to $1.0 million for the three months
ended March 31, 2008.
Subsequent
to the Acquisition, the Company entered into a management agreement with Apollo
relating to the provision of certain financial and strategic advisory services
and consulting services. Management fees to Apollo for these services
were $0.6 million for the three months ended March 31, 2008. Upon
consummation of the IPO, Apollo terminated the annual fee arrangement under the
management agreement for its consulting and advisory
services. Although the annual fee arrangement was terminated in
connection with the IPO, the management agreement remains in effect and will
expire on August 1, 2018.
Verso
Finance has a senior unsecured term loan which matures on February 1,
2013. In May 2008, the Company used a portion of the net proceeds
from its IPO to repay $138 million of the outstanding principal of the term loan
and to pay a related $1.4 million prepayment penalty. As of
December 31, 2008, $112 million was outstanding on the term loan. The
term loan allows Verso Finance to pay interest either in cash or in-kind through
the accumulation of the outstanding principal amount. Verso Finance
elected to exercise the PIK option for the interest payment pertaining to the
90-day interest period ending January 2, 2009, resulting in a $2.9 million
increase in the outstanding balance to $114.9 million as of March 31,
2009. Verso Finance has no independent operations; consequently, all
cash flows used to service the remaining debt obligation will need to be
received via a distribution from Verso Holdings. Verso Holdings paid
distributions to Verso Finance of $0.2 million in the first quarter of 2009 and
$7.1 million in the first quarter of 2008. Verso Holdings has no
obligation to make distributions to Verso Finance.
11.
RESTRUCTURING AND OTHER CHARGES
Restructuring
and other charges are comprised of transition and other non-recurring costs
associated with the acquisition and carve out of our operations from those of
International Paper; including costs of a transition service agreement with
International Paper, technology migration costs, consulting and legal fees, and
other one-time costs related to us operating as a stand-alone business. The
charges for the three months ended March 31, 2009 and 2008, were $0.2 million
and $1.7 million, respectively.
12.
COMMITMENTS AND CONTINGENCIES
The
Company is involved in legal proceedings incidental to the conduct of its
business. The Company does not believe that any liability that may
result from these proceedings will have a material adverse effect on our
financial statements.
On August
6, 2008, the Company filed a declaratory judgment suit in the United States
District Court for the Eastern District of Wisconsin against NewPage Corporation
and NewPage Wisconsin System Inc., in response to a patent infringement claim
asserted by NewPage regarding certain of the Company’s coated paper
products. The action sought a declaration that the Company’s coated
paper products do not infringe the NewPage patent and that the NewPage patent is
invalid. On January 29, 2009, the action was voluntarily dismissed
with prejudice pursuant to a settlement agreement between the
parties. As part of the settlement, NewPage granted the
Company an irrevocable, perpetual, non-exclusive, worldwide, royalty-free,
and fully paid-up right and license for any and all purposes under the NewPage
patent and any continuation, division, reissue or non-U.S. counterpart of the
patent.
The U.S.
government provides an excise tax credit for companies that use alternative fuel
mixtures in their businesses equal to $0.50 per gallon of alternative fuel
contained in the mixture. In January and February 2009, the Internal
Revenue Service certified that the Company’s operations at its Androscoggin and
Quinnesec mills qualified for the alternative fuel mixture tax credit. Although
there is some uncertainty as to the continued existence and availability of the
alternative fuel mixture tax credit, the Company is reasonably assured that the
tax credit for the alternative fuel mixture used by the Company through March
31, 2009, has been earned and will be collected from the U.S.
government. Accordingly, during the first quarter of 2009, the
Company accrued $105.5 million of alternative fuel mixture tax credits for the
period from September 2008 through March 2009, including $18.7 million for
claims to be filed subsequent to March 31, 2009. This accrual is
reflected on the Company's condensed consolidated statement of operations in
Other income, net of $0.9 million of associated expenses. As of March
31, 2009, the Company had received $29.7 million of alternative fuel mixture
cash payments, and it received an additional $51.2 million in payments in April
2009.
In
connection with the Acquisition, the Company assumed a twelve-year supply
agreement with Thilmany LLC, or “Thilmany,” for the specialty paper products
manufactured on paper machine No. 5 at the Androscoggin mill. The
agreement requires Thilmany to pay the Company a variable charge for the paper
purchased and a fixed charge for the availability of the No. 5 paper
machine. The Company is responsible for the No. 5 machine’s routine
maintenance and Thilmany is responsible for any capital expenditures specific to
the machine. Thilmany has the right to terminate the agreement if
certain events occur.
The
Company has a joint ownership interest with Bucksport Energy LLC, an unrelated
third party, in a cogeneration power plant producing steam and
electricity. The plant was built in 2000 by the two parties and is
located in Bucksport, Maine. Each owner, Verso Bucksport LLC and
Bucksport Energy LLC, owns its proportional share of the assets. The
plant supports the Bucksport mill. The mill owns 28% of the steam and
electricity produced by the plant. The mill may purchase its
remaining electrical needs from the plant at market rates. The mill
is obligated to purchase the remaining 72% of the steam output at fuel cost plus
a contractually fixed fee per unit of steam. Power generation and
operating expenses are divided on the same basis as ownership. The
Bucksport mill has cash which is restricted in its use and may be used only to
fund the ongoing energy operations of this investment. On March 31,
2009, the Company had $0.2 million of restricted cash included in Other assets
in the accompanying condensed consolidated balance sheet.
13. INFORMATION
BY INDUSTRY SEGMENT
The
Company operates in three operating segments: coated and supercalendered papers;
hardwood market pulp; and other, consisting of specialty industrial paper. The
Company operates in one geographic segment, the United States. The Company’s
core business platform is as a producer of coated freesheet, coated groundwood,
and uncoated supercalendered papers. These products serve customers in the
catalog, magazine, inserts, and commercial print markets.
The
following table summarizes the industry segment data for the three-months ended
March 31, 2009 and 2008:
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
Net
Sales:
|
|
|
|
|
|
|
Coated
and supercalendered
|
|
$ |
255,977 |
|
|
$ |
404,931 |
|
Hardwood
market pulp
|
|
|
17,674 |
|
|
|
39,107 |
|
Other
|
|
|
13,423 |
|
|
|
9,869 |
|
Total
|
|
$ |
287,074 |
|
|
$ |
453,907 |
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss):
|
|
|
|
|
|
|
|
|
Coated
and supercalendered
|
|
$ |
(20,552 |
) |
|
$ |
21,354 |
|
Hardwood
market pulp
|
|
|
(8,887 |
) |
|
|
10,498 |
|
Other
|
|
|
(2,308 |
) |
|
|
(1,447 |
) |
Total
|
|
$ |
(31,747 |
) |
|
$ |
30,405 |
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization:
|
|
|
|
|
|
|
|
|
Coated
and supercalendered
|
|
$ |
28,902 |
|
|
$ |
26,770 |
|
Hardwood
market pulp
|
|
|
4,314 |
|
|
|
4,647 |
|
Other
|
|
|
1,107 |
|
|
|
771 |
|
Total
|
|
$ |
34,323 |
|
|
$ |
32,188 |
|
|
|
|
|
|
|
|
|
|
Capital
Spending:
|
|
|
|
|
|
|
|
|
Coated
and supercalendered
|
|
$ |
10,308 |
|
|
$ |
9,408 |
|
Hardwood
market pulp
|
|
|
1,341 |
|
|
|
2,873 |
|
Other
|
|
|
269 |
|
|
|
535 |
|
Total
|
|
$ |
11,918 |
|
|
$ |
12,816 |
|
Overview
We are a
leading North American supplier of coated papers to catalog and magazine
publishers. Coated paper is used primarily in media and marketing
applications, including catalogs, magazines, and commercial printing
applications, such as high-end advertising brochures, annual reports, and direct
mail advertising. We are North America’s second largest producer of
coated groundwood paper which is used primarily for catalogs and
magazines. We are also a low cost producer of coated freesheet paper
which is used primarily for annual reports, brochures, and magazine
covers. In addition, we have a strategic presence in supercalendered
paper which is primarily used for retail inserts. We also produce and
sell market kraft pulp which is used to manufacture printing and writing paper
grades and tissue products.
Financial
Summary
Our
results for the first quarter of 2009 reflect a 36.8% decrease in net sales as
volume fell 37.2% compared to the first quarter of 2008. Our average
sales price per ton for all of our products was up slightly to $875 in the first
quarter of 2009 from $869 for the same period last year, primarily driven by a
3.3% increase in average coated paper prices. Our gross margin
dropped to 6.3% from 17.3% for the same period last year, reflecting $31.3
million of unabsorbed costs resulting from almost 140,000 tons of downtime taken
in the first quarter of 2009 as we continue to curtail our production in
response to continued weak demand for coated papers.
In
response to the ongoing, challenging operating environment, we continue to
assess and implement, as appropriate, various earnings and expense reduction
initiatives. Management has developed a company-wide cost reduction
program, which we expect to yield $65 million in cost reductions. As
of the end of the first quarter of 2009, approximately $10 million of savings
have been realized from this program. Management expects to achieve
most of these savings in 2009 and will continue to search for and develop
additional savings measures. Included in this program are material
usage reductions, energy usage reductions, labor cost savings, chemical
substitution, salary freezes, selling, general, and administrative expense
reductions, workforce planning improvements, and new product
opportunities.
New
product initiatives have contributed to a 36.0% increase in net sales for our
other segment, reflecting the development of new specialty paper product
offerings for our customers.
Results
of Operations – First Quarter of 2009 Compared to First Quarter of
2008
Net Sales. Net
sales for the first quarter of 2009 decreased 36.8% to $287.1 million from
$453.9 million as total sales volume decreased 37.2% compared to last year,
reflecting lower demand for coated papers and market pulp in a difficult
economic environment. The average sales price per ton for all of our
products was higher, increasing 0.7% from the first quarter of
2008.
Net sales
for our coated and supercalendered papers segment decreased 36.8% to $256.0
million in the first quarter of 2009 from $404.9 million in the first quarter of
2008. The decrease reflects a 38.8% decrease in paper sales volume
and a 3.3% increase in average paper sales price per ton for the first quarter
of 2009 compared to the same period last year.
Net sales
for our market pulp segment decreased 54.8% to $17.7 million in the first
quarter of 2009 from $39.1 million for the same period in 2008. This
decline was due to a 37.6% decrease in sales volume combined with a 27.6%
decrease in average sales price per ton compared to the first quarter of
2008.
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
(In
thousands of U.S. dollars)
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
287,074 |
|
|
$ |
453,907 |
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of products sold - exclusive of
|
|
|
|
|
|
|
|
|
depreciation,
amortization, and depletion
|
|
|
268,940 |
|
|
|
375,402 |
|
Depreciation,
amortization, and depletion
|
|
|
34,323 |
|
|
|
32,188 |
|
Selling,
general, and administrative expenses
|
|
|
15,387 |
|
|
|
14,194 |
|
Restructuring
and other charges
|
|
|
171 |
|
|
|
1,718 |
|
Operating
income (loss)
|
|
|
(31,747 |
) |
|
|
30,405 |
|
Interest
income
|
|
|
(58 |
) |
|
|
(191 |
) |
Interest
expense
|
|
|
27,085 |
|
|
|
33,716 |
|
Other
income, net
|
|
|
(113,317 |
) |
|
|
- |
|
Net
income (loss)
|
|
$ |
54,543 |
|
|
$ |
(3,120 |
) |
Net sales
for our other segment increased 36.0% to $13.4 million in the first quarter of
2009 from $9.9 million in the first quarter of 2008. The improvement
in 2009 is due to a 25.7% increase in sales volume and an 8.2% increase in
average sales price per ton compared to the first quarter of 2008, reflecting
the development of new specialty paper product offerings for our
customers.
Cost of
sales. Cost of sales, including depreciation, amortization,
and depletion, decreased 25.6% to $303.3 million from $407.6 million in the
first quarter of 2008, primarily reflecting the decline in sales
volume. Our gross margin, excluding depreciation, amortization, and
depletion, was 6.3% for the first quarter of 2009 compared to 17.3% for the
first quarter of 2008, reflecting $31.3 million of unabsorbed costs resulting
from almost 140,000 tons of downtime taken in the first quarter of 2009 as we
continue to curtail our production in response to continued weak demand for
coated papers. Depreciation, amortization, and depletion expense was
$34.4 million in the first quarter of 2009 compared to $32.2 million in the
first quarter of 2008.
Selling, general, and
administrative. Selling, general, and administrative expenses
were $15.4 million in the first quarter of 2009 compared to $14.2 million for
the same period in 2008, reflecting the effect of transitioning our
infrastructure to a stand-alone organization.
Interest expense. Interest
expense for the first quarter of 2009 was $27.1 million compared to $33.7
million for the same period in 2008. In May 2008, $152.1 million of
outstanding debt was repaid with a portion of the IPO proceeds. The
decrease in interest expense was due to the reduction in aggregate indebtedness
and lower interest rates on floating rate debt in 2009.
Other
income. Other income was $113.3 million for the first
quarter of 2009, which includes $104.6 million in net benefits from
alternative fuel mixture tax credits provided by the U.S. government for our use
of black liquor in alternative fuel mixtures during the period of September 2008
through March 2009 and $8.7 million in net gains related to the repurchase and
retirement of $12.0 million of our second priority senior secured floating rate
notes.
Restructuring and other
charges. Restructuring and other charges for the first quarter
of 2009 were $0.2 million compared to $1.7 million for the first quarter of
2008. Restructuring and other charges are comprised of transition and
other costs associated with the Acquisition; including technology migration
costs, consulting and legal fees, and other one-time costs related to becoming a
stand-alone business. Subsequent to the Acquisition, we entered into
a management agreement with Apollo relating to the provision of certain
financial and strategic advisory services and consulting
services. Management fees to Apollo for these services were $0.6
million for the three months ended March 31, 2008. Upon consummation
of the IPO, Apollo terminated the annual fee arrangement under the management
agreement.
Seasonality
We are
exposed to fluctuations in quarterly net sales volumes and expenses due to
seasonal factors. These seasonal factors are common in the coated
paper industry. Typically, the first two quarters are our slowest
quarters due to lower demand for coated paper during this period. Our
third quarter is generally our strongest quarter, reflecting an increase in
printing related to end-of-year magazines, increased end-of-year direct
mailings, and holiday season catalogs. Our working capital and
accounts receivable generally peak in the third quarter, while inventory
generally peaks in the second quarter in anticipation of the third quarter
season. We expect our seasonality trends to continue for the
foreseeable future.
Liquidity
and Capital Resources
We rely
primarily upon cash flow from operations and borrowings under our revolving
credit facility to finance operations, capital expenditures, and fluctuations in
debt service requirements. We believe that our ability to manage cash
flow and working capital levels, particularly inventory and accounts payable,
will allow us to meet our current and future obligations, pay scheduled
principal and interest payments, and provide funds for working capital, capital
expenditures, and other needs of the business for at least the next twelve
months. However, no assurance can be given that this will be the
case, and we may require additional debt or equity financing to meet our working
capital requirements.
Net cash flows from operating
activities. Net cash used in operating activities was $87.1
million for the three months ended March 31, 2009, compared to $26.1 million for
the three months ended March 31, 2008. The increase in net cash used
in operating activities was primarily due to changes in working capital, which
included a decline in accounts payable and accrued liabilities while inventories
increased reflecting the current economic conditions. An increase in
accounts receivable was primarily due to accruals for alternative fuel mixture
tax credits and was offset by the resulting improvement in net
income.
Net cash flows from investing
activities. For the three months ended March 31, 2009 and
2008, we used $11.9 million and $12.8 million, respectively, of net cash in
investing activities due to investments in capital expenditures.
Net cash flows from financing
activities. For the three months ended March 31, 2009,
financing activities used net cash of $3.6 million due to principal payments on
long-term debt. This compares to $0.1 million of net cash provided in
2008 due to an increase in short-term borrowings which offset principal payments
of long-term debt.
Indebtedness. As
of March 31, 2009, our aggregate indebtedness was $1,347.9 million.
On March
31, 2009, Verso Paper Holdings LLC, or “Verso Holdings,” had senior secured
credit facilities consisting of:
|
●
|
$285
million term loan maturing in 2013, of which $252.9 million was
outstanding on March 31, 2009; and
|
|
|
|
|
●
|
$200
million revolving credit facility maturing in 2012, under which
$92.1 million was outstanding, $31.2 million in letters of credit
were issued, and $60.9 million was available for future borrowing on March
31, 2009.
|
The term
loan bears interest at a rate equal to LIBOR plus 1.75%, with the interest rate
being 3.0% at March 31, 2009. The revolving credit facility bears
interest at a rate equal to LIBOR plus 1.50% and/or Prime plus 0.50%, and the
weighted average interest rate at March 31, 2009, was 3.0%. Verso
Holdings is required to pay a commitment fee to the lenders under the revolving
credit facility in respect of unutilized commitments at a rate equal to 0.375%
per annum (subject to reduction in certain circumstances) and customary letter
of credit and agency fees. The senior secured credit facilities are
secured by first priority security interests in, and mortgages on, substantially
all tangible and intangible assets of Verso Holdings and each of its direct and
indirect subsidiaries. The senior secured credit facilities also are
secured by first priority pledges of all the equity interests owned by Verso
Holdings in its subsidiaries. The obligations under the senior
secured credit facilities are unconditionally guaranteed by Verso Paper Finance
Holdings LLC, or “Verso Finance,” and, subject to certain exceptions, each of
its direct and indirect subsidiaries. The credit agreement for our
senior secured credit facilities contains various covenants which, among other
things, prohibit our subsidiaries from prepaying other indebtedness, require us
to maintain a maximum consolidated first lien leverage ratio, and restrict our
ability to incur indebtedness or liens, make investments or declare or pay any
dividends. As of March 31, 2009, we were in compliance with all such
covenants.
On March
31, 2009, Verso Holdings also had outstanding debt securities consisting
of:
|
●
|
$350
million aggregate principal amount of 9⅛% second priority senior
secured fixed rate notes due
2014;
|
|
|
$300
million aggregate principal amount of 11⅜% senior subordinated
notes due 2016; and
|
|
|
$238
million aggregate principal amount of second priority senior
secured floating rate notes due
2014.
|
The
original principal amount of each of the fixed-rate notes was outstanding at
March 31, 2009. In March 2009, Verso Holdings repurchased and retired
$12.0 million of its floating rate notes and recognized a gain of $8.9
million. The fixed rate notes pay interest semi-annually, and the
floating rate notes pay interest quarterly. The floating rate notes
bear interest at a rate equal to LIBOR plus 3.75% with the interest rate being
4.9% at March 31, 2009. The fixed rate and floating rate second
priority senior secured notes have the benefit of a second priority security
interest in the collateral securing our senior secured credit facilities, while
the subordinated notes are unsecured.
The
indentures governing our notes contain various covenants which limit
our ability to, among other things, incur additional indebtedness; pay dividends
or make other distributions or repurchase or redeem our stock; make investments;
sell assets, including capital stock of restricted subsidiaries; enter into
agreements restricting our subsidiaries’ ability to pay dividends; consolidate,
merge, sell or otherwise dispose of all or substantially all of our assets;
enter into transactions with our affiliates; and incur liens. As of
March 31, 2009, we were in compliance with all such covenants.
Verso
Finance has a senior unsecured floating-rate term loan which matures in
2013. In May 2008, the Company used a portion of the net proceeds
from its IPO to repay $138 million of the outstanding principal of the term loan
and to pay a related $1.4 million prepayment penalty. As of
December 31, 2008, $112 million was outstanding on the term loan. The
term loan bears interest at a rate equal to LIBOR plus 6.25% on interest
payments made in cash and LIBOR plus 7.00% for interest paid in-kind and added
to the principal balance. The weighted-average interest rate in
effect on March 31, 2009, was 7.50%. The term loan allows Verso
Finance to pay interest either in cash or in-kind through the accumulation of
the outstanding principal amount. Verso Finance elected to exercise
the PIK option for the interest payment pertaining to the 90-day interest period
ending January 2, 2009, resulting in a $2.9 million increase in the outstanding
balance to $114.9 million as of March 31, 2009.
In
addition, as a holding company, our investments in our operating subsidiaries,
including Verso Paper LLC, constitute substantially all of our operating assets.
Consequently, our subsidiaries conduct all of our consolidated operations and
own substantially all of our operating assets. Our principal source of the cash
we need to pay our debts is the cash that our subsidiaries generate from their
operations and their borrowings. Our subsidiaries are not obligated to make
funds available to us. The terms of the senior secured credit facilities and the
indentures governing the outstanding notes of our subsidiaries significantly
restrict our subsidiaries from paying dividends and otherwise transferring
assets to us. Furthermore, our subsidiaries will be permitted under the terms of
the senior secured credit facilities and the indentures to incur additional
indebtedness that may severely restrict or prohibit the making of distributions,
the payment of dividends or the making of loans by such subsidiaries to
us. Although the terms of the debt agreements of our subsidiaries do
not restrict our operating subsidiaries from obtaining funds from their
respective subsidiaries to fund their operations and payments on indebtedness,
there can be no assurance that the agreements governing the current and future
indebtedness of our subsidiaries will permit our subsidiaries to provide us with
sufficient dividends, distributions or loans to fund our obligations or pay
dividends to our stockholders.
The
Company may elect to retire its outstanding debt in open market purchases,
privately negotiated transactions, or otherwise. These repurchases
may be funded through available cash from operations and borrowings from our
credit facilities. Such repurchases are dependent on prevailing
market conditions, the Company’s liquidity requirements, contractual
restrictions and other factors. In March
2009, Verso Holdings repurchased and retired $12.0 million of its floating rate
notes and recognized a gain of $8.9 million.
Critical
Accounting Policies
Our
accounting policies are fundamental to understanding management’s discussion and
analysis of results of operations and financial condition. Our
consolidated condensed financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America and
follow general practices within the industry in which we operate. The
preparation of the financial statements requires management to make certain
judgments and assumptions in determining accounting
estimates. Accounting estimates are considered critical if the
estimate requires management to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made, and different estimates
reasonably could have been used in the current period, or changes in the
accounting estimate are reasonably likely to occur from period to period, that
would have a material impact on the presentation of our financial condition,
changes in financial condition or results of operations.
Management
believes the following critical accounting policies are both important to the
portrayal of our financial condition and results of operations and require
subjective or complex judgments. These judgments about critical
accounting estimates are based on information available to us as of the date of
the financial statements.
Accounting
policies whose application may have a significant effect on the reported results
of operations and financial position, and that can require judgments by
management that affect their application, include the following: Statement of
Financial Accounting Standards, or “SFAS,” No. 5, Accounting for Contingencies;
SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets; SFAS No. 142,
Goodwill and Other Intangible
Assets; SFAS No. 87, Employers’ Accounting for
Pensions; and SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans.
Impairment of long-lived assets and
goodwill. Long-lived assets are reviewed for impairment upon
the occurrence of events or changes in circumstances that indicate that the
carrying value of the assets may not be recoverable, as measured by comparing
their net book value to the estimated undiscounted future cash flows generated
by their use.
Goodwill
and other intangible assets are accounted for in accordance with SFAS No. 142,
Goodwill and Other Intangible
Assets. Intangible assets primarily consist of trademarks,
customer-related intangible assets and patents obtained through business
acquisitions. Impairment is the condition that exists when the
carrying amount of these assets exceed their implied fair value. An
impairment evaluation of the carrying amount of goodwill and other intangible
assets with indefinite lives is conducted annually or more frequently if events
or changes in circumstances indicate that an asset might be
impaired. The Company has identified the following trademarks as
intangible assets with an indefinite life: Influence®, Liberty® and
Advocate®. Goodwill is evaluated at the reporting unit level and has
been allocated to the “Coated” segment. The valuation as of October
1, 2008, indicated no impairment of goodwill or trademarks assigned indefinite
lives.
The
evaluation for impairment is performed by comparing the carrying amount of these
assets to their estimated fair value. If impairment is indicated,
then an impairment charge is recorded to reduce the asset to its estimated fair
value. The estimated fair value is generally determined on the basis
of discounted future cash flows. Management believes the accounting
estimates associated with determining fair value as part of the impairment test
is a critical accounting estimate because estimates and assumptions are made
about the Company’s future performance and cash flows. While
management uses the best information available to estimate future performance
and cash flows, future adjustments to management’s projections may be necessary
if economic conditions differ substantially from the assumptions used in making
the estimates.
Pension and Postretirement Benefit
Obligations. We offer various pension plans to employees. The
calculation of the obligations and related expenses under these plans requires
the use of actuarial valuation methods and assumptions, including the expected
long-term rate of return on plan assets, discount rates, projected future
compensation increases, health care cost trend rates, and mortality
rates. Actuarial valuations and assumptions used in the determination
of future values of plan assets and liabilities are subject to management
judgment and may differ significantly if different assumptions are
used.
Contingent
liabilities. A liability is contingent if the outcome or
amount is not presently known, but may become known in the future as a result of
the occurrence of some uncertain future event. We estimate our
contingent liabilities based on management’s estimates about the probability of
outcomes and their ability to estimate the range of
exposure. Accounting standards require that a liability be recorded
if management determines that it is probable that a loss has occurred and the
loss can be reasonably estimated. In addition, it must be probable
that the loss will be confirmed by some future event. As part of the
estimation process, management is required to make assumptions about matters
that are by their nature highly uncertain.
The
assessment of contingent liabilities, including legal contingencies, asset
retirement obligations, and environ-mental costs and obligations, involves the
use of critical estimates, assumptions, and judgments. Management’s
estimates are based on their belief that future events will validate the current
assumptions regarding the ultimate outcome of these
exposures. However, there can be no assurance that future events will
not differ from management’s assessments.
Recent
Accounting Developments
Fair Value of Financial
Instruments. In
April 2009, the FASB issued FASB Staff Position on SFAS No. 107 and APB No. 28,
or FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which increases the frequency of fair value
disclosures to a quarterly basis instead of an annual basis. The
guidance relates to fair value disclosures for any financial instruments that
are not currently reflected on the balance sheet at fair value. FSP
FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after
June 15, 2009. Since FSP FAS 107-1 and APB 28-1 only addresses new disclosure
requirements, the adoption of FSP FAS 107-1 and APB 28-1 will have no impact on
our financial condition or results of operations.
Postretirement Benefit Plan
Assets. In December 2008, the FASB issued FASB Staff Position
on Statement 132(R)-1, or FSP FAS 132(R)-1, Employers’ Disclosure about
Postretirement Benefit Plan Assets, which amends SFAS No. 132(R) to
require more detailed disclosures about employers’ pension plan
assets. New disclosures will include more information on investment
strategies, major categories of plan assets, concentrations of risk within plan
assets and valuation techniques used to measure the fair value of plan
assets. FSP FAS 132(R)-1 is effective for fiscal years ending after
December 15, 2009. Since FSP FAS 132(R)-1 only addresses disclosure
requirements, the adoption of FSP FAS 132(R)-1 will have no impact on our
financial condition or results of operations.
Forward-Looking
Statements
In this
quarterly report, all statements that are not purely historical facts are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements may be identified by the words
“believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “intend,” and
similar expressions. Forward-looking statements are based on
currently available business, economic, financial, and other information and
reflect management’s current beliefs, expectations, and views with respect to
future developments and their potential effects on Verso. Actual
results could vary materially depending on risks and uncertainties that may
affect Verso and its business. For a discussion of such risks and
uncertainties, please refer to “Risk Factors,” “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and other sections of
this quarterly report and to Verso’s other filings with the Securities and
Exchange Commission. Verso assumes no obligation to update any
forward-looking statement made in this quarterly report to reflect subsequent
events or circumstances or actual outcomes.
Covenant
Compliance
The credit
agreement governing Verso Holdings’ senior secured credit facilities requires us
to maintain a net first lien secured debt to Adjusted EBITDA (as defined below)
ratio that does not exceed 3.25 to 1.00 measured
on a trailing four-quarter basis. In addition, the credit agreement and the
indentures governing their outstanding notes contain financial and other
restrictive covenants that limit our
ability to take certain actions, such as incurring additional debt or making
acquisitions. Although we do not expect to violate any of the provisions in
the agreements governing our outstanding indebtedness, these covenants can
result in limiting our long-term growth prospects by hindering our ability to
incur future indebtedness or grow through acquisitions.
EBITDA
consists of earnings before interest, taxes, depreciation, and
amortization. EBITDA is
a measure commonly used in our industry and we present EBITDA to enhance your
understanding of our operating performance. We use EBITDA as one
criterion for evaluating our performance relative to that of our
peers. We believe that EBITDA is an operating performance measure,
and not a liquidity measure, that provides investors and analysts with a measure
of operating results unaffected by differences in capital structures, capital
investment cycles, and ages of related assets among otherwise comparable
companies. Adjusted EBITDA is EBITDA further adjusted to exclude
unusual items and other pro forma adjustments permitted
in calculating covenant compliance in the indentures governing our notes to test
the permissibility of certain types of transactions. Adjusted
EBITDA is modified to reflect the amount of net cost savings projected to be
realized as a result of specified activities taken during the preceding 12-month
period. We believe that the inclusion of the supplemental adjustments
applied in calculating Adjusted EBITDA are reasonable and appropriate in
providing additional information to investors to demonstrate our compliance with
our financial covenants. We also
believe that Adjusted EBITDA is a useful liquidity measurement tool for
assessing our ability to meet our future debt service, capital expenditures, and
working capital requirements.
However,
EBITDA and Adjusted EBITDA are not measurements of financial performance under
U.S. GAAP, and our EBITDA and Adjusted EBITDA may not be comparable to similarly
titled measures of other companies. You should not consider our
EBITDA or Adjusted EBITDA as an alternative to operating or net income,
determined in accordance with U.S. GAAP, as an indicator of our operating
performance, or as an alternative to cash flows from operating activities,
determined in accordance with U.S. GAAP, as an indicator of our cash flows or as
a measure of liquidity.
The
following table reconciles cash flows from operating activities to EBITDA and
Adjusted EBITDA for the periods presented:
|
|
Three
Months
|
|
|
Year
|
|
|
Three
Months
|
|
|
Twelve
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
March
31,
|
|
|
March
31,
|
|
(in
millions of U.S. dollars)
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
Cash
flows from operating activities
|
|
$ |
(26.1 |
) |
|
$ |
54.1 |
|
|
$ |
(87.1 |
) |
|
$ |
(6.9 |
) |
Amortization
of debt issuance costs
|
|
|
(1.7 |
) |
|
|
(9.9 |
) |
|
|
(1.5 |
) |
|
|
(9.7 |
) |
Interest
income
|
|
|
(0.2 |
) |
|
|
(0.8 |
) |
|
|
(0.1 |
) |
|
|
(0.7 |
) |
Interest
expense
|
|
|
33.7 |
|
|
|
125.6 |
|
|
|
27.1 |
|
|
|
119.0 |
|
Gain
on early extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
8.9 |
|
|
|
8.9 |
|
Loss
on disposal of fixed assets
|
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
(0.1 |
) |
|
|
(0.7 |
) |
Other,
net
|
|
|
(2.8 |
) |
|
|
22.6 |
|
|
|
1.0 |
|
|
|
26.4 |
|
Changes
in assets and liabilities, net
|
|
|
59.8 |
|
|
|
5.6 |
|
|
|
167.7 |
|
|
|
113.5 |
|
EBITDA
|
|
|
62.6 |
|
|
|
196.5 |
|
|
|
115.9 |
|
|
|
249.8 |
|
Restructuring,
severance, and other (1)
|
|
|
1.7 |
|
|
|
27.4 |
|
|
|
0.2 |
|
|
|
25.9 |
|
Non-cash
compensation/benefits (2)
|
|
|
0.1 |
|
|
|
11.2 |
|
|
|
0.1 |
|
|
|
11.2 |
|
Alternative
fuel tax credit (3)
|
|
|
- |
|
|
|
- |
|
|
|
(104.6 |
) |
|
|
(104.6 |
) |
Gain
on early extinguishment of debt, net (4)
|
|
|
- |
|
|
|
- |
|
|
|
(8.7 |
) |
|
|
(8.7 |
) |
Other
items, net (5)
|
|
|
0.1 |
|
|
|
3.1 |
|
|
|
0.7 |
|
|
|
3.7 |
|
Proforma
effects of profitability program (6)
|
|
|
|
|
|
|
|
|
|
|
6.5 |
|
|
|
54.9 |
|
Adjusted
EBITDA
|
|
|
|
|
|
|
|
|
|
$ |
10.1 |
|
|
$ |
232.2 |
|
Net
first-lien secured debt to Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
(1)
|
Restructuring
includes transition and other non-recurring costs associated with the
Acquisition as per our financial statements.
|
(2)
|
Represents
amortization of non-cash incentive compensation.
|
(3)
|
Represents
earnings from the federal government's program which provides incentives
for the use of alternative fuels.
|
(4)
|
Represents
the net gain recognized from the early extinguishment of a portion of our
senior secured notes, net of hedge results.
|
(5)
|
Represents
earnings adjustments for legal and consulting fees, and other
miscellaneous non-recurring items.
|
(6)
|
Represents
cost savings expected to be realized as part of the Company's cost savings
program.
|
NOTE:
|
To
construct financials for the twelve months ended March 31, 2009, amounts
have been calculated by subtracting the data for the three months ended
March 31, 2008, from the data for the year ended December 31, 2008, and
then adding the three months ended March 31,
2009.
|
We are
exposed to market risk from fluctuations in our paper prices, interest rates,
energy prices, and commodity prices for our inputs.
Paper
Prices
Our sales,
which we report net of rebates, allowances, and discounts, are a function of the
number of tons of paper that we sell and the price at which we sell our
paper. The coated paper industry is cyclical, which results in
changes in both volume and price. Paper prices historically have been
a function of macro-economic factors, which influence supply and
demand. Price has historically been substantially more variable than
volume and can change significantly over relatively short time
periods.
We are
primarily focused on serving two end-user segments: catalogs and
magazines. Coated paper demand is primarily driven by advertising and
print media usage. Advertising spending and magazine and catalog
circulation tend to correlate with GDP in the United States - they rise with a
strong economy and contract with a weak economy.
The
majority of our products are sold under contracts with our
customers. Contracted sales are more prevalent for coated groundwood
paper, as opposed to coated freesheet paper, which is more often sold without a
contract. Our contracts generally specify the volumes to be sold to
the customer over the contract term, as well as the pricing parameters for those
sales. Most of our contracts are negotiated on an annual basis, with
only a few having terms extending beyond one year. Typically, our
contracts provide for quarterly price adjustments based on market price
movements. The large portion of contracted sales allows us to plan
our production runs well in advance, optimizing production over our integrated
mill system and thereby reducing costs and increasing overall
efficiency.
We reach
our end-users through several channels, including printers, brokers, paper
merchants, and direct sales to end-users. We sell and market our
products to approximately 100 customers. In 2009, no single customer
accounted for more than 10% of our total net sales.
Interest
Rates
We issued
fixed- and floating-rate debt to finance the Acquisition in order to manage our
variability to cash flows from interest rates. Borrowings under our
senior secured credit facilities and our floating-rate notes accrue interest at
variable rates, and a 100 basis point increase in quoted interest rates on our
debt balances outstanding as of March 31, 2009, under our senior secured credit
facilities and our floating-rate notes would increase our annual interest
expense by $7.0 million. While we may enter into agreements limiting our
exposure to higher interest rates, any such agreements may not offer complete
protection from this risk.
Derivatives
In the
normal course of business, we utilize derivatives contracts as part of our risk
management strategy to manage our exposure to market fluctuations in energy
prices and interest rates. These instruments are subject to credit
and market risks in excess of the amount recorded on the balance sheet in
accordance with generally accepted accounting principles. Controls
and monitoring procedures for these instruments have been established and are
routinely reevaluated. We have an Energy Risk Management Policy which
was adopted by our board of directors and is monitored by an Energy Risk
Management Committee composed of our senior management. In
addition, we have an Interest Rate Risk Committee which was formed to monitor
our Interest Rate Risk Management Policy. Credit risk represents the
potential loss that may occur because a party to a transaction fails to perform
according to the terms of the contract. The measure of credit
exposure is the replacement cost of contracts with a positive fair
value. We manage credit risk by entering into financial instrument
transactions only through approved counterparties. Market risk
represents the potential loss due to the decrease in the value of a financial
instrument caused primarily by changes in commodity prices or interest
rates. We manage market risk by establishing and monitoring limits on
the types and degree of risk that may be undertaken.
We do not
hedge the entire exposure of our operations from commodity price volatility for
a variety of reasons. To the extent that we do not hedge against
commodity price volatility, our results of operations may be affected either
favorably or unfavorably by a shift in the future price curve. As of
March 31, 2009, we had net unrealized losses of $27.7 million on open commodity
contracts with maturities of one to nine months. These derivative
instruments involve the exchange of net cash settlements, based on changes in
the price of the underlying commodity index compared to the fixed price
offering, at specified intervals without the exchange of any underlying
principal. A 10% decrease in commodity prices would have a negative
impact of approximately $2.4 million on the fair value of such
instruments. This quantification of exposure to market risk does not
take into account the offsetting impact of changes in prices on anticipated
future energy purchases.
In
February 2008, we entered into a two-year $250 million notional value
receive-variable, pay-fixed interest rate swap in connection with our
outstanding floating rate notes that mature in 2014. We are hedging
the cash flow exposure on our quarterly variable-rate interest payments due to
changes in the benchmark interest rate (three-month LIBOR). During the first
quarter of 2009, the Company repurchased $12 million of the hedged notes and
de-designated the portion of the swap hedging the interest payments on this
portion of the debt, recognizing an unfavorable fair value adjustment of $0.2
million. On March 31, 2009, the fair value of the designated portion
of this swap was an unrealized loss of $3.9 million. A 10%
decrease in interest rates would have a negative impact of approximately $0.3
million on the fair value of this instrument.
Commodity
Prices
We are
subject to changes in our cost of sales caused by movements underlying commodity
prices. The principal components of our cost of sales are chemicals,
wood, energy, labor, maintenance, and depreciation, amortization, and
depletion. Costs for commodities, including chemicals, wood, and
energy, are the most variable component of our cost of sales because their
prices can fluctuate substantially, sometimes within a relatively short period
of time. In addition, our aggregate commodity purchases fluctuate
based on the volume of paper that we produce.
Chemicals. Chemicals
utilized in the manufacturing of coated papers include latex, starch, calcium
carbonate, and titanium dioxide. We purchase these chemicals from a
variety of suppliers and are not dependent on any single supplier to satisfy our
chemical needs. In the near term, we expect the rate of inflation for
our total chemical costs to be lower than that experienced over the last two
years. However, we expect imbalances in supply and demand will drive
higher prices for certain chemicals such as starch and sodium
chlorate.
Wood. Our costs to
purchase wood are affected directly by market costs of wood in our regional
markets and indirectly by the effect of higher fuel costs on logging and
transportation of timber to our facilities. While we have in place
fiber supply agreements that ensure a substantial portion of our wood
requirements, purchases under these agreements are typically at market
rates. As we have begun to utilize wood harvested from our 23,000-acre
hybrid poplar fiber farm located near Alexandria, Minnesota, our ongoing wood
costs should be positively impacted.
Energy. We produce a
large portion of our energy requirements, historically producing approximately
50% of our energy needs for our coated paper mills from sources such as waste
wood and paper, hydroelectric facilities, chemicals from our pulping process
including black liquor, our own steam recovery boilers, and internal energy
cogeneration facilities. Our external energy purchases vary across
each of our mills and include fuel oil, natural gas, coal, and
electricity. While our internal energy production capacity mitigates
the volatility of our overall energy expenditures, we expect prices for energy
to remain volatile for the foreseeable future and our energy costs to increase
in a high energy cost environment. As prices fluctuate, we have some
ability to switch between certain energy sources in order to minimize
costs. We utilize derivatives contracts as part of our risk
management strategy to manage our exposure to market fluctuations in energy
prices.
Off-Balance
Sheet Arrangements
None.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports that we file and submit under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There are
inherent limitations to the effectiveness of any disclosure controls and
procedures, including the possibility of human error or the circumvention or
overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can provide only reasonable
assurance of achieving their objectives.
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of March 31, 2009. Based
upon the evaluation, and subject to the foregoing, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective to accomplish their objectives as of March 31,
2009.
Changes
in Internal Control Over Financial Reporting
There was
no change in our internal control over financial reporting during the fiscal
quarter ended March 31, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
We are
involved in legal proceedings incidental to the conduct of our
business. We do not believe that any liability that may result from
these proceedings will have a material adverse effect on our financial
statements.
On August
6, 2008, we filed a declaratory judgment suit in the United States District
Court for the Eastern District of Wisconsin against NewPage Corporation and
NewPage Wisconsin System Inc., in response to a patent infringement claim
asserted by NewPage regarding certain of our coated paper
products. The action sought a declaration that our coated paper
products do not infringe the NewPage patent and that the NewPage patent is
invalid. On January 29, 2009, the action was voluntarily dismissed
with prejudice pursuant to a settlement agreement between the
parties. As part of the settlement, NewPage granted us an
irrevocable, perpetual, non-exclusive, worldwide, royalty-free, and fully
paid-up right and license for any and all purposes under the NewPage patent and
any continuation, division, reissue or non-U.S. counterpart of the
patent.
Our
business is subject to various risks. Set forth below is an important
risk that we face and that could cause our actual results to differ materially
from our historical results. Additional risk factors are discussed in
our annual report on Form 10-K for the year ended December 31, 2008, and our
other SEC filings.
The
alternative fuel mixture tax credit provided by the U.S. government is being
challenged in Congress and may be amended in a manner that eliminates or reduces
the benefits of the tax credit for pulp and paper companies.
The U.S.
government provides an excise tax credit to taxpayers for the use of alternative
fuel mixtures. The alternative fuel mixture tax credit, as it relates
to liquid fuel derived from biomass, is scheduled to expire on December 31,
2009. In recent weeks, certain members of Congress and others have
indicated their opposition to pulp and paper companies receiving the tax
credit. They have called for the amendment of the tax credit in a
manner that would eliminate or reduce its benefits for pulp and paper
companies. In response, other members of Congress and interested
parties have voiced their support for maintaining the tax credit and its
availability to all taxpayers, including pulp and paper companies. We
do not know whether the U.S. government will amend the tax credit to eliminate
or reduce its benefits for pulp and paper companies, but there is the
possibility that such action may be taken. Any such amendment of the
tax credit could have a material adverse effect on our financial condition and
results of operations.
Not
applicable.
Not
applicable.
Not
applicable.
Not
applicable.
The
following exhibits are included with this report:
Exhibit
|
|
Number
|
Description
|
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) under Securities
Exchange Act of 1934.
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) under Securities
Exchange Act of 1934.
|
32.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(b) under Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of United
States Code.
|
32.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(b) under Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of United
States
Code.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: May
7, 2009
|
|
|
|
VERSO
PAPER CORP.
|
|
|
|
|
By:
|
|
|
|
Michael
A. Jackson
President
and Chief Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Robert
P. Mundy
Senior
Vice President and Chief Financial
Officer
|
The
following exhibits are included with this report:
Exhibit
|
|
Number
|
Description
|
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) under Securities
Exchange Act of 1934.
|
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) under Securities
Exchange Act of 1934.
|
|
|
32.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(b) under Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of United
States Code.
|
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(b) under Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of United
States Code.
|
36