DAYTON, Ohio, May 7 -- NewPage Corporation today announced its financial results of operations for the first quarter of 2007. Net sales were $476 million in the first quarter of 2007 compared to $507 million in the first quarter of 2006, a decrease of 6.1%. The company's weighted average coated paper prices were $873 per ton in the first quarter of 2007, down from $886 per ton in the first quarter of 2006, and coated paper sales volumes in the first quarter of 2007 were 508,000 tons compared to 540,000 tons in the first quarter of 2006. As previously announced, the company took 27,000 tons of market-related downtime for coated paper in the first quarter of 2007 at the Rumford mill. The company did not take any market-related downtime in the first quarter of 2006.
"First quarter 2007 volume and price were down somewhat compared to the first quarter of 2006 as we continue to see the negative effects of imports of coated freesheet paper from China, Indonesia and South Korea, which we believe is being sold in our markets at artificially low prices. As a result, we filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission late last year seeking antidumping and countervailing duties on coated freesheet imports from these countries," said Mark A. Suwyn, chairman of the board and chief executive officer.
On March 30, 2007, the U.S. Department of Commerce issued preliminary determinations in the subsidy cases and imposed preliminary countervailing duties on imports from these three countries. Preliminary determinations by the Department of Commerce in the dumping cases are expected at the end of May 2007. These preliminary determinations will be followed by further investigations and any preliminary duties imposed are subject to modification when final determinations are issued by the Department of Commerce. "We were pleased with the Department of Commerce's preliminary determinations and believe that decision will provide a more balanced market for NewPage as well as all U.S. coated free sheet paper producers," added Suwyn. "We are willing to compete with anyone in the world as long as we have a level playing field. The decision to address unfairly subsidized imported coated free sheet paper, which led to artificially low prices, is a first step in trying to level that playing field. At this time, it is unclear when any effect from this ruling will be felt in the marketplace."
Net loss was $20 million in the first quarter of 2007 compared to a net loss of $64 million in the first quarter of 2006. Significant items in 2006 included an unrealized non-cash loss of $39 million for the basket option contract and equity award expense of $6 million recognized for the former chief executive officer.
EBITDA was $46 million for the first quarter of 2007 compared to EBITDA of $11 million for the first quarter of 2006. Significant items in 2006 included a non-cash loss of $39 million on the basket option contract, $8 million of expenses for transition costs, $9 million of non-cash charges and sale-related costs included in loss of discontinued operations, and equity award expense of $6 million recognized for the former chief executive officer.
Cost of sales for the first quarter of 2007 was $438 million compared to $451 million for the first quarter of 2006. Gross margin for the first quarter of 2007 declined to 8.0%, compared to 11.0% for the first quarter of 2006. The lower gross margin was primarily driven by lower average sales prices. Maintenance expense at our mills totaled $39 million and $36 million in the first quarter of 2007 and 2006.
"From a productivity standpoint, we had a solid operating quarter with three of our four mills running exceptionally well," said Richard D. Willett, Jr., president and chief operating officer. "As our Lean Six Sigma initiatives ramp up, we are beginning to see the benefits of our improvement projects as productivity continues to outpace inflation. As previously announced, at year end we permanently shut down a smaller paper machine at our Luke, Maryland facility and during the first quarter of 2007, we curtailed production on the No. 11 paper machine at our Rumford, Maine mill to align capacity with anticipated market demand, and also as a result of the continued growth of low-priced Asian imports."
Selling, general and administrative (SG&A) expenses were $26 million for the first quarter of 2007 compared to $38 million for the first quarter of 2006. SG&A expenses were higher in the first quarter of 2006 primarily as a result of transitional costs of $8 million related to the setup of NewPage as a stand-alone business, including costs related to the completion of the information technology and human resources transition, and higher equity award expense of $6 million.
Interest expense for the first quarter of 2007 was $33 million compared to $39 million for the first quarter of 2006. The decrease was primarily a result of lower outstanding debt balances and a reduction in the interest rate spread on the term loan.
There were no outstanding borrowings under the revolving senior secured credit facility as of March 31, 2007. Based on availability under the borrowing base as of that date, there is $177 million of additional borrowing availability under the revolving senior secured credit facility.
"Generally, we expect operating rates in the coated paper markets to remain relatively stable in the first half of 2007, and we believe that business drivers such as capacity closures, GDP growth and advertising spending remain favorable to us to see seasonal growth in the third and fourth quarters," commented Suwyn. "In May, we look forward to the Department of Commerce's preliminary determinations in the antidumping cases involving coated free sheet imports from China, Indonesia and South Korea."
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