The Memorial Day fire and explosion at the mill, which has already cost one employee his life and 265 others their jobs, will result in shutdown costs of approximately $114 million, Verso stated in its quarterly earnings report to the Securities and Exchange Commission. (See excerpt below.) The company’s stock, beaten down by concern about the company’s long-term viability, was worth just over $75 million at the end of the day.
Most of the cost will be for “non-cash” charges to write down the value of Sartell’s plant and equipment. But Verso, North America’s second largest maker of coated paper, estimates it will need cash outlays of about $33 million, most in the current quarter, for severance and other shutdown costs.
“Settlement negotiations regarding this loss claim with our insurance carrier are continuing and we expect resolution in the coming months,” the Verso report said.
Verso has $117.7 million available for future borrowing, down from $160 million three months ago, which will keep it solvent for at least 12 months, the company wrote.
The company’s stock price rose about 6% yesterday, with traders apparently pleased that it is still interested in merging with rival NewPage and that its quarterly loss was less than the year-ago period.
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On August 2, 2012, we announced that having completed a comprehensive assessment of the damage resulting from the fire and explosion at our paper mill in Sartell, Minnesota, we have determined that we will permanently close the mill. The permanent closure of the Sartell Mill will reduce our annual coated groundwood capacity by 180,000 tons, or approximately 20%, and will eliminate approximately 35,000 tons annually of supercalendered paper capacity. The Sartell Mill currently employs approximately 265 employees.
The mill closure will result in an aggregate pre-tax charge to earnings of approximately $114 million, which is expected to occur primarily in the third quarter of 2012. This includes approximately $19 million for severance and benefit costs; approximately $81 million in non-cash charges primarily related to the impairment of property, plant and equipment; and approximately $14 million related to other costs. The severance and other shutdown costs require the outlay of cash, which is expected to occur primarily in the third quarter of 2012. Settlement negotiations regarding this loss claim with our insurance carrier are continuing and we expect resolution in the coming months.
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We rely primarily upon cash flow from operations and borrowings under our revolving credit facilities to finance operations, capital expenditures, and fluctuations in debt service requirements. As of June 30, 2012, $117.7 million was available for future borrowing under our revolving credit facilities. We believe that our ability to manage cash flow and working capital levels, particularly inventory and accounts payable, will allow us to meet our current and future obligations, pay scheduled principal and interest payments, and provide funds for working capital, capital expenditures, and other needs of the business for at least the next twelve months. However, no assurance can be given that we will be able to generate sufficient cash flows from operations or that future borrowings will be available under our revolving credit facilities in amounts sufficient to fund our liquidity needs. As we focus on managing our expenses and cash flows, we continue to assess and implement, as appropriate, various earnings and expense reduction initiatives. Management has developed a company-wide cost reduction program and expects this program to yield an additional $47 million in cost reductions and continues to search for and develop additional cost savings measures.
Looking at the Verso financials, I see that Interest payments exceed EBITA . . . I've seen that business model somewhere before . . .
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