CNST Constellation Pharmaceuticals Inc

Constar International Inc. (NASDAQ: CNST) today announced its financial results for the second quarter and six months ended June 30, 2007. Consolidated net sales were $240.2 million in the second quarter of 2007 compared to $252.3 million in the second quarter of 2006. Credit Agreement EBITDA, excluding restructuring charges, declined in the second quarter of 2007 to $15.7 million from $22.7 million in the second quarter of 2006. This decrease was primarily due to reduced conventional and custom unit volumes, the impact of contractual price reductions and the $4.0 million impact of last year�s pricing settlement, partially offset by reduced manufacturing costs and operating expenses. Commenting on the second quarter results, Michael Hoffman, CEO and President of Constar stated, �Our unit sales and profitability in the quarter were reflective of weaker demand for custom and conventional products. Consistent with our view of the conventional segment, demand shifted away from carbonated soft drinks. Customers also continued moving toward blowing their own water bottles. Both movements were stronger than expected. The decline in demand for custom products was mostly due to one time events and lower requirements from our existing customer base. During the quarter, we signed new custom product contracts. In addition, we are now seeing the full impact of new custom volume that only began to ship in the second quarter. As a result, we expect a return to strong custom unit growth in the second half of the year and into 2008 that will improve operating performance.� He added, �We ended the second quarter with a strong liquidity position with no borrowings and $4.1 million of letters of credit under our revolving credit facility and more than $9.0 million of cash on our balance sheet.� In the U.S., net sales were $182.9 million in the second quarter of 2007 compared to $205.6 million in the second quarter of 2006. The decrease in U.S. net sales was principally driven by declines in unit volume and the impact of contractual price reductions. Total U.S. unit volume decreased 5.2 percent over the second quarter of 2006. Conventional unit volume declined 3.5 percent, while custom unit volume decreased 7.7 percent, compared to the second quarter of 2006. In Europe, net sales were $57.3 million in the second quarter of 2007 compared to $46.7 million in the second quarter of 2006. The increase in European net sales in the second quarter of 2007 compared to the second quarter of 2006 was primarily due to a 12.2 percent increase in unit volume and favorable foreign currency translations. Gross profit, excluding depreciation expense, decreased by $8.7 million to $22.6 million in the second quarter of 2007 compared to the second quarter of 2006. Gross profit, excluding depreciation expense, as a percentage of net sales declined to 9.4 percent in the second quarter of 2007 from 12.4 percent in the second quarter of 2006. The reduced gross profit, excluding depreciation expense, primarily reflects lower volumes, contractual price reductions and the $4.0 million impact of last year�s pricing settlement, which were partially offset by lower manufacturing costs. As previously disclosed, during the second quarter of 2007 the Company recorded restructuring charges of $2.8 million, which consisted of severance costs principally related to the Company�s facility in the Netherlands. Selling and administrative and research and technology expenses were $7.0 million in the second quarter of 2007 compared to $9.5 million in the second quarter of 2006. This decrease was primarily driven by reduced compensation expense, along with lower legal and audit fees. Operating income decreased to $5.0 million in the second quarter of 2007 compared to $10.2 million in the second quarter of 2006. This decrease in operating income was driven by last year�s pricing settlement, price concessions, lower unit volumes and restructuring charges. Interest expense decreased $0.2 million to $10.3 million in the second quarter of 2007 from $10.5 million in the second quarter of 2006. The decrease reflects lower average borrowings partially offset by a higher effective interest rate. Other income decreased $0.2 million to $0.6 million from $0.8 million in the second quarter of 2006. The decrease in other income primarily resulted from reductions in foreign currency gains and miscellaneous income, partially offset by increases in interest and royalty income. Net loss in the second quarter of 2007 was $4.8 million, or $0.39 loss per basic and diluted share, compared to net income in the second quarter of 2006 of $0.2 million, or $0.01 income per basic and diluted share. First Six Months Results: Consolidated net sales were $452.9 million in the first six months of 2007 compared to $473.1 million in the first six months of 2006. The decrease in consolidated sales was primarily driven by a decline in conventional and custom unit volumes. The decline in conventional unit volume was driven by a decrease in water volume due to the continued movement of water bottlers to self-manufacturing. In addition, carbonated soft drinks volume decreased due to consumers shifting their preferences from carbonated soft drinks to alternative beverages such as energy drinks and teas, most of which are in non-PET forms of packaging. The decrease in water and carbonated soft drink bottle volumes was partially offset by an increase in preform volume and a strengthening of the British Pound and Euro against the dollar. In the U.S., net sales were $348.2 million in the first six months of 2007 compared to $388.1 million in the first six months of 2006. The decrease in U.S. net sales was principally driven by declines in unit volume and the impact of contractual price reductions. Total U.S. unit volume decreased 6.9 percent compared to the six months ended June 30, 2006. Custom unit volume decreased 7.8 percent, while conventional unit volume declined 6.4 percent compared to the six months ended June 30, 2006. In Europe, net sales were $104.7 million in the first six months of 2007 compared to $85.0 million in the first six months of 2006. The growth in European net sales for the first six months of 2007 was primarily due to increased total unit volume of 9.6 percent and favorable foreign currency translations compared to the first six months of 2006. Gross profit, excluding depreciation expense, decreased by $9.1 million to $42.3 million in the first six months of 2007 compared to the first six months of 2006. Gross profit, excluding depreciation expense, as a percentage of net sales declined to 9.4 percent in the first six months of 2007 from 10.9 percent in the first six months of 2006. The reduced gross profit, excluding depreciation expense, primarily reflects lower volumes, contractual price reductions and the $4.0 million impact of last year�s pricing settlement, which were partially offset by lower manufacturing costs and favorable currency translation. During the six months ended June 30, 2007 the Company recorded restructuring charges of $3.1 million, which consisted primarily of severance costs principally related to the Company�s facility in the Netherlands. Selling and administrative and research and technology expenses were $15.3 million in the first six months of 2007 compared to $17.9 million in the first six months of 2006. The decrease was primarily driven by lower legal and audit fees and lower compensation expense. Operating income decreased to $8.6 million in the first six months of 2007 compared to $13.8 million in the first six months of 2006. This decrease in operating income was driven by last year�s pricing settlement, price concessions, lower unit volumes and restructuring charges. Interest expense decreased $0.1 million to $20.6 million in the first six months of 2007 from $20.7 million in the first six months of 2006. The decrease resulted from lower average borrowings partially offset by a higher effective interest rate. Other income was $0.9 million for the six months ended June 30, 2007 compared to $1.0 million for the six months ended June 30, 2006. Other income consists primarily of royalty income, interest income and foreign exchange gains. Net loss for the six months ended June 30, 2007 was $11.1 million, or $0.90 loss per basic and diluted share, compared to a net loss for the six months ended June 30, 2006 of $6.2 million, or $0.50 loss per basic and diluted share. Credit Agreement EBITDA, excluding restructuring charges, in the first six months of 2007 decreased by $6.4 million, or 18.3 percent, to $28.5 million from $34.9 million in the first six months of 2006. This decrease was primarily due to lower gross profit, excluding depreciation expense, partially offset by reduced operating expenses. 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 second quarter of 2007 and the first six months of 2007, these adjustments would have amounted to ($0.6) and $0.4 million, respectively. In the second quarter of 2006 and the first six months of 2006, the adjustments were $0.9 and $1.0 million, respectively. For consistency, the Company is reporting EBITDA on the same Credit Agreement basis, but excluding restructuring charges. Credit Agreement EBITDA excluding restructuring charges 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 excluding restructuring charges 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 excluding restructuring charges 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 Monday, August 13, 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 Monday, August 20, 2007 and can be accessed via telephone by dialing (888) 203-1112 (domestic callers) or (719) 457-0820 (international callers) and entering passcode 9912486, 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 impact of pricing changes; the Company�s ability to secure new business, expand sales of custom products, improve the operating performance of its European business and achieve cost savings under its Best Cost Producer program; and the impact of the foregoing factors on the Company�s financial position. 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. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS COMPARISON (in thousands, except per share data) (Unaudited) � Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 Net customer sales $ 239,192 $ 251,038 $ 450,808 $ 470,895 Net affiliate sales � 1,047 � � 1,256 � � 2,112 � � 2,212 � Net sales 240,239 252,294 452,920 473,107 Cost of products sold, excluding depreciation 217,600 221,000 410,565 421,696 Depreciation � 7,882 � � 10,628 � � 15,393 � � 18,586 � Gross profit � 14,757 � � 20,666 � � 26,962 � � 32,825 � � Selling and administrative expenses 4,756 7,770 11,480 14,918 Research and technology expenses 2,156 1,688 3,770 3,026 Asset Impairment Charge - 870 - 870 Provision for restructuring � 2,832 � � 182 � � 3,135 � � 225 � Total operating expenses � 9,744 � � 10,510 � � 18,385 � � 19,039 � � Operating income 5,013 10,156 8,577 13,786 � Interest expense (10,302 ) (10,464 ) (20,576 ) (20,650 ) Other income (expense), net � 557 � � 810 � � 925 � � 951 � Income (loss) from continuing operations before income taxes (4,732 ) 502 (11,074 ) (5,913 ) Benefit from income taxes � 6 � � - � � - � � - � Income (loss) from continuing operations (4,726 ) 502 (11,074 ) (5,913 ) Loss from discontinued operations, net of taxes � (102 ) � (333 ) � (55 ) � (261 ) Net income (loss) $ (4,828 ) $ 169 � $ (11,129 ) $ (6,174 ) � Basic earnings (loss) per common share: Continuing operations $ (0.38 ) $ 0.04 $ (0.90 ) $ (0.48 ) Discontinued operations � (0.01 ) � (0.03 ) � (0.00 ) � (0.02 ) Net income (loss) per share $ (0.39 ) $ 0.01 � $ (0.90 ) $ (0.50 ) � Diluted earnings (loss) per common share: Continuing operations $ (0.38 ) $ 0.04 $ (0.90 ) $ (0.48 ) Discontinued operations � (0.01 ) � (0.03 ) � (0.00 ) � (0.02 ) Net income (loss) per share $ (0.39 ) $ 0.01 � $ (0.90 ) $ (0.50 ) � Weighted average common shares outstanding: Basic � 12,308 � � 12,208 � � 12,301 � � 12,203 � Diluted � 12,308 � � 12,540 � � 12,301 � � 12,203 � Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 Reconciliation of net income (loss) to Credit Agreement EBITDA, excluding restructuring charges: Net income (loss) $ (4,828 ) $ 169 $ (11,129 ) $ (6,174 ) Add back: Interest expense 10,302 10,464 20,576 20,650 Taxes (6 ) - - - Depreciation � 7,882 � � 10,628 � 15,393 � � 18,586 � EBITDA 13,350 21,261 24,840 33,062 Restructuring Charges � 2,897 � � 558 � 3,251 � � 767 � EBITDA, excluding restructuring charges � 16,247 � � 21,819 � 28,091 � � 33,829 � Other adjustments under Credit Agreement � (559 ) � 901 � 360 � � 1,025 � Credit Agreement EBITDA, excluding restructuring charges $ 15,688 � $ 22,720 $ 28,451 � $ 34,854 � Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 Reconciliation of gross profit to gross profit, excluding depreciation expense: Gross Profit $ 14,757 $ 20,666 $ 26,962 $ 32,825 Add back: Depreciation � 7,882 � 10,628 � 15,393 � 18,586 Gross profit, excluding depreciation expense $ 22,639 $ 31,294 $ 42,355 $ 51,411 Percentage of net sales � 9.4% � 12.4% � 9.4% � 10.9% CONSTAR INTERNATIONAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS COMPARISON (in thousands, except par value) (Unaudited) June 30, December 31, ASSETS 2007 2006 Current Assets: Cash and cash equivalents $ 9,201 $ 19,370 Accounts receivable, net 83,081 61,101 Accounts receivable - related party 558 856 Inventories, net 86,564 83,355 Prepaid expenses and other current assets 7,744 11,274 Deferred income taxes 1,918 2,257 Current assets of discontinued operations � 596 � � 11,602 � Total current assets � 189,662 � � 189,815 � � Property, plant and equipment, net 151,249 148,235 Goodwill 148,813 148,813 Other assets 16,236 15,813 Non-current assets of discontinued operations � 1,284 � � 1,286 � Total assets $ 507,244 � $ 503,962 � � LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Accounts payable 98,172 82,611 Accounts payable - related party 521 950 Accrued expenses and other current liabilities 37,506 31,433 Current liabilities of discontinued operations � 344 � � 8,680 � Total current liabilities � 136,543 � � 123,674 � Long-term debt 393,594 393,466 Pension and postretirement liabilities 17,458 19,143 Deferred income taxes 1,918 2,257 Other liabilities 8,297 8,117 Non-current liabilities of discontinued operations � 2,662 � � 2,144 � Total liabilities � 560,472 � � 548,801 � � Commitments and contingent liabilities � Stockholders' deficit: Preferred Stock, $.01 par value - none issued or outstanding at June 30, 2007 and December 31, 2006 - - Common stock, $.01 par value - 12,820 shares issued; 12,571 shares and 12,576 shares outstanding at June 30, 2007 and December 31, 2006, respectively 125 125 Additional paid-in capital 276,076 275,754 Accumulated other comprehensive loss (15,722 ) (18,958 ) Treasury stock, at cost - 249 and 233 shares at June 30, 2007 and December 31, 2006, respectively (844 ) (704 ) Accumulated deficit � (312,863 ) � (301,056 ) Total stockholders' deficit � (53,228 ) � (44,839 ) Total liabilities and stockholders' deficit $ 507,244 � $ 503,962 � CONSTAR INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS COMPARISON (in thousands) (Unaudited) � Six months ended June 30, 2007 2006 Cash flows from operating activities: Net loss $ (11,129 ) $ (6,174 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 16,023 20,078 Asset impairment charges - 870 Bad debt expense (recovery) 123 (506 ) Restructuring and other exit activities 2,177 (696 ) Stock-based compensation 488 438 Reclassification gain of foreign currency translation adjustments (142 ) - Deferred income taxes - (107 ) (Gain) loss on disposal of assets (154 ) 205 Minority interest (178 ) - Changes in operating assets and liabilities: Accounts receivable (10,004 ) (14,824 ) Inventories (2,761 ) 7,611 Prepaid expenses and other current assets 4,448 2,004 Accounts payable and accrued expenses 10,104 (8,647 ) Change in outstanding overdrafts (1,450 ) (162 ) Pension and postretirement benefits � (351 ) � 125 � Net cash provided by operating activities � 7,194 � � 215 � � Cash flows from investing activities: Purchases of property, plant and equipment (17,614 ) (12,677 ) Proceeds from the sale of property, plant and equipment � 545 � � 41 � Net cash used in investing activities � (17,069 ) � (12,636 ) � Cash flows from financing activities: Proceeds from Revolver loan 387,458 430,359 Repayment of Revolver loan (387,458 ) (416,644 ) Costs associated with debt financing (385 ) (320 ) Repayment of other debt � - � � (1,540 ) Net cash provided by (used in) financing activities � (385 ) � 11,855 � Effect of exchange rate changes on cash and cash equivalents � 91 � � 274 � Net decrease in cash and cash equivalents (10,169 ) (292 ) Cash and cash equivalents at beginning of period � 19,370 � � 9,663 � Cash and cash equivalents at end of period $ 9,201 � $ 9,371 �