“Demand in the coated industry continued to be challenged during the second quarter of 2012 which resulted in a delay in the announced price increases during the quarter. This was primarily a result of the drop-off in advertising spending and slowdowns in the commercial print area which are impacted by the sluggish GDP growth. However, our coated groundwood and coated freesheet volumes were relatively flat with last year’s levels and we did a good job of managing our pricing relative to overall market demand. Adjusted EBITDA was comparable to the first quarter of this year and slightly better if you exclude the over $5.0 million impact related to scheduled maintenance outages we took during the second quarter,” said David Paterson, President and Chief Executive Officer of Verso.
“Our company was further challenged during the quarter by the fire and explosion at our Sartell Mill that resulted in the tragic loss of one of our employees and injuries to four others. As we announced last week, we have made the decision not to restart the Sartell Mill and will begin to evaluate options relative to the future of the site.
“We anticipate that coated groundwood prices will gain positive momentum throughout the third quarter and coated freesheet prices to be stable as we move into the busier second half of the year. Overall, volumes will be similar to last year’s levels after giving consideration to the Sartell Mill closure. We expect operating costs to benefit from the continuation of our cost reduction initiatives and input prices are expected to remain fairly flat versus the second quarter. The U.S. coated groundwood market should be relatively in balance for the remainder of the year as a result of recent capacity reductions including the recently announced closure of our Sartell Mill.”
Results of Operations – Comparison of the Second Quarter of 2012 to the Second Quarter of 2011
|Three Months Ended|
|(Dollars in thousands)||2012||2011|
|Costs and expenses:|
Cost of products sold - (exclusive of depreciation, amortization, and depletion)
|Depreciation, amortization, and depletion||31,777||31,645|
|Selling, general, and administrative expenses||19,930||21,667|
|Restructuring and other charges||(106||)||-|
|Total operating expenses||374,786||391,792|
|Operating income (loss)||(9,524||)||6,987|
|Other income, net||(22,077||)||(236||)|
|Loss before income taxes||(20,673||)||(24,296||)|
|Income tax expense||9||-|
Net Sales. Net sales for the second quarter of 2012 decreased 8.4%, to $365.3 million from $398.8 million in the second quarter of 2011, reflecting a 5.5% decrease in the average sales price for all of our products, led by a quarter-over-quarter decline in the price of pulp, although it was up on a sequential-quarter basis. Additionally, total sales volume was down 3.1% compared to the second quarter of 2011, which was driven by the shutdown of three paper machines late last year.Net sales for our coated papers segment decreased 11.1% in the second quarter of 2012 to $285.0 million from $320.7 million for the same period in 2011, due to a 7.8% decrease in paper sales volume, which was driven by the shutdown of three paper machines late last year, combined with a 3.7% decrease in the average paper sales price per ton.