Company Quick10K Filing
Verso
Price12.59 EPS1
Shares35 P/E11
MCap442 P/FCF11
Net Debt16 EBIT43
TEV458 TEV/EBIT11
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-08
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-20
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-23
10-K 2015-12-31 Filed 2016-04-14
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-11
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-10
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-03-06
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-09
10-K 2012-12-31 Filed 2013-03-07
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-06
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-11
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-03-03
10-Q 2010-09-30 Filed 2010-11-03
10-Q 2010-06-30 Filed 2010-08-11
10-Q 2010-03-31 Filed 2010-05-06
10-K 2009-12-31 Filed 2010-03-03
8-K 2020-08-05 Earnings, Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2020-06-24 Amend Bylaw, Exhibits
8-K 2020-06-09
8-K 2020-06-01
8-K 2020-05-12
8-K 2020-05-11
8-K 2020-04-13
8-K 2020-03-13
8-K 2020-03-10
8-K 2020-02-27
8-K 2020-02-18
8-K 2020-02-10
8-K 2020-01-31
8-K 2020-01-30
8-K 2020-01-23
8-K 2020-01-07
8-K 2019-12-23
8-K 2019-12-16
8-K 2019-12-10
8-K 2019-11-12
8-K 2019-11-11
8-K 2019-11-11
8-K 2019-10-03
8-K 2019-08-08
8-K 2019-06-17
8-K 2019-06-13
8-K 2019-05-08
8-K 2019-04-30
8-K 2019-04-05
8-K 2019-02-28
8-K 2019-02-06
8-K 2018-11-07
8-K 2018-09-24
8-K 2018-09-24
8-K 2018-08-16
8-K 2018-08-08
8-K 2018-07-13
8-K 2018-07-05
8-K 2018-05-09
8-K 2018-03-20
8-K 2018-03-08
8-K 2018-01-16

VRS 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 exhibit1016302020.htm
EX-31.1 exhibit3116302020.htm
EX-31.2 exhibit3126302020.htm
EX-32.1 exhibit3216302020.htm
EX-32.2 exhibit3226302020.htm

Verso Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
3.12.21.30.4-0.5-1.42012201420172020
Assets, Equity
0.90.70.50.20.0-0.22012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.1-0.2-0.32012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________

001-34056
(Commission File Number)
vrslogoa95.jpg
VERSO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
 
 
75-3217389
(State of Incorporation
or Organization)
 
 
 
(IRS Employer
Identification Number)
8540 Gander Creek Drive
Miamisburg, Ohio 45342
(Address, including zip code, of principal executive offices)
(877) 855-7243
(Registrant’s telephone number, including area code)
_____________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, par value $0.01 per share
VRS
New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No    
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
 
 
Accelerated filer
 
 
Non-accelerated filer 
 
 
Smaller reporting company
 
 
 
 
 
 
Emerging growth company 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes No   
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No

As of July 31, 2020, Verso Corporation had 33,669,707 shares of Class A common stock, par value $0.01 per share, outstanding.




Entity Names and Organization

In this report, the term “Verso,” “the Company,” “we,” “us,” and “our” refer to Verso Corporation, which is the ultimate parent entity and the issuer of Class A common stock listed on the New York Stock Exchange, and its consolidated subsidiaries. Verso is the sole member of Verso Holding LLC, which is the sole member of Verso Paper Holding LLC. As used in this report, the term “Verso Holding” refers to Verso Holding LLC, and the term “Verso Paper” refers to Verso Paper Holding LLC.
Forward-Looking Statements
 
In this quarterly report, all statements that are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act.” Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “intend” and other similar expressions. They include, for example, statements relating to our business and operating outlook; the potential impact of the COVID-19 pandemic; assessment of market conditions; and the growth potential of the industry in which we operate. 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 us. Actual results could vary materially depending on risks and uncertainties that may affect us and our business. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: uncertainties regarding the duration and severity of the COVID-19 pandemic and measures intended to reduce its spread; 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 our key products, and the effectiveness of our responses to these developments; intense competition in the paper manufacturing industry; our ability to compete with respect to certain specialty paper products for a period of two years after the closing of the Pixelle Sale (as defined in Note 1 to our Unaudited Condensed Consolidated Financial Statements); our business being less diversified following the sale of two mills in the Pixelle Sale; our dependence on a small number of customers for a significant portion of our business; our limited ability to control the pricing of our products or pass through increases in our costs to our 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 in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q as such disclosures may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission, including subsequent annual reports on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statement made in this Quarterly Report to reflect subsequent events or circumstances or actual outcomes.


2



TABLE OF CONTENTS



3



PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
VERSO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
 
December 31,
 
June 30,
(Dollars in millions, except per share amounts)
2019
 
2020
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
42

 
$
209

Accounts receivable, net
155

 
99

Inventories
395

 
367

Prepaid expenses and other assets
7

 
6

Total current assets
599

 
681

Property, plant and equipment, net
945

 
733

Deferred tax assets
118

 
95

Intangibles and other assets, net
59

 
50

Total assets
$
1,721

 
$
1,559

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
188

 
$
127

Accrued and other liabilities
103

 
77

Current maturities of long-term debt and finance leases
2

 
1

Total current liabilities
293

 
205

Long-term debt and finance leases
5

 
4

Pension benefit obligation
369

 
307

Other long-term liabilities
41

 
36

Total liabilities
708

 
552

Commitments and contingencies (Note 11)


 


Equity:
 

 
 

Preferred stock -- par value $0.01 (50,000,000 shares authorized, no shares issued)

 

Common stock -- par value $0.01 (210,000,000 Class A shares authorized with 34,949,430 shares issued and 34,704,367 outstanding on December 31, 2019 and 35,766,353 shares issued and 33,669,707 outstanding on June 30, 2020; 40,000,000 Class B shares authorized with no shares issued and outstanding on December 31, 2019 and June 30, 2020)

 

Treasury stock -- at cost (245,063 shares on December 31, 2019 and 2,096,646 shares on June 30, 2020)
(5
)
 
(32
)
Paid-in-capital
698

 
702

Retained earnings
198

 
215

Accumulated other comprehensive income
122

 
122

Total equity
1,013

 
1,007

Total liabilities and equity
$
1,721

 
$
1,559

See notes to Unaudited Condensed Consolidated Financial Statements.

4



VERSO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(Dollars in millions, except per share amounts)
2019
 
2020
 
2019
 
2020
Net sales
$
602

 
$
268

 
$
1,241

 
$
739

Costs and expenses:
 
 
 
 
 

 
 
Cost of products sold (exclusive of depreciation and amortization)
540

 
271

 
1,089

 
698

Depreciation and amortization
104

 
22

 
132

 
45

Selling, general and administrative expenses
29

 
16

 
53

 
43

Restructuring charges
40

 

 
40

 
6

Other operating (income) expense
1

 
1

 
2

 
(87
)
Operating income (loss)
(112
)
 
(42
)
 
(75
)
 
34

Interest expense
1

 

 
2

 

Other (income) expense
(1
)
 
(5
)
 
(2
)
 
(9
)
Income (loss) before income taxes
(112
)
 
(37
)
 
(75
)
 
43

Income tax expense (benefit)

 
(3
)
 
1

 
23

Net income (loss)
$
(112
)
 
$
(34
)
 
$
(76
)
 
$
20

Income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
(3.23
)
 
$
(0.99
)
 
$
(2.19
)
 
$
0.56

Diluted
(3.23
)
 
(0.99
)
 
(2.19
)
 
0.56

Weighted average common shares outstanding (in thousands)
 

 
 

 
 

 
 

Basic
34,626

 
34,548

 
34,555

 
34,827

Diluted
34,626

 
34,548

 
34,555

 
35,023

See notes to Unaudited Condensed Consolidated Financial Statements.

VERSO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(Dollars in millions)
2019
 
2020
 
2019
 
2020
Net income (loss)
$
(112
)
 
$
(34
)
 
$
(76
)
 
$
20

Other comprehensive income (loss), net of tax

 

 

 

Comprehensive income (loss)
$
(112
)
 
$
(34
)
 
$
(76
)
 
$
20

See notes to Unaudited Condensed Consolidated Financial Statements.


5


VERSO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
Class A
 
 
 
Retained Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
(Dollars in millions, shares in thousands)
Common Shares
Common Stock
Treasury Shares
Treasury Stock
Paid-in-Capital
Balance - March 31, 2019
34,570

$

86

$
(2
)
$
688

$
138

$
120

$
944

Net income (loss)





(112
)

(112
)
Treasury shares


152

(3
)



(3
)
Common stock issued for restricted stock
341








Equity award expense




6



6

Balance - June 30, 2019
34,911

$

238

$
(5
)
$
694

$
26

$
120

$
835

 
 
 
 
 
 
 
 
 
Balance - March 31, 2020
35,766

$

717

$
(12
)
$
700

$
252

$
122

$
1,062

Net income (loss)





(34
)

(34
)
Treasury shares


1,380

(20
)



(20
)
Dividends declared





(3
)

(3
)
Equity award expense




2



2

Balance - June 30, 2020
35,766

$

2,097

$
(32
)
$
702

$
215

$
122

$
1,007

 
 
 
 
 
 
 
 
 
Balance - December 31, 2018
34,570

$

86

$
(2
)
$
686

$
102

$
120

$
906

Net income (loss)





(76
)

(76
)
Treasury shares


152

(3
)



(3
)
Common stock issued for restricted stock
341








Equity award expense




8



8

Balance - June 30, 2019
34,911

$

238

$
(5
)
$
694

$
26

$
120

$
835

 
 
 
 
 
 
 
 
 
Balance - December 31, 2019
34,949

$

245

$
(5
)
$
698

$
198

$
122

$
1,013

Net income (loss)





20


20

Treasury shares


1,852

(27
)



(27
)
Common stock issued for restricted stock
817








Dividends declared





(3
)

(3
)
Equity award expense




4



4

Balance - June 30, 2020
35,766

$

2,097

$
(32
)
$
702

$
215

$
122

$
1,007

See notes to Unaudited Condensed Consolidated Financial Statements.


6



VERSO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
 
 
Six Months Ended
 
June 30,
(Dollars in millions)
2019
 
2020
Cash Flows From Operating Activities:
 
 
 
Net income (loss)
$
(76
)
 
$
20

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
132

 
45

Noncash restructuring charges
18

 

Net periodic pension cost (income)

 
(9
)
Pension plan contributions
(16
)
 
(18
)
Amortization of debt issuance cost and discount
1

 

Equity award expense
8

 
4

Gain on Sale of Androscoggin/Stevens Point Mills

 
(88
)
(Gain) loss on sale or disposal of assets
1

 

Deferred taxes
1

 
23

Changes in assets and liabilities:
 
 
 
    Accounts receivable, net
8

 
18

    Inventories
(69
)
 
(61
)
    Prepaid expenses and other assets
2

 
(2
)
    Accounts payable
(14
)
 
(18
)
    Accrued and other liabilities
(19
)
 
(19
)
Net cash provided by (used in) operating activities
(23
)
 
(105
)
Cash Flows From Investing Activities:
 
 
 

Capital expenditures
(39
)
 
(37
)
Net proceeds from Sale of the Androscoggin/Stevens Point Mills

 
340

Net cash provided by (used in) investing activities
(39
)
 
303

Cash Flows From Financing Activities:
 
 
 

Borrowings on ABL Facility
278

 
36

Payments on ABL Facility
(231
)
 
(36
)
Principal payment on financing lease obligation

 
(1
)
Acquisition of treasury stock
(3
)
 
(27
)
Dividends paid to stockholders

 
(3
)
Debt issuance costs
(1
)
 

Net cash provided by (used in) financing activities
43

 
(31
)
Change in Cash and cash equivalents and restricted cash
(19
)
 
167

Cash and cash equivalents and restricted cash at beginning of period
28

 
44

Cash and cash equivalents and restricted cash at end of period
$
9

 
$
211

Supplemental cash flow disclosures:
 
 
 
Total income taxes paid
$
2

 
$

Noncash investing and financing activities:
 
 
 
Right-of-use assets recorded upon adoption of ASC 842
$
24

 
$

Right-of-use assets obtained in exchange for new finance lease liabilities
6

 

Right-of-use assets obtained in exchange for new capitalized operating lease liabilities
2

 
7

See notes to Unaudited Condensed Consolidated Financial Statements.

7



VERSO CORPORATION
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.  SUMMARY OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business — Verso’s core business platform is as a producer of graphic papers, specialty papers, packaging papers and pulp. Verso’s products are used primarily in media and marketing applications, including catalogs, magazines, commercial printing applications, such as high-end advertising brochures, annual reports and direct-mail advertising, and specialty applications, such as flexible packaging and label and converting. Verso’s market kraft pulp is used to manufacture printing, writing and specialty paper grades, tissue and other products. Verso operates in the pulp and paper market segments. However, Verso determined that the operating income (loss) of the pulp segment is immaterial for disclosure purposes. Verso’s assets are utilized across segments in an integrated mill system and are not identified by segment or reviewed by management on a segment basis. Verso operates primarily in one geographic location, North America.

Sale of Androscoggin Mill and Stevens Point Mill — On November 11, 2019, Verso and Verso Paper entered into a membership interest purchase agreement, or the “Purchase Agreement,” with Pixelle Specialty Solutions LLC, or “Pixelle,” whereby Verso and Verso Paper agreed to sell to Pixelle, or the “Pixelle Sale,” or the “Sale of the Androscoggin/Stevens Point Mills,” all of the outstanding membership interests in Verso Androscoggin, LLC, an indirect wholly owned subsidiary of Verso and the entity that, as of the closing date of the Pixelle Sale, held all the assets primarily related to Verso’s Androscoggin Mill located in Jay, Maine, and Verso’s Stevens Point Mill located in Stevens Point, Wisconsin. As a result of the Pixelle Sale, which was completed on February 10, 2020, the assets and liabilities associated with the sale are not included in Verso’s Unaudited Condensed Consolidated Balance Sheet as of June 30, 2020 or Verso’s Unaudited Condensed Consolidated Statement of Operations for the three months ended June 30, 2020, and Verso’s Unaudited Condensed Consolidated Statement of Operations for the six months ended June 30, 2020 only includes the results of operations associated with the Androscoggin and Stevens Point mills through February 9, 2020 (see Note 5).

Idle of Duluth Mill and Wisconsin Rapids Mill — On June 9, 2020, Verso announced plans to indefinitely idle its mills in Duluth, Minnesota and Wisconsin Rapids, Wisconsin, while exploring viable and sustainable alternatives for both mills. Those alternatives could include restarting if market conditions improve, marketing for sale or closing permanently one or both mills. Verso’s decision to reduce its production capacity was driven by the accelerated decline in graphic paper demand resulting from the COVID-19 pandemic (see below). The “stay-at-home” and other orders related to the COVID-19 pandemic have significantly reduced the use of print advertising in various industries, including retail, sports, entertainment and tourism. Paper and pulp production ceased at the Duluth Mill on July 1, 2020 and at the Wisconsin Rapids Mill on July 27, 2020. The production capacity of the Duluth Mill is approximately 270,000 tons of supercalendered/packaging papers and the production capacity of the Wisconsin Rapids Mill is approximately 540,000 tons of coated and packaging papers.

COVID-19 Pandemic — The recent outbreak of coronavirus disease, or “COVID-19”, which has been declared by the World Health Organization to be a global pandemic, is impacting worldwide economic activity. In an effort to contain and combat the spread of COVID-19, government and health authorities around the world have taken extraordinary and wide-ranging actions, including orders to close all businesses not deemed “essential,” quarantines and “stay-at-home” orders. Although some of these governmental restrictions have since been lifted or scaled back, a recent resurgence of COVID-19 has resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in an effort to reduce the spread of COVID-19. Verso serves as an essential manufacturing business and, as a result, Verso’s mills have continued to be operational during this time in order to meet the ongoing needs of its customers, including those in other essential business sectors, which provide food, medical and hygiene products needed in a global health crisis. The guidelines and orders enacted by federal, state and local governments continue to affect retailers, political campaigns, and sports and entertainment events, driving reduced purchases of printed materials and substantially impacting Verso’s graphic papers business.

Verso’s COVID-19 preparedness and response team has been monitoring the pandemic and related events daily and implementing responses in accordance with Centers for Disease Control and Prevention, or the “CDC,” and Occupational Safety and Health Administration, or “OSHA,” recommendations as well as federal, state and local guidelines.

While Verso cannot reasonably estimate the full impact of COVID-19 on the business, financial position, results of operations and cash flows, the pandemic will continue to have a negative impact on business and financial results. The extent to which COVID-19 impacts Verso’s operations will depend on future developments, which are highly uncertain, including, among others, the duration of the outbreak, including any potential resurgence of COVID-19 once the initial outbreak subsides, new

8



information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain its spread or treat its impact.

Basis of Presentation — This report contains the Unaudited Condensed Consolidated Financial Statements of Verso as of December 31, 2019 and June 30, 2020 and for the three and six months ended June 30, 2019 and 2020. The December 31, 2019 Unaudited Condensed Consolidated Balance Sheet data was derived from audited financial statements, but it does not include all disclosures required annually by accounting principles generally accepted in the United States of America, or “GAAP.” In Verso’s opinion, the Unaudited Condensed Consolidated Financial Statements include all adjustments that are necessary for the fair presentation of Verso’s respective financial condition, results of operations and cash flows for the interim periods presented. Except as disclosed in the notes to the Unaudited Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany balances and transactions are eliminated in consolidation. The results of operations and cash flows for the interim periods presented may not necessarily be indicative of full-year results. It is suggested that these financial statements be read in conjunction with the audited consolidated financial statements and notes thereto of Verso contained in its Annual Report on Form 10-K for the year ended December 31, 2019.

2.  RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Guidance Adopted in 2020
ASC Topic 350, Intangible Assets - Goodwill & Other. In August 2018, the Financial Accounting Standards Board, or “FASB,” issued Accounting Standards Update, or “ASU,” 2018-15, Customer’s Accounting for Implementation Costs in a Cloud Computing Arrangement that is a Service Contract (Topic 350), which aligns the accounting for such costs with guidance on capitalizing costs associated with developing or obtaining internal use software. Verso adopted this guidance on January 1, 2020 on a prospective basis and the effect on the Unaudited Condensed Consolidated Financial Statements was not material.

ASC Topic 326, Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance replaces the current incurred loss impairment method with a method that reflects expected credit losses. Adoption of this standard is through a cumulative-effect adjustment to retained earnings as of the effective date. Verso adopted this guidance on January 1, 2020 and the effect on the Unaudited Condensed Consolidated Financial Statements was not material.

ASC Topic 820, Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance modifies disclosure requirements related to fair value measurement. Verso adopted this guidance on January 1, 2020 and the effect on the Unaudited Condensed Consolidated Financial Statements was not material.

Accounting Guidance Not Yet Adopted

ASC Topic 740, Income Taxes. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce the complexity in accounting for income taxes. It is effective for annual periods, and interim periods within those years, beginning after December 15, 2020 and is not expected to have a material effect on the Unaudited Condensed Consolidated Financial Statements.
 
3. REVENUE RECOGNITION

The following table presents the revenues disaggregated by product included on the Unaudited Condensed Consolidated Statements of Operations:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(Dollars in millions)
2019
 
2020
 
2019
 
2020
Paper
$
548

 
$
219

 
$
1,130

 
$
640

Packaging
23

 
18

 
47

 
42

Pulp
31

 
31

 
64

 
57

Total Net sales
$
602

 
$
268

 
$
1,241

 
$
739


9



The following table presents the revenue disaggregated by sales channel included on the Unaudited Condensed Consolidated Statements of Operations:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(Dollars in millions)
2019
 
2020
 
2019
 
2020
End-users and Converters
$
282

 
$
110

 
$
569

 
$
280

Brokers and Merchants
228

 
108

 
475

 
327

Printers
92

 
50

 
197

 
132

Total Net sales
$
602

 
$
268

 
$
1,241

 
$
739


4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Restricted Cash — As of December 31, 2019 and June 30, 2020, $2 million of restricted cash was included in Intangibles and other assets, net on the Unaudited Condensed Consolidated Balance Sheets primarily related to asset retirement obligations in the state of Michigan. These cash deposits are required by the state and may only be used for the future closure of a landfill. As of June 30, 2019 and 2020, Cash and cash equivalents and restricted cash on the Unaudited Condensed Consolidated Statements of Cash Flows includes restricted cash of $3 million and $2 million, respectively.

Inventories — The following table summarizes inventories by major category:
 
December 31,
 
June 30,
(Dollars in millions)
2019
 
2020
Raw materials
$
80

 
$
64

Work-in-process
51

 
69

Finished goods
233

 
208

Replacement parts and other supplies
31

 
26

Inventories
$
395

 
$
367



Property, plant and equipment — Depreciation expense for the three and six months ended June 30, 2019 was $102 million and $129 million, respectively. Depreciation expense for the three and six months ended June 30, 2020 was $20 million and $42 million, respectively. Depreciation expense for the three and six months ended June 30, 2019 includes $76 million in accelerated depreciation associated with the closure of the Luke Mill in June 2019 (see Note 10).

Interest costs capitalized for the three and six months ended June 30, 2019 and the three and six months ended June 30, 2020 were each $1 million. Capital expenditures unpaid as of June 30, 2019 and 2020 were $16 million and $4 million, respectively.

Income Taxes — Income tax expense for the three and six months ended June 30, 2019 was zero and $1 million, respectively. Income tax benefit for the three months ended June 30, 2020 was $3 million and income tax expense for the six months ended June 30, 2020 was $23 million. During the three and six months ended June 30, 2020, Verso recognized $1 million and $7 million, respectively, of additional valuation allowance against state tax credits. The three and six months ended June 30, 2020 also include $7 million of income tax expense related to the year ended December 31, 2019. This resulted from recording the federal tax effect on deferred tax assets for state net operating losses and state tax credits, which was not recorded in the prior year. This adjustment recorded during the three and six months ended June 30, 2020 was not material to the current period Unaudited Condensed Consolidated Financial Statements or any prior periods.


10



5. DISPOSITION

On February 10, 2020, Verso completed the Pixelle Sale, selling all of the outstanding membership interests in Verso Androscoggin, LLC, an indirect wholly owned subsidiary of Verso and the entity that, as of the closing date of the Pixelle Sale, held all the assets primarily related to Verso’s Androscoggin Mill located in Jay, Maine and Verso’s Stevens Point Mill, located in Stevens Point, Wisconsin. The Pixelle Sale did not qualify as a discontinued operation. As consideration for the Pixelle Sale, Verso received $346 million in cash, which reflects certain adjustments in respect of Verso’s estimates of cash, indebtedness and working capital of Verso Androscoggin, LLC as of the closing date, and Pixelle assumed $35 million of Verso’s unfunded pension liabilities. The sale resulted in a gain of $88 million included in Other operating (income) expense on the Unaudited Condensed Consolidated Statement of Operations for the six months ended June 30, 2020 and is subject to final post-closing adjustments. In connection with the Pixelle Sale, Verso is providing certain transition services to Pixelle and recognized $2 million and $3 million for these services on the Unaudited Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2020, respectively. During the three months ended June 30, 2020, $1 million of these transition services were recognized as a reduction of Cost of products sold and $1 million as a reduction of Selling, general and administrative expenses. During the six months ended June 30, 2020, $1 million of these transition services were recognized as a reduction of Cost of products sold and $2 million as a reduction of Selling, general and administrative expenses.

The following table summarizes the components of the gain on sale:
(Dollars in millions)
 
Cash proceeds
$
346

Less: costs to sell
(6
)
Net cash proceeds
340

Less: assets and liabilities associated with the sale
 
    Accounts receivable, net
39

    Inventories
90

    Property, plant and equipment, net
195

    Write-off of intangible assets
5

    Other assets
4

    Accounts payable
(33
)
    Pension benefit obligation
(35
)
    Other liabilities
(13
)
Gain on sale
$
88



6.  DEBT

As of December 31, 2019 and June 30, 2020, Verso Paper had no outstanding borrowings on the ABL Facility (as defined below).

ABL Facility

On July 15, 2016, Verso Paper Holdings LLC entered into a $375 million asset-based revolving credit facility, or the “ABL Facility.” After the Company completed an internal reorganization in December 2016, Verso Paper Holdings LLC ceased to exist and Verso Paper became the borrower under the ABL Facility.

On February 6, 2019, Verso Paper entered into a second amendment to the ABL Facility, or the “ABL Amendment.” As a result of the ABL Amendment, the ABL Facility provides for revolving commitments of $350 million, subject to a borrowing base limit, with a $100 million sublimit for letters of credit and a $35 million sublimit for swingline loans. Verso Paper may request one or more incremental revolving commitments in an aggregate principal amount up to the greater of (i) $75 million or (ii) the excess of the borrowing base over the revolving facility commitments of $350 million; however, the lenders are not obligated to increase the revolving commitments upon any such request. Availability under the ABL Facility is subject to customary borrowing conditions. The ABL Facility will mature on February 6, 2024.

Outstanding borrowings under the ABL Facility bear interest at an annual rate equal to, at the option of Verso Paper, either (i) a customary London interbank offered rate plus an applicable margin ranging from 1.25% to 1.75% or (ii) a customary base rate plus an applicable margin ranging from 0.25% to 0.75%, determined based upon the average excess availability under the ABL

11



Facility. Verso Paper also is required to pay a commitment fee for the unused portion of the ABL Facility of 0.25% per year, based upon the average revolver usage under the ABL Facility.

The amount of borrowings and letters of credit available to Verso Paper pursuant to the ABL Facility is limited to the lesser of $350 million or an amount determined pursuant to a borrowing base ($242 million as of June 30, 2020). As of June 30, 2020, there were no borrowings outstanding under the ABL Facility, with $28 million issued in letters of credit and $214 million available for future borrowings.

All obligations under the ABL Facility are unconditionally guaranteed by Verso Holding and certain of the subsidiaries of Verso Paper. The security interest with respect to the ABL Facility consists of a first-priority lien on certain assets of Verso Paper, Verso Holding and the other guarantor subsidiaries, including accounts receivable, inventory, certain deposit accounts, securities accounts and commodities accounts.

The ABL Facility contains financial covenants requiring Verso, among other things, to maintain a minimum fixed charge coverage ratio if availability were to drop below prescribed thresholds. The ABL Facility also requires that certain payment conditions, as defined therein, are met in order for Verso to incur debt or liens, pay cash dividends, repurchase equity interest, prepay indebtedness, sell or dispose of assets and make investments in or merge with another company.

7. EARNINGS PER SHARE

The following table provides a reconciliation of basic and diluted income (loss) per common share:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2020
 
2019
 
2020
Net income (loss) available to common stockholders (in millions)
$
(112
)
 
$
(34
)
 
$
(76
)
 
$
20

Weighted average common shares outstanding - basic (in thousands)
34,626

 
34,548

 
34,555

 
34,827

Dilutive shares from stock awards (in thousands)

 

 

 
196

Weighted average common shares outstanding - diluted (in thousands)
34,626

 
34,548

 
34,555

 
35,023

Basic income (loss) per share
$
(3.23
)
 
$
(0.99
)
 
$
(2.19
)
 
$
0.56

Diluted income (loss) per share
$
(3.23
)
 
$
(0.99
)
 
$
(2.19
)
 
$
0.56



As a result of the net loss from continuing operations for the three and six months ended June 30, 2019 and the three months ended June 30, 2020, 1.2 million restricted stock units as of June 30, 2019 and 0.9 million restricted stock units as of June 30, 2020 were excluded from the calculation of diluted earnings per share as their inclusion would be anti-dilutive. As of June 30, 2020, Verso has 1.8 million warrants outstanding at an exercise price of $27.86 (see Note 9). As a result of the exercise price of the warrants exceeding the average market price of Verso’s common stock during the three and six months ended June 30, 2019 and 2020, 1.8 million warrants as of June 30, 2019 and 2020 were excluded from the calculations of diluted earnings per share as their inclusion would be anti-dilutive.

8.  RETIREMENT BENEFITS

The following table summarizes the components of net periodic pension cost (income) for the periods presented:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(Dollars in millions)
2019
 
2020
 
2019
 
2020
Service cost
$
1

 
$

 
$
2

 
$
1

Interest cost
16

 
11

 
32

 
23

Expected return on plan assets
(17
)
 
(16
)
 
(34
)
 
(33
)
Net periodic pension cost (income)
$

 
$
(5
)
 
$

 
$
(9
)



12



Verso makes contributions that are sufficient to fund actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act. Verso made contributions to the pension plan of $8 million and $16 million during the three and six months ended June 30, 2019, respectively, and $10 million and $18 million during the three and six months ended June 30, 2020, respectively. Verso expects to make the required cash contributions of at least $31 million to the pension plan in the remainder of 2020.

9. EQUITY

Equity Awards

During the six months ended June 30, 2020, Verso granted 0.2 million time-based restricted stock units and 0.2 million performance-based restricted stock units to its executives and certain senior managers. The performance awards granted vest at December 31, 2022, subject to a comparison of annualized total stockholder return, or “TSR,” of Verso to a select group of peer companies over a 3-year period. The vesting criteria of the performance awards meet the definition of a market condition for accounting purposes. The full grant date value of the performance awards will be recognized over the remaining vesting period assuming that the employee is employed continuously to the vesting date. The number of shares which will ultimately vest at the vesting date ranges from 0% to 150% based on Verso’s TSR relative to the peer group during the performance period. The compensation expense associated with these performance awards was determined using the Monte Carlo valuation methodology.

On May 11, 2020, the threshold requirement for vesting of achieving a 5% annualized TSR was eliminated for performance units granted in 2019 and 2020. This change was considered a modification of each award and requires Verso to incur additional compensation cost for the incremental difference in the fair value between the modified award (post-modification) and original award (pre-modification) over the remaining vesting period. The incremental difference was $1.60 and $3.75 per unit for the 2019 and 2020 performance grants, respectively.
Verso recognized equity award expense of $6 million and $8 million for the three and six months ended June 30, 2019, respectively, and $2 million and $4 million for the three and six months ended June 30, 2020, respectively. Equity award expense for the six months ended June 30, 2020 includes $0.3 million related to the accelerated vesting of 19 thousand performance-based restricted stock units and 43 thousand time-based restricted stock units, net of cancellation of 28 thousand time-based restricted stock units and 34 thousand performance-based restricted stock units, pursuant to a separation agreement, dated March 10, 2020, entered into with Verso’s former President. As of June 30, 2020, there was approximately $8 million of unrecognized compensation cost related to the 0.9 million non-vested restricted stock units, which is expected to be recognized over the weighted average period of 2.0 years.

Time-based Restricted Stock Units

Changes to non-vested time-based restricted stock units for the six months ended June 30, 2020 were as follows:
 
Restricted Stock
 
Weighted Average
 
Units
 
Grant Date
Shares (in thousands)
Outstanding
 
Fair Value
Non-vested at December 31, 2019
579

 
$
11.55

Granted
221

 
15.75

Dividend equivalent units (1)
4

 

Vested
(257
)
 
9.59

Forfeited
(47
)
 
15.87

Non-vested at June 30, 2020
500

 
14.03


(1) Dividend equivalent units on certain restricted stock awards for dividends unpaid related to the shares reserved but unissued at the time cash dividends were paid.


13



Performance-based Restricted Stock Units

Changes to non-vested performance-based restricted stock units for the six months ended June 30, 2020 were as follows:
 
Restricted Stock
 
Weighted Average
 
Units
 
Grant Date
Shares (in thousands)
Outstanding
 
Fair Value
Non-vested at December 31, 2019
638

 
$
18.84

Granted
439

 
15.19

Dividend equivalent units (1)
3

 

Incremental shares vested (2)
161

 

Vested
(555
)
 
21.05

Forfeited
(303
)
 
14.32

Non-vested at June 30, 2020
383

 
17.10


(1) Dividend equivalent units on certain restricted stock awards for dividends unpaid related to the shares reserved but unissued at the time cash dividends were paid.
(2) Incremental shares are a result of performance at 150% of granted shares.

Warrants

On July 15, 2016, warrants to purchase up to an aggregate of 1.8 million shares of Class A common stock were issued to holders of first-lien secured debt at an exercise price of $27.86 per share and a seven-year term. The warrants expire on July 15, 2023. As of June 30, 2020, no warrants have been exercised.

Share Repurchase Authorization

On February 26, 2020, Verso’s Board of Directors authorized up to $250 million of net proceeds from the Pixelle Sale to be used to repurchase outstanding shares of Verso common stock. During the six months ended June 30, 2020, Verso purchased approximately 1.6 million shares of its common stock at a weighted average cost of $14.14 per share. As of June 30, 2020, Verso has approximately $227 million of remaining authorization for the repurchase of outstanding shares of its common stock. See Note 12 for more information.

Dividends

On May 12, 2020, Verso’s Board of Directors declared a quarterly cash dividend of $0.10 per share of Verso's Class A Common Stock, $0.01 par value, payable on June 29, 2020, to stockholders of record on June 15, 2020. See Note 12 for more information.

10.  RESTRUCTURING CHARGES

Closure of Luke Mill On April 30, 2019, Verso announced that it would permanently shut down its paper mill in Luke, Maryland in response to the continuing decline in customer demand for the grades of coated freesheet paper produced at the Luke Mill, along with rising input costs, a significant influx of imports and rising compliance costs and infrastructure challenges associated with environmental regulation. Verso completed the shutdown and closure of the Luke Mill in June 2019. The shutdown of the Luke Mill reduced Verso’s coated freesheet production capacity by approximately 450,000 tons and eliminated approximately 675 positions at the Luke Mill.

In connection with the announced closure of the Luke Mill, Verso recognized $76 million of accelerated depreciation which is included in Depreciation and amortization on the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019.


14



The following table details the charges incurred related to the Luke Mill closure as included in Restructuring charges on the Unaudited Condensed Consolidated Statements of Operations:
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
Cumulative
(Dollars in millions)
2019
 
2020
 
2019
 
2020
 
Incurred
Property, plant and equipment, net
$
10

 
$

 
$
10

 
$

 
$
10

Severance and benefit costs
19

 

 
19

 
(1
)
 
18

Write-off of spare parts and inventory
8

 

 
8

 

 
9

Write-off of purchase obligations and commitments

 

 

 

 
1

Other costs(1)
3

 

 
3

 
7

 
20

Total restructuring costs
$
40

 
$

 
$
40

 
$
6

 
$
58


(1) Other costs primarily relate to activities associated with the shutdown of property, plant and equipment, such as draining, cleaning, dismantling, securing and disposing of such assets. Other costs for the six months ended June 30, 2020 includes $6 million for the final cleaning and shutdown of various storage tanks.

The following table details the changes in the restructuring reserve liabilities related to the Luke Mill closure which are included in Accrued and other liabilities on the Unaudited Condensed Consolidated Balance Sheets:
 
Six Months Ended
(Dollars in millions)
June 30, 2020
Beginning balance of reserve
$
4

Severance and benefits reserve adjustments
(1