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Coated Paper Sales Drives NewPage Corporation Q2 Sales Gains

Tuesday, August 08, 2006

Press release from the issuing company

DAYTON, Ohio, Aug. 7 -- NewPage Corporation today announced its financial results of operations for the second quarter of 2006. Net sales were $490 million in the second quarter of 2006 compared to $416 million in the second quarter of 2005, an increase of 18.1%. The increase in net sales was largely the result of an increase in coated paper sales volume to 522,000 tons in the second quarter of 2006 from 450,000 tons in the second quarter of 2005, and an increase in average coated paper prices to $894 per ton in 2006 from $877 per ton in 2005. "Second quarter 2006 performance for NewPage was solid, completing our best first half in more than five years," said Mark A. Suwyn, chairman of the board and chief executive officer. "Coated paper sales volume was strong, largely due to increased demand and recent industry capacity closures, and our continued productivity gains added to our improved profitability." Net income for the second quarter of 2006 was $50 million compared to a net loss of $(67) million in the second quarter of 2005. Results reflect the June 2006 sale of our hydroelectric generating facilities located on the Androscoggin River in Rumford, Maine, and the April 2006 sale of the NewPage carbonless business operations. EBITDA was $125 million and $24 million for the second quarter of 2006 and 2005, respectively. Significant items in 2006 included a $66 million gain on the sale of the hydroelectric generating facilities, $6 million of non-cash losses from the purchased option contract, and $9 million of non-cash charges and sale-related costs included in loss from discontinued operations. Significant items in 2005 included $20 million of non-cash losses from the purchased option contract and $2 million of transition costs. Interest expense for the second quarter of 2006 was $38 million compared to $54 million for the second quarter of 2005. The second quarter 2005 results included a loss of $18 million incurred by the predecessor company to defease their debt prior to the acquisition. Cost of sales for the second quarter of 2006 was $432 million compared to $386 million for the second quarter of 2005. Gross margin for the second quarter of 2006 improved to 11.9%, compared to 7.0% for the second quarter of 2005. During the quarter, the higher gross margin was due to higher sales prices, productivity improvement initiatives, lower depreciation and amortization expense and lower maintenance costs, partially offset by higher energy and chemical costs. Energy costs in the second quarter of 2006 increased over the second quarter of 2005 as a result of higher prices from a spectrum of energy sources driven by price pressure from refined petroleum products. The increase in the cost of chemicals was primarily driven by increases in prices for chemicals such as latex, which historically have been volatile, fluctuating with the price of crude oil. "During the second quarter, NewPage again successfully offset higher energy-related costs through our programs to increase efficiencies and productivity, further expanding our cost advantage over the industry average and enabling us to better leverage our higher sales prices. We expect crude oil and energy costs to remain volatile for the foreseeable future," continued Suwyn. Richard D. Willett, Jr., president and chief operating officer, added, "The culture at NewPage is energized and keenly focused on cost containment and process flexibility. To help further strengthen our operating model, we are implementing additional efficiency programs, and in particular, the Lean Six Sigma productivity improvement methodology, as key corporate initiatives. We believe these programs will get our entire organization closer to our customers, improve quality and speed, and accelerate our ability to reduce our costs, and therefore expand profitability for our financial stakeholders." Maintenance expenses in the second quarter of 2006 were $43 million, down from $48 million in the second quarter 2005. "Maintenance expense will be higher in the third quarter of 2006 compared to the second quarter due to planned annual maintenance outages," stated Willett. "A majority of the planned outages in the third quarter will improve our quality and cost position, specifically in our energy and papermaking assets." Selling, general and administrative expenses were $22 million for the second quarter of 2006 compared to $25 million for the second quarter of 2005. The decrease was primarily a result of transitional costs of $2 million relating to the setup of the business on a stand-alone basis recorded in the second quarter of 2005. As a percentage of net sales, selling, general and administrative expenses decreased in the second quarter of 2006 to 4.6% from 6.0% in the second quarter of 2005. As of June 30, 2006, there were no outstanding borrowings under the revolving senior secured credit facility and, based on availability under the borrowing base as of that date, the company had $224 million of borrowing availability under the revolving senior secured credit facility, after taking into account $51 million of outstanding letters of credit. During the quarter the company paid down an aggregate amount of $227 million toward the senior secured debt. "Our focus for the second half remains on continuously improving efficiencies to reduce costs per ton and increase our ability to leverage the current favorable pricing environment," said Suwyn. "As we enter the seasonally stronger period of the year, we expect operating rates in the coated paper markets to continue to remain strong, with business drivers such as capacity closures, GDP and advertising spending remaining favorable for us to realize higher sales prices. This combination should generate strong cash flow that will allow us to continue to pay down debt and strengthen our balance sheet."

 

 

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