CNST Constellation Pharmaceuticals Inc

Constar International Inc. (NASDAQ: CNST) today announced its financial results for the second quarter and six months ended June 30, 2008. Highlights include: Credit Agreement EBITDA, excluding restructuring charges, was $14.9 million as compared to $15.7 million in the second quarter of 2007; Custom unit volume increased 16.9 percent in the second quarter of 2008 compared to the second quarter of 2007 and represented 27 percent of consolidated net sales in the second quarter of 2008; and At June 30, 2008, the total of cash and borrowing availability under the Company�s Credit Agreement was $43.7 million. �The second quarter results were disappointing primarily due to the unprecedented increase in energy costs and the weaker than expected demand for carbonated soft drinks. To offset the impact of these issues, we implemented price increases and cost reduction programs which were only in effect for part of the quarter and will have a more meaningful impact on the balance of the year. Our custom unit volume increased 16.9 percent during the quarter which helped to partially offset the decline in conventional volume. We expect our custom unit volume to increase by 28 percent for the balance of the year compared to the same period in 2007. Lastly, we ended the quarter with availability under our credit agreement of $43.7 million,� said Michael Hoffman, President and CEO of Constar. Second Quarter Results: Consolidated net sales were $244.3 million in the second quarter of 2008 compared to $240.2 million in the second quarter of 2007. In the U.S., net sales were $190.3 million in the second quarter of 2008 compared to $182.9 million in the second 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 8.3 percent from the second quarter of 2007. Custom unit volume increased 16.9 percent, while conventional unit volume declined 17.7 percent compared to the second quarter of 2007. Approximately 60 percent of the conventional unit volume decline in the U.S. was due to the expected continued shift of water bottlers to self-manufacturing and an additional 15.5 percent of the decline resulted from the previously disclosed loss of a conventional customer contract. In addition, the Company�s customers experienced a decrease in demand for carbonated soft drink packages especially in the convenience store and gas station distribution channels. In Europe, net sales were $54.0 million in the second quarter of 2008 compared to $57.3 million in the second quarter of 2007. The decrease in European net sales in the second 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 19.8 percent compared to the second quarter of 2007 due to the previously disclosed loss of a customer in the Company�s Holland operations. Gross profit, excluding depreciation expense, decreased $1.9 million, or 8.4 percent, in the second quarter of 2008 compared to the second quarter of 2007. Gross profit, excluding depreciation expense, as a percentage of net sales decreased to 8.5 percent in the second quarter of 2008 from 9.4 percent in the second quarter of 2007. The decrease was the result of lower unit volumes and increases in energy costs, offset in part by increases in price. Selling and administrative and research and technology expenses were $7.1 million in the second quarter of 2008, an increase of $0.2 million from the second quarter of 2007. Operating income was $4.3 million in the second quarter of 2008 compared to $5.0 million in the second quarter of 2007. This decrease in operating income primarily reflects the lower unit volume and increases in energy, partially offset by a reduction in restructuring costs. Interest expense decreased $0.8 million to $9.5 million in the second quarter of 2008 from $10.3 million in the second quarter of 2007 as a result of lower effective interest rates, partially offset by higher average borrowings. Other net expense was zero in the second quarter of 2008 compared to other income of $0.6 million in the second quarter of 2007. The decrease in the second quarter of 2008 primarily resulted from the negative impact of foreign currency on the translation of intra-company balances. Net loss in the second quarter of 2008 was $5.0 million, or $0.41 loss per basic and diluted share, compared to a net loss in the second quarter of 2007 of $4.8 million, or $0.39 loss per basic and diluted share. Credit Agreement EBITDA excluding restructuring charges in the second quarter of 2008 decreased by $0.8 million, or 5.0 percent, to $14.9 million from $15.7 million in the second quarter of 2007. First Six Month Results: Consolidated net sales were $457.6 million in the first six months of 2008 compared to $452.9 million in the first six months of 2007. In the U.S., net sales were $360.0 million in the first six months of 2008 compared to $348.2 million in the first six months of 2007. The increase in U.S. net sales was principally driven by the pass-through of resin costs to customers, the impact of contractual price increases and the increase in custom unit volume, offset in part by lower conventional unit volume. Total U.S. unit volume decreased 6.4 percent from the first six months of 2007. Custom unit volume increased 18.5 percent, while conventional unit volume declined 14.3 percent compared to the first six months of 2007. In Europe, net sales were $97.6 million in the first six months of 2008 compared to $104.7 million in the first six months of 2007. The decrease in European net sales in the first six months 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 14.0 percent compared to the first six months of 2007. Gross profit, excluding depreciation expense, decreased $2.9 million, or 6.9 percent, in the first six months of 2008 compared to the first six months of 2007. Gross profit, excluding depreciation expense, as a percentage of net sales decreased to 8.7 percent in the first six months of 2008 from 9.5 percent in the first six months of 2007. The decrease was the result of lower unit volumes and higher energy costs, offset in part by increases in price. Selling and administrative and research and technology expenses of $15.9 million in the first six months of 2008 increased by $0.3 million from the first six months of 2007. Operating income was $7.4 million in the first six months of 2008 compared to $8.6 million in the first six months of 2007. This decrease in operating income primarily relates to the lower unit volume and increases in energy costs as described above, partially offset by a reduction in restructuring costs. Interest expense decreased $1.0 million to $19.4 million in the first six months of 2008 from $20.4 million in the first six months of 2007 as a result of lower effective interest rates, partially offset by higher average borrowings. Other expense was $0.6 million in the first six months of 2008 compared to other income of $0.9 million in the first six months of 2007. The change from prior year primarily resulted from the negative impact of foreign currency on the translation of intra-company balances. Net loss for the first six months ended June 30, 2008 was $12.5 million, or $1.01 loss per basic and diluted share, compared to a net loss for the first six months of 2007 of $11.0 million, or $0.89 loss per basic and diluted share. Free cash flow was negative $24.0 million for the first six months in 2008 compared to negative free cash flow of $9.9 million for the same period in 2007. The decrease in free cash flow was driven by cash flow from operating activities, principally higher working capital requirements due to timing of cash receipts and disbursements. Credit Agreement EBITDA, excluding restructuring charges, in the first six months of 2008 decreased by $3.1 million, or 10.9 percent, to $25.5 million from $28.6 million in the first six months 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 second quarter of 2008 and the first six months of 2008, these adjustments would have amounted to $1.2 million and $2.1 million, respectively. In the second quarter of 2007 and the first six months of 2007, the adjustments would have amounted to ($0.5) million and $0.5 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. 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, August 14, 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) 419-6593 (domestic callers) or (719) 325-4860 (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 12 noon ET that day through midnight ET, Thursday, August 21, 2008 and can be accessed by calling (888) 203-1112 (domestic callers) or (719) 457-0820 (international callers) and entering pass code 8399413. 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; whether such contract is signed on terms consistent with the Company�s current expectations; whether expected future volumes under such contract are realized; whether the future product mix under such contract is consistent with the Company�s expectations; whether the Company achieves expected restructuring savings associated with such contract; 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 � Six months ended June 30, June 30, � 2008 � � � 2007 � � 2008 � � � 2007 � Net customer sales $ 242,552 $ 239,192 $ 454,813 $ 450,808 Net affiliate sales � 1,717 � � 1,047 � � 2,834 � � 2,112 � Net sales 244,269 240,239 457,647 452,920 Cost of products sold, excluding depreciation 223,493 217,551 417,702 410,034 Depreciation � 8,622 � � 7,952 � � 15,816 � � 15,533 � Gross profit � 12,154 � � 14,736 � � 24,129 � � 27,353 � � Selling and administrative expenses 4,789 4,756 11,550 11,864 Research and technology expenses 2,309 2,156 4,355 3,770 Provision for restructuring � 725 � � 2,832 � � 806 � � 3,135 � Total operating expenses � 7,823 � � 9,744 � � 16,711 � � 18,769 � � Operating income 4,331 4,992 7,418 8,584 � Interest expense (9,501 ) (10,302 ) (19,377 ) (20,419 ) Other (expense)/income, net � 2 � � 557 � � (567 ) � 925 � Loss from continuing operations before income taxes (5,168 ) (4,753 ) (12,526 ) (10,910 ) Provision for income taxes � 118 � � 6 � � 32 � � - � Loss from continuing operations (5,050 ) (4,747 ) (12,494 ) (10,910 ) (Loss)/Income from discontinued operations, net of taxes � 33 � � (102 ) � (54 ) � (55 ) Net loss $ (5,017 ) $ (4,849 ) $ (12,548 ) $ (10,965 ) � Basic and diluted earnings (loss) per common share: Continuing operations $ (0.41 ) $ (0.38 ) $ (1.01 ) $ (0.89 ) Discontinued operations � 0.00 � � (0.01 ) � (0.00 ) � - � Net loss per share $ (0.41 ) $ (0.39 ) $ (1.01 ) $ (0.89 ) � Weighted average common shares outstanding: Basic and Diluted � 12,394 � � 12,308 � � 12,385 � � 12,301 � � Three months ended � Six months ended June 30, June 30, � 2008 � � � 2007 � � 2008 � � � 2007 � Reconciliation of net income (loss) to Credit Agreement EBITDA, excluding restructuring charges: Net income (loss) $ (5,017 ) $ (4,849 ) $ (12,548 ) $ (10,965 ) Add back: Interest expense 9,501 10,302 19,377 20,419 Taxes (118 ) (6 ) (32 ) - Depreciation � 8,622 � � 7,952 � � 15,816 � � 15,533 � EBITDA 12,988 13,399 22,613 24,987 Restructuring Charges � 725 � � 2,832 � � 806 � � 3,135 � EBITDA, excluding restructuring charges � 13,713 � � 16,231 � � 23,419 � � 28,122 � Other adjustments under Credit Agreement � 1,229 � � (495 ) � 2,057 � � 476 � Credit Agreement EBITDA, excluding restructuring charges $ 14,942 � $ 15,736 � $ 25,476 � $ 28,598 � 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 � Six months ended June 30, � June 30, � 2008 � � � 2007 � � 2008 � � � 2007 � Reconciliation of gross profit to gross profit, excluding depreciation expense: Gross Profit $ 12,154 $ 14,736 $ 24,129 $ 27,353 Add back: Depreciation � 8,622 � � 7,952 � � 15,816 � � 15,533 � Gross profit, excluding depreciation expense $ 20,776 � $ 22,688 � $ 39,945 � $ 42,886 � Percentage of net sales � 8.5 % � 9.4 % � 8.7 % � 9.5 % CONSTAR INTERNATIONAL INC. CONSOLIDATED BALANCE SHEET COMPARISON (in thousands, except par value) � � June 30, � December 31, ASSETS � 2008 � � 2007 � Current Assets: Cash and cash equivalents $ 3,603 $ 4,254 Accounts receivable, net 88,555 61,212 Accounts receivable - related party 1,033 483 Inventories, net 82,190 73,213 Prepaid expenses and other current assets 21,042 19,205 Deferred income taxes 1,373 2,045 Assets held for sale 427 - Current assets of discontinued operations � 385 � � 527 � Total current assets � 198,608 � � 160,939 � � Property, plant and equipment, net 145,772 147,061 Goodwill 148,813 148,813 Other assets 12,859 15,476 Non-current assets held for sale � 953 � � - � Total assets $ 507,005 � $ 472,289 � � LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Short-term debt $ 23,757 $ 438 Accounts payable (includes book overdrafts of $19,828 and $12,695 at June 30, 2008 and December 31, 2007, respectively) 108,872 83,856 Accounts payable - related party 570 1,000 Accrued expenses and other current liabilities 35,254 36,607 Current liabilities of discontinued operations � 74 � � 395 � Total current liabilities � 168,527 � � 122,296 � Long-term debt 393,864 393,733 Pension and postretirement liabilities 9,448 11,368 Deferred income taxes 1,373 2,045 Other liabilities 13,705 14,411 Liabilities associated with assets held for sale 643 - Non-current liabilities of discontinued operations � 874 � � 743 � Total liabilities � 588,434 � � 544,596 � � Commitments and contingent liabilities � Stockholders' deficit: Preferred Stock, $.01 par value - none issued or outstanding at June 30, 2008 and December 31, 2007 - - Common stock, $.01 par value - 13,274 shares and 13,008 shares issued, 12,961 shares and 12,717 shares outstanding at June 30, 2008 and December 31, 2007, respectively 125 125 Additional paid-in capital 277,043 276,546 Accumulated other comprehensive loss (15,648 ) (18,620 ) Treasury stock, at cost - 311 and 291 shares at March 31, 2008 and December 31, 2007, respectively (991 ) (945 ) Accumulated deficit � (341,958 ) � (329,413 ) Total stockholders' deficit � (81,429 ) � (72,307 ) Total liabilities and stockholders' deficit $ 507,005 � $ 472,289 � CONSTAR INTERNATIONAL INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands, except par value) � � Six months ended June 30, � 2008 � � � 2007 � Cash flows from operating activities: Net loss $ (12,548 ) $ (10,965 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 16,870 16,163 Restructuring and other exit activities - Bad debt expense 514 123 Stock-based compensation 472 488 Reclassification (gain) loss of foreign currency translation adjustments - (142 ) Gain on disposal of assets - (154 ) Minority interest - (178 ) Changes in operating assets and liabilities: Accounts receivable (27,795 ) (10,004 ) Inventories (8,709 ) (2,761 ) Prepaid expenses and other current assets (394 ) 4,832 Accounts payable 21,946 7,079 Accrued expenses and other current liabilities 2,022 (1,450 ) Change in outstanding overdrafts (1,289 ) 4,514 Pension and postretirement benefits � (345 ) � (351 ) Net cash provided by (used in) operating activities � (9,256 ) � 7,194 � � Cash flows from investing activities: Purchases of property, plant and equipment (14,789 ) (17,614 ) Proceeds from the sale of property, plant and equipment � - � � 545 � Net cash used in investing activities � (14,789 ) � (17,069 ) � Cash flows from financing activities: Proceeds from Revolver loan 400,482 387,458 Repayment of Revolver loan (377,163 ) (387,458 ) Costs associated with debt financing � - � � (385 ) Net cash provided by (used in) financing activities � 23,319 � � (385 ) Effect of exchange rate changes on cash and cash equivalents � 75 � � 91 � Net increase (decrease) in cash and cash equivalents (651 ) (10,169 ) Cash and cash equivalents at beginning of period � 4,254 � � 19,370 � Cash and cash equivalents at end of period $ 3,603 � $ 9,201 � � Six months ended June 30, � 2008 � � � 2007 � Reconciliation of net cash provided by operating activities to free cash flow: Net cash provided by operating activities $ (9,256 ) $ 7,194 Net cash used in investing activites � (14,789 ) � (17,069 ) Free cash flow $ (24,045 ) $ (9,875 )