CNST Constellation Pharmaceuticals Inc

Constar International Inc. (NASDAQ: CNST) today announced its financial results for the first quarter of 2007. Commenting on the first quarter results, Michael Hoffman, CEO and President of Constar stated, �The first quarter marks the fifth consecutive quarter of improved Credit Agreement EBITDA as compared to the prior year periods. Credit Agreement EBITDA, which includes a one-time charge of approximately $0.4 million, increased 5.2 percent to $12.8 million for the first quarter of 2007. While volumes were disappointing, the improved first quarter performance was driven by increased European profitability, better customer and product mix, and lower costs.� Consolidated net sales were $212.7 million in the first quarter of 2007 compared to $220.8 million in the first quarter of 2006. The decrease in consolidated net sales was driven by a decline in conventional and custom volumes. This decrease was partially offset by the strengthening of the British Pound and Euro against the dollar. In the U.S., net sales were $165.2 million in the first quarter of 2007 compared to $182.5 million in the first quarter of 2006. This decrease in U.S. net sales was primarily driven by volume declines. Total U.S. unit volume decreased 8.7 percent compared to the first quarter of 2006. Conventional unit volume declined 9.8 percent while custom unit volume decreased 7.9 percent compared to the first quarter of 2006. In Europe, net sales were $47.5 million in the first quarter of 2007 compared to $38.3 million in the first quarter of 2006. The increase in European net sales in the first quarter of 2007 was primarily due to favorable foreign currency translations along with increased total unit volume of 6.3 percent compared to the first quarter of 2006. Gross profit, excluding depreciation expense, decreased by $0.7 million to $19.7 million in the first quarter of 2007 compared to the first quarter of 2006. Gross profit, excluding depreciation expense, as a percentage of net sales improved to 9.3 percent in the first quarter of 2007 from 9.2 percent in the first quarter of 2006. Included in these profit figures is a $0.4 million one-time charge related to a prior period transaction. Selling and administrative and research and technology expenses were $8.3 million in the first quarter of 2007 compared to $8.7 million in the first quarter of 2006. The decrease was primarily driven by lower legal and audit fees. Operating income decreased to $3.6 million in the first quarter of 2007 compared to $3.7 million in the first quarter of 2006. This decrease in operating income primarily relates to increased restructuring expenses of $0.3 million and the one-time charge of $0.4 million, partially offset by the improved operating performance described above. Interest expense increased $0.2 million to $10.3 million in the first quarter of 2007 from $10.1 million in the first quarter of 2006. The increase is a result of a higher effective interest rate, partially offset by lower average borrowings. Other income increased $0.3 million to $0.4 million in the first quarter of 2007 compared to $0.1 million in the first quarter of 2006. The increase in other income primarily resulted from increases in royalty income, interest income, and foreign currency gains, partially offset by a decrease in the cash surrender value of life insurance policies. Net loss in the first quarter of 2007 was $6.3 million, or $0.51 loss per basic and diluted share, compared to a net loss in the first quarter of 2006 of $6.3 million, or $0.52 loss per basic and diluted share. Credit Agreement EBITDA in the first quarter of 2007 increased by $0.7 million, or 5.2 percent, to $12.8 million from $12.1 million in the first quarter of 2006. This increase was driven by the factors discussed above. Non-GAAP Measures 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 formerly contained a definition of EBITDA that made adjustments for certain items. This definition was deleted and not replaced as part of the previously reported amendments to the Credit Agreement made in the first quarter of 2007. In the first quarter of 2007, these adjustments would have amounted to $1.3 million. In the first quarter of 2006, the adjustments were $0.3 million. For consistency, the Company is reporting EBITDA on the same Credit Agreement basis. Credit Agreement EBITDA is not a GAAP-defined measure and may not be comparable to credit agreement or 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 the Company�s 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. Gross profit, excluding depreciation expense, is not a GAAP-defined measure and may not be comparable to gross profit as defined by other companies. The Company believes that gross profit, excluding depreciation expense, is a useful measure in understanding trends because it eliminates non-cash charges related to depreciation. Investors are urged to take into account GAAP measures in evaluating the Company, and to review the reconciliation of gross profit to gross profit, excluding depreciation expense in the attached unaudited consolidated statements of operations. Conference Call, Web Cast Information The Company will hold a conference call on Tuesday, May 15, 2007, 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) 289-0544 (domestic callers) or (913) 981-5533 (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 Tuesday, May 22, 2007 and can be accessed via telephone by dialing (888) 203-1112 (domestic callers) or (719) 457-0820 (international callers) and entering passcode 7681476, 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 include the Company�s relationship with its largest customers, the impact of self-manufacturing on the Company�s business, and the Company�s ability to secure new business, expand sales of custom products and improve the operating performance of its European business. Other important factors are discussed under the caption �Risk Factors� in the Company�s Form 10-K Annual Report for the year ended December 31, 2006 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, beverages and other end-use applications. 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. CONSTAR INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS COMPARISON (in thousands, except per share data) (Unaudited) Three months ended March 31, 2007� 2006� Net customer sales $ 211,615� $ 219,857� Net affiliate sales � 1,066� � 957� Net sales 212,681� 220,814� Cost of products sold, excluding depreciation 192,965� 200,406� Depreciation � 7,511� � 7,959� Gross profit � 12,205� � 12,449� � Selling and administrative expenses 6,724� 7,396� Research and technology expenses 1,614� 1,338� Provision for restructuring � 303� � 44� Total operating expenses � 8,641� � 8,778� � Operating income 3,564� 3,671� � Interest expense (10,274) (10,147) Other income (expense), net � 368� � 145� Loss from continuing operations before income taxes (6,342) (6,331) Provision for income taxes � (6) � (88) Loss from continuing operations (6,348) (6,419) Income (loss) from discontinued operations, net of taxes � 47� � 76� Net loss $ (6,301) $ (6,343) � Basic and diluted earnings (loss) per common share: Continuing operations $ (0.51) $ (0.53) Discontinued operations � -� � 0.01� Net loss per share $ (0.51) $ (0.52) � Weighted average common shares outstanding: Basic and Diluted � 12,294� � 12,197� � Three months ended March 31, 2007� 2006� Reconciliation of net loss to Credit Agreement EBITDA: Net loss $ (6,301) $ (6,343) Add back: Interest expense 10,274� 10,147� Taxes 6� 88� Depreciation � 7,511� � 7,959� EBITDA 11,490� 11,851� Other adjustments under Credit Agreement � 1,273� � 283� Credit Agreement EBITDA $ 12,763� $ 12,134� � Three months ended March 31, 2007� 2006� Reconciliation of gross profit to gross profit, excluding depreciation expense: Gross Profit $ 12,205� $ 12,449� Add back: Depreciation � 7,511� � 7,959� Gross profit, excluding depreciation expense $ 19,716� $ 20,408� Percentage of net sales � 9.3% � 9.2% � � CONSTAR INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS COMPARISON (in thousands, except par value) (Unaudited) March 31, December 31, ASSETS 2007� 2006� Current Assets: Cash and cash equivalents $ 5,866� $ 19,370� Accounts receivable, net 74,605� 61,101� Accounts receivable - related party 551� 856� Inventories, net 87,798� 83,355� Prepaid expenses and other current assets 8,826� 11,274� Deferred income taxes 2,334� 2,257� Current assets of discontinued operations � 476� � 11,602� Total current assets � 180,456� � 189,815� Property, plant and equipment, net 149,617� 148,235� Goodwill 148,813� 148,813� Other assets 14,716� 15,813� Non-current assets of discontinued operations � 1,286� � 1,286� Total assets $ 494,888� $ 503,962� � LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Short-term debt $ 2,220� $ -� Accounts payable 80,656� 82,611� Accounts payable - related party 886� 950� Accrued expenses and other current liabilities 37,181� 31,433� Current liabilities of discontinued operations � 275� � 8,680� Total current liabilities � 121,218� � 123,674� Long-term debt 393,530� 393,466� Pension and postretirement liabilities 18,068� 19,143� Deferred income taxes 2,334� 2,257� Other liabilities 8,468� 8,117� Non-current liabilities of discontinued operations � 2,742� � 2,144� Total liabilities � 546,360� � 548,801� � Commitments and contingent liabilities � Stockholders' deficit: Preferred Stock, $.01 par value - none issued or outstanding at March 31, 2007 and December 31, 2006 -� -� Common stock, $.01 par value - 12,809 shares issued; 12,560 shares and 12,576 shares outstanding at March 31, 2007 and December 31, 2006, respectively 125� 125� Additional paid-in capital 275,904� 275,754� Accumulated other comprehensive loss (18,634) (18,958) Treasury stock, at cost - 247 and 233 shares at March 31, 2007 and December 31, 2006, respectively (832) (704) Accumulated deficit � (308,035) � (301,056) Total stockholders' deficit � (51,472) � (44,839) Total liabilities and stockholders' deficit $ 494,888� $ 503,962� � CONSTAR INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOW COMPARISON (in thousands) (Unaudited) Three months ended March 31, 2007� 2006� Cash flows from operating activities: Net loss $ (6,301) $ (6,343) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,118� 8,729� Bad debt expense (recovery) -� (506) Restructuring and other exit activities (163) (83) Stock-based compensation 418� 239� Reclassification gain of foreign currency translation adjustments (142) -� Deferred income taxes -� 28� Gain on disposal of assets (80) (36) Minority interest (83) 19� Changes in operating assets and liabilities: Accounts receivable (2,000) (5,520) Inventories (4,247) (6,415) Prepaid expenses and other current assets 2,671� 974� Accounts payable and accrued expenses (5,460) (461) Change in outstanding overdrafts 561� 640� Pension and postretirement benefits � (221) � 316� Net cash used in operating activities � (6,929) � (8,419) � Cash flows from investing activities: Purchases of property, plant and equipment (8,649) (6,680) Proceeds from the sale of property, plant and equipment � 80� � 36� Net cash used in investing activities � (8,569) � (6,644) � Cash flows from financing activities: Proceeds from Revolver loan 193,427� 223,265� Repayment of Revolver loan (191,207) (208,130) Costs associated with debt financing (248) (299) Repayment of other debt -� (1,540) Other � -� � (35) Net cash provided by financing activities � 1,972� � 13,261� Effect of exchange rate changes on cash and cash equivalents � 22� � 61� Net increase (decrease) in cash and cash equivalents (13,504) (1,741) Cash and cash equivalents at beginning of period � 19,370� � 9,663� Cash and cash equivalents at end of period $ 5,866� $ 7,922�