CNST Constellation Pharmaceuticals Inc

Constar International Inc. (NASDAQ: CNST) today announced its financial results for the second quarter and six months ended June 30, 2006. Second Quarter Results: Highlights when compared to the second quarter of 2005 include: -- Custom unit sales increased 34.7 percent. -- Gross profit percentage improved to 8.2 percent from 4.0 percent. -- Operating income improved to $10.2 million from $2.6 million. -- Credit Agreement EBITDA of $22.7 million, up 49.3 percent from $15.2 million. -- Income from continuing operations of $0.7 million compared to $7.8 million loss. "Impressive execution of our strategy to grow high margin custom sales, improved pricing, pass through of energy surcharges, and reduced costs yielded improved results in the quarter," said Michael Hoffman, Constar's CEO and President. He added, "Credit Agreement EBITDA increased by 49.3 percent or $7.5 million despite higher administrative costs incurred during the quarter and we generated positive cash flow of $3.4 million after investing activities. We are pleased with our positive performance in the quarter." Consolidated net sales increased $0.6 million, or 0.2 percent, to $258.5 million in the 2006 second quarter compared to $257.9 million in the second quarter of 2005. This increase in consolidated net sales was primarily driven by increased shipments of custom products, partially offset by unfavorable foreign currency translations, and a slight decline in conventional unit volumes. In the U.S., net sales increased $5.0 million, or 2.5 percent, to $205.6 million in the second quarter of 2006 from $200.6 million in the second quarter of 2005. This increase in U.S. net sales in 2006 was due to increased sales of custom units, improved product mix and the impact of the Company's strategic value initiative, partially offset by lower unit sales of conventional products. Total U.S. unit volume increased 1.6 percent over the second quarter of 2005. In the 2006 second quarter, custom unit volume growth was 34.7 percent while conventional unit volume declined 4.3 percent compared to the 2005 second quarter. In Europe, net sales decreased $4.4 million, or 7.7 percent, to $52.9 million in the second quarter of 2006 from $57.3 million in the second quarter of 2005. The decrease in European net sales in the second quarter of 2006 was principally due to the weakening of the British Pound and Euro against the U.S. Dollar. U.S. net sales accounted for 79.6 percent of net sales in the second quarter of 2006 compared to 77.8 percent of net sales in 2005. Gross profit increased $10.8 million to $21.2 million or 8.2 percent of consolidated net sales in the second quarter of 2006 from $10.4 million in the second quarter of 2005 or 4.0 percent of consolidated net sales. The increase reflects greater custom sales units, favorable product mix, benefits from the Company's strategic value initiative, improved pricing related to the settlement of a pricing dispute which contributed to approximately 20 percent of the improvement, improved operating efficiencies in our U.S. manufacturing operations and reduced depreciation expense. The second quarter gross profit gains were partially offset by a non-cash depreciation adjustment of $1.8 million resulting from a review of property, plant and equipment. Selling and administrative expenses increased $2.1 million, or 34.4 percent, to $8.2 million in the second quarter of 2006 from $6.1 million in the second quarter of 2005. This increase in 2006 was primarily related to the absence of incentive accruals in 2005 along with higher legal, audit and Sarbanes-Oxley related expenses. In the second quarter of 2006, the Company recorded a non-cash asset impairment charge of $0.9 million to write down the carrying value of an asset to fair value. Operating income was $10.2 million in the second quarter of 2006 compared to $2.6 million in the second quarter of 2005. This increase in the operating income in 2006 compared to 2005 was primarily related to the improved operating performance described above, partially offset by the increase in selling and administrative expenses. Interest expense increased $1.1 million to $10.5 million in the second quarter of 2006 from $9.4 million in the second quarter of 2005 as a result of a higher effective interest rate and higher average borrowings. Other income was $0.9 million in the second quarter of 2006 compared to other expense of $0.7 million in the second quarter of 2005. The income in 2006 primarily resulted from the positive impact of changes in foreign currency translation rates on intra-company balances and from royalty income. Net income was $0.2 million in the second quarter of 2006, or $0.01 income per basic and diluted share, compared to a net loss of $7.7 million, or $0.63 loss per basic and diluted share, in the second quarter of 2005. The Company's Turkish joint venture ceased operations in May 2006 and has been classified as discontinued operations for all periods in the attached financial statements. Credit Agreement EBITDA in the second quarter increased 49.3 percent to $22.7 million from $15.2 million in the second quarter of 2005. This increase was primarily due to higher gross profit excluding depreciation expense partially offset by increased operating expenses. EBITDA is defined by the Company as net income (loss) before interest expense, provision for income taxes, depreciation and amortization. The Company's Credit Agreement adjusts EBITDA for certain items. In the second quarter of 2006, these adjustments amounted to $1.3 million. In the second quarter of 2005, these adjustments were $1.9 million. Credit Agreement EBITDA is not a GAAP-defined measure and may not be comparable to adjusted EBITDA as defined by other companies. Management believes that investors, analysts and other interested parties view our ability to generate Credit Agreement EBITDA as an important indicator of our operating performance. Management also believes that Credit Agreement EBITDA is a useful measure in understanding trends because it eliminates various non-operational and non-recurring items. In addition, Credit Agreement EBITDA facilitates comparisons to operating performance in prior periods, and is used by the Company in setting incentive plan targets. Investors are urged to take into account GAAP measures in evaluating the Company, and to review the reconciliation of Credit Agreement EBITDA to net income (loss) in the attached unaudited consolidated statements of operations. First Six Months Results: Consolidated net sales increased $9.5 million, or 2.0 percent, to $484.2 million in the six months ended June 30, 2006 from $474.7 million in the six months ended June 30, 2005. The increase in consolidated net sales was primarily driven by the increase in custom sales units, improved product mix, and the benefits from the Company's strategic value initiative, partially offset by unfavorable foreign currency translations. In the U.S., net sales increased $17.0 million, or 4.6 percent, to $388.1 million in the six months ended June 30, 2006 from $371.1 million in the six months ended June 30, 2005. This increase in U.S. net sales reflects the increase in custom sales units, improved product mix and the benefits of the Company's strategic value initiative. Total U.S. unit volume increased 3.3 percent over the first six months of 2005. This increase reflects custom unit volume growth of 37.4 percent, which was offset by a 2.9 percent decrease in conventional unit volume. In Europe, net sales decreased $7.5 million, or 7.3 percent, to $96.1 million in the six months ended June 30, 2006 from $103.6 million in the six months ended June 30, 2005. This decrease in European net sales in the six months of 2006 was due to the weakening of the British Pound and Euro against the U.S. Dollar along with the pass through of lower resin costs to customers. U.S. net sales accounted for 80.2 percent of net sales in the first six months of 2006 compared to 78.2 percent of net sales in the first six months of 2005. Gross profit increased $17.0 million to $33.7 million, or 7.0 percent of consolidated net sales in the six months ended June 30, 2006, from $16.7 million, or 3.5 percent of consolidated net sales in the six months ended June 30, 2005. The increases primarily reflect the growth in custom sales units, improved product mix, the benefits of the Company's strategic value initiative, improved operating efficiencies in our U.S. manufacturing operations and $3.7 million less in depreciation expense. Selling and administrative expenses increased $3.6 million, or 28.7 percent, to $15.8 million in the six months ended June 30, 2006 from $12.2 million in the six months ended June 30, 2005. This increase in 2006 primarily related to the absence of incentive accruals in 2005 along with higher legal, audit and Sarbanes-Oxley related expenses. In connection with its February 2005 refinancing, the Company repaid amounts outstanding under its former revolving loan facility and two term loans. As a result of these repayments, last year the Company wrote off approximately $6.5 million of the remainder of the deferred financing costs related to those three facilities and incurred prepayment penalties of approximately $3.5 million. As noted above, during the 2006 second quarter, the Company recorded a non-cash asset impairment charge of $0.9 million to write down the carrying value of an asset to fair value. Operating income was $13.8 million in the six months ended June 30, 2006 compared to an operating loss of $8.7 million in the six months ended June 30, 2005. This increase in operating income in the first six months of 2006 compared to the first six months of 2005 was primarily related to the improved operating performance described above, and the absence in 2006 of the $10.0 million write-off of deferred financing costs and prepayment penalties associated with the 2005 refinancing. Interest expense increased $1.6 million to $20.6 million in the six months ended June 30, 2006 from $19.0 million in the six months ended June 30, 2005 as a result of a higher effective interest rate and higher average borrowings. In the first half of the year the Company reported other income of $1.2 million compared to other expense of $0.3 million in the first six months of 2005. The income in 2006 was primarily from the positive impact of the changes in the foreign currency translation rates on intra-company balances and royalty income. Net loss in the six months ended June 30, 2006 was $6.2 million, or $0.50 loss per basic and diluted share, compared to a net loss of $27.7 million, or $2.29 loss per basic and diluted share in the six months ended June 30, 2005. Credit Agreement EBITDA for the six months ended June 30, 2006 increased 31.7 percent to $34.9 million over $26.5 million in the first half of 2005. This increase was primarily due to higher gross profit excluding depreciation expense, partially offset by increased operating expenses. EBITDA is defined by the Company as net income (loss) before interest expense, provision for income taxes, depreciation and amortization. The Company's Credit Agreement adjusts EBITDA for certain items. In the six months ended June 30, 2006, these adjustments amounted to $1.5 million. In the six months ended June 30, 2005, these adjustments were $12.8 million, which included the write-off of deferred financing costs of $10.0 million. Conference Call, Web Cast Information The Company will hold a conference call on Monday August 14, 2006, at 9:00 a.m. ET to discuss this news release. Forward-looking and other material information will be discussed on this conference call. The dial-in numbers for the conference call are (800) 810-0924 (domestic callers) or (913) 981-4900 (international callers). The conference call will also be broadcast live over the internet and can be accessed via the Company's website: www.constar.net. Please log on approximately 15 minutes prior to the call to register and download any necessary audio software. A replay of the broadcast will be available from 1:00 p.m. ET that day until midnight on Monday, August 21, 2006 and can be accessed via telephone by dialing (888) 203-1112 (domestic callers) or (719) 457-0820 (international callers) and entering passcode 5319774, or via the web at www.constar.net where it will be archived. Cautionary Note Regarding Forward-Looking Statements Except for historical information, all information in this news release consists of forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve a number of risks, uncertainties and other factors, which may cause the actual results to be materially different from those expressed or implied in the forward-looking statements. Important factors that could cause the statements made in this news release or the actual results of operations or financial condition of the Company to differ are discussed under the caption "Risk Factors" in the Company's Form 10-K Annual Report for the year ended December 31, 2005 and in subsequent filings with the Securities and Exchange Commission made prior to, on or after the date hereof. The Company does not intend to review or revise any particular forward-looking statement in light of future events. About Constar Philadelphia-based Constar is a leading global producer of PET (polyethylene terephthalate) plastic containers for food, soft drinks and water. The Company provides full-service packaging solutions, from product design and engineering, to ongoing customer support. Its customers include many of the world's leading branded consumer products companies. Tables to Follow -0- *T CONSTAR INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS COMPARISON (in thousands, except per share data) (Unaudited) Three months ended Six months ended June 30, June 30, ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Net customer sales $257,198 $256,734 $481,972 $472,481 Net affiliate sales 1,256 1,179 2,212 2,213 --------- --------- --------- --------- Net sales 258,454 257,913 484,184 474,694 Cost of products sold, excluding depreciation 226,514 236,205 431,596 435,459 Depreciation 10,757 11,328 18,839 22,527 --------- --------- --------- --------- Gross profit 21,183 10,380 33,749 16,708 --------- --------- --------- --------- Selling and administrative expenses 8,228 6,123 15,830 12,245 Research and technology expenses 1,688 1,573 3,026 3,047 Write-off of deferred financing costs - - - 10,025 Asset impairment charges 870 - 870 - Provision for restructuring 182 51 225 110 --------- --------- --------- --------- Total operating expenses 10,968 7,747 19,951 25,427 --------- --------- --------- --------- Operating income (loss) 10,215 2,633 13,798 (8,719) Interest expense 10,464 9,373 20,650 19,004 Other (income) expense, net (936) 735 (1,187) 348 --------- --------- --------- --------- Income (loss) from continuing operations before income taxes 687 (7,475) (5,665) (28,071) (Provision for) benefit from income taxes - (314) - 154 --------- --------- --------- --------- Income (loss) from continuing operations 687 (7,789) (5,665) (27,917) Income (loss) from discontinued operations, net of taxes (518) 88 (509) 168 --------- --------- --------- --------- Net Income (loss) $169 $(7,701) $(6,174) $(27,749) ========= ========= ========= ========= Basic earnings (loss) per common share: Continuing operations $0.06 $(0.64) $(0.46) $(2.30) Discontinued operations (0.05) 0.01 (0.04) 0.01 --------- --------- --------- --------- Net income(loss) per share $0.01 $(0.63) $(0.50) $(2.29) ========= ========= ========= ========= Diluted earnings (loss) per common share: Continuing operations $0.05 $(0.64) $(0.46) $(2.30) Discontinued operations (0.04) 0.01 (0.04) 0.01 --------- --------- --------- --------- Net income(loss) per share $0.01 $(0.63) $(0.50) $(2.29) ========= ========= ========= ========= Weighted average common shares outstanding: Basic 12,208 12,129 12,203 12,124 ========= ========= ========= ========= Diluted 12,540 12,129 12,203 12,124 ========= ========= ========= ========= Reconciliation of net income (loss) to Credit Agreement EBITDA: Net loss $169 $(7,701) $(6,174) $(27,749) Add back: Interest expense 10,464 9,373 20,650 19,004 Taxes - 314 - (154) Depreciation 10,757 11,328 18,839 22,527 --------- --------- --------- --------- EBITDA 21,390 13,314 33,315 13,628 Other adjustments under Credit Agreement 1,330 1,889 1,539 12,849 --------- --------- --------- --------- Credit Agreement EBITDA $22,720 $15,203 $34,854 $26,477 ========= ========= ========= ========= ------------------------------- SELECTED BALANCE SHEET DATA ------------------------------- June 30, June 30, 2006 2005 --------- --------- Cash and cash equivalents $9,371 $8,352 Debt: Revolver Loan $24,168 $20,000 Senior Notes $220,000 $220,000 Senior Subordinated Notes $175,000 $175,000 *T