MIAMISBURG, Ohio, Feb. 27, 2020 /PRNewswire/ -- Verso Corporation
(NYSE: VRS) today announced that the Board of Directors has
authorized up to $250 million to be
used to repurchase outstanding shares and reported financial
results for the fourth quarter and full year of 2019.
Fourth Quarter 2019 Highlights:
- Net sales of $587 million, down
$108 million compared to fourth
quarter 2018
- Net income of $142 million or
$4.04 per diluted share, including
$117 million tax benefit, driven by a
release of the income tax valuation allowance, and a $13 million pension settlement gain, compared to
net income of $86 million or
$2.44 per diluted share in fourth
quarter 2018
- Adjusted EBITDA of $74 million,
versus $96 million in fourth quarter
2018
Overview
"Verso reported Adjusted EBITDA (Non-GAAP)
of $74 million (12.6% of sales),
despite continued demand decline in the graphic paper market,
increased pressure from imports and the closure of our Luke Mill in the second quarter of 2019. We
reduced inventory by $21 million in
the fourth quarter as we effectively balanced our supply with
demand and ended the year debt free," said Verso Corporation Chief
Executive Officer Adam St. John.
"With the completion of the Pixelle transaction and the board's
authorization to repurchase outstanding shares of Verso stock, we
are focused on managing a streamlined company with strong operating
cash flow to deliver value to shareholders."
Results of Operations – Comparison of Three Months Ended
December 31, 2019 to Three Months
Ended December 31, 2018
|
Three Months
Ended
December 31,
|
|
Three
Month
|
(Dollars in
millions)
|
2018
|
|
2019
|
|
$
Change
|
Net
sales
|
$
695
|
|
$
587
|
|
$
(108)
|
Costs and
expenses:
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation and
amortization)
|
579
|
|
513
|
|
(66)
|
Depreciation
and amortization
|
28
|
|
26
|
|
(2)
|
Selling,
general and administrative expenses
|
24
|
|
28
|
|
4
|
Restructuring
charges
|
(1)
|
|
8
|
|
9
|
Other
operating (income) expense
|
2
|
|
2
|
|
-
|
Operating income
(loss)
|
63
|
|
10
|
|
(53)
|
Interest
expense
|
1
|
|
-
|
|
(1)
|
Other (income)
expense
|
(24)
|
|
(15)
|
|
9
|
Income (loss)
before income taxes
|
86
|
|
25
|
|
(61)
|
Income tax
expense (benefit)
|
-
|
|
(117)
|
|
(117)
|
Net income
(loss)
|
$
86
|
|
$
142
|
|
$
56
|
Comments to Results of Operations - Comparison of Three
Months Ended December 31, 2019 to
Three Months Ended December 31,
2018
Net sales
Net sales in the fourth quarter of 2019 decreased by $108 million or 16% compared to the prior year,
with price/mix and sales volume both having a negative impact on
year over year results. Total company sales volume was down from
742 thousand tons during the fourth quarter of 2018, to 657
thousand tons during the fourth quarter of 2019, driven by the
closure of our Luke Mill, continued
decline of graphic paper demand and increased pressure from
imports.
Operating income
Operating income was $10 million in the fourth quarter of 2019, a
decrease of $53 million compared to
operating income of $63 million in
the fourth quarter of 2018.
Operating results for the fourth quarter of 2019 were positively
impacted by:
- Lower freight costs of $3
million
- Lower input costs of $16 million
driven primarily by improved costs of chemicals, energy and
purchased pulp, partially offset by higher wood costs
- Lower depreciation expense of $2
million
Operating results for the fourth quarter of 2019 were negatively
impacted by:
- Unfavorable price/mix of $32
million
- Lower margin of $13 million
resulting from a decrease in sales volume driven by the closure of
our Luke Mill and a decline in
graphic and specialty paper sales, partially offset by an increase
in packaging paper sales
- Higher Selling, general and administrative costs of
$4 million driven primarily by costs
related to the sale of our Androscoggin and Stevens Point Mills and
related assets (the "Pixelle Sale") and proxy solicitation,
partially offset by our continued cost cutting initiatives
- Increased operating expense of $16
million driven primarily by market downtime, lower
production rates at our Wisconsin Rapids and Androscoggin Mills and
environmental costs associated with remediation efforts at our
Luke Mill
Other impacts to operating results included:
- Restructuring charges for the fourth quarter of 2019 increased
$9 million compared to the fourth
quarter of 2018, primarily as a result of the closure of our
Luke Mill
Other income
Other income in the fourth quarter of
2019 and fourth quarter of 2018 included $14
million and $3 million,
respectively, associated with the non-operating components of net
periodic pension income, including $13
million of pension settlement gain in the fourth quarter of
2019. Additionally, the fourth quarter of 2018 included
$22 million of income related to the
countervailing duty settlement agreement.
Income tax benefit
Income tax benefit was $117 million for the fourth quarter of 2019,
primarily attributable to a release of the income tax valuation
allowances on all federal deferred tax assets and certain state tax
credits.
Results of Operations – Comparison of 12 Months Ended
December 31, 2019 to 12 Months Ended
December 31, 2018
|
Twelve Months
Ended
December 31,
|
|
Twelve
Month
|
(Dollars in
millions)
|
2018
|
|
2019
|
|
$
Change
|
Net
sales
|
$
2,682
|
|
$
2,444
|
|
$
(238)
|
Costs and
expenses:
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation and
amortization)
|
2,321
|
|
2,138
|
|
(183)
|
Depreciation
and amortization
|
111
|
|
183
|
|
72
|
Selling,
general and administrative expenses
|
102
|
|
104
|
|
2
|
Restructuring
charges
|
1
|
|
52
|
|
51
|
Other
operating (income) expense
|
(5)
|
|
4
|
|
9
|
Operating income
(loss)
|
152
|
|
(37)
|
|
(189)
|
Interest
expense
|
33
|
|
2
|
|
(31)
|
Other (income)
expense
|
(52)
|
|
(18)
|
|
34
|
Income (loss)
before income taxes
|
171
|
|
(21)
|
|
(192)
|
Income tax
expense (benefit)
|
-
|
|
(117)
|
|
(117)
|
Net income
(loss)
|
$
171
|
|
$
96
|
|
$
(75)
|
Comments to Results of Operations - Comparison of 12 Months
Ended December 31, 2019 to 12 Months
Ended December 31, 2018
Net sales
Net sales for the twelve months ended December 31, 2019 decreased by $238 million or 9% compared to the prior year due
to decreased sales volume, partially offset by improved price/mix.
Total company sales volume was down from 2,927 thousand tons during
the twelve months ended December 31,
2018, to 2,647 thousand tons during 2019, driven by the
closure of our Luke Mill, continued decline of graphic paper
demand and increased pressure from imports.
Operating income (loss)
Operating income (loss) was a
loss of $37 million for the twelve
months ended December 31, 2019, a
decrease of $189 million when
compared to operating income of $152
million in the prior year.
Operating results for the twelve months ended December 31, 2019 were positively impacted
by:
- Improved price/mix of $20
million
- Lower freight costs of $6
million
Operating results for the twelve months ended December 31, 2019 were negatively impacted
by:
- Lower margin of $43 million
resulting from a decrease in sales volume driven by the closure of
our Luke Mill and a decline in
graphic paper and market pulp sales, partially offset by an
increase in specialty and packaging paper sales
- Higher input costs of $2 million
driven primarily by higher costs of wood fiber, partially offset by
improved energy costs
- Higher Selling, general and administrative costs of
$2 million driven by severance costs
and equity compensation expense in connection with the former Chief
Executive Officer pursuant to his employment agreement and costs
related to the Pixelle Sale and proxy solicitation, partially
offset by continued cost cutting initiatives
- Higher operating expenses of $31
million driven primarily by market downtime, union
ratification expense for signing bonuses and the settlement of
various work arrangement issues, a power outage and subsequent acid
sewer failure at our Wisconsin Rapids Mill, higher unplanned
maintenance costs resulting from reliability events at our
Wisconsin Rapids and Escanaba Mills and environmental costs
associated with remediation efforts at our Luke Mill
- Increased planned major maintenance costs of $5 million, primarily driven by planned
maintenance performed at our Escanaba Mill during the twelve months
ended December 31, 2019 that was not
performed during the prior year, partially offset by planned
maintenance performed at our Luke
Mill during the twelve months ended December 31, 2018, which was not performed during
2019
- Higher depreciation expense of $72
million driven by $76 million
of accelerated depreciation in connection with the closure of our
Luke Mill
Other impacts to operating results included:
- Restructuring charges for the twelve months ended December 31, 2019 increased $51 million compared to the prior year, primarily
as a result of the closure of our Luke
Mill
- Other operating income for the twelve months ended December 31, 2019 decreased $9 million compared to the prior year as a result
of the $9 million gain on the sale of
our Wickliffe Mill in 2018
Interest expense
Interest expense for the twelve months ended December 31, 2019 decreased $31 million or 94% compared to the prior year.
Interest expense for the twelve months ended December 31, 2018 included $15 million in non-cash accelerated amortization
of debt issuance cost and discount associated with the voluntary
principal prepayments and excess cash flow payments on our prior
term loan facility. The remaining decrease in interest expense
resulted from the reduction in amounts outstanding under the
asset-based revolving credit facility and the repayment and
termination of our prior term loan facility in September 2018.
Other income
Other income for the twelve months ended
December 31, 2019 and December 31, 2018 included $18 million and $12
million, respectively, associated with the non-operating
components of net periodic pension income, including $13 million of pension settlement gain in the
twelve months ended December 31,
2019. Additionally, the twelve months ended December 31, 2018 included $42 million of income related to the
countervailing duty settlement agreement.
Income tax benefit
Income tax benefit was $117 million for the twelve months ended
December 31, 2019, primarily
attributable to a release of the income tax valuation allowances on
all federal deferred tax assets and certain state tax credits.
Guidance
The Company is providing the following
guidance for 2020:
- Capital expenditures of $55-60
million
- Cash pension contribution of $54
million
- Tax payments of $3-6 million
Reconciliation of Net Income (Loss) to EBITDA and Adjusted
EBITDA
EBITDA consists of earnings before interest, taxes,
depreciation and amortization. Adjusted EBITDA reflects adjustments
to EBITDA to eliminate the impact of certain items that we do not
consider to be indicative of our ongoing performance. We use EBITDA
and Adjusted EBITDA as a way of evaluating our performance relative
to that of our peers and to assess compliance with our credit
facilities. We believe that EBITDA and Adjusted EBITDA are non-GAAP
operating performance measures commonly used in our industry that
provide investors and analysts with measures of ongoing operating
results, unaffected by differences in capital structures, capital
investment cycles and ages of related assets among otherwise
comparable companies.
We believe that the supplemental adjustments applied in
calculating Adjusted EBITDA are reasonable and appropriate to
provide additional information to investors.
Because EBITDA and Adjusted EBITDA are not measurements
determined in accordance with Generally Accepted Accounting
Principles (GAAP) and are susceptible to varying calculations,
EBITDA and Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures of other companies. You should consider
our EBITDA and Adjusted EBITDA in addition to, and not as a
substitute for, or superior to, our operating or net income (loss),
which are determined in accordance with GAAP.
The following table reconciles Net income (loss) to EBITDA and
Adjusted EBITDA for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
December 31,
|
|
Twelve Months
Ended
December 31,
|
(Dollars in
millions)
|
2018
|
|
2019
|
|
2018
|
|
2019
|
Net income
(loss)
|
$
86
|
|
$
142
|
|
$
171
|
|
$
96
|
Income tax expense
(benefit)
|
-
|
|
(117)
|
|
-
|
|
(117)
|
Interest
expense
|
1
|
|
-
|
|
33
|
|
2
|
Depreciation and
amortization
|
28
|
|
26
|
|
111
|
|
183
|
EBITDA
|
$
115
|
|
$
51
|
|
$
315
|
|
$
164
|
Adjustments to
EBITDA:
|
|
|
|
|
|
|
|
|
Restructuring charges
(1)
|
(1)
|
|
8
|
|
1
|
|
52
|
|
Luke Mill
post-closure costs (2)
|
-
|
|
5
|
|
-
|
|
9
|
|
Non-cash equity award
compensation (3)
|
2
|
|
2
|
|
8
|
|
12
|
|
Androscoggin PM No. 3
startup costs (4)
|
-
|
|
-
|
|
10
|
|
-
|
|
Countervailing duty
settlement (5)
|
(22)
|
|
-
|
|
(42)
|
|
-
|
|
(Gain) loss on sale
or disposal of assets (6)
|
-
|
|
2
|
|
(8)
|
|
2
|
|
Post-reorganization
costs (7)
|
1
|
|
-
|
|
4
|
|
-
|
|
Strategic initiatives
costs (8)
|
-
|
|
5
|
|
5
|
|
6
|
|
Shareholders proxy
solicitation costs(9)
|
-
|
|
1
|
|
-
|
|
1
|
|
Other severance costs
(10)
|
-
|
|
-
|
|
-
|
|
4
|
|
Other items, net
(11)
|
1
|
|
-
|
|
3
|
|
1
|
Adjusted EBITDA
(12)
|
$
96
|
|
$
74
|
|
$
296
|
|
$
251
|
|
|
|
|
(1)
|
For 2018, charges are
primarily associated with the closure of the Wickliffe Mill. For
2019, charges are primarily associated
with the closure of the Luke Mill.
|
(2)
|
Costs recorded after
production ceased at the Luke Mill that are not associated with
product sales or restructuring
activities.
|
(3)
|
Amortization of
non-cash incentive compensation.
|
(4)
|
Costs incurred in
connection with the upgrade of previously shuttered No. 3 paper
machine and pulp line at the
Androscoggin Mill.
|
(5)
|
Countervailing duty
settlement gains pursuant to the settlement agreement.
|
(6)
|
Realized (gain) loss
on the sale or disposal of assets, including a $9 million gain on
the sale of the Wickliffe Mill in
September 2018.
|
(7)
|
Fees associated with
our prior Chapter 11 cases.
|
(8)
|
Professional fees and
other charges associated with strategic alternatives initiative,
including certain costs incurred in 2019
related to the Pixelle Sale.
|
(9)
|
Costs incurred in
connection with shareholders proxy solicitation contest.
|
(10)
|
Severance and related
benefit costs not associated with restructuring
activities.
|
(11)
|
Other miscellaneous
adjustments.
|
(12)
|
Adjusted EBITDA for
the three months and twelve months ended December 31, 2019,
includes $13 million of income
related to a pension settlement gain.
|
About Verso
Verso Corporation is the turn-to company
for those looking to successfully navigate the complexities of
paper sourcing and performance. A leading North American producer
of graphic and specialty papers,
packaging papers and pulp, Verso provides insightful solutions that
help drive improved customer efficiency, productivity, brand
awareness and business results. Verso's long-standing reputation
for quality and reliability is directly tied to our vision to be a
company with passion that is respected and trusted by all. Verso's
passion is rooted in ethical business practices that demand safe
workplaces for our employees and sustainable wood sourcing for our
products. This passion, combined with our flexible manufacturing
capabilities and an unmatched commitment to product performance,
delivery and service, make Verso a preferred choice among
commercial printers, paper merchants and brokers, converters,
publishers and other end users. For more information, visit us
online at versoco.com.
Forward-Looking Statements
In this press release, 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," "potential" and other 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. Verso's actual actions and
results may differ materially from what is expressed or implied by
these statements due to a variety of factors, including: the
long-term structural decline and general softening of demand facing
the paper industry; adverse developments in general business and
economic conditions; developments in alternative media, which are
expected to adversely affect the demand for some of Verso's key
products, and the effectiveness of Verso's responses to these
developments; intense competition in the paper manufacturing
industry; Verso's ability to compete with respect to certain
specialty paper products for a period of two years after the
closing of the Pixelle Sale; Verso's business being less
diversified following the sale of two mills after the closing of
the Pixelle Sale; Verso's dependence on a small number of customers
for a significant portion of its business; Verso's limited ability
to control the pricing of its products or pass through increases in
its costs to its customers; changes in the costs of raw materials
and purchased energy; negative publicity, even if unjustified; any
failure to comply with environmental or other laws or regulations,
even if inadvertent; legal proceedings or disputes; any labor
disputes; and the potential risks and uncertainties described under
the caption "Risk Factors" in Verso's Form 10-K for the fiscal year
ended December 31, 2018, Verso's
Quarterly Report on Form 10-Q for the nine months ended
September 30, 2019, and from time to
time in Verso's other filings with the Securities and Exchange
Commission. Verso assumes no obligation to update any
forward-looking statement made in this press release to reflect
subsequent events or circumstances or actual outcomes.
Conference Call
Verso will host a conference call and
webcast for analysts and investors on Thursday, February 27, 2020 at 9 a.m. (EST) to discuss fourth quarter and full
year 2019 financial results.
Analysts and investors may access the live conference call only
by dialing 888-317-6003 (U.S. toll-free), 866-284-3684
(Canada toll-free) or 412-317-6061
(international) and referencing elite entry number 3893440 and Verso Corporation. To register,
please dial in 10 minutes before the conference call begins. The
news release and fourth quarter and full year 2019 results will be
available on Verso's website at http://investor.versoco.com by
navigating to the Financial Information page.
Analysts and investors may also access the live conference call
and webcast by clicking on the event link
https://www.webcaster4.com/Webcast/Page/1524/33329 or by visiting Verso's website at
http://investor.versoco.com and navigating to the Events page.
Please go to this link at least one hour before the call and follow
the instructions to register, download and install any necessary
audio/video software.
A telephonic replay of the call can be accessed at 877-344-7529
(U.S. toll-free), 855-669-9658 (Canada toll-free) or 412-317-0088
(international), access code 10139709. The replay will be available
starting at 11 a.m. (EST) Thursday, February
27, 2020, and will remain available until March 27, 2020. An archive of the conference call
and webcast will be available at http://investor.versoco.com
starting at 11 a.m. (EST) Thursday, February
27, 2020, and will remain available for 120 days.
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SOURCE Verso Corporation