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Verso Paper Corporation (NYSE:VRS)

Q4 2013 Earnings Conference Call

March 6, 2014 9:00 AM ET

Executives

Robert Mundy – SVP and CFO

Dave Paterson – President and CEO

Operator

Good day and welcome to the Verso Paper Corp. Fourth Quarter 2013 Earnings Call. Today's conference is being recorded.

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

Robert Mundy

Thank you. Good morning and thanks for joining Verso Paper's fourth quarter 2013 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Dave Paterson, and myself, Robert Mundy, Senior Vice President and Chief Financial Officer.

Before turning the call over to Dave, I’d like to remind everyone that in the course of this call, in order to give you a better understanding of our performance, we will be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from management's expectations. If you would like further information regarding the various risks and uncertainties associated with our business, please refer to our SEC filings, which are posted on our website at versopaper.com under the Investor Relations tab. Additionally, due to the pending merger between our company and NewPage, we will not be taking questions after discussing our prepared slides this morning. Dave?

Dave Paterson

Thank you, Bob and good morning to everyone on the call. Let's take a look at the fourth quarter of last year. From a volume point of view, our volume were 4% below our seasonally stronger third quarter and 2% lower the prior year's fourth quarter. The pricing side, we were 2% below the third quarter and 1% below 4Q, 2012. Finished goods inventories moved 15% lower and our inventories are in very good shape. This was a good effort by our sales organization and manufacturing organization to manage inventories in this difficult market. Our energy costs moved higher in the fourth quarter in the normal seasonal pattern was slightly below fourth quarter 2012 levels. And at year end our liquidity stood at $152 million of available liquidity with no revolver borrowing till the end of the year. If you look at on a graphical representation on the volume side, you can see one of the slight decline in volumes and sales as reflected in pricing and volumes down, EBITDA down slightly from a year ago and down from the third quarter of last year. Our adjusted EBITDA margin stayed in the 10.4% range which is pretty consistent with our normal fourth quarter pattern. Bob?

Robert Mundy

Thanks. Please turn to Slide 5, volumes and prices in our major coated rates came under pressure actually during the latter part of the third quarter. And these pressures continued till fourth quarter as well as are continued into 2014 volumes were seasonally lower versus the third quarter and down 4% versus last year's fourth quarter. Coated prices were off 2% from the third quarter and almost 4% below the fourth quarter of 2012. But we had good pulp volume for the quarter and prices were about flat from the third quarter and over $90 a ton above fourth quarter of 2012.

Turn to Slide 6; you can see the key changes between our fourth quarter of 2013 adjusted EBITDA of $37 million versus the $41 million in a fourth quarter of 2012 and the difficult market conditions drove volume down about $2 million and price mix about $6 million or around $7 per ton. Operations were favorable $3 million and input prices were slightly favorable as some of the actions we took relative to our delivery energy prices as well as lower chemical prices offset prior wood cost during the quarter.

At Slide 7, you just view of the adjusted EBITDA changes between fourth quarter of 2013 and the third quarter of 2013. The impact of lower volumes coming off to seasonally stronger third quarter was about $ 3 million and the continued pricing pressure had a negative impact of $5 million. Operations struggle a bit versus the third quarter in the areas of productivity and material usage. Input prices primarily the energy component for this area were unfavorable compared to the milder weather conditions of the third quarter. But raw material prices favorable and woods slightly unfavorable. There is a bit more information related to the input prices on slide 8 where you can see the direction prices have been moving, chemical prices are lower year-over-year and versus the third quarter of 2013, while wood prices are slightly higher versus the fourth quarter of 2012, we had favorable results in our hedging program relative to the commodity price of gas as well as the delivery component. However, all energy components were higher moving out of the third quarter of 2013 as increased demand for gas drive prices up not only for what we use but for the electricity we buy as well since over 50% of electricity made is driven by gas as a generation fuel.

You turn to Slide 9, here you see an EBITDA bridge between the full year of 2013 versus full year of 2012, lower volumes for the year which was significantly impacted by the capacity loss as a result of the fire and subsequent closure of the Sartell Mill in mid-2013 had a negative impact of $7 million. Although coated prices were lower year-over-year, higher pulp prices as well as higher prices for our specialty product resulted in overall pricing being $2 million above the average for 2012. Operations cost were $21 million, below 2012 resulting of the continuation of successful R-Gap initiatives and overall input prices were $22 million higher driven by energy prices primarily in the early part of 2013. Both wood and chemical prices were lower by about $7 million combined versus what we paid in 2012.

Now I'll turn it back to Dave.

Dave Paterson

Thanks Bob. As we look at this year 2014 on Slide 10, of course our efforts are really focused on the NewPage acquisition and integration process that were continues at a pace both from the regulatory approval point of view as well as integration activities. During the quarter, we did acquire $175 million megawatt cogeneration facility at Bucksport, the percentage of that venture that we did not own that deal close on February 28, that is a good transaction for the company and we now have full control and ownership of that assets at the Bucksport mill. During the quarter we are expecting normal seasonally lower volumes in the first quarter and levels not also below first quarter but also first quarter of last year. We are seeing abnormally cold winter again in May and we will see much higher, significantly higher energy prices in the first quarter comparable to what we saw last year in terms of its impact on our operations. And then of course the market headwinds that we have been facing for several quarters continue and then price, volume and cost were all the under pressure in the first quarter, we will see significantly lower performance in the first quarter of this year than we saw a year ago or in the fourth quarter just completed. So all those factors are weighing on us right now.

We also continue to see substitutions from supercalendered grades and the coated groundwood grades and that continues. The bright side is we finished three double digit growth in our specialty businesses and we are encouraged by that, also would like to mention the pulp business continues to be strong and pricing -- we are seeing some price enhancement in the pulping sector. Coated pricing remained under pressure and we anticipate that we will continue through the first half of 2014. And from our perspective, our inventories are in good shape and we think that we do not have any inventory overhanging our system. And we also took -- we have taken significant downtime in the first quarter in the state of main that was really a combination of the cost of procured buying energy and the impact that has on our operations as well as the demand factors that I talk about, so that's the picture.

We thank you for your interest in Verso Paper and look forward to talking you in the future. Thank you, operator.

Operator

And that does conclude today's conference. Again thank you for participation.

Question-and-Answer Session

[No Q&A session for this event]

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