Constar International Inc. (NASDAQ: CNST) today announced its
financial results for the first quarter ended March 31, 2008.
Highlights include: Credit Agreement EBITDA, excluding
restructuring charges, was $10.6 million as compared to $12.9
million in the first quarter of 2007; Custom unit volume increased
20.2 percent in the first quarter of 2008 compared to the first
quarter of 2007 and represented 27 percent of consolidated net
sales in the first quarter of 2008; and At March 31, 2008, the
total of cash and borrowing availability under the Company�s Credit
Agreement was $69.2 million. �Due to macroeconomic conditions,
especially high gasoline prices, our customers have experienced
weak demand in the convenience store and gas station distribution
channels which is where a high percentage of PET soft drink
packaging is sold. This negatively impacted our soft drink sales in
the quarter; however, this weakness was only slightly worse than
what we expected based on recent declines in the soft drinks
market. Custom unit volume was up 20.2 percent compared to the
first quarter of last year and we are continuing to see preference
for our technologies as we engage in development projects with new
and existing customers,� said Michael Hoffman, President and CEO of
Constar. First Quarter Results: Consolidated net sales were $213.4
million in the first quarter of 2008 compared to $212.7 million in
the first quarter of 2007. In the U.S., net sales were $169.7
million in the first quarter of 2008 compared to $165.2 million in
the first quarter of 2007. The increase in U.S. net sales was
principally driven by the pass-through of resin costs to customers,
along with an increase in price, offset by a decrease in unit
volume. Total U.S. unit volume decreased 4.3 percent over the first
quarter of 2007. Custom unit volume increased 20.2 percent, while
conventional unit volume declined 10.1 percent compared to the
first quarter of 2007. In Europe, net sales were $43.7 million in
the first quarter of 2008 compared to $47.5 million in the first
quarter of 2007. The decrease in European net sales in the first
quarter of 2008 was primarily due to lower unit volume, offset by
the pass-through of resin costs to customers and a positive impact
of foreign currency translations. Total European unit volume
decreased by 6.5 percent compared to the first quarter of 2007.
Gross profit, excluding depreciation expense, decreased $1.0
million, or 5.1 percent, in the first quarter of 2008 compared to
the first quarter of 2007. Gross profit, excluding depreciation
expense, as a percentage of net sales decreased to 9.0 percent in
the first quarter of 2008 from 9.5 percent in the first quarter of
2007. The decrease was the result of lower unit volumes, offset in
part by increases in price. Selling and administrative and research
and technology expenses of $8.8 million in the first quarter of
2008 increased by $0.1 million from the first quarter of 2007.
Operating income was $3.1 million in the first quarter of 2008
compared to $3.6 million in the first quarter of 2007. This
decrease in operating income primarily relates to the lower unit
volume described above. Interest expense decreased $0.2 million to
$9.9 million in the first quarter of 2008 from $10.1 million in the
first quarter of 2007 as a result of lower effective interest rates
and lower average borrowings. Other expense was $0.6 million in the
first quarter of 2008 compared to other income of $0.4 million in
the first quarter of 2007. The expense in the first quarter of 2008
primarily resulted from the negative impact of foreign currency on
the translation of intra-company balances, offset by net royalty
income of $0.2 million. Net loss in the first quarter of 2008 was
$7.5 million, or $0.61 loss per basic and diluted share, compared
to a net loss in the first quarter of 2007 of $6.1 million, or
$0.50 loss per basic and diluted share. Free cash flow was positive
$0.7 million in the first quarter of 2008 compared to negative free
cash flow of $15.5 million in the first quarter of 2007. This
improvement in free cash flow was driven by cash flow from
operating activities, principally working capital improvements,
including the timing of disbursements, and lower capital spending.
Credit Agreement EBITDA excluding restructuring charges in the
first quarter of 2008 decreased by $2.2 million, or 17.4 percent,
to $10.6 million from $12.9 million in the first quarter of 2007.
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 2008, these
adjustments would have amounted to $0.9 million. In the first
quarter of 2007, the adjustments would have amounted to $1.0
million. 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. Free cash flow is derived from the
Company�s consolidated statement of cash flows and is defined as
net cash provided by operating activities less net cash used in
investing activities. Free cash flow is not a GAAP-defined measure
and may not be comparable to free cash flow as defined by other
companies. The Company uses free cash flow to evaluate performance
and the Company�s ability to incur and service debt. Investors are
urged to take into account GAAP measures in evaluating the Company,
and to review the separate line items for net cash provided by
operating activities and net cash used in investing activities in
the attached unaudited consolidated statements of cash flow.
Conference Call, Web Cast Information The Company will hold a
conference call on Thursday, May 15, 2008 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 (877) 440-5784 (domestic
callers) or (719) 325-4936 (international callers). Please dial in
at approximately ten minutes prior to the scheduled start time in
order to give the operators time to connect you. 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 conference call will
be available from 1:00 p.m. ET that day through midnight ET,
Thursday, May 22, 2008 and can be accessed by calling (888)
203-1112 (domestic callers) or (719) 457-0820 (international
callers) and entering pass code 1560548. The replay will also be
accessible 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 outcome of the Company�s negotiation to
renew its contract with its largest customer, the impact of
self-manufacturing on the Company�s business, the Company�s ability
to secure new business, expand sales of custom products and improve
the operating performance of its European business, 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, 2007 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. CONSTAR INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except par
value) � � � Three months ended March 31, 2008 � 2007 Net customer
sales $ 212,261 $ 211,615 Net affiliate sales � 1,117 � � 1,066 �
Net sales 213,378 212,681 Cost of products sold, excluding
depreciation 194,208 192,483 Depreciation � 7,196 � � 7,580 � Gross
profit � 11,974 � � 12,618 � � Selling and administrative expenses
6,761 6,878 Research and technology expenses 2,046 1,845 Provision
for restructuring � 81 � � 303 � Total operating expenses � 8,888 �
� 9,026 � � Operating income 3,086 3,592 � Interest expense (9,876
) (10,117 ) Other (expense)/income, net � (569 ) � 368 � Loss from
continuing operations before income taxes (7,359 ) (6,157 )
Provision for income taxes � (84 ) � (6 ) Loss from continuing
operations (7,443 ) (6,163 ) (Loss)/Income from discontinued
operations, net of taxes � (87 ) � 47 � Net loss $ (7,530 ) $
(6,116 ) � Basic and diluted earnings (loss) per common share:
Continuing operations $ (0.61 ) $ (0.50 ) Discontinued operations �
- � � - � Net loss per share $ (0.61 ) $ (0.50 ) � Weighted average
common shares outstanding: Basic and Diluted � 12,377 � � 12,294 �
� � � Three months ended March 31, 2008 � 2007 � Reconciliation of
net loss to Credit Agreement EBITDA: Net loss $ (7,530 ) $ (6,116 )
Add back: Interest expense 9,876 10,117 Taxes 84 6 Depreciation �
7,196 � � 7,581 � EBITDA � 9,626 � � 11,588 � Restructuring Charges
� 81 � � 303 � EBITDA, excluding restructuring charges � 9,707 � �
11,891 � Other adjustments under Credit Agreement (1) � 919 � � 971
� Credit Agreement EBITDA $ 10,626 � $ 12,862 � � � � Note 1: Other
adjustments includes, among other things, changes in allowances for
doubtful accounts, inventory reserves and foreign currency gains
and losses. � � � � Three months ended March 31, 2008 � 2007
Reconciliation of gross profit to gross profit, excluding
depreciation expense: Gross Profit $ 11,974 $ 12,618 Add back:
Depreciation � 7,196 � 7,580 Gross profit, excluding depreciation
expense $ 19,170 $ 20,198 Percentage of net sales � 9.0% � 9.5%
CONSTAR INTERNATIONAL INC. � � CONSOLIDATED BALANCE SHEET
COMPARISON (in thousands, except par value) � � � March 31,
December 31, ASSETS 2008 2007 Current Assets: Cash and cash
equivalents $ 4,727 $ 4,254 Accounts receivable, net 67,792 61,212
Accounts receivable - related party 619 483 Inventories, net 82,364
73,213 Prepaid expenses and other current assets 20,367 19,205
Deferred income taxes 1,630 2,045 Current assets of discontinued
operations � 449 � � 527 � Total current assets � 177,948 � �
160,939 � � Property, plant and equipment, net 147,559 147,061
Goodwill 148,813 148,813 Other assets 14,141 15,476 Non-current
assets of discontinued operations � - � � - � Total assets $
488,461 � $ 472,289 � � LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities: Short-term debt $ 58 $ 438 Accounts payable
(includes book overdrafts of $19,828 and $12,695 at March 31, 2008
and December 31, 2007, respectively) 106,125 83,856 Accounts
payable - related party 594 1,000 Accrued expenses and other
current liabilities 37,987 36,607 Current liabilities of
discontinued operations � 215 � � 395 � Total current liabilities �
144,979 � � 122,296 � Long-term debt 393,798 393,733 Pension and
postretirement liabilities 10,071 11,368 Deferred income taxes
1,630 2,045 Other liabilities 18,286 14,411 Non-current liabilities
of discontinued operations � 837 � � 743 � Total liabilities �
569,601 � � 544,596 � � Commitments and contingent liabilities
(Note 10) � Stockholders' deficit: Preferred Stock, $.01 par value
- none issued or outstanding at September 30, 2007 and December 31,
2006 - - Common stock, $.01 par value - 13,270 shares and 13,008
shares issued, 12,959 shares and 12,717 shares outstanding at March
31, 2008 and December 31, 2007, respectively 125 125 Additional
paid-in capital 276,788 276,546 Accumulated other comprehensive
loss (20,123 ) (18,620 ) Treasury stock, at cost - 311 and 291
shares at March 31, 2008 and December 31, 2007, respectively (987 )
(945 ) Accumulated deficit � (336,943 ) � (329,413 ) Total
stockholders' deficit � (81,140 ) � (72,307 ) Total liabilities and
stockholders' deficit $ 488,461 � $ 472,289 � CONSTAR INTERNATIONAL
INC. � � CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands, except
par value) � � Three months ended March 31, 2008 2007 Cash flows
from operating activities: Net loss $ (7,530 ) $ (6,116 ) �
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: Depreciation and amortization 7,803 8,187
Restructuring and other exit activities - (163 ) Bad debt expense
156 - Stock-based compensation 194 418 Reclassification (gain) loss
of foreign currency translation adjustments - (142 ) Gain on
disposal of assets - (80 ) Minority interest - (83 ) Changes in
operating assets and liabilities: Accounts receivable (6,489 )
(2,000 ) Inventories (8,819 ) (4,961 ) Prepaid expenses and other
current assets (260 ) 3,770 Accounts payable 14,287 (11,006 )
Accrued expenses and other current liabilities 2,136 4,907 Change
in outstanding overdrafts 7,133 561 Pension and postretirement
benefits � (518 ) � (221 ) Net cash provided by (used in) operating
activities � 8,093 � � (6,929 ) � Cash flows from investing
activities: Purchases of property, plant and equipment (7,362 )
(8,649 ) Proceeds from the sale of property, plant and equipment �
- � � 80 � Net cash used in investing activities � (7,362 ) �
(8,569 ) � Cash flows from financing activities: Proceeds from
Revolver loan 169,608 193,427 Repayment of Revolver loan (169,988 )
(191,207 ) Costs associated with debt financing � - � � (248 ) Net
cash provided by (used in) financing activities � (380 ) � 1,972 �
Effect of exchange rate changes on cash and cash equivalents � 122
� � 22 � Net increase (decrease) in cash and cash equivalents 473
(13,504 ) Cash and cash equivalents at beginning of period � 4,254
� � 19,370 � Cash and cash equivalents at end of period $ 4,727 � $
5,866 � � � � Three months ended March 31, 2007 � 2006
Reconciliation of net cash provided by operating activities to free
cash flow: Net cash provided by operating activities $ 8,093 $
(6,929 ) Net cash used in investing activities � (7,362 ) � (8,569
) Free cash flow $ 731 � $ (15,498 )
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