Constar International Inc. (NASDAQ: CNST) today announced its
financial results for the third quarter and nine months ended
September 30, 2008. Highlights include: Credit Agreement EBITDA,
excluding restructuring charges, was $6.7 million as compared to
$17.3 million in the third quarter of 2007; Custom unit volume
increased 9.9 percent in the third quarter of 2008 compared to the
third quarter of 2007 and represented 26 percent of consolidated
net sales in the third quarter of 2008; and At September 30, 2008,
the total of cash and borrowing availability under the Company�s
Credit Agreement was $34.0 million. �Consumer demand for products
using our containers declined significantly in the quarter due to
reduced gas and convenience store sales of single serve beverages
caused by record high gasoline prices and a collapse in
discretionary spending. Compared to the prior year, this volume
weakness offset all of our gains in new business and pricing. Major
items that account for the lower quarterly income include a $3.8
million increase in energy costs, $1.3 million of overhead
absorption loss due to inventory reductions, and $1.9 million of
charges related to prior periods. In spite of our disappointing
performance in the quarter, we finished the quarter with ample
liquidity, and as of this date our borrowings are $16.5 million net
of cash on hand, with $6.1 million of outstanding letters of
credit,� said Michael Hoffman, President and CEO of Constar. Third
Quarter Results: Consolidated net sales were $230.1 million in the
third quarter of 2008 compared to $225.8 million in the third
quarter of 2007. In the U.S., net sales were $184.7 million in the
third quarter of 2008 compared to $181.4 million in the third
quarter of 2007. The increase in U.S. net sales was principally
driven by the pass-through of higher resin costs to customers,
along with an increase in price, offset by a decrease in unit
volume. Total U.S. unit volume decreased 7.3 percent from the third
quarter of 2007. Custom unit volume increased 9.9 percent, while
conventional unit volume declined 19.3 percent compared to the
third quarter of 2007. Approximately 46.0 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 14.4 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 $45.4 million in the third quarter of 2008 compared to $44.4
million in the third quarter of 2007. The increase in European net
sales in the third quarter of 2008 was primarily due to the
pass-through of higher resin costs to customers offset by lower
unit volume and the negative impact of foreign currency
translations. Total European unit volume decreased by 10.3 percent
compared to the third quarter of 2007 due to the previously
disclosed loss of a customer in the Company�s Holland operations.
Gross profit, excluding depreciation expense, decreased $9.6
million, or 41.0 percent, in the third quarter of 2008 compared to
the third quarter of 2007. Gross profit, excluding depreciation
expense, as a percentage of net sales decreased to 6.0 percent in
the third quarter of 2008 from 10.4 percent in the third quarter of
2007. The decrease was the result of lower unit volumes and
increases in energy costs, offset in part by increases in price and
higher custom volumes. In addition the Company recorded an
adjustment of $1.9 million to correct errors from prior periods.
Selling and administrative and research and technology expenses
were $7.8 million in the third quarter of 2008, a decrease of $0.5
million from the third quarter of 2007. The decrease was primarily
due to lower professional fees and facility costs. Restructuring
charges were $1.2 million for the third quarter of 2008 compared to
no provision in the third quarter of 2007. The restructuring
charges primarily relate to the restructuring actions taken due to
the impact of the new Pepsi agreement, and the shutdown of the
Company�s Houston, Texas facility as a result of previously
disclosed customer losses and a strategic decision to exit the
Company�s limited extrusion blow-molding business. Gain on disposal
of assets was $1.2 million for the third quarter of 2008 compared
to $0.1 million for the same period in 2007. The increase is
primarily due to the sale of assets in the third quarter of 2008 in
conjunction with the closure of the manufacturing facility in
Houston, Texas. Operating loss was $2.6 million in the third
quarter of 2008 as compared to operating income of $8.8 million in
the third quarter of 2007. This decrease in operating income was
due to the factors described above. Interest expense decreased $0.8
million to $9.6 million in the third quarter of 2008 from $10.4
million in the third quarter of 2007 as a result of lower effective
interest rates, partially offset by higher average borrowings.
Other net expense was $2.1 million in the third quarter of 2008
compared to other income of $0.2 million in the third quarter of
2007. The decrease in the third quarter of 2008 primarily resulted
from the negative impact of foreign currency on intra-company
balances. Net loss in the third quarter of 2008 was $14.2 million,
or $1.15 loss per basic and diluted share, compared to a net loss
in the third quarter of 2007 of $1.2 million, or $0.09 loss per
basic and diluted share. Credit Agreement EBITDA excluding
restructuring charges in the third quarter of 2008 decreased by
$10.6 million, or 61.5 percent, to $6.7 million from $17.3 million
in the third quarter of 2007. The Company�s Report on Form 10-Q for
the quarter ended September 30, 2008 contains further discussion of
the Company�s financial results and liquidity. First Nine Month
Results: Consolidated net sales were $687.8 million in the first
nine months of 2008 compared to $678.7 million in the first nine
months of 2007. In the U.S., net sales were $544.8 million in the
first nine months of 2008 compared to $529.6 million in the first
nine months of 2007. The increase in U.S. net sales was principally
driven by the pass-through of higher 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 6.8 percent from the first nine
months of 2007. Custom unit volume increased 15.5 percent, while
conventional unit volume declined 16.0 percent compared to the
first nine months of 2007. In Europe, net sales were $143.0 million
in the first nine months of 2008 compared to $149.1 million in the
first nine months of 2007. The decrease in European net sales in
the first nine months of 2008 was primarily due to decreased unit
volume, principally driven by the previously disclosed loss of a
customer in the Company�s Holland operation, offset in part by the
pass-through of higher resin costs to customers. Total European
unit volume decreased by 12.9 percent compared to the first nine
months of 2007. Gross profit, excluding depreciation expense,
decreased $12.6 million, or 19.0 percent, in the first nine months
of 2008 compared to the first nine months of 2007. Gross profit,
excluding depreciation expense, as a percentage of net sales
decreased to 7.8 percent in the first nine months of 2008 from 9.8
percent in the first nine 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 $23.7 million in the first nine months
of 2008 decreased by $0.4 million from the first nine months of
2007. Restructuring charges were $2.0 million for the first nine
months of 2008 compared to $3.2 million for the first nine months
of 2007. The restructuring charges primarily relate to the
restructuring actions taken due to the impact of the new Pepsi
agreement, and the shutdown of the Company�s Houston, Texas
facility as a result of previously disclosed customer losses and a
strategic decision to exit the Company�s limited extrusion
blow-molding business. Gain on disposal of assets was $1.2 million
for the nine months of 2008 compared to $0.3 million for the same
period in 2007. The increase is primarily due to the sale of assets
in the third quarter of 2008 in conjunction with the closure of the
Company�s manufacturing facility in Houston, Texas. Operating
income was $4.8 million in the first nine months of 2008 compared
to $17.3 million in the first nine months of 2007. This decrease in
operating income primarily relates to lower unit volume, as well as
increases in energy costs and restructuring expenses. Interest
expense decreased $1.9 million to $29.0 million in the first nine
months of 2008 from $30.9 million in the first nine months of 2007
as a result of lower effective interest rates, partially offset by
higher average borrowings. Other expense was $2.7 million in the
first nine months of 2008 compared to other income of $1.1 million
in the first nine months of 2007. The change from prior year
primarily resulted from the negative impact of foreign currency on
intra-company balances. Net loss for the first nine months of 2008
was $26.8 million, or $2.16 loss per basic and diluted share,
compared to a net loss for the first nine months of 2007 of $12.1
million, or $0.99 loss per basic and diluted share. Free cash flow
was negative $23.4 million for the first nine months of 2008
compared to negative free cash flow of $21.8 million for the same
period in 2007. The decrease in free cash flow was driven by cash
flow from operating activities, principally due to reduced
operating results partially offset by lower capital spending.
Credit Agreement EBITDA, excluding restructuring charges, in the
first nine months of 2008 decreased by $13.7 million, or 30.0
percent, to $32.1 million from $45.9 million in the first nine
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 third
quarter of 2008 and the first nine months of 2008, these
adjustments would have amounted to $1.5 million and $3.6 million,
respectively. In the third quarter of 2007 and the first nine
months of 2007, the adjustments would have amounted to $1.6 million
and $2.0 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. 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 Friday, November 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) 545-1489 (domestic
callers) or (719) 325-4898 (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, Friday,
November 21, 2008 and can be accessed by calling (888) 203-1112
(domestic callers) or (719) 457-0820 (international callers) and
entering pass code 1023471. 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 actual results of operations or financial condition
of the company to differ from expectations include the Company's
relationship with its customers and suppliers; whether expected
future volumes under the Pepsi contract are realized; whether the
future product mix under that contract is consistent with the
Company's expectations; whether the Company achieves expected
restructuring savings associated with that agreement; 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 today. The Company does not
intend to review, revise, or update any particular forward-looking
statements 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 Nine months ended September 30,
September 30, � 2008 � � 2007 � � 2008 � � 2007 � Net customer
sales $ 227,106 $ 224,694 $ 681,919 $ 675,502 Net affiliate sales �
3,023 � � 1,133 � � 5,857 � � 3,245 � Net sales 230,129 225,827
687,776 678,747 Cost of products sold, excluding depreciation
216,332 202,407 634,034 612,441 Depreciation � 8,648 � � 6,410 � �
24,464 � � 21,942 � Gross profit � 5,149 � � 17,010 � � 29,278 � �
44,364 � � Selling and administrative expenses 5,950 6,649 17,539
18,755 Research and technology expenses 1,825 1,627 6,180 5,397
Provision for restructuring 1,168 32 1,974 3,167 Gain on Disposal
of Assets � (1,188 ) � (55 ) � (1,227 ) � (296 ) Total operating
expenses � 7,755 � � 8,253 � � 24,466 � � 27,023 � � Operating
income/(loss) (2,606 ) 8,757 4,812 17,341 � Interest expense (9,616
) (10,435 ) (28,993 ) (30,854 ) Other (expense)/income, net �
(2,090 ) � 165 � � (2,657 ) � 1,090 � Loss from continuing
operations before income taxes (14,312 ) (1,513 ) (26,838 ) (12,423
) Income tax benefit � 63 � � - � � 95 � � - � Loss from continuing
operations (14,249 ) (1,513 ) (26,743 ) (12,423 ) (Loss)/Income
from discontinued operations, net of taxes � 33 � � 347 � � (21 ) �
292 � Net loss $ (14,216 ) $ (1,166 ) $ (26,764 ) $ (12,131 ) �
Basic and diluted earnings (loss) per common share: Continuing
operations (1.15 ) (0.12 ) (2.16 ) (1.01 ) Discontinued operations
� - � � 0.03 � � - � � 0.02 � Net loss per share � (1.15 ) � (0.09
) � (2.16 ) � (0.99 ) � Weighted average common shares outstanding:
Basic and Diluted � 12,411 � � 12,315 � � 12,394 � � 12,306 � � � �
� Three months ended � Nine months ended September 30, September
30, � 2008 � � � 2007 � � 2008 � � � 2007 � � Reconciliation of net
income (loss)to Credit Agreement EBITDA, excluding restructuring
charges: � � Net income (loss) $ (14,216 ) $ (1,166 ) $ (26,764 ) $
(12,131 ) Add back: Interest expense 9,616 10,435 28,993 30,854
Taxes (63 ) - (95 ) - Depreciation � 8,648 � � 6,410 � � 24,464 � �
21,942 � EBITDA 3,985 15,679 26,598 40,665 Restructuring Charges �
1,168 � � 32 � � 1,974 � � 3,167 � EBITDA, excluding restructuring
charges � 5,153 � � 15,711 � � 28,572 � � 43,832 � Other
adjustments under Credit Agreement � 1,499 � � 1,561 � � 3,556 � �
2,038 � Credit Agreement EBITDA, excluding restructuring charges $
6,652 � $ 17,272 � $ 32,128 � $ 45,870 � � � � � � � � � � � Three
months ended � � Nine months ended September 30, September 30, �
2008 � � � 2007 � � 2008 � � � 2007 � Reconciliation of gross
profit to gross profit, excluding depreciation expense: � � � �
Gross Profit $ 5,149 $ 17,010 $ 29,278 $ 44,364 Add back:
Depreciation � 8,648 � � 6,410 � � 24,464 � � 21,942 � Gross
profit, excluding depreciation expense $ 13,797 � $ 23,420 � $
53,742 � $ 66,306 � Percentage of net sales � 6.0% � � 10.4% � �
7.8% � � 9.8% � CONSTAR INTERNATIONAL INC. � � � CONSOLIDATED
BALANCE SHEET COMPARISON (in thousands, except par value) � �
September 30, December 31, ASSETS � 2008 � 2007 Current Assets:
Cash and cash equivalents $ 3,453 $ 4,254 Accounts receivable, net
69,654 61,568 Accounts receivable - related party 1,727 483
Inventories, net 65,055 73,213 Prepaid expenses and other current
assets 19,598 19,205 Deferred income taxes 2,101 2,045 Current
assets of discontinued operations � 343 � 527 Total current assets
� 161,931 � 161,295 � Property, plant and equipment, net 139,660
147,061 Goodwill 148,813 148,813 Other assets 12,243 15,476 Total
assets $ 462,647 $ 472,645 � LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities: Short-term debt $ 23,172 $ 438 Accounts
payable (includes book overdrafts of $18,561 and $12,695 at
Septbember 30, 2008 and December 31, 2007, respectively) 78,065
83,856 Accounts payable - related party 692 1,000 Accrued expenses
and other current liabilities 38,369 36,963 Current liabilities of
discontinued operations � 69 � 395 Total current liabilities �
140,367 � 122,652 Long-term debt 393,929 393,733 Pension and
postretirement liabilities 13,936 11,368 Deferred income taxes
2,101 2,045 Other liabilities 14,209 14,411 Non-current liabilities
of discontinued operations � 780 � 743 Total liabilities � 565,322
� 544,952 � Commitments and contingent liabilities � Stockholders'
deficit: Preferred Stock, $.01 par value - none issued or
outstanding at September 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 September 30, 2008
and December 31, 2007, respectively 125 125 Additional paid-in
capital 277,186 276,546 Accumulated other comprehensive loss
(22,797) (18,620) Treasury stock, at cost - 311 and 291 shares at
September 31, 2008 and December 31, 2007, respectively (1,012)
(945) Accumulated deficit � (356,177) � (329,413) Total
stockholders' deficit � (102,675) � (72,307) Total liabilities and
stockholders' deficit $ 462,647 $ 472,645 CONSTAR INTERNATIONAL
INC. � � � CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands,
except par value) � � Nine months ended September 30, � 2008 � �
2007 � Cash flows from operating activities: Net loss $ (26,764 ) $
(12,131 ) Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: � Depreciation and amortization
25,983 23,371 Restructuring and other exit activities - - Bad debt
expense 1,218 581 Stock-based compensation 472 573 Reclassification
(gain) loss of foreign currency translation adjustments - (110 )
Gain on disposal of assets (1,227 ) (432 ) Minority interest -
(1,893 ) Changes in operating assets and liabilities: Accounts
receivable (12,770 ) (8,003 ) Inventories 6,775 (8,159 ) Prepaid
expenses and other current assets 1,129 8,590 Accounts payable
(10,349 ) (9,755 ) Change in book overdraft 5,866 (140 ) Accrued
expenses and other current liabilities 4,989 7,828 Pension and
postretirement benefits � (562 ) � (1,293 ) Net cash provided by
(used in) operating activities � (5,240 ) � (973 ) � Cash flows
from investing activities: Purchases of property, plant and
equipment (20,048 ) (23,590 ) Proceeds from the sale of property,
plant and equipment � 1,845 � � 2,808 � Net cash used in investing
activities � (18,203 ) � (20,782 ) � Cash flows from financing
activities: Proceeds from Revolver loan 617,663 588,599 Repayment
of Revolver loan (594,929 ) (577,744 ) Costs associated with debt
financing � - � � (385 ) Net cash provided by (used in) financing
activities � 22,734 � � 10,470 � Effect of exchange rate changes on
cash and cash equivalents � (92 ) � 274 � Net increase (decrease)
in cash and cash equivalents (801 ) (11,011 ) Cash and cash
equivalents at beginning of period � 4,254 � � 19,370 � Cash and
cash equivalents at end of period $ 3,453 � $ 8,359 � � � � � � � �
Nine months ended September 30, � 2008 � � � 2007 � Reconciliation
of net cash providedby operating activities to free cash flow: �
Net cash provided by operating activities $ (5,240 ) $ (973 ) Net
cash used in investing activites � (18,203 ) � (20,782 ) Free cash
flow $ (23,443 ) $ (21,755 )
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