DAYTON, Ohio, Nov. 14 -- NewPage Corporation today announced its improved financial results for its operations for the third quarter 2005. Net sales were $617.6 million in the third quarter of 2005 compared to $587.2 million for the third quarter of 2004. Net cash provided by operating activities was $98.7 million in the third quarter of 2005 compared to $81.1 million in the third quarter of 2004. Earnings before interest, taxes, depreciation, depletion and amortization (or EBITDA) were $101.3 million and $76.8 million for the third quarter of 2005 and 2004, respectively. The increase in EBITDA was primarily a result of an unrealized gain of $25.8 million based on the mark-to-market value of a purchased option contract, better price realization and productivity improvements, which were offset by higher inflation from energy, fuel and certain raw materials.
NewPage Corporation commenced operations on May 2, 2005 as a result of the sale of the Printing and Writing Papers Business of MeadWestvaco to NewPage Corporation. The third quarter 2005 financial results for NewPage Corporation (successor) are reported in comparison to the third quarter 2004 results of the former Printing and Writing Papers Business of MeadWestvaco Corporation (predecessor).
"This is our first full quarter as a stand alone company and I'm quite pleased with how the organization is responding to a very challenging cost environment and a relatively volatile market," said Peter H. Vogel, Jr., the company's president and chief executive officer. "We are ahead of schedule with our transition of services and we expect to wrap up Human Resources and Information Technology in early 2006. Overall, we are pleased with our progress and we can now be even more focused on activities to generate productivity-driven results. During the quarter, our coated operations ran well and we managed the areas within our control. Despite the challenging inflationary environment, we generated strong cash flows and stayed focused on reducing our debt."
Net sales for the third quarter of 2005 were $617.6 million compared to $587.2 million for the third quarter of 2004, an increase of 5%. The increase was largely the result of higher average coated paper prices of $878 per ton in the third quarter of 2005 compared to $814 per ton in the third quarter of 2004, partially offset by decreases in coated paper sales volumes of 549,000 tons in the third quarter of 2005 from 569,000 tons in the third quarter of 2004; volumes increased from second quarter of 450,000 tons. "We were very pleased with the rebound of the markets and our performance in the third quarter. Our sales performance was down slightly from an exceptional comparable period last year. However, we saw a significant increase in coated paper volume from the second quarter of 2005," added Vogel.
Cost of sales for the third quarter of 2005 was $555.6 million compared to $537.2 million for the third quarter of 2004. The increase was primarily attributable to higher costs of wood, energy, and chemicals and market downtime, partially offset by savings from productivity improvement programs, lower coated paper sales volume in the third quarter of 2005 and lower depreciation. "Energy-driven inflation continues to affect our business and we are managing the cost side very carefully as we go into the fourth quarter. At NewPage, we are committed to managing the areas we can control and driving productivity," said Vogel.
Maintenance expenses in the third quarter decreased by $10.7 million compared to second quarter 2005, which included annual mill shutdowns. Additional unabsorbed fixed costs and other incremental costs related to the shutdowns were $6.2 million lower compared to the second quarter.
Selling, general and administrative expenses were $31.1 million for the third quarter of 2005 compared to $33.3 million for the third quarter of 2004 a decrease of 7%. The decrease was the result of the elimination of corporate charges that were allocated to us by MeadWestvaco that are no longer related to our business. Included in the third quarter of 2005 are transitional costs of $6.0 million related to the setup of our business as a stand-alone company.
"The strong quarter operating earnings and a focus on cash, allowed us to reduce debt by $100 million," said Vogel. As of September 30, 2005, the company had $249.4 million of borrowing availability under the revolving senior credit facility with $70.4 million outstanding.
On June 2, 2005, NewPage Corporation announced that it would be evaluating strategic alternatives for the carbonless business and associated facilities. The company continues to make progress on the three options which are the sale of the facilities to another owner, the sale of the business to the Chillicothe management team and/or employees, or a major restructuring and streamlining of the existing facilities.
EBITDA was $101.3 million and $76.8 million for the third quarter of 2005 and 2004, respectively. The increase in EBITDA was primarily a result of an unrealized non-cash gain of $25.8 million based on the mark-to-market value of a purchased option contract, better price realization and productivity improvements, which were offset by higher inflation. The purchased option contract is a basket of options based on a mix of natural gas, market pulp and the euro. Net cash provided by operating activities was $98.7 million and $81.1 million for the third quarter of 2005 and 2004, respectively. "Consistent with our strong focus on inventory and cash flow management, we took market-related downtime of 28,000 tons of coated paper during the third quarter," stated Vogel. "We were able to draw down inventory by $37 million, and we continue to drive working capital initiatives."
"Changes in crude oil and other energy costs will continue to affect the cost of certain papermaking chemicals, purchased energy and distribution," said Vogel. "Overall, we expect energy-related costs to remain volatile throughout the remainder of 2005 and into 2006."
In the fourth quarter, NewPage has one major annual maintenance outage scheduled for our Wickliffe, Kentucky mill. This is expected to result in higher maintenance and related costs compared to the third quarter of 2005. NewPage also expects sales volumes in the fourth quarter of 2005 to improve over the sales rate for the fourth quarter of 2004. Vogel added, "We anticipate good fourth quarter volume, though slightly below the seasonally strong third quarter."
Vogel added, "During the quarter we announced plans to begin a cost- sharing surcharge of $20 per ton of paper and a new freight policy for shipments of coated paper. Although we expect some realization during the fourth quarter, the majority of the effect will occur in 2006.
The NewPage third quarter 2005 earnings conference call is scheduled for today, November 14, 2005, at 11:00 a.m. (ET) and is accessible on the company's Web site and via conference call. Following the session, questions will be taken from registered analysts and investors. Parties interested in accessing the live conference call on the Web should connect to the NewPage Web site at www.NewPageCorp.com and click on Third Quarter Conference Call. After connecting to this page, please follow the instructions to access the webcast in listen and view mode. The call will be available live and stored on the Web site for three weeks.
Analysts and investors may participate in the live conference call by dialing 800-288-8960 (toll-free domestic) or 612-288-0318 (international). To register, please call in at least 10 minutes before the conference call begins. A replay of the call will be available via telephone 800-475-6701 (toll-free domestic) or 320-365-3844 (international), access code: 799675, starting at 2:30 p.m. (ET) on November 14, 2005, and will remain available until noon (ET) on December 5, 2005.
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