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Executives

Robert Mundy – Senior Vice President and CFO

Mike Jackson – President and CEO

Analysts

Joe Stivaletti – Goldman Sachs

Jeff Harlib – Barclays Capital

Bill Hoffman – RBC Capital Markets

Kevin Cohen – Imperial Capital

Tarek Hamid – JP Morgan

Gary Madia – Gleacher & Company

Sandy Burns – Sterne, Agee

Roger Spitz – Bank of America-Merrill Lynch

Michael Marczak – UBS

Bill Schwartz – Citi

Frank Duplak– Prudential

Verso Paper Corp. (VRS) Q4 2011 Earnings Call March 7, 2012 9:00 AM ET

Operator

Good day, everyone. And welcome to the Verso Paper Corporation Fourth Quarter 2011 Earnings Conference Call. Today’s conference is being recorded.

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

Robert Mundy

Thank you. Good morning. Thanks for joining Verso Paper’s fourth quarter 2011 earnings conference call. Representing Verso today on this call is President and Chief Executive Officer, Mike Jackson and myself, Robert Mundy, Senior Vice President and Chief Financial Officer.

Before turning the call over to Mike, I’d like to remind everyone that in the course of this call in order to give you a better understanding of our performance, we will be making certain forward-looking statements.

These forward-looking statements are subject to risk and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimate prove incorrect, actual results may vary materially from management’s expectations.

If you would like further information regarding the various risks and uncertainties associated with our business, please refer to our various SEC filings which are posted on our website versopaper.com under the Investor Relations tab. Mike?

Mike Jackson

Thank you, Bob, and good morning, everyone. If you would reference slide three, let me start off by saying that we certainly broke away from tradition as our fourth quarter volumes and pricing were virtually flat with the third quarter.

As most of you know, the fourth quarter is always have to drop off in volume from the third quarter and so given the traditional seasonality issues and the current pressures in the marketplace this was an outstanding result in these two areas.

Even with the modest economic conditions our fourth quarter 2011 volume for our core product line was up 5% from the fourth quarter of 2010. The volume number along with our price being up 5% drove a revenue improvement of $43 million.

The final EBITDA number of $48 million was also favorably impacted by our operational costs being down $9 million over the fourth quarter of 2010. Unfortunately, although, input costs did ease a bit from last quarter, input costs were up $23 million compared to last year and our average pulp price was up 11% from the fourth quarter of 2010. Given those headwinds the $48 million was certainly well earned.

During our last call, we mentioned that we’d be very focused on year end inventories. Our group did a very good job here in both our coated groundwood and coated freesheet levels were down from Q3 levels and actually we ended the year slightly better than our target.

During the quarter, we had a successful start up of our $45 million Quinnesec Green Energy Project. You may remember that this project in 2012 will deliver about $11 million a year in savings. We’ll talk more about our energy strategy later in the call. We do believe that this project on the net costs per megawatt basis is at world class levels.

Q4 2011 was certainly an active quarter for our organization. In the early stages of the fourth quarter we announced that we would permanently be shutting down three machines, two machines were at our Sartell Mill and produced total of 103,000 tons of SC paper.

The machine -- the other machine was our number two above quote which produced about 90,000 tons of coated groundwood. All three of these machines were shutdown in the quarter. They have been on time and we believe very respectfully for the impacted employees. We’ll give more detail on the cost of the shutdowns later, but we do expect that those machine shutdowns will be EBITDA positive in 2012 for the company.

I’ll hand this over to Bob now and then we’d back to address our outlook for the year, as well as give an update as I mentioned on our energy strategy progress. Bob?

Robert Mundy

If you turn to the slide four, as Mike said, our volume for the quarter it was very comparable to the seasonally strong third quarter and noticeably up versus the fourth quarter of 2010. Sequentially, sales were down slightly due to volume and price being less than 1% below third quarter levels. However, revenues were up over 10% versus last year on much stronger volume and prices of being about 4% above the quarter, previous quarter.

Adjusted operating income and net earnings for the fourth quarter were comparable to last year’s fourth quarter, but down from the third quarter of 2011 due to the slightly lower paper volume and price, pulp prices being about $50 per ton lower and some remaining unabsorbed fixed cost related to the timing of shutting down the three paper machines Mike spoke of.

If you turn to slide five, you can see that coated volumes were about 21,000 tons higher than last year’s fourth quarter and almost flat with the seasonally strong third quarter. Coated prices were over $40 per ton above last year’s fourth quarter and only $4 per ton lower on a sequential basis.

Pulp volumes, similar to last year in the previous quarter but prices were $66 per ton below last year and as I said, $50 per ton below last quarter’s levels. However, it appears that pulp prices have reached the bottom and are starting to move back in the right direction. You may have seen where we recently announced a $30 per ton price increase on our NBHK pulp effective March 1st.

If you turn to slide six, you can see the key changes between our fourth quarter 2011 adjusted EBITDA of $48 million versus the $50 million in the fourth quarter of 2010. The higher volumes and price I’ve mentioned earlier contributed about $16 million.

Operations cost was $9 million better than last year. However, input prices were $23 million higher than last year, primarily driven by prices for chemicals such as latex, caustic, clay and starch, as well as wood prices being impacted by the diesel cost component of our wood deliveries.

Slide seven gives you a view of the adjusted EBITDA changes for the fourth quarter of 2011 versus the third quarter of 2011. Slightly lower volume and price were worth about a negative $4 million to $5 million, manufacturing operations were higher than the previous quarter, which had a lot to do with the remaining unabsorbed fixed cost related to the shutdown of the three paper machines, as well as the seasonal increase in things like energy usage during the quarter -- fourth quarter period.

These unabsorbed fixed costs on a go-forward basis have -- they either have been or will be removed early this year or certainly by the time we get into well into the second quarter. As we mentioned earlier, prices for input materials eased and were slightly favorable versus last quarter. The remaining negative variance is mostly related to higher diesel prices within our freight costs and some year end true-ups in SG&A and LIFO inventory.

Moving on to slide eight, you can see the direction of our input prices were moving versus last year and versus the third quarter of 2011. In the chemical area, it’s the usual suspects of latex, starch and clay prices being higher on a year-over-year basis with minimal change versus last quarter, pretty much as we expected.

Wood prices were higher than both comparable periods, primarily driven by higher diesel crisis and energy prices all the above last year’s levels due to fuel oil, they were about flat versus the third quarter. And as I’ve mentioned already, pulp prices had been down but we think they have bottomed and will begin to move back up.

On slide nine, you’ll see that key components of our full year 2011 results were much improved versus 2010 numbers. These results were derived from improved prices for our products, as well as the cost improvements in our operations as we had to overcome more than $70 million of higher input prices than we had during 2010.

With that, I’ll turn it back over to Mike.

Mike Jackson

Okay. Thanks Bob. If you would turn to slide 10, let me add some color to what our energy strategy was and more importantly, what we’ve accomplished since our announcement. I guess in a sense we did what we said we would do, we’ve finished 11 of 12 identified energy projects with the last being completed by mid-April. As a reminder, these 12 projects were presented to and approved by the Department of Energy and we have since received grant money for all of the finished projects.

Going down the list, as mentioned the Quinnesec project is complete and the Bucksport project is well on its way with an expected startup in the late third or early fourth quarter of this year. We also have multiple energy RGAP projects adding up to $6 million worth of capital, which over the past two and half years by the way has encompassed 36 discrete projects focused on reducing energy.

The total CapEx spend is, as we’ve mentioned in the past, $114 million. The $36 million of government grants are in process and we’ve already received the new market tax credits. So our net spend all in will be $71 million, with expected $50 million savings run rate achieved by the fourth quarter of 2012. We expect a pre-incentive ROI of 44% and a post-incentive ROI of 71%.

On slide 11, I already mentioned the fourth quarter machine shutdowns and their impact. What I’ll add here is that we had a pre-tax charge of $24 million in the fourth quarter, $13 million of which was cash, and $11 which was non-cash. These machine shutdowns were made to balance supply and demand to improve our overall cost basis, and we expect these changes as I already mentioned to be EBITDA positive in 2012.

If you move to slide 12, I’ll spend a few moments giving you our view of the coming year. We expect to see flat coated paper volumes given our B2 shutdown, higher specialty volumes, lower imports and we’ll continue to balance supply and demand. Given the projected operating rates for 2012, we expect prices to be slightly down during the first half of the year and then moving upward as we move into the busier second half of the year.

So net-net it should put us close to the full year average price for 2011. The RGAP process will continue to mitigate input cost increases and our CapEx spend will drop back to normal levels from the $91 million that we spent in 2011.

We expect to receive $30 million during the year for energy grants that I mentioned. We should see our working capital level fall to a lower level than in 2011 and certainly as in the past, we’ll manage our cash wisely, and we expect to be cash flow positive for the year.

With that operator, Bob and I will be happy to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll have our first question from Joe Stivaletti, Goldman Sachs.

Joe Stivaletti – Goldman Sachs

Good morning. I just wanted to ask you about two things. One was you show pro forma effects of profitability programs in total of $68.3 million and I know the energy, I assume the energy is in -- is a big part of that. But just was wondering the timing of that, I mean of the $68.3 million, is there a rough number that you could say that you will think would be actually in your 2012 EBITDA?

And I also just wanted to clarify one of your statements on slide 12 about whether you’re basically expecting that amount to be offset by input cost inflation this year, is that correct?

Robert Mundy

Yeah. Joe, to answer your first question, that the $68 million is -- there’s three large I guess, one way to look at it, there’s three large components of that and the largest is the RGAP program that we talked about many times and the other two key components or the benefits from the Quinnesec Energy Project and the Bucksport Energy Project. And I’d say by the end of the year, those are all committed projects, committed initiatives that make up that $68 million.

And I’d say by the end of the year, we’ll have well over two-thirds of that if not a little bit more with really the last piece being since Bucksport that project will not startup until late in the third or early fourth. So, even though there is significant savings there, we won’t get a lot of that that benefit will be on the run rate before year end, but a lot of that benefit will fall over into 2013.

Mike Jackson

Joe, in your second question, obviously, the RGAP historically has delivered $40 million to $45 million of savings and my comment was about really mitigating the input costs. I mean, we were hoping that it will be a wash. This year was a bit of a surprise in terms of input costs being higher than, honestly, we have projected but if you go back to a normal inflationary year with direct costs it should basically be a wash.

Joe Stivaletti – Goldman Sachs

And when you say a wash, you’re talking about input cost inflation, which I realize is very tough to estimate at this point. Are you talking about that versus all of these savings including the energy stuff, is that correct?

Mike Jackson

No. Just against the RGAP itself, take away the key rep and the Bucksport project and no, I’m just talking on a historically confident number of that 40 to 45 million bucks that we deliver from an operational improvement perspective.

Joe Stivaletti – Goldman Sachs

Okay. All right. And then the other question I had was just, I was just wondering if you are could talk about your perspective as it relates to your current debt structure, your capital structure, if you’re, if you envision doing anything, making any adjustments in the near-term, I realize you have the whole co-term loan that’s relatively near-term maturity, I don’t know if you have comment on how you are thinking about addressing that, but any color there would be helpful?

Robert Mundy

Yeah. Obviously. Joe, you’re aware that we announced the transaction relative to our revolver back in February. Getting -- going beyond that transaction, we certainly are evaluating opportunities especially where some of our debt is trading that there could be some very good opportunities to take advantage of those discounts that are out there right now.

But, yeah, I would anticipate us doing something we’re trying to determine what the best approach we think we’re pretty close as far as having determined what that would be. And so to answer your question, I mean, I think you can see some things in the -- in our capital structure here as we go throughout the year.

Joe Stivaletti – Goldman Sachs

Thank you.

Operator

We’ll proceed to our next question from Jeff Harlib, Barclays Capital.

Jeff Harlib – Barclays Capital

Hi. Good morning.

Mike Jackson

Good morning, Jeff.

Robert Mundy

Hi Jeff.

Jeff Harlib – Barclays Capital

Yeah. Just in terms of market conditions, can you just talk about what you’re seeing in terms of demand from your key end markets entering 2012, also a little bit on pricing in pulp and paper you have shown erosion particularly in coated groundwood to a lesser extent coated freesheet? And then just also a little bit on near-term input costs?

Mike Jackson

Yeah. Jeff, I guess the first thing is to comment about the pricing. I think in my comments I mentioned that we did expect to see a slight drop in the first half of the year. I mean, that’s clear to us. I think we did a very good job of maintaining and holding price in the fourth quarter but we have seen market pressures and we responded to that.

But longer term I think I also mentioned that I felt that the slight downturn in price for the first half of the year and then an upward bounce going into the second half of the year. The key here obviously is operating rates and operating rates continue to be above $90, that’s positive. As it relates to your question about business conditions today, the first quarter in our industry, in our business is normally slow -- slower and it’s proven to be the case for this quarter.

I don’t see anything dramatic one way or the other. And again, remember, we’re coming off of a surprisingly strong fourth quarter for us that broke away from tradition in terms of being stronger than the or flat in the third quarter.

So, I guess, all in all, I think your last question was about input cost. And, honestly, it’s a mixed bag. I think that gas prices continue to be good. I think the wildcard here is what’s going to happen to the price of oil. That’s -- it’s more than a political football so to speak and that has a direct impact on our chemical cost, just about everything that we do buy.

And of course the other thing is that we have to deal with the impact of transportation which is a significant cost for us. But, again, I’m still glad that we got into that energy strategy two and half years ago because more than ever it’s going to pay back all the efforts that were put into this thing and we feel very good about that.

Robert Mundy

And in the first quarter, specifically to your question, Jeff, we will, I think there will be some that we will see on a sequential basis, I don’t anticipate it being real large, though.

Jeff Harlib – Barclays Capital

Okay. And just then on, just on your comments on coated shipments being flat adjusted for the closures, I just want to make sure I understand. So you had about 1.6 million coated paper shipments, if I take out 200,000 that’s about 1.4 million. Is that about what you’re thinking you will ship this year?

Robert Mundy

Yeah. It will, well, for just coated, Jeff or I’m sorry, your...

Jeff Harlib – Barclays Capital

Yeah. Your coated in SC segment.

Robert Mundy

You said 1.4, it should be higher than that.

Jeff Harlib – Barclays Capital

Okay. So it should be close to your 1.5 capacity?

Robert Mundy

Yeah. Absolutely.

Jeff Harlib – Barclays Capital

Okay. Okay. And then just a last question, on the, just under $50 million of savings from the energy projects, can you just talk about where you were in Q4 on that annualized and how much of the $50 million is the Bucksport project?

Robert Mundy

Well, we, Bucksport and Quinnesec together are upwards of $30 million or so of that number, obviously, none of the Bucksport is in the fourth quarter because the project is not done. A little we started to see some of the Quinnesec piece of that $30-something million because we finished the project during the quarter.

The balance of that, Jeff, I’d say through our energy, we have some energy capital work and some energy RGAP stuff and we have the DOE projects which are all fully completed. So of that safety, I would say certainly around 20 of that is what I would estimate.

Jeff Harlib – Barclays Capital

20 is what?

Robert Mundy

Is where I, to answer your question about what was achieved by the fourth quarter.

Jeff Harlib – Barclays Capital

Okay. Okay. Great. Thank you.

Operator

We’ll go next to Bill Hoffman, RBC Capital Markets.

Bill Hoffman – RBC Capital Markets

Thank you. Good morning. I just wonder, Mike, can you talk a little bit about sort of first half of the year. One, operating REITs really in the first quarter and the second quarter typically you have your seasonal downtime, want to get a sense of where your thoughts are planned for this year?

Mike Jackson

Well, Bill, certainly we’ll continue to met supply and demand, one of the things that we normally do as you probably know is that we have to build a little bit of inventory in that period of time because come to third quarter there’s always that imbalance between supply and demand, demand obviously being more than supply.

So I mean part of our strategy will be to build those grades that we feel that we need to build that we have customer commitments on going into the second half of the year. And I don’t see that changing, we’re going to have some typical outages and things that we need to do in the mill system. But I don’t -- as I look out, I don’t see any significant distortion relative to demand.

I think the catalog business is that it seems to us to be better obviously than the magazine business. The magazine business has some very interesting swings as it relates to ad pages. Normally that April timeframe, late March, April, May timeframe is the slowest for the advertisers in the magazine side of things and honestly, that looks to be the case this year.

So I don’t know if that answers your question, but I guess I would just say it, to me it looks like a typical year with obviously the projections that we see is laid out there, of operating rates that should be in the 90s. And that’s a year statement, the 90%, 91%, 92%, 93%, and that’s a full year in, obviously in the first quarter I think those rates will drop.

Bill Hoffman – RBC Capital Markets

Sure. No. Thanks. As we look in the second quarter though, typically, do -- you guys do take your maintenance downtime in your mills, is it the normal schedule this year, heavy schedule this year?

Mike Jackson

Yeah.

Robert Mundy

Not enormous...

Mike Jackson

No.

Robert Mundy

It’s pretty enormous…

Mike Jackson

Yeah.

Robert Mundy

Nothing...

Bill Hoffman – RBC Capital Markets

Nothing big major projects.

Mike Jackson

No.

Bill Hoffman – RBC Capital Markets

Okay. And then next question is just with regards to the $36 million from government grants. Do you expect to get that in the first half of the year from a cash standpoint?

Robert Mundy

Yeah. That the half of that, Bill, half of that we will, the other we won’t receive until after we’ve complete the Bucksport project which will be completed later in the year.

Bill Hoffman – RBC Capital Markets

Okay. And then, Bob, you mentioned CapEx going back to normal that means something in the sort of $50 million or $60 million range?

Robert Mundy

Yeah. But we hit -- when you consider that there were grants that we received which are capital related, cash actually coming in. The net number there will be in the $50 million to $60 million range on a net basis.

Bill Hoffman – RBC Capital Markets

Okay. So -- but you’ll show gross of close to...

Robert Mundy

Yeah. We’ll show a gross of…

Bill Hoffman – RBC Capital Markets

(Inaudible)

Robert Mundy

Yeah. Yeah.

Bill Hoffman – RBC Capital Markets

Okay. And then just sort of the last question, any thoughts about in the fourth quarter whether there was your customers, how -- what were they doing as far as managing their inventories because on most industry that were -- most of the guys we talked to, they really was destocking at the end of the year and you guys seemed to do pretty well. Were any of your customers destocking or do you think there was any pull forward of first quarter demand or just to get a sense on the flow you guys are experiencing?

Mike Jackson

Yeah. Bill, you know what, actually it’s a mixed bag. I mean, some of our customers were very carful with their inventory and honestly, I think that for us where we had a surprisingly strong quarter, it was really all specifically customer and mix related. It just happened to come at a positive time and some of the customers that we had particularly in the catalog side had a particularly busy ordering time.

And I don’t think to answer your question, I don’t think that anybody was trying to pre-buy because there was really no indication of based off of what we though the first quarter would be that you’d want to pre-buy when you know there has been a little bit of price slippage if that makes sense.

Bill Hoffman – RBC Capital Markets

Yeah. Okay. No. Thank you very much.

Mike Jackson

Yeah.

Operator

We’ll go next to Kevin Cohen, Imperial Capital.

Kevin Cohen – Imperial Capital

Good morning.

Mike Jackson

Hi, Kevin.

Kevin Cohen – Imperial Capital

Good morning. Thanks for taking the questions. I guess if you could just share a little bit more color in terms of the 4Q performance relative to the normal seasonality. Do you think the company benefited from any sort of market share gains, given some of the issues that some of the key comparables out there or maybe just a little bit more color on that?

Mike Jackson

Well, we did have a good fourth quarter and look I think that at the end of the year, we were basically on the coated freesheet side, I would say we were basically flat in terms of market share on the coated groundwood side, we may pick up 1% or so.

And I just think that kind of relates to our reliability and the way we run our business, and the relationships that we formed with our customers. So to answer your question, I think we’ve gained a little bit of market share with groundwood and we were clearly flat against the market as it relates to freesheet.

Kevin Cohen – Imperial Capital

And then I guess in terms of the machine closures probably coming in the fourth quarter, can you quantify the positive EBITDA impact you expect from that in 2012?

Robert Mundy

No. I’ll just tell you that we expect it to be positive, Kevin, which is quite a feat to take out that much capacity and actually make it a positive thing as far as keeping supply and demand in balance, and really not let it hurt us on the bottom line. It takes some work and effort, like I said to get some of those costs out that sort of hit us in the fourth quarter when we shut down those machines.

It takes a lot of work and effort to get those costs out of our system which we’ll do here in short order. But it did -- it will certainly have a positive EBITDA impact and with considerations of tightening up supply and demand, when you consider that as well, it’s a very, that’s a good thing.

Kevin Cohen – Imperial Capital

And then just two quick follow ups, I guess in terms of the imports being lower in 2012, what would you attribute that to?

Mike Jackson

Well, it really goes to the whole European strategy in the sense of cleaning up their business and we continue to see announcements, Kevin, of shutdowns and taking out high-cost equipment. Certainly high-cost mills, non-integrated mills and I think that’s going to continue.

I think we’ve said this in the past, no matter where the euro is over the last five years, it didn’t really seem to make a difference in terms of imports. And I just all indications are all of that, look, they have some work to do at home and I think that’s why we’re seeing we’re not going to see an increase in imports in fact based on the market. We -- the market and by the way transportation costs continued to be a hindrance for shipments coming in.

Robert Mundy

If you just look through 2011, Kevin, you know just over the last few years about almost 25% of the capacity in Europe has been shut down so. You know some of that capacity obviously was coming this way and so as Mike said it’s sort of just tightening up supply demand balance over there, you can’t expect -- I don’t think they’re finished but it’s certainly -- sort of moving in the right direction.

Kevin Cohen – Imperial Capital

And then lastly just -- further sort of elaboration -- that in terms of capacity and restructurings in the industry and closures, do you think that’s going to be look like primarily in companies out right closing machines similar to what the company did in 4Q or do you think it will be more of a reflection of actual M&A between companies within the industry or a mix of a the two?

Robert Mundy

I think it’ll be probably a mix of the two. We don’t have any closures -- machine closures in our horizon. We only just took out the three we did, but I think, Mike and I both think that some of that will continue in 2012.

Kevin Cohen – Imperial Capital

That’s very helpful. Thanks for your thoughts and good luck with everything.

Mike Jackson

Thanks, Kevin.

Robert Mundy

Thanks, Kevin.

Operator

We’ll go on next to Tarek Hamid, JP Morgan.

Tarek Hamid – JP Morgan

Good morning.

Mike Jackson

Good morning.

Robert Mundy

Good morning.

Tarek Hamid – JP Morgan

Sort of guidance on working capital, you’ve mentioned basically potentially being a source of cash, is that correct?

Robert Mundy

Yeah.

Tarek Hamid – JP Morgan

Okay. But sort of more cap is small source interest of a 120, CapEx is $60 million and then some restructuring charges of $13 million sort of you need to get kind of over $180 million to $190 million to get the free cash flow breakeven in terms of EBITDA, is that sort of reasonable math?

Robert Mundy

You know, that’s like I said -- it’s we expect to be cash flow positive and a piece of that will come from the working capital change that Mike spoke of were -- we’ve ended the good place with inventories and it’s not just the finished goods inventories, but -- we have a lot other types of inventories that we have to manage and -- that will be a big chunk of that -- of that cash improvement and of course the other pieces are -- you can sort of fill in the blanks with -- what you think is our interest and our CapEx and so forth and -- so that I can see, how we could get to that to that type of number yield.

Tarek Hamid – JP Morgan

Understood. And maybe coming back to sort of a question that was asked earlier, in terms of kind of capital structure priorities just sort of how do you weigh addressing 2013 or 2014 maturities with potentially taking advantage of some of the discount on some of your longer dated debt?

Robert Mundy

We just look at them one at a time obviously and we sort of talked about the revolver -- transaction our floating rate notes, I would think that they would get refinanced before they come due in 2014. I think some of those we have big adequate time to deal with that maturity on the hold-co which will be -- the first thing coming due. We have options including refinancing the bit or by issuing equity and we’ll evaluate what options as we get a bit closer to that maturity.

Tarek Hamid – JP Morgan

And I guess just more sort of a bigger picture question as you think you have -- capital structure stance in terms of -- quantum of that -- do you think that number makes sense or do you think, you need to reduce that over time still.

Mike Jackson

Absolutely, I mean, certainly you need to you know reduce debt in our focus most recently obviously has been on the -- on these higher return energy projects and that’s where -- sort of our cash has been directed but now that we’re -- winding down that first phase of our strategic energy program, focusing on getting some debt down, especially when it’s at some attractive levels will be certainly something that we’re paying a lot of attention to.

Tarek Hamid – JP Morgan

Okay. Thank you very much.

Mike Jackson

Okay.

Operator

Our next question comes from Gary Madia, Gleacher & Company.

Gary Madia – Gleacher & Company

Thank you. Most of my questions obviously, have been answered. Just a couple of things, Bob, how do you sort of cash pension funding over and above what’s expected to be in the P&L in 2012?

Robert Mundy

I’m sorry, Gary?

Gary Madia – Gleacher & Company

Pension funding cash, pension funding over and above kind of what you expect to actually expense through the P&L.

Robert Mundy

Nothing significant there, Gary, at all.

Gary Madia – Gleacher & Company

Okay. So not material?

Robert Mundy

No.

Gary Madia – Gleacher & Company

Okay. And then my final question as it relates to what Mike was talking about earlier about supply and demand balance in the industry. And on the SE side obviously a big wildcard is what’s going up on up at Port Hawkesbury. The thoughts about supply and demand balance in terms of operating rates through the years stay, add or north at 90%. And the SE side in particular, is it the company’s view that Port Hawkes stays down and was there any additional sides about that because that could be a big swing factor this year on the SE side?

Mike Jackson

Well, there’s no question, that’s a wild card and there’s certainly still a lot of challenges at that facility in terms of energy cost and wood cost and all the things that I think that you’re aware of. But honestly, if it comes back, it’ll impact us.

Robert Mundy

Yeah. But obviously we’re out of it. We’re pretty much out that business. Two to three machines we shut down were in that business and obviously as we announced, we’re getting out of -- of any inventory we had remaining, we’re getting out of that business. But certainly from a migration standpoint from one grade up to number five grade, to an SE if this comes back online, yeah, it could have an impact on us, but that’s yet to be determined how that’s going to play out.

Gary Madia – Gleacher & Company

Okay. All right. Thanks. Thanks for the color. I appreciate it.

Operator

Our next question comes from Sandy Burns, Sterne, Agee.

Sandy Burns – Sterne, Agee

Hi, good morning.

Mike Jackson

Good morning.

Sandy Burns – Sterne, Agee

Hi, I wonder -- could you elaborate just on a comment you made a few minutes ago about addressing the wholesale notes that you could issue equity to deal with that maturity? Is that a right you have in that loan obligation or is that just conceptually thinking about issuing equity as a ways of raising capital to take care of that note?

Robert Mundy

It’s just another option that we have.

Sandy Burns – Sterne, Agee

Okay. Great. And then just secondly, just on the import issue as well, I wonder if you could just give an update. I think the Congress was supposed to take some actions this week to maintain the tariffs on coated freesheet coming in from China? Do you know if that occurred or not or if so...

Mike Jackson

Yeah.

Sandy Burns – Sterne, Agee

...what’s the status of that issue?

Mike Jackson

Yeah. It did. That happened I believe...

Robert Mundy

Monday.

Mike Jackson

Monday, yeah. And so the -- they continue to be able to put a tariff on Chinese imports.

Sandy Burns – Sterne, Agee

Okay. Great. And last question is the $7.5 million hedge loss that you took in the fourth quarter. Was that an actual cash loss that the company took or is that just more of a mark-to-market that you had to report...

Robert Mundy

It’s a non-cash item. Just -- it’s just a mark-to-market.

Sandy Burns – Sterne, Agee

Great. Great. Thank you very much.

Mike Jackson

Okay.

Operator

We’ll go next to Roger Spitz, Bank of America- Merrill Lynch.

Roger Spitz – Bank of America-Merrill Lynch

Thank you. Good morning.

Mike Jackson

Good morning, Roger.

Roger Spitz – Bank of America-Merrill Lynch

How much of the $7 million increase in SG&A cost in 2011 was due to non-recurring costs that were called out in the 10-K versus the inflation and any guidance on 2012 SG&A?

Mike Jackson

The 2012 will be very comparable to 2011 and it will be not that different and what we’ve had over the last several years that it’ll -- we expect it to be less than 5% of sales and we’ve always been in that 4% to 5% range. So that’s sort of the outlook on that. And any increase that in 2011, it was there were there are different things going on that impact one year that you didn’t do with the previous year that fall into that SG&A bucket but there is nothing, Roger, that really is to me that outstanding so to speak.

Roger Spitz – Bank of America-Merrill Lynch

Okay. And on page 10, of the $15 million of cost savings from some of these projects, how much of the DOE 44 Area 3 Grants, how much of that $50 million is from those 12 projects? And of the projects, you were saying 11 are already done. Is that already in the numbers now in Q4?

Mike Jackson

Yeah. Those, for those DOE projects, those would be in the Q4 numbers.

Roger Spitz – Bank of America-Merrill Lynch

Okay. All right. Thank you very much.

Mike Jackson

Thank you.

Operator

And our next question will come from Michael Marczak, UBS.

Michael Marczak – UBS

Hi. Good morning guys.

Mike Jackson

Good morning.

Michael Marczak – UBS

Bob, as it relates to the cost savings, I was wondering are they dependent on any assumptions particularly the energy savings like certain volumes or natural gas prices or oil prices?

Robert Mundy

Yeah. It’s a great question because obviously when you start a project like in the energy arena, your -- you make your best assumption as to the price of the energy that you’re reducing or purchasing on the outside and so forth.

And certainly with gas, gas has gotten much lower since these projects were kicked off. So that’s certainly a -- we anticipated something that’s not too, I would say, not too far off from where we are. But obviously, I think gas had dropped below where anyone thought it would be.

However having said that, we also are a component of these savings in the energy area are due to related to reg credits and so forth and we’ve actually had some very nice positive surprises on that side of our cost saving assumption. So I think it all sorts of balances out.

Michael Marczak – UBS

That’s great. Thank you. And then I guess going back to COGS question on cash restructuring costs, I noticed you’ve got about $10 million left of cash restructuring from the closure of the mills. Outside of the energy cost savings that I guess will flow through CapEx, can you guide us to kind of a cash restructuring number for 2012?

Mike Jackson

Well it should be around that number. That is what we recorded and what we said in our announcement related to cash and non-cash relative to the restructuring, shutting down those three machines. That will hit in the first quarter, the cash component, that will hit in the first quarter, the actual outflow of cash.

Michael Marczak – UBS

Got it. Thanks and then finally maybe, Mike, as it relates to your visibility, if you compare your order intake or your order of book in the first quarter last year versus the first quarter this year, would you say that your visibility has improved, has remained about the same or has it just become incrementally more difficult to have a good view into the first half this time this year?

Mike Jackson

Well, I guess, two answers to that. One is, I think -- I don’t think -- I know that our booking levels are approximately the same as they were last year at this time. Your second point is a good one. I mean, the visibility -- by the way, we have a management system that is very disciplined and really forces our organization to look out 18 months, and of course, we put a lot of pressure on our customers to help -- have them help us get an 18-month view.

And that visibility has been perhaps harder than it’s been in the past, and I just think it has to do with ultimately what are the impacts that the magazine and catalogs producers are being faced with, and how does that translate back to us into demand. So it is, as much as we try to look forward, it probably is a little bit harder to do than maybe it was two or three years ago.

Michael Marczak – UBS

I guess that’s fair, thank you. And then I guess, last one, pro forma for the closure of the machines in the fourth quarter, you’ve given us in the 10-K the revenues by segment, for catalogs, magazines and just commercial print, pro forma for the closures, has that changed at all for the company as a percentage of sales or your end markets?

Robert Mundy

I wouldn’t say anything significantly. Some of the SE papers, obviously getting out of the SE papers, will impact some of the circulars and so forth that those end markets are in, but nothing dramatically in any of those, I would say.

Michael Marczak – UBS

Got it. Thank you. Good luck.

Mike Jackson

Thanks.

Operator

We’ll go next to Bill Schwartz, Citi.

Bill Schwartz – Citi

Hi guys. All of our questions have been answered. Thank you.

Mike Jackson

Yeah.

Operator

We’ll proceed next to Frank Duplak, Prudential.

Frank Duplak– Prudential

Hi, guys. Just a question on the Hold-Co notes, is there any of that stuff that’s owned currently sort of at the HoldCo or by Apollo at this point as you think about sort of the equity being component, could it be an equalization of stuff that they own or are we talking about potentially new cash coming into that part of the structure as an outcome?

Mike Jackson

I don’t know what Apollo does as far as where they make their investments. I just -- I can’t answer that because I don’t know.

Frank Duplak– Prudential

What do you think about the equities and it sounds like that could potentially be incremental dollars coming in, is that part of the solution?

Robert Mundy

It’s again, it’s just an option. Certainly didn’t indicate which way we would go but it’s just -- my point in that is that it’s an option that’s out there not necessarily what we would do.

Frank Duplak– Prudential

Okay. And is there any RP basket availability to deal with it that way or is that given the losses over the past three years, how big is the basket that’s available to deal with that?

Robert Mundy

No. That’s -- there is not a lot of basket to deal with that, and that’s -- so that we certainly know we have the limited ability right now.

Frank Duplak– Prudential

Okay. Thank you.

Operator

And we’ll go next to Bill Hoffman, RBC Capital Markets.

Bill Hoffman – RBC Capital Markets

Yeah. Thanks. Bob, can you just talk a little bit about this new ABL/$55 million incremental revolving credit facility and how that works with respect to the other existing facility?

Robert Mundy

Yeah. There’s two components. We have a fully committed $100 million AR securitization facility and then the $55 million of commitments to write a new or an extended revolving facility. The $55 million is something we’ll continue to pursue additional commitments, prior to August 1, when the current matures.

So, we could go up to $100 million and that’s something we’ll continue to evaluate and become effective on the earlier of the existing revolver maturity date or the date on which an extension commitment or to the current senior security credit facility that becomes effective, should one -- should we get one.

Bill Hoffman – RBC Capital Markets

So, I mean, theoretically today, you could draw on either way on the new facilities or the old one?

Robert Mundy

Say that again, Bill?

Bill Hoffman – RBC Capital Markets

Could you draw on the facilities that matures in August and/or the ABL?

Robert Mundy

Well, we had not -- we have not closed the ABL yet.

Bill Hoffman – RBC Capital Markets

Okay.

Robert Mundy

We’re working to close -- we have the full commitments but we haven’t closed that and that’s something that we’re working on so we can’t do that, no. But the other, the existing, yeah, obviously we could.

Bill Hoffman – RBC Capital Markets

Okay. And then just -- could give us sort of current balance I’m just sort of curious, the cash usage here in the first quarter because typically you’ve got a lot of liabilities to pay down in the first quarter plus the restructuring costs...

Robert Mundy

It were...

Bill Hoffman – RBC Capital Markets

Do you expect it to be on the revolver this quarter?

Robert Mundy

Yeah. Obviously, we do have our big coupon payments in the first quarter and we never have really talked about on a forward-looking basis, what our cash positions are and we’ll just have to wait until the end of the quarter.

Bill Hoffman – RBC Capital Markets

Okay. Thank you.

Operator

We currently have no further questions in the queue. I’ll turn the conference back over to management to offer any additional or closing remarks.

Robert Mundy

No. I think we’re good and we appreciate everyone joining our call and have a great day. Thank you.

Operator

That concludes today’s Verso Paper Corporation Fourth Quarter 2011 Earnings Conference Call. You may disconnect at this time.

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