UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2011~~2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Verso Paper Corp.

(Exact name of registrant as specified in its charter)

Delaware	001-34056	75-3217389
(State of Incorporation or Organization)	(Commission File Number)	(IRS Employer Identification Number)

Verso Paper Holdings LLC

(Exact name of registrant as specified in its charter)

Delaware		333-142283		56-2597634
(State of Incorporation or Organization)		(Commission File Number)		(IRS Employer Identification Number)

6775 Lenox Center Court, Suite 400

Memphis, Tennessee 38115-4436

(Address, including zip code, of principal executive offices)

(901) 369-4100

(Registrants’ telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act: ~~Verso Paper Corp.~~

Title of each class	Name of each exchange on which registered
	Verso Paper Corp.
Common Stock, $.01 par value per share	New York Stock Exchange
	Title of each class		Name of each exchange on which registered
Common Stock, $.01 par value per share			New York Stock Exchange
	Verso Paper Holdings LLC	None
Securities registered pursuant to Section 12(g) of the Act:
	Verso Paper Corp.	None
	Verso Paper Holdings LLC	None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
	Verso Paper Corp.	o Yes þ No
	Verso Paper Holdings LLC	o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
	Verso Paper Corp.	o Yes þ No
	Verso Paper Holdings LLC	o Yes þ No

	Verso Paper Holdings LLC	None
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.
Securities registered pursuant to Section 12(g) of the Act:
	Verso Paper Corp.	þ Yes o No
	Verso Paper Corp.	None
	Verso Paper Holdings LLC	þ Yes o No
	Verso Paper Holdings LLC	None
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
	Verso Paper Corp.	þ Yes o No
	Verso Paper Corp.	o Yes þ No
	Verso Paper Holdings LLC	þ Yes o No
	Verso Paper Holdings LLC	o Yes þ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
	Verso Paper Corp.	o
	Verso Paper Corp.	o Yes þ No
	Verso Paper Holdings LLC	þ
	Verso Paper Holdings LLC	o Yes þ No

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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Verso Paper Corp.	~~Verso Paper Corp.~~	~~þ Yes o No~~
	Verso Paper Holdings LLC	þ Yes o No
Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
		(Do not check if a smaller reporting company)
	Verso Paper Corp.	þ Yes o No
Verso Paper Holdings LLC
	Verso Paper Holdings LLC	þ Yes o No
Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
		(Do not check if a smaller reporting company)
	Verso Paper Corp.	þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
	Verso Paper Holdings LLC	þ
	Verso Paper Corp.	o Yes þ No
	Verso Paper Holdings LLC	o Yes þ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Verso Paper Corp.
Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)
Verso Paper Holdings LLC
Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

The aggregate market value of the voting and non-voting common equity of Verso Paper Corp. held by non-affiliates, computed by reference to the price at which the common equity was last sold on the last business day of the most recently completed second fiscal quarter (June 30, 2012), was approximately $18,312,651.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
	Verso Paper Corp.	o Yes þ No
	Verso Paper Holdings LLC	o Yes þ No

As of February 28, 2013, Verso Paper Corp. had 52,894,741 outstanding shares of common stock, par value $0.01 per share, and Verso Paper Holdings LLC had one outstanding limited liability company interest.

As of February 29, 2012, Verso Paper Corp. had 52,594,408 outstanding shares of common stock, par value $0.01 per share, and Verso Paper Holdings LLC had one outstanding limited liability company interest.

This Form 10-K is a combined annual report being filed separately by two registrants: Verso Paper Corp. and Verso Paper Holdings LLC.

Verso Paper Holdings LLC meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format permitted by General Instruction I(2).

DOCUMENTS INCORPORATED BY REFERENCE:

The information required by Part III is incorporated by reference from portions of the definitive proxy statement of Verso Paper Corp. to be filed within 120 days after December 31, ~~2011~~2012, pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the ~~2012~~2013 annual meeting of stockholders of Verso Paper Corp.

Table of Contents

~~PART I~~	PART I
		Page
Item 1.	Business	3
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	2221
Item 2.	Properties	2221
Item 3.	Legal Proceedings	2221
Item 4.	Mine Safety Disclosures	2221
~~PART II~~	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2827
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	91
Item 9A.	Controls and Procedures	91
Item 9B.	Other Information	91
~~PART III~~	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	92
Item 11.	Executive Compensation	92
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	92
Item 13.	Certain Relationships and Related Transactions and Director Independence	92
Item 14.	Principal Accountant Fees and Services	93
~~PART IV~~	PART IV
Item 15.	Exhibits and Financial Statement ~~Schedules~~Schedule.	94
Signatures		99101

Forward-Looking Statements

In this annual 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 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “intend,” and other similar expressions. 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. For a discussion of such risks and uncertainties, please refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this annual report and to Verso Paper’s and Verso Holdings’ other filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statement made in this annual report to reflect subsequent events or circumstances or actual outcomes.

Market and Industry Information

Market data and other statistical information used throughout this annual report are based on independent industry publications, government publications, reports by market research firms, or other published independent sources. Some data are also based on our good-faith estimates which are derived from our review of internal surveys, as well as the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information. Industry prices for coated paper provided in this annual report are, unless otherwise expressly noted, derived from RISI, Inc. data. “North American” data included in this annual report that has been derived from RISI, Inc. only includes data from the United States and Canada. Any reference to (i) grade No. 3, grade No. 4 and grade No. 5 coated paper relates to 60 lb. basis weight, 50 lb. basis weight and 34 lb. basis weight, respectively, (ii) lightweight coated groundwood paper refers to groundwood paper grades that are a 36 lb. basis weight or less, and (iii) ultra-lightweight coated groundwood paper refers to groundwood paper grades that are a 30 lb. basis weight or less. The RISI, Inc. data included in this annual report has been derived from the following RISI, Inc. publications: RISI World Graphic Paper Forecast, February ~~2012~~2013 and RISI Paper Trader: A Monthly Monitor of the North American Graphic Paper Market, December ~~2011~~2012.

PART I

Item 1. Business

Within our organization, Verso Paper Corp. is the ultimate parent entity and the sole member of Verso Paper Finance Holdings One LLC, which is the sole member of Verso Paper Finance Holdings LLC, which is the sole member of Verso Paper Holdings LLC. As used in this report, the term “Verso Paper” refers to Verso Paper Corp.; the term “Verso Finance ~~One~~” refers to Verso Paper Finance Holdings ~~One~~ LLC; the term “Verso ~~Finance” refers to Verso Paper Finance~~ Holdings ~~LLC; the term “Verso Holdings~~” refers to Verso Paper Holdings LLC; and the term for any such entity includes its direct and indirect subsidiaries when referring to the entity’s consolidated financial condition or results. Unless otherwise noted, references to “we,” “us,” and “our” refer collectively to Verso Paper and Verso Holdings. Other than Verso Paper’s common stock transactions, Verso Finance’s debt obligation and related financing costs and interest expense, Verso Holdings’ loan to Verso Finance, and the debt obligation of Verso Holdings’ consolidated variable interest entity to Verso Finance, the assets, liabilities, income, expenses, and cash flows presented for all periods represent those of Verso Holdings in all material respects. Unless otherwise noted, the information provided pertains to both Verso Paper and Verso Holdings.

Background

We began operations on August 1, 2006, when we acquired the assets and certain liabilities comprising the business of the Coated and Supercalendered Papers Division of International Paper Company, or “International Paper”. We were formed by affiliates of Apollo Global Management, LLC, or “Apollo,” for the purpose of consummating the acquisition from International Paper, or the “Acquisition.” Verso Paper went public on May 14, 2008, with an initial public offering, or “IPO," of 14 million shares of common stock.

Our principal executive offices are located at 6775 Lenox Center Court, Suite 400, Memphis, Tennessee 38115-4436. Our telephone number is (901) 369-4100. Our website address is www.versopaper.com. Information on or accessible through our website is not considered part of this annual report.

Overview

We are a leading North American supplier of coated papers to catalog and magazine publishers. The coating process adds a smooth uniform layer in the paper, which results in superior color and print definition. As a result, coated paper is used primarily in media and marketing applications, including catalogs, magazines, and commercial printing applications, such as high-end advertising brochures, annual reports, and direct mail advertising.

We are one of North America’s largest producers of coated groundwood paper, which is used primarily for catalogs and magazines. We are also a low cost producer of coated freesheet paper, which is used primarily for annual reports, brochures, and magazine covers. We also produce and sell market kraft pulp, which is used to manufacture printing and writing paper grades and tissue products.

We operate 9eight paper machines at ~~four~~three mills located in Maine, ~~Michigan,~~ and ~~Minnesota~~Michigan. The mills have a combined annual production capacity of 1,~~505~~305,000 tons of coated ~~and supercalendered~~ paper, ~~165~~160,000 tons of ultra-lightweight specialty and uncoated papers, and 930,000 tons of kraft pulp.

We sell and market our products to approximately ~~125~~130 customers which comprise approximately 700 end-user accounts. We have long-standing relationships with many leading magazine and catalog publishers, commercial printers, specialty retail merchandisers, and paper merchants. Our relationships with our ten largest coated paper customers average more than 2025 years. We reach our end-users through several distribution channels, including direct sales, commercial printers, paper merchants, and brokers.

Our net sales (in millions) by product line for the year ended December 31, ~~2011~~2012, are illustrated below:

Industry

Based on ~~2011~~2012 sales, the size of the global coated paper industry is estimated to be approximately $4744 billion, or 4846 million tons of coated paper shipments, including approximately $98 billion, or 9 million tons of coated paper shipments, in North America. Coated paper is used primarily in media and marketing applications, including catalogs, magazines, and commercial printing applications, which include high-end advertising brochures, annual reports, and direct mail advertising. Demand is generally driven by North American advertising and print media trends, which in turn have historically been correlated with growth in Gross Domestic Product, or “GDP.”

In North America, coated papers are classified by brightness and fall into five grades, labeled No. 1 to No. 5, with No. 1 having the highest brightness level and No. 5 having the lowest brightness level. Papers graded No. 1, No. 2, and No. 3 are typically coated freesheet grades. No. 4 and No. 5 papers are predominantly groundwood containing grades. Coated groundwood grades are the preferred grades for catalogs and magazines, while coated freesheet is more commonly used in commercial print applications.

Products

We manufacture ~~three~~two main grades of paper: coated groundwood paper, and coated freesheet paper~~, and supercalendered paper~~. These paper grades are differentiated primarily by their respective brightness, weight, print quality, bulk, opacity, and strength. We also produce Northern Bleached Hardwood Kraft, or “NBHK,” pulp. The following table sets forth our principal products by tons sold and as a percentage of our net sales in ~~2011~~2012:

(Tons in thousands, Dollars in millions)	~~Tons~~Sales ~~Sold~~Volume				Net Sales
Product:	~~Kts~~Tons		%		$		%
Coated groundwood paper		886		44	$	798	46
Coated groundwood paper (1)		796		44	$	698	47
Coated freesheet paper		~~570~~561		2831		~~507~~479	2932
Supercalendered paper		145		7		114	7
Pulp		274		16		141	10
Pulp		261		13		150	9
Other		168		9		157	11
Other		161		8		153	9
Total		1,799		100	$	1,475	100
Total		2,023		100	$	1,722	100
(1) Included in our net sales of coated groundwood paper are approximately 23,000 tons or $18 million of supercalendered paper.

As a result of our scale and technological capabilities, we are able to offer our customers a broad product offering, from ultra-lightweight coated groundwood to heavyweight coated freesheet ~~and supercalendered papers~~. Our customers have the opportunity to sole-source all of their coated paper needs from us while optimizing their choice of paper products. As our customers’ preferences change, they can switch paper grades to meet their desired balance between cost and performance attributes while maintaining their relationship with us.

We are also the largest rotogravure ~~lightweight~~ coated mechanical paper manufacturer in North America. Rotogravure printing is a technique for transferring ink onto coated papers, which typically results in a sharper image with truer colors and less ink trapping than in other printing processes but generally requires a smaller and higher-quality paper. Additionally, we are the only manufacturer in North America that supplies both rotogravure coated groundwood and rotogravure coated freesheet.

Coated groundwood paper. Coated groundwood paper includes a fiber component produced through a mechanical pulping process. The use of such fiber results in a bulkier and more opaque paper that is better suited for applications where lighter weights and/or higher stiffness are required, such as catalogs and magazines. In addition to mechanical pulp, coated groundwood paper typically includes a kraft pulp component to improve brightness and print quality.

Coated freesheet paper. Coated freesheet paper is made from bleached kraft pulp, which is produced using a chemical process to break apart wood fibers and dissolve impurities such as lignin. The use of kraft pulp results in a bright, heavier-weight paper with excellent print qualities, which is well-suited for high-end commercial applications and premium magazines. Coated freesheet contains primarily kraft pulp, with less than 10% mechanical pulp in its composition.

Supercalendered paper. Supercalendered paper consists of groundwood fibers and a very high filler content but does not receive a separate surface coating. Instead, the paper is passed through a supercalendering process in which alternating steel and filled rolls “iron” the paper, giving it a gloss and smoothness that makes it resemble coated paper. Supercalendered papers are primarily used for retail inserts, due to their relatively low price point.

Pulp. We produce and sell NBHK pulp. NBHK pulp is produced through the chemical kraft process using hardwoods. Hardwoods typically have shorter length fibers than softwoods and are used to smooth paper. Kraft describes pulp produced using a chemical process, whereby wood chips are combined with chemicals and steam to separate the wood fibers. The fibers are then washed and pressure screened to remove the chemicals and lignin which originally held the fibers together. Finally, the pulp is bleached to the necessary whiteness and brightness. Kraft pulp is used in applications where brighter and whiter paper is required.

Other products. We also offer recycled paper to help meet specific customer requirements. Additionally, we offer customized product solutions for strategic accounts by producing paper grades with customer-specified weight, brightness and pulp mix characteristics, providing customers with cost benefits and/or brand differentiation. Our product offerings also include ultra-lightweight uncoated printing papers and ultra-lightweight coated and uncoated flexible packaging papers.

Manufacturing

We operate 9eight paper machines at ~~four~~three mills located in Maine, ~~Michigan,~~ and ~~Minnesota~~Michigan. We believe our coated paper mills are among the most efficient and lowest cost coated paper mills based on the cash cost of delivery to Chicago, Illinois. We attribute our manufacturing efficiency, in part, to the significant historical investments made in our mills. Our mills have a combined annual production capacity of 1,~~505~~305,000 tons of coated ~~and supercalendered~~ paper, ~~165~~160,000 tons of ultra-lightweight specialty and uncoated papers, and 930,000 tons of kraft pulp. Of the pulp that we produce, we consume approximately 635,000 tons internally and sell the rest. Our facilities are strategically located within close proximity to major publication printing customers, which affords us the ability to more quickly and cost-effectively deliver our products. The facilities also benefit from convenient and cost-effective access to northern softwood fiber, which is required for the production of lightweight and ultra-lightweight coated papers.

The following table sets forth the locations of our mills, the products they produce and other key operating information:

			Production
Mill/Location	Product/Paper Grades		Paper Machines	Production Capacity (in tons)
		Paper	Capacity
Jay (Androscoggin), Maine	Lightweight Coated Groundwood		2	355,000
Mill/Location	Product/Paper Grades	Machines	(in tons)
	Lightweight Coated Freesheet		1	175,000
Jay (Androscoggin), Maine	Lightweight Coated Groundwood	2	355,000
	Specialty/Uncoated		1	105,000
	Lightweight Coated Freesheet	1	175,000
	Pulp			445,000
	Specialty/Uncoated	1	105,000
Bucksport, Maine	Lightweight and Ultra-Lightweight Coated Groundwood and
	Pulp		445,000
	High Bulk Specialty Coated Groundwood		2	350,000
Bucksport, Maine	Lightweight and Ultra-Lightweight Coated Groundwood and
	Specialty/Uncoated		1	55,000
	High Bulk Specialty Coated Groundwood	2	350,000
Quinnesec, Michigan	Coated Freesheet		1	425,000
	Specialty/Uncoated	1	55,000
	Pulp			485,000
Quinnesec, Michigan	Coated Freesheet	1	410,000
	Specialty/Uncoated		5,000
	Pulp		485,000
Sartell, Minnesota	Lightweight/Ultra-Lightweight Coated Groundwood and Supercalendered	1	215,000

The basic raw material of the papermaking process is wood pulp. The first stage of papermaking involves converting wood logs to pulp through either a mechanical or chemical process. Before logs can be processed into pulp, they are passed through a debarking drum to remove the bark. Once separated, the bark is burned as fuel in bark boilers. The wood logs are composed of small cellulose fibers which are bound together by a glue-like substance called lignin. The cellulose fibers are then separated from each other through either a mechanical or a kraft pulping process.

After the pulping phase, the fiber furnish is run onto the forming fabric of the paper machine. On the forming fabric, the fibers become interlaced, forming a mat of paper, and much of the water is extracted. The paper web then goes through a pressing and drying process to extract the remaining water. After drying, the web receives a uniform layer of coating that makes the paper smooth and provides uniform ink absorption. After coating, the paper goes through a calendering process that provides a smooth finish by ironing the sheet between multiple soft nips that consist of alternating hard (steel) and soft (cotton or synthetic) rolls. At the dry end, the paper is wound onto spools to form a machine reel and then rewound and split into smaller rolls on a winder. Finally, the paper is wrapped, labeled, and shipped.

Catalog and magazine publishers with longer print runs tend to purchase paper in roll form for use in web printing, a process of printing from a reel of paper as opposed to individual sheets of paper, in order to minimize costs. In contrast, commercial printers typically buy large quantities of sheeted paper in order to satisfy the short-run printing requirements of their customers. We believe that sheeted paper is a less attractive product as it requires additional processing, bigger inventory stocks, a larger sales and marketing team and a different channel strategy. For this reason, we have pursued a deliberate strategy of configuring our manufacturing facilities to produce all web-based papers which are shipped in roll form and have developed relationships with third-party converters to address any sheeted paper needs of our key customers.

We utilize a manufacturing excellence program, called R-GAP, to take advantage of the financial opportunities that exist between the current or historical performance of our mills and the best performance possible given usual and normal constraints (i.e., configuration, geographical, and capital constraints). Our continuous improvement process is designed to lower our cost position and enhance operating efficiency through reduced consumption of energy and material inputs, reduced spending on indirect costs, and improved productivity. The program utilizes benchmarking data to identify improvement initiatives and establish performance targets. Detailed action plans are used to monitor the execution of these initiatives and calculate the amount saved. We also use multi-variable testing, lean manufacturing, center of excellence teams, source-of-loss initiatives, and best practice sharing to constantly improve our manufacturing processes and products. Since 2001, ~~three~~two of our ~~four~~ facilities have been recognized atby the Occupational Safety and Health Administration, or “OSHA’s,” as Star sites as part of OSHA’s Voluntary Protection Program which recognizes outstanding safety programs and performance.

Raw Materials and Suppliers

Our key cost inputs in the papermaking process are wood fiber, market kraft pulp, chemicals, and energy.

Wood Fiber. We source our wood fiber from a broad group of timberland and sawmill owners located in our regions. asIn ~~well~~addition, aswe ~~from~~own ~~our~~and 27lease approximately 25,000~~-acre~~ acres of hybrid poplar woodlands located near Alexandria, Minnesota, which are classified as held for sale as of December 31, 2012, on the accompanying consolidated balance sheets.

Kraft Pulp. Overall, we have the capacity to produce approximately 930,000 tons of kraft pulp, consisting of 445,000 tons of pulp at our Androscoggin mill and 485,000 tons of pulp at our Quinnesec mill, of which ~~a total of~~ approximately 635,000 tons are consumed internally. We supplement our internal production of kraft pulp with purchases from third parties. In ~~2011~~2012, ~~these~~we ~~purchases~~purchased ~~were~~ approximately ~~152~~68,000 tons of pulp~~. We~~ ~~purchase the pulp requirements~~ from a variety of suppliers. We ~~and~~ are not dependent on any single supplier to satisfy our pulp needs.

Chemicals. Chemicals utilized in the manufacturing of coated papers include latex, clay, starch, calcium carbonate, caustic soda, sodium chlorate, and titanium dioxide. We purchase these chemicals from a variety of suppliers and are not dependent on any single supplier to satisfy our chemical needs.

Energy. We produce ~~a large portion of our energy requirements, historically producing~~ approximately 5057% of our energy needs for our ~~coated~~ paper mills from sources such as waste wood, ~~and~~waste ~~paper~~water, hydroelectric facilities, ~~chemicals~~liquid biomass from our pulping process, ~~our own steam recovery boilers,~~ and internal energy cogeneration facilities. Our external energy purchases vary across each of our mills and include fuel oil, natural gas, coal, and electricity. While our internal energy production capacity ~~and ability to switch between certain energy sources~~ mitigates the volatility of our overall energy expenditures, we expect prices for energy to remain volatile for the foreseeable future and our energy costs to increase in a high energy cost environment. As prices fluctuate, we have some ability to switch between certain energy sources in order to minimize costs. We utilize ~~derivative~~derivatives contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices.

Sales, Marketing, and Distribution

We reach our end-users through several sales channels. These include selling directly to end-users, through brokers, merchants, and printers. We sell and market products to approximately ~~125~~130 customers, which comprise approximately 700 end-user accounts.

Sales to End-Users. In ~~2011~~2012, we sold approximately 38% of our paper products directly to end-users, most of which are catalog and magazine publishers. These customers are typically large, sophisticated buyers who have the scale, resources, and expertise to procure paper directly from manufacturers. Customers for our pulp products are mostly other paper manufacturers.

Sales to Brokers and Merchants. Our largest indirect paper sales by volume are through brokers and merchants who resell the paper to end-users. In ~~2011~~2012, our total sales to brokers and merchants represented approximately 4744% of our total sales. Brokers typically act as an intermediary between paper manufacturers and smaller end-users who do not have the scale or resources to cost effectively procure paper directly from manufacturers. The majority of the paper sold to brokers is resold to catalog publishers. We work closely with brokers to achieve share targets in the catalog, magazine, and insert end-user segments through collaborative selling.

Merchants are similar to brokers in that they act as an intermediary between the manufacturer and the end-user. However, merchants generally take physical delivery of the product and keep inventory on hand. Merchants tend to deal with smaller end-users that lack the scale to warrant direct delivery from the manufacturer. Coated freesheet comprises the majority of our sales to merchants. In most cases, because they are relatively small, the ultimate end-users of paper sold through merchants are generally regional or local catalog or magazine publishers.

Sales to Printers. In ~~2011~~2012, our total sales to printers represented approximately 1518% of our total sales. The majority of our sales were to the two largest publication printers in the United States. Printers also effectively act as an intermediary between manufacturers and end-users in that they directly source paper for printing/converting and then resell it to their customers as a finished product.

The majority of our products are delivered directly from our manufacturing facilities to the printer, regardless of the sales channel. In order to serve the grade No. 3 coated freesheet segment, we maintain a network of distribution centers located in the West, Midwest, South, and Northeast close to our customer base to provide quick delivery. The majority of our pulp products are delivered to our customers’ paper mills.

Our sales force is organized around our sales channels. We maintain an active dialogue with all of our major customers and track product performance and demand across grades. We have a team of sales representatives and marketing professionals organized into three major sales groups that correspond with our sales channels: direct sales support; support to brokers and merchants; and printer support.

Many of our customers provide us with forecasts of their paper needs, which allows us to plan our production runs in advance, optimizing production over our integrated mill system and thereby reducing costs and increasing overall efficiency. Generally, our sales agreements do not extend beyond the calendar year. Typically, our sales agreements provide for quarterly price adjustments based on market price movements.

Part of our strategy is to continually reduce the cost to serve our customer base through e-commerce initiatives which allow for simplified ordering, tracking, and invoicing. In ~~2011~~2012, orders totaling $~~307~~231.14 million, or approximately 2017% of our total paper sales, were placed through our online ordering platforms. We are focused on further developing our technology platform and e-commerce capabilities.

Customers

We serve the catalog, magazine, insert, and commercial printing markets and have developed long-standing relationships with the premier North American retailers and catalog and magazine publishers. The length of our relationships with our top ten customers averages more than 2025 years. Our largest ~~customers~~customer, Quad/Graphics, Inc. ~~and xpedx, a business of International Paper, and their respective affiliates,~~ accounted for approximately 10% ~~and 9%~~, ~~respectively,~~ of our net sales in ~~2011~~2012. Our key customers include leading magazine publishers such as ~~Time~~Condé ~~Inc.~~Nast Publications, Hearst ~~Corporation~~Enterprises, and ~~Condé~~Time ~~Nast Publications,~~ Inc.; leading catalog producers such as ~~Sears~~Avon ~~Holding~~Products, ~~Corporation~~Inc. and ~~Uline~~Cornerstone Services, Inc.; leading commercial printers such as Quad/Graphics, Inc. and RR Donnelley & Sons Company; and leading paper merchants and brokers, such as ~~xpedx,~~A.T. ~~Clifford~~Clayton ~~Paper,~~& ~~Inc~~Co., xpedx, and ~~A.T.~~Clifford ~~Clayton &~~Paper, CoInc.

Our net sales, excluding pulp sales, by end-user segment for the year ended December 31, ~~2011~~2012, are illustrated below (dollars in millions):

Research and Development

The primary function of our research and development efforts is to work with customers in developing and modifying products to accommodate their evolving needs and to identify cost-saving opportunities within our operations.

Examples of our research and development efforts implemented over the past several years include:

● · high-bulk offset and rotogravure coated groundwood; ● lightweight grade No. 4 coated groundwood; ● ultra-lightweight grade No. 5 coated groundwood; ● rotogravure coated freesheet; and ● innovative and performance driven products for the flexible packaging, label, and specialty printing markets.

· lightweight grade No. 4 coated groundwood;

· ultra-lightweight grade No. 5 coated groundwood;

· rotogravure coated freesheet; and

· innovative and performance driven products for the flexible packaging, label, and specialty printing markets.

Intellectual Property

We have several patents and patent applications in the United States and various foreign countries. These patents and patent applications generally relate to various paper manufacturing methods and equipment which may become commercially viable in the future. We also have trademarks for our names, Verso® and Verso Paper®, as well as for our products such as Influence®, Velocity®, Liberty®, ~~Advocate®~~ and ~~Clarity~~Advocate®. In addition to the intellectual property that we own, we license a significant portion of the intellectual property used in our business on a perpetual, royalty-free, non-exclusive basis from International Paper.

Competition

Our business is highly competitive. A significant number of North American competitors produce coated and supercalendered papers, and several overseas manufacturers, principally from Europe, export to North America. We compete based on a number of factors, including:

● · price; ~~● product availability; ● product quality; ● breadth of product offerings; ● timeliness of product delivery; and ● customer service.~~

· product availability;

· product quality;

· breadth of product offerings;

· timeliness of product delivery; and

· customer service.

Foreign competition in North America is also affected by the exchange rate of the U.S. dollar relative to other currencies, especially the euro, market prices in North America and other markets, worldwide supply and demand, and the cost of ocean-going freight.

While our product offering is broad in terms of grades produced (from ~~supercalendered and~~ ultra-lightweight coated groundwood offerings to heavier-weight coated freesheet products), we are focused on producing coated groundwood and coated freesheet in roll form. This strategy is driven by our alignment with catalog and magazine end-users which tend to purchase paper in roll form for use in long runs of web printing in order to minimize costs. Our principal competitors include NewPage Corporation, Resolute Forest Products, UPM-Kymmene Corporation, and Sappi Limited, all of which have North American operations. UPM and Sappi are headquartered overseas and also have overseas manufacturing facilities.

Employees

As of December 31, ~~2011~~2012, we had approximately 2,~~600~~200 employees, of whom approximately 3023% are unionized and approximately 7572% are hourly employees. Employees at ~~two~~one of our ~~four~~three mills are represented by labor unions. As of December 5, 2011, three ~~new~~ collective bargaining agreements with the labor unions at that mill were ratified and implemented ~~at the two sites~~. ~~These~~Two ~~new~~of these agreements were effective retroactive to May 1, 2011, and will expire on April 30, 2015. The third agreement was effective November 1, 2011, and will expire on October 31, 2015. We have not experienced any work stoppages during the past several years. We believe that we have good relations with our employees.

Environmental and Other Governmental Regulations

We are subject to a wide range of federal, state, regional, and local general and industry specific environmental, health and safety laws and regulations, including the federal Water Pollution Control Act of 1972, or “Clean Water Act,” the federal Clean Air Act, the federal Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or “CERCLA,” the federal Occupational Safety and Health Act, and analogous state and local laws. Our operations also are subject to two regional regimes designed to address climate change, the Regional Greenhouse Gas Initiative in the northeastern United States and the Midwestern Greenhouse Gas Reduction Accord, and in the future we may be subject to additional federal, state, regional, local, or supranational legislation related to climate change and greenhouse gas controls. Among our activities subject to environmental regulation are the emissions of air pollutants, discharges of wastewater and stormwater, operation of dams, storage, treatment, and disposal of materials and waste, and remediation of soil, surface water and ground water contamination. Many environmental laws and regulations provide for substantial fines or penalties and criminal sanctions for any failure to comply. In addition, failure to comply with these laws and regulations could result in the interruption of our operations and, in some cases, facility shutdowns.

Certain of these environmental laws, such as CERCLA and analogous state laws, provide for strict, and under certain circumstances, joint and several liability for investigation and remediation of the release of hazardous substances into the environment, including soil and groundwater. These laws may apply to properties presently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which wastes attributable to an entity or its predecessors were disposed. Under these environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of at real property, may be held liable for the cost to investigate or clean up such real property and for related damages to natural resources. We handle and dispose of wastes arising from our mill operations, including disposal at on-site landfills. We are required to maintain financial assurance (in the form of letters of credit and other similar instruments) for the expected cost of landfill closure and post-closure care. We may be subject to liability, including liability for investigation and cleanup costs, if contamination is discovered at one of our current or former paper mills or another location where we have disposed of, or arranged for the disposal of, wastes. We could be subject to potentially significant fines, penalties, criminal sanctions, plant shutdowns, or interruptions in operations for any failure to comply with applicable environmental, health and safety laws, regulations, and permits.

Compliance with environmental laws and regulations is a significant factor in our business. We have made, and will continue to make, significant expenditures to comply with these requirements and our permits. We incurred environmental capital expenditures of $0.17 million in ~~2011~~2012, $70.31 million in ~~2010~~2011, and $27.63 million in ~~2009~~2010, and we expect to incur additional environmental capital expenditures of approximately $1 million in ~~2012~~2013. We anticipate that environmental compliance will continue to require increased capital expenditures and operating expenses over time as environmental laws or regulations, or interpretations thereof, change or the nature of our operations require us to make significant additional capital expenditures.

Permits are required for the operation of our mills and related facilities. The permits are subject to renewal, modification, and revocation. We and others have the right to challenge our permit conditions through administrative and legal appeals and review processes. Governmental authorities have the power to enforce compliance with the permits, and violators are subject to civil and criminal penalties, including fines, injunctions or both. Other parties also may have the right to pursue legal actions to enforce compliance with the permits.

Available Information

Our website is located at www.versopaper.com. We make available free of charge through this website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with or furnished to the Securities and Exchange Commission, or “SEC,” pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.

Item 1A. Risk Factors

Our business is subject to various risks. Set forth below are certain of the more important risks that we face and that could cause our actual results to differ materially from our historical results. These risks are not the only ones that we face. Our business also could be affected by additional risks that are presently unknown to us or that we currently believe are immaterial to our business.

We have limited ability to pass through increases in our costs to our customers. Increases in our costs or decreases in coated ~~or supercalendered~~ paper prices could have a material adverse effect on our business, financial condition, and results of operations.

Our earnings are sensitive to price changes in coated ~~or supercalendered~~ paper. Fluctuations in paper prices (and coated paper prices in particular) historically have had a direct effect on our net income (loss) and Earnings Before Interest, Taxes, Depreciation and Amortization, or “EBITDA,” for several reasons:

●· Market prices for paper products are a function of supply and demand, factors over which we have limited control. We therefore have limited ability to control the pricing of our products. Market prices of grade No. 3, 60 lb. basis weight paper, which is an industry benchmark for coated freesheet paper pricing, have fluctuated since 2000 from a high of $1,100 per ton to a low of $705 per ton. In addition, market prices of grade No. 5, 34 lb. basis weight paper, which is an industry benchmark for coated groundwood paper pricing, have fluctuated between a high of $1,120 per ton to a low of $795 per ton over the same period. Our average coated paper prices declined from 2008 through the first quarter of 2010. While our average coated paper prices climbed modestly beginning in the second quarter of 2010 through the third quarter of 2011, ~~they~~in ~~have~~late ~~recently~~2011 and 2012 they declined again. Prices may not improve significantly in 2013, and we do not expect prices in ~~2012~~2013 to return to the levels they were at in 2008 before they declined. ~~Recent industry forecasts have predicted that prices for both coated freesheet and coated groundwood will decline in the first quarter of 2012.~~ Because market conditions determine the price for our paper products, the price for our products could fall below our cash production costs. ● Market prices for paper products typically are not directly affected by raw material costs or other costs of sales, and consequently we have limited ability to pass through increases in our costs to our customers absent increases in the market price. Thus, even though our costs may increase, we may not have the ability to increase the prices for our products, or the prices for our products may decline. ● The manufacturing of coated paper is highly capital-intensive and a large portion of our operating costs are fixed. Additionally, paper machines are large, complex machines that operate more efficiently when operated continuously. Consequently, both we and our competitors typically continue to run our machines whenever marginal sales exceed the marginal costs, adversely impacting prices at times of lower demand.

~~Therefore,~~· ~~our~~Market ~~ability~~prices tofor ~~achieve~~paper ~~acceptable~~products ~~margins~~typically isare ~~principally~~not ~~dependent~~directly onaffected ~~(1)~~by ~~managing~~raw ~~our~~material ~~cost~~costs ~~structure,~~or ~~(2)~~other ~~managing~~costs ~~changes~~of ~~in raw materials prices~~sales, ~~which~~and ~~represent~~consequently awe ~~large~~have ~~component~~limited ofability ~~our~~to ~~operating~~pass ~~costs~~through ~~and~~increases ~~fluctuate~~in ~~based~~our ~~upon~~costs ~~factors~~to ~~beyond~~ our ~~control,~~customers ~~and~~absent ~~(3)~~increases ~~general conditions~~ in the ~~paper~~ market price. If ~~the prices of our products decline~~Thus, oreven ifthough our ~~raw material~~ costs may increase, itwe ~~could~~may not have athe ~~material~~ability ~~adverse~~to ~~effect~~increase onthe prices for our ~~business~~products, ~~financial~~or ~~condition,~~the ~~and~~prices ~~results~~for ofour ~~operations~~products may decline.

12· The manufacturing of coated paper is highly capital-intensive and a large portion of our operating costs are fixed. Additionally, paper machines are large, complex machines that operate more efficiently when operated continuously. Consequently, both we and our competitors typically continue to run our machines whenever marginal sales exceed the marginal costs, adversely impacting prices at times of lower demand.

Therefore, our ability to achieve acceptable margins is principally dependent on (1) our cost structure, (2) changes in raw materials prices, which represent a large component of our operating costs and fluctuate based upon factors beyond our control, and (3) general conditions in the paper market. If the prices of our products decline, or if our raw material costs increase, it could have a material adverse effect on our business, financial condition, and results of operations.

The paper industry is cyclical and North American demand for certain paper products tends to decline during a weak U.S. economy. Fluctuations in supply and demand for our products could have a material adverse effect on our business, financial condition, and results of operations.

The paper industry is a commodity market to a significant extent and is subject to cyclical market pressures. North American demand for coated ~~and supercalendered~~ paper products tends to decline during a weak U.S. economy. Accordingly, general economic conditions and demand for magazines and catalogs may have a material adverse impact on the demand for our products, which may result in a material adverse effect on our business, financial condition, and results of operations. In addition, currency fluctuations can have a significant impact on the supply of coated paper products in North America. If the U.S. dollar strengthens, imports may increase, which would cause the supply of paper products available in the North American market to increase. Foreign overcapacity also could result in an increase in the supply of paper products available in the North American market. An increased supply of paper available in North America could put downward pressure on prices and/or cause us to lose sales to competitors, either of which could have a material adverse effect on our business, financial condition, and results of operations.

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt, and prevent us from meeting our obligations under our indebtedness.

We are a highly leveraged company. As of December 31, ~~2011~~2012, Verso Paper’s total indebtedness was $1,~~262~~257.50 million, net of $~~13.~~4.6 million of unamortized discounts. The total amount of payments Verso Paper will need to make on its outstanding long-term indebtedness for each of the next three fiscal years is $~~119~~142.87 million, $~~197~~145.85 million, and $~~586~~131.59 million, respectively (as adjusted for the January 31, 2013 exchange discussed further in Item 7, and assuming the current prevailing interest rates on our outstanding floating rate indebtedness remain the same). As of December 31, ~~2011~~2012, Verso Holdings’ total indebtedness was $1,~~201~~187.1 million, net of $~~13.~~4.6 million of unamortized discounts. The total amount of payments Verso Holdings will need to make on its outstanding long-term indebtedness for each of the next three fiscal years is $~~115~~135.56 million, $~~114~~147.20 million, and $~~588~~133.14 million, respectively (as adjusted for the January 31, 2013 exchange discussed further in Item 7, and assuming the current prevailing interest rates on our outstanding floating rate indebtedness remain the same). Because some of our debt bears variable rates of interest, our interest expense could increase in the future.

Our high degree of leverage could have important consequences, including:

● · increasing our vulnerability to general adverse economic and industry conditions; ● requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, and other general corporate purposes; ● increasing our vulnerability to, and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● exposing us to the risk of increased interest rates as borrowings under our senior secured credit facility and our second priority senior secured floating rate notes are subject to variable rates of interest; ● placing us at a competitive disadvantage compared to our competitors that have less debt; and ● limiting our ability to borrow additional funds.

· requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, and other general corporate purposes;

· increasing our vulnerability to, and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

· exposing us to the risk of increased interest rates as borrowings under our asset based revolving credit facility (“ABL Facility”) and our cash flow facility (“Cash Flow Facility”) and our Second Priority Senior Secured Floating Rate Notes are subject to variable rates of interest;

· placing us at a competitive disadvantage compared to our competitors that have less debt; and

· limiting our ability to borrow additional funds.

Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future because the terms of the indentures governing our notes and the terms of our ~~senior~~ABL ~~secured~~Facility ~~revolving~~and ~~credit~~our ~~facility~~Cash Flow Facility do not fully prohibit us or our subsidiaries from doing so. In addition, subject to covenant compliance and certain conditions, our ~~senior~~ABL ~~secured~~Facility ~~revolving~~and ~~credit~~our ~~facility~~Cash ~~permits~~Flow Facility permit borrowing of up to approximately an additional $~~159~~141.29 million (as of December 31, ~~2011~~2012). If new indebtedness is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

Our operations require substantial ongoing capital expenditures, and we may not have adequate capital resources to fund all of our required capital expenditures.

Our business is capital intensive, and we incur capital expenditures on an ongoing basis to maintain our equipment and comply with environmental laws, as well as to enhance the efficiency of our operations. Our total capital expenditures were $9059.9 million in ~~2011~~2012. Capital expenditures in ~~2011~~2012 included approximately $3632 million for maintenance and environmental capital expenditures. We currently estimate our capital expenditures to range between $8565 million and $9575 million during ~~2012~~2013, with approximately $3013 million reimbursed through government grants for our renewable energy initiatives. Our estimated expenditures for ~~2012~~2013 include approximately $3032 million for maintenance and environmental capital expenditures. We anticipate that our available cash resources, including amounts under ~~new~~our credit facilities ~~to be entered into that we obtained commitments for in February 2012~~, and cash generated from operations will be sufficient to fund our operating needs and capital expenditures for at least the next year. We may also dispose of certain of our non-core assets in order to obtain additional liquidity. However, if we require additional funds to fund our capital expenditures, we may not be able to obtain them on favorable terms, or at all. If we cannot maintain or upgrade our facilities and equipment as we require or as necessary to ensure environmental compliance, it could have a material adverse effect on our business, financial condition, and results of operations.

We will require a significant amount of cash to service our indebtedness and make planned capital expenditures. Our ability to generate cash or refinance our indebtedness depends on many factors beyond our control, including general economic conditions.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash flow in the future and our ability to borrow under our ~~credit~~ABL ~~facility~~Facility and our Cash Flow Facility, to the extent of available borrowings. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If adverse regional and national economic conditions persist, worsen, or fail to improve significantly, we could experience decreased revenues from our operations attributable to decreases in wholesale and consumer spending levels and could fail to generate sufficient cash to fund our liquidity needs or fail to satisfy the restrictive covenants and borrowing limitations which we are subject to under our indebtedness. Additionally, until December 31, 2009, the United States government provided an excise tax credit to taxpayers for the use of alternative fuel mixtures. As a result of our use of an alternative fuel mixture containing “black liquor,” a byproduct of pulp production, at our Androscoggin and Quinnesec mills, we recognized $238.9 million of alternative fuel mixture tax credits in the year ended December 31, 2009, including approximately $10 million for claims pending at December 31, 2009. The amount recognized in fiscal 2009 includes amounts received for claims for use of the alternative fuel mixture from September 2008 through December 2009. The tax credit, as it relates to liquid fuels derived from biomass, expired on December 31, 2009.

Based on our current and expected level of operations, we believe our cash flow from operations, available cash, and available borrowings under our ABL Facility and our Cash Flow Facility will be adequate to meet our future liquidity needs for at least the next year.

We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our ABL Facility and our Cash Flow Facility, or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

InRestrictive ~~addition~~covenants to our debt service needs, our parent company, Verso Finance, will likely need to rely upon distributions from us to service its outstanding term loans, $84.7 million aggregate principal amount of which are outstanding as of December 31, 2011, including for the payment of interest, to the extent that our parent elects to pay interest in ~~cash, and for~~ the payment of principal at maturity in February 2013. Our ability to generate sufficient cash from operations to make distributions to our parent will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business, and other factors beyond our control. In addition, our ability to make distributions to our parent is subject to restrictions in our various debt instruments. For example, the indentures governing our notes ~~generally limit the amount of “restricted payments~~,” ~~including~~ABL ~~dividends,~~Facility ~~that we can make to an amount generally equal to 50% of our consolidated net income (as defined) since July 1, 2006, subject to satisfaction of certain other tests~~ and ~~certain exceptions. Our credit agreement only permits dividends to fund debt service of~~ our ~~parent~~Cash ~~from~~Flow aFacility ~~“cumulative~~may ~~credit”~~restrict ~~basket built from proceeds of equity, certain cash flow and certain other items. In addition, the notes provide certain exceptions to this to permit additional dividends. As described above,~~ our ability to ~~generate~~pursue ~~net income will depend upon various factors that may be beyond~~ our ~~control. We~~business may not generate sufficient cash flow from operations or be permitted by the terms of our debt instruments to pay dividends or distributions to our parent in amounts sufficient to allow it to pay cash interest on its debtstrategies. If Verso Finance is unable to meet its debt service obligations, it could attempt to restructure or refinance its indebtedness or seek additional equity capital. We cannot assure you that our parent will be able to accomplish these actions on satisfactory terms, if at all. A default under the Verso Finance term loans could result in a change of control under our other debt instruments and lead to an acceleration of all outstanding loans under our senior secured credit facility and our outstanding notes.

~~Based~~The onindentures governing our ~~current and expected level of operations~~notes, ~~we believe~~ our ~~cash~~ABL ~~flow from operations~~Facility, ~~available cash,~~ and ~~available borrowings under~~ our ~~senior~~Cash ~~secured~~Flow ~~revolving~~Facility ~~credit~~limit ~~facility (or replacement facilities) will be adequate to meet~~ our ~~future~~ability, ~~liquidity~~among ~~needs~~other ~~for~~things, ~~at least the next year.~~to:

We· incur cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facility or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Our senior secured revolving credit facility matures in August 2012, our senior subordinated notes mature in 2016, our second-lien floating rate notes mature in 2014 and our parent’s term loan matures in 2013. On February 17, 2012, we obtained $100.0 million of commitments with respect to the syndication of a new accounts receivable securitization facility and approximately $55.0 million of commitments to provide a new and/or extended revolving facility under our existing senior secured revolving credit facility. The terms and conditions of our existing revolving credit facility remain in full force and effect and have not been altered by these new commitments. We may also explore additional ~~steps to raise liquidity including potential dispositions of non-core assets. We may need to refinance all or a portion of our~~ indebtedness on or before the maturity thereof. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior secured credit facility, and our outstanding notes, on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or terms that would not require us to breach the terms and conditions of our existing or future debt agreements.;

~~Restrictive~~· pay ~~covenants~~dividends inor ~~the~~make ~~indentures~~other ~~governing~~distributions ~~our~~or ~~notes~~repurchase ~~and~~or inredeem our ~~senior secured revolving credit agreement may restrict our ability to pursue our business strategies.~~stock;

~~The~~· prepay, ~~indentures~~redeem, ~~governing~~or ~~our~~repurchase ~~notes~~certain ~~and~~of our ~~senior secured revolving credit agreement limit our ability, among other things, to:~~indebtedness;

~~● incur additional indebtedness; ● pay dividends or~~ · make ~~other distributions or repurchase or redeem our stock; ● prepay, redeem or repurchase certain of our indebtedness; ● make~~ investments; ~~● sell assets, including capital stock of restricted subsidiaries;~~

15· sell assets, including capital stock of restricted subsidiaries;

● · enter into agreements restricting our subsidiaries’ ability to pay dividends; ~~● consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; ● enter into transactions with our affiliates; and ● incur liens.~~

~~A breach of any of these restrictive covenants could result in a default under the indentures governing our notes and our senior secured revolving credit agreement. If a default occurs~~· consolidate, ~~the holders of the notes and the lenders under our senior secured revolving credit facility may elect to declare all borrowings or notes outstanding~~merge, ~~together with accrued interest and other fees~~sell, toor beotherwise ~~immediately~~dispose ~~due~~of ~~and~~all payable. The lenders under our senior secured revolving credit facility would also have the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are unable to repay our indebtedness when due or ~~declared~~substantially ~~due,~~all ~~the~~of ~~lenders under~~ our senior secured revolving credit facility and our other secured indebtedness will also have the right to proceed against the collateral, including our available cash, granted to them to secure the indebtedness. If the indebtedness under our senior secured revolving credit facility and our outstanding notes were to be accelerated, we cannot assure you that our assets ~~would be sufficient to repay in full our secured indebtedness and we could be forced into bankruptcy or liquidation.~~;

· enter into transactions with our affiliates; and

· incur liens.

The Cash Flow Facility requires us to maintain a maximum total net first-lien leverage ratio of not more than 3.50 to 1.00 at any time that any portion of the facility is drawn (including outstanding letters of credit). In addition, the ABL Facility will require us to maintain a minimum fixed charge coverage ratio at any time when the average availability (defined as the lesser of the availability under the ABL Facility and the borrowing base at such time, net of any unrestricted cash) is less than the greater of (a) 10% of the lesser of (i) the borrowing base at such time and (ii) the aggregate amount of ABL Facility commitments at such time, and (b) $10.0 million. In that event, we must satisfy a minimum fixed charge coverage ratio of 1.0 to 1.0. The ABL Facility also contains certain other customary affirmative covenants and events of default. As of the balance sheet date, we were not subject to the above described financial maintenance covenants.

A breach of any of these restrictive covenants could result in a default under the indentures governing our notes, our ABL Facility, or our Cash Flow Facility. If a default occurs, the holders of these instruments may elect to declare all borrowings thereunder outstanding, together with accrued interest and other fees, to be immediately due and payable. The lenders under our Cash Flow Facility and the ABL Facility would also have the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are unable to repay our indebtedness when due or declared due, the lenders thereunder will also have the right to proceed against the collateral pledged to them to secure the indebtedness. If such indebtedness were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full our secured indebtedness and we could be forced into bankruptcy or liquidation.

Developments in alternative media could adversely affect the demand for our products.

Trends in advertising, electronic data transmission and storage and the internet could have adverse effects on traditional print media, including our products and those of our customers, but neither the timing nor the extent of those trends can be predicted with certainty. Our magazine and catalog publishing customers may increasingly use, and compete with businesses that use, other forms of media and advertising and electronic data transmission and storage, particularly the internet, instead of paper made by us. As the use of these alternatives grows, demand for our paper products could decline.

Litigation could be costly and harmful to our business.

We are involved from time to time in claims and legal proceedings relating to contractual, employment, environmental, intellectual property, and other matters incidental to the conduct of our business. We do not believe that any currently pending claim or legal proceeding is likely to result in an unfavorable outcome that would have a material adverse effect on our financial condition or results of operations. Nonetheless, claims and legal proceedings could result in unfavorable outcomes that could have a material adverse effect on our financial condition and results of operations.

environmental, intellectual property and other matters incidental to the conduct of our business. We do not believe that any currently pending claim or legal proceeding is likely to result in an unfavorable outcome that would have a material adverse effect on our financial condition or results of operations. Nonetheless, claims and legal proceedings could result in unfavorable outcomes that could have a material adverse effect on our financial condition and results of operations.

The markets in which we operate are highly competitive.

Our business is highly competitive. Competition is based largely on price. We compete with foreign producers, some of which are lower cost producers than we are or are subsidized by governments. We also face competition from numerous North American coated ~~and supercalendered~~ paper manufacturers. Some of our competitors have advantages over us, including lower raw material and labor costs and fewer environmental and governmental regulations to comply with than we do. One of our competitors isrecently completed a restructuring through bankruptcy proceedings and it is not possible to predict whether such restructuring will have any effect on competition (such as reduced costs for our competitor). Furthermore, some of our competitors have greater financial and other resources than we do or may be better positioned than we are to compete for certain opportunities.

Our non-U.S. competitors may develop a competitive advantage over us and other U.S. producers if the U.S. dollar strengthens in comparison to the home currency of those competitors or ocean shipping rates decrease. If the U.S. dollar strengthens, if shipping rates decrease or if overseas supply exceeds demand, imports may increase, which would cause the supply of coated paper products available in the North American market to increase. An increased supply of coated paper could cause us to lower our prices or lose sales to competitors, either of which could have a material adverse effect on our business, financial condition, and results of operations.

In addition, the following factors will affect our ability to compete:

● · product availability; ● the quality of our products; ● our breadth of product offerings; ● our ability to maintain plant efficiencies and to achieve high operating rates; ● manufacturing costs per ton; ● customer service and our ability to distribute our products on time; and ● the availability and/or cost of wood fiber, market pulp, chemicals, energy and other raw materials, and labor.

· the quality of our products;

· our breadth of product offerings;

· our ability to maintain plant efficiencies and to achieve high operating rates;

· manufacturing costs per ton;

· customer service and our ability to distribute our products on time; and

· the availability and/or cost of wood fiber, market pulp, chemicals, energy and other raw materials, and labor.

If we are unable to obtain energy or raw materials at favorable prices, or at all, it could have a material adverse effect on our business, financial condition, and results of operations.

We purchase energy, wood fiber, market pulp, chemicals, and other raw materials from third parties. We may experience shortages of energy supplies or raw materials or be forced to seek alternative sources of supply. If we are forced to seek alternative sources of supply, we may not be able to do so on terms as favorable as our current terms or at all. The prices for energy and many of our raw materials, especially petroleum-based chemicals, have recently been volatile and are expected to remain volatile for the foreseeable future. Chemical suppliers that use petroleum-based products in the manufacture of their chemicals may, due to a supply shortage and cost increase, ration the amount of chemicals available to us and/or we may not be able to obtain the chemicals we need to operate our business at favorable prices, if at all. In addition, certain specialty chemicals that we purchase are available only from a small number of suppliers. If any of these suppliers were to cease operations or cease doing business with us, we may be unable to obtain such chemicals at favorable prices, if at all.

The supply of energy or raw materials may be adversely affected by, among other things, natural disasters or an outbreak or escalation of hostilities between the United States and any foreign power. For example, wood fiber is a commodity and prices historically have been cyclical. The primary source for wood fiber is timber. Environmental litigation and regulatory developments have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in Canada and the United States. In addition, future domestic or foreign legislation, litigation advanced by aboriginal groups, litigation concerning the use of timberlands, the protection of endangered species, the promotion of forest biodiversity, and the response to and prevention of wildfires and campaigns or other measures by environmental activists also could affect timber supplies. The availability of harvested timber may further be limited by factors such as fire and fire prevention, insect infestation, disease, ice and wind storms, droughts, floods, and other natural and man-made causes. Additionally, due to increased fuel costs, suppliers, distributors and freight carriers have charged fuel surcharges, which have increased our costs. Any significant shortage or significant increase in our energy or raw material costs in circumstances where we cannot raise the price of our products due to market conditions could have a material adverse effect on our business, financial condition, and results of operations. Any disruption in the supply of energy or raw materials also could affect our ability to meet customer demand in a timely manner and could harm our reputation. Furthermore, we may be required to post letters of credit or other financial assurance obligations with certain of our energy and other suppliers, which could limit our financial flexibility.

Currency fluctuations may adversely affect our business, financial condition, and results of operations.

We compete with producers in North America and abroad. Changes in the relative strength or weakness of the U.S. dollar may affect international trade flows of coated paper products. A stronger U.S. dollar may attract imports from foreign producers, increase supply in the United States, and have a downward effect on prices, while a weaker U.S. dollar may encourage U.S. exports. Variations in the exchange rates between the U.S. dollar and other currencies, particularly the Canadian dollar and the euro, may significantly affect our competitive position, including by making it more attractive for foreign producers to restart previously shut-down paper mills or by increasing production capacity in North America or Europe.

We are involved in continuous manufacturing processes with a high degree of fixed costs. Any interruption in the operations of our manufacturing facilities may affect our operating performance.

We seek to run our paper machines on a nearly continuous basis for maximum efficiency. Any downtime at any of our paper mills, including as a result of or in connection with planned maintenance and capital expenditure projects, results in unabsorbed fixed costs that negatively affect our results of operations for the period in which we experience the downtime. Due to the extreme operating conditions inherent in some of our manufacturing processes, we may incur unplanned business interruptions from time to time and, as a result, we may not generate sufficient cash flow to satisfy our operational needs. In addition, ~~many of~~ the geographic areas where our production is located and where we conduct our business may be affected by natural disasters, including snow storms, forest fires, and flooding. Such natural disasters could cause our mills to stop running, which could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, during periods of weak demand for paper products, such as the current market, we have experienced and may in the future experience market-related downtime, which could have a material adverse effect on our financial condition and results of operations.

We depend on a small number of customers for a significant portion of our business.

Our largest ~~customers~~customer, Quad/Graphics, Inc. ~~and xpedx, and their respective affiliates,~~ accounted for approximately 10% ~~and 9%, respectively,~~ of our net sales in ~~2011~~2012. In ~~2011~~2012, our ten largest customers (including Quad/Graphics, Inc. ~~and xpedx, and their respective affiliates~~) accounted for approximately 5357% of our net sales, while our ten largest end-users accounted for approximately 2628% of our net sales. The loss of, or reduction in orders from, any of these customers or other customers could have a material adverse effect on our business, financial condition, and results of operations, as could significant customer disputes regarding shipments, price, quality, or other matters.

We may not realize certain productivity enhancements or improvements in costs.

As part of our business strategy, we are in the process of identifying opportunities to improve profitability by reducing costs and enhancing productivity. For example, through our continuous process improvement program, we have implemented focused programs to optimize material and energy sourcing and usage, reduce repair costs, and control overhead. We will continue to utilize the process improvement program to drive further cost reductions and operating improvements in our mill system, and have targeted additional profitability enhancements in the next twelve months. Any cost savings or productivity enhancements that we realize from such efforts may differ materially from our estimates. In addition, any cost savings or productivity enhancements that we realize may be offset, in whole or in part, by reductions in pricing or volume, or through increases in other expenses, including raw material, energy or personnel. We cannot assure you that these initiatives will be completed as anticipated or that the benefits we expect will be achieved on a timely basis or at all. Our calculation of Adjusted EBITDA includes adjustments for cost savings expected to be realized from these initiatives. Although our management believes these estimates and assumptions to be reasonable, investors should not place undue reliance upon the calculation of Adjusted EBITDA given how it is calculated and the possibility that the underlying estimates and assumptions may ultimately not reflect actual results.

Rising postal costs could weaken demand for our paper products.

A significant portion of paper is used in magazines, catalogs, and other promotional mailings. Many of these materials are distributed through the mail. Future increases in the cost of postage could reduce the frequency of mailings, reduce the number of pages in magazine and advertising materials, and/or cause catalog and magazine publishers to use alternate methods to distribute their materials. Any of the foregoing could decrease the demand for our products, which could have a material adverse effect on our business, financial condition, and results of operations.

Our business may suffer if we do not retain our senior management.

We depend on our senior management. The loss of services of members of our senior management team could adversely affect our business until suitable replacements can be found. There may be a limited number of persons with the requisite skills to serve in these positions and we may be unable to locate or employ qualified personnel on acceptable terms. In addition, our future success requires us to continue to attract and retain competent personnel.

A ~~large~~portion ~~percentage~~ of our employees are unionized. Wage and benefit increases and work stoppages and slowdowns by our unionized employees may have a material adverse effect on our business, financial condition, and results of operations.

As of December 31, ~~2011~~2012, approximately 3023%, of our employees were represented by labor unions at ~~two~~one of our mills. As of December 5, 2011, three ~~new~~ collective bargaining agreements with the labor unions at that mill were ratified and implemented ~~at the two sites~~. ~~These~~Two ~~new~~of these agreements were effective retroactive to May 1, 2011, and will expire on April 30, 2015. The third agreement was effective November 1, 2011, and will expire on October 31, 2015. We may become subject to material cost increases or additional work rules imposed by agreements with labor unions. This could increase expenses in absolute terms and/or as a percentage of net sales. In addition, although we believe we have good relations with our employees, work stoppages or other labor disturbances may occur in the future. Any of these factors could negatively affect our business, financial condition, and results of operations.

We depend on third parties for certain transportation services.

We rely primarily on third parties for transportation of our products to our customers and transportation of our raw materials to us, in particular, by truck and train. If any third-party transportation provider fails to deliver our products in a timely manner, we may be unable to sell them at full value. Similarly, if any transportation provider fails to deliver raw materials to us in a timely manner, we may be unable to manufacture our products on a timely basis. Shipments of products and raw materials may be delayed due to weather conditions, strikes or other events. Any failure of a third-party transportation provider to deliver raw materials or products in a timely manner could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our business, financial condition, and results of operations. In addition, our ability to deliver our products on a timely basis could be adversely affected by the lack of adequate availability of transportation services, especially rail capacity, whether because of work stoppages or otherwise. Furthermore, increases in the cost of our transportation services, including as a result of rising fuel costs, could have a material adverse effect on our business, financial condition, and results of operations.

We are subject to various environmental, health and safety laws and regulations that could impose substantial costs or other liabilities upon us and may have a material adverse effect on our business, financial condition, and results of operations.

We are subject to a wide range of federal, state, regional, and local general and industry-specific environmental, health and safety laws and regulations, including those relating to air emissions (including greenhouse gases and hazardous air pollutants), wastewater discharges, solid and hazardous waste management and disposal, and site remediation. Compliance with these laws and regulations, and permits issued thereunder, is a significant factor in our business. We have made, and will continue to make, significant expenditures to comply with these requirements and our permits, which may impose increasingly more stringent standards over time as they are renewed or modified by the applicable governmental authorities. In addition, we handle and dispose of wastes arising from our mill operations and operate a number of on-site landfills to handle that waste. We maintain financial assurance (in the form of letters of credit and other similar instruments) for the projected cost of closure and post-closure care for these landfill operations. We could be subject to potentially significant fines, penalties, criminal sanctions, plant shutdowns, or interruptions in operations for any failure to comply with applicable environmental, health and safety laws, regulations, and permits. Moreover, under certain environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of at real property, may be held liable for the full cost to investigate or clean up such real property and for related damages to natural resources. We may be subject to liability, including liability for investigation and cleanup costs, if contamination is discovered at one of our current or former paper mills, other properties or other locations where we have disposed of, or arranged for the disposal of, wastes. The 2006 acquisition agreement with International Paper contains an environmental indemnity, subject to certain limitations, for former properties and former off-site shipments related to the business during the time it was owned by International Paper, as well as certain other limited environmental liabilities. There can be no assurance that International Paper will perform under any of its environmental indemnity obligations, and its failure to do so could have a material adverse effect on our financial condition and results of operations. We also could be subject to claims brought pursuant to applicable laws, rules or regulations for property damage or personal injury resulting from the environmental impact of our operations, including due to human exposure to hazardous substances. Increasingly stringent or new environmental requirements, more aggressive enforcement actions or policies, the discovery of unknown conditions, or the bringing of future claims may cause our expenditures for environmental matters to increase, and we may incur material costs associated with these matters.

A 2007 decision of the United States Supreme Court held that greenhouse gases are subject to regulation under the Clean Air Act. The Environmental Protection Agency, or “EPA,” has subsequently issued regulations applicable to us which require monitoring of greenhouse gas emissions. The EPA has also issued regulations which require certain new and modified air emissions sources to control their greenhouse gas emission, which may have a material effect on our operations. The United States Congress has in the past, and may in the future, consider legislation which would similarly provide for regulation of greenhouse gas emissions. It is also possible that we could become subject to other federal, state, regional, local, or supranational legislation related to climate change and greenhouse gas controls. We do not expect that we would be disproportionately affected by these measures as compared to similarly situated operators in the United States.

On December 2, 2011, the EPA issued proposed amendments to its "National Emissions Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial and Institutional Boilers and Process Heaters." The rule, referred to as the “Boiler MACT” rule, governs emissions of air toxics from boilers and process heaters at industrial facilities. Certain of our boilers may be subject to the new rule. If they are, we may be required to limit our emissions and/or install additional pollution controls. In addition, on December 27, 2011, the EPA published its proposed "National Emissions Standards for Hazardous Air Pollutants from the Pulp and Paper Industry," which is likewise a MACT standard that specifically governs emissions of air toxics from pulp and paper facilities. Whether or not additional measures will be required to comply with these rules, and the cost of any such compliance, is unclear at this time because such rules have not been finalized or are under reconsideration. However, compliance costs could be material and have an adverse effect on our business, financial condition and results of operations.19

On January 31, 2013, the EPA published its "National Emissions Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial and Institutional Boilers and Process Heaters." The standards, which are technology-based standards that require the use of Maximum Achievable Control Technology or “MACT” for major sources to comply and is referred to as the “Boiler MACT” rule, govern emissions of air toxics from boilers and process heaters at industrial facilities. Certain of our boilers are subject to the new standards, and we may be required to limit our emissions and/or install additional pollution controls. In addition, on September 11, 2012, the EPA amended its "National Emissions Standards for Hazardous Air Pollutants from the Pulp and Paper Industry," which is likewise a MACT standard that specifically governs emissions of air toxics from pulp and paper facilities. Verso is assessing the potential impact to our mills of the EPA’s recent rule changes and developing a more precise estimate of future environmental control expenditures in 2014, 2015, and 2016. Compliance costs could be material and have an adverse effect on our business, financial condition, and results of operations.

A downgrade in our debt ratings could result in increased interest and other financial expenses related to future borrowings, and could further restrict our access to additional capital or trade credit.

Standard and Poor’s Ratings Services and Moody’s Investors Service maintain credit ratings for us. Each of these ratings is currently below investment grade. Any decision by these or other ratings agencies to downgrade such ratings in the future could result in increased interest and other financial expenses relating to our future borrowings, and could restrict our ability to obtain financing on satisfactory terms. In addition, any further downgrade could restrict our access to, and negatively impact the terms of, trade credit extended by our suppliers of raw materials.

20Lenders under our revolving credit facilities may not fund their commitments.

~~Lenders~~Although the lenders under our revolving credit ~~facility~~facilities ~~may~~are well-diversified, there can be no assurance that deterioration in the credit markets or overall economy will not ~~fund~~affect the ability of our lenders to meet their funding commitments. If a lender fails to honor its commitment under the revolving credit facilities, that portion of the credit facilities will be unavailable to the extent that the lender’s commitment is not replaced by a new commitment from an alternate lender.

~~Although~~Additionally, ~~the lenders under~~ our ~~revolving credit facility are well-diversified, totaling 14~~ lenders athave ~~December 31, 2011, there can be no assurance that deterioration in~~ the ~~credit markets or overall economy will not affect the~~ ability ~~of our lenders~~ to ~~meet~~transfer their ~~funding~~ commitments~~. If~~ ato ~~lender~~other ~~fails~~institutions, toand ~~honor~~the ~~its~~risk ~~commitment~~that ~~under~~committed ~~the~~funds ~~revolving~~may ~~credit~~not ~~facility,~~be ~~that~~available ~~portion~~under ofdistressed ~~the~~market ~~credit~~conditions ~~facility~~could ~~will~~ be ~~unavailable~~exacerbated toif ~~the~~consolidation ~~extent~~of ~~that~~ the ~~lender’s~~commitments ~~commitment~~under isour ~~not~~revolving ~~replaced~~credit byfacilities aor ~~new~~among ~~commitment~~its ~~from~~lenders anwere ~~alternate~~to ~~lender~~occur.

Additionally, our lenders have the ability to transfer their commitments to other institutions, and the risk that committed funds may not be available under distressed market conditions could be exacerbated if consolidation of the commitments under our revolving credit facility or among its lenders were to occur.

Our common stock may cease to be listed on the New York Stock Exchange

Our common stock is currently listed on the New York Stock Exchange, or “NYSE,” under the symbol “VRS.” We may not be able to meet the continued listing requirements of the NYSE, which ~~has~~had previously notified us that we ~~have~~had fallen below the NYSE’s continued listing standard relating to market capitalization. ~~Our~~Under ~~common~~the ~~stock~~applicable ~~continues~~NYSE torules, bewe ~~traded~~submitted ona ~~the~~plan ~~NYSE,~~demonstrating ~~subject~~our ability to ~~our~~achieve compliance with ~~other~~the market capitalization standard by June 21, 2013, and on March 22, 2012 the NYSE accepted our plan for continued listing ~~requirements~~on the NYSE. ~~Under~~We ~~the~~will ~~applicable~~be subject to quarterly reviews by the NYSE ~~rules,~~to wemonitor ~~have~~our ~~submitted~~progress aagainst the plan. Our ~~demonstrating~~common ~~our~~stock ~~ability~~continues to ~~achieve~~be ~~compliance~~traded ~~with~~on the ~~market~~NYSE, ~~capitalization~~subject ~~standard~~to byour ~~June~~compliance ~~21,~~with ~~2013~~other NYSE continued listing requirements. If we are unable to satisfy the requirements of the NYSE for continued listing, our common stock would be subject to delisting. Any delisting could have a material adverse effect on our share price which, among other things, could cause a downgrade in our debt ratings potentially resulting in increased interest and other financial expenses related to future borrowings, and could further restrict our access to additional capital or trade credit.

2120

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our corporate headquarters is located in Memphis, Tennessee. We own ~~four~~three mills located in Maine, ~~Michigan,~~ and ~~Minnesota~~Michigan at which we operate eight 9 paper machines. We own five hydroelectric dams, of which four provide hydroelectric power to our Androscoggin mill and the fifth ~~services~~serviced our Sartell mill. WeThe ~~also~~dam ~~own~~at 15Sartell, ~~and~~which ~~lease~~is ~~two~~classified as held for sale as of December 31, 2012, is operational, but is not currently providing power. We also own fifteen woodyards for the purpose of storage and loading of forest products, and we lease one woodyard and a number of sales offices. In addition, we own and lease 27approximately 25,000 acres of hybrid poplar woodlands located near Alexandria, Minnesota, which are classified as held for sale on the accompanying consolidated balance sheets.

Our headquarters and material facilities as of December 31, ~~2011~~2012, are shown in the following table:

Location Use Owned/Leased Memphis, Tennessee corporate headquarters leased Jay (Androscoggin), Maine paper mill/kraft pulp mill owned Bucksport, Maine paper mill owned Quinnesec, Michigan paper mill/kraft pulp mill owned Sartell, Minnesota paper mill (idled) owned (held for sale) West Chester, Ohio sales, distribution, and customer service leased

Item 3. Legal Proceedings

We are involved from time to time in legal proceedings incidental to the conduct of our business. We do not believe that any liability that may result from these proceedings will have a material adverse effect on our consolidated financial statements.

Item 4. Mine Safety Disclosures

Not applicable.

Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act

On February 12, 2013, certain investment funds affiliated with Apollo Global Management, LLC beneficially owned approximately 19.6% of the ordinary shares of LyondellBasell Industries N.V., or “LyondellBasell,” and have certain director nomination rights. LyondellBasell may be deemed to be under common control with us, but this statement is not meant to be an admission that common control exists. As a result, it appears that we are required to provide disclosures as set forth herein pursuant to Section 219 of the new Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Securities Exchange Act of 1934, as amended. The Annual Report on Form 10-K for the year ended December 31, 2012 filed by LyondellBasell with the SEC on February 12, 2013 contained the disclosure set forth below (with all references contained therein to “the Company” being references to LyondellBasell and its consolidated subsidiaries).

The disclosure below does not relate to any activities conducted by us and does not involve us or our management. The disclosure relates solely to activities conducted by LyondellBasell and its consolidated subsidiaries.

“Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act

Certain non-U.S. subsidiaries of our predecessor, LyondellBasell AF, licensed processes to construct and operate manufacturing plants in Iran that produce polyolefin plastic material, which is used in the packaging of household and consumer goods. The subsidiaries also provided engineering support and supplied catalyst products to be used in these manufacturing operations. In 2009, the Company made the decision to suspend the pursuit of any new business dealings in Iran.

As previously disclosed by the Company, in 2010, our management made the further decision to terminate all business by the Company and its direct and indirect subsidiaries with the government, entities and individuals in Iran. The termination was made in accordance with all applicable laws and with the knowledge of U.S. Government authorities. As part of the termination, we entered into negotiations with Iranian counterparties in order to exit our contractual obligations. As described below, two transactions occurred under settlement agreements in early 2012, although the agreements to cease our activities with these counterparties were entered into in 2011. In January 2012, one of our non-U.S. subsidiaries received a final payment of approximately €3.5 million for a shipment of catalyst from an entity that is 50% owned by the National Petrochemical Company of Iran.

Our shipment of the catalyst was in February 2012 as part of the agreement related to our termination and cessation of all business under agreements with the counterparty. In 2012, the gross revenue from this limited activity was approximately, €4.2 million and profit attributable to it was approximately, €2.4 million.

In January and February of 2012, one of the Company’s non-U.S. subsidiaries provided certain engineering documents relating to a polyolefin plastic process to a licensee comprising three Iranian companies, one of which is 20% owned by the National Oil Company of Iran. The provision of documents was the Company’s final act with respect to the termination and cessation of all business under agreements with the counterparties. No gross revenue or profit was attributable to this activity in 2012. The transactions disclosed in this report do not constitute violations of applicable anti-money laundering laws or sanctions laws administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC), and are not the subject of any enforcement actions under the Iran sanction laws.

We have not conducted, and do not intend to conduct, any further business activities in Iran or with Iranian counterparties.”

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the New York Stock Exchange under the symbol “VRS.” The following table sets forth the high and low sales prices per share of our common stock, as reported by the New York Stock Exchange, for the indicated periods:

	High		Low
2012
First quarter	$	3.36	$	0.91
Second quarter		2.05		1.03
Third quarter		2.38		1.16
Fourth quarter		1.70		0.99
2011
First quarter	$	6.37	$	3.43
Second quarter		5.44		2.51
Third quarter		3.16		1.65
Fourth quarter		1.95		0.85
2010
First quarter	$	3.96	$	2.64
Second quarter		5.76		2.29
Third quarter		3.23		2.05
Fourth quarter		4.03		2.80

Holders

As of February 2928, ~~2012~~2013, there were 2030 stockholders of record of our common stock.

Dividends

We paid no dividends on our common stock prior to our IPO. Following our IPO in May 2008, we paid cash dividends on our common stock in the amount of $0.03 per share for the second and third quarters of that year, which were declared and paid in the following quarter. We suspended the payment of dividends in 2008 beginning with the fourth quarter dividend. Past dividend payments are not indicative of our future dividend policy, and there can be no assurance that we will declare or pay any cash dividends in the future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our board of directors may deem relevant. Our ability to pay dividends on our common stock is limited by the covenants ofin our ~~revolving~~ABL ~~credit~~Facility ~~facility~~and Cash Flow Facility and the indentures governing our outstanding notes, and may be further restricted by the terms of any of our future debt or preferred securities.

Equity Compensation Plan Information

The table below sets forth information regarding the number of shares of common stock to be issued upon the exercise of the outstanding stock options granted under our equity compensation plans and the shares of common stock remaining available for future issuance under our equity compensation plans as of December 31, ~~2011~~2012.

~~Number of securities~~

Number of securities

~~Number of~~

~~Weighted-~~Number of

~~remaining available~~

Weighted-

remaining available

~~securities to be~~

~~average~~securities to be

~~for future issuance~~

average

for future issuance

~~issued upon~~

~~exercise~~issued upon

~~under equity~~

exercise

under equity

~~exercise of~~

~~price~~exercise of

~~compensation plans~~

price of

compensation plans

~~outstanding~~

outstanding

~~(excluding securities~~

outstanding

(excluding securities

~~options~~

options

~~reflected in column (a))~~

options

reflected in column (a))

Plan Category

~~(a)~~

(ba)

~~(c)~~

(b)

(c)

Equity compensation plans approved by security holders

~~1,781,499~~

~~$3.90~~

13,~~909~~885,~~834~~193

2.53

1,515,080

Equity compensation plans not approved by security holders

Total

~~1,781,499~~

~~$3.90~~

13,~~909~~885,~~834~~193

2.53

1,515,080

Stock Repurchases under 2008 Incentive Award Plan

Participants in our 2008 Incentive Award Plan, or the “Plan,” may elect to surrender to us restricted shares of our common stock issued to them pursuant to awards granted under the Plan to satisfy the applicable federal, state, local, and foreign tax withholding obligations that arise upon the vesting of their shares of restricted stock under the Plan. Shares of restricted stock surrendered to us to meet tax withholding obligations are deemed to be repurchased pursuant to the Plan. There were no shares of restricted stock repurchased to meet participants’ tax withholding obligations during the fourth quarter of ~~2011~~2012.

Item 6. Selected Financial Data

The following tables present our selected financial data as of and for the periods presented for Verso Paper and Verso Holdings. The following information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and their related notes, and the other financial information, included elsewhere in this annual report.

The selected historical financial data for Verso Paper as of and for the years ended December 31, 2012, 2011, 2010, 2009, ~~2008,~~ and ~~2007~~2008, have been derived from the audited consolidated ~~(2011, 2010, 2009, and 2008) and combined (2007)~~ financial statements of Verso Paper. The selected historical financial data for Verso Holdings as of and for the years ended December 31, 2012, 2011, 2010, 2009, ~~2008,~~ and ~~2007~~2008, have been derived from the audited consolidated financial statements of Verso Holdings. The audited consolidated financial statements of Verso Paper and Verso Holdings as of December 31, ~~2011~~2012, and ~~2010~~2011, and for the years ended December 31, ~~2011~~2012, ~~2010~~2011, and ~~2009~~2010, are included elsewhere in this annual report.

		~~VERSO PAPER~~	VERSO PAPER
		Consolidated																Combined
			Year Ended December 31,
(Dollars and tons in millions except		Year Ended December 31,
(Dollars and tons in millions except per share amounts)			2012				2011				2010				2009				2008
per share amounts)		2011				2010				2009				2008				2007
Statement of Operations Data:
Statement of Operations Data:
Net sales			$	1,474.6			$	1,722.5			$	1,605.3			$	1,360.9			$	1,766.8
Net sales		$	1,722.5			$	1,605.3			$	1,360.9			$	1,766.8			$	1,628.8
Costs and expenses:
Costs and expenses:
Cost of products sold - (exclusive of
Cost of products sold - (exclusive of
	depreciation, amortization, and depletion)			1,272.6				1,460.3				1,410.8				1,242.7				1,463.2
depreciation, amortization, and depletion)			1,460.3				1,410.8				1,242.7				1,463.2				1,403.0
Depreciation, amortization, and depletion				118.2				125.3				127.4				132.7				134.5
Depreciation, amortization, and depletion			125.3				127.4				132.7				134.5				123.2
Selling, general, and administrative expenses				74.4				78.0				71.0				61.9				79.7
Selling, general, and administrative expenses			78.0				71.0				61.9				79.7				53.2
Goodwill impairment				-				18.7				-				-				-
Goodwill impairment			18.7				-				-				-				-
Restructuring and other charges				102.4				24.5				-				1.0				27.4
Restructuring and other charges			24.5				-				1.0				27.4				19.4
Total operating expenses				1,567.6				1,706.8				1,609.2				1,438.3				1,704.8
Total operating expenses			1,706.8				1,609.2				1,438.3				1,704.8				1,598.8
Other operating income				(60.6	)			-				-				-				-
Operating income (loss)			15.7				(3.9	)			(77.4	)			62.0				30.0
Operating (loss) income				(32.4	)			15.7				(3.9	)			(77.4	)			62.0
Interest income			~~(0.1~~	)-			~~(0.1~~	)(0.1	)		~~(0.3~~	)(0.1	)		~~(0.8~~	)(0.3	)		~~(1.5~~	)(0.8	)
Interest expense			~~126.6~~	135.4			~~128.1~~	126.6			~~123.4~~	128.1			~~125.6~~	123.4			~~143.0~~	125.6
Other income, net(1)			26.1				(0.9	)			(307.3	)			-				-
Other loss (income), net(1)				7.4				26.1				(0.9	)			(307.3	)			-
Income (loss) before income taxes			(136.9	)			(131.0	)			106.8				(62.8	)			(111.5	)
(Loss) income before income taxes				(175.2	)			(136.9	)			(131.0	)			106.8				(62.8	)
Income tax expense			0.2				0.1				0.8				-				-
Income tax (benefit) expense				(1.4	)			0.2				0.1				0.8				-
Net income (loss)		$	(137.1	)		$	(131.1	)		$	106.0			$	(62.8	)		$	(111.5	)
Net (loss) income			$	(173.8	)		$	(137.1	)		$	(131.1	)		$	106.0			$	(62.8	)
Per Share Data:
Earnings (loss) per share:
Basic		$	~~(2.61~~$	)(3.29	)	$	~~(2.50~~$	)(2.61	)	$	~~2.03~~$	(2.50	)	$	~~(1.35~~$	)2.03		$	~~(2.93~~$	)(1.35	)
Diluted			~~(2.61~~	)(3.29	)		~~(2.50~~	)(2.61	)		~~2.03~~	(2.50	)		~~(1.35~~	)2.03			~~(2.93~~	)(1.35	)
Weighted average common shares outstanding
~~(in thousands):~~	(in thousands):
Basic			~~52,595~~	52,850			~~52,445~~	52,595			~~52,138~~	52,445			~~46,691~~	52,138			~~38,047~~	46,691
Diluted			~~52,595~~	52,850			~~52,445~~	52,595			~~52,153~~	52,445			~~46,691~~	52,153			~~38,047~~	46,691
Statement of Cash Flows Data:
Cash provided by operating activities		$	~~14.5~~$	12.0		$	~~73.5~~$	14.5		$	~~177.2~~$	73.5		$	~~54.1~~$	177.2		$	~~15.0~~$	54.1
Cash used in investing activities			~~(66.2~~	)(7.1	)		~~(98.3~~	)(66.2	)		~~(34.1~~	)(98.3	)		~~(81.3~~	)(34.1	)		~~(69.1~~	)(81.3	)
Cash provided by (used in) financing activities			(6.2	)			25.5				(110.5	)			88.2				0.2
Cash (used in) provided by financing activities				(38.3	)			(6.2	)			25.5				(110.5	)			88.2
Other Financial and Operating Data:
EBITDA(2)		$	~~114.9~~$	78.4		$	~~124.4~~$	114.9		$	~~362.6~~$	124.4		$	~~196.5~~$	362.6		$	~~153.2~~$	196.5
Capital expenditures			~~(90.3~~	)(59.9	)		~~(73.6~~	)(90.3	)		~~(34.2~~	)(73.6	)		~~(81.4~~	)(34.2	)		~~(70.9~~	)(81.4	)
Total tons sold			~~2,023.4~~	1,799.0			~~2,063.6~~	2,023.4			~~1,724.5~~	2,063.6			~~1,952.7~~	1,724.5			~~2,096.3~~	1,952.7
Balance Sheet Data:
Working capital(3)		$	~~142.6~~$	110.3		$	~~162.4~~$	142.6		$	~~210.6~~$	162.4		$	~~151.9~~$	210.6		$	~~87.2~~$	151.9
Property, plant and equipment, net			~~934.7~~	793.0			~~972.7~~	934.7			~~1,022.6~~	972.7			~~1,116.0~~	1,022.6			~~1,160.2~~	1,116.0
Total assets			~~1,421.5~~	1,208.9			~~1,516.1~~	1,421.5			~~1,572.7~~	1,516.1			~~1,636.4~~	1,572.7			~~1,603.5~~	1,636.4
Total debt			~~1,262.5~~	1,257.0			~~1,228.6~~	1,262.5			~~1,192.4~~	1,228.6			~~1,357.7~~	1,192.4			~~1,419.6~~	1,357.7
Total equity (deficit)			(153.9	)			(6.8	)			125.3				(10.0	)			(75.1	)
Total (deficit) equity				(321.7	)			(153.9	)			(6.8	)			125.3				(10.0	)

(1)

Other income was $307.3 million for the year ended December 31, 2009, which includes $238.9 million in net benefits from alternative fuel mixture tax credits provided by the U.S. government for our use of black liquor in alternative fuel mixtures and $64.8 million in net gains related to the early retirement of debt.

(2) EBITDA consists of earnings before interest, taxes, depreciation, and amortization. EBITDA is a measure commonly used in our industry, and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as ~~one~~a ~~criterion~~way ~~for~~of evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies. However, EBITDA is not a measurement of financial performance under U.S. GAAP, and our EBITDA may not be comparable to similarly titled measures of other companies. You should consider our EBITDA in addition to, and not as a substitute for, or superior to, our operating or net income or cash flows from operating activities determined in accordance with U.S. GAAP. Our use of EBITDA is further discussed in the 'Reconciliation of Cash Flows from Operating Activities to Adjusted EBITDA' section of Item 7 herein. The following table reconciles net ~~income~~ (loss) income to EBITDA for the periods presented:

	VERSO PAPER
	Consolidated												Combined
	Year Ended December 31,
(Dollars in millions)	~~2011~~2012			~~2010~~2011			~~2009~~2010			~~2008~~2009			~~2007~~2008
Reconciliation of net income (loss) to EBITDA:
Reconciliation of net (loss) income to EBITDA:
Net income (loss)	$	(137.1	)	$	(131.1	)	$	106.0		$	(62.8	)	$	(111.5	)
Net (loss) income	$	(173.8	)	$	(137.1	)	$	(131.1	)	$	106.0		$	(62.8	)
Income tax expense		0.2			0.1			0.8			-			-
Income tax (benefit) expense		(1.4	)		0.2			0.1			0.8			-
Interest expense, net		~~126~~135.54			~~128~~126.05			~~123~~128.10			~~124~~123.81			~~141~~124.58
Depreciation, amortization, and depletion		~~125~~118.32			~~127~~125.43			~~132~~127.74			~~134~~132.57			~~123~~134.25
EBITDA	$	~~114~~78.94		$	~~124~~114.49		$	~~362~~124.64		$	~~196~~362.56		$	~~153~~196.25

(3)	Working capital is defined as current assets net of current liabilities, excluding the current portion of long-term debt.

		~~VERSO HOLDINGS~~	VERSO HOLDINGS
		~~Year Ended December 31,~~	Year Ended December 31,
(Dollars and tons in millions)		~~2011~~	2012			~~2010~~	2011			~~2009~~	2010			~~2008~~	2009			~~2007~~	2008
Statement of Operations Data:
Net sales		$	~~1,722.5~~$	1,474.6		$	~~1,605.3~~$	1,722.5		$	~~1,360.9~~$	1,605.3		$	~~1,766.8~~$	1,360.9		$	~~1,628.8~~$	1,766.8
Costs and expenses:
Cost of products sold - (exclusive of depreciation,
~~amortization, and depletion)~~	amortization, and depletion)		~~1,460.3~~	1,272.6			~~1,410.8~~	1,460.3			~~1,242.7~~	1,410.8			~~1,462.3~~	1,242.7			~~1,403.2~~	1,462.3
Depreciation, amortization, and depletion			~~125.3~~	118.2			~~127.4~~	125.3			~~132.7~~	127.4			~~134.4~~	132.7			~~123.1~~	134.4
Selling, general, and administrative expenses			~~78.0~~	74.4			~~70.9~~	78.0			~~61.7~~	70.9			~~79.4~~	61.7			~~52.0~~	79.4
Goodwill impairment			~~10.5~~	-			-	10.5			-	-			-	-			-	-
Restructuring and other charges			~~24.5~~	102.4			-	24.5			~~1.0~~	-			~~27.4~~	1.0			~~19.4~~	27.4
Total operating expenses			~~1,698.6~~	1,567.6			~~1,609.1~~	1,698.6			~~1,438.1~~	1,609.1			~~1,703.5~~	1,438.1			~~1,597.7~~	1,703.5
Operating income (loss)			23.9				(3.8	)			(77.2	)			63.3				31.1
Other operating income				(60.6	)			-				-				-				-
Interest income			(1.6	)			(0.1	)			(0.2	)			(0.8	)			(1.5	)
Operating (loss) income				(32.4	)			23.9				(3.8	)			(77.2	)			63.3
Interest expense			122.2				122.5				116.1				103.2				113.9
Interest income				(1.5	)			(1.6	)			(0.1	)			(0.2	)			(0.8	)
Other income, net(1)			25.8				(0.7	)			(273.8	)			-				-
Interest expense				127.9				122.2				122.5				116.1				103.2
Net income (loss)		$	(122.5	)		$	(125.5	)		$	80.7			$	(39.1	)		$	(81.3	)
Other loss (income), net(1)				7.4				25.8				(0.7	)			(273.8	)			-
Statement of Cash Flows Data:
Net (loss) income			$	(166.2	)		$	(122.5	)		$	(125.5	)		$	80.7			$	(39.1	)
Cash provided by operating activities		$	14.6			$	75.8			$	180.1			$	74.9			$	38.8
Statement of Cash Flows Data:
Cash used in investing activities			(66.2	)			(98.3	)			(34.1	)			(80.3	)			(67.8	)
Cash provided by operating activities			$	11.3			$	14.6			$	75.8			$	180.1			$	74.9
Cash provided by (used in) financing activities			(6.3	)			25.4				(115.8	)			66.4				(24.9	)
Cash used in investing activities				(7.1	)			(66.2	)			(98.3	)			(34.1	)			(80.3	)
Other Financial and Operating Data:
Cash (used in) provided by financing activities				(37.6	)			(6.3	)			25.4				(115.8	)			66.4
EBITDA(2)		$	123.4			$	124.3			$	329.3			$	197.7			$	154.2
Other Financial and Operating Data:
Capital expenditures			(90.3	)			(73.6	)			(34.2	)			(80.4	)			(69.6	)
EBITDA(2)			$	78.4			$	123.4			$	124.3			$	329.3			$	197.7
Total tons sold			2,023.4				2,063.6				1,724.5				1,952.7				2,096.3
Capital expenditures				(59.9	)			(90.3	)			(73.6	)			(34.2	)			(80.4	)
Balance Sheet Data:
Total tons sold				1,799.0				2,023.4				2,063.6				1,724.5				1,952.7
Working capital(3)		$	142.9			$	162.3			$	210.4			$	156.3			$	95.6
Balance Sheet Data:
Property, plant, and equipment, net			934.7				972.7				1,022.6				1,115.7				1,159.9
Working capital(3)			$	111.4			$	142.9			$	162.3			$	210.4			$	156.3
Total assets			1,444.4				1,530.5				1,560.3				1,614.1				1,577.0
Property, plant, and equipment, net				793.0				934.7				972.7				1,022.6				1,115.7
Total debt			1,201.1				1,172.7				1,118.3				1,245.7				1,156.4
Total assets				1,232.3				1,444.4				1,530.5				1,560.3				1,614.1
Total equity (deficit)			(61.2	)			71.4				198.0				91.7				174.9
Total debt				1,187.1				1,201.1				1,172.7				1,118.3				1,245.7
Total (deficit) equity				(220.6	)			(61.2	)			71.4				198.0				91.7

(1) Other income was $273.8 million for the year ended December 31, 2009, which includes $238.9 million in net benefits from alternative fuel mixture tax credits provided by the U.S. government for our use of black liquor in alternative fuel mixtures and $31.3 million in net gains related to the early retirement of debt.

(2) EBITDA consists of earnings before interest, taxes, depreciation, and amortization. EBITDA is a measure commonly used in our industry and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, EBITDA is not a measurement of financial performance under U.S. GAAP, and our EBITDA may not be comparable to similarly titled measures of other companies. You should consider our EBITDA in addition to, and not as a substitute for, or superior to, our operating or net income or cash flows from operating activities determined in accordance with U.S. GAAP. The following table reconciles net income (loss) to EBITDA for the periods presented:

(1)

Other income was $273.8 million for the year ended December 31, 2009, which includes $238.9 million in net benefits from alternative fuel mixture tax credits provided by the U.S. government for our use of black liquor in alternative fuel mixtures and $31.3 million in net gains related to the early retirement of debt.

(2)

EBITDA consists of earnings before interest, taxes, depreciation, and amortization. EBITDA is a measure commonly used in our industry, and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as a way of evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies. However, EBITDA is not a measurement of financial performance under U.S. GAAP, and our EBITDA may not be comparable to similarly titled measures of other companies. You should consider our EBITDA in addition to, and not as a substitute for, or superior to, our operating or net income or cash flows from operating activities determined in accordance with U.S. GAAP. Our use of EBITDA is further discussed in the 'Reconciliation of Cash Flows from Operating Activities to Adjusted EBITDA' section of Item 7 herein. The following table reconciles net (loss) income to EBITDA for the periods presented:

	VERSO HOLDINGS Consolidated
	VERSO HOLDINGS
	Year Ended December 31,
(Dollars in millions)	~~2011~~2012			~~2010~~2011			~~2009~~2010			~~2008~~2009			~~2007~~2008
Reconciliation of net income (loss) to EBITDA:
Reconciliation of net (loss) income to EBITDA:
Net income (loss)	$	(122.5	)	$	(125.5	)	$	80.7		$	(39.1	)	$	(81.3	)
Net (loss) income	$	(166.2	)	$	(122.5	)	$	(125.5	)	$	80.7		$	(39.1	)
Interest expense, net		~~120~~126.64			~~122~~120.46			~~115~~122.94			~~102~~115.49			~~112~~102.4
Depreciation, amortization, and depletion		~~125~~118.32			~~127~~125.43			~~132~~127.74			~~134~~132.47			~~123~~134.14
EBITDA	$	~~123~~78.4		$	~~124~~123.34		$	~~329~~124.3		$	~~197~~329.73		$	~~154~~197.27

(3)	Working capital is defined as current assets net of current liabilities, excluding the current portion of long-term debt.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations includes statements regarding the industry outlook and our expectations regarding the performance of our business. These non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors.” Our actual results may differ materially from those contained in or implied by any forward-looking statements. The discussion and analysis should be read in conjunction with the “Risk Factors” and financial statements and notes thereto included elsewhere in this annual report. Unless otherwise noted, the information provided pertains to both Verso Paper and Verso Holdings. All assets, liabilities, income, expenses and cash flows presented for all periods represent those of Verso Paper’s indirect, wholly-owned subsidiary, Verso Holdings, in all material respects, except for Verso Paper’s common stock transactions, Verso Finance’s debt obligation and related financing costs and interest expense, Verso Holdings’ loan to Verso Finance, and the debt obligation of Verso Holdings’ consolidated variable interest entity to Verso Finance.

Overview

We are a leading North American supplier of coated papers to catalog and magazine publishers. Coated paper is used primarily in media and marketing applications, including catalogs, magazines, and commercial printing applications, such as high-end advertising brochures, annual reports, and direct mail advertising. We are one of North America’s largest producers of coated groundwood paper which is used primarily for catalogs and magazines. We are also a low cost producer of coated freesheet paper which is used primarily for annual reports, brochures, and magazine covers. We also produce and sell market kraft pulp which is used to manufacture printing and writing paper grades and tissue products.

Background

We began operations on August 1, 2006, when we acquired the assets and certain liabilities of the business of International Paper. We were formed by affiliates of Apollo for the purpose of consummating the Acquisition from International Paper. Verso Paper went public on May 14, 2008, with an IPO of 14 million shares of common stock.

Selected Factors Affecting Operating Results

Net Sales

Our sales, which we report net of rebates, allowances, and discounts, are a function of the number of tons of paper that we sell and the price at which we sell our paper. The coated paper industry is cyclical, which results in changes in both volume and price. Paper prices historically have been a function of macro-economic factors which influence supply and demand. Price has historically been substantially more variable than volume and can change significantly over relatively short time periods. Our average coated paper prices declined from 2008 through the first quarter of 2010. While our average coated paper prices climbed modestly beginning in the second quarter of 2010 through the third quarter of 2011, ~~they~~in ~~have~~late ~~recently~~2011 and 2012 they declined again. Prices may not improve, and we do not expect prices in ~~2012~~2013 to return to the levels they were at in 2008 before they declined. Recent industry forecasts have predicted that prices for both coated freesheet and coated groundwood will ~~decline~~remain instable through the first quarter of ~~2012~~2013.

We are primarily focused on serving two end-user segments: catalogs and magazines. In ~~2011~~2012, we believe we were a leading North American supplier of coated papers to catalog and magazine publishers. Coated paper demand is primarily driven by advertising and print media usage. Advertising spending and magazine and catalog circulation tend to correlate with changes in the GDP of the United States – they rise with a strong economy and contract with a weak economy.

We reach our end-users through several channels, including printers, brokers, paper merchants, and direct sales to end-users. We sell and market our products to approximately ~~125~~130 customers which comprise approximately 700 end-user accounts. In ~~2011~~2012, Quad/Graphics, Inc. ~~and xpedx, and their respective affiliates,~~ accounted for approximately 10% ~~and 9%, respectively,~~ of our total net sales.

Our historical results include specialty papers that we manufacture for Thilmany, LLC, or “Thilmany,” on paper machine no. 5 at the Androscoggin mill. Under a long-term supply agreement entered into in 2005 in connection with International Paper’s sale of its Industrial Papers business to Thilmany, these products are sold to Thilmany at a variable charge for the paper purchased and a fixed charge for the availability of the machine. The amounts included in our net sales for the specialty papers sold to Thilmany totaled $3942.50 million, $3739.85 million, and $3937.08 million, in ~~2011~~2012, ~~2010~~2011, and ~~2009~~2010, respectively.

Cost of Products Sold

The principal components of our cost of sales are chemicals, wood, energy, labor, ~~maintenance,~~ and ~~depreciation, amortization, and depletion~~maintenance. Costs for commodities, including chemicals, wood, and energy, are the most variable component of our cost of sales because their prices can fluctuate substantially, sometimes within a relatively short period of time. In addition, our aggregate commodity purchases fluctuate based on the volume of paper that we produce.

Wood. Our costs to purchase wood are affected directly by market costs of wood in our regional markets and indirectly by the effect of higher fuel costs on logging and transportation of timber to our facilities. While we have in place fiber supply agreements that ensure a substantial portion of our wood requirements, purchases under these agreements are typically at market rates.

Energy. We produce a large portion of our energy requirements, historically producing approximately 50% of our energy needs for our coated paper mills from sources such as waste wood and paper, hydroelectric facilities, chemicals from our pulping process, our own steam recovery boilers and internal energy cogeneration facilities. Our external energy purchases vary across each of our mills and include fuel oil, natural gas, coal, and electricity. While our internal energy production capacity mitigates the volatility of our overall energy expenditures, we expect prices for energy to remain volatile for the foreseeable future and our energy costs to increase in a high energy cost environment. As prices fluctuate, we have some ability to switch between certain energy sources in order to minimize costs. We utilize derivative contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices. In January 2012, we completed a $45 million renewable energy project at our mill in Quinnesec, Michigan. The project is delivering 28 ~~megawatts of additional green energy for consumption within the mill, which is equivalent to the amount of electricity consumed by 21,000 homes in a year.~~

Energy. We produce approximately 57% of our energy needs for our paper mills from sources such as waste wood, waste water, hydroelectric facilities, liquid biomass from our pulping process, and internal energy cogeneration facilities. Our external energy purchases vary across each of our mills and include fuel oil, natural gas, coal, and electricity. While our internal energy production capacity and ability to switch between certain energy sources mitigates the volatility of our overall energy expenditures, we expect prices for energy to remain volatile for the foreseeable future. We utilize derivative contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices. At the end of 2011, we completed a $45 million renewable energy project at our mill in Quinnesec, Michigan that is exceeding expectations for efficiency and cost savings. In November 2012, we completed and commercialized a $42 million renewable energy project at our mill in Bucksport, Maine.

Labor . Labor costs include wages, salary, and benefit expenses attributable to our mill personnel. Mill employees at a non-managerial level are compensated on an hourly basis. Management employees at our mills are compensated on a salaried basis. Wages, salary, and benefit expenses included in cost of sales do not vary significantly over the short term. In addition, we have not experienced significant labor shortages.

Maintenance. Maintenance expense includes day-to-day maintenance, equipment repairs, and larger maintenance projects, such as paper machine shutdowns for periodic maintenance. Day-to-day maintenance expenses have not varied significantly from year-to-year. Larger maintenance projects and equipment expenses can produce year-to-year fluctuations in our maintenance expenses. In conjunction with our periodic maintenance shutdowns, we have incidental incremental costs that are primarily comprised of unabsorbed fixed costs from lower production volumes and other incremental costs for purchased materials and energy that would otherwise be produced as part of the normal operation of our mills.

Depreciation, Amortization, and Depletion. Depreciation, amortization, and depletion expense represents the periodic charge to earnings through which the cost of tangible assets, intangible assets, and natural resources are recognized over the asset’s life. Capital investments can increase our asset bases and produce year-to-year fluctuations in expense.

Selling, General, and Administrative Expenses

The principal components of our selling, general, and administrative expenses are wages, salaries, and benefits for our office personnel at our headquarters and our sales force, travel and entertainment expenses, advertising expenses, expenses relating to certain information technology systems, and research and development expenses.

Critical Accounting Policies

Our accounting policies are fundamental to understanding management’s discussion and analysis of financial condition and results of operations. Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industry in which we operate. The preparation of the financial statements requires management to make certain judgments and assumptions in determining accounting estimates. Accounting estimates are considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and different estimates reasonably could have been used in the current period, or changes in the accounting estimate are reasonably likely to occur from period to period, that would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations.

Management believes the following critical accounting policies are both important to the portrayal of our financial condition and results of operations and require subjective or complex judgments. These judgments about critical accounting estimates are based on information available to us as of the date of the financial statements.

Accounting standards whose application may have a significant effect on the reported results of operations and financial position, and that can require judgments by management that affect their application, include the following: Financial Accounting Standards Board, or “FASB,” Accounting Standards Codification, or “ASC,” Topic 450, Contingencies, ASC Topic 360, Property, Plant, and Equipment, ASC Topic 350, Intangibles – Goodwill and Other, and ASC Topic 715, Compensation – Retirement Benefits.

Impairment of long-lived assets and goodwill. Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable, as measured by comparing their net book value to the estimated undiscounted future cash flows generated by their use.

~~Goodwill~~In ~~and~~2012, ~~other~~based ~~intangible~~on ~~assets~~a ~~are~~comprehensive ~~accounted~~assessment ~~for~~of inthe ~~accordance~~damage ~~with~~resulting ~~ASC~~from ~~Topic~~the ~~350. Intangible~~fire ~~assets~~and ~~primarily~~explosion ~~consist~~at ofour ~~trademarks,~~paper ~~customer-related~~mill ~~intangible~~in ~~assets~~Sartell, ~~and~~Minnesota, ~~patents~~we ~~obtained~~decided ~~through~~to ~~business~~permanently ~~acquisitions. We~~close ~~have identified~~ the ~~following~~mill ~~trademarks~~and asrecorded ~~intangible~~a ~~assets~~fixed ~~with~~asset animpairment ~~indefinite~~charge ~~life:~~of ~~Influence®,~~$66.5 ~~Liberty®~~million, ~~and~~which ~~Advocate®. We~~is ~~assess~~included ~~goodwill~~in ~~and~~Restructuring ~~indefinite-lived~~charges ~~intangible~~on ~~assets~~our ataccompanying ~~least~~consolidated ~~annually~~statements ~~for~~of operations. The impairment orcharge ~~more~~was ~~frequently~~calculated ifbased ~~events~~on ~~occur~~the orexcess ~~circumstances~~of ~~change~~carrying ~~between~~value ~~annual~~over ~~tests that would more likely than not reduce~~ the estimated fair value of the ~~reporting~~site, ~~unit~~which ~~below~~was ~~its~~estimated ~~carrying~~based ~~amount. Goodwill~~on ispreliminary ~~evaluated~~negotiations atwith ~~the~~potential ~~reporting~~buyers ~~unit~~received ~~level~~subsequent ~~and~~to ~~has~~our ~~been~~decision ~~allocated~~ to ~~the~~shut ~~“Coated”~~down ~~segment~~the mill.

Goodwill and other intangible assets are accounted for in accordance with ASC Topic 350. Intangible assets primarily consist of trademarks, customer-related intangible assets and patents obtained through business acquisitions. We have identified the following trademarks as intangible assets with an indefinite life: Influence®, Liberty®, and Advocate®. We assess goodwill and indefinite-lived intangible assets at least annually for impairment or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Trademarks are evaluated by comparing the expected undiscounted future cash flow to their carrying values. During 2012, based on a projected reduction of revenue primarily as a result of a reduction in production capacity from the closure of the Sartell mill, we recognized a trademarks impairment charge of $3.7 million, which is included in Restructuring charges on our accompanying consolidated statements of operations.

Goodwill was evaluated at the reporting unit level and has been allocated to the “Coated” segment. We tested goodwill for impairment by applying a two-step test. The first step was to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit was less than its carrying amount, goodwill was considered impaired and the loss was measured by performing step two, which involved using a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. For reporting units with zero or negative carrying amounts, step two was required if it was more likely than not that a goodwill impairment existed. An impairment loss was recognized to the extent the implied fair value of the goodwill was less than the carrying amount of the goodwill.

During 2011, based on a combination of factors, including the difficult market conditions that resulted in a decline in customer demand and excess capacity in the coated paper markets and high raw material, energy and distribution costs that have challenged the profitability of our products, we concluded sufficient indicators existed to require us to perform an interim goodwill impairment analysis. Upon finalizing our analysis during the fourth quarter of 2011, Verso Paper recognized a goodwill impairment charge of $18.7 million and Verso Holdings recognized a goodwill impairment charge of $10.5 million. We had no goodwill remaining as of December 31, 2011.

We test goodwill for impairment by applying a two-step test. The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, goodwill is considered impaired and the loss is measured by performing step two, which involves using a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. For reporting units with zero or negative carrying amounts, step two is required if it is more likely than not that a goodwill impairment exists. An impairment loss is recognized to the extent the implied fair value of the goodwill is less than the carrying amount of the goodwill.

Management believes that the accounting estimates associated with determining fair value as part of an impairment analysis are critical accounting estimates because estimates and assumptions are made about our future performance and cash flows. The estimated fair value is generally determined on the basis of discounted future cash flows. We also consider a market-based approach and a combination of both. While management uses the best information available to estimate future performance and cash flows, future adjustments to management’s projections may be necessary if economic conditions differ substantially from the assumptions used in making the estimates.

Pension ~~Benefit~~benefit ~~Obligations~~obligations. We offer various pension plans to employees. The calculation of the obligations and related expenses under these plans requires the use of actuarial valuation methods and assumptions, including the expected long-term rate of return on plan assets, discount rates, ~~projected future compensation increases, health care cost trend rates~~ and mortality rates. Actuarial valuations and assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used.

Contingent liabilities. A liability is contingent if the outcome or amount is not presently known, but may become known in the future as a result of the occurrence of some uncertain future event. We estimate our contingent liabilities based on management’s estimates about the probability of outcomes and their ability to estimate the range of exposure. Accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated. In addition, it must be probable that the loss will be confirmed by some future event. As part of the estimation process, management is required to make assumptions about matters that are by their nature highly uncertain.

The assessment of contingent liabilities, including legal contingencies, asset retirement obligations and environmental costs and obligations, involves the use of critical estimates, assumptions, and judgments. Management’s estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that future events will not differ from management’s assessments.

Recent Accounting Developments

ASC Topic 220, Comprehensive Income. Accounting Standards Update, or “ASU,” No. ~~2011~~2013-0502, Comprehensive Income (Topic 220):, ~~Presentation~~Reporting of ~~Comprehensive~~Amounts ~~Income,~~Reclassified ~~changes~~Out ~~the~~of ~~existing~~Accumulated ~~guidance~~Other onComprehensive ~~the~~Income, ~~presentation~~requires ofadditional ~~comprehensive~~disclosure ~~income. Entities~~about ~~will have~~ the ~~option~~amounts ofbeing ~~presenting~~reclassified ~~the~~out ~~components~~ of ~~net~~Accumulated ~~income and~~ other comprehensive income in(loss), ~~either a single continuous statement of comprehensive income~~ or in“AOCI,” ~~two~~by ~~separate but consecutive statements~~component. ~~Entities~~An noentity ~~longer~~is ~~have~~required ~~the~~to ~~option~~present, ofeither ~~presenting~~on the ~~components~~face of ~~other~~the ~~comprehensive~~financial ~~income~~statements ~~within~~or in the ~~statement~~notes, ofsignificant ~~changes~~amounts inreclassified ~~stockholders’~~out ~~equity. ASU~~of ~~No.~~AOCI ~~2011-05~~by isthe ~~effective~~respective online aitems ~~retrospective~~of ~~basis~~net ~~for fiscal years~~income, ~~and~~but ~~interim~~only ~~periods~~if ~~within~~the ~~those~~amount ~~years,~~reclassified ~~beginning~~is ~~after~~required ~~December~~to ~~15,~~be ~~2011,~~reclassified ~~which~~in ~~for~~its usentirety isin the ~~first~~same ~~quarter~~reporting ~~of 2012~~period. InFor ~~December~~amounts ~~2011,~~that ~~the~~are ~~Financial~~not ~~Accounting~~required ~~Standards~~to ~~Board,~~be orreclassified ~~“FASB,”~~in ~~issued~~their ~~ASU~~entirety ~~No.~~to ~~2011-12~~net income, ~~“Comprehensive~~an ~~Income~~entity –is ~~Deferral~~required ofto ~~the~~cross-reference ~~Effective~~to ~~Date~~other ~~for~~disclosures ~~Amendments~~that toprovide ~~the~~additional ~~Presentation~~details ofabout ~~Reclassifications~~those ofamounts. ASU ~~Items~~2013-02 ~~Out~~does ofnot ~~Accumulated~~change ~~Other~~the ~~Comprehensive~~current ~~Income~~requirements infor ~~Accounting~~reporting ~~Standards~~net ~~Update~~income ~~No.~~or ~~2011-05,”~~other ~~which~~comprehensive ~~defers~~income ~~changes~~ in the financial statements. ASU No. ~~2011~~2013-0502 ~~that~~is ~~related~~effective tofor annual ~~the~~and ~~presentation~~interim ofperiods ~~reclassification~~beginning ~~adjustments.~~after ~~The~~December ~~adoption~~15, of2012; ~~the~~however, ~~remaining~~early ~~guidance~~adoption ~~provided~~is ~~in ASU No~~permitted. We ~~2011-05~~do ~~will~~not ~~result~~expect inthe aadoption ~~change to our current presentation~~ of ~~comprehensive~~this ~~income~~guidance ~~but~~to ~~will~~ have noa material impact on our consolidated financial ~~condition, results of operations, or cash flows~~statements.

ASC Topic 350, Intangibles – Goodwill and Other. ASU No. ~~2011~~2012-0802, Intangibles-—Goodwill and Other (Topic 350):, Testing ~~Goodwill~~Indefinite Lived Intangible Assets for Impairment, is intended to simplify the ~~goodwill~~guidance for impairment testing byof ~~adding~~indefinite-lived aintangible ~~qualitative~~assets ~~review~~other ~~step~~than ~~to assess whether the required quantitative impairment analysis that exists today is necessary~~goodwill. Under the new guidance, ~~entities~~an entity will ~~not~~have bethe ~~required~~option to ~~calculate~~assess ~~the~~qualitative ~~fair~~factors ~~value~~to ofdetermine awhether ~~business~~it ~~that~~is ~~contains~~necessary ~~recorded~~to ~~goodwill~~perform ~~unless~~a itquantitative ~~concludes,~~impairment ~~based~~test. onEntities ~~the~~electing ~~qualitative~~to ~~assessment,~~perform ~~that~~a itqualitative isassessment ~~more~~are ~~likely~~no ~~than~~longer ~~not~~required ~~that~~to calculate the fair value of ~~that~~an ~~business~~indefinite-lived isintangible ~~less~~asset ~~than~~unless ~~its~~the ~~book~~entity ~~value. If~~determines, ~~such~~based on a ~~decline~~qualitative inassessment, ~~fair~~that ~~value~~it is ~~deemed~~ “more likely than not” tothat ~~have occurred, then~~ the ~~quantitative~~asset ~~goodwill impairment test prescribed by current accounting principles must be completed; otherwise, goodwill~~ is ~~deemed to be not~~ impaired ~~and no further testing is required until the next annual test date (or sooner if conditions or events before that date raise concerns of potential impairment in the business)~~. ~~The amended goodwill impairment guidance does not affect the manner in which a company estimates fair value.~~ ASU No. ~~2011~~2012-0802 is effective for annual and interim ~~goodwill~~ impairment tests performed byin usfiscal years beginning ~~January~~after 1September 15, 2012~~. Earlier~~; however, early adoption is permitted. We do not expect the adoption of this guidance to have any impact on our consolidated financial statements.

ASC Topic 820, Fair Value Measurements and Disclosures. ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, provides clarifying guidance on how to measure fair value and additional disclosure requirements. The update does not extend the use of fair value accounting, but does provide guidance on how it should be applied where it is already required or permitted under current U.S. GAAP. ASU No. 2011-04 is effective for annual and interim periods beginning after December 15, 2011, which for us is January 1, 2012, and will not have a material impact on our consolidated financial statements.31

Other new accounting pronouncements issued but not effective until after December 31, ~~2011~~2012, are not expected to have a significant effect on our consolidated financial statements.

Financial Overview

In ~~2011~~2012, net sales ~~increased~~decreased 714.34%, or $~~117~~247.29 million, as sales ~~prices improved while sales~~ volume decreased 11.1% compared to ~~2010. The~~2011, ~~average~~which ~~sales~~was ~~price~~driven ~~for~~by ~~all~~the shutdown of ~~our~~three ~~products~~paper ~~increased~~machines ~~9.4%~~late ~~compared~~last toyear ~~2010~~and ~~but began to level off by~~ the ~~end~~closure of ~~2011~~the asSartell ~~sales~~mill ~~prices~~in ~~for~~ the ~~fourth~~third quarter of ~~2011~~this ~~decreased 1~~year.0% The ~~from~~average ~~the~~sales ~~third~~price ~~quarter~~for all of ~~2011. Sales~~our ~~volume~~products ~~was~~decreased ~~down 2~~3.07% in ~~2011~~2012 compared to ~~2010~~2011, ~~primarily~~but ~~due~~began to ~~lower~~level ~~sales~~off ~~volume~~by ~~during~~ the ~~first~~end ~~half~~ of ~~the~~2012 ~~year,~~as ~~while fourth quarter~~ sales ~~volume~~prices ~~increased~~for ~~6.2% compared to~~ the fourth quarter of ~~2010~~2012 ~~and~~ remained ~~level~~flat ~~with~~compared to the ~~seasonally strong~~ third quarter of ~~2011~~2012. Our gross margin ~~increased~~was ~~to 15~~13.27% in ~~2011~~2012 ~~from~~compared 12to 15.12% in ~~2010~~2011, reflecting ~~the~~higher ~~increase~~average in sales prices during 2011.

Verso Paper’s Adjusted EBITDA (before the pro forma effects of the profitability program) was $140.1 in 2012 compared to $202.5 million in 2011. (Note: EBITDA and Adjusted EBITDA are non-GAAP financial measures and are defined and reconciled to cash flows from operating activities later in this report). EBITDA adjustments (excluding the pro forma effect of the profitability program) of $61.7 million in 2012 included restructuring charges of $102.4 million, net losses of $8.2 million related to the early retirement of debt in connection with our debt refinancing, and $52.6 million of gains from insurance settlement due to the fire and explosion at our Sartell mill. EBITDA adjustments (excluding the pro forma effect of the profitability program) of $87.6 million in 2011 included restructuring charges of $24.5 million, net losses of $26.1 million related to the early retirement of debt in connection with our debt refinancing, goodwill impairment of $18.7 million, and $7.5 million of losses recognized due to the de-designation of certain energy-related derivative contracts.

In 2012, Verso Paper reported a net loss of $173.8 million, or $3.29 per diluted share, and operating loss of $32.4 million. Impacting the results for 2012 were the restructuring costs associated with the closure of our Sartell mill, losses related to debt refinancing, and gains from insurance settlement due to the fire and explosion at our Sartell mill. In 2011, Verso Paper reported a net loss of $137.1 million, or $2.61 per diluted share, and operating income of $15.7 million. Impacting the results for 2011 were the restructuring costs associated with the shutdown of three paper machines, losses related to debt refinancing, goodwill impairment, and unrealized losses on hedging transactions.

In 2012, we completed a comprehensive assessment of the damage resulting from the fire and explosion at our paper mill in Sartell, Minnesota, and announced the decision to permanently close the mill. The permanent closure of the Sartell mill reduced our annual coated groundwood paper capacity by 180,000 tons, or approximately 20%, and eliminated approximately 35,000 tons annually of supercalendered paper capacity. In conjunction with the closure, our workforce was reduced by approximately 265 employees. The closure of Sartell resulted in charges of $102.4 million in 2012.

We continued to focus on improving our capital structure in 2012. On April 30, 2012, we completed the refinancing of $315.0 million aggregate principal amount of 11.5% Senior Secured Notes due 2014, which were replaced with $345.0 million aggregate principal amount of 11.75% Senior Secured Notes due 2019. On May 4, 2012, we entered into new revolving credit facilities consisting of a $150.0 million asset-based loan facility or “ABL Facility,” and a $50.0 million cash-flow facility or “Cash Flow Facility.” The revolving credit facilities, which mature on May 4, 2017 (subject to certain exceptions), replace our prior $200.0 million revolving credit facility which was scheduled to mature on August 1, 2012. On May 11, 2012, we successfully completed exchange offers for $166.9 million aggregate principal amount of our Second Priority Senior Secured Floating Rate Notes due 2014 and for $157.5 million aggregate principal amount of our 11.38% Senior Subordinated Notes due 2016. The exchanged notes were replaced with a total of $271.6 aggregate principal amount of 11.75% Secured Notes due 2019. The cumulative effect of our debt refinancings was to extend the average maturity of our debt securities and revolving credit facilities by more than two years.

~~Verso~~Additionally, ~~Paper’s~~on ~~Adjusted~~January ~~EBITDA~~31, ~~(before~~2013, ~~the~~Verso ~~pro~~Holdings ~~forma~~issued ~~effects~~an ofadditional ~~the profitability program) was~~ $~~202~~72.59 million inaggregate ~~2011~~principal ~~compared~~amount toof ~~$132.1~~its ~~million in 2010~~11. ~~(Note:~~75% ~~EBITDA~~Senior ~~and~~Secured ~~Adjusted~~Notes ~~EBITDA~~due ~~are~~2019 ~~non-GAAP financial measures and are defined and reconciled~~ to ~~cash~~certain ~~flows~~lenders ~~from~~holding ~~operating~~approximately ~~activities later in this report)~~$85. ~~EBITDA~~8 ~~adjustments~~million ~~(excluding~~aggregate ~~the~~principal ~~pro~~amount ~~forma effect~~ of ~~the~~Verso ~~profitability~~Finance’s ~~program)~~Senior ofUnsecured ~~$87.6~~Term ~~million~~Loans, inand ~~2011~~net ~~included~~accrued ~~restructuring~~interest ~~charges~~through ofthe ~~$24.5~~closing ~~million~~date, ~~net~~in ~~losses~~exchange offor ~~$26.1~~the ~~million~~assignment ~~related~~ to ~~the~~Verso ~~early~~Finance ~~retirement~~ of ~~debt~~its inSenior ~~connection~~Unsecured ~~with~~Term ~~our~~Loans ~~debt refinancing, goodwill impairment of $18.7 million,~~ and ~~$7.5 million of losses recognized due to~~ the ~~de-designation~~cancellation of ~~certain~~such ~~energy-related derivative contracts~~loans. ~~EBITDA~~There ~~adjustments~~are ~~(excluding~~no ~~the~~longer ~~pro~~any ~~forma~~outstanding ~~effect~~Senior ofUnsecured ~~the~~Term ~~profitability program) of $7~~Loans.~~7 million in 2010 were primarily related to new product development.~~

In 2011 Verso Paper reported a net loss of $137.1 million, or $2.61 per diluted share, and operating income of $15.7 million. Impacting the results for 2011 were the restructuring costs associated with the shutdown of three paper machines, losses related to debt refinancing, goodwill impairment, and unrealized losses on hedging transactions. In 2010 Verso Paper reported a net loss of $131.1 million, or $2.50 per diluted share, and an operating loss of $3.9 million.

During 2011 we permanently shut down the No. 2 coated groundwood paper machine at our mill in Bucksport, Maine, and two supercalendered paper machines at our mill in Sartell, Minnesota, thereby reducing our annual production capacity by 193,000 tons. In conjunction with these closures, the Bucksport mill’s workforce was reduced by approximately 125 employees and the Sartell mill’s workforce was reduced by approximately 175 employees. The paper machine shutdowns resulted in charges of $24.5 million in the fourth quarter of 2011, of which approximately $10 million is expected to be cash expenditures in the first quarter of 2012. Additionally, Verso Paper and Verso Holdings recognized goodwill impairment charges of $18.7 million and $10.5 million, respectively, which represent a write-off of the full balance of goodwill.

We continue to develop and execute our renewable energy strategy. All of our previously announced energy projects are on schedule and are expected to be completed by the fourth quarter of 2012. In January 2012, we completed a $45 million renewable energy project at our mill in Quinnesec, Michigan. The project is delivering 28 megawatts of additional green energy for consumption within the mill, which is equivalent to the amount of electricity consumed by 21,000 homes in a year. We expect to realize a total positive annual EBITDA impact of approximately $50 million when all the projects are completed. Our capital expenditures increased to $90.3 million in 2011 compared to $73.6 million in 2010, reflecting our investment in these projects. Approximately $24.8 million of the capital expenditures in 2011 were funded from cash restricted for use on the Quinnesec renewable energy project.

Results of Operations

The following table sets forth certain consolidated financial information for the years ended December 31, ~~2011~~2012, ~~2010~~2011, and ~~2009~~2010. Cost of sales in the following table and discussion includes the cost of products sold and depreciation, amortization, and depletion. The following table and discussion should be read in conjunction with the information contained in our consolidated financial statements and the related notes thereto included elsewhere in this annual report.

	VERSO PAPER									VERSO HOLDINGS
	Year Ended December 31,									Year Ended December 31,
(Dollars in thousands)	2012			2011			2010			2012			2011			2010
Net sales	$	1,474,612		$	1,722,489		$	1,605,316		$	1,474,612		$	1,722,489		$	1,605,316
Costs and expenses:
Cost of products sold - (exclusive of
depreciation, amortization, and depletion)		1,272,630			1,460,290			1,410,770			1,272,630			1,460,290			1,410,770
Depreciation, amortization, and depletion		118,178			125,295			127,367			118,178			125,295			127,367
Selling, general, and administrative expenses		74,415			78,059			71,043			74,364			78,007			70,989
Goodwill impairment		-			18,695			-			-			10,551			-
Restructuring charges		102,404			24,464			-			102,404			24,464			-
Total operating expenses		1,567,627			1,706,803			1,609,180			1,567,576			1,698,607			1,609,126
Other operating income		(60,594	)		-			-			(60,594	)		-			-
Operating (loss) income		(32,421	)		15,686			(3,864	)		(32,370	)		23,882			(3,810	)
Interest income		(8	)		(99	)		(120	)		(1,523	)		(1,614	)		(124	)
Interest expense		135,461			126,607			128,077			127,943			122,213			122,528
Other loss (income), net		7,379			26,042			(884	)		7,380			25,812			(734	)
Loss before income taxes		(175,253	)		(136,864	)		(130,937	)		(166,170	)		(122,529	)		(125,480	)
Income tax (benefit) expense		(1,424	)		197			145			-			-			-
Net loss	$	(173,829	)	$	(137,061	)	$	(131,082	)	$	(166,170	)	$	(122,529	)	$	(125,480	)

2012 Compared to 2011

Net sales. Net sales for 2012 decreased 14.4% to $1,474.6 million from $1,722.5 million in 2011, reflecting an 11.1% decrease in total sales volume, which was driven by the shutdown of three paper machines late last year and the closure of the Sartell mill in the third quarter of this year. Additionally, the average sales price for all of our products decreased 3.7%, led by a decline in the price of pulp.

Net sales for our coated papers segment decreased 17.0% to $1,177.1 million in 2012, from $1,418.8 million in 2011. This change reflects a 15.3% decrease in paper sales volume, which was driven by the shutdown of three paper machines late last year and the closure of the Sartell mill in the third quarter of this year. The average sales price per ton of coated paper decreased 2.1% compared to the prior year.

	VERSO PAPER									VERSO HOLDINGS
	Year Ended December 31,									Year Ended December 31,
(Dollars in thousands)	2011			2010			2009			2011			2010			2009
Net sales	$	1,722,489		$	1,605,316		$	1,360,854		$	1,722,489		$	1,605,316		$	1,360,854
Costs and expenses:
Cost of products sold - (exclusive of
depreciation, amortization, and depletion)		1,460,290			1,410,770			1,242,743			1,460,290			1,410,770			1,242,743
Depreciation, amortization, and depletion		125,295			127,367			132,682			125,295			127,367			132,682
Selling, general, and administrative expenses		78,059			71,043			61,889			78,007			70,989			61,655
Goodwill impairment		18,695			-			-			10,551			-
Restructuring and other charges		24,464			-			979			24,464			-			979
Total operating expenses		1,706,803			1,609,180			1,438,293			1,698,607			1,609,126			1,438,059
Operating income (loss)		15,686			(3,864	)		(77,439	)		23,882			(3,810	)		(77,205	)
Interest income		(99	)		(120	)		(246	)		(1,614	)		(124	)		(241	)
Interest expense		126,607			128,077			123,365			122,213			122,528			116,130
Other (income) loss, net		26,042			(884	)		(307,307	)		25,812			(734	)		(273,796	)
Income (loss) before income taxes		(136,864	)		(130,937	)		106,749			(122,529	)		(125,480	)		80,702
Income tax expense		197			145			746			-			-			-
Net income (loss)	$	(137,061	)	$	(131,082	)	$	106,003		$	(122,529	)	$	(125,480	)	$	80,702

Net sales for our market pulp segment decreased 6.2% to $140.8 million in 2012, from $150.1 million in 2011. This decrease was due to a 10.7% decline in the average sales price per ton while sales volume increased 5.0% compared to 2011.

Net sales for our other segment increased 2.1% to $156.7 million in 2012, from $153.6 million in 2011. The improvement in 2012 is due to a 4.2% increase in sales volume, reflecting the continued development of new paper product offerings for our customers. The average sales price per ton decreased 2.0% compared to 2011.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $1,390.8 million in 2012, compared to $1,585.6 million in 2011, reflecting realized cost reductions from the shutdown of three paper machines late last year and the closure of the Sartell mill in the third quarter of this year. Our gross margin, excluding depreciation, amortization, and depletion, was 13.7% for 2012, compared to 15.2% for 2011, reflecting lower average sales prices during 2012. Depreciation, amortization, and depletion expenses were $118.2 million for 2012, compared to $125.3 million for 2011.

Selling, general, and administrative. Selling, general, and administrative expenses were $74.4 in 2012, compared to $78.0 million in 2011.

Restructuring charges. Restructuring charges for 2012 were $102.4 million, and consisted primarily of fixed asset and other impairment charges of $77.1 million and severance and benefit costs of $19.4 million related to the closure of the Sartell mill. Restructuring charges of $24.5 million in 2011 reflected the permanent shut down of the No. 2 coated groundwood paper machine at our mill in Bucksport, Maine, and two supercalendered paper machines at our mill in Sartell, Minnesota.

Other operating income. Other operating income in 2012 reflected insurance proceeds in excess of costs and property damages incurred of $60.6 million, as we reached a final settlement agreement with our insurance provider for property and business losses resulting from the fire and explosion at our Sartell mill.

Interest expense. Verso Paper’s interest expense for 2012 was $135.4 million, compared to $126.6 million for 2011. Verso Holdings’ interest expense for 2012, was $127.9 million compared to $122.2 million for 2011.

Other loss, net. Verso Paper’s other loss, net for 2012 was $7.4 million, compared to a net loss of $26.1 million for 2011. Verso Holdings other loss, net for 2012 was $7.4 million, compared to a net loss of $25.8 million for 2011. Included in the results for 2012 and 2011 were losses of $8.2 million and $26.1 million, respectively, related to the early retirement of debt in connection with debt refinancing.

Income tax (benefit) expense. Income tax benefit for 2012 of $1.4 million resulted from a reduction in the deferred tax liability related to the non-cash trademark impairment charge that was taken as a result of a reduction in production capacity from the closure of the Sartell mill.

2011 Compared to 2010

Net ~~Sales~~sales. Net sales for 2011 increased 7.3% to $1,722.5 million from $1,605.3 million in 2010, as the average sales price for all of our products increased 9.4%, reflecting price increases implemented during 2010 and at the beginning of the second quarter of 2011. This positive impact was partially offset by a 2.0% decline in total sales volume during 2011 compared to 2010.

Net sales for our coated ~~and supercalendered~~ papers segment increased 7.9% to $1,418.8 million in 2011 from $1,315.0 million in 2010. This improvement reflects a 10.7% increase in the average paper sales price per ton in 2011 while paper sales volume decreased 2.5% in 2011 compared to 2010.

Net sales for our market pulp segment decreased 9.0% to $150.1 million in 2011 from $164.9 million in 2010, reflecting a 6.0% decrease in the average sales price per ton combined with a 3.2% decrease in sales volume compared to 2010.

Net sales for our other segment increased 22.5% to $153.6 million in 2011 from $125.4 million in 2010. The improvement in 2011 is due to a 14.9% increase in the average sales price per ton combined with a 6.6% increase in sales volume in 2011 compared to 2010.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $1,585.6 million in 2011 compared to $1,538.2 million in 2010. Our gross margin, excluding depreciation, amortization, and depletion, was 15.2% for 2011 compared to 12.1% for 2010, reflecting higher average sales prices during 2011. Depreciation, amortization, and depletion expenses were $125.3 million for 2011, compared to $127.4 million for 2010.

Selling, general, and administrative. Selling, general, and administrative expenses were $78.0 million for both Verso Paper and Verso Holdings in 2011 compared to $71.0 million and 70.9 million, respectively, in 2010, primarily due to inflation of personnel related costs and certain non-recurring costs including professional fees and severance.

Goodwill impairment. In 2011, Verso Paper and Verso Holdings recognized goodwill impairment charges of $18.7 million and $10.5 million, respectively, which represent a write-off of the full balance of goodwill.

34Restructuring charges. Restructuring charges of $24.5 million in 2011 reflected the permanent shut down of the No. 2 coated groundwood paper machine at our mill in Bucksport, Maine, and two supercalendered paper machines at our mill in Sartell, Minnesota. These charges include $15.0 million of severance and benefit costs, $7.1 million of accelerated depreciation, and $2.3 million due to write-off of spare parts and inventory.

~~Restructuring~~Interest ~~and other charges~~expense. ~~Restructuring~~ Interest ~~and~~expense ~~other~~for ~~charges~~Verso ofPaper was $24126.56 million in 2011, ~~reflect~~compared ~~the~~to ~~permanent shut down of the No~~$128.1 2million ~~coated groundwood paper machine at our mill~~ in ~~Bucksport, Maine, and two supercalendered paper machines at our mill in Sartell, Minnesota~~2010. ~~These~~Interest ~~charges~~expense ~~include~~for ~~$15.0~~Verso ~~million~~Holdings ofwas ~~severance and benefit costs,~~ $7122.12 million ofin ~~accelerated depreciation~~2011, ~~and~~compared to $2122.35 million ~~due~~in ~~to write-off of spare parts and inventory~~2010.

~~Interest~~Other ~~expense. Interest~~(income) ~~expense~~loss, ~~for~~net. In 2011, Verso Paper ~~was~~had other losses, net of $~~126~~26.61 million inand ~~2011~~Verso Holdings had other losses, net of $25.8 million compared to other income, net of $~~128~~0.19 million inand ~~2010~~$0. ~~Interest~~7 ~~expense~~million for Verso Paper and Verso Holdings, ~~was~~respectively, in 2010. Included in the results for 2011 were $~~122~~26.21 million in ~~2011~~pre-tax ~~compared~~net losses related to ~~$122.5~~the ~~million~~early retirement of debt in ~~2010~~connection with our debt refinancing.

Other (income) loss, net. In 2011 Verso Paper had other losses, net of $26.1 million and Verso Holdings had other losses, net of $25.8 million for Verso Holdings compared to other income, net of $0.9 million and $0.7 million for Verso Paper and Verso Holdings, respectively, in 2010. Included in the results for 2011 were $26.1 million in pre-tax net losses related to the early retirement of debt in connection with our debt refinancing.

2010 Compared to 2009

Net Sales. Net sales for 2010 increased 18.0% to $1,605.3 million from $1,360.9 million, as total sales volume increased 19.7% compared to 2009, reflecting improved economic conditions. This increase was partially offset by a 1.4% decline in the average sales price per ton for all of our products, primarily reflecting the decline of coated paper prices throughout 2009 and into early 2010.

Net sales for our coated and supercalendered papers segment increased 9.7% to $1,315.0 million in 2010 from $1,198.8 million in 2009. This improvement reflects a 16.9% increase in paper sales volume, while the average paper sales price per ton for 2010 decreased 6.2% compared to 2009.

Net sales for our market pulp segment increased 57.8% to $164.9 million in 2010 from $104.5 million in 2009. This increase was due to a 47.6% increase in average sales price per ton combined with a 6.9% increase in sales volume compared to 2009.

Net sales for our other segment increased 117.9% to $125.4 million in 2010 from $57.6 million in 2009. The improvement in 2010 is due to a 124.0% increase in sales volume, reflecting the development of new paper product offerings for our customers. Partially offsetting this increase was a 2.7% decrease in the average sales price per ton compared to 2009.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, increased 11.8% to $1,538.2 million in 2010 from $1,375.4 million in 2009, primarily reflecting the increase in sales volume. Our gross margin, excluding depreciation, amortization, and depletion, was 12.1% for 2010 compared to 8.7% for 2009, reflecting $74.9 million of unabsorbed costs resulting from approximately 340,000 tons of market downtime, as we curtailed production in response to weak demand for coated papers in 2009. Depreciation, amortization, and depletion expenses were $127.4 million for 2010, compared to $132.7 million for 2009.

Selling, general, and administrative. Selling, general, and administrative expenses were $71.0 million for Verso Paper and $70.9 million for Verso Holdings in 2010, up from $61.9 million for Verso Paper and $61.7 million for Verso Holdings in 2009, mainly due to cost remediation efforts in 2009 associated with challenging economic conditions. Selling, general, and administrative expenses for 2010 reflect a return to more normal levels and are consistent with the amounts incurred in 2008, excluding costs associated with our IPO.

Interest expense. Interest expense for Verso Paper was $128.1 million in 2010 compared to $123.4 million in 2009. The increase in interest expense was primarily due to higher interest rates on outstanding debt in 2010. Interest expense for Verso Holdings was $122.5 million in 2010 compared to $116.1 million in 2009. The increase in interest expense was primarily due to higher interest rates on outstanding debt in 2010.

Other (income) loss, net. Other income, net was $0.9 million for Verso Paper and $0.7 million for Verso Holdings in 2010 compared to $307.3 million and $273.8 million for Verso Paper and Verso Holdings, respectively, in 2009. Included in the results for 2009 were $238.9 million in net benefits from alternative fuel mixture tax credits provided by the U.S. government for our use of black liquor in alternative fuel mixtures. Additionally, Verso Paper and Verso Holdings recognized $64.8 million and $31.3 million, respectively, in net gains related to the early retirement of debt.

Reconciliation of Cash Flows from Operating Activities to Adjusted EBITDA

EBITDA consists of earnings before interest, taxes, depreciation, and amortization. EBITDA is a measure commonly used in our industry, and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as ~~one~~a ~~criterion~~way ~~for~~of evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies. ~~Adjusted~~ ~~EBITDA~~See ~~is EBITDA further adjusted to exclude unusual items and other pro forma adjustments permitted in calculating covenant compliance under the indentures governing~~ our ~~notes. Adjusted~~reconciliation ~~EBITDA aligns the mark-to-market impact~~ of ~~economic~~EBITDA ~~hedge contracts used~~ to ~~hedge a portion of future natural gas purchases with the period in which they settle and reflects the amount of~~ net ~~cost~~income ~~savings~~provided ~~projected to be realized as a result of specified activities taken during the preceding 12-month period. We believe that the inclusion of the supplemental adjustments applied~~ in ~~calculating~~Item Adjusted EBITDA are reasonable and appropriate to provide additional information to investors to demonstrate our compliance with our financial covenants. We also believe that Adjusted EBITDA is a useful liquidity measurement tool for assessing our ability to meet our future debt service6, ~~capital~~Selected ~~expenditures,~~Financial ~~and working capital requirements~~Data.

~~However,~~Adjusted EBITDA ~~and~~is ~~Adjusted~~ EBITDA ~~are~~further adjusted to eliminate the impact of certain items that we do not ~~measurements~~consider to be indicative of ~~financial~~the performance of our ongoing operations permitted in calculating covenant compliance under ~~U.S.~~the ~~GAAP,~~indentures ~~and~~governing our ~~EBITDA~~debt ~~and~~ securities. Adjusted EBITDA ~~may~~is ~~not~~modified beto ~~comparable~~align the mark-to-market ~~similarly~~impact ~~titled~~of ~~measures~~derivative contracts used to economically hedge a portion of ~~other~~future ~~companies~~natural gas purchases with the period in which the contracts settle. You ~~should~~are encouraged to evaluate each adjustment and to consider ~~our~~whether the adjustment is appropriate. In addition, in evaluating adjusted EBITDA, ~~and~~you should be aware that in the future, we may incur expenses similar to the adjustments included in the presentation of Adjusted EBITDA. We believe that the supplemental adjustments applied in ~~addition~~calculating ~~to,~~Adjusted ~~and~~EBITDA ~~not~~are asreasonable aand ~~substitute~~appropriate ~~for~~to orprovide ~~superior~~additional information to, ~~our~~investors. We ~~operating~~also orbelieve ~~net~~that ~~income~~Adjusted orEBITDA ~~cash~~is ~~flows~~a ~~from~~useful ~~operating~~liquidity ~~activities~~measurement tool for assessing our ability to meet our future debt service, ~~determined~~capital inexpenditures, ~~accordance~~and ~~with~~working ~~U.S.~~capital ~~GAAP~~requirements.

3635

However, EBITDA and Adjusted EBITDA are not measurements determined in accordance with GAAP and are susceptible to varying calculations, EBITDA and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. You should consider our EBITDA and Adjusted EBITDA in addition to, and not as a substitute for or superior to, our operating or net income or cash flows from operating activities, determined in accordance with GAAP.

The following table reconciles cash flows from operating activities to EBITDA and Adjusted EBITDA for the periods presented:

	Verso Paper
	Year Ended December 31,
(Dollars in millions)	~~2011~~2012			~~2010~~2011			~~2009~~2010
Cash flows from operating activities	$	1412.50		$	7314.5		$	~~177~~73.25
Income tax expense		0(1.24	)		0.12			0.81
Amortization of debt issuance costs		(5.43	)		(5.74	)		(5.87	)
Accretion of discount on long-term debt		(4.1.4	)		(34.71	)		(23.17	)
Loss (gain) on early extinguishment of debt, net		(26.1	)		0.3			64.8
(Loss) gain on early extinguishment of debt, net		(8.2	)		(26.1	)		0.3
Goodwill impairment		(18.7	)		-			-
Asset impairment		(77.4	)		-			-
Equity award expense		(2.4	)		(1.7	)		(0.6	)
Goodwill impairment		-			(18.7	)		-
Interest income		(0.1	)		(0.1	)		(0.3	)
Equity award expense		(2.7	)		(2.4	)		(1.7	)
Interest expense		126.6			128.1			123.4
Interest income		-			(0.1	)		(0.1	)
Other, net		(1.3	)		4.7			(28.4	)
Interest expense		135.5			126.6			128.1
Changes in assets and liabilities, net		31.7			(71.1	)		33.6
Gain (loss) on disposal of fixed assets		45.7			(0.3	)		-
EBITDA		114.9			124.4			362.6
Other, net		5.0			(1.0	)		4.7
Alternative fuel tax credit(1)		-			-			(238.9	)
Changes in assets and liabilities, net		(23.4	)		31.7			(71.1	)
Loss (gain) on early extinguishment of debt, net(2)		26.1			(0.3	)		(64.8	)
EBITDA		78.4			114.9			124.4
Goodwill impairment(3)		18.7			-			-
Restructuring charges(1)		102.4			24.5			-
Restructuring and other charges(4)		24.5			-			1.0
Gain on insurance settlement (2)		(52.6	)		-			-
Hedge losses(5)		7.5			-			-
Goodwill impairment(3)		-			18.7			-
Equity award expense(6)		2.4			1.7			0.6
Loss (gain) on early extinguishment of debt, net(4)		8.2			26.1			(0.3	)
Other items, net(7)		8.4			6.3			16.2
Hedge (gains) losses (5)		(3.7	)		7.5			-
Adjusted EBITDA before pro forma effects of profitability program		202.5			132.1			76.7
Equity award expense(6)		2.7			2.4			1.7
Pro forma effects of profitability program(8)		68.3			55.9			50.5
Other items, net(7)		4.7			8.4			6.3
Adjusted EBITDA	$	270.8		$	188.0		$	127.2
Adjusted EBITDA before pro forma effects of profitability program	$	140.1		$	202.5		$	132.1

(1)	Represents ~~earnings~~costs ~~from~~associated ~~thte~~with ~~federal~~the ~~government's~~closure ~~program~~of ~~which~~the ~~provides~~Sartell ~~incentives~~mill ~~for~~in 2012 and the ~~use~~shutdown of ~~alternative~~three ~~fuels~~paper machines in 2011.
(2)	Represents ~~net~~gain ~~losses~~on ~~(gains)~~insurance ~~recognized~~settlement resulting from the ~~early~~fire ~~extinguishment~~at ofour ~~debt,~~Sartell ~~net of hedge results~~mill.
(3)	Represents impairment of goodwill allocated to the coated ~~and supercalendered~~ paper segment.
(4)	Represents ~~costs~~net ~~associated~~loss ~~with~~(gain) ~~the shut-down of three paper machines in 2011 and transition costs~~ related to ~~the~~debt ~~Acquisition in 2009~~refinancing.
(5)	Represents ~~losses~~unrealized ~~recognized~~(gains) ~~due~~losses toon ~~the de-designation of certain~~ energy-related derivative contracts.
(6)	Restructuring includes transition and other non-recurring costs associated with the Acquisition as per our financial statements.
(6)	Represents amortization of non-cash incentive compensation.
(7)	Represents ~~earnings~~miscellaneous ~~adjustments~~non-cash ~~for product development costs~~ and other ~~miscellaneous~~earnings ~~non-recurring items~~adjustments.
(8)	Represents cost savings expected to be realized as part of our cost savings program.

Seasonality

We are exposed to fluctuations in quarterly net sales volumes and expenses due to seasonal factors. These seasonal factors are common in the coated paper industry. Typically, the first two quarters are our slowest quarters due to lower demand for coated paper during this period. Our third quarter is generally our strongest quarter, reflecting an increase in printing related to end-of-year magazines, increased end-of-year direct mailings, and holiday season catalogs. Our working capital and accounts receivable generally peak in the third quarter, while inventory generally peaks in the second quarter in anticipation of the third quarter season. We expect our seasonality trends to continue for the foreseeable future.

3736

Liquidity and Capital Resources

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 December 31, 2012, $141.9 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 an amount 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 enhancement and expense reduction initiatives. Management has developed a company-wide cost reduction program and expects to yield approximately $46 million of additional cost reductions, of which, approximately $34 million are expected to be realized in 2013, and the remaining $12 million are expected to be realized in 2014. We continue to search for and develop additional cost savings measures.

WeVerso ~~rely~~Paper’s ~~primarily~~and ~~upon~~Verso Holdings’ cash ~~flow~~flows from ~~operations and borrowings under our revolving credit facility to finance operations~~operating, ~~capital~~investing ~~expenditures,~~ and ~~fluctuations~~financing ~~in debt service requirements. As of December 31~~activities, ~~2011,~~as ~~$159.2~~reflected ~~million was available for future borrowing under our revolving credit facility. Our current revolving credit facility matures~~ in ~~August~~the ~~2012,~~accompanying ~~but~~consolidated westatements ~~have obtained $100 million~~ of commitments for a new accounts receivable securitization facility and $55 million of commitments to provide a new, and/or extend our existing, revolving credit facility. 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 facility (including any replacement facilities) in an amount sufficient to fund our liquidity needs. As we focus on managing our expenses and cash flows, weare ~~continue~~summarized to assess and implement, as appropriate, various earnings enhancement and expense reduction initiatives. Management has developed a company-wide cost reduction program, which it expects to yield an additional $68 million in ~~cost~~the ~~reductions~~following ~~and continues to search for and develop additional cost savings measures~~table.

Verso Paper’s and Verso Holdings’ cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table.

	VERSO PAPER									VERSO HOLDINGS
	Year Ended December 31,									Year Ended December 31,
(Dollars in thousands)	2012			2011			2010			2012			2011			2010
Net cash provided by (used in):
Operating activities	$	12,008		$	14,511		$	73,480		$	11,302		$	14,562		$	75,821
Investing activities		(7,069	)		(66,205	)		(98,266	)		(7,069	)		(66,205	)		(98,266	)
Financing activities		(38,283	)		(6,217	)		25,469			(37,558	)		(6,268	)		25,389
Net change in cash and cash equivalents	$	(33,344	)	$	(57,911	)	$	683		$	(33,325	)	$	(57,911	)	$	2,944

	VERSO PAPER									VERSO HOLDINGS
	Year Ended December 31,									Year Ended December 31,
(Dollars in thousands)	2011			2010			2009			2011			2010			2009
Net cash provided by (used in):
Operating activities	$	14,511		$	73,480		$	177,156		$	14,562		$	75,821		$	180,135
Investing activities		(66,205	)		(98,266	)		(34,133	)		(66,205	)		(98,266	)		(34,133	)
Financing activities		(6,217	)		25,469			(110,468	)		(6,268	)		25,389			(115,760	)
Net change in cash and cash equivalents	$	(57,911	)	$	683		$	32,555		$	(57,911	)	$	2,944		$	30,242

Operating activities. In 2012, Verso Paper’s net cash provided by operating activities of $12.0 million reflects a net loss of $173.8 million adjusted for non-cash depreciation, amortization, depletion, and accretion and non-cash losses on early extinguishment of debt and asset impairment charges totaling $210.5 million and a decrease in working capital of $31.2 million, which was primarily due to decreases in inventory and accounts receivable. In 2011, Verso Paper’s net cash provided by operating activities of $14.5 million reflects a net loss of $137.1 million adjusted for non-cash depreciation, amortization, depletion, and accretion and non-cash losses on early extinguishment of debt and goodwill impairment totaling $186.6 million and an increase in working capital of $40.5 million, which was primarily due to increases in inventory and accounts receivable. Verso Paper’s net cash provided by operating activities of $73.5 million in 2010 was primarily attributable to a net loss of $131.1 million adjusted for non-cash depreciation, amortization, depletion, and accretion charges of $136.7 million and cash provided by improvements in working capital of $55.5 million. Cash flows from working capital increased primarily due to planned reductions in inventory levels; increased accounts payable reflecting the higher sales volume in 2010; and higher accrued liabilities. Verso Holdings’ operating cash flows are the same as those of Verso Paper in all material respects.

~~Operating~~Investing activities. In ~~2011~~2012, Verso Paper’s net cash ~~provided~~used byin ~~operating~~investing activities of $147.51 million reflects ~~a net loss of~~ $~~137~~59.19 million ~~adjusted~~in ~~for~~capital ~~non-cash~~expenditures ~~depreciation,~~net ~~amortization, depletion, and accretion and non-cash losses on early extinguishment~~ of ~~debt and goodwill impairment totaling~~ $~~186~~14.67 million ~~and~~received anfrom ~~increase~~governmental ingrants ~~working~~associated ~~capital~~with ofa ~~$40.5~~renewable ~~million,~~energy ~~which~~project ~~was~~at ~~primarily~~our ~~due~~mill ~~to increases~~ in ~~inventory~~Quinnesec, Michigan and ~~accounts receivable. Verso Paper’s net cash provided by operating activities of~~ $7351.50 million in ~~2010~~proceeds ~~was primarily~~ attributable to ~~a net loss of $131.1 million adjusted for non-cash depreciation~~property, ~~amortization,~~plant ~~depletion,~~ and ~~accretion~~equipment ~~charges~~from ofthe ~~$136.7~~insurance ~~million~~settlement ~~and~~related ~~cash~~to ~~provided~~the byfire ~~improvements~~at inour ~~working~~Sartell ~~capital~~mill. This ofcompares to $5566.52 million~~. Cash~~ ~~flows~~of ~~from~~net ~~working~~cash ~~capital~~used ~~increased primarily due to planned reductions~~ in ~~inventory~~investing ~~levels;~~activities ~~increased accounts payable reflecting the higher sales volume~~ in ~~2010;~~2011, ~~and~~which ~~higher~~reflects ~~accrued liabilities. Verso Paper’s net cash provided by operating activities of~~ $~~177~~90.23 million in ~~2009~~capital ~~was~~expenditures ~~primarily attributable to~~ net ~~income~~ of $~~106~~24.08 million ~~combined~~in ~~with~~funds ~~adjustments~~transferred offrom ~~$75.7~~restricted ~~million~~cash for ~~the~~use ~~impact of non-cash depreciation, amortization, depletion, and accretion charges net of non-cash gains~~ on ~~the~~a ~~early~~renewable ~~retirement~~energy ofproject ~~debt. Net~~at ~~income~~our mill in ~~2009~~Quinnesec, ~~includes~~Michigan, and $~~238~~98.93 million inof net ~~benefits~~cash ~~from~~used ~~alternative~~in ~~fuel~~investing ~~mixture~~activities ~~tax~~in ~~credits~~2010, ~~provided~~which byincluded ~~the U~~$73.S.6 ~~government~~million ~~for our use~~ of ~~black~~capital ~~liquor~~expenditures ~~in alternative fuel mixtures~~ and $6425.81 million inof ~~non-~~cash ~~gains~~transferred ~~on the early retirement of debt. The tax credit, as it relates~~ to ~~liquid~~restricted ~~fuels~~cash ~~derived~~for ~~from~~the ~~biomass,~~renewable ~~expired~~energy ~~on December 31, 2009~~project. Verso Holdings’ ~~operating~~investing cash flows are the same as those of Verso Paper ~~in all material respects~~.

Investing activities. In 2011, Verso Paper’s net cash used in investing activities of $66.2 million reflects $90.3 million in capital expenditures net of $24.8 million in funds transferred from restricted cash for use on a renewable energy project at our mill in Quinnesec, Michigan. This compares to $98.3 million of net cash used in investing activities in 2010, which included $73.6 million of capital expenditures and $25.1 million of cash transferred to restricted cash for the a renewable energy project. In 2009, Verso Paper’s net cash used in investing activities of $34.1 million was primarily due to capital expenditures. Management significantly reduced annual capital expenditures in 2009 in response to the uncertain economic environment. Verso Holdings’ investing cash flows are the same as those of Verso Paper.37

Financing activities. In 2012, Verso Paper’s net cash used in financing activities was $38.3 million and reflects a total of $355.0 million in cash payments to repurchase and retire and to redeem a total of $315.0 million aggregate principal amount of our 11.5% Senior Secured Notes due 2014 and to exchange $166.9 million aggregate principal amount of our Second Priority Senior Secured Floating Rate Notes due 2014 along with $157.5 million aggregate principal amount of our Senior Subordinated Notes due 2016 for a total of $271.6 million aggregate principal amount of our 11.75% Secured Notes due 2019. Cash provided by financing activities includes $316.7 million in net proceeds from the issuance of long-term debt after discount, underwriting fees and issuance costs, primarily related to the issuance of $345.0 million aggregate principal amount of our 11.75% Senior Secured Notes due 2019.

In 2011, Verso Paper’s net cash used in financing activities was $6.2 million, reflecting cash payments of $390.0 million to repurchase long term debt and pay related fees and charges, net of $383.8 million in proceeds from the issuance of $396.0 million aggregate principal amount of Second Priority Senior Secured Notes net of discount, underwriting fees and issuance costs. In 2010, Verso Paper’s net cash provided by financing activities was $25.5 million for 2010, reflecting $26.2 million in proceeds from the issuance of $25.0 million in Senior Secured Notes including premium and net of underwriting fees and issuance costs.

Indebtedness. As of December 31, 2012, Verso Paper’s total indebtedness was $1,257.0 million, net of $4.6 million of unamortized discounts. As of December 31, 2012, Verso Holdings’ total indebtedness was $1,187.1 million, net of $4.6 million of unamortized discounts.

Revolving credit facilities. On May 4, 2012, Verso Holdings entered into new revolving credit facilities consisting of a $150.0 million ABL Facility and a $50.0 million Cash Flow Facility. The revolving credit facilities were used to repay the outstanding indebtedness under the prior $200.0 million revolving credit facility and will be used to provide ongoing working capital and for other general corporate purposes. The indebtedness under the revolving credit facilities bears interest at a floating rate based on a margin over a base rate or eurocurrency rate. As December 31, 2012, the applicable margin for advances under the ABL Facility was 1.00% for base rate advances and 2.00% for LIBOR advances, and the applicable margin for advances under the Cash Flow Facility was 3.50% for base rate advances and 4.50% for LIBOR advances. Verso Holdings is required to pay a commitment fee to the lenders in respect of the unused commitments under the ABL Facility at an annual rate initially equal to 0.50% and thereafter of either 0.375% or 0.50%, based on daily average utilization, and under the Cash Flow Facility at an annual rate of 0.625%. The indebtedness under the revolving credit facilities is guaranteed jointly and severally by Verso Finance and each of Verso Holdings’ subsidiaries, subject to certain exceptions, and the indebtedness and guarantees are senior secured obligations of Verso Holdings and the guarantors, respectively. The indebtedness under the ABL Facility and related guarantees are secured by first-priority security interests, subject to permitted liens, in substantially all of Verso Holdings’, Verso Finance’s, and the subsidiary guarantors’ inventory and accounts receivable, or “ABL Priority Collateral,” and second-priority security interests, subject to permitted liens, in substantially all of their other assets, or “Notes Priority Collateral.” The indebtedness under the Cash Flow Facility and related guarantees are secured, pari passu with the 11.75% Senior Secured Notes due 2019 and related guarantees, by first-priority security interests in the Notes Priority Collateral and second-priority security interests in the ABL Priority Collateral. The revolving facilities will mature on May 4, 2017, unless, on any of the dates that is 91 days prior to the earliest scheduled maturity of any of the Second Priority Senior Secured Floating Rate Notes due 2014, the 11.38% Senior Subordinated Notes, or the senior unsecured term loan, an aggregate principal amount in excess of $100.0 million of indebtedness under such existing second-lien notes, subordinated notes or senior unsecured term loan, as applicable, is outstanding, in which case the revolving credit facilities will mature on such earlier date. The ABL Facility had no amounts outstanding, $43.0 million in letters of credit issued, and $91.9 million available for future borrowing as of December 31, 2012. The Cash Flow Facility had no outstanding balance, no letters of credit issued, and $50.0 million available for future borrowing as of December 31, 2012.

~~Financing activities~~11. In5% ~~2011,~~Senior ~~Verso~~Secured ~~Paper’s~~Notes ~~net~~due ~~cash used in financing activities was $6~~2014.2 In ~~million,~~June ~~reflecting~~2009 ~~cash payments of $390.0 million to repurchase long term debt~~ and ~~pay~~January ~~related fees and charges~~2010, ~~net~~Verso ofHoldings ~~$383.8~~issued ~~million~~a intotal ~~proceeds from the issuance~~ of $~~396~~350.0 million aggregate principal amount of ~~second priority senior secured notes net of discount, underwriting fees and issuance costs~~11.5% ~~Verso~~Senior ~~Paper’s~~Secured ~~net~~Notes ~~cash~~due ~~provided by financing activities was $25~~2014.5 In ~~million~~March ~~for 2010~~2011, ~~reflecting~~Verso ~~$26.2~~Holdings ~~million~~repurchased inand ~~proceeds~~retired ~~from the issuance of~~ $2535.0 million inaggregate ~~senior~~principal ~~secured~~amount ~~notes including premium and net~~ of ~~underwriting~~the ~~fees and issuance costs~~notes. InOn ~~2009~~March 21, ~~Verso Paper’s net cash used in financing activities was $110.5 million~~2012, ~~reflecting~~Verso ~~principal~~Holdings ~~payments~~repurchased and ~~debt~~retired ~~repurchases of~~ $~~306~~270.~~8 million on long-term debt and $92.1 million in net payments on our revolving credit facility, partially offset by $288.~~6 million inaggregate ~~proceeds~~principal ~~from~~amount ~~the issuance~~ of ~~$325.0~~the ~~million in senior secured~~ notes ~~net of discount, underwriting fees, and issuance costs~~. ~~Verso~~On ~~Holdings’~~April ~~financing cash flows are principally the same as those of Verso Paper. However~~30, ~~in 2009~~2012, Verso Holdings’ ~~principal~~redeemed ~~payments~~the ~~and~~remaining ~~debt~~outstanding ~~repurchases were~~ $~~296~~44.64 million onaggregate ~~long-term~~principal ~~debt. Additionally,~~amount ~~contributions~~ of ~~$12~~the notes.5 Following ~~million~~such ~~were made to Verso Finance One to accommodate additional~~ repurchases ~~of debt~~ and ~~$2.9~~redemption, ~~million~~there ofare ~~distributions~~no ~~were~~outstanding ~~made~~11.5% toSenior ~~Verso~~Secured ~~Paper~~Notes ~~for~~due ~~general corporate purposes~~2014.

~~Indebtedness~~11. As75% ofSenior ~~December~~Secured 31Notes due 2019. On March 21, ~~2011~~2012, Verso ~~Paper’s~~Holdings ~~total~~issued ~~indebtedness~~$345.0 ~~was~~million aggregate principal amount of 11.75% Senior Secured Notes due 2019. Verso Holdings used $~~1,262~~332.50 million, of net proceeds from the notes issuance, after deducting the discount, underwriting fees and offering expenses, along with $0.6 million of available cash, to repurchase and retire $13270.6 million and to redeem $44.4 million aggregate principal amount of ~~unamortized~~the ~~discounts~~11.5% Senior Secured Notes due 2014. AsThe ofnotes ~~December~~bear 31interest, ~~2011~~payable semi-annually, at the rate of 11.75% per year. The notes are guaranteed jointly and severally by each of Verso Holdings’ ~~total~~subsidiaries, subject to certain exceptions, and the notes and guarantees are senior secured obligations of Verso Holdings and the guarantors, respectively. The indebtedness ~~was~~under $1the notes and related guarantees are secured,~~201~~ pari passu with the Cash Flow Facility and related guarantees, by first-priority security interests in the Notes Priority Collateral and second-priority security interests in the ABL Priority Collateral.1 The ~~million~~notes will mature on January 15, ~~net~~2019; provided, however, that, if as of ~~$13~~45 days prior to the maturity dates of our 11.4375% ~~million~~Senior Subordinated Notes due 2016, more than $100,000,000 of ~~unamortized~~such ~~discounts~~Senior Subordinated Notes remains outstanding, the notes will mature on that day.

~~Revolving Credit Facility~~11. ~~Verso~~75% ~~Holdings’~~Secured ~~$200~~Notes ~~million~~due ~~revolving~~2019. ~~credit~~On ~~facility~~May ~~had~~11, no2012, ~~amounts~~Verso ~~outstanding,~~Holdings issued $40271.86 million inaggregate ~~letters~~principal amount of ~~credit~~11.75% ~~issued~~Secured ~~and~~Notes ~~$159~~due 2019.2 Verso ~~million~~Holdings ~~available~~issued ~~for~~the ~~future~~notes ~~borrowing~~pursuant asto oftwo ~~December~~separate ~~31,~~exchange ~~2011.~~offers whereby it ~~The~~(a) ~~indebtedness~~issued ~~under~~$166.9 ~~the~~million ~~revolving~~aggregate ~~credit~~principal ~~facility~~amount ~~bears~~of ~~interest,~~the ~~payable~~notes ~~quarterly,~~and atpaid a$5.0 ~~rate~~million ~~equal~~in tocash ~~LIBOR~~in ~~plus~~exchange 3%for or$166.9 ~~prime~~million ~~plus~~aggregate 2%principal ~~per~~amount ~~year. Verso~~of ~~Holdings~~its isSecond ~~required~~Priority toSenior ~~pay~~Secured aFloating ~~commitment~~Rate ~~fee~~Notes todue ~~the~~2014 ~~lenders~~and in(b) ~~respect~~issued of$104.7 ~~unutilized~~million ~~commitments~~aggregate ~~under~~principal amount of the ~~revolving~~notes ~~credit~~and ~~facility~~paid at$17.3 amillion ~~rate~~in ~~equal~~cash toin 0exchange for $157.5% ~~per~~million ~~year~~aggregate ~~and~~principal ~~customary~~amount ~~letter~~ of ~~credit~~its ~~and~~11.38% ~~agency~~Senior ~~fees~~Subordinated Notes due 2016. The ~~indebtedness~~notes ~~under~~bear interest, payable semi-annually, at the ~~revolving~~rate ~~credit~~of ~~facility~~11.75% isper year. The notes are guaranteed jointly and severally by ~~Verso Finance and~~ each of Verso Holdings’ subsidiaries, subject to certain exceptions, and the ~~indebtedness~~notes and guarantees are senior secured obligations of Verso Holdings and the guarantors, respectively. The ~~indebtedness~~notes ~~under the revolving credit facility~~ and related guarantees are secured by ~~first~~security ~~priority liens~~interests, subject to permitted liens, onin substantially all of Verso Holdings’, ~~Verso Finance’s,~~ and the ~~subsidiary~~ guarantors’ tangible and intangible assets. The ~~revolving~~security ~~credit~~interests ~~facility~~securing ~~matures~~the notes rank junior to those securing the obligations under the ABL Facility, the Cash Flow Facility, and the 11.75% Senior Secured Notes due 2019 and rank senior to those securing the 8.75% Second Priority Senior Secured Notes due 2019 and the Second Priority Senior Secured Floating Rate Notes due 2014. The notes will mature on ~~August~~January 115, ~~2012~~2019.

On8.75% ~~February~~Second ~~17,~~Priority ~~2012~~Senior Secured Notes due 2019. In 2011, weVerso ~~obtained~~Holdings issued $~~100~~396.0 million, ofrespectively, ~~commitments~~aggregate ~~with~~principal ~~respect~~amount toof ~~the~~8.75% ~~syndication~~Second ofPriority aSenior ~~new~~Secured ~~accounts~~Notes ~~receivable~~due ~~securitization~~2019. The ~~facility~~notes ~~and~~bear ~~approximately~~interest, ~~$55.0~~payable ~~million~~semi-annually, at the rate of ~~commitments~~8.75% toper ~~provide~~year. The anotes ~~new~~are ~~and/or~~guaranteed ~~extended~~jointly ~~revolving~~and ~~facility~~severally ~~under~~by ~~our~~each ~~existing~~of ~~senior~~Verso ~~secured~~Holdings’ ~~revolving~~subsidiaries, ~~credit~~subject ~~facility. The~~to ~~accounts~~certain ~~receivable~~exceptions, ~~facility~~and ~~will~~the ~~bear~~notes ~~interest~~and atguarantees anare ~~initial~~senior ~~rate~~secured obligations of ~~LIBOR~~Verso ~~plus~~Holdings ~~2.00%~~ and the ~~revolving~~guarantors, ~~facility~~respectively. The ~~will~~notes ~~bear~~and ~~interest~~related atguarantees anare ~~initial~~secured ~~rate~~by ofsecond-priority ~~LIBOR~~security ~~plus~~interests, ~~4.50%. The~~subject ~~terms~~to ~~and~~permitted ~~conditions~~liens, ofin ~~our~~substantially ~~existing~~all ~~revolving~~of ~~credit~~Verso ~~facility~~Holdings’ ~~remain~~and inthe ~~full~~guarantors’ ~~force~~tangible and ~~effect~~intangible ~~and~~assets, ~~have~~excluding ~~not~~securities ~~been~~of ~~altered~~Verso byHoldings’ ~~these~~affiliates. The ~~new~~notes ~~commitments~~will mature on February 1, 2019.

~~11.5%~~Second Priority Senior Secured Floating Rate Notes due 2014. In ~~June~~August ~~2009 and January 2010~~2006, Verso Holdings issued ~~a total of~~ $~~350~~250.0 million aggregate principal amount of ~~11.5% senior~~Second ~~secured~~Priority ~~notes~~Senior Secured Floating Rate Notes due 2014. InThrough March ~~2011~~31, 2012, Verso Holdings had repurchased and retired a total of $3569.8 million aggregate principal amount of the notes. ~~The~~On ~~notes~~May ~~bear~~11, ~~interest~~2012, ~~payable~~Verso ~~semi-annually,~~Holdings atissued ~~the~~$166.9 ~~rate~~million aggregate principal amount of 11.575% ~~per~~Secured ~~year~~Notes due 2019 and paid $5. ~~The~~0 ~~notes~~million ~~are~~in ~~guaranteed~~cash ~~jointly~~in ~~and~~exchange ~~severally~~for by$166.9 ~~each~~million aggregate principal amount of ~~Verso~~the ~~Holdings’~~Second ~~subsidiaries,~~Priority ~~subject~~Senior toSecured ~~certain~~Floating ~~exceptions,~~Rate ~~and~~Notes. Following the ~~notes~~exchange, ~~and~~$13.3 ~~guarantees~~million ~~are~~aggregate ~~senior~~principal ~~secured~~amount ~~obligations~~ of ~~Verso~~the ~~Holdings~~Second ~~and~~Priority ~~the~~Senior ~~guarantors,~~Secured ~~respectively~~Floating Rate Notes remain outstanding. The notes ~~and~~bear ~~related~~interest, ~~guarantees~~payable ~~are~~quarterly, ~~secured~~at bya ~~first~~rate ~~priority~~equal ~~liens,~~to ~~subject~~LIBOR toplus ~~permitted~~3.75% ~~liens~~per year. As of December 31, 2012, the interest rate on ~~substantially~~the ~~all~~notes ofwas ~~Verso~~4.06% ~~Holdings’~~per year. The notes are guaranteed jointly and ~~the~~severally ~~guarantors~~by each of Verso Holdings’ ~~tangible~~subsidiaries, ~~and~~subject ~~intangible~~to ~~assets~~certain exceptions. The notes will mature on ~~July~~August 1, 2014.

811.7538% ~~Second Priority~~ Senior ~~Secured~~Subordinated Notes due ~~2019~~2016. In ~~January~~August ~~2011 and February 2011~~2006, Verso Holdings issued ~~a total of~~ $~~396~~300.0 million aggregate principal amount of 811.7538% ~~second~~Senior ~~priority~~Subordinated ~~senior~~Notes ~~secured notes~~ due ~~2019~~2016. ~~The~~On ~~notes~~May ~~bear~~11, ~~interest~~2012, ~~payable~~Verso ~~semi-annually,~~Holdings atissued ~~the~~$104.7 ~~rate~~million aggregate principal amount of 811.75% Secured ~~per~~Notes ~~year. The~~due ~~notes~~2019 ~~are guaranteed jointly~~ and ~~severally~~paid by$17.3 ~~each~~million ofin ~~Verso~~cash ~~Holdings’~~in ~~subsidiaries,~~exchange ~~subject~~for to$157.5 ~~certain~~million ~~exceptions,~~aggregate ~~and~~principal ~~the~~amount ~~notes and guarantees are senior secured obligations~~ of ~~Verso~~the ~~Holdings~~11.38% ~~and~~Senior ~~the~~Subordinated ~~guarantors, respectively~~Notes. ~~The~~Following ~~notes~~the ~~and related guarantees are secured by second priority liens~~exchange, ~~subject~~$142.5 tomillion ~~permitted~~aggregate ~~liens,~~principal onamount ~~substantially all~~ of ~~Verso Holdings’ and~~ the ~~guarantors’ tangible and intangible assets, excluding securities of Verso Holdings’ affiliates~~11.38% ~~The~~Senior ~~notes~~Subordinated ~~mature~~Notes onremain ~~February 1, 2019~~outstanding.

~~Verso~~The ~~Holdings~~notes ~~used~~bear ~~the~~interest, ~~net~~payable ~~proceeds~~semi-annually, ~~from~~at the ~~issuance~~rate of ~~the 8~~11.7538% ~~second~~per ~~priority~~year. The ~~senior~~notes ~~secured~~are ~~notes~~guaranteed injointly ~~January~~and ~~2011,~~severally ~~plus~~by ~~available~~each ~~cash~~of Verso Holdings’ subsidiaries, subject to ~~repurchase~~certain ~~or redeem~~exceptions, and ~~retire~~the ~~all~~notes ofand ~~its~~guarantees ~~9.13%~~are ~~second~~unsecured ~~priority~~ senior ~~secured~~subordinated ~~fixed~~obligations ~~rate~~of ~~notes due 2014.~~ Verso Holdings ~~used~~and the ~~net~~guarantors, ~~proceeds from the issuance of the 8~~respectively.~~75%~~ The ~~second priority senior secured~~ notes inwill ~~February~~mature ~~2011~~on toAugust ~~redeem~~1, ~~and retire $35 million aggregate principal amount of its 11~~2016.~~5% senior secured notes due 2014.~~

~~Second~~Loan ~~Priority~~from ~~Senior~~Verso ~~Secured~~Paper ~~Floating~~Finance ~~Rate~~Holdings ~~Notes~~LLC/ ~~due~~Verso ~~2014~~Paper Holdings LLC. In ~~August~~December ~~2006~~2010, Verso ~~Holdings~~Quinnesec ~~issued~~REP ~~$250~~LLC, ~~million~~an ~~aggregate~~indirect, ~~principal~~wholly-owned ~~amount~~subsidiary of ~~second~~Verso ~~priority~~Holdings, ~~senior~~entered ~~secured~~into ~~floating~~a ~~rate~~financing ~~notes~~transaction ~~due~~with ~~2014. As~~Chase ofNMTC ~~December~~Verso 31Investment Fund, ~~2011~~LLC, ~~Verso~~or ~~Holdings~~the ~~had~~“Investment ~~repurchased~~Fund,” ~~and retired~~ a ~~total~~consolidated ofvariable ~~$70~~interest ~~million aggregate principal amount of the notes~~entity. ~~The~~Under ~~notes~~this ~~bear interest~~arrangement, ~~payable~~Verso ~~quarterly,~~Holdings atloaned a$23.3 ~~rate~~million ~~equal~~ to ~~LIBOR~~Verso ~~plus~~Finance ~~3.75%~~at ~~per~~an ~~year. As of December 31, 2011, the~~ interest rate onof ~~the notes was 4~~6.185% per year~~. The~~ ~~notes are guaranteed jointly~~ and ~~severally~~with bya ~~each~~maturity of ~~Verso~~December ~~Holdings’ subsidiaries~~29, ~~subject to certain exceptions~~2040, and ~~the~~Verso ~~notes~~Finance, ~~and~~in ~~guarantees~~turn, ~~are~~loaned ~~senior~~the ~~secured~~funds ~~obligations~~on ofsimilar ~~Verso~~terms ~~Holdings~~to ~~and~~ the ~~guarantors,~~Investment ~~respectively~~Fund. The ~~notes~~Investment ~~and~~Fund ~~related~~then ~~guarantees~~contributed ~~are~~the ~~secured~~loan byproceeds ~~second~~to ~~priority~~certain ~~liens,~~community ~~subject~~development toentities, ~~permitted~~which, ~~liens~~in turn, onloaned ~~substantially~~the ~~all~~funds ofon ~~Verso~~similar ~~Holdings’~~terms ~~and~~to ~~the~~Verso ~~guarantors’~~Quinnesec ~~tangible~~REP ~~and~~LLC ~~intangible~~as ~~assets,~~partial ~~excluding~~financing ~~securities~~for ofthe ~~Verso~~renewable ~~Holdings’~~energy ~~affiliates. The~~project ~~notes~~at ~~mature~~our onmill ~~August~~in 1Quinnesec, ~~2014~~Michigan.

~~11.38%~~ Senior ~~Subordinated~~Unsecured ~~Notes~~Term ~~due 2016~~Loan. InVerso ~~August 2006~~Finance, the parent entity of Verso Holdings, ~~issued~~had $~~300~~93.2 million ~~aggregate~~outstanding ~~principal~~on ~~amount~~its ofsenior ~~11.38%~~unsecured ~~senior~~term ~~subordinated~~loan ~~notes~~as ~~due~~of ~~2016~~December 31, 2012. The ~~notes~~loan ~~bear~~allows Verso Finance to pay interest, ~~payable~~either ~~semi-annually,~~in atcash or in kind through the ~~rate~~accumulation of ~~11.38%~~the ~~per~~outstanding ~~year~~principal amount. The ~~notes~~loan ~~are~~bears ~~guaranteed~~interest ~~jointly~~at ~~and~~a ~~severally~~rate byequal ~~each~~to ofLIBOR ~~Verso~~plus ~~Holdings’~~7.00% ~~subsidiaries~~per year for interest paid in kind, ~~subject~~or to“PIK.” As ~~certain~~of ~~exceptions~~December 31, ~~and~~2012, the ~~notes~~interest ~~and~~rate ~~guarantees~~on ~~are~~the ~~unsecured~~loan ~~senior~~was ~~subordinated~~7.31% ~~obligations~~per ofyear. Verso ~~Holdings~~Finance ~~and~~elected to exercise the ~~guarantors,~~PIK ~~respectively~~option for $8. ~~The~~5 ~~notes~~million, ~~mature~~$5.5 onmillion, ~~August~~and $5.1 million of interest payments due 2012, ~~2016~~2011, and 2010, respectively.

~~Verso~~On ~~Finance~~January ~~Senior~~31, ~~Unsecured Term Loan. Verso Finance~~2013, ~~the parent entity of~~ Verso Holdings, ~~had~~issued $8472.79 million ~~outstanding~~aggregate onprincipal ~~its~~amount ~~senior unsecured term loan as~~ of ~~December~~its ~~31, 2011~~11. ~~The~~75% ~~loan~~Senior ~~allows~~Secured ~~Verso~~Notes ~~Finance~~due 2019 to ~~pay~~certain ~~interest~~lenders ~~either~~holding inapproximately ~~cash~~$85.8 ormillion inaggregate ~~kind~~principal ~~through~~amount ~~the accumulation~~ of ~~the~~Verso ~~outstanding~~Finance’s ~~principal~~Senior ~~amount. The~~Unsecured ~~loan~~Term ~~bears interest~~Loans, ~~payable~~and ~~quarterly,~~net ataccrued ainterest ~~rate~~through ~~equal~~the toclosing ~~LIBOR~~date, ~~plus~~at ~~6.25%~~an ~~per~~exchange ~~year~~rate onof ~~interest~~85%, ~~paid~~ in ~~cash~~exchange ~~and~~for ~~LIBOR~~the ~~plus~~assignment ~~7.00%~~to ~~per~~Verso ~~year~~Finance ~~for~~of ~~interest~~the ~~paid~~Senior inUnsecured ~~kind,~~Term orLoans ~~“PIK,”~~ and ~~added to~~ the ~~principal~~cancellation ~~balance. As~~ of ~~December~~such ~~31,~~loans. ~~2011,~~There ~~the~~are ~~weighted-average~~no ~~interest~~longer ~~rate~~any onoutstanding ~~the~~Senior ~~loan~~Unsecured ~~was~~Term 6Loans.~~83% per year.~~ ~~Verso~~In ~~Finance~~accordance ~~elected~~with toASC ~~exercise~~Topic 470, the ~~PIK~~Senior ~~option~~Unsecured ~~for~~Term ~~$5.5~~Loans ~~million,~~exchanged ~~$5.1~~on ~~million~~January 31, ~~and~~2013 ~~$8.9~~are ~~million~~reflected ofin ~~interest~~Long-term ~~payments~~debt ~~due~~on ~~2011,~~the ~~2010,~~accompanying ~~and~~consolidated ~~2009,~~balance ~~respectively. The~~sheet ~~loan~~as ~~matures~~of onDecember ~~February 1~~31, ~~2013~~2012.

~~Loan~~As ~~from~~a holding company, Verso Paper’s ~~Finance~~investments ~~Holdings~~in ~~LLC/~~its ~~Verso~~operating ~~Paper~~subsidiaries ~~Holdings~~constitute ~~LLC. On~~substantially ~~December~~all ~~29,~~of ~~2010~~its operating assets. Consequently, Verso ~~Quinnesec~~Paper’s ~~REP~~subsidiaries ~~LLC,~~conduct anall ~~indirect,~~of ~~wholly-owned~~its ~~subsidiary~~consolidated operations and own substantially all of its operating assets. Verso ~~Holdings,~~Paper’s ~~entered~~principal ~~into~~source aof ~~financing~~the ~~transaction~~cash ~~with~~it ~~Chase~~needs ~~NMTC~~to ~~Verso~~pay ~~Investment~~its ~~Fund,~~debts ~~LLC,~~is the ~~“Investment~~cash ~~Fund”,~~that aits ~~consolidated~~subsidiaries ~~variable~~generate ~~interest~~from ~~entity. Under~~their ~~this~~operations ~~arrangement,~~and their borrowings. Verso ~~Holdings~~Paper’s ~~loaned~~subsidiaries ~~$23.3~~are ~~million~~not obligated to ~~Verso~~make ~~Finance~~funds ~~pursuant~~available to a 6it.5% The ~~loan~~terms ~~due~~of ~~December~~the ~~29,~~revolving ~~2040,~~credit facilities and the indentures governing the outstanding notes of Verso ~~Finance,~~Paper’s insubsidiaries ~~turn,~~significantly ~~loaned~~restrict ~~the~~its ~~funds~~subsidiaries onfrom ~~similar~~paying ~~terms~~dividends toand ~~the~~otherwise ~~Investment~~transferring ~~Fund~~assets to Verso Paper. ~~The~~Furthermore, ~~Investment~~Verso ~~Fund~~Paper’s ~~then~~subsidiaries ~~contributed~~are permitted under the ~~loan~~terms ~~proceeds~~of the revolving credit facilities and the indentures to ~~certain~~incur ~~community~~additional ~~development~~indebtedness ~~entities,~~that ~~which~~may severely restrict or prohibit the making of distributions, inthe ~~turn~~payment of dividends, ~~loaned~~or the ~~funds~~making onof ~~similar~~loans ~~terms~~by such subsidiaries to Verso ~~Quinnesec~~Paper. Although ~~REP~~the ~~LLC~~terms of the debt agreements of Verso Paper’s subsidiaries do not restrict its operating subsidiaries from obtaining funds from their respective subsidiaries to fund their operations and payments on indebtedness, asthere ~~partial~~can ~~financing~~be ~~for~~no assurance that the ~~renewable~~agreements ~~energy~~governing ~~project~~the atcurrent ~~our~~and ~~mill~~future inindebtedness ~~Quinnesec~~of its subsidiaries will permit its subsidiaries to provide Verso Paper with sufficient dividends, ~~Michigan~~distributions or loans to fund its obligations or pay dividends to its stockholders.

AsWe amay ~~holding~~elect ~~company,~~to ~~Verso~~retire ~~Paper’s~~our ~~investments~~outstanding debt in ~~its~~open ~~operating~~market ~~subsidiaries~~purchases, ~~constitute~~privately ~~substantially~~negotiated ~~all~~transactions, ofor ~~its operating assets~~otherwise. ~~Consequently,~~These ~~Verso~~repurchases ~~Paper’s~~may ~~subsidiaries~~be ~~conduct~~funded ~~all~~through ofavailable ~~its consolidated operations and own substantially all of its operating assets. Verso Paper’s principal source of the~~ cash ~~it needs to pay its debts is the cash that its subsidiaries generate~~ from ~~their~~ operations and ~~their~~ borrowings. ~~Verso~~under ~~Paper’s~~our ~~subsidiaries are not obligated to make funds available to it. The terms of the~~ revolving credit facility and the indentures governing the outstanding notes of Verso Paper’s subsidiaries significantly restrict its subsidiaries from paying dividends and otherwise transferring assets to Verso Paperfacilities. ~~Furthermore,~~Such ~~Verso~~repurchases ~~Paper’s subsidiaries~~ are ~~permitted~~dependent ~~under~~on ~~the~~prevailing ~~terms~~market ~~of the revolving credit facility and the indentures to incur additional indebtedness that may severely restrict or prohibit the making of distributions~~conditions, ~~the~~our ~~payment~~liquidity ~~of dividends~~requirements, orcontractual the making of loans by such subsidiaries to Verso Paper. Although the terms of the debt agreements of Verso Paper’s subsidiaries do not restrict its operating subsidiaries from obtaining funds from their respective subsidiaries to fund their operations and payments on indebtednessrestrictions, ~~there can be no assurance that the agreements governing the current~~ and ~~future~~other ~~indebtedness of its subsidiaries will permit its subsidiaries to provide Verso Paper with sufficient dividends, distributions or loans to fund its obligations or pay dividends to its stockholders~~factors.

We may elect to retire our outstanding debt in open market purchases, privately negotiated transactions, or otherwise. These repurchases may be funded through available cash from operations and borrowings under our revolving credit facility. Such repurchases are dependent on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors.

Covenant Compliance

The credit agreement and the indentures governing our notes contain affirmative covenants as well as restrictive covenants which limit our ability to, among other things, incur additional indebtedness; pay dividends or make other distributions; repurchase or redeem our stock; make investments; sell assets, including capital stock of restricted subsidiaries; enter into agreements restricting our subsidiaries’ ability to pay dividends; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with our affiliates; and incur liens. These covenants can result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions. The material covenants in the indentures that are impacted by the calculation of Adjusted EBITDA are those that govern the amount of indebtedness that Verso Holdings and its subsidiaries may incur, whether Verso Holdings may make certain dividends, distributions or payments on subordinated indebtedness, and whether Verso Holdings may merge with another company. Although there are limited baskets for incurring indebtedness contained in the indentures, the primary means for incurring additional indebtedness under the Indentures is to have a pro forma Fixed Charge Coverage Ratio of at least 2.00 to 1.00 after the incurrence of such additional indebtedness. This same test also applies to most dividends and other payments made in respect of Verso Holdings’ equity and subordinated indebtedness and also to whether Verso Holdings may merge with another company. In the case of a merger, Verso Holdings may merge so long as either its Fixed Charge Coverage Ratio is at least 2.00 to 1.00 or that same ratio improves after giving pro forma effect to the merger. If Verso Holdings were not able to meet the Fixed Charge Coverage Ratio requirement contained in these covenants, it would limit our long-term growth prospects, as it would severely hinder Verso Holdings’ ability to incur additional indebtedness for the purpose of completing acquisitions or capital improvement programs, among other things. In addition, if the ratio test were not met, distributions by Verso Holdings to Verso Paper would also be severely restricted. As of December 31, ~~2011~~2012, we were in compliance in all material respects with the covenants in our debt agreements.

Effect of Inflation

While inflationary increases in certain input costs, such as for energy, wood fiber, and chemicals, have an impact on our operating results, changes in general inflation have had minimal impact on our operating results in the last three years. Sales prices and volumes are more strongly influenced by supply and demand factors in specific markets and by exchange rate fluctuations than by inflationary factors. We cannot assure you, however, that we will not be affected by general inflation in the future.

Contractual Obligations

The following table reflects our contractual obligations and commercial commitments as of December 31, 2011. Commercial commitments include lines of credit, guarantees, and other potential cash outflows resulting from a contingent event that requires our performance pursuant to a funding commitment.

	Payments due by period
				Less than									More than
(Dollars in millions)	Total			1 year			1-3 years			3-5 years			5 years
Verso Paper Holdings LLC
Long-term debt(1)	$	1,704.7		$	114.0		$	699.2		$	423.3		$	468.2
Operating leases		19.7			6.9			8.7			2.4			1.7
Purchase obligations(2)		624.4			130.4			198.4			127.1			168.5
Other long-term liabilities(3)		28.6			0.2			4.8			0.6			23.0
Chase NMTC Verso Investment Fund LLC
Loan from Verso Paper Finance Holdings LLC		67.2			1.5			3.0			3.0			59.7
Total contractual obligations for Verso Paper Holdings LLC		2,444.6			253.0			914.1			556.4			721.1
Long-term debt for Verso Paper Finance Holdings LLC		158.3			7.4			88.2			3.0			59.7
Eliminate loans from affiliates		(134.4	)		(3.0	)		(6.0	)		(6.0	)		(119.4	)
Total contractual obligations for Verso Paper Corp.	$	2,468.5		$	257.4		$	996.3		$	553.4		$	661.4

Contractual Obligations

The following table reflects our contractual obligations and commercial commitments as of December 31, 2012. Commercial commitments include lines of credit, guarantees, and other potential cash outflows resulting from a contingent event that requires our performance pursuant to a funding commitment.

	Payments due by period
				Less than									More than
(Dollars in millions)	Total			1 year			1-3 years			3-5 years			5 years
Verso Paper Holdings LLC
Long-term debt(1)	$	1,943.7		$	127.2		$	263.3		$	369.3		$	1,183.9
Operating leases		16.3			6.6			6.9			1.8			1.0
Purchase obligations(2)		421.2			80.5			85.8			77.6			177.3
Other long-term liabilities(3)		27.7			2.0			2.8			1.0			21.9
Chase NMTC Verso Investment Fund LLC
Loan from Verso Paper Finance Holdings LLC		65.6			1.5			3.0			3.0			58.1
Total contractual obligations for Verso Paper Holdings LLC		2,474.5			217.8			361.8			452.7			1,442.2
Debt for Verso Paper Finance Holdings LLC		159.0			10.2			3.0			3.0			142.8
Eliminate loans from affiliates		(131.2	)		(3.0	)		(6.0	)		(6.0	)		(116.2	)
Total contractual obligations for Verso Paper Corp.	$	2,502.3		$	225.0		$	358.8		$	449.7		$	1,468.8

(1)	Long-term debt includes principal payments, commitment fees, and interest payable. A portion of interest expense is at a variable rate and has been calculated using current LIBOR. Actual payments could vary.
(2)	Purchase obligations include unconditional purchase obligations for power purchase agreements (gas and electricity), machine clothing, and other commitments for advertising, raw materials, or storeroom inventory.
(3)	Other long-term liabilities reflected above represent the gross amount of asset retirement obligations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from fluctuations in our paper prices, interest rates, energy prices, and commodity prices for our inputs.

Paper Prices

We are primarily focused on serving two end-user segments: catalogs and magazines. Coated paper demand is primarily driven by advertising and print media usage. Advertising spending and magazine and catalog circulation tend to correlate with GDP in the United States - they rise with a strong economy and contract with a weak economy.

We reach our end-users through several channels, including printers, brokers, paper merchants, and direct sales to end-users. We sell and market our products to approximately 125 customers. In 2011, Quad/Graphics, Inc. and xpedx, and their respective affiliates, accounted for approximately 10% and 9%, respectively, of our total net sales.

Interest Rates

We have issued fixed- and floating-rate debt in order to manage our variability to cash flows from interest rates. Borrowings under the revolving credit ~~facility~~facilities, the ~~second~~Second ~~priority~~Priority ~~senior~~Senior ~~secured~~Secured ~~floating~~Floating ~~rate~~Rate ~~notes~~Notes due 2014, and ~~Verso~~the ~~Finance’s~~ senior unsecured term loan accrue interest at variable rates~~; however, there were no amounts outstanding under the revolving credit facility as of December 31, 2011~~. A 100 basis point increase in quoted interest rates on Verso Paper’s outstanding floating-rate debt as of December 31, ~~2011~~2012, would increase annual interest expense by $21.60 million (of which $0.89 million is attributable to ~~Verso~~the ~~Finance’s~~ senior unsecured term loan on which we have elected to pay interest in kind). A 100 basis point increase in quoted interest rates on Verso Holdings’ outstanding floating-rate notes as of December 31, ~~2011~~2012, would increase annual interest expense by $10.81 million. While we may enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection from this risk.

Derivatives

In the normal course of business, we utilize derivatives contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices and interest rates. These instruments are subject to credit and market risks in excess of the amount recorded on the balance sheet in accordance with generally accepted accounting principles. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. We have an Energy Risk Management Policy which was adopted by our board of directors and is monitored by an Energy Risk Management Committee composed of our senior management. In addition, we have an Interest Rate Risk Committee which was formed to monitor our Interest Rate Risk Management Policy. Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. We manage credit risk by entering into financial instrument transactions only through approved counterparties. Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in commodity prices or interest rates. We manage market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken.

We do not hedge the entire exposure of our operations from commodity price volatility for a variety of reasons. To the extent that we do not hedge against commodity price volatility, our results of operations may be affected either favorably or unfavorably by a shift in the future price curve. As of December 31, ~~2011~~2012, we had liabilities for net unrealized losses of $124.31 million on open commodity contracts with maturities of one to twenty-three months. These derivative instruments involve the exchange of net cash settlements, based on changes in the price of the underlying commodity index compared to the fixed price offering, at specified intervals without the exchange of any underlying principal. A 10% decrease in commodity prices would have a negative impact of approximately $2.73 million on the fair value of such instruments. This quantification of exposure to market risk does not take into account the offsetting impact of changes in prices on anticipated future energy purchases.

Commodity Prices

We are subject to changes in our cost of sales caused by movements underlying commodity prices. The principal components of our cost of sales are chemicals, wood, energy, labor, maintenance, and depreciation, amortization, and depletion. Costs for commodities, including chemicals, wood and energy, are the most variable component of our cost of sales because their prices can fluctuate substantially, sometimes within a relatively short period of time. In addition, our aggregate commodity purchases fluctuate based on the volume of paper that we produce.

Chemicals. Chemicals utilized in the manufacturing of coated papers include latex, starch, calcium carbonate, and titanium dioxide. We purchase these chemicals from a variety of suppliers and are not dependent on any single supplier to satisfy our chemical needs. We expect imbalances in supply and demand to periodically create volatility in prices for certain chemicals.

~~Energy~~Chemicals. WeChemicals ~~produce~~utilized ain ~~large~~the ~~portion~~manufacturing of ~~our energy requirements, historically producing approximately 50% of our energy needs for our~~ coated ~~paper~~papers ~~mills~~include ~~from~~latex, ~~sources~~clay, ~~such as waste wood and paper~~starch, ~~hydroelectric~~calcium ~~facilities~~carbonate, ~~chemicals~~caustic ~~from our pulping process~~soda, ~~our~~sodium ~~own steam recovery boilers~~chlorate, and ~~internal~~titanium ~~energy cogeneration facilities~~dioxide. ~~Our~~We ~~external~~purchase ~~energy~~these ~~purchases~~chemicals ~~vary~~from ~~across~~a ~~each~~variety of ~~our~~suppliers ~~mills~~ and ~~include~~are ~~fuel~~not ~~oil,~~dependent ~~natural~~on ~~gas,~~any ~~coal,~~single ~~and~~supplier ~~electricity. While~~to ~~our~~satisfy ~~internal energy production capacity mitigates the volatility of~~ our ~~overall~~chemical ~~energy~~needs. We ~~expenditures, we~~ expect ~~prices~~imbalances ~~for~~in ~~energy~~supply ~~to remain volatile for the foreseeable future~~ and ~~our~~demand ~~energy~~to ~~costs~~periodically tocreate ~~increase~~volatility in ~~a high energy cost environment. As~~ prices ~~fluctuate,~~for ~~we have some ability to switch between~~ certain ~~energy sources in order to minimize costs~~chemicals. ~~We utilize derivatives contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices.~~

Energy. We produce approximately 57% of our energy needs for our paper mills from sources such as waste wood, waste water, hydroelectric facilities, liquid biomass from our pulping process, and internal energy cogeneration facilities. Our external energy purchases vary across each of our mills and include fuel oil, natural gas, coal, and electricity. While our internal energy production capacity and ability to switch between certain energy sources mitigates the volatility of our overall energy expenditures, we expect prices for energy to remain volatile for the foreseeable future. We utilize derivatives contracts as part of our risk management strategy to manage our exposure to market fluctuations in energy prices.

Off-Balance Sheet Arrangements

None.

Item 8. Financial Statements and Supplementary Data

Verso Paper Corp.

Verso Paper Holdings LLC

Consolidated Financial Statements

For the Years Ended December 31, ~~2011~~2012, ~~2010~~2011, and ~~2009~~2010

Index to Financial Statements

Management’s Reports on Internal Control Over Financial Reporting	46	46
Reports of Deloitte & Touche LLP, Independent Registered Public Accounting Firm	47	47
Consolidated Financial Statements
Consolidated Balance Sheets	~~Consolidated Balance Sheets~~51	51
Consolidated Statements of Operations	~~Consolidated Statements of Operations~~52	52
	Consolidated Statements of Changes in Stockholders’ Equity of Verso Paper Corp.	53
Consolidated Statements of Comprehensive Income	52
	Consolidated Statements of Changes in Member’s Equity of Verso Paper Holdings LLC	54
Consolidated Statements of Changes in Stockholders’ Equity of Verso Paper Corp.	53
	Consolidated Statements of Cash Flows	55
Consolidated Statements of Changes in Member’s Equity of Verso Paper Holdings LLC	53
Notes to Consolidated Financial Statements		56
Consolidated Statements of Cash Flows	54
Notes to Consolidated Financial Statements	55

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING - VERSO PAPER CORP.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of Verso Paper Corp.’s internal control over financial reporting as of December 31, ~~2011~~2012, based upon the guidelines established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Verso Paper Corp.’s internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Based on the results of our evaluation, our management concluded that Verso Paper Corp.’s internal control over financial reporting was effective as of December 31, ~~2011~~2012. We reviewed the results of management’s assessment with our Audit Committee.

The effectiveness of Verso Paper Corp.’s internal control over financial reporting as of December 31, ~~2011~~2012, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which appears below.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING - VERSO PAPER HOLDINGS LLC

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of Verso Paper Holdings LLC’s internal control over financial reporting as of December 31, ~~2011~~2012, based upon the guidelines established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Verso Paper Holdings LLC’s internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Based on the results of our evaluation, our management concluded that Verso Paper Holdings LLC’s internal control over financial reporting was effective as of December 31, ~~2011~~2012. We reviewed the results of management’s assessment with our Audit Committee.

The effectiveness of Verso Paper Holdings LLC’s internal control over financial reporting as of December 31, ~~2011~~2012, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which appears below.

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Stockholders of Verso Paper Corp.:

We have audited the accompanying consolidated balance sheets of Verso Paper Corp., and subsidiaries, (the “"Company”"), a majority-owned subsidiary of Verso Paper Management LP, as of December 31, ~~2011~~2012 and ~~2010~~2011, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, ~~2011~~2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, ~~2011~~2012 and ~~2010~~2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2011~~2012, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, ~~2011~~2012, based on ~~the~~ criteria established in Internal Control— - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 57, ~~2012~~2013 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Memphis, Tennessee

March 57, ~~2012~~2013

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders of Verso Paper Corp.:

We have audited the internal control over financial reporting of Verso Paper Corp., and subsidiaries, (the “Company”), a majority-owned subsidiary of Verso Paper Management LP, as of December 31, ~~2011~~2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2011~~2012, based on the criteria established in Internal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, ~~2011~~2012 of the Company and our report dated March 57, ~~2012~~2013 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Memphis, Tennessee

March 57, ~~2012~~2013

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and ~~Members~~Member of Verso Paper Holdings LLC:

We have audited the accompanying consolidated balance sheets of Verso Paper Holdings LLC, and subsidiaries, (the “Company”), a wholly-owned subsidiary of Verso Paper Finance Holdings LLC, as of December 31, ~~2011~~2012 and ~~2010~~2011, and the related consolidated statements of operations, comprehensive income, changes in member’'s equity, and cash flows for each of the three years in the period ended December 31, ~~2011~~2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2011~~2012 and ~~2010~~2011, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the three years in the period ended December 31, ~~2011~~2012, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, ~~2011~~2012, based on the criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 57, ~~2012~~2013 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Memphis, Tennessee

March 57, ~~2012~~2013

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and ~~Members~~Member of Verso Paper Holdings LLC:

We have audited the internal control over financial reporting of Verso Paper Holdings LLC, and subsidiaries, (the “Company”), a wholly-owned subsidiary of Verso Paper Finance Holdings LLC, as of December 31, ~~2011~~2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

/s/ Deloitte & Touche LLP

Memphis, Tennessee

March 57, ~~2012~~2013

CONSOLIDATED BALANCE SHEETS
	VERSO PAPER						VERSO HOLDINGS
	December 31,			December 31,			December 31,			December 31,
(Dollars in thousands, except per share amounts)	~~2011~~2012			~~2010~~2011			~~2011~~2012			~~2010~~2011
ASSETS
Current assets:
Cash and cash equivalents	$	9461,~~869~~525		$	~~152~~94,~~780~~869		$	9461,~~795~~470		$	~~152~~94,~~706~~795
Accounts receivable, net		~~128~~100,~~086~~888			~~107~~128,~~008~~086			~~128~~101,~~213~~014			~~107~~128,~~012~~213
Inventories		~~166~~131,~~876~~467			~~142~~166,~~516~~876			~~166~~131,~~876~~467			~~142~~166,~~516~~876
Prepaid expenses and other assets		3,239			3,806			3,238			3,792
Assets held for sale		24,867			-			24,867			-
Total current assets		393,070			406,110			393,122			406,026
Prepaid expenses and other assets		4,026			3,239			3,996			3,238
Property, plant, and equipment, net		934,699			972,711			934,699			972,711
Total current assets		322,773			393,070			322,814			393,122
Reforestation		13,671			13,826			13,671			13,826
Property, plant, and equipment, net		793,031			934,699			793,031			934,699
Intangibles and other assets, net		80,035			104,795			102,950			127,350
Reforestation		-			13,671			-			13,671
Goodwill		-			18,695			-			10,551
Intangibles and other assets, net		93,127			80,035			116,432			102,950
Total assets	$	1,~~421~~208,~~475~~931		$	1,~~516~~421,~~137~~475		$	1,~~444~~232,~~442~~277		$	1,~~530~~444,~~464~~442
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	~~109~~92,~~683~~079		$	~~123~~109,~~874~~683		$	~~110~~92,~~589~~079		$	~~124~~110,~~774~~589
Accrued liabilities		~~140~~120,~~756~~180			~~119~~140,~~810~~756			~~139~~119,~~682~~121			~~118~~139,~~923~~682
Total current liabilities		250,439			243,684			250,271			243,697
Current maturities of long-term debt		8,501			-			-			-
Long-term debt		1,262,459			1,228,611			1,201,077			1,172,736
Liabilities related to assets held for sale		176			-			176			-
Other liabilities		62,465			50,648			54,278			42,614
Total current liabilities		220,936			250,439			211,376			250,271
Total liabilities		1,575,363			1,522,943			1,505,626			1,459,047
Long-term debt		1,248,458			1,262,459			1,187,052			1,201,077
Commitments and contingencies (Note 18)		-			-			-			-
Other liabilities		61,223			62,465			54,448			54,278
Total liabilities		1,530,617			1,575,363			1,452,876			1,505,626
Commitments and contingencies (Note 19)		-			-			-			-
Equity:
Preferred stock -- par value $0.01 (20,000,000 shares authorized,
no shares issued)		-			-			n/a			n/a
Common stock -- par value $0.01 (250,000,000 shares authorized
with 52,630,965 shares issued and 52,605,314 outstanding on
with 52,951,379 shares issued and 52,896,374 outstanding
December 31, 2011, and 52,467,101 shares issued and outstanding
on December 31, 2012, and 52,630,965 shares issued and
on December 31, 2010)		526			525			n/a			n/a
52,605,314 outstanding on December 31, 2011)		530			526			n/a			n/a
Treasury stock -- at cost (25,651 shares on December 31, 2011)		(53	)		-			n/a			n/a
Treasury stock -- at cost (55,005 shares on December 31, 2012 and
Paid-in-capital		216,485			214,050			321,110			318,690
25,651 shares on December 31, 2011)		(84	)		(53	)		n/a			n/a
Retained deficit		(342,188	)		(205,127	)		(353,636	)		(231,019	)
Paid-in-capital		219,158			216,485			324,562			321,110
Accumulated other comprehensive loss		(28,658	)		(16,254	)		(28,658	)		(16,254	)
Retained deficit		(516,017	)		(342,188	)		(519,888	)		(353,636	)
Total (deficit) equity		(153,888	)		(6,806	)		(61,184	)		71,417
Accumulated other comprehensive loss		(25,273	)		(28,658	)		(25,273	)		(28,658	)
Total liabilities and equity	$	1,421,475		$	1,516,137		$	1,444,442		$	1,530,464
Total deficit		(321,686	)		(153,888	)		(220,599	)		(61,184	)
Included in the balance sheet line items above are related-party
Total liabilities and equity	$	1,208,931		$	1,421,475		$	1,232,277		$	1,444,442
balances as follows (Note 15):
Accounts receivable	$	9,890		$	12,248		$	10,016		$	12,248
Intangibles and other assets, net		-			-			23,305			23,305
Accounts payable		743			808			743			808
Accrued liabilities		-			-			126			-
Long-term debt		-			-			23,305			23,305
See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS
	VERSO PAPER									VERSO HOLDINGS
	Year Ended December 31,									Year Ended December 31,
(Dollars in thousands, except per share amounts)	~~2011~~2012			~~2010~~2011			~~2009~~2010			~~2011~~2012			~~2010~~2011			~~2009~~2010
Net sales	$	1,~~722~~474,~~489~~612		$	1,~~605~~722,~~316~~489		$	1,~~360~~605,~~854~~316		$	1,~~722~~474,~~489~~612		$	1,~~605~~722,~~316~~489		$	1,~~360~~605,~~854~~316
Costs and expenses:
Cost of products sold - (exclusive of
depreciation, amortization, and depletion)		1,~~460~~272,~~290~~630			1,~~410~~460,~~770~~290			1,~~242~~410,~~743~~770			1,~~460~~272,~~290~~630			1,~~410~~460,~~770~~290			1,~~242~~410,~~743~~770
Depreciation, amortization, and depletion		~~125~~118,~~295~~178			~~127~~125,~~367~~295			~~132~~127,~~682~~367			~~125~~118,~~295~~178			~~127~~125,~~367~~295			~~132~~127,~~682~~367
Selling, general, and administrative expenses		7874,~~059~~415			7178,~~043~~059			6171,~~889~~043			7874,~~007~~364			7078,~~989~~007			6170,~~655~~989
Goodwill impairment		~~18,695~~-			-18,695			-			~~10,551~~-			-10,551			-
Restructuring and other charges		24,464			-			979			24,464			-			979
Restructuring charges		102,404			24,464			-			102,404			24,464			-
Total operating expenses		1,~~706~~567,~~803~~627			1,~~609~~706,~~180~~803			1,~~438~~609,~~293~~180			1,~~698~~567,~~607~~576			1,~~609~~698,~~126~~607			1,~~438~~609,~~059~~126
Operating income (loss)		15,686			(3,864	)		(77,439	)		23,882			(3,810	)		(77,205	)
Other operating income		(60,594	)		-			-			(60,594	)		-			-
Interest income		(99	)		(120	)		(246	)		(1,614	)		(124	)		(241	)
Operating (loss) income		(32,421	)		15,686			(3,864	)		(32,370	)		23,882			(3,810	)
Interest expense		126,607			128,077			123,365			122,213			122,528			116,130
Interest income		(8	)		(99	)		(120	)		(1,523	)		(1,614	)		(124	)
Other (income) loss, net		26,042			(884	)		(307,307	)		25,812			(734	)		(273,796	)
Interest expense		135,461			126,607			128,077			127,943			122,213			122,528
Income (loss) before income taxes		(136,864	)		(130,937	)		106,749			(122,529	)		(125,480	)		80,702
Other loss (income), net		7,379			26,042			(884	)		7,380			25,812			(734	)
Income tax expense		197			145			746			-			-			-
Loss before income taxes		(175,253	)		(136,864	)		(130,937	)		(166,170	)		(122,529	)		(125,480	)
Net income (loss)	$	(137,061	)	$	(131,082	)	$	106,003		$	(122,529	)	$	(125,480	)	$	80,702
Income tax (benefit) expense		(1,424	)		197			145			-			-			-
Earnings (loss) per common share
Net loss	$	(173,829	)	$	(137,061	)	$	(131,082	)	$	(166,170	)	$	(122,529	)	$	(125,480	)
Basic	$	(2.61	)	$	(2.50	)	$	2.03
Loss per common share
Diluted	$	(2.61	)	$	(2.50	)	$	2.03
Basic	$	(3.29	)	$	(2.61	)	$	(2.50	)
Diluted		(3.29	)		(2.61	)		(2.50	)
Weighted average common shares
outstanding (in thousands)
Basic		52,~~595~~850			52,~~445~~595			52,~~138~~445
Diluted		52,~~595~~850			52,~~445~~595			52,~~153~~445
Included in the financial statement line
items above are related-party
transactions as follows (Notes 15):
Net sales	$	157,961		$	175,912		$	138,760		$	157,961		$	175,912		$	138,760
Purchases included in cost of products sold		6,983			6,213			4,625			6,983			6,213			4,625
Interest income		-			-			-			(1,515	)		-			-
Interest expense		-			-			-			1,515			-			-
See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	VERSO PAPER									VERSO HOLDINGS
	Year Ended December 31,									Year Ended December 31,
(Dollars in thousands)	2012			2011			2010			2012			2011			2010
Net loss	$	(173,829	)	$	(137,061	)	$	(131,082	)	$	(166,170	)	$	(122,529	)	$	(125,480	)
Other comprehensive income (loss):
Derivative financial instruments:
Effective portion of net unrealized losses		(1,365	)		(5,188	)		(9,466	)		(1,365	)		(5,188	)		(9,466	)
Reclassification from accumulated other
comprehensive loss to net income (loss)		5,856			2,838			8,786			5,856			2,838			8,786
Defined benefit pension plan:
Pension liability adjustment		(4,185	)		(12,079	)		(3,834	)		(4,185	)		(12,079	)		(3,834	)
Amortization of net loss and prior serivce cost		2,960			2,002			1,874			2,960			2,002			1,874
Other		119			23			(45	)		119			23			(45	)
Other comprehensive income (loss)		3,385			(12,404	)		(2,685	)		3,385			(12,404	)		(2,685	)
Comprehensive loss	$	(170,444	)	$	(149,465	)	$	(133,767	)	$	(162,785	)	$	(134,933	)	$	(128,165	)

See notes to consolidated financial statements.

VERSO PAPER CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010, and 2009
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011, AND 2010
																	Accumulated
																	Other			Total
																	Comprehensive			Stockholders'
	Common		Common		Treasury			Treasury			Paid-in-			Retained			Income			~~Total~~Equity
(Dollars in thousands)	Shares		Stock		Shares			Stock			Capital			Deficit			(Loss)			Equity
(Dollars and shares in thousands)	Shares		Stock		Shares			Stock			Capital			Deficit			(Loss)			(Deficit)
Balance - December 31, 2008		52,046	$	520		-		$	-		$	211,752		$	(180,048	)	$	(42,271	)	$	(10,047	)
Balance - December 31, 2009		52,374	$	524		-		$	-		$	212,381		$	(74,045	)	$	(13,569	)	$	125,291
Net income		-		-		-			-			-			106,003			-			106,003
Other comprehensive income (loss):
Net unrealized losses on derivative financial
instruments, net of reclassification of $40.2 million
of net losses included in net income		-		-		-			-			-			-			27,773			27,773
Defined benefit pension plan:
Pension liability adjustment		-		-		-			-			-			-			(413	)		(413	)
Amortization of net loss and prior service cost		-		-		-			-			-			-			1,342			1,342
Total other comprehensive income		-		-		-			-			-			-			28,702			28,702
Comprehensive income		-		-		-			-			-			106,003			28,702			134,705
Common stock issued for restricted stock		328		4		-			-			(4	)		-			-			-
Equity award expense		-		-		-			-			633			-			-			633
Balance - December 31, 2009		52,374		524		-			-			212,381			(74,045	)		(13,569	)		125,291
Net loss		-		-		-			-			-			(131,082	)		-			(131,082	)
Other comprehensive income (loss):
Other comprehensive loss		-		-		-			-			-			-			(2,685	)		(2,685	)
Net unrealized losses on derivative financial
instruments, net of reclassification of $8.8 million
of net losses included in net loss		-		-		-			-			-			-			(725	)		(725	)
Defined benefit pension plan:
Pension liability adjustment		-		-		-			-			-			-			(3,834	)		(3,834	)
Amortization of net loss and prior service cost		-		-		-			-			-			-			1,874			1,874
Total other comprehensive loss		-		-		-			-			-			-			(2,685	)		(2,685	)
Comprehensive loss		-		-		-			-			-			(131,082	)		(2,685	)		(133,767	)
Common stock issued for restricted stock		91		1		-			-			(1	)		-			-			-
Stock option exercise		2		-		-			-			3			-			-			3
Equity award expense		-		-		-			-			1,667			-			-			1,667
Balance - December 31, 2010		52,467		525		-			-			214,050			(205,127	)		(16,254	)		(6,806	)
Net loss		-		-		-			-			-			(137,061	)		-			(137,061	)
Other comprehensive income (loss):
Other comprehensive loss		-		-		-			-			-			-			(12,404	)		(12,404	)
Net unrealized losses on derivative financial
instruments, net of reclassification of $2.8 million
of net losses included in net loss		-		-		-			-			-			-			(2,327	)		(2,327	)
Defined benefit pension plan:
Pension liability adjustment		-		-		-			-			-			-			(12,079	)		(12,079	)
Amortization of net loss and prior service cost		-		-		-			-			-			-			2,002			2,002
Total other comprehensive loss		-		-		-			-			-			-			(12,404	)		(12,404	)
Comprehensive loss		-		-		-			-			-			(137,061	)		(12,404	)		(149,465	)
Common stock issued for restricted stock, net		158		1		(26	)		(53	)		(1	)		-			-			(53	)
Stock option exercise		6		-		-			-			16			-			-			16
Equity award expense		-		-		-			-			2,420			-			-			2,420
Balance - December 31, 2011		52,631	$	526		(26	)	$	(53	)	$	216,485		$	(342,188	)	$	(28,658	)	$	(153,888	)
Net loss		-		-		-			-			-			(173,829	)		-			(173,829	)
Other comprehensive income		-		-		-			-			-			-			3,385			3,385
Common stock issued for restricted stock, net		320		4		(29	)		(31	)		(4	)		-			-			(31	)
Equity award expense		-		-		-			-			2,677			-			-			2,677
Balance - December 31, 2012		52,951	$	530		(55	)	$	(84	)	$	219,158		$	(516,017	)	$	(25,273	)	$	(321,686	)
See notes to consolidated financial statements.

VERSO PAPER HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011, AND 2010

						Accumulated
						Other			Total
						Comprehensive			Member's
	Paid-in-		Retained			Income			Equity
(Dollars in thousands)	Capital		Deficit			(Loss)			(Deficit)
Balance - December 31, 2009	$	317,023	$	(105,461	)	$	(13,569	)	$	197,993
Cash distributions		-		(78	)		-			(78	)
Net loss		-		(125,480	)		-			(125,480	)
Other comprehensive loss		-		-			(2,685	)		(2,685	)
Equity award expense		1,667		-			-			1,667
Balance - December 31, 2010		318,690		(231,019	)		(16,254	)		71,417
Cash distributions		-		(88	)		-			(88	)
Net loss		-		(122,529	)		-			(122,529	)
Other comprehensive loss		-		-			(12,404	)		(12,404	)
Equity award expense		2,420		-			-			2,420
Balance - December 31, 2011		321,110		(353,636	)		(28,658	)		(61,184	)
Cash distributions		-		(82	)		-			(82	)
Contribution from parent		776		-			-			776
Net loss		-		(166,170	)		-			(166,170	)
Other comprehensive income		-		-			3,385			3,385
Equity award expense		2,676		-			-			2,676
Balance - December 31, 2012	$	324,562	$	(519,888	)	$	(25,273	)	$	(220,599	)

See notes to consolidated financial statements.

VERSO PAPER HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
	VERSO PAPER									VERSO HOLDINGS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010, and 2009
	Year Ended December 31,									Year Ended December 31,
							Accumulated
(Dollars in thousands)	2012			2011			2010			2012			2011			2010
							Other
Cash Flows From Operating Activities:
							Comprehensive			Total
Net loss	$	(173,829	)	$	(137,061	)	$	(131,082	)	$	(166,170	)	$	(122,529	)	$	(125,480	)
	Paid-in-			Retained			Income			Member's
Adjustments to reconcile net income (loss) to
(Dollars in thousands)	Capital			Deficit			(Loss)			Equity
net cash provided by operating activities:
Balance - December 31, 2008	$	301,110		$	(167,135	)	$	(42,271	)	$	91,704
Depreciation, amortization, and depletion		118,178			132,363			127,367			118,178			132,363			127,367
Parent company contributions		15,281			(3,569	)		-			11,712
Restructuring and other charges		77,376			-			-			77,376			-			-
Cash distributions		-			(15,459	)		-			(15,459	)
Loss (gain) on early extinguishment of debt		8,244			26,091			(253	)		8,244			26,091			(255	)
Net income		-			80,702			-			80,702
Amortization of debt issuance costs		5,317			5,396			5,650			4,957			5,036			5,290
Other comprehensive income (loss):
Accretion of discount on long-term debt		1,421			4,101			3,721			1,421			4,101			3,721
Net unrealized losses on derivative financial instruments, net of
Equity award expense		2,677			2,420			1,667			2,676			2,420			1,667
reclassification of $40.2 million of net losses included in net income		-			-			27,773			27,773
(Gain) loss on disposal of fixed assets		(45,742	)		323			3			(45,742	)		323			3
Defined benefit pension plan:
Goodwill impairment		-			18,695			-			-			10,551			-
Pension liability adjustment		-			-			(413	)		(413	)
Other, net		(4,992	)		(6,132	)		(4,691	)		(4,992	)		(6,132	)		(4,691	)
Amortization of net loss and prior service cost		-			-			1,342			1,342
Changes in assets and liabilities:
Total other comprehensive loss		-			-			28,702			28,702
Accounts receivable		27,199			(21,078	)		(2,746	)		27,199			(21,201	)		(2,723	)
Comprehensive loss		-			80,702			28,702			109,404
Inventories		28,269			(24,360	)		19,885			28,269			(24,360	)		19,885
Equity award expense		632			-			-			632
Prepaid expenses and other assets		(8,969	)		(787	)		8,969			(8,969	)		(801	)		8,076
Balance - December 31, 2009		317,023			(105,461	)		(13,569	)		197,993
Accounts payable		(17,813	)		(14,191	)		20,621			(18,719	)		(14,185	)		23,778
Cash distributions		-			(78	)		-			(78	)
Accrued liabilities		(5,328	)		28,731			24,369			(12,426	)		22,885			19,183
Net loss		-			(125,480	)		-			(125,480	)
Net cash provided by operating activities		12,008			14,511			73,480			11,302			14,562			75,821
Other comprehensive income (loss):
Cash Flows From Investing Activities:
Net unrealized losses on derivative financial instruments, net of
Proceeds from insurance settlement		51,003			-			-			51,003			-			-
reclassification of $8.8 million of net losses included in net loss		-			-			(725	)		(725	)
Proceeds from sale of fixed assets		1,731			228			453			1,731			228			453
Defined benefit pension plan:
Transfers to restricted cash		106			23,839			(25,073	)		106			23,839			(25,073	)
Pension liability adjustment		-			-			(3,834	)		(3,834	)
Capital expenditures		(59,909	)		(90,272	)		(73,646	)		(59,909	)		(90,272	)		(73,646	)
Amortization of net loss and prior service cost		-			-			1,874			1,874
Net cash used in investing activities		(7,069	)		(66,205	)		(98,266	)		(7,069	)		(66,205	)		(98,266	)
Total other comprehensive income		-			-			(2,685	)		(2,685	)
Cash Flows From Financing Activities:
Comprehensive income		-			(125,480	)		(2,685	)		(128,165	)
Borrowings on revolving credit facilities		112,500			-			-			112,500			-			-
Equity award expense		1,667			-			-			1,667
Payments on revolving credit facilities		(112,500	)		-			-			(112,500	)		-			-
Balance - December 31, 2010		318,690			(231,019	)		(16,254	)		71,417
Proceeds from long-term debt		341,191			394,618			27,438			341,191			394,618			27,438
Cash distributions		-			(88	)		-			(88	)
Debt issuance costs		(24,459	)		(10,800	)		(1,971	)		(24,459	)		(10,800	)		(1,971	)
Net loss		-			(122,529	)		-			(122,529	)
Repayments of long-term debt		(354,984	)		(389,998	)		-			(354,984	)		(389,998	)		-
Other comprehensive income (loss):
Contribution from parent		-			-			-			776			-			-
Net unrealized losses on derivative financial instruments, net of
Cash distributions		-			-			-			(82	)		(88	)		(78	)
reclassification of $2.8 million of net losses included in net loss		-			-			(2,327	)		(2,327	)
Acquisition of treasury stock		(31	)		(53	)		-			-			-			-
Defined benefit pension plan:
Proceeds from issuance of common stock		-			16			2			-			-			-
Pension liability adjustment		-			-			(12,079	)		(12,079	)
Net cash (used in) provided by financing activities		(38,283	)		(6,217	)		25,469			(37,558	)		(6,268	)		25,389
Amortization of net loss and prior service cost		-			-			2,002			2,002
Change in cash and cash equivalents		(33,344	)		(57,911	)		683			(33,325	)		(57,911	)		2,944
Total other comprehensive loss		-			-			(12,404	)		(12,404	)
Cash and cash equivalents at beginning of period		94,869			152,780			152,097			94,795			152,706			149,762
Comprehensive loss		-			(122,529	)		(12,404	)		(134,933	)
Cash and cash equivalents at end of period	$	61,525		$	94,869		$	152,780		$	61,470		$	94,795		$	152,706
Equity award expense		2,420			-			-			2,420
Total interest paid	$	113,334		$	115,651		$	115,405
Balance - December 31, 2011	$	321,110		$	(353,636	)	$	(28,658	)	$	(61,184	)
Total income taxes paid (received)		153			(8	)		(182	)
See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
	VERSO PAPER									VERSO HOLDINGS
	Year Ended December 31,									Year Ended December 31,
(Dollars in thousands)	2011			2010			2009			2011			2010			2009
Cash Flows From Operating Activities:
Net income (loss)	$	(137,061	)	$	(131,082	)	$	106,003		$	(122,529	)	$	(125,480	)	$	80,702
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, amortization, and depletion		132,363			127,367			132,682			132,363			127,367			132,682
Amortization of debt issuance costs		5,396			5,650			5,748			5,036			5,290			5,264
Accretion of discount on long-term debt		4,101			3,721			2,081			4,101			3,721			2,081
Loss (gain) on early extinguishment of debt		26,091			(253	)		(64,777	)		26,091			(255	)		(31,266	)
Loss on disposal of fixed assets		323			3			533			323			3			533
Goodwill impairment		18,695			-			-			10,551			-			-
Equity award expense		2,420			1,667			633			2,420			1,667			632
Change in unrealized losses on derivatives, net		-			-			27,378			-			-			27,378
Other, net		(6,132	)		(4,691	)		533			(6,132	)		(4,691	)		532
Changes in assets and liabilities:
Accounts receivable		(21,078	)		(2,746	)		(21,725	)		(21,201	)		(2,723	)		(21,752	)
Inventories		(24,360	)		19,885			27,855			(24,360	)		19,885			27,855
Prepaid expenses and other assets		(787	)		8,969			(18,270	)		(801	)		8,076			(17,363	)
Accounts payable		(14,191	)		20,621			(17,357	)		(14,185	)		23,778			(16,344	)
Accrued liabilities		28,731			24,369			(4,161	)		22,885			19,183			(10,799	)
Net cash provided by operating activities		14,511			73,480			177,156			14,562			75,821			180,135
Cash Flows From Investing Activities:
Proceeds from sale of fixed assets		228			453			83			228			453			83
Transfers to restricted cash		23,839			(25,073	)		-			23,839			(25,073	)		-
Capital expenditures		(90,272	)		(73,646	)		(34,216	)		(90,272	)		(73,646	)		(34,216	)
Net cash used in investing activities		(66,205	)		(98,266	)		(34,133	)		(66,205	)		(98,266	)		(34,133	)
Cash Flows From Financing Activities:
Proceeds from long-term debt		394,618			27,438			352,838			394,618			27,438			352,837
Debt issuance costs		(10,800	)		(1,971	)		(10,270	)		(10,800	)		(1,971	)		(10,270	)
Repayments of long-term debt		(389,998	)		-			(453,036	)		(389,998	)		-			(442,868	)
Cash distributions		-			-			-			(88	)		(78	)		(15,459	)
Acquisition of treasury stock		(53	)		-			-			-			-			-
Proceeds from issuance of common stock		16			2			-			-			-			-
Net cash provided by (used in) financing activities		(6,217	)		25,469			(110,468	)		(6,268	)		25,389			(115,760	)
Change in cash and cash equivalents		(57,911	)		683			32,555			(57,911	)		2,944			30,242
Cash and cash equivalents at beginning of period		152,780			152,097			119,542			152,706			149,762			119,520
Cash and cash equivalents at end of period	$	94,869		$	152,780		$	152,097		$	94,795		$	152,706		$	149,762
Total interest paid	$	115,651		$	115,405		$	90,713
Total income taxes paid (received)		(8	)		(182	)		1,759
See notes to consolidated financial statements.

VERSO PAPER CORP. AND VERSO PAPER HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, ~~2011~~2012 AND ~~2010~~2011, AND FOR THE YEARS ENDED DECEMBER 31, ~~2011~~2012, ~~2010~~2011, AND ~~2009~~2010

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business — Within our organization, Verso Paper Corp. is the ultimate parent entity and the sole member of Verso Paper Finance Holdings One LLC, which is the sole member of Verso Paper Finance Holdings LLC, which is the sole member of Verso Paper Holdings LLC. As used in this report, the term “Verso Paper” refers to Verso Paper Corp.; the term “Verso Finance ~~One~~” refers to Verso Paper Finance Holdings ~~One~~ LLC; the term “Verso ~~Finance” refers to Verso Paper Finance~~ Holdings ~~LLC; the term “Verso Holdings~~” refers to Verso Paper Holdings LLC; and the term for any such entity includes its direct and indirect subsidiaries when referring to the entity’s consolidated financial condition or results. Unless otherwise noted, references to “Verso,” “we,” “us,” and “our” refer collectively to Verso Paper and Verso Holdings. Other than Verso Paper’s common stock transactions, Verso Finance’s debt obligation and related financing costs and interest expense, Verso Holdings’ loan to Verso Finance, and the debt obligation of Verso Holdings’ consolidated variable interest entity to Verso Finance, the assets, liabilities, income, expenses and cash flows presented for all periods represent those of Verso Holdings in all material respects. Unless otherwise noted, the information provided pertains to both Verso Paper and Verso Holdings.

We began operations on August 1, 2006, when we acquired the assets and certain liabilities comprising the business of the Coated and Supercalendered Papers Division of International Paper Company, or “International Paper.” We were formed by affiliates of Apollo Global Management, LLC, or “Apollo,” for the purpose of consummating the acquisition from International Paper, or the “Acquisition.” Verso Paper went public on May 14, 2008, with an initial public offering, “IPO,” of 14 million shares of common stock.

We operate in the following three market segments: coated ~~and supercalendered~~ papers; hardwood market pulp; and other, consisting of specialty papers. Our core business platform is as a producer of coated freesheet, and coated groundwood, ~~and uncoated supercalendered~~ papers. ~~These~~Our products are used primarily in media and marketing applications, including catalogs, magazines, ~~retail~~and ~~inserts~~commercial printing applications such as high-end advertising brochures, annual reports, and ~~commercial~~direct-mail ~~print~~advertising.

Basis of Presentation —This report contains the consolidated financial statements of Verso Paper and Verso Holdings as of December 31, ~~2011~~2012 and ~~2010~~2011, and for the years ended December 31, ~~2011~~2012, ~~2010~~2011, and ~~2009~~2010. Variable interest entities for which Verso Paper or Verso Holdings is the primary beneficiary are also consolidated. ~~All~~Intercompany ~~material intercompany~~ balances and transactions are eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or “GAAP,” requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

Revenue Recognition — Sales are net of rebates, allowances, and discounts. Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. Revenue is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales transactions designated f.o.b. destination, ~~which include export sales,~~ revenue is recorded when the product is delivered to the customer’s site and when title and risk of loss are transferred.

5655

Shipping and Handling Costs — Shipping and handling costs, such as freight to customer destinations, are included in Cost of products sold in the accompanying consolidated statements of operations. These costs, when included in the sales price charged for our products, are recognized in Net sales.

Planned Maintenance Costs — Maintenance costs for major planned maintenance shutdowns in excess of $0.5 million are deferred over the period in which the maintenance shutdowns occur and expensed ratably over the period until the next major planned shutdown, since we believe that operations benefit throughout that period from the maintenance work performed. Other maintenance costs are expensed as incurred.

Environmental Costs and Obligations — Costs associated with environmental obligations, such as remediation or closure costs, are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental obligations are discounted to their present value when the expected cash flows are reliably determinable.

Equity Compensation — We account for equity awards in accordance with Financial Accounting Standards Board, or “FASB,” Accounting Standards Codification, or “ASC,” Topic 718, Compensation – Stock Compensation. ASC Topic 718 requires employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at the grant date based on the fair value of the award. We use the straight-line attribution method to recognize share-based compensation over the service period of the award.

Income Taxes — Verso Paper accounts for income taxes using the liability method pursuant to ASC Topic 740, Income Taxes. Under this method, Verso Paper recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. Verso Paper records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. Verso Paper evaluates uncertain tax positions annually and considers whether the amounts recorded for income taxes are adequate to address Verso Paper’s tax risk profile. Verso Paper analyzes the potential tax liabilities of specific transactions and tax positions based on management’s judgment as to the expected outcome. Verso Holdings is a limited liability corporation and is not subject to federal income taxes. Verso Holdings accounts for its state income taxes in accordance with ASC Topic 740.

Earnings Per Share — Verso Paper computes earnings per share by dividing net income or net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income or net loss by the weighted average number of shares outstanding, after giving effect to potentially dilutive common share equivalents outstanding during the period. Potentially dilutive common share equivalents are not included in the computation of diluted earnings per share if they are anti-dilutive.

Fair Value of Financial Instruments — The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, and amounts receivable from or due to related parties approximates fair value due to the short maturity of these instruments. We determine the fair value of our ~~long-term~~ debt based on market information and a review of prices and terms available for similar obligations. See also Note 78, Note 1011, Note 1314, and Note 1415 for additional information regarding the fair value of financial instruments.

Cash and Cash Equivalents — Cash and cash equivalents can include highly liquid investments with a maturity of three months or less at the date of purchase.

Inventories and Replacement Parts and Other Supplies — Inventory values include all costs directly associated with manufacturing products: materials, labor, and manufacturing overhead. These values are presented at the lower of cost or market. Costs of raw materials, work-in-progress, and finished goods are determined using the first-in, first-out method. Replacement parts and other supplies are stated using the average cost method and are reflected in Inventories and Intangibles and other assets on the consolidated balance sheet (see also Note 3 and Note 56).

5756

Property, Plant, and Equipment — Property, plant, and equipment is stated at cost, net of accumulated depreciation. Interest is capitalized on projects meeting certain criteria and is included in the cost of the assets. The capitalized interest is depreciated over the same useful lives as the related assets. Interest cost of $3.5 million and $3.7 million was capitalized, respectively, in 2012 and 2011. Expenditures for major repairs and improvements are capitalized, whereas normal repairs and maintenance are expensed as incurred. ~~Interest cost of $3.7 million was capitalized in 2011, and $1.3 million was capitalized in 2010.~~

Depreciation and amortization are computed using the straight-line method for all assets over the assets’ estimated useful lives. Estimated useful lives are as follows:

		Years
Building		20 - 40
Machinery and equipment		10 - 20
Furniture and office equipment		3 - 10
Computer hardware		3 - 6
Leasehold improvements		Over the terms of the lease or the useful life of the improvements

Reforestation — Timberlands are stated at cost, including capitalized costs attributable to reforestation efforts (i.e., costs for site preparation, planting stock, labor, herbicide, fertilizer, and any other costs required to establish timber on land that was previously not forested). ~~From August 1, 2006 (date of Acquisition) through December 31, 2011, we have been primarily engaged in developing our hybrid poplar woodlands.~~ Costs attributable to timberlands are charged against income as trees are cut. The rate charged will be determined annually based on the relationship of incurred costs to estimated current merchantable volume. As of December 31, 2012, all of our timberlands are classified as held for sale in the accompanying consolidated balance sheet (see also Note 4).

Goodwill and Intangible Assets — We account for goodwill and other intangible assets in accordance with ASC Topic 350, Intangibles – Goodwill and Other. Intangible assets primarily consist of trademarks, customer-related intangible assets, and patents obtained through business acquisitions. The useful lives of trademarks were determined to be indefinite and, therefore, these assets are not amortized. Customer-related intangible assets are amortized over their estimated useful lives of approximately twenty-five years. Patents are amortized over their remaining legal lives of ten years. The impairment evaluation of the carrying amount of goodwill and other intangible assets with indefinite lives is conducted annually or more frequently if events or changes in circumstances indicate that an asset might be impaired.

~~Goodwill~~Trademarks isare evaluated atby ~~the~~comparing ~~reporting unit level and has been allocated to~~ the ~~“Coated”~~expected ~~segment.~~undiscounted ~~The~~future ~~evaluation~~cash ~~for~~flow ~~goodwill impairment is performed by applying a two-step test. The first step is~~ to ~~compare~~their ~~the fair value of the reporting unit with its~~ carrying ~~amount, including goodwill~~values. IfDuring ~~the fair value of the reporting unit is less than its carrying amount~~2012, ~~goodwill~~based ison ~~considered impaired and the loss is measured by performing step two, which involves using~~ a ~~hypothetical~~projected ~~purchase~~reduction ~~price allocation to determine the implied fair value~~ of ~~the~~revenue ~~goodwill~~primarily ~~and~~as ~~compare~~a itresult ~~to the carrying value~~ of ~~the~~a ~~goodwill. An~~reduction ~~impairment~~in ~~loss~~production iscapacity ~~recognized~~from to the ~~extent~~closure ~~the implied fair value~~ of the ~~goodwill~~Sartell ~~is less than the carrying amount of the goodwill. In 2011~~mill, ~~Verso~~we ~~Paper~~ recognized a ~~goodwill~~trademarks impairment charge of $183.7 million, ~~and~~which ~~Verso~~is ~~Holdings~~included ~~recognized~~in aRestructuring ~~goodwill~~charges ~~impairment~~on ~~charge~~our ofaccompanying ~~$10.5~~consolidated ~~million. We~~statements ~~have~~of nooperations ~~goodwill~~(see ~~remaining~~also asNote ~~of December 31, 2011~~17).

5857

Goodwill was evaluated at the reporting unit level and allocated to the “Coated” segment. The evaluation for goodwill impairment was performed by applying a two-step test. The first step was to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit was less than its carrying amount, goodwill was considered impaired and the loss was measured by performing step two, which involved using a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. An impairment loss was recognized to the extent the implied fair value of the goodwill was less than the carrying amount of the goodwill. In 2011, Verso Paper recognized a goodwill impairment charge of $18.7 million and Verso Holdings recognized a goodwill impairment charge of $10.5 million. We had no goodwill remaining as of December 31, 2011.

Impairment of Long-Lived Assets — Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable, as measured by comparing their net book value to the estimated undiscounted future cash flows generated by their use. Impaired assets are recorded at estimated fair value, determined principally using discounted cash flows.

~~Allowance~~In ~~for~~2012, ~~Doubtful~~based ~~Accounts~~on —a Wecomprehensive ~~maintain~~assessment anof ~~allowance~~the ~~for~~damage ~~doubtful~~resulting ~~accounts~~from ~~for~~the ~~estimated~~fire ~~losses~~and ~~resulting~~explosion ~~from~~at ~~the~~our ~~inability~~paper ofmill ~~customers~~in toSartell, ~~make~~Minnesota, ~~required~~we ~~payments. We~~recorded ~~manage~~a ~~credit~~fixed ~~risk~~asset ~~related~~impairment tocharge ~~our~~of ~~trade~~$66.5 ~~accounts~~million, ~~receivable~~which byis ~~continually~~included ~~monitoring~~in ~~the~~Restructuring ~~creditworthiness~~charges ofon our ~~customers~~accompanying toconsolidated ~~whom~~statements ~~credit~~of isoperations ~~granted~~(see inalso ~~the~~Note ~~normal~~17). The ~~course~~impairment ofcharge ~~business. Trade~~was ~~accounts~~calculated ~~receivable~~based ~~balances~~on ~~for~~the ~~sales~~excess toof ~~unaffiliated~~carrying ~~customers~~value ~~were~~over ~~approximately~~the ~~$113.2~~estimated ~~million~~fair atvalue ~~December~~of ~~31,~~the ~~2011~~site, ~~compared~~which was estimated based on preliminary negotiations with potential buyers received subsequent to ~~$87.2~~our ~~million~~decision atto ~~December~~shut ~~31,~~down ~~2010~~the mill.

Allowance for Doubtful Accounts — We ~~establish~~maintain ~~our~~an allowance for doubtful accounts ~~based~~for ~~upon~~estimated ~~factors~~losses ~~surrounding~~resulting from the ~~credit~~inability ~~risks~~ of ~~specific~~ customers, ~~historical~~to ~~trends,~~make ~~and~~required ~~other information~~payments. ~~Based~~We onmanage ~~this~~credit ~~assessment,~~risk anrelated ~~allowance~~to isour ~~maintained~~trade ~~that~~accounts ~~represents~~receivable ~~what~~by iscontinually ~~believed~~monitoring tothe becreditworthiness ~~ultimately~~of ~~uncollectible~~our ~~from such~~ customers~~. The~~ ~~allowance~~to ~~for~~whom ~~doubtful~~credit ~~accounts~~is ~~was~~granted ~~approximately~~in ~~$0.9~~the ~~million~~normal atcourse ~~December~~of ~~31,~~business. Trade ~~2011,~~accounts ~~compared~~receivable tobalances ~~$0.8~~for ~~million~~sales atto ~~December~~unaffiliated ~~31,~~customers ~~2010. Bad~~were ~~debt~~approximately ~~expense was~~ $097.20 million ~~for~~at ~~each of the years ended~~ December 31, ~~2011 and 2010~~2012, compared to $0113.42 million ~~for~~at ~~the year ended~~ December 31, ~~2009~~2011.

~~Deferred~~We ~~Financing~~establish ~~Costs~~our —allowance Wefor ~~capitalize~~doubtful ~~costs~~accounts ~~incurred~~based inupon ~~connection~~factors ~~with~~surrounding ~~borrowings~~the orcredit ~~establishment~~risks of ~~credit~~specific ~~facilities~~customers, historical trends, and other information. ~~These~~Based ~~costs~~on ~~are~~this ~~amortized~~assessment, as an ~~adjustment~~allowance tois ~~interest~~maintained ~~expense~~that ~~over~~represents ~~the~~what ~~life~~is ofbelieved ~~the~~to ~~borrowing~~be orultimately ~~life~~uncollectible offrom ~~the~~such ~~credit~~customers. The ~~facility~~allowance ~~using~~for ~~the~~doubtful ~~effective~~accounts ~~interest~~was ~~method~~approximately $1. In0 ~~the~~million ~~case~~at ofDecember ~~early~~31, ~~debt~~2012, ~~principal~~compared ~~repayments~~to $0.9 million at December 31, we2011. Bad ~~adjust~~debt ~~the~~expense ~~value~~was of$0.1 ~~the~~million ~~corresponding~~for ~~deferred~~the ~~financing~~year ~~costs~~ended ~~with~~December a31, ~~charge~~2012, compared to ~~interest~~$0.2 ~~expense,~~million ~~and~~for ~~similarly~~each ~~adjusts~~of the ~~future~~years ~~amortization~~ended ~~expense~~December 31, 2011 and 2010.

Deferred Financing Costs — We capitalize costs incurred in connection with borrowings or establishment of credit facilities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or life of the credit facilities using the effective interest method. In the case of early debt principal repayments, we adjust the value of the corresponding deferred financing costs with a charge to interest expense, and similarly adjust the future amortization expense.

Asset Retirement Obligations — In accordance with ASC Topic 410, Asset Retirement and Environmental Obligations, a liability and an asset are recorded equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The liability is accreted over time, and the asset is depreciated over its useful life. Our asset retirement obligations under this standard relate to closure and post-closure costs for landfills. Revisions to the liability could occur due to changes in the estimated costs or timing of closure or possible new federal or state regulations affecting the closure.

On December 31, 2011, we had $0.8 million of restricted cash included in other assets in the accompanying consolidated balance sheet related to an asset retirement obligation in the state of Michigan. This cash deposit is required by the state and may only be used for the future closure of a landfill. The following table presents an analysis related to our asset retirement obligations included in Other liabilities in the accompanying consolidated balance sheets:58

	Year Ended December 31,
(Dollars in thousands)	2011			2010
Asset retirement obligations, January 1	$	13,660		$	13,300
Accretion expense		816			831
Settlement of existing liabilities		(1,625	)		(1,278	)
Adjustment to existing liabilities		(1,618	)		807
Asset retirement obligations, December 31	$	11,233		$	13,660

As of December 31, 2012 and 2011, we had $0.8 million of restricted cash included in Intangibles and other assets in the accompanying consolidated balance sheet related to an asset retirement obligation in the state of Michigan. This cash deposit is required by the state and may only be used for the future closure of a landfill.

InThe ~~addition~~following totable ~~the~~presents ~~above~~an ~~obligations,~~analysis werelated ~~may be required~~ to ~~remove certain materials from~~ our ~~facilities,~~asset orretirement toobligations ~~remediate~~included in ~~accordance~~Other ~~with~~liabilities ~~current~~in ~~regulations that govern~~ the ~~handling~~accompanying ofconsolidated ~~certain~~balance hazardous or potentially hazardous materials. At this time, any such obligations have an indeterminate settlement date, and we believe that adequate information does not exist to reasonably estimate any such potential obligations. Accordingly, we will record a liability for such remediation when sufficient information becomes available to estimate the obligation.sheets:

	Year Ended December 31,
(Dollars in thousands)	2012			2011
Asset retirement obligations, January 1	$	11,233		$	13,660
Accretion expense		827			816
Settlement of existing liabilities		(449	)		(1,625	)
Adjustment to existing liabilities		419			(1,618	)
Liabilities related to assets held for sale		(176	)		-
Asset retirement obligations, December 31	$	11,854		$	11,233

~~Derivative~~In ~~Financial~~addition ~~Instruments~~to —the ~~Derivative~~above ~~financial~~obligations, ~~instruments~~we ~~are~~may ~~recognized~~be asrequired ~~assets~~to orremove ~~liabilities~~certain inmaterials ~~the~~from ~~financial~~our ~~statements~~facilities ~~and~~or ~~measured~~to atremediate ~~fair~~them ~~value. The~~in ~~effective~~accordance ~~portion~~with ofcurrent ~~the~~regulations ~~changes~~that ingovern the ~~fair~~handling ~~value~~ of ~~derivative~~certain ~~financial~~hazardous ~~instruments~~or ~~that~~potentially ~~qualify~~hazardous ~~and~~materials. At ~~are~~this ~~designated~~time, asany ~~cash~~such ~~flow~~obligations ~~hedges~~have ~~are~~an ~~recorded~~indeterminate insettlement ~~Accumulated~~date, ~~other~~and ~~comprehensive~~we ~~loss. Changes~~believe inthat ~~the~~adequate ~~fair~~information ~~value~~does ofnot ~~derivative~~exist ~~financial~~to ~~instruments~~reasonably ~~that~~estimate ~~are~~any ~~entered~~such ~~into~~potential asobligations. Accordingly, ~~economic~~we ~~hedges~~will ~~are~~record ~~recognized~~a inliability ~~current~~for ~~earnings. We~~such ~~use~~remediation ~~derivative~~when ~~financial~~sufficient ~~instruments~~information tobecomes ~~manage~~available ~~our exposure~~ to ~~energy~~estimate ~~prices~~the ~~and interest rate risk~~obligation.

~~Pension~~Derivative ~~Benefits~~Financial Instruments — ~~Pension~~Derivative ~~plans~~financial ~~cover~~instruments ~~substantially~~are ~~all~~recognized ofas ~~our~~assets ~~employees~~or liabilities in the financial statements and measured at fair value. The ~~defined~~effective ~~benefit~~portion ~~plan~~of isthe ~~funded~~changes in ~~conformity with~~ the ~~funding~~fair ~~requirements~~value of ~~applicable~~derivative ~~government~~financial ~~regulations. Prior~~instruments ~~service~~that ~~costs~~qualify and are ~~amortized~~designated onas acash ~~straight-line~~flow ~~basis~~hedges ~~over~~are ~~the~~recorded ~~estimated~~in ~~remaining~~Accumulated ~~service~~other ~~periods~~comprehensive ~~of employees~~loss. ~~Certain~~Changes ~~employees~~in the fair value of derivative financial instruments that are ~~covered~~entered byinto ~~defined~~as ~~contribution~~economic ~~plans~~hedges are recognized in current earnings. ~~Our~~We ~~contributions~~use toderivative ~~these~~financial ~~plans~~instruments ~~are~~to ~~based~~manage onour aexposure ~~percentage~~to ofenergy ~~employees’~~prices ~~compensation~~and orinterest ~~employees’~~rate ~~contributions~~risk. ~~These~~Effective ~~plans~~April ~~are~~1, ~~funded~~2012, onmanagement aelected ~~current~~to ~~basis~~de-designate the remaining energy swaps that had previously been designated as cash flow hedges and to discontinue hedge accounting prospectively.

~~Alternative~~Pension ~~Fuel~~Benefits ~~Tax Credit~~ — ~~Until~~Pension ~~December~~plans ~~31,~~cover ~~2009,~~substantially ~~the~~all ~~United States government provided an excise tax credit to taxpayers for the use~~ of ~~alternative~~our ~~fuel mixtures in their businesses equal to $0~~employees.50 The ~~per~~defined ~~gallon~~benefit ofplans ~~alternative~~are ~~fuel~~funded ~~contained~~ in ~~the~~conformity ~~mixture. In~~with ~~January and February 2009,~~ the ~~Internal~~funding ~~Revenue~~requirements ~~Service~~of ~~certified~~applicable ~~that~~government ~~our operations at our Androscoggin and Quinnesec mills qualified for the alternative fuel mixture tax credit~~regulations. AsPrior aservice ~~result~~costs ofare ~~our~~amortized ~~use~~on ofa anstraight-line ~~alternative~~basis ~~fuel~~over ~~mixture~~the ~~containing~~estimated ~~“black~~remaining ~~liquor,”~~service aperiods ~~byproduct~~ of ~~pulp production, at our Androscoggin and Quinnesec mills, we recognized $238~~employees.9 Certain ~~million~~employees ofare ~~alternative~~covered ~~fuel~~by ~~mixture~~defined ~~tax~~contribution ~~credits in the year ended December 31, 2009, including approximately $10 million for claims pending at December 31, 2009~~plans. ~~The~~Our ~~amount~~contributions ~~recognized~~to inthese ~~fiscal~~plans ~~2009~~are ~~includes~~based ~~amounts~~on ~~received~~a ~~for~~percentage ~~claims for use~~ of ~~the~~employees’ ~~alternative~~compensation ~~fuel~~or ~~mixture~~employees’ ~~from September 2008 through December 2009~~contributions. ~~The~~These ~~tax~~plans ~~credit,~~are asfunded ~~it relates to liquid fuels derived from biomass, expired~~ on ~~December~~a ~~31,~~current ~~2009~~basis.

2. RECENT ACCOUNTING DEVELOPMENTS

ASC Topic 220, Comprehensive Income. Accounting Standards Update, or “ASU,” No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, changes the existing guidance on the presentation of comprehensive income. Entities ~~will~~ have the option of presenting the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Entities no longer have the option of presenting the components of other comprehensive income within the statement of changes in stockholders’ equity. ASU No. 2011-05 is effective on a retrospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2011, which for us iswas the first quarter of 2012. InChanges ~~December~~in ~~2011, the Financial Accounting Standards Board, or “FASB,” issued~~ ASU No. 2011-~~12,~~05 ~~“Comprehensive~~that ~~Income~~related ~~– Deferral of the Effective Date for Amendments~~ to the ~~Presentation~~presentation of ~~Reclassifications~~reclassification ofadjustments ~~Items~~were ~~Out~~deferred offor ~~Accumulated~~2012 ~~Other~~and ~~Comprehensive~~subsequently ~~Income~~superseded inby ~~Accounting~~ASU ~~Standards Update~~ No. ~~2011~~2013-0502,” ~~which~~Comprehensive ~~defers~~Income ~~changes~~(Topic in220), ~~ASU~~Reporting ~~No.~~of ~~2011-05~~Amounts ~~that~~Reclassified ~~related~~Out toof ~~the~~Accumulated ~~presentation~~Other ofComprehensive ~~reclassification adjustments~~Income. The adoption of the ~~remaining~~provisions ~~guidance~~of ~~provided in~~ ASU No. ~~2011~~2013-0502 will result in a change to our current presentation of comprehensive income but will have no impact on our financial condition, results of operations, or cash flows.

ASC Topic 310, Receivables. ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, requires additional disclosures to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in an entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, and (iii) the changes and reasons for those changes in the allowance for credit losses. The amendments in ASU No. 2010-20 affect all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value. ASU No. 2011-01 temporarily deferred the effective date for disclosures related to troubled debt restructurings to coincide with the effective date of a proposed accounting standard update related to troubled debt restructurings. ASU No. 2010-20 became effective for our financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period are required for our financial statements that include periods beginning on or after January 1, 2011. The adoption of ASU No. 2010-20 had no impact on our consolidated financial statements or disclosures because the new guidance only affects disclosure requirements and all of our trade accounts receivable are short-term.59

60ASC Topic 350, Intangibles – Goodwill and Other. ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350), Testing Indefinite Lived Intangible Assets for Impairment, is intended to simplify the guidance for impairment testing of indefinite-lived intangible assets other than goodwill. Under the new guidance, an entity will have the option to assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Entities electing to perform a qualitative assessment are no longer required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. ASU No. 2012-02 is effective for annual and interim impairment tests performed in fiscal years beginning after September 15, 2012; however, early adoption is permitted. We do not expect the adoption of this guidance to have any impact on our consolidated financial statements.

ASC Topic ~~350~~820, ~~Intangibles~~Fair –Value ~~Goodwill~~Measurements and ~~Other~~Disclosures. ASU No. 2011-0804, ~~Intangibles-Goodwill~~Fair ~~and~~Value ~~Other~~Measurement (Topic ~~350~~820): ~~Testing~~Amendments ~~Goodwill for Impairment, is intended~~ to ~~simplify~~Achieve ~~goodwill~~Common ~~impairment~~Fair ~~testing~~Value byMeasurement ~~adding~~and aDisclosure ~~qualitative~~Requirements ~~review~~in ~~step to assess whether the required quantitative impairment analysis that exists today is necessary~~U. ~~Under~~S. ~~the~~GAAP ~~new~~and ~~guidance~~IFRSs, anprovides clarifying ~~entity~~guidance ~~will~~on ~~not~~how ~~be required~~ to ~~calculate~~measure ~~the~~ fair value ofand aadditional ~~business~~disclosure ~~that~~requirements. The ~~contains~~update ~~recorded~~does ~~goodwill unless it concludes, based on the qualitative assessment, that it is more likely than~~ not ~~that~~extend the ~~fair~~use ~~value~~ of ~~that business is less than its book value. If such a decline in~~ fair value ~~is deemed more likely than not to have occurred~~accounting, ~~then~~but ~~the~~does ~~quantitative~~provide ~~goodwill~~guidance ~~impairment~~on ~~test~~how ~~prescribed~~it byshould ~~current accounting principles must~~ be ~~completed;~~applied ~~otherwise,~~where ~~goodwill~~it is ~~deemed~~already ~~to be not impaired and no further testing is~~ required ~~until the next annual test date (~~or ~~sooner~~permitted ifunder ~~conditions~~current ~~or events before that date raise concerns of potential impairment in the business)~~GAAP. ~~The amended goodwill impairment guidance does not affect the manner in which a company estimates fair value.~~ ASU No. 2011-0804 is effective for annual and interim ~~goodwill~~periods ~~impairment~~beginning ~~tests~~after ~~performed~~December by15, 2011, which for us ~~beginning~~was January 1, 2012~~. Earlier~~, ~~adoption~~and ishad ~~permitted. We~~no ~~do not expect the adoption of this guidance to have any~~ impact on our consolidated financial statements.

~~ASU No. 2010-28, Intangibles-Goodwill and~~ Other ~~(Topic~~new ~~350):~~accounting ~~When~~pronouncements toissued ~~Perform~~but ~~Step~~not 2effective ofuntil ~~the~~after ~~Goodwill~~December ~~Impairment Test for Reporting Units with Zero or Negative Carrying Amounts~~31, ~~modifies Step 1 of the goodwill impairment test. For reporting units with zero or negative carrying amounts~~2012, anare ~~entity~~not isexpected ~~required~~ to ~~perform~~have ~~Step 2 of the goodwill impairment test if it is more likely than not that~~ a ~~goodwill~~significant ~~impairment~~effect ~~exists. Our adoption of ASU No. 2010-28, effective January 1, 2011, did not have an impact~~ on our consolidated financial statements~~, as it was not more likely than not that a goodwill impairment exists~~.

ASC Topic 820, Fair Value Measurements and Disclosures. ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, provides clarifying guidance on how to measure fair value and additional disclosure requirements. The update does not extend the use of fair value accounting, but does provide guidance on how it should be applied where it is already required or permitted under current GAAP. ASU No. 2011-04 is effective for annual and interim periods beginning after December 15, 2011, which for us is January 1, 2012, and will not have a material impact on our consolidated financial statements.

ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, provides guidance relating to fair value measurement disclosures. This guidance was effective for interim or annual reporting periods beginning after December 15, 2009, except for certain Level 3 disclosures, which was effective for interim or annual reporting periods beginning after December 15, 2010. Because ASU No. 2010-06 only affected disclosure requirements, our adoption of the initial requirements for the quarterly period ended March 31, 2010, and our adoption of the remaining provisions for the quarterly period ended March 31, 2011, had no impact on our consolidated financial statements.

Other new accounting pronouncements issued but not effective until after December 31, 2011, are not expected to have a significant effect on our consolidated financial statements.

3. INVENTORIES

Inventories by major category included the following:

	December 31,
(Dollars in thousands)	2012		2011
Raw materials	$	25,747	$	27,953
Woodyard logs		5,942		5,931
Work-in-process		17,629		19,120
Finished goods		55,909		87,585
Replacement parts and other supplies		26,240		26,287
Inventories	$	131,467	$	166,876

	December 31,
(Dollars in thousands)	2011		2010
Raw materials	$	27,953	$	27,709
Woodyard logs		5,931		3,863
Work-in-process		19,120		16,416
Finished goods		87,585		67,817
Replacement parts and other supplies		26,287		26,711
Inventories	$	166,876	$	142,516

4. ASSETS HELD FOR SALE, LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE, AND INSURANCE PROCEEDS

4On May 28, 2012, our paper mill in Sartell, Minnesota, was damaged by a fire and explosion. ~~PROPERTY~~ In the third quarter of 2012, ~~PLANT~~we completed a comprehensive assessment of the damage resulting from the fire and explosion, ~~AND~~and ~~EQUIPMENT~~announced the decision to permanently close the mill. As a result of the closure, we recorded an inventory impairment charge of $6.9 million, a fixed asset impairment charge of $66.5 million, and a trademark impairment charge of $3.7 million. These charges are included in Restructuring charges on our accompanying consolidated statements of operations (see also Note 17).

During the fourth quarter of 2012, we reached a final settlement agreement for $84.0 million with our insurance provider for property and business losses resulting from the fire and explosion. Insurance proceeds in excess of fire related costs and property damages incurred of $60.6 million are recorded in Other operating income on our consolidated statement of operations for the year ended December 31, 2012. In addition, $51.0 million of proceeds attributable to property, plant, and equipment are reflected in investing activities on our consolidated statement of cash flows for the year ended December 31, 2012.

Also during the fourth quarter, management evaluated options for the disposition of the Sartell mill and related assets, and entered into a formal plan to sell the assets of the Sartell mill as well as Verso Fiber Farm, LLC, or, “Fiber Farm,” which was created to supply fiber to the Sartell mill. The assets and related liabilities of the Sartell mill and Fiber Farm have been reclassified as held for sale in our consolidated balance sheet at December 31, 2012 at their carrying value.

Assets and liabilities held for sale at December 31, 2012 were comprised of the following:

	December 31,
(Dollars in thousands)	2012
Property, plant, and equipment, net (1)	$	12,124
Reforestation (1)		12,743
Assets held for sale	$	24,867
Asset retirement obligations	$	176
Liabilities related to assets held for sale	$	176
(1) Recorded at carrying value as the expected proceeds less costs to sell exceed carrying value.

5. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment were as follows:

	December 31,
(Dollars in thousands)	~~2011~~2012			~~2010~~2011
Land and land improvements	$	3728,~~101~~985		$	37,~~346~~101
Building and leasehold improvements		~~188~~153,~~201~~769			~~181~~188,~~985~~201
Machinery, equipment, and other		1,~~330~~278,~~275~~427			1,~~244~~330,~~153~~275
Construction-in-progress		3111,~~955~~017			3831,~~640~~955
Property, plant, and equipment, gross		1,~~587~~472,~~532~~198			1,~~502~~587,~~124~~532
Accumulated depreciation		(~~652~~679,~~833~~167	)		(~~529~~652,~~413~~833	)
Property, plant, and equipment, net	$	~~934~~793,~~699~~031		$	~~972~~934,~~711~~699

Depreciation expense ~~for the year ended December 31, 2011~~ was $~~130~~117.52 million~~. This~~, ~~includes~~ $7130.15 million ~~of accelerated depreciation of property~~, ~~plant,~~ and equipment over a reduced remaining useful life due to the permanent shutdown of three paper machines, which is presented in Restructuring and other charges on the consolidated statements of operations. Depreciation expense was $124.9 million ~~and $125.2 million~~ for the years ended December 31, ~~2010~~2012, 2011, and ~~2009~~2010, respectively.

6261

56. INTANGIBLES AND OTHER ASSETS

Intangibles and other assets consist of the following:

VERSO PAPER

VERSO HOLDINGS

December 31,

(Dollars in thousands)

~~2011~~2012

~~2010~~2011

~~2011~~2012

2011

~~2010~~

Amortizable intangible assets:

Customer relationships, net of accumulated amortization of $6.7 million

Customer relationships, net of accumulated amortization of $7.5 million

on December 31, 2011, and $5.7 million on December 31, 2010

6,620

7,570

6,620

7,570

on December 31, 2012, and $6.7 million on December 31, 2011

5,820

6,620

5,820

6,620

Patents, net of accumulated amortization of $0.6 million on

Patents, net of accumulated amortization of $0.7 million on

December 31, 2011, and $0.5 million on December 31, 2010

526

641

526

641

December 31, 2012, and $0.6 million on December 31, 2011

411

526

411

526

Total amortizable intangible assets

76,~~146~~231

87,~~211~~146

76,~~146~~231

87,~~211~~146

Unamortizable intangible assets:

Trademarks

2117,~~473~~780

21,473

2117,~~473~~780

21,473

Other assets:

Financing costs, net of accumulated amortization of $17.8 million on

Financing costs, net of accumulated amortization of $8.2 million on

December 31, 2011, and $19.9 million on December 31, 2010, for

December 31, 2012, and $17.8 million on December 31, 2011, for

Verso Paper, and net of accumulated amortization of $16.1 million

Verso Paper, and net of accumulated amortization of $8.2 million

on December 31, 2011, and $18.5 million on December 31, 2010,

on December 31, 2012, and $16.1 million on December 31, 2011,

for Verso Holdings

2433,~~483~~909

2524,~~550~~483

2433,~~093~~909

24,~~800~~093

Deferred major repair

1217,~~294~~473

12,~~009~~294

1217,~~294~~473

12,~~009~~294

Deferred software cost, net of accumulated amortization of $0.8 million

Replacement parts, net

3,679

4,257

3,679

4,257

on December 31, 2011, and December 31, 2010

725

414

725

414

Replacement parts, net

4,257

4,535

4,257

4,535

Loan to affiliate

23,305

Restricted cash

3,~~560~~454

273,~~399~~560

3,~~560~~454

273,~~399~~560

Other

610,~~097~~601

56,~~204~~822

610,~~097~~601

56,~~204~~822

Total other assets

5169,~~416~~116

7551,~~111~~416

7492,~~331~~421

9774,~~666~~331

Intangibles and other assets

8093,~~035~~127

~~104~~80,~~795~~035

~~102~~116,~~950~~432

~~127~~102,~~350~~950

Certain previously reported amounts have been reclassified to agree with current presentation.

~~Amounts~~Amortization ~~reflected~~expense inof ~~depreciation~~intangibles was $0.9 million, ~~amortization~~$1.1 million, and ~~depletion~~$1.3 ~~expense~~million, ~~related~~respectively, tofor ~~intangibles~~the ~~and~~year ~~other~~ended ~~assets~~December ~~are~~31, as2012, ~~follows:~~2011, and 2010.

	Year Ended December 31,
(Dollars in thousands)	2011		2010		2009
Intangible amortization	$	1,065	$	1,265	$	1,415
Software amortization	$	483		940		1,880

The estimated future amortization expense for intangible assets over the next five years is as follows:

(Dollars in thousands)
2012	$	915
2013	$	815
2013		815
2014		715
2015		615
2016		567
2017		400

63When events or circumstances so indicate, we assess the potential impairment of intangibles and other long-lived assets by comparing the expected undiscounted future cash flows to the carrying value of those assets. During the year ended December 31, 2012, we completed a comprehensive assessment of the damage resulting from the fire and explosion at our paper mill in Sartell, Minnesota, and announced the decision to permanently close the mill. During the third quarter of 2012, as a result of the closure, we performed an interim impairment analysis of our trademarks, which resulted in an impairment charge of $3.4 million, based on a projected reduction of revenues primarily as a result of a reduction in production capacity. In performing our annual impairment test, we determined that the carrying value of our trademarks exceeded their fair value, and recognized an additional $0.3 million of impairment charge. The trademarks impairment charge is included in Restructuring charges on our statement of operations (see also Note 17).

During the fiscal quarter ended September 30, 2011, based on a combination of factors, including the difficult market conditions which have resulted in a decline in customer demand and excess capacity in the coated paper markets and high raw material, energy, and distribution costs which have challenged the profitability of our products, we concluded that sufficient indicators existed to require us to perform an interim goodwill impairment analysis as of September 30, 2011. Based on Verso Paper’s deficit equity position, we were required to perform step two of the fair-value-based goodwill impairment analysis. Due to the complexities of the step two analysis which involves an allocation of the fair value, management was unable to make a good faith estimate of the impairment during the third quarter of 2011. During the fourth quarter of 2011, we completed the second step of the goodwill impairment test by comparing the fair value of the reporting unit to the fair value of its identifiable assets and liabilities to determine the implied fair value of goodwill. Upon finalizing our analysis, we determined that the carrying value of the ‘Coated’ reporting unit exceeded its fair value, and Verso Paper recognized a goodwill impairment loss of $18.7 million and Verso Holdings recognized a goodwill impairment charge of $10.5 million. The fair value of the reporting unit was estimated using the expected present value of the reporting unit’s future cash flows, public company trading multiples and comparable transaction multiples for recent industry transactions. Inputs into these methods use information that is not generally observable (level 3 inputs). The present value of our future cash flows was based on our estimates of future revenue, expected manufacturing and operating costs including changes in working capital and capital expenditures. These assumptions were determined by management utilizing our internal operating plan, growth rates for revenues and operating expenses and margin assumptions. An additional key assumption under this approach is the discount rate, which was derived from our analysis of the weighted average cost of capital of representative public companies. Public company trading multiples and comparable recent transaction multiples are based on information derived from public company data and business acquisitions that would be considered representative of the industry. The results of these methods are weighted based on management’s evaluation of the relevance of each approach, with the income approach receiving the greatest weighting. Also as part of the second step of the goodwill impairment test, we estimated the fair value of the identifiable assets and liabilities of the reporting unit, which involves the use of unobservable inputs. The more significant estimates relate to machinery and equipment and identifiable intangible assets. The fair value of machinery and equipment was developed based on estimated replacement cost less depreciation factors for deterioration. Fair values of the identifiable intangible assets include our customer relationship assets and trade names and are based on future cash flows attributed to these assets discounted to their present value.62

WeDuring ~~may~~the ~~also~~year beended ~~required~~December to31, ~~periodically~~2011, ~~measure~~we ~~certain~~performed ~~other~~an ~~assets~~initial atassessment ~~fair~~of ~~value~~the onpotential aimpairment ~~nonrecurring~~of ~~basis, including~~ long-lived assets and other ~~intangible~~intangibles ~~assets. During~~based on the ~~year~~difficult ~~ended~~market ~~December~~conditions ~~31,~~and ~~2011,~~reduced demand we ~~did~~were ~~not~~experiencing ~~record~~and ~~any~~concluded that there was no impairment ~~charges~~since onthe undiscounted cash flows were in excess of the carrying values of long-lived assets orand other intangible assets. asIn noconnection ~~significant~~with ~~events~~our ~~occurred~~annual ~~requiring~~goodwill ~~non-financial~~impairment ~~assets~~review ~~and~~in ~~liabilities~~the 4th quarter of 2011, ~~other~~we ~~than~~determined that there was an indication of impairment. As a result we completed the second step of the goodwill, toimpairment betest ~~measured~~by atcomparing the fair value ~~(subsequent~~of tothe ~~initial~~reporting ~~recognition). During~~unit to the ~~years~~fair ~~ended~~value ~~December~~of ~~31,~~its ~~2010~~identifiable assets and ~~2009~~liabilities to determine the implied fair value of goodwill. Based on our analysis, we ~~did~~determined ~~not~~that ~~record~~the ~~any~~carrying ~~impairment~~value ~~charges~~of onthe ~~long-lived~~‘Coated’ ~~assets~~reporting unit exceeded its fair value, and Verso Paper recognized a goodwill, orimpairment ~~other~~loss ~~intangible~~of ~~assets~~$18.7 asmillion and Verso Holdings recognized a goodwill impairment charge of $10.5 million. There were no significant events ~~requiring~~or ~~non~~circumstances indicative of impairment of long-~~financial~~lived assets ~~and~~or ~~liabilities~~other tointangibles befor ~~measured~~the atyear ~~fair~~ended December 31, 2010, therefore there was no comparison of projected undiscounted cash flows to carrying value ~~occurred~~performed or impairment recorded.

67. ACCRUED LIABILITIES

A summary of accrued liabilities is as follows:

VERSO PAPER

VERSO HOLDINGS

December 31,

(Dollars in thousands)

~~2011~~2012

~~2010~~2011

~~2011~~2012

~~2010~~2011

Accrued interest

4956,~~197~~013

49,~~493~~197

4855,~~391~~060

48,~~606~~391

Payroll and employee benefit costs

4837,~~930~~721

4748,~~981~~930

4837,~~930~~721

4748,~~981~~930

Accrued sales rebates

1511,~~039~~138

1315,~~677~~039

1511,~~039~~138

1315,~~677~~039

Restructuring costs

10,763

Derivatives

3,909

10,047

3,909

10,047

Derivatives

10,047

2,327

10,047

2,327

Restructuring costs

5,098

10,763

5,098

10,763

Accrued taxes - other than income

1,~~672~~584

1,~~461~~672

1,~~404~~478

1,~~461~~404

Freight and other

54,~~108~~717

45,~~871~~108

54,~~108~~717

45,~~871~~108

Accrued liabilities

~~140~~120,~~756~~180

~~119~~140,~~810~~756

~~139~~119,~~682~~121

~~118~~139,~~923~~682

6463

78. ~~LONG-TERM~~ DEBT

A summary of long-term debt is as follows:

		December 31, 2011									December 31, 2010
		December 31, 2012									December 31, 2011
	Original	Interest						Fair						Fair
(Dollars in thousands)	Maturity	Rate			Balance			Value			Balance			Value
Verso Paper Holdings LLC
Revolving Credit Facility	8/1/2012		-		$	-		$	-		$	-		$	-
Revolving Credit Facilities	5/4/2017	-			$	-		$	-		$	-		$	-
11.5% Senior Secured Notes (1)	7/1/2014	11.50	~~11.50~~%	%		~~302,820~~-			~~316,260~~-			~~332~~302,~~135~~820			~~384~~316,~~125~~260
9.13% Second Priority Senior Secured Notes	8/1/2014		9.13	%		-			-			337,080			347,192
11.75% Senior Secured Notes (2)	1/15/2019	11.75	%			341,493			361,388			-			-
8.75% Second Priority Senior Secured Notes (2)	2/1/2019		8.75	%		394,736			257,063			-			-
11.75% Secured Notes	1/15/2019	11.75	%			271,573			198,248			-			-
Second Priority Senior Secured Floating Rate Notes	8/1/2014		4.18	%		180,216			112,635			180,216			162,194
8.75% Second Priority Senior Secured Notes (3)	2/1/2019	8.75	%			394,871			159,960			394,736			257,063
11.38% Senior Subordinated Notes	8/1/2016		11.38	%		300,000			122,550			300,000			300,750
Second Priority Senior Secured Floating Rate Notes	8/1/2014	4.06	%			13,310			9,650			180,216			112,635
11.38% Senior Subordinated Notes	8/1/2016	11.38	%			142,500			58,995			300,000			122,550
Chase NMTC Verso Investment Fund LLC
Loan from Verso Paper Finance Holdings LLC	12/29/2040	6.50	~~6.50~~%	%		23,305			23,305			23,305			23,305
Total debt for Verso Paper Holdings LLC						1,201,077			831,813			1,172,736			1,217,566
Total long-term debt for Verso Paper Holdings LLC						1,187,052			811,546			1,201,077			831,813
Verso Paper Finance Holdings LLC
Senior Unsecured Term Loan	2/1/2013	7.31	~~6.83~~%	%		8493,~~687~~212			4691,~~578~~348			7984,~~180~~687			7646,~~409~~578
Loan from Verso Paper Holdings LLC	12/29/2040	6.50	~~6.50~~%	%		23,305			23,305			23,305			23,305
Eliminate loans from affiliates	12/29/2040		6.50	%		(46,610	)		(46,610	)		(46,610	)		(46,610	)
Less current maturities of long-term debt	2/1/2013	7.31	%			(8,501	)		(8,331	)		-			-
Total debt for Verso Paper Corp.					$	1,262,459		$	855,086		$	1,228,611		$	1,270,670
Less loans from affiliates	12/29/2040	6.50	%			(46,610	)		(46,610	)		(46,610	)		(46,610	)
(1) Par value of $315,000 on December 31, 2011, and $350,000 on December 31, 2010.
Total long-term debt for Verso Paper Corp.					$	1,248,458		$	871,258		$	1,262,459		$	855,086
(2) Par value of $396,000 on December 31, 2011.
(1) Par value of $315,000 on December 31, 2011.
(2) Par value of $345,000 on December 31, 2012.
(3) Par value of $396,000 on December 31, 2012 and 2011.

We determine the fair value of our ~~long-term~~ debt based on market information and a review of prices and terms available for similar obligations. Our debt is classified as Level 2 within the fair value hierarchy (see also Note 15).

Amounts included in interest expense related to ~~long-term~~ debt and amounts of cash interest payments on ~~long-term~~ debt are as follows:

VERSO PAPER

VERSO HOLDINGS

Year Ended December 31,

(Dollars in thousands)

~~2011~~2012

~~2010~~2011

~~2009~~2010

~~2011~~2012

~~2010~~2011

~~2009~~2010

Interest expense

~~124~~133,~~895~~644

~~123~~124,~~695~~895

~~118~~123,~~013~~695

~~120~~126,~~861~~486

~~118~~120,~~506~~861

~~111~~118,~~263~~506

Cash interest paid

~~115~~113,~~651~~334

115,~~405~~651

90115,~~713~~405

~~117~~114,~~043~~849

~~115~~117,~~405~~043

90115,~~713~~405

Debt issuance cost amortization(1)

5,~~396~~317

5,~~650~~396

5,~~748~~650

54,~~036~~957

5,~~290~~036

5,~~264~~290

(1) Amortization of debt issuance cost is included in interest expense.

Revolving Credit ~~Facility~~Facilities. On May 4, 2012, Verso Holdings’ entered into new revolving credit facilities consisting of a $~~200~~150.0 million asset-based loan facility, or “ABL Facility,” and a $50.0 million cash-flow facility, or “Cash Flow Facility.” The revolving credit ~~facility~~facilities ~~had~~were noused ~~amounts~~to repay the outstanding, indebtedness under the prior $40200.8 0 million inrevolving ~~letters~~credit offacility and will be used to provide ongoing working capital and for other general corporate purposes. In connection with the revolving credit ~~issued~~facilities, ~~and~~debt issuance costs of approximately $~~159~~9.23 million ~~available~~were ~~for~~deferred ~~future~~and ~~borrowing~~will asbe amortized over the life of ~~December~~the ~~31,~~credit ~~2011~~facilities. The indebtedness under the revolving credit ~~facility~~facilities bears interest, ~~payable quarterly,~~ at a floating rate ~~equal~~based toon ~~LIBOR~~a ~~plus~~margin 3%over ora ~~prime~~base ~~plus~~rate 2%or ~~per~~eurocurrency ~~year~~rate. Verso Holdings is required to pay a commitment ~~fee~~fees to the lenders in respect of unutilized commitments under the revolving credit ~~facility~~facilities atand aother ~~rate~~customary ~~equal~~fees. The toindebtedness ~~0.5%~~under ~~per~~the ~~year~~ABL Facility and ~~customary~~related ~~letter~~guarantees ofare ~~credit~~secured ~~and~~by ~~agency~~first-priority ~~fees. The~~security ~~indebtedness~~interests, ~~under~~subject ~~the~~to ~~revolving~~permitted ~~credit~~liens, ~~facility~~in issubstantially ~~guaranteed~~all ~~jointly~~of ~~and~~Verso ~~severally~~Holdings’, by Verso Finance’s, and ~~each~~the ofsubsidiary ~~Verso Holdings~~guarantors’ ~~subsidiaries~~inventory and accounts receivable, ~~subject~~or to“ABL ~~certain~~Priority ~~exceptions~~Collateral,” and ~~the~~second-priority ~~indebtedness~~security ~~and~~interests, ~~guarantees~~subject ~~are~~to ~~senior~~permitted ~~secured~~liens, ~~obligations~~in ofsubstantially ~~Verso~~all ~~Holdings~~of ~~and~~their ~~the~~other ~~guarantors~~assets, ~~respectively~~or “Notes Priority Collateral.” The indebtedness under the ~~revolving~~Cash ~~credit~~Flow ~~facility~~Facility and related guarantees are secured, pari passu with the 11.75% Senior Secured Notes due 2019 and related guarantees, by first-priority security interests in the Notes Priority Collateral and second-priority ~~liens~~security interests in the ABL Priority Collateral. The revolving credit facilities will mature on May 4, ~~subject~~2017, unless, on any of the dates that is 91 days prior to ~~permitted~~the ~~liens~~earliest scheduled maturity of any of the Second Priority Senior Secured Floating Rate Notes due 2014, onthe ~~substantially~~11.38% ~~all~~Senior Subordinated Notes, or the senior unsecured term loan, an aggregate principal amount in excess of ~~Verso~~$100.0 ~~Holdings’~~million of indebtedness under such existing second-lien notes, ~~Verso~~subordinated ~~Finance’s~~notes or senior unsecured term loan, ~~and~~as applicable, is outstanding, in which case the ~~subsidiary~~revolving ~~guarantors’~~credit ~~tangible~~facilities will mature on such earlier date. The ABL Facility had no amounts outstanding, $43.0 million in letters of credit issued, and ~~intangible~~$91.9 ~~assets~~million available for future borrowing as of December 31, 2012. The ~~revolving~~Cash Flow Facility had no outstanding balance, no letters of credit ~~facility~~issued, ~~matures~~and on$50.0 ~~August~~million 1available for future borrowing as of December 31, 2012.

11.5% Senior Secured Notes due 2014. On March 21, 2012, Verso Holdings repurchased and retired $270.6 million aggregate principal amount of 11.5% Senior Secured Notes due 2014 and recognized a loss of $29.9 million, which is included in Other (loss) income, net on our accompanying consolidated statements of operations, on the early retirement of the notes, including the write-off of unamortized debt issuance costs and unamortized discount related to the notes. On April 30, 2012, Verso Holdings redeemed the remaining outstanding $44.4 million aggregate principal amount of the notes and recognized a loss of $4.6 million, which is included in Other (loss) income, net on our accompanying consolidated statements of operations, on the early retirement of the notes, including the write-off of unamortized debt issuance costs and unamortized discount related to the notes. Following these transactions, there are no outstanding 11.5% Senior Secured Notes due 2014.

11.75% Senior Secured Notes due 2019. On March 21, 2012, Verso Holdings issued $345.0 million aggregate principal amount of 11.75% Senior Secured Notes due 2019. The notes bear interest, payable semi-annually, at the rate of 11.75% per year. The notes are guaranteed jointly and severally by each of Verso Holdings’ subsidiaries, subject to certain exceptions, and the notes and guarantees are senior secured obligations of Verso Holdings and the guarantors, respectively. The indebtedness under the notes and related guarantees are secured, pari passu with the Cash Flow Facility and related guarantees, by first-priority security interests in the Notes Priority Collateral and second-priority security interests in the ABL Priority Collateral. The notes will mature on January 15, 2019; provided, however, that, if as of 45 days prior to the maturity dates of our 11.375% Senior Subordinated Notes due 2016, more than $100,000,000 of such Senior Subordinated Notes remains outstanding, the notes will mature on that day.

Verso Holdings used $332.0 million of net proceeds from the notes issuance, after deducting the discount, underwriting fees and offering expenses, along with $0.6 million of available cash, to repurchase and retire $270.6 million and to redeem $44.4 million aggregate principal amount of its 11.5% Senior Secured Notes due 2014. Debt issuance costs of approximately $10.1 million were deferred and will be amortized over the life of the notes.

11.75% Secured Notes due 2019. On May 11, 2012, Verso Holdings issued $271.6 million aggregate principal amount of 11.75% Secured Notes due 2019. The notes bear interest, payable semi-annually, at the rate of 11.75% per year. The notes are guaranteed jointly and severally by each of Verso Holdings’ subsidiaries, subject to certain exceptions, and the notes and guarantees are senior secured obligations of Verso Holdings and the guarantors, respectively. The notes and related guarantees are secured by security interests, subject to permitted liens, in substantially all of Verso Holdings’ and the guarantors’ tangible and intangible assets. The security interests securing the notes rank junior to those securing the obligations under the ABL Facility, the Cash Flow Facility, and the 11.75% Senior Secured Notes due 2019 and rank senior to those securing the 8.75% Second Priority Senior Secured Notes due 2019 and the Second Priority Senior Secured Floating Rate Notes due 2014. The notes will mature on January 15, 2019.

OnVerso ~~February~~Holdings ~~17,~~issued ~~2012,~~the wenotes ~~obtained~~pursuant to two separate exchange offers whereby it (a) issued $~~100~~166.09 million aggregate principal amount of ~~commitments~~the ~~with~~notes ~~respect~~and topaid ~~the~~$5.0 ~~syndication~~million in cash in exchange for $166.9 million aggregate principal amount of aits ~~new~~Second ~~accounts~~Priority ~~receivable~~Senior ~~securitization~~Secured ~~facility~~Floating Rate Notes due 2014 and ~~approximately~~(b) issued $55104.07 million ofaggregate ~~commitments~~principal toamount ~~provide~~of athe ~~new~~notes and~~/or~~ ~~extended~~paid ~~revolving~~$17.3 ~~facility~~million ~~under~~in ~~our~~cash ~~existing~~in ~~senior~~exchange ~~secured~~for ~~revolving~~$157.5 ~~credit~~million ~~facility~~aggregate principal amount of the 11.38% ~~The~~Senior ~~accounts~~Subordinated ~~receivable~~Notes ~~facility~~due ~~will~~2016. Verso ~~bear~~Holdings ~~interest~~recognized ata antotal ~~initial~~gain ~~rate~~of $26.3 million, net of ~~LIBOR~~the ~~plus~~write-off ~~2.00%~~of ~~and~~unamortized debt issuance costs, from the ~~revolving~~exchanges, ~~facility~~which ~~will~~is ~~bear~~included ~~interest~~in atOther an(loss) ~~initial~~income, ~~rate~~net ofon ~~LIBOR~~our ~~plus~~accompanying 4consolidated statements of operations.~~50%.~~ ~~The~~Following ~~terms~~the exchanges, $13.3 million aggregate principal amount of the Second Priority Senior Secured Floating Rate Notes and ~~conditions~~$142.5 million aggregate principal amount of ~~our~~the ~~existing~~11.38% ~~revolving~~Senior ~~credit~~Subordinated ~~facility~~Notes remain inoutstanding. Debt ~~full~~issuance ~~force~~costs ~~and~~of ~~effect~~approximately $5.4 million were deferred and ~~have~~will ~~not~~be ~~been~~amortized ~~altered~~over bythe ~~these~~life ~~new~~of ~~commitments~~the notes.

118.575% Second Priority Senior Secured Notes due ~~2014~~2019. In ~~June 2009 and January 2010~~2011, Verso Holdings issued $~~325~~396.0 million ~~and $25 million, respectively,~~ aggregate principal amount of 118.575% ~~senior~~ ~~secured~~Second ~~notes~~Priority ~~due~~Senior ~~2014. On~~Secured ~~March~~Notes ~~14,~~due ~~2011, Verso Holdings repurchased and retired a total of $35 million aggregate principal amount of the notes~~2019. The notes bear interest, payable semi-annually, at the rate of 118.575% per year. The notes are guaranteed jointly and severally by each of Verso Holdings’ subsidiaries, subject to certain exceptions, and the notes and guarantees are senior secured obligations of Verso Holdings and the guarantors, respectively. The notes and related guarantees are secured by ~~first~~second priority liens, subject to permitted liens, on substantially all of Verso Holdings’ and the guarantors’ tangible and intangible assets, excluding securities of Verso Holdings’ affiliates. The notes mature on ~~July~~February 1, ~~2014~~2019.

~~8.75%~~ Second Priority Senior Secured Floating Rate Notes due ~~2019~~2014. OnIn ~~January~~August 262006, ~~2011, and February 10, 2011,~~ Verso Holdings issued $~~360~~250 million ~~and $36 million, respectively,~~ aggregate principal amount of ~~8.75%~~Second ~~second~~Priority ~~priority~~Senior ~~senior~~Secured ~~secured~~Floating ~~notes~~Rate Notes due ~~2019~~2014. ~~The~~As ~~notes~~of ~~bear~~December ~~interest~~31, ~~payable semi-annually~~2012, ~~at the rate of 8.75% per year. The notes are guaranteed jointly and severally by each of~~ Verso Holdings’ ~~subsidiaries,~~had ~~subject~~repurchased ~~to certain exceptions,~~ and ~~the~~retired ~~notes~~a ~~and~~total ~~guarantees~~of ~~are~~$236.7 ~~senior~~million ~~secured~~aggregate ~~obligations~~principal amount of ~~Verso Holdings and~~ the ~~guarantors, respectively~~notes. The notes ~~and~~bear ~~related~~interest, ~~guarantees~~payable ~~are~~quarterly, ~~secured~~at bya ~~second~~rate ~~priority~~equal ~~liens, subject~~ to ~~permitted~~LIBOR ~~liens,~~plus on3.75% ~~substantially~~per ~~all~~year. As of ~~Verso~~December ~~Holdings’~~31, ~~and~~2012, the ~~guarantors’~~interest ~~tangible~~rate ~~and~~on ~~intangible~~the ~~assets,~~notes ~~excluding~~was ~~securities~~4.06% ofper ~~Verso Holdings’ affiliates~~year. The notes mature on ~~February~~August 1, ~~2019~~2014.

~~The net proceeds from the issuance of the 8~~11.7538% ~~second~~Senior ~~priority~~Subordinated ~~senior~~Notes ~~secured~~due ~~notes on January 26, 2011, after deducting the discount, underwriting fees and offering expenses, were $347~~2016.~~8 million.~~ OnIn ~~January~~August 262006, ~~2011, and February 9, 2011,~~ Verso Holdings ~~used~~issued ~~a total of~~ $~~326.1~~300 million ~~of the net proceeds to repurchase and retire a total of $310.5 million~~ aggregate principal amount of ~~its 9~~11.1338% ~~second~~Senior ~~priority~~Subordinated ~~senior~~Notes ~~secured notes~~ due ~~2014~~2016. ~~pursuant~~As toof aDecember ~~tender offer. On March 11~~31, ~~2011~~2012, Verso Holdings ~~paid~~had ~~$27.8~~repurchased ~~million from the remaining net proceeds~~ and ~~available~~retired ~~cash~~a tototal ~~redeem~~of ~~the remaining outstanding~~ $26157.6 5 million aggregate principal amount of ~~its~~the ~~9.13% second priority senior secured~~ notes ~~due 2014~~. ~~Following~~ ~~such~~The ~~repurchases and redemption, there are no longer any outstanding 9.13% second priority senior secured~~ notes ~~due~~bear ~~2014~~interest, ~~and~~payable ~~Verso Holdings recognized a total loss of $22.5 million, including the write~~semi-~~off of unamortized debt issuance costs. The net proceeds from the issuance of the 8.75% second priority senior secured notes on February 10~~annually, ~~2011,~~at ~~including a premium and after deducting~~ the ~~underwriting~~rate ~~fees and offering expenses, were $36.1 million. On March 14, 2011, Verso Holdings used these net proceeds to redeem and retire $35 million aggregate principal amount~~ of ~~its~~ 11.538% ~~senior~~ ~~secured~~per ~~notes due 2014~~year. As aThe ~~result~~notes ofmature ~~such~~on ~~repurchase,~~August ~~Verso Holdings recognized a loss of $3.6 million~~1, ~~including the write-off of unamortized debt issuance costs~~2016.

Senior Unsecured Term Loan. Verso Finance, the parent entity of Verso Holdings, had $93.2 million outstanding on its senior unsecured term loan as of December 31, 2012. The loan allows Verso Finance to pay interest either in cash or in kind through the accumulation of the outstanding principal amount. The loan bears interest at a rate equal to LIBOR plus 7.00% per year for interest paid in kind, or “PIK” As of December 31, 2012, the interest rate on the loan was 7.31% per year. Verso Finance elected to exercise the PIK option for $8.5 million, $5.5 million, and $5.1 million of interest payments due in 2012, 2011, and 2010 respectively.

On January 31, 2013, Verso Holdings issued $72.9 million aggregate principal amount of its 11.75% Senior Secured Notes due 2019 to certain lenders holding approximately $85.8 million aggregate principal amount of Verso Finance’s Senior Unsecured Term Loans, and net accrued interest through the closing date, at an exchange rate of 85%, in exchange for the assignment to Verso Finance of its Senior Unsecured Term Loans and the cancellation of such loans. There are no longer any outstanding Senior Unsecured Term Loans. In accordance with ASC Topic 470, the Senior Unsecured Term Loans exchanged on January 31, 2013 are reflected in Long-term debt on the accompanying consolidated balance sheet as of December 31, 2012.

~~11.38% Senior Subordinated Notes due 2016. In August 2006, Verso Holdings issued $300 million aggregate principal amount of 11.38% senior subordinated notes due 2016.~~ The ~~notes~~payments ~~bear~~required ~~interest,~~under ~~payable semi-annually, at~~ the ~~rate~~debt oflisted ~~11.38%~~above ~~per~~during ~~year. The~~the ~~notes~~years ~~are~~following ~~guaranteed~~December ~~jointly and severally by each of Verso Holdings’ subsidiaries~~31, ~~subject to certain exceptions~~2012, ~~and the notes and guarantees~~ are ~~unsecured~~set ~~senior~~forth ~~subordinated obligations of Verso Holdings and the guarantors, respectively. The notes mature on August 1, 2016.~~below:

Verso Finance Senior Unsecured Term Loan. Verso Finance, the parent entity of Verso Holdings, had $84.7 million outstanding on its senior unsecured term loan as of December 31, 2011. The loan allows Verso Finance to pay interest either in cash or in kind through the accumulation of the outstanding principal amount. The loan bears interest, payable quarterly, at a rate equal to LIBOR plus 6.25% per year on interest paid in cash and LIBOR plus 7.00% per year for interest paid in kind, or “PIK,” and added to the principal balance. As of December 31, 2011, the weighted-average interest rate on the loan was 6.83% per year. Verso Finance elected to exercise the PIK option for $5.5 million, $5.1 million, and $8.9 million of interest payments due in 2011, 2010, and 2009, respectively. The loan matures on February 1, 2013.

	VERSO		VERSO
(Dollars in thousands)	PAPER (1)		HOLDINGS
2013	$	8,501	$	-
2014		13,310		13,310
2015		-		-
2016		142,500		142,500
2017		-		-
2018 and thereafter		1,097,284

Filing Compare · Verso Paper Holdings LLC