MIAMISBURG, Ohio, Nov. 14, 2017 /PRNewswire/ -- Verso
Corporation (NYSE: VRS) today reported financial results for the
third quarter of 2017, including net sales of $621 million, net income of $4 million, and adjusted EBITDA of $47 million.
Overview
"Verso rebounded significantly
in the third quarter, from the second quarter of 2017, as a result
of better pricing, increased sales in the growing specialty papers
market, less downtime and continuing, aggressive cost reduction
initiatives," said Verso Chief Executive Officer, B. Christopher DiSantis. "We significantly
improved cash flow and retired a substantial amount of debt while
increasing liquidity. Verso moves into the fourth quarter with
strong earnings momentum driven by a full order book, no planned
downtime and a much leaner administrative cost structure."
Results of Operations – Comparison of Three Months Ended
September 30, 2017 to Three Months
Ended September 30, 2016
|
Predecessor
|
|
|
Successor
|
|
|
|
July 1,
2016
|
|
|
July 15,
2016
|
|
Three
Months
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
Three
|
|
July
14,
|
|
|
September
30,
|
|
September
30,
|
|
Month
|
(Dollars in
millions)
|
2016
|
|
|
2016
|
|
2017
|
|
$
Change
|
Net
sales
|
$
97
|
|
|
$
578
|
|
$
621
|
|
$
(54)
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation,
|
|
|
|
|
|
|
|
|
amortization and
depletion)
|
83
|
|
|
559
|
|
552
|
|
(90)
|
Depreciation,
amortization and depletion
|
7
|
|
|
24
|
|
27
|
|
(4)
|
Selling,
general and administrative expenses
|
8
|
|
|
23
|
|
24
|
|
(7)
|
Restructuring
charges
|
-
|
|
|
2
|
|
4
|
|
2
|
Other
operating (income) expense
|
-
|
|
|
2
|
|
-
|
|
(2)
|
Operating income
(loss)
|
(1)
|
|
|
(32)
|
|
14
|
|
47
|
Interest
expense
|
2
|
|
|
8
|
|
10
|
|
-
|
Income (loss)
before reorganization items, net
|
(3)
|
|
|
(40)
|
|
4
|
|
47
|
Reorganization
items, net
|
(1,302)
|
|
|
-
|
|
-
|
|
1,302
|
Income (loss)
before income taxes
|
1,299
|
|
|
(40)
|
|
4
|
|
(1,255)
|
Income tax
expense
|
-
|
|
|
-
|
|
-
|
|
-
|
Net income
(loss)
|
$
1,299
|
|
|
$
(40)
|
|
$
4
|
|
$ (1,255)
|
Comments to Results of Operations - Comparison of Three
Months Ended September 30, 2017 to
Three Months Ended September 30,
2016
- Net sales for the third quarter of 2017 decreased by
$54 million compared to the third
quarter of 2016. The sales decline was primarily attributable to a
decrease in total sales volume due to the general softening of
demand for coated papers and our capacity reductions at our
Androscoggin Mill, partially offset by a 1% increase in price.
- Gross margin, excluding depreciation, amortization, and
depletion expenses, increased from 4.9% of net sales in the third
quarter of 2016 to 11.1% in the third quarter of 2017. Gross margin
in the third quarter of 2016 was negatively impacted by
work-in-process and inventory fair value adjustments associated
with fresh-start accounting of $41
million. Without these fresh-start accounting adjustments,
gross margin percentage would have been relatively flat quarter
over quarter. Gross margin in the third quarter of 2017 was
positively impacted by reductions in manufacturing overhead costs,
lower maintenance costs, timing of major maintenance activities
which were performed more during the third quarter in 2016 versus
the second quarter in 2017, capacity reductions at the Androscoggin
Mill and increased sales price, offset by lower sales volume,
higher freight rates and the effects of taking downtime at our
mills.
- Depreciation, amortization and depletion for the third quarter
of 2017 was lower than the third quarter of 2016, which was
attributable to the capacity reductions at our Androscoggin Mill
and reduction in the carrying value of our property, plant and
equipment as a result of adopting fresh-start accounting.
- SG&A expense reduction was primarily attributable to cost
reduction initiatives implemented across the Company.
- Reorganization items, net for the Predecessor period from
July 1, 2016 to July 14, 2016 was a net gain of $1,302 million, primarily attributable to
adjustments to reflect the non-cash gain associated with the
elimination of debt, offset by the non-cash impact of fresh-start
accounting and professional fees directly associated with our
Chapter 11 cases.
Results of Operations – Comparison of Nine Months Ended
September 30, 2017 to Nine Months
Ended September 30, 2016
|
Predecessor
|
|
|
Successor
|
|
|
|
January 1,
2016
|
|
|
July 15,
2016
|
|
Nine
Months
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
|
|
July
14,
|
|
|
September
30,
|
|
September
30,
|
|
Nine
Month
|
(Dollars in
millions)
|
2016
|
|
|
2016
|
|
2017
|
|
$
Change
|
Net
sales
|
$
1,417
|
|
|
$
578
|
|
$
1,822
|
|
$
(173)
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
Cost of
products sold (exclusive of depreciation,
|
|
|
|
|
|
|
|
|
amortization and
depletion)
|
1,249
|
|
|
559
|
|
1,683
|
|
(125)
|
Depreciation,
amortization and depletion
|
100
|
|
|
24
|
|
87
|
|
(37)
|
Selling,
general and administrative expenses
|
95
|
|
|
23
|
|
81
|
|
(37)
|
Restructuring
charges
|
151
|
|
|
2
|
|
8
|
|
(145)
|
Other
operating (income) expense
|
(57)
|
|
|
2
|
|
-
|
|
55
|
Operating income
(loss)
|
(121)
|
|
|
(32)
|
|
(37)
|
|
116
|
Interest
expense
|
39
|
|
|
8
|
|
29
|
|
(18)
|
Income (loss)
before reorganization items, net
|
(160)
|
|
|
(40)
|
|
(66)
|
|
134
|
Reorganization
items, net
|
(1,338)
|
|
|
-
|
|
-
|
|
1,338
|
Income (loss)
before income taxes
|
1,178
|
|
|
(40)
|
|
(66)
|
|
(1,204)
|
Income tax
expense
|
-
|
|
|
-
|
|
-
|
|
-
|
Net income
(loss)
|
$
1,178
|
|
|
$
(40)
|
|
$
(66)
|
|
$
(1,204)
|
Comments to Results of Operations - Comparison of Nine Months
Ended September 30, 2017 to Nine
Months Ended September 30,
2016
- Net sales for the first nine months of 2017 decreased by
$173 million compared to the first
nine months of 2016. The sales decline was attributable to both a
decrease in total sales volume and a decrease in pricing due to the
general softening of demand for coated papers and our capacity
reductions at our Androscoggin Mill, partially offset by
improvement in product mix.
- Gross margin, excluding depreciation, amortization, and
depletion expenses, decreased from 9.4% of net sales in the first
nine months of 2016 to 7.6% in the first nine months of 2017. Gross
margin in the first nine months of 2016 was negatively impacted by
work-in-process and inventory fair value adjustments associated
with fresh-start accounting of $41
million. Gross margin in the first nine months of 2017 was
negatively impacted by lower sales volume, lower sales prices,
inflation in chemicals and energy costs and inventory reduction
initiatives, partially offset by lower wood costs and reductions in
manufacturing overhead costs.
- Depreciation, amortization and depletion for the first nine
months of 2017 was lower than the first nine months of 2016, which
was attributable to the capacity reductions at our Androscoggin
Mill, the closure of the Wickliffe Mill and the reduction in the
carrying value of our property, plant and equipment as a result of
the adoption of fresh-start accounting, partially offset by
accelerated depreciation in the first quarter of 2017 in connection
with the temporary idling of the No. 3 paper machine at our
Androscoggin Mill.
- SG&A expense reduction was attributable to cost reduction
initiatives implemented by management across the Company, reduced
pre- and post-reorganization costs as well as a reclassification of
2017 SG&A to cost of products sold, attributable to a change in
accounting policy adopted in connection with fresh-start
accounting.
- Restructuring charges for the first nine months of 2017 are
primarily associated with the closure and relocation of the
Memphis office headquarters and
closure of the Wickliffe Mill. Restructuring for the first nine
months of 2016 consisted primarily of non-cash fixed asset
write-down charges from the closure of our Wickliffe Mill.
- Other operating income for the first nine months of 2016 was
$55 million, primarily attributable
to the sale of hydroelectric facilities in January 2016.
- Reorganization items, net for the Predecessor period from
January 1, 2016 to July 14, 2016 was a net gain of $1,338 million, primarily attributable to
adjustments to reflect the non-cash gain associated with the
elimination of debt, offset by the non-cash impact of fresh-start
accounting and professional fees directly associated with our
Chapter 11 cases.
Guidance
The Company is providing the following guidance:
- 2017 Fourth Quarter
-
- Sales of $635-645 million
- Capital expenditures of $15-18
million
Presentation of Predecessor and Successor Financial
Results
Verso Corporation (the "Company") adopted
fresh-start reporting as of July 15,
2016 (the "Effective Date"), the effective date of its First
Modified Third Amended Joint Plan of Reorganization under Chapter
11 of the U.S. Bankruptcy Code dated June
20, 2016, and the date that Verso emerged from its Chapter
11 cases. As a result of the application of fresh-start reporting,
the Company's financial statements for periods prior to the
Effective Date are not comparable to those for periods subsequent
to the Effective Date. References to "Successor" refer to the
Company on or after the Effective Date. References to "Predecessor"
refer to the Company prior to the Effective Date. Operating results
for the Successor and Predecessor periods are not necessarily
indicative of the results to be expected for a full fiscal year.
References such as the "Company," "we," "our" and "us" refer to
Verso Corporation and its consolidated subsidiaries, whether
Predecessor and/or Successor, as appropriate.
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 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 Adjusted EBITDA is a non-GAAP
operating performance measure commonly used in our industry that
provides investors and analysts with a measure 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 or cash
flows from operating activities, which are determined in accordance
with GAAP.
The following table reconciles net income (loss) to EBITDA and
Adjusted EBITDA for the presented periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
July 1,
2016
|
|
January 1,
2016
|
|
|
July 15,
2016
|
|
Three
Months
|
|
Nine
Months
|
|
|
|
Through
|
|
Through
|
|
|
Through
|
|
Ended
|
|
Ended
|
|
|
|
July
14,
|
|
July
14,
|
|
|
September
30,
|
|
September
30,
|
|
September
30,
|
|
(Dollars in
millions)
|
2016
|
|
2016
|
|
|
2016
|
|
2017
|
|
2017
|
|
Net income
(loss)
|
$
1,299
|
|
$
1,178
|
|
|
$
(40)
|
|
$
4
|
|
$
(66)
|
|
Income tax
expense
|
-
|
|
-
|
|
|
-
|
|
-
|
|
-
|
|
Interest expense,
net
|
2
|
|
39
|
|
|
8
|
|
10
|
|
29
|
|
Depreciation,
amortization and depletion
|
7
|
|
100
|
|
|
24
|
|
27
|
|
87
|
|
EBITDA
|
$
1,308
|
|
$
1,317
|
|
|
$
(8)
|
|
$
41
|
|
$
50
|
|
Adjustments to
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items,
net (1)
|
(1,302)
|
|
(1,338)
|
|
|
-
|
|
-
|
|
-
|
|
|
Restructuring charges
(2)
|
-
|
|
151
|
|
|
2
|
|
4
|
|
8
|
|
|
Fresh-start
accounting adjustments (3)
|
3
|
|
3
|
|
|
44
|
|
-
|
|
-
|
|
|
(Gain) loss on
disposal of assets (4)
|
-
|
|
(57)
|
|
|
-
|
|
-
|
|
1
|
|
|
Pre- and
post-reorganization costs (5)
|
-
|
|
6
|
|
|
2
|
|
1
|
|
1
|
|
|
Other severance costs
(6)
|
-
|
|
2
|
|
|
1
|
|
-
|
|
5
|
|
|
Other items, net
(7)
|
-
|
|
11
|
|
|
-
|
|
1
|
|
4
|
|
Adjusted
EBITDA
|
$
9
|
|
$
95
|
|
|
$
41
|
|
$
47
|
|
$
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net gains associated
with the Chapter 11 Cases.
|
|
(2)
|
For 2017, charges are
primarily associated with the announced closure and relocation of
the Memphis office headquarters and closure of the Wickliffe Mill.
For 2016, charges are primarily associated with the closure of the
Wickliffe Mill, of which $137 million is non-cash.
|
|
(3)
|
Non-cash charges
related to the one-time impacts of adopting fresh-start
accounting.
|
|
(4)
|
Realized gain on the
sale of assets was primarily attributable to the sale of
hydroelectric facilities in January 2016.
|
|
(5)
|
Costs incurred in
connection with advisory and legal services related to planning for
and emerging from the Chapter 11 Cases.
|
|
(6)
|
Severance and related
benefit costs not associated with restructuring
activities.
|
|
(7)
|
For 2017, costs
incurred in connection with the re-engineering of information
systems, non-cash equity award expense, costs associated with the
temporary idling of the No. 3 paper machine at the Androscoggin
Mill, and miscellaneous other non-recurring adjustments. For 2016,
costs associated with the indefinite idling of the Wickliffe Mill,
non-cash equity award expense, unrealized losses (gains) on
energy-related derivative contracts, and miscellaneous other
non-recurring adjustments.
|
About Verso
Verso Corporation is the turn-to company for those looking to
successfully navigate the complexities of paper sourcing and
performance. The leading North American producer of printing and
specialty 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 in this
press release include, but are not limited to, our guidance for the
fourth quarter of 2017 and the full year of 2017. 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 those risks and uncertainties listed under the
caption "Risk Factors" in Verso's Form 10-K for the fiscal year
ended December 31, 2016 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 on Tuesday, November 14, 2017 at 10 a.m. (EST) to discuss third quarter 2017
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
5304690 and Verso Corporation. To register, please dial in 10
minutes before the conference call begins. The news release and
third quarter 2017 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/1524/23385 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 10114207. The replay will be available
starting at 12 p.m. (EST) Tuesday, November
14, 2017, and will remain available until December 14, 2017. An archive of the conference
call and webcast will be available at http://investor.versoco.com
starting at 12 p.m. (EST) Tuesday, November
14, 2017, and will remain available for 120 days.
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SOURCE Verso Corporation