Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For Quarterly Period Ended June 30, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission file number 001-01982
Constar International Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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13-1889304
(IRS Employer
Identification Number) |
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One Crown Way, Philadelphia, PA
(Address of principal executive offices)
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19154
(Zip Code) |
(215) 552-3700
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act): Yes o No þ
Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes þ No o
As of August 6, 2010, 1,750,000 shares of the registrants Common Stock were outstanding.
PART IFINANCIAL INFORMATION
Item 1. Financial Statements
Constar International Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
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Successor |
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June 30, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
1,480 |
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$ |
2,469 |
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Accounts receivable, net |
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48,889 |
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39,054 |
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Inventories, net |
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44,884 |
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44,058 |
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Prepaid expenses and other current assets |
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7,161 |
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7,896 |
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Restricted cash |
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7,589 |
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Total current assets |
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102,414 |
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101,066 |
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Property, plant and equipment, net |
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136,539 |
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151,526 |
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Goodwill |
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86,182 |
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118,682 |
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Intangible assets, net |
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25,543 |
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31,398 |
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Other assets |
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5,999 |
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3,592 |
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Total assets |
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$ |
356,677 |
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$ |
406,264 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Short-term debt |
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$ |
5,523 |
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$ |
5,000 |
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Accounts payable |
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64,308 |
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59,128 |
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Accrued expenses and other current liabilities |
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24,986 |
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25,253 |
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Deferred income taxes |
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1,578 |
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1,222 |
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Total current liabilities |
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96,395 |
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90,603 |
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Long-term debt |
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178,939 |
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167,919 |
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Pension and postretirement liabilities |
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29,015 |
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31,105 |
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Deferred income taxes |
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9,788 |
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23,531 |
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Other liabilities |
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14,991 |
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14,503 |
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Total liabilities |
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329,128 |
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327,661 |
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Commitments and contingencies (Note 11) |
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Stockholders Equity: |
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Common stock, $.01 par value, 75,000 shares authorized, 1,750 shares
issued and outstanding at June 30, 2010 and December 31, 2009 |
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18 |
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18 |
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Additional paid-in capital |
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101,466 |
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101,466 |
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Accumulated other comprehensive loss, net of tax |
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(3,557 |
) |
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(1,769 |
) |
Accumulated deficit |
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(70,378 |
) |
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(21,112 |
) |
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Total stockholders equity |
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27,549 |
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78,603 |
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Total liabilities and stockholders equity |
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$ |
356,677 |
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$ |
406,264 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
Constar International Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Successor |
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Predecessor |
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Three Months |
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Two Months |
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One Month |
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Ended |
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Ended |
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Ended |
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June 30, |
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June 30, |
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April 30, |
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2010 |
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2009 |
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2009 |
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Net customer sales |
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$ |
157,655 |
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$ |
121,518 |
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$ |
57,142 |
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Net affiliate sales |
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676 |
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Net sales |
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157,655 |
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121,518 |
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57,818 |
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Cost of products sold, excluding depreciation |
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139,411 |
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104,370 |
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47,703 |
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Depreciation and amortization |
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8,763 |
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7,064 |
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2,477 |
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Gross profit |
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9,481 |
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10,084 |
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7,638 |
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Selling and administrative expenses |
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7,554 |
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3,139 |
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1,832 |
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Goodwill impairment |
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32,500 |
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Impairment of intangible assets |
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5,100 |
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Research and technology expenses |
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1,623 |
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1,229 |
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832 |
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Provision for restructuring |
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272 |
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265 |
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133 |
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Gain on disposal of assets |
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(108 |
) |
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(3 |
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(76 |
) |
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Total operating expenses |
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46,941 |
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4,630 |
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2,721 |
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Operating income (loss) |
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(37,460 |
) |
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5,454 |
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4,917 |
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Interest expense |
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(8,697 |
) |
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(5,788 |
) |
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(1,255 |
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Interest expense related party |
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(15 |
) |
Reorganization items, net |
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(1,167 |
) |
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|
147,723 |
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Other income (expense), net |
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(1,115 |
) |
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|
3,408 |
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|
1,382 |
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Income (loss) from continuing operations before income taxes |
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(47,272 |
) |
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1,907 |
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152,752 |
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(Provision for) benefit from income taxes |
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|
7,518 |
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|
805 |
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(37,825 |
) |
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Income (loss) from continuing operations |
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(39,754 |
) |
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2,712 |
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114,927 |
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Income (loss) from discontinued operations, net of taxes |
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64 |
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(60 |
) |
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(19 |
) |
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Net income (loss) |
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$ |
(39,690 |
) |
|
$ |
2,652 |
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$ |
114,908 |
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Basic and diluted earnings (loss) per common share: |
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Continuing operations |
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$ |
(22.72 |
) |
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$ |
1.55 |
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$ |
9.23 |
|
Discontinued operations |
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|
0.04 |
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(0.03 |
) |
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Net earnings (loss) per share |
|
$ |
(22.68 |
) |
|
$ |
1.52 |
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$ |
9.23 |
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Weighted average common shares outstanding: |
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Basic and diluted |
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1,750 |
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|
1,750 |
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12,455 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
Constar International Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Successor |
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Predecessor |
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Six Months |
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Two Months |
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Four Months |
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Ended |
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Ended |
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Ended |
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June 30, |
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June 30, |
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April 30, |
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2010 |
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2009 |
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|
2009 |
|
Net customer sales |
|
$ |
292,177 |
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$ |
121,518 |
|
|
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$ |
214,204 |
|
Net affiliate sales |
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|
|
|
|
|
|
|
|
|
|
3,256 |
|
|
|
|
|
|
|
|
|
|
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Net sales |
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|
292,177 |
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|
|
121,518 |
|
|
|
|
217,460 |
|
Cost of products sold, excluding depreciation |
|
|
263,128 |
|
|
|
104,370 |
|
|
|
|
189,816 |
|
Depreciation and amortization |
|
|
18,554 |
|
|
|
7,064 |
|
|
|
|
9,733 |
|
|
|
|
|
|
|
|
|
|
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Gross profit |
|
|
10,495 |
|
|
|
10,084 |
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|
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|
17,911 |
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|
|
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|
|
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|
|
|
|
|
|
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|
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|
|
|
|
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Selling and administrative expenses |
|
|
12,111 |
|
|
|
3,139 |
|
|
|
|
7,005 |
|
Goodwill impairment |
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|
32,500 |
|
|
|
|
|
|
|
|
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Impairment of intangible assets |
|
|
5,100 |
|
|
|
|
|
|
|
|
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Research and technology expenses |
|
|
3,324 |
|
|
|
1,229 |
|
|
|
|
2,698 |
|
Provision for restructuring |
|
|
637 |
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|
265 |
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|
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|
648 |
|
Gain on disposal of assets |
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|
(654 |
) |
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(3 |
) |
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(396 |
) |
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Total operating expenses |
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|
53,018 |
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|
4,630 |
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|
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|
9,955 |
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
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|
Operating income (loss) |
|
|
(42,523 |
) |
|
|
5,454 |
|
|
|
|
7,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(17,824 |
) |
|
|
(5,788 |
) |
|
|
|
(5,512 |
) |
Interest expense related party |
|
|
|
|
|
|
|
|
|
|
|
(54 |
) |
Reorganization items, net |
|
|
|
|
|
|
(1,167 |
) |
|
|
|
144,168 |
|
Other income (expense), net |
|
|
(1,901 |
) |
|
|
3,408 |
|
|
|
|
1,543 |
|
|
|
|
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|
|
|
|
|
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|
Income (loss) from continuing operations before income taxes |
|
|
(62,248 |
) |
|
|
1,907 |
|
|
|
|
148,101 |
|
(Provision for) benefit from income taxes |
|
|
12,889 |
|
|
|
805 |
|
|
|
|
(37,807 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(49,359 |
) |
|
|
2,712 |
|
|
|
|
110,294 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
93 |
|
|
|
(60 |
) |
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(49,266 |
) |
|
$ |
2,652 |
|
|
|
$ |
110,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Basic and diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(28.21 |
) |
|
$ |
1.55 |
|
|
|
$ |
8.86 |
|
Discontinued operations |
|
|
0.05 |
|
|
|
(0.03 |
) |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
(28.16 |
) |
|
$ |
1.52 |
|
|
|
$ |
8.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
1,750 |
|
|
|
1,750 |
|
|
|
|
12,455 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
Constar International Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
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|
Successor |
|
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Predecessor |
|
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|
Six Months |
|
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Two Months |
|
|
|
Four Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(49,266 |
) |
|
$ |
2,652 |
|
|
|
$ |
110,198 |
|
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
18,944 |
|
|
|
7,120 |
|
|
|
|
10,060 |
|
Impairment of goodwill and intangible assets |
|
|
37,600 |
|
|
|
|
|
|
|
|
|
|
Debt accretion expense |
|
|
11,020 |
|
|
|
3,303 |
|
|
|
|
|
|
Bad debt expense (recoveries) |
|
|
37 |
|
|
|
(39 |
) |
|
|
|
(483 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
591 |
|
Gain on disposal of assets and ARO settlements |
|
|
(654 |
) |
|
|
(3 |
) |
|
|
|
(396 |
) |
Deferred income taxes |
|
|
(12,925 |
) |
|
|
(923 |
) |
|
|
|
37,835 |
|
Gain on interest rate swap |
|
|
(696 |
) |
|
|
|
|
|
|
|
|
|
Fresh start accounting adjustments |
|
|
|
|
|
|
|
|
|
|
|
(68,109 |
) |
Reorganization items, net |
|
|
|
|
|
|
(404 |
) |
|
|
|
(79,299 |
) |
Changes in working capital and other |
|
|
(6,609 |
) |
|
|
(704 |
) |
|
|
|
7,104 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(2,549 |
) |
|
|
11,002 |
|
|
|
|
17,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
7,589 |
|
|
|
(2,485 |
) |
|
|
|
(9,327 |
) |
Purchases of property, plant and equipment |
|
|
(5,508 |
) |
|
|
(2,653 |
) |
|
|
|
(5,723 |
) |
Proceeds from sale of property, plant, and equipment |
|
|
623 |
|
|
|
|
|
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
2,704 |
|
|
|
(5,138 |
) |
|
|
|
(14,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with debt financing |
|
|
(1,862 |
) |
|
|
(101 |
) |
|
|
|
|
|
Proceeds from short-term financing |
|
|
294,993 |
|
|
|
125,000 |
|
|
|
|
212,723 |
|
Repayment of short-term financing |
|
|
(294,152 |
) |
|
|
(130,000 |
) |
|
|
|
(227,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,021 |
) |
|
|
(5,101 |
) |
|
|
|
(15,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(123 |
) |
|
|
79 |
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(989 |
) |
|
|
842 |
|
|
|
|
(12,408 |
) |
Cash and cash equivalents at beginning of period |
|
|
2,469 |
|
|
|
1,884 |
|
|
|
|
14,292 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,480 |
|
|
$ |
2,726 |
|
|
|
$ |
1,884 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
Constar International Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar and share amounts in thousands, unless otherwise noted)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of America and in
accordance with Securities and Exchange Commission (SEC) regulations for interim financial
reporting. In the opinion of management, these consolidated financial statements contain all
adjustments of a normal and recurring nature necessary to provide a fair statement of the financial
position, results of operations and cash flows for the periods presented. Results for interim
periods should not be considered indicative of results for a full year. These financial statements
should be read in conjunction with the Consolidated Financial Statements and Notes thereto
contained in Constar International Inc.s (the Company or Constar) Annual Report on Form 10-K
for the year ended December 31, 2009 (in addition, see the discussion below regarding fresh-start
accounting). The Condensed Consolidated Financial Statements include the accounts of the Company
and all of its subsidiaries in which a controlling interest is maintained.
The Financial Accounting Standards Boards (FASB) Accounting Standards Codification (ASC
or Codification) 852 Reorganizations applied to the Companys financial statements while the
Company operated under the provisions of Chapter 11 of the United States Bankruptcy Code. The
Company applied the guidance of ASC 852 for the period from December 30, 2008, to April 30, 2009.
ASC 852 does not change the application of generally accepted accounting principles in the
preparation of financial statements. However, for periods including and subsequent to the filing of
a Chapter 11 petition, ASC 852 does require that the financial statements distinguish transactions
and events that are directly associated with the reorganization from the ongoing operations of the
business. Accordingly, certain revenues, expenses, gains, and losses that were realized or incurred
during the Chapter 11 proceedings have been classified as reorganization items, net on the
accompanying condensed consolidated statements of operations.
As of May 1, 2009, (the Effective Date) the Company adopted fresh-start accounting. The
adoption of fresh-start accounting resulted in the Company becoming a new entity for financial
reporting purposes. Accordingly, the financial statements prior to May 1, 2009 are not comparable
with the financial statements for periods on or after May 1, 2009. References to Successor or
Successor Company refer to the Company on or after May 1, 2009, after giving effect to the
cancellation of Constar common stock issued prior to the Effective Date, the issuance of new
Constar common stock in accordance with the related Plan of Reorganization, and the application of
fresh-start accounting. References to Predecessor or Predecessor Company refer to the Company
prior to May 1, 2009. For further information, see Note 4 Fresh-Start Accounting of the notes
to the Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009.
In accordance with ASC 205-20, Discontinued Operations, the Company has classified the
results of operations of its Italian operation as a discontinued operation in the condensed
consolidated statements of operations for all periods presented. In addition, the assets and
related liabilities of this entity have been classified as assets and liabilities of discontinued
operations on the condensed consolidated balance sheets. See Note 21 Discontinued Operations
for further discussion. Unless otherwise indicated, amounts provided throughout this report relate
to continuing operations only.
At December 31, 2009 restricted cash represented cash collateral related to the Companys
interest rate swap liability. On February 11, 2010, the counterparty to the Companys interest rate
swap agreement novated its rights under the swap agreement to a third party and the cash collateral
was returned to the Company.
Where right of offset does not exist, book overdrafts representing outstanding checks are
included in accounts payable in the accompanying consolidated balance sheets since the Company is
not relieved of its obligations to vendors until the outstanding checks have cleared the bank. The
change in outstanding book overdrafts is considered an operating activity and is presented as such
in the consolidated statement of cash flows. When outstanding checks are presented for payment
subsequent to the balance sheet date, the Company deposits funds (subsequent to the balance sheet
date) in the disbursement account from cash either available from other
accounts or a combination of cash available from other accounts and from funds from the
Companys available credit facilities (subsequent to the balance sheet date). The amount of book
overdrafts included in accounts payable was $11,900 and $10,269 at June 30, 2010 and December 31,
2009, respectively.
7
Certain reclassifications have been made to prior year balances in order to conform these
balances to the current years presentation.
2. New Pronouncements
In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Improving
Disclosures about Fair Value Measurements. ASU 2010-06 requires additional disclosures about fair
value measurements including transfers in and out of Levels 1 and 2 and a higher level of
disaggregation for the different types of financial instruments. For the reconciliation of Level 3
fair value measurements, information about purchases, sales, issuances and settlements are
presented separately. This standard is effective for interim and annual reporting periods beginning
after December 15, 2009 with the exception of revised Level 3 disclosure requirements which are
effective for interim and annual reporting periods beginning after December 15, 2010. Comparative
disclosures are not required in the year of adoption. The Company adopted the provisions of the
standard on January 1, 2010. The adoption of these new requirements did not have a material impact
on the Companys results of operations or financial condition.
3. Reorganization Items
The Company incurred certain professional fees and other expenses directly associated with the
bankruptcy proceedings. In addition, the Company has made adjustments to the carrying value of
certain prepetition liabilities. Such costs and adjustments are classified as reorganization
items in the accompanying condensed consolidated statements of operations and consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three Months |
|
|
Two Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Gain from discharge of debt |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
84,745 |
|
Gain from fresh-start accounting adjustments |
|
|
|
|
|
|
|
|
|
|
|
68,109 |
|
Contract termination expenses |
|
|
|
|
|
|
|
|
|
|
|
(523 |
) |
Professional fees associated with bankruptcy proceedings |
|
|
|
|
|
|
(1,027 |
) |
|
|
|
(4,190 |
) |
Other, net |
|
|
|
|
|
|
(140 |
) |
|
|
|
(418 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total reorganization items, net |
|
$ |
|
|
|
$ |
(1,167 |
) |
|
|
$ |
147,723 |
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Six Months |
|
|
Two Months |
|
|
|
Four Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Gain from discharge of debt |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
84,745 |
|
Gain from fresh-start accounting adjustments |
|
|
|
|
|
|
|
|
|
|
|
68,109 |
|
Contract termination expenses |
|
|
|
|
|
|
|
|
|
|
|
(523 |
) |
Professional fees associated with bankruptcy proceedings |
|
|
|
|
|
|
(1,027 |
) |
|
|
|
(6,905 |
) |
Debtor-in-possession and Exit Financing fees |
|
|
|
|
|
|
|
|
|
|
|
(100 |
) |
Other, net |
|
|
|
|
|
|
(140 |
) |
|
|
|
(1,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total reorganization items, net |
|
$ |
|
|
|
$ |
(1,167 |
) |
|
|
$ |
144,168 |
|
|
|
|
|
|
|
|
|
|
|
|
The Successor Company made cash payments of $71 and $1,797 for the six months ended June 30,
2010 and the two months ended June 30, 2009, respectively, and the Predecessor Company made cash
payments of $3,014 for the four months ended April 30, 2009 related to reorganization items.
4. Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Trade accounts receivable |
|
$ |
44,796 |
|
|
$ |
35,427 |
|
Less: allowance for doubtful accounts |
|
|
(190 |
) |
|
|
(322 |
) |
|
|
|
|
|
|
|
Net trade accounts receivable |
|
|
44,606 |
|
|
|
35,105 |
|
Value added taxes recoverable |
|
|
3,763 |
|
|
|
2,202 |
|
Miscellaneous receivables |
|
|
520 |
|
|
|
1,747 |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
48,889 |
|
|
$ |
39,054 |
|
|
|
|
|
|
|
|
5. Inventories
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Finished goods |
|
$ |
28,727 |
|
|
$ |
28,900 |
|
Raw materials and supplies |
|
|
17,112 |
|
|
|
16,343 |
|
|
|
|
|
|
|
|
Total |
|
|
45,839 |
|
|
|
45,243 |
|
Less: reserves for obsolete and slow-moving inventories |
|
|
(955 |
) |
|
|
(1,185 |
) |
|
|
|
|
|
|
|
Inventories, net |
|
$ |
44,884 |
|
|
$ |
44,058 |
|
|
|
|
|
|
|
|
9
6. Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Land and improvements |
|
$ |
15,181 |
|
|
$ |
15,812 |
|
Buildings and improvements |
|
|
47,773 |
|
|
|
50,708 |
|
Machinery and equipment |
|
|
123,552 |
|
|
|
121,975 |
|
|
|
|
|
|
|
|
|
|
|
186,506 |
|
|
|
188,495 |
|
Less: accumulated depreciation and amortization |
|
|
(55,906 |
) |
|
|
(40,303 |
) |
|
|
|
|
|
|
|
|
|
|
130,600 |
|
|
|
148,192 |
|
Construction in progress |
|
|
5,939 |
|
|
|
3,334 |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
136,539 |
|
|
$ |
151,526 |
|
|
|
|
|
|
|
|
The Company accelerated the depreciation of machinery and equipment idled during the periods
that resulted in charges of $0.1 million and $1.0 million for the three and six months ended June
30, 2010, respectively.
7. Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be held and used whenever
events or changes in circumstances indicate the carrying value may not be recoverable. The carrying
amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash
flows expected to result from the use of the asset and its eventual disposition. In that event, an
impairment loss is recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset or asset group.
Based on communications from the Companys largest U.S. customer, the Company expects this
customer to increase its self-manufacturing of conventional containers. The Company does not expect
this increase to materially impact the Companys financial results in 2010. The Company expects
that in 2011 this action will reduce its U.S. bottle volumes by approximately 20%-25% as compared
to estimated 2010 bottle volumes. The Company anticipates an increase in preform volumes to this
customer to offset the loss of conventional bottle volume. The change in sales mix will negatively impact the
Companys results as preforms generally carry lower variable per unit profitability than bottles.
As a result, the Company revised its U.S. cash flow and earnings projections downward.
Consequently, the Company performed an interim impairment test of its U.S. long-lived asset group,
including its finite-lived intangible assets. The results of the test indicated that no impairment
of long-lived assets existed at June 30, 2010, since the sum of the undiscounted cash flows of the
asset group significantly exceeded its carrying amount.
8. Goodwill and Intangible Assets
The Company performed an interim goodwill impairment assessment as of June 30, 2010 since the
aggregate trading value of its common stock of $13.7 million was significantly less than the
carrying value of its stockholders equity.
Since the Company adopted fresh-start accounting on May 1, 2009 through the first quarter of
2010, the Company used discounted cash flow analysis and a market multiple method to estimate the
fair value of its single reporting unit. For the impairment test performed as of June 30, 2010, the
Company added an additional component to the enterprise fair value estimate by including the fair
value of the Company based upon quoted market prices. The Company changed its method of valuation
in the second quarter of 2010 since the Companys common stock was listed on the NASDAQ Capital
Market on April 9, 2010 and the Company believes that sufficient time has elapsed and trading has
occurred for the market in Constars stock to have more fully developed as of June 30, 2010.
Therefore, the Company believes that quoted market prices have become an appropriate component in
the estimated fair value of the Company. A discussion of the discounted cash flow and market
multiple valuation methods and the underlying assumptions of these methods are presented below.
|
1. |
|
Income Approach (discounted cash flow analysis) - the discounted cash flow (DCF)
valuation method requires an estimation of future cash flows of an entity and then
discounts those cash flows to their present value using an appropriate discount rate. The
discount rate selected should reflect the risks inherent in the projected cash flows. The
key inputs and assumptions of the DCF method are the projected cash flows, the terminal
value of the entity, and the discount rate. The Company used the Gordon Growth Model and
assumed a 2.75% growth rate to estimate the terminal value of the business. Cash flows
were discounted at a rate of 10.6%. |
10
|
2. |
|
Market Approach (market multiples) - this method begins with the identification of
a group of peer companies. Peer companies represent a group of companies in the same or
similar industry as the company being valued. A valuation average multiple is then
computed for the peer group based upon a valuation metric. The Company selected a ratio
of enterprise value to projected earnings before interest, taxes, depreciation and
amortization (EBITDA) as an appropriate valuation multiple. Various operating
performance measurements of the company being valued are then benchmarked against the
peer group and a discount or premium is applied to reflect favorable or unfavorable
comparisons. The resulting multiple is then applied to the company being valued to arrive
at an estimate of its fair value. An equity value is then derived by subtracting the fair
value of interest bearing debt from the total enterprise value. A control premium is then
applied to the equity value. The combined value of interest bearing debt plus an equity
value including control premium equals the estimated total, or enterprise value, of the
business. The Company selected 11 public companies in the packaging industry as its peer
group. The Company calculated for the peer group an average multiple of 2010 projected
EBITDA and a multiple of projected 2011 EBITDA. The peer group average multiples were
then discounted based upon an unfavorable comparison of the Companys historical growth
and profit margins as compared to the peer group. The result was a market multiple of 5.2
for 2010 and a market multiple of 4.7 for 2011. Weightings of 80% and 20% were assigned
to the 2010 and 2011 valuation multiples, respectively. The Company used quoted market
prices to determine the fair value of its debt at June 30, 2010. No control premium was
assumed to determine the Companys equity value. |
The Company reviewed the assumptions and results of the valuation described above and
determined that the estimated fair value of its reporting unit at June 30, 2010 was reasonable when
compared to the market capitalization of the Company.
The determination of estimated fair value requires the exercise of judgment and is highly
sensitive to the Companys assumptions. The following table provides a summary of the impact that
changes in the significant assumptions used would have on the estimated fair value of the Companys
reporting unit at June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Assumed |
|
Decrease in |
|
Valuation Method |
|
Assumption |
|
Change |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Discounted cash flow |
|
Projected cash flows |
|
10% decrease |
|
$ |
(11.5 |
) |
Discounted cash flow |
|
Terminal year growth rate |
|
100 basis point decrease |
|
$ |
(10.2 |
) |
Discounted cash flow |
|
Discount rate |
|
100 basis point increase |
|
$ |
(6.0 |
) |
|
|
|
|
|
|
|
|
|
Market approach |
|
Projected cash flows |
|
10% decrease |
|
$ |
(5.6 |
) |
Market approach |
|
Market multiple |
|
20% discount to peer average |
|
$ |
(6.2 |
) |
Based upon the analysis performed as of June 30, 2010, the Company failed Step 1 of the
goodwill impairment test. The change in the fair value of the Companys single reporting unit that
caused the Company to fail Step 1 was predominately attributable to lower actual and projected cash
flows. Consequently, the Company performed a hypothetical purchase price allocation to determine
the amount of goodwill impairment. The primary adjustments from book values to the fair values used
in the hypothetical purchase price allocation were to property, plant and equipment, amortizable
intangible assets, long-term debt and pension and postretirement liabilities. The adjustments to
measure the assets and liabilities at fair value were for the purpose of measuring the implied fair
value of goodwill. The adjustments are not reflected in the condensed consolidated balance sheet.
11
The results of the second step of the goodwill impairment test indicated that goodwill was
impaired by $32.5 million on a pre-tax basis as of June 30, 2010. If the Companys fair value
continues to decline in the future, the Company may experience additional material impairment
charges to the carrying amount of its goodwill. A small negative change in the assumptions used in
the valuation, particularly the projected cash flows, the discount rate, the terminal year growth
rate, and the market multiple assumptions could significantly affect the results of the impairment
analysis. Recognition of impairment of a significant portion of goodwill would negatively affect
the Companys reported results of operations and total capitalization, the effect of which could be
material.
The following table presents a summary of the activity related to the carrying value of
goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
April 30, 2009 |
|
|
Predecessor |
|
|
|
Six Months |
|
|
Two Months |
|
|
|
Fresh-start |
|
|
Four Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Accounting |
|
|
Ended |
|
(In thousands) |
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Adjustments |
|
|
April 30, 2009 |
|
Beginning balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
118,682 |
|
|
$ |
117,313 |
|
|
|
$ |
381,872 |
|
|
$ |
381,872 |
|
Accumulated impairment losses |
|
|
|
|
|
|
|
|
|
|
|
(233,059 |
) |
|
|
(233,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,682 |
|
|
|
117,313 |
|
|
|
|
148,813 |
|
|
|
148,813 |
|
Fresh-start accounting adjustments, net |
|
|
|
|
|
|
|
|
|
|
|
(31,500 |
) |
|
|
|
|
Impairment charges |
|
|
(32,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
118,682 |
|
|
|
117,313 |
|
|
|
|
117,313 |
|
|
|
381,872 |
|
Accumulated impairment losses |
|
|
(32,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
(233,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
86,182 |
|
|
$ |
117,313 |
|
|
|
$ |
117,313 |
|
|
$ |
148,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the Companys expectations regarding its largest U.S. customers intention to
increase its self-manufacturing of conventional containers, the Company revised its cash flow and
earnings projections downward. The Company does not expect this increase to materially impact the
Companys financial results in 2010. The Company expects that in 2011 this action will reduce its
U.S. bottle volumes by approximately 20%-25% as compared to estimated 2010 bottle volumes. The
Company anticipates an increase in preform volumes to this customer
to offset the loss of conventional bottle
volume. The change in sales mix will negatively impact the Companys results as preforms generally
carry lower variable per unit profitability than bottles. Consequently, the Company performed an
interim impairment test of its indefinite-lived intangible asset, consisting exclusively of its
trade name, as of June 30, 2010. An impairment of the carrying value of an indefinite-lived
intangible asset is recognized whenever its carrying value exceeds its fair value. The amount of
impairment recognized is the difference between the carrying value of the asset and its fair value.
The Company estimated the fair value of its trade name by performing a discounted cash flow
analysis using the relief-from-royalty method. This approach treats the trade name as if it were
licensed by the Company rather than owned, and calculates its value based on the discounted cash
flow of the projected license payments. The relief-from-royalty method is consistent with the
method the Company employed in prior periods and the method employed to initially value the trade
name upon the adoption of fresh-start accounting on May 1, 2009. Fair value estimates are based
on assumptions concerning the amount and timing of estimated future cash flows and assumed discount
and growth rates, reflecting varying degrees of perceived risk. Significant estimates and
assumptions used to estimate the fair value of the Companys trade name were internal sales
projections, a long-term growth rate of 2.75%, and a discount rate of 13.9%. Based on these
evaluations the Company recorded impairment charges related to its trade name intangible asset of
$5.1 million as of June 30, 2010. This impairment charge is included within operating expenses in
the accompanying condensed consolidated statement of operations for the three and six months ended
June 30, 2010. As discussed above, the primary factor contributing to the impairment charge was a
reduction in sales expectations from its previous projection utilized in its impairment test
performed at December 31, 2009.
12
The following table presents a summary of the carrying value of indefinite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Trade name |
|
|
25,500 |
|
|
|
25,500 |
|
Accumulated impairment losses |
|
|
(9,100 |
) |
|
|
(4,000 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
16,400 |
|
|
$ |
21,500 |
|
|
|
|
|
|
|
|
The following table presents a summary of finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Estimated |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Life |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
(In thousands) |
|
(in years) |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
Technology |
|
4 to 12 |
|
$ |
9,700 |
|
|
$ |
(1,410 |
) |
|
$ |
8,290 |
|
|
$ |
9,700 |
|
|
$ |
(805 |
) |
|
$ |
8,895 |
|
Leasehold interests |
|
4 |
|
|
1,204 |
|
|
|
(351 |
) |
|
|
853 |
|
|
|
1,204 |
|
|
|
(201 |
) |
|
|
1,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
10,904 |
|
|
$ |
(1,761 |
) |
|
$ |
9,143 |
|
|
$ |
10,904 |
|
|
$ |
(1,006 |
) |
|
$ |
9,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $377 and $755 for the three and six months ended June 30, 2010,
respectively, and $252 for the two months ended June 30, 2009. Amortization expense is included
within cost of goods sold in the accompanying condensed consolidated statements of operations.
The following table summarizes the expected amortization expense for finite-lived intangible
assets:
|
|
|
|
|
(In thousands) |
|
|
|
|
Six months ended December 31, 2010 |
|
$ |
755 |
|
2011 |
|
|
1,509 |
|
2012 |
|
|
1,509 |
|
2013 |
|
|
909 |
|
2014 |
|
|
608 |
|
After 2014 |
|
|
3,853 |
|
|
|
|
|
|
|
$ |
9,143 |
|
|
|
|
|
9. Debt
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Short-term debt: |
|
|
|
|
|
|
|
|
GE Credit Agreement |
|
$ |
1,855 |
|
|
$ |
|
|
ING Credit Agreements |
|
|
3,668 |
|
|
|
|
|
Exit Facility |
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
Total short-term debt |
|
$ |
5,523 |
|
|
$ |
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
Secured Notes |
|
$ |
178,939 |
|
|
$ |
167,919 |
|
|
|
|
|
|
|
|
At June 30, 2010, there were $3.1 million in letters of credit outstanding under the Companys
current credit agreement. At December 31, 2009, there were $4.0 million letters of credit
outstanding under the Companys previous credit agreement (the the Exit Facility).
13
On February 11, 2010, the Company entered into a revolving credit facility with General
Electric Capital Corporation (Agent) and terminated the Exit Facility. On August 12, 2010 the
Company entered into an amended credit agreement with the Agent (as amended, the GE Credit
Agreement) to effect changes to certain terms, covenants, applicable interest rate margins and the
sublimit for letters of credit. See note 23 Subsequent Events for further details. The
following discussion is not a complete description of the GE Credit Agreement or its recent
amendment. The amendment is filed as an exhibit to this Form 10-Q and the original agreement was
filed with a Form 8-K on February 17, 2010.
The GE Credit Agreement provides for up to $75.0 million of available credit, with a sublimit
of up to $20.0 million for the issuance of letters of credit. Available credit under the GE Credit
Agreement is limited to a borrowing base consisting of the sum of:
(a) |
|
Up to 85% of the dollar equivalent of the book value
of eligible accounts receivable; plus |
|
(b) |
|
subject to certain limitations, the lesser of
(i) 65% of the dollar equivalent of the book value
of eligible inventory valued at the lower of cost on
a first-in, first-out basis or market, and (ii) up
to 85% of the dollar equivalent of the book value of
the net orderly liquidation value of eligible
inventory; minus |
|
(c) |
|
$5.0 million; minus |
|
(d) |
|
such reserves as the Agent may from time to time
establish in its discretion in connection with
hedging arrangements; minus |
|
(e) |
|
such reserves as the Agent may from time to time
establish in its discretion. |
As of June 30, 2010 the Companys borrowing base under the GE Credit Agreement was $54.0
million and its available credit was $44.1 million. The Companys projected available credit may
be impacted by, among other things, unit volume changes, resin price changes, changes in foreign
currency exchange rates, working capital changes, vendor demands for letters of credit, changes in
product mix, factors impacting the value of the borrowing base, and other factors such as those
disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations
-Overview. In the event that it appeared to the Company that the debt covenants would not be met,
the Company would plan to delay or eliminate certain capital expenditures, reduce its inventory,
institute
cost reduction initiatives, seek additional funding related to its unsecured assets or seek a
waiver of the debt covenants. There can be no assurance that such actions would be successful.
The GE Credit Agreements scheduled expiration date is February 11, 2013. However, the GE
Credit Agreement may terminate earlier if the Companys $220 million of Senior Secured Floating
Rate Notes (the Secured Notes) are not refinanced at least 90 days prior to their scheduled due
date of February 15, 2012, or in the case of an event of default.
The Company will pay monthly a commitment fee equal to 0.75% per year on the undrawn portion
of the GE Credit Agreement. Loans will bear interest, at the option of the Company, at one of the
following rates: (i) a fluctuating base rate of not less than 3.5% plus a margin ranging from 2.75%
to 3.25% per year, or (ii) a fluctuating LIBOR base rate of not less than 2.5% plus a margin
ranging from 3.75% to 4.25% per year. The interest rate at June 30, 2010 was 6.5%. Letters of
credit carry an issuance fee of 0.25% per annum of the outstanding amount and a monthly fee
accruing at a rate per year of 4% of the average daily amount outstanding.
The Company, its U.S. subsidiaries and its U.K. subsidiary jointly and severally guarantee the
obligations under the GE Credit Agreement. Collateral securing the obligations under the GE Credit
Agreement consists of all of the stock of the Companys domestic and United Kingdom subsidiaries,
65% of the stock of the Companys other foreign subsidiaries and all of the inventory, accounts
receivable, investment property, instruments, chattel paper, documents, deposit accounts and
certain intangibles of the Company and its domestic and United Kingdom subsidiaries.
The GE Credit Agreement contains certain financial covenants that include limitations on
yearly capital expenditures, available credit and a minimum Fixed Charge Coverage Ratio, as defined
in the GE Credit agreement. The GE Credit Agreement contains other customary covenants and events of
default. If an event of default should occur and be continuing, the Agent may, among other things,
accelerate the maturity of the GE Credit Agreement. The GE Credit Agreement also contains
cross-default provisions if there is an event of default under the Secured Notes that has occurred
or is continuing. The Company was in compliance with the covenants of the GE Credit Agreement as of
June 30, 2010.
14
Prior to the amendment of the GE Credit Agreement, if the amount of available credit less all
outstanding loans and letters of credit during any fiscal quarter was less than $15.0 million for
any period of five consecutive business days during any fiscal quarter, the Company was required to
maintain consolidated EBITDA, as defined in the GE Credit Agreement, of not less than $40.0
million, calculated on a trailing twelve month basis as of the last day of the then immediately
preceding fiscal quarter. The amendment changed the minimum available credit less outstanding
loans and letters of credit requirement to $12.5 million for any period of five consecutive
business days during any fiscal month or $7.5 million at any time. The minimum consolidated EBITDA
for the trailing twelve months was replaced by a minimum Fixed Charge Coverage Ratio of 1.0:1.0.
Based upon its current projections, the Company expects to be in compliance with its debt
covenants during 2010. The Companys projected available credit, based upon its most recent
earnings and financial projections will exceed $12.5 million for all five consecutive business day
periods in 2010 and not fall bellow $7.5 million at any time. Additionally, the Companys
projections indicate that it would be in compliance with the minimum Fixed Charge Coverage Ratio
during this period.
On April 29, 2010, Constar International Holland (Plastics) B.V. (Constar Holland), which is
an indirect subsidiary of the Company organized under the laws of the Netherlands, entered into a
receivables financing agreement and an inventory financing agreement (the ING Credit Agreements)
with ING Commercial Finance B.V., a company organized under the laws of the Netherlands (Lender).
The receivables financing agreement provides for advances of up to 85% (subject to certain
exclusions and limitations) of the face amount of Constar Hollands approved receivables. The
inventory financing agreement provides for advances of up to 50% (subject to certain exclusions and
limitations) of the acquisition cost of Constar Hollands raw materials in inventory, including a
margin for overhead.
The actual amount of financing available under the ING Credit Agreements will fluctuate from
time to time because it depends on inventory and accounts receivable values that can fluctuate and
is subject to limitations and
exclusions that the Lender may impose in its discretion and other limitations. Although the
amount of financing under the ING Credit Agreements will fluctuate as described above, the Company
currently anticipates that generally at least $5 million will be available, which is the maximum
amount that the Company currently anticipates that it would borrow because additional borrowings
would require ING to accede to a subordination agreement in favor of the Agent of the GE Credit
Agreement.
Advances under each ING Credit Agreement bear interest at EURIBOR plus 2% per year and a
credit commission of 1/24% per month. A turnover commission of 0.20% is also applicable to the
receivables financing agreement.
The initial duration of each ING Credit Agreement is for two years. At the end of this period,
the ING Credit Agreements automatically renew for successive one-year periods unless at least
90 days notice of earlier termination is given by either party. In addition, the ING Credit
Agreements may terminate earlier in the case of an event of default. If Constar Holland terminates
the ING Credit Agreements early (other than as a result of certain changes to the terms made by the
Lender), or there is a termination due to an event of default, Constar Holland must pay the total
amount of interest and commissions that the Lender would have received if the ING Credit Agreements
had continued for the remaining agreed upon term.
Constar Hollands obligations under the financing agreements are secured by its receivables
and inventory and related rights.
The ING Credit Agreements and related agreements with the Lender contain covenants,
representations and warranties and events of default. Events of default include, but are not
limited to:
|
|
|
a dividend or other distribution from Constar Holland causing its
equity capital to amount to less than 35% of total assets; |
15
|
|
|
a breach of a covenant, representation, warranty or certification made
in connection with an ING Credit Agreement, including a default in the
payment of any amount due under the ING Credit Agreements; |
|
|
|
|
a default or acceleration with respect to financing or guarantee
agreements of Constar Holland of more than 50,000 or the
occurrence of certain insolvency events; and |
|
|
|
|
Constar Holland becoming subject to certain judgments. |
If an event of default shall occur and be continuing under an ING Credit Agreement, the Lender
may, among other things, accelerate the maturity of the ING Credit Agreements.
The Companys outstanding long-term debt at June 30, 2010 and December 31, 2009, consists of
$220.0 million face value of Secured Notes due February 15, 2012. The Secured Notes bear interest
at the rate of three-month LIBOR plus 3.375% per annum. Interest on the Secured Notes is reset and
payable quarterly on each February 15, May 15, August 15 and November 15. In 2005, the Company
entered into an interest rate swap for a notional amount of $100 million under which the Company
exchanged its floating interest rate for a fixed rate of 7.9%. On February 11, 2010, the
counterparty to the interest rate swap novated its rights under the swap agreement to a third
party. The fixed payment of the swap agreement was also modified from the previous fixed rate of
7.9% to a new fixed rate of 8.17%. The interest rate swap agreement terminates on February 15,
2012. The Company may redeem some or all of the Secured Notes at any time under the circumstances
and at the prices described in the indenture governing the Secured Notes. The indenture governing
the Secured Notes contains provisions that require the Company to make mandatory offers to purchase
outstanding Secured Notes in connection with a change in control, asset sales and events of loss.
The Secured Notes are guaranteed by all of the Companys U.S. subsidiaries and its U.K. subsidiary.
Substantially all of the Companys property, plant, and equipment are pledged as collateral for the
Secured Notes.
Upon the adoption of fresh-start accounting, the Company adjusted the carrying value of its
Secured Notes to fair value of $154.3 million based upon their quoted market price at April 30,
2009; however, the total amount due at maturity remains $220.0 million. The Company currently
expects to record accretion expense of approximately $11.7 million for the remainder of 2010,
$25.8 million in 2011 and $3.5 million in 2012. For the three months and
six months ended June 30, 2010, the Company recorded accretion expense of $5.6 million and
$11.0 million, respectively. For the two months ended June 30, 2009 the Company recorded accretion
expense of $3.3 million. Accretion expense is included in interest expense in the accompanying
condensed consolidated statement of operations.
There are no financial covenants related to the Secured Notes. The Secured Notes contain
certain non-financial covenants that, among other things, restrict the Companys ability to incur
indebtedness, create liens, sell assets, and enter into transactions with affiliates. The Company
was in compliance with these covenants at June 30, 2010. If an event of default shall occur and be
continuing under the indenture, including without limitation as a result of the acceleration of
indebtedness under the GE Credit Agreement upon an event of default, either the trustee or holders
of a specified percentage of the applicable notes may accelerate the maturity of such notes.
As previously disclosed, the Company does not anticipate generating sufficient funds to repay
the Secured Notes. The Company has retained a financial advisor to assist in exploring all
alternatives, which may include, among other things, exchanging the Secured Notes for equity and/or
new debt, a negotiated or bankruptcy court supervised restructuring, or a sale of the Company. Any
such transaction could cause substantial dilution to, or the cancellation of, the Companys common
stock. There can be no assurance that any particular alternative will be available.
10. Restructuring
On October 10, 2008, the Company executed a four-year cold fill supply agreement effective
January 1, 2009, (the New Agreement) with Pepsi-Cola Advertising and Marketing, Inc. (Pepsi).
Under the terms of the New Agreement, the Company anticipated approximately a 30% reduction in
volume in 2009. Therefore, in conjunction with the signing of the New Agreement, on October 10,
2008 a committee of the Companys Board of Directors approved a plan of restructuring to reduce the
Companys manufacturing overhead cost structure that involved the closure of three U.S.
manufacturing facilities and a reduction of operations in three other U.S. manufacturing
facilities. In addition, as a result of previously disclosed customer losses and a strategic
decision to exit the limited extrusion blow-molding business, the Company closed its manufacturing
facility in Houston, Texas in May 2008.
16
In connection with the restructuring actions described above, the Company expects to incur
total charges of approximately $13.4 million of which $13.2 million has been incurred to date. The
total charges include (i) an estimated $4.2 million related to costs to exit facilities, (ii) $1.5
million related to employee severance and other termination benefits, and (iii) approximately $7.7
million of accelerated depreciation and other non-cash charges.
In November of 2007, the Company terminated its agreement for the supply of bottles and
preforms with its supplier in Salt Lake City. As a result, the Company recorded restructuring
charges for costs to remove its equipment from this location and for severance benefits that will
be paid to terminated personnel. The Company did not incur any restructuring expenditures during
the six months ended June 30, 2010 related to the Salt Lake City shut-down.
The following table presents a summary of the restructuring reserve activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Plan |
|
|
2008 Plans |
|
|
|
|
|
|
Severance |
|
|
Contract |
|
|
|
|
|
|
|
|
|
and |
|
|
and Lease |
|
|
|
|
|
|
|
|
|
Termination |
|
|
Termination |
|
|
Other |
|
|
|
|
(In thousands) |
|
Benefits |
|
|
Costs |
|
|
Costs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010 (Successor) |
|
$ |
14 |
|
|
$ |
46 |
|
|
$ |
329 |
|
|
$ |
389 |
|
Charges to income |
|
|
|
|
|
|
319 |
|
|
|
318 |
|
|
|
637 |
|
Payments |
|
|
|
|
|
|
(365 |
) |
|
|
(564 |
) |
|
|
(929 |
) |
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 (Successor) |
|
$ |
14 |
|
|
$ |
|
|
|
$ |
83 |
|
|
$ |
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Commitments and Contingencies
The Company is subject to lawsuits and claims in the normal course of business and related to
businesses operated by predecessor corporations. Management believes that the ultimate liabilities
resulting from these lawsuits and claims will not materially impact its results of operations or
financial position.
Certain judgments against the Company would constitute an event of default under its debt
agreements.
Constar has been identified by the Wisconsin Department of Natural Resources as a potentially
responsible party at two adjacent sites in Wisconsin and agreed to share in the remediation costs
with one other party. Remediation is ongoing at these sites. Constar has also been identified as a
potentially responsible party at the Bush Valley Landfill site in Abingdon, Maryland and entered
into a settlement agreement with the EPA in July 1997. The activities required under that agreement
are ongoing. Constars share of the remediation costs at both sites has been minimal thus far and
no accrual has been recorded for future remediation at these sites.
The Companys Netherlands facility has been identified as impacting soil and groundwater from
volatile organic compounds at concentrations that exceed those permissible under Dutch law. The
main body of the groundwater plume is beneath the Netherlands facility but it also appears to
extend from an up gradient neighboring property. The Company commenced trial remediation in 2007.
The Company records an environmental liability on an undiscounted basis when it is probable that a
liability has been incurred and the amount of the liability is reasonably estimable. The reserve
established by the Company for estimated costs associated with completing the required remediation
activities was $0.2 million as of June 30, 2010 and December 31, 2009. As more information
becomes available relating to what additional actions may be required at the site, this accrual may
be adjusted as necessary, to reflect the new information. There are no accruals for other
environmental matters.
17
Environmental exposures are difficult to assess for numerous reasons, including the
identification of new sites, advances in technology, changes in environmental laws and regulations
and their application, the scarcity of reliable data pertaining to identified sites, the difficulty
in assessing the involvement and financial capability of other potentially responsible parties and
the time periods over which site remediation occurs. It is possible that some of these matters, the
outcomes of which are subject to various uncertainties, may be decided in a manner unfavorable to
Constar. However, management does not believe that any unfavorable decision with respect to these
identified sites will have a material adverse effect on the Companys financial position, cash
flows or results of operations.
For the six months ended June 30, 2010, the Company recorded revenue of $0.9 million as a
result of the settlement of a dispute with a former customer.
12. Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three Months Ended |
|
|
Two Months Ended |
|
|
|
One Month Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
Pre-tax |
|
|
(Expense) |
|
|
After-tax |
|
|
Pre-tax |
|
|
(Expense) |
|
|
After-tax |
|
|
|
Pre-tax |
|
|
(Expense) |
|
|
After-tax |
|
(In thousands) |
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
$ |
(39,690 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,652 |
|
|
|
|
|
|
|
|
|
|
|
$ |
114,908 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension curtailment |
|
|
(14 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension remeasurement |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement amortization |
|
|
(14 |
) |
|
|
17 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462 |
|
|
|
|
|
|
|
462 |
|
Cash-flow hedge |
|
|
(215 |
) |
|
|
83 |
|
|
|
(132 |
) |
|
|
735 |
|
|
|
(257 |
) |
|
|
478 |
|
|
|
|
743 |
|
|
|
|
|
|
|
743 |
|
Foreign currency translation adjustments |
|
|
(1,715 |
) |
|
|
|
|
|
|
(1,715 |
) |
|
|
(489 |
) |
|
|
|
|
|
|
(489 |
) |
|
|
|
(474 |
) |
|
|
|
|
|
|
(474 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(1,956 |
) |
|
|
100 |
|
|
|
(1,856 |
) |
|
|
246 |
|
|
|
(257 |
) |
|
|
(11 |
) |
|
|
|
731 |
|
|
|
|
|
|
|
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
$ |
(41,546 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,641 |
|
|
|
|
|
|
|
|
|
|
|
$ |
115,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Six Months Ended |
|
|
Two Months Ended |
|
|
|
Four Months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
Pre-tax |
|
|
(Expense) |
|
|
After-tax |
|
|
Pre-tax |
|
|
(Expense) |
|
|
After-tax |
|
|
|
Pre-tax |
|
|
(Expense) |
|
|
After-tax |
|
(In thousands) |
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
$ |
(49,266 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,652 |
|
|
|
|
|
|
|
|
|
|
|
$ |
110,198 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension curtailment |
|
|
613 |
|
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension remeasurement |
|
|
(126 |
) |
|
|
|
|
|
|
(126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement amortization |
|
|
(30 |
) |
|
|
12 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,919 |
|
|
|
|
|
|
|
1,919 |
|
Cash-flow hedge |
|
|
(699 |
) |
|
|
269 |
|
|
|
(430 |
) |
|
|
735 |
|
|
|
(257 |
) |
|
|
478 |
|
|
|
|
951 |
|
|
|
|
|
|
|
951 |
|
Foreign currency translation adjustments |
|
|
(1,827 |
) |
|
|
|
|
|
|
(1,827 |
) |
|
|
(489 |
) |
|
|
|
|
|
|
(489 |
) |
|
|
|
(1,134 |
) |
|
|
|
|
|
|
(1,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(2,069 |
) |
|
|
281 |
|
|
|
(1,788 |
) |
|
|
246 |
|
|
|
(257 |
) |
|
|
(11 |
) |
|
|
|
1,736 |
|
|
|
|
|
|
|
1,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
$ |
(51,054 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,641 |
|
|
|
|
|
|
|
|
|
|
|
$ |
111,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Pension and post-retirement liabilities, net of tax |
|
$ |
(1,991 |
) |
|
$ |
(2,460 |
) |
Cash-flow hedge, net of tax |
|
|
232 |
|
|
|
662 |
|
Foreign currency translation adjustments |
|
|
(1,798 |
) |
|
|
29 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(3,557 |
) |
|
$ |
(1,769 |
) |
|
|
|
|
|
|
|
13. Stock-Based Compensation
There have been no awards issued for the six months ended June 30, 2010. The Predecessor
Company maintained stock-based incentive compensation plans for its employees and stock-based
compensation plans for directors. All outstanding equity awards of the Predecessor were cancelled
upon the Companys emergence from bankruptcy.
The following table summarizes total stock-based compensation expense included in the
Predecessors consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Four Months Ended |
|
|
One Month Ended |
|
(In thousands) |
|
April 30, 2009 |
|
|
April 30, 2009 |
|
Restricted stock |
|
$ |
597 |
|
|
$ |
464 |
|
Restricted stock units |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
$ |
591 |
|
|
$ |
462 |
|
|
|
|
|
|
|
|
14. Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted earnings (loss) per
common share (Diluted EPS) is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period after giving effect to all potentially
dilutive securities outstanding during the period.
The Predecessor Companys potentially dilutive securities consisted of potential common shares
related to restricted stock awards. Diluted EPS includes the impact of potentially dilutive
securities except in periods in which there is a loss from continuing operations because the
inclusion of the potential common shares would be anti-dilutive. There were no potentially dilutive
securities issued or outstanding for any period presented.
15. Pension and Other Postretirement Benefits
Pension Benefits
The components of net periodic pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three Months Ended |
|
|
Two Months Ended |
|
|
|
One Month Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
(In thousands) |
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
Service cost |
|
$ |
160 |
|
|
$ |
6 |
|
|
$ |
166 |
|
|
$ |
89 |
|
|
$ |
94 |
|
|
$ |
183 |
|
|
|
$ |
52 |
|
|
$ |
31 |
|
|
$ |
83 |
|
Interest cost |
|
|
1,303 |
|
|
|
169 |
|
|
|
1,472 |
|
|
|
901 |
|
|
|
113 |
|
|
|
1,014 |
|
|
|
|
437 |
|
|
|
31 |
|
|
|
468 |
|
Expected return on plan assets |
|
|
(1,362 |
) |
|
|
(178 |
) |
|
|
(1,540 |
) |
|
|
(757 |
) |
|
|
(104 |
) |
|
|
(861 |
) |
|
|
|
(376 |
) |
|
|
(30 |
) |
|
|
(406 |
) |
Amortization of net loss |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396 |
|
|
|
23 |
|
|
|
419 |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
(2 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense |
|
$ |
102 |
|
|
$ |
(3 |
) |
|
$ |
99 |
|
|
$ |
233 |
|
|
$ |
103 |
|
|
$ |
336 |
|
|
|
$ |
514 |
|
|
$ |
53 |
|
|
$ |
567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Six Months Ended |
|
|
Two Months Ended |
|
|
|
Four Months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
(In thousands) |
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
Service cost |
|
$ |
319 |
|
|
$ |
207 |
|
|
$ |
526 |
|
|
$ |
89 |
|
|
$ |
94 |
|
|
$ |
183 |
|
|
|
$ |
207 |
|
|
$ |
168 |
|
|
$ |
375 |
|
Interest cost |
|
|
2,606 |
|
|
|
358 |
|
|
|
2,964 |
|
|
|
901 |
|
|
|
113 |
|
|
|
1,014 |
|
|
|
|
1,752 |
|
|
|
171 |
|
|
|
1,923 |
|
Expected return on plan assets |
|
|
(2,722 |
) |
|
|
(363 |
) |
|
|
(3,085 |
) |
|
|
(757 |
) |
|
|
(104 |
) |
|
|
(861 |
) |
|
|
|
(1,504 |
) |
|
|
(168 |
) |
|
|
(1,672 |
) |
Amortization of net loss |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,585 |
|
|
|
106 |
|
|
|
1,691 |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
(12 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense |
|
$ |
204 |
|
|
$ |
202 |
|
|
$ |
406 |
|
|
$ |
233 |
|
|
$ |
103 |
|
|
$ |
336 |
|
|
|
$ |
2,058 |
|
|
$ |
265 |
|
|
$ |
2,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2010, due to a freeze in plan benefits the Company
recorded a curtailment adjustment to its U.K. pension plan liability. The curtailment resulted in a
decrease in the benefit obligation and an increase in accumulated other comprehensive income of
$0.6 million.
The Company estimates that its expected total contributions to its pension plans for 2010 will
be approximately $4.0 million of which $1.7 million was paid during the six months ended June 30,
2010.
Other Postretirement Benefits
The components of other postretirement benefits expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three Months Ended |
|
|
Two Months Ended |
|
|
|
One Month Ended |
|
(In thousands) |
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
Interest cost |
|
$ |
63 |
|
|
$ |
58 |
|
|
|
$ |
27 |
|
Amortization of net (gain) loss |
|
|
(15 |
) |
|
|
|
|
|
|
|
65 |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other postretirement benefits expense |
|
$ |
48 |
|
|
$ |
58 |
|
|
|
$ |
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Six Months Ended |
|
|
Two Months Ended |
|
|
|
Four Months Ended |
|
(In thousands) |
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
Interest cost |
|
$ |
127 |
|
|
$ |
58 |
|
|
|
$ |
109 |
|
Amortization of net (gain) loss |
|
|
(31 |
) |
|
|
|
|
|
|
|
261 |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
(102 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other postretirement benefits expense |
|
$ |
96 |
|
|
$ |
58 |
|
|
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
16. Income Taxes
For interim reporting periods the Company estimates the effective tax rate expected to be
applicable for the full fiscal year and uses that rate to determine its provision for income taxes.
The Company also recognizes the tax impact of certain discrete (unusual or infrequently occurring)
items, including changes in judgment about valuation allowances, changes in judgment regarding
uncertain tax positions, and effects of changes in tax laws or rates, in the interim period in
which they occur.
Income tax expense (benefit) was $(7.5) million for the three months ended June 30, 2010 and
$37.0 million for the three months ended June 30, 2009 ($37.8 million for the one month ended April
30, 2009 and $(0.8) million for the two months ended June 30, 2009). Income tax expense (benefit)
was $(12.9) million for the six months ended June 30, 2010 and $37.0 million for the six months
ended June 30, 2009 ($37.8 million for the four months ended April 30, 2009 and $(0.8) million for
the two months ended June 30, 2009). The Company has a net deferred tax liability at June 30, 2010
of $11.4 million principally in relation to the excess of the basis of its assets pursuant to
fresh-start accounting over their historic tax bases.
20
The Company is in discussions with the Italian tax authorities regarding the tax returns filed
by the Companys Italian subsidiary for fiscal years 2002-2004. The Company estimates its maximum
exposure, including interest and penalties, at approximately $3.2 million. The Company intends to
defend against this matter vigorously. The Company has commenced proceedings to wind up its Italian
subsidiary.
Total unrecognized income tax benefits as of June 30, 2010 and December 31, 2009 were $0.6
million and $0.7 million, respectively, and are included in other liabilities on the condensed
consolidated balance sheets. In addition, the Company had accrued approximately $0.2 million for
estimated penalties and interest on uncertain tax positions as of June 30, 2010 and December 31,
2009. Substantially all of the unrecognized income tax benefits and related estimated penalties and
interest relate to the Companys discontinued operation in Italy. The Company believes that it has
adequately provided for any reasonably foreseeable resolution of any tax disputes, but will adjust
its reserves as events require. The Company believes it is reasonably possible that the tax matters
related to its discontinued operation will be settled in the next twelve months. The settlement
amount may differ materially from the Companys current estimate. To the extent that the ultimate
results differ from the original or adjusted estimates of the Company, the effect will be recorded
in the provision for income taxes.
17. Derivative Financial Instruments
The Company may enter into a derivative instrument by approval of the Companys executive
management based on guidelines established by the Companys Board of Directors or a duly authorized
Board committee. The primary risk managed by using derivative instruments is interest rate risk.
Market and credit risks associated with derivative instruments are regularly reviewed by the
Companys executive management.
In 2005, an interest rate swap with a notional amount of $100 million was entered into to
manage interest rate risk associated with the Companys variable-rate debt. The objective and
strategy for undertaking this interest rate swap was to hedge the Companys exposure to variability
in expected future cash flows as a result of the floating interest rate associated with the Secured
Notes. By entering into the interest rate swap agreement, the Company effectively exchanged a
floating interest rate of LIBOR plus 3.375% for a fixed interest rate of 7.9% over the remaining
term of the underlying notes. On February 11, 2010, the counterparty to the Companys interest rate
swap agreement novated its rights under the swap agreement to a third party and the fixed interest
rate payment of the interest rate swap agreement was modified from the previous fixed interest rate
of 7.9% to a new fixed interest rate of 8.17%. The Company accounted for the novation as a
termination of the original interest rate swap agreement and for accounting purposes the original
hedging relationship was discontinued.
When a cash flow hedge is discontinued, gains or losses that are deferred in accumulated other
comprehensive income are reclassified to earnings in the period the forecasted transaction impacts
earnings. To the extent that a forecasted transaction is considered not probable of occurring,
then reclassification of deferred gains or losses into earnings is recorded immediately. The
Company reclassified $116 of accumulated other comprehensive income related to the interest rate
swap into earnings related to forecasted interest payments no longer considered probable of
occurring. The reclassification adjustments resulted in a decrease to interest expense for the
period.
The new interest rate swap agreement was designated as a cash flow hedge. As a result, the
effective portion of the change in fair value of the interest rate swap is reported as a component
of other comprehensive income and
reclassified into earnings in the same periods during which the hedged transactions affect
earnings. Changes in the fair value of the interest rate swap that represent hedge ineffectiveness
are recognized in earnings immediately.
21
The fair value of derivative contracts is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Derivative Liabilities |
|
(In thousands) |
|
Balance |
|
|
Fair Value |
|
Derivatives designated as |
|
Sheet |
|
|
June 30, |
|
|
December 31, |
|
hedging instruments |
|
Location |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Other liabilities |
|
$ |
6,488 |
|
|
$ |
6,485 |
|
The effect of derivative contracts on the statement of operations and on accumulated other
comprehensive income (loss) is summarized in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Amount of |
|
|
Amount of Pre-tax |
|
|
|
|
|
|
Gain or (Loss) |
|
|
Gain or (Loss) |
|
|
Amount of Pre-tax |
|
|
|
Recognized in OCI |
|
|
Reclassified from |
|
|
Gain or (Loss) |
|
(In thousands) |
|
on Derivative, |
|
|
Accumulated |
|
|
Recognized in Income |
|
Derivatives in cash flow |
|
Net of Tax |
|
|
OCI into Income |
|
|
on Derivative |
|
hedging relationships |
|
(Effective Portion) |
|
|
(Effective Portion) (a) |
|
|
(Ineffective Portion) (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
(1,126 |
) |
|
$ |
672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) |
|
|
Amount of Pre-tax Gain or (Loss) |
|
|
|
Recognized in OCI on Derivative, |
|
|
Reclassified from Accumulated OCI |
|
|
|
Net of Tax (Effective Portion) |
|
|
into Income (Effective Portion) (a) |
|
|
|
Successor |
|
|
|
Predecessor |
|
|
Successor |
|
|
|
Predecessor |
|
(In thousands) |
|
Two Months |
|
|
|
One Month |
|
|
Two Months |
|
|
|
One Month |
|
Derivatives in cash flow |
|
Ended |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
hedging relationships |
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
Interest rate swap |
|
$ |
478 |
|
|
|
$ |
743 |
|
|
$ |
602 |
|
|
|
$ |
274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
Amount of |
|
|
Amount of Pre-tax |
|
|
|
|
|
|
Gain or (Loss) |
|
|
Gain or (Loss) |
|
|
Amount of Pre-tax |
|
|
|
Recognized in OCI |
|
|
Reclassified from |
|
|
Gain or (Loss) |
|
(In thousands) |
|
on Derivative, |
|
|
Accumulated |
|
|
Recognized in Income |
|
Derivatives in cash flow |
|
Net of Tax |
|
|
OCI into Income |
|
|
on Derivative |
|
hedging relationships |
|
(Effective Portion) |
|
|
(Effective Portion) (a) |
|
|
(Ineffective Portion) (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
(265 |
) |
|
$ |
(2,236 |
) |
|
$ |
427 |
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) |
|
|
Amount of Pre-tax Gain or (Loss) |
|
|
|
Recognized in OCI on Derivative, |
|
|
Reclassified from Accumulated OCI |
|
|
|
Net of Tax (Effective Portion) |
|
|
into Income (Effective Portion) (a) |
|
|
|
Successor |
|
|
|
Predecessor |
|
|
Successor |
|
|
|
Predecessor |
|
(In thousands) |
|
Two Months |
|
|
|
Four Months |
|
|
Two Months |
|
|
|
Four Months |
|
Derivatives in cash flow |
|
Ended |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
hedging relationships |
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
|
June 30, 2009 |
|
|
|
April 30, 2009 |
|
Interest rate swap |
|
$ |
478 |
|
|
|
$ |
951 |
|
|
$ |
602 |
|
|
|
$ |
974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts are included in interest expense on the condensed consolidated statements of
operations. |
The Company expects to record reclassifications from accumulated other comprehensive loss to
earnings within the next twelve months in the amount of $4,154.
18. Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis are summarized in
the following tables by the type of inputs applicable to the fair value measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted |
|
|
Significant Other |
|
|
Unobservable |
|
|
Total |
|
|
|
Prices |
|
|
Observable Inputs |
|
|
Inputs |
|
|
Fair |
|
(In thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Value |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
|
|
|
$ |
6,488 |
|
|
$ |
|
|
|
$ |
6,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted |
|
|
Significant Other |
|
|
Unobservable |
|
|
Total |
|
|
|
Prices |
|
|
Observable Inputs |
|
|
Inputs |
|
|
Fair |
|
(In thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Value |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
|
|
|
$ |
6,485 |
|
|
$ |
|
|
|
$ |
6,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value measurement of the Companys interest rate swap is a model-derived valuation as
of a given date in which all significant inputs are observable in active markets including certain
financial information and certain assumptions regarding past, present and future market conditions,
such as LIBOR yield curves. The Company does not believe that changes in the fair value of its
interest rate swap will materially differ from the amounts that could be realized upon settlement
or maturity.
23
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and
short-term debt approximate fair value. The fair value of debt is based on quoted market prices.
The following table presents the estimated fair value of the Companys long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
(In thousands) |
|
Carrying
Amount |
|
|
Fair Value |
|
|
Carrying
Amount |
|
|
Fair Value |
|
Asset (liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
|
(178,939 |
) |
|
|
(183,425 |
) |
|
|
(167,919 |
) |
|
|
(182,050 |
) |
The following table presents assets that were measured at fair value on a nonrecurring basis
during the three and six months ended June 30, 2010 by the type of inputs applicable to the fair
value measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, 2010 |
|
|
|
|
|
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
Quoted |
|
|
Observable |
|
|
Unobservable |
|
|
Total |
|
|
|
Prices |
|
|
Inputs |
|
|
Inputs |
|
|
Fair |
|
(In thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Value |
|
Goodwill |
|
$ |
|
|
|
$ |
|
|
|
$ |
86,182 |
|
|
$ |
86,182 |
|
Trade name |
|
|
|
|
|
|
|
|
|
|
16,400 |
|
|
|
16,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
102,582 |
|
|
$ |
102,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the Companys interim impairment tests, the Company recorded impairment charges
of $32.5 million and $5.1 million related to its goodwill and trade name, respectively during the
three months ended June 30, 2010. See Note 8 for a description of the significant assumptions
regarding fair value estimates for the Companys goodwill and trade name. The Company has
determined that the majority of the inputs used to value its goodwill and indefinite-lived
intangible assets are unobservable inputs that fall within Level 3 of the fair value hierarchy.
19. Other Income (Expense)
Other income (expense) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three Months |
|
|
Two Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Foreign exchange gains (losses) |
|
$ |
(1,219 |
) |
|
$ |
3,346 |
|
|
|
$ |
1,206 |
|
Royalty income |
|
|
142 |
|
|
|
109 |
|
|
|
|
365 |
|
Royalty expense |
|
|
(55 |
) |
|
|
(55 |
) |
|
|
|
(154 |
) |
Interest income |
|
|
13 |
|
|
|
8 |
|
|
|
|
(10 |
) |
Other income (expense) |
|
|
4 |
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
$ |
(1,115 |
) |
|
$ |
3,408 |
|
|
|
$ |
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Six Months |
|
|
Two Months |
|
|
|
Four Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Foreign exchange gains (losses) |
|
$ |
(2,056 |
) |
|
$ |
3,346 |
|
|
|
$ |
1,321 |
|
Royalty income |
|
|
255 |
|
|
|
109 |
|
|
|
|
418 |
|
Royalty expense |
|
|
(124 |
) |
|
|
(55 |
) |
|
|
|
(185 |
) |
Interest income |
|
|
27 |
|
|
|
8 |
|
|
|
|
12 |
|
Other income (expense) |
|
|
(3 |
) |
|
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
$ |
(1,901 |
) |
|
$ |
3,408 |
|
|
|
$ |
1,543 |
|
|
|
|
|
|
|
|
|
|
|
|
20. Supplemental Sales Information
|
|
|
|
|
The Company has only one operating segment and one reporting unit. The Company has operating
plants in the United States and Europe. |
Net sales by country were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three months |
|
|
Two months |
|
|
|
One month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
United States |
|
$ |
116,923 |
|
|
$ |
95,253 |
|
|
|
$ |
46,783 |
|
United Kingdom |
|
|
31,660 |
|
|
|
23,279 |
|
|
|
|
9,886 |
|
Holland |
|
|
9,072 |
|
|
|
2,986 |
|
|
|
|
1,149 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
157,655 |
|
|
$ |
121,518 |
|
|
|
$ |
57,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Six months |
|
|
Two months |
|
|
|
Four months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
United States |
|
$ |
221,504 |
|
|
$ |
95,253 |
|
|
|
$ |
180,086 |
|
United Kingdom |
|
|
55,847 |
|
|
|
23,279 |
|
|
|
|
33,733 |
|
Holland |
|
|
14,826 |
|
|
|
2,986 |
|
|
|
|
3,641 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
292,177 |
|
|
$ |
121,518 |
|
|
|
$ |
217,460 |
|
|
|
|
|
|
|
|
|
|
|
|
21. Discontinued Operations
In 2006, the Company closed its Italian operation due to the loss of its principal customer.
Accordingly, the assets and related liabilities of the entity have been classified as assets and
liabilities of discontinued operations and the results of operations of the entity have been
classified as discontinued operations in the condensed consolidated statements of operations for
all periods presented. The Company has commenced proceedings to wind up this entity.
25
The following summarizes the assets and liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Assets of Discontinued Operations: |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
287 |
|
|
$ |
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of Discontinued Operations: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
60 |
|
|
$ |
44 |
|
|
|
|
|
|
|
|
Total current liabilities of discontinued operations |
|
|
60 |
|
|
|
44 |
|
Other liabilities |
|
|
752 |
|
|
|
881 |
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations |
|
$ |
812 |
|
|
$ |
925 |
|
|
|
|
|
|
|
|
Assets of discontinued operations are included in prepaid expenses and other current assets.
Total current liabilities of discontinued operations are included in accrued expenses and other
current liabilities and other liabilities of discontinued operations are included in other
liabilities on the accompanying condensed consolidated balance sheets.
The following summarizes the results of operations for discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Three Months |
|
|
Two Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes |
|
|
64 |
|
|
|
(59 |
) |
|
|
|
(19 |
) |
Provision for income taxes |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
64 |
|
|
$ |
(60 |
) |
|
|
$ |
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Six Months |
|
|
Two Months |
|
|
|
Four Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
April 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes |
|
|
93 |
|
|
|
(59 |
) |
|
|
|
(17 |
) |
Provision for income taxes |
|
|
|
|
|
|
(1 |
) |
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
93 |
|
|
$ |
(60 |
) |
|
|
$ |
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
22. Condensed Consolidating Financial Information
Each of the Companys domestic and United Kingdom subsidiaries guarantees the Secured Notes,
on a senior secured basis. Prior to the cancellation of the Senior Subordinated Notes pursuant to
the Companys Chapter 11 Plan of Reorganization, the Companys domestic and United Kingdom
subsidiaries also guaranteed the Subordinated Notes, on an unsecured senior subordinated basis. The
guarantor subsidiaries are 100% owned and the guarantees are made on a joint and several basis and
are full and unconditional. The following guarantor and non-guarantor condensed financial
information gives effect to the guarantee of the Secured Notes by each of our domestic and United
Kingdom subsidiaries. The following condensed consolidating financial statements are required in
accordance with Regulation S-X Rule 3-10.
26
Condensed Consolidating Balance Sheet
June 30, 2010
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Reclassifications/ |
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
887 |
|
|
$ |
593 |
|
|
$ |
|
|
|
$ |
1,480 |
|
Intercompany receivables |
|
|
|
|
|
|
237,632 |
|
|
|
10,250 |
|
|
|
(247,882 |
) |
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
43,684 |
|
|
|
5,205 |
|
|
|
|
|
|
|
48,889 |
|
Inventories, net |
|
|
|
|
|
|
40,921 |
|
|
|
3,963 |
|
|
|
|
|
|
|
44,884 |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
6,393 |
|
|
|
768 |
|
|
|
|
|
|
|
7,161 |
|
Deferred taxes |
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
(356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
356 |
|
|
|
329,517 |
|
|
|
20,779 |
|
|
|
(248,238 |
) |
|
|
102,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
127,798 |
|
|
|
8,741 |
|
|
|
|
|
|
|
136,539 |
|
Goodwill and intangible assets |
|
|
|
|
|
|
111,725 |
|
|
|
|
|
|
|
|
|
|
|
111,725 |
|
Investment in subsidiaries |
|
|
367,345 |
|
|
|
17,752 |
|
|
|
|
|
|
|
(385,097 |
) |
|
|
|
|
Deferred income taxes |
|
|
66,229 |
|
|
|
|
|
|
|
|
|
|
|
(66,229 |
) |
|
|
|
|
Other assets |
|
|
|
|
|
|
5,740 |
|
|
|
259 |
|
|
|
|
|
|
|
5,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
433,930 |
|
|
$ |
592,532 |
|
|
$ |
29,779 |
|
|
$ |
(699,564 |
) |
|
$ |
356,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
1,855 |
|
|
$ |
3,668 |
|
|
$ |
|
|
|
$ |
5,523 |
|
Accounts payable and accrued liabilities |
|
|
1,497 |
|
|
|
82,668 |
|
|
|
5,129 |
|
|
|
|
|
|
|
89,294 |
|
Intercompany payable |
|
|
219,457 |
|
|
|
27,732 |
|
|
|
693 |
|
|
|
(247,882 |
) |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
1,934 |
|
|
|
|
|
|
|
(356 |
) |
|
|
1,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
220,954 |
|
|
|
114,189 |
|
|
|
9,490 |
|
|
|
(248,238 |
) |
|
|
96,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
178,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,939 |
|
Pension and postretirement liabilities |
|
|
|
|
|
|
28,251 |
|
|
|
764 |
|
|
|
|
|
|
|
29,015 |
|
Deferred income taxes |
|
|
|
|
|
|
74,996 |
|
|
|
1,021 |
|
|
|
(66,229 |
) |
|
|
9,788 |
|
Other liabilities |
|
|
6,488 |
|
|
|
7,751 |
|
|
|
752 |
|
|
|
|
|
|
|
14,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
406,381 |
|
|
|
225,187 |
|
|
|
12,027 |
|
|
|
(314,467 |
) |
|
|
329,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit) |
|
|
27,549 |
|
|
|
367,345 |
|
|
|
17,752 |
|
|
|
(385,097 |
) |
|
|
27,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity (deficit) |
|
$ |
433,930 |
|
|
$ |
592,532 |
|
|
$ |
29,779 |
|
|
$ |
(699,564 |
) |
|
$ |
356,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Condensed Consolidating Balance Sheet
December 31, 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantor |
|
|
Eliminations |
|
|
Company |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
2,022 |
|
|
$ |
447 |
|
|
$ |
|
|
|
$ |
2,469 |
|
Intercompany receivables |
|
|
|
|
|
|
216,779 |
|
|
|
10,821 |
|
|
|
(227,600 |
) |
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
36,785 |
|
|
|
2,269 |
|
|
|
|
|
|
|
39,054 |
|
Inventories, net |
|
|
|
|
|
|
40,284 |
|
|
|
3,774 |
|
|
|
|
|
|
|
44,058 |
|
Prepaid expenses and other current assets |
|
|
12 |
|
|
|
7,218 |
|
|
|
666 |
|
|
|
|
|
|
|
7,896 |
|
Restricted cash |
|
|
|
|
|
|
7,589 |
|
|
|
|
|
|
|
|
|
|
|
7,589 |
|
Deferred income taxes |
|
|
2,098 |
|
|
|
|
|
|
|
|
|
|
|
(2,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,110 |
|
|
|
310,677 |
|
|
|
17,977 |
|
|
|
(229,698 |
) |
|
|
101,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
141,521 |
|
|
|
10,005 |
|
|
|
|
|
|
|
151,526 |
|
Goodwill and intangible assets |
|
|
|
|
|
|
150,080 |
|
|
|
|
|
|
|
|
|
|
|
150,080 |
|
Investment in subsidiaries |
|
|
405,700 |
|
|
|
20,910 |
|
|
|
|
|
|
|
(426,610 |
) |
|
|
|
|
Deferred income taxes |
|
|
58,772 |
|
|
|
|
|
|
|
|
|
|
|
(58,772 |
) |
|
|
|
|
Other assets |
|
|
552 |
|
|
|
2,728 |
|
|
|
312 |
|
|
|
|
|
|
|
3,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
467,134 |
|
|
$ |
625,916 |
|
|
$ |
28,294 |
|
|
$ |
(715,080 |
) |
|
$ |
406,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
5,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,000 |
|
Accounts payable and accrued liabilities |
|
|
1,681 |
|
|
|
79,325 |
|
|
|
3,375 |
|
|
|
|
|
|
|
84,381 |
|
Intercompany payable |
|
|
207,446 |
|
|
|
19,325 |
|
|
|
829 |
|
|
|
(227,600 |
) |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
3,320 |
|
|
|
|
|
|
|
(2,098 |
) |
|
|
1,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
214,127 |
|
|
|
101,970 |
|
|
|
4,204 |
|
|
|
(229,698 |
) |
|
|
90,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
167,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,919 |
|
Pension and postretirement liabilities |
|
|
|
|
|
|
30,053 |
|
|
|
1,052 |
|
|
|
|
|
|
|
31,105 |
|
Deferred income taxes |
|
|
|
|
|
|
81,056 |
|
|
|
1,247 |
|
|
|
(58,772 |
) |
|
|
23,531 |
|
Other liabilities |
|
|
6,485 |
|
|
|
7,137 |
|
|
|
881 |
|
|
|
|
|
|
|
14,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
388,531 |
|
|
|
220,216 |
|
|
|
7,384 |
|
|
|
(288,470 |
) |
|
|
327,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit) |
|
|
78,603 |
|
|
|
405,700 |
|
|
|
20,910 |
|
|
|
(426,610 |
) |
|
|
78,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity (deficit) |
|
$ |
467,134 |
|
|
$ |
625,916 |
|
|
$ |
28,294 |
|
|
$ |
(715,080 |
) |
|
$ |
406,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Condensed Consolidating Statement of Operations
For the three months ended June 30, 2010
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
148,548 |
|
|
$ |
9,107 |
|
|
$ |
|
|
|
$ |
157,655 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
130,872 |
|
|
|
8,539 |
|
|
|
|
|
|
|
139,411 |
|
Depreciation and amortization |
|
|
|
|
|
|
8,541 |
|
|
|
222 |
|
|
|
|
|
|
|
8,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
9,135 |
|
|
|
346 |
|
|
|
|
|
|
|
9,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
7,368 |
|
|
|
186 |
|
|
|
|
|
|
|
7,554 |
|
Goodwill impairment |
|
|
|
|
|
|
32,500 |
|
|
|
|
|
|
|
|
|
|
|
32,500 |
|
Impairment of intangible assets |
|
|
|
|
|
|
5,100 |
|
|
|
|
|
|
|
|
|
|
|
5,100 |
|
Research and technology expenses |
|
|
|
|
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
|
1,623 |
|
Provision for restructuring |
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
46,755 |
|
|
|
186 |
|
|
|
|
|
|
|
46,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
(37,620 |
) |
|
|
160 |
|
|
|
|
|
|
|
(37,460 |
) |
Interest expense |
|
|
(9,205 |
) |
|
|
411 |
|
|
|
97 |
|
|
|
|
|
|
|
(8,697 |
) |
Other income (expense), net |
|
|
|
|
|
|
(1,021 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
(1,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
(9,205 |
) |
|
|
(38,230 |
) |
|
|
163 |
|
|
|
|
|
|
|
(47,272 |
) |
(Provision for) benefit from income taxes |
|
|
3,189 |
|
|
|
4,378 |
|
|
|
(49 |
) |
|
|
|
|
|
|
7,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(6,016 |
) |
|
|
(33,852 |
) |
|
|
114 |
|
|
|
|
|
|
|
(39,754 |
) |
Equity earnings |
|
|
(33,674 |
) |
|
|
176 |
|
|
|
|
|
|
|
33,498 |
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(39,690 |
) |
|
$ |
(33,676 |
) |
|
$ |
178 |
|
|
$ |
33,498 |
|
|
$ |
(39,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Condensed Consolidating Statement of Income
For the two months ended June 30, 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
118,532 |
|
|
$ |
2,986 |
|
|
$ |
|
|
|
$ |
121,518 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
102,103 |
|
|
|
2,267 |
|
|
|
|
|
|
|
104,370 |
|
Depreciation and amortization |
|
|
|
|
|
|
6,980 |
|
|
|
84 |
|
|
|
|
|
|
|
7,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
9,449 |
|
|
|
635 |
|
|
|
|
|
|
|
10,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
3,001 |
|
|
|
138 |
|
|
|
|
|
|
|
3,139 |
|
Research and technology expenses |
|
|
|
|
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
1,229 |
|
Provision for restructuring |
|
|
|
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
265 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
4,492 |
|
|
|
138 |
|
|
|
|
|
|
|
4,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
4,957 |
|
|
|
497 |
|
|
|
|
|
|
|
5,454 |
|
Interest expense |
|
|
(5,788 |
) |
|
|
(106 |
) |
|
|
106 |
|
|
|
|
|
|
|
(5,788 |
) |
Reorganization items, net |
|
|
(1,157 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
(1,167 |
) |
Other income (expense), net |
|
|
|
|
|
|
3,357 |
|
|
|
51 |
|
|
|
|
|
|
|
3,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
(6,945 |
) |
|
|
8,198 |
|
|
|
654 |
|
|
|
|
|
|
|
1,907 |
|
(Provision for) benefit from income taxes |
|
|
|
|
|
|
1,030 |
|
|
|
(225 |
) |
|
|
|
|
|
|
805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(6,945 |
) |
|
|
9,228 |
|
|
|
429 |
|
|
|
|
|
|
|
2,712 |
|
Equity earnings |
|
|
9,597 |
|
|
|
369 |
|
|
|
|
|
|
|
(9,966 |
) |
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,652 |
|
|
$ |
9,597 |
|
|
$ |
369 |
|
|
$ |
(9,966 |
) |
|
$ |
2,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Condensed Consolidating Statement of Income
For the one month ended April 30, 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
56,668 |
|
|
$ |
1,150 |
|
|
$ |
|
|
|
$ |
57,818 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
46,765 |
|
|
|
938 |
|
|
|
|
|
|
|
47,703 |
|
Depreciation and amortization |
|
|
|
|
|
|
2,448 |
|
|
|
29 |
|
|
|
|
|
|
|
2,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
7,455 |
|
|
|
183 |
|
|
|
|
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
1,784 |
|
|
|
48 |
|
|
|
|
|
|
|
1,832 |
|
Research and technology expenses |
|
|
|
|
|
|
832 |
|
|
|
|
|
|
|
|
|
|
|
832 |
|
Provision for restructuring |
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
133 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
2,673 |
|
|
|
48 |
|
|
|
|
|
|
|
2,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
4,782 |
|
|
|
135 |
|
|
|
|
|
|
|
4,917 |
|
Interest expense |
|
|
(1,747 |
) |
|
|
424 |
|
|
|
53 |
|
|
|
|
|
|
|
(1,270 |
) |
Reorganization items, net |
|
|
81,408 |
|
|
|
61,679 |
|
|
|
4,636 |
|
|
|
|
|
|
|
147,723 |
|
Other income (expense), net |
|
|
|
|
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
79,661 |
|
|
|
68,267 |
|
|
|
4,824 |
|
|
|
|
|
|
|
152,752 |
|
Provision for income taxes |
|
|
|
|
|
|
(36,951 |
) |
|
|
(874 |
) |
|
|
|
|
|
|
(37,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
79,661 |
|
|
|
31,316 |
|
|
|
3,950 |
|
|
|
|
|
|
|
114,927 |
|
Equity earnings |
|
|
35,247 |
|
|
|
3,931 |
|
|
|
|
|
|
|
(39,178 |
) |
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
114,908 |
|
|
$ |
35,247 |
|
|
$ |
3,931 |
|
|
$ |
(39,178 |
) |
|
$ |
114,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Condensed Consolidating Statement of Operations
For the six months ended June 30, 2010
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
277,316 |
|
|
$ |
14,861 |
|
|
$ |
|
|
|
$ |
292,177 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
248,910 |
|
|
|
14,218 |
|
|
|
|
|
|
|
263,128 |
|
Depreciation and amortization |
|
|
|
|
|
|
18,161 |
|
|
|
393 |
|
|
|
|
|
|
|
18,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
10,245 |
|
|
|
250 |
|
|
|
|
|
|
|
10,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
11,746 |
|
|
|
365 |
|
|
|
|
|
|
|
12,111 |
|
Goodwill impairment |
|
|
|
|
|
|
32,500 |
|
|
|
|
|
|
|
|
|
|
|
32,500 |
|
Impairment of intangible assets |
|
|
|
|
|
|
5,100 |
|
|
|
|
|
|
|
|
|
|
|
5,100 |
|
Research and technology expenses |
|
|
|
|
|
|
3,324 |
|
|
|
|
|
|
|
|
|
|
|
3,324 |
|
Provision for restructuring |
|
|
|
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
637 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(654 |
) |
|
|
|
|
|
|
|
|
|
|
(654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
52,653 |
|
|
|
365 |
|
|
|
|
|
|
|
53,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
|
|
|
(42,408 |
) |
|
|
(115 |
) |
|
|
|
|
|
|
(42,523 |
) |
Interest expense |
|
|
(16,626 |
) |
|
|
(1,454 |
) |
|
|
256 |
|
|
|
|
|
|
|
(17,824 |
) |
Other income (expense), net |
|
|
|
|
|
|
(1,685 |
) |
|
|
(216 |
) |
|
|
|
|
|
|
(1,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations before income taxes |
|
|
(16,626 |
) |
|
|
(45,547 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
(62,248 |
) |
Benefit from income taxes |
|
|
5,715 |
|
|
|
7,156 |
|
|
|
18 |
|
|
|
|
|
|
|
12,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(10,911 |
) |
|
|
(38,391 |
) |
|
|
(57 |
) |
|
|
|
|
|
|
(49,359 |
) |
Equity earnings |
|
|
(38,355 |
) |
|
|
36 |
|
|
|
|
|
|
|
38,319 |
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(49,266 |
) |
|
$ |
(38,355 |
) |
|
$ |
36 |
|
|
$ |
38,319 |
|
|
$ |
(49,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Condensed Consolidating Statement of Income
For the two months ended June 30, 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
118,532 |
|
|
$ |
2,986 |
|
|
$ |
|
|
|
$ |
121,518 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
102,103 |
|
|
|
2,267 |
|
|
|
|
|
|
|
104,370 |
|
Depreciation and amortization |
|
|
|
|
|
|
6,980 |
|
|
|
84 |
|
|
|
|
|
|
|
7,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
9,449 |
|
|
|
635 |
|
|
|
|
|
|
|
10,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
3,001 |
|
|
|
138 |
|
|
|
|
|
|
|
3,139 |
|
Research and technology expenses |
|
|
|
|
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
1,229 |
|
Provision for restructuring |
|
|
|
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
265 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
4,492 |
|
|
|
138 |
|
|
|
|
|
|
|
4,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
4,957 |
|
|
|
497 |
|
|
|
|
|
|
|
5,454 |
|
Interest expense |
|
|
(5,788 |
) |
|
|
(106 |
) |
|
|
106 |
|
|
|
|
|
|
|
(5,788 |
) |
Reorganization items, net |
|
|
(1,157 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
(1,167 |
) |
Other income (expense), net |
|
|
|
|
|
|
3,357 |
|
|
|
51 |
|
|
|
|
|
|
|
3,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
(6,945 |
) |
|
|
8,198 |
|
|
|
654 |
|
|
|
|
|
|
|
1,907 |
|
(Provision for) benefit from income taxes |
|
|
|
|
|
|
1,030 |
|
|
|
(225 |
) |
|
|
|
|
|
|
805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(6,945 |
) |
|
|
9,228 |
|
|
|
429 |
|
|
|
|
|
|
|
2,712 |
|
Equity earnings |
|
|
9,597 |
|
|
|
369 |
|
|
|
|
|
|
|
(9,966 |
) |
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,652 |
|
|
$ |
9,597 |
|
|
$ |
369 |
|
|
$ |
(9,966 |
) |
|
$ |
2,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Condensed Consolidating Statement of Income
For the four months ended April 30, 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
213,819 |
|
|
$ |
3,641 |
|
|
$ |
|
|
|
$ |
217,460 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
185,975 |
|
|
|
3,841 |
|
|
|
|
|
|
|
189,816 |
|
Depreciation and amortization |
|
|
|
|
|
|
9,507 |
|
|
|
226 |
|
|
|
|
|
|
|
9,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
18,337 |
|
|
|
(426 |
) |
|
|
|
|
|
|
17,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
6,802 |
|
|
|
203 |
|
|
|
|
|
|
|
7,005 |
|
Research and technology expenses |
|
|
|
|
|
|
2,698 |
|
|
|
|
|
|
|
|
|
|
|
2,698 |
|
Provision for restructuring |
|
|
|
|
|
|
648 |
|
|
|
|
|
|
|
|
|
|
|
648 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
9,752 |
|
|
|
203 |
|
|
|
|
|
|
|
9,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
8,585 |
|
|
|
(629 |
) |
|
|
|
|
|
|
7,956 |
|
Interest expense |
|
|
(5,566 |
) |
|
|
(204 |
) |
|
|
204 |
|
|
|
|
|
|
|
(5,566 |
) |
Reorganization items, net |
|
|
77,853 |
|
|
|
61,679 |
|
|
|
4,636 |
|
|
|
|
|
|
|
144,168 |
|
Other income (expense), net |
|
|
|
|
|
|
1,546 |
|
|
|
(3 |
) |
|
|
|
|
|
|
1,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
72,287 |
|
|
|
71,606 |
|
|
|
4,208 |
|
|
|
|
|
|
|
148,101 |
|
Provision for income taxes |
|
|
|
|
|
|
(36,944 |
) |
|
|
(863 |
) |
|
|
|
|
|
|
(37,807 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
72,287 |
|
|
|
34,662 |
|
|
|
3,345 |
|
|
|
|
|
|
|
110,294 |
|
Equity earnings |
|
|
37,911 |
|
|
|
3,249 |
|
|
|
|
|
|
|
(41,160 |
) |
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
(96 |
) |
|
|
|
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
110,198 |
|
|
$ |
37,911 |
|
|
$ |
3,249 |
|
|
$ |
(41,160 |
) |
|
$ |
110,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 2010
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(49,266 |
) |
|
$ |
(38,355 |
) |
|
$ |
36 |
|
|
$ |
38,319 |
|
|
$ |
(49,266 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
18,504 |
|
|
|
440 |
|
|
|
|
|
|
|
18,944 |
|
Impairment of goodwill and intangible assets |
|
|
|
|
|
|
37,600 |
|
|
|
|
|
|
|
|
|
|
|
37,600 |
|
Debt accretion |
|
|
11,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,020 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(654 |
) |
|
|
|
|
|
|
|
|
|
|
(654 |
) |
Equity earnings |
|
|
38,355 |
|
|
|
(36 |
) |
|
|
|
|
|
|
(38,319 |
) |
|
|
|
|
Changes in operating assets and liabilities |
|
|
(12,121 |
) |
|
|
(6,262 |
) |
|
|
(1,810 |
) |
|
|
|
|
|
|
(20,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(12,012 |
) |
|
|
10,797 |
|
|
|
(1,334 |
) |
|
|
|
|
|
|
(2,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
7,589 |
|
|
|
|
|
|
|
|
|
|
|
7,589 |
|
Purchases of property, plant and equipment |
|
|
|
|
|
|
(4,779 |
) |
|
|
(729 |
) |
|
|
|
|
|
|
(5,508 |
) |
Proceeds from the sale of property, plant and equipment |
|
|
|
|
|
|
623 |
|
|
|
|
|
|
|
|
|
|
|
623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
3,433 |
|
|
|
(729 |
) |
|
|
|
|
|
|
2,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with exit facility |
|
|
|
|
|
|
(1,862 |
) |
|
|
|
|
|
|
|
|
|
|
(1,862 |
) |
Proceeds from short-term financing |
|
|
|
|
|
|
284,654 |
|
|
|
10,339 |
|
|
|
|
|
|
|
294,993 |
|
Repayment of short-term financing |
|
|
|
|
|
|
(287,799 |
) |
|
|
(6,353 |
) |
|
|
|
|
|
|
(294,152 |
) |
Net change in intercompany loans |
|
|
12,012 |
|
|
|
(10,318 |
) |
|
|
(1,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
12,012 |
|
|
|
(15,325 |
) |
|
|
2,292 |
|
|
|
|
|
|
|
(1,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
(40 |
) |
|
|
(83 |
) |
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
(1,135 |
) |
|
|
146 |
|
|
|
|
|
|
|
(989 |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
2,022 |
|
|
|
447 |
|
|
|
|
|
|
|
2,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
887 |
|
|
$ |
593 |
|
|
$ |
|
|
|
$ |
1,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Condensed Consolidating Statement of Cash Flows
For the two months ended June 30, 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,652 |
|
|
$ |
9,597 |
|
|
$ |
369 |
|
|
$ |
(9,966 |
) |
|
$ |
2,652 |
|
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,558 |
|
|
|
6,743 |
|
|
|
122 |
|
|
|
|
|
|
|
10,423 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Reorganization items |
|
|
(404 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(404 |
) |
Equity earnings |
|
|
(9,597 |
) |
|
|
(369 |
) |
|
|
|
|
|
|
9,966 |
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
(1,791 |
) |
|
|
1,383 |
|
|
|
(1,258 |
) |
|
|
|
|
|
|
(1,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(5,582 |
) |
|
|
17,351 |
|
|
|
(767 |
) |
|
|
|
|
|
|
11,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
(2,485 |
) |
|
|
|
|
|
|
|
|
|
|
(2,485 |
) |
Purchases of property, plant and equipment |
|
|
|
|
|
|
(2,277 |
) |
|
|
(376 |
) |
|
|
|
|
|
|
(2,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(4,762 |
) |
|
|
(376 |
) |
|
|
|
|
|
|
(5,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with Exit Facility |
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101 |
) |
Proceeds from short-term financing |
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
Repayment of short-term financing |
|
|
(130,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130,000 |
) |
Net change in intercompany loans |
|
|
10,683 |
|
|
|
(11,785 |
) |
|
|
1,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
5,582 |
|
|
|
(11,785 |
) |
|
|
1,102 |
|
|
|
|
|
|
|
(5,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
52 |
|
|
|
27 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
856 |
|
|
|
(14 |
) |
|
|
|
|
|
|
842 |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
1,317 |
|
|
|
567 |
|
|
|
|
|
|
|
1,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
2,173 |
|
|
$ |
553 |
|
|
$ |
|
|
|
$ |
2,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Condensed Consolidating Statement of Cash Flows
For the four months ended April 30, 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Company |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
110,198 |
|
|
$ |
37,911 |
|
|
$ |
3,249 |
|
|
$ |
(41,160 |
) |
|
$ |
110,198 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
317 |
|
|
|
9,514 |
|
|
|
229 |
|
|
|
|
|
|
|
10,060 |
|
Stock-based compensation |
|
|
|
|
|
|
591 |
|
|
|
|
|
|
|
|
|
|
|
591 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
(396 |
) |
Reorganization items |
|
|
(79,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,299 |
) |
Fresh-start accounting adjustments |
|
|
2,654 |
|
|
|
(66,127 |
) |
|
|
(4,636 |
) |
|
|
|
|
|
|
(68,109 |
) |
Equity earnings |
|
|
(37,911 |
) |
|
|
(3,249 |
) |
|
|
|
|
|
|
41,160 |
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
(46 |
) |
|
|
42,547 |
|
|
|
1,955 |
|
|
|
|
|
|
|
44,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(4,087 |
) |
|
|
20,791 |
|
|
|
797 |
|
|
|
|
|
|
|
17,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
(9,327 |
) |
|
|
|
|
|
|
|
|
|
|
(9,327 |
) |
Purchases of property, plant and equipment |
|
|
|
|
|
|
(5,557 |
) |
|
|
(166 |
) |
|
|
|
|
|
|
(5,723 |
) |
Proceeds from the sale of property, plant and equipment |
|
|
|
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(14,735 |
) |
|
|
(166 |
) |
|
|
|
|
|
|
(14,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term financing |
|
|
212,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,723 |
|
Repayment of short-term financing |
|
|
(227,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227,723 |
) |
Net change in intercompany loans |
|
|
19,087 |
|
|
|
(18,680 |
) |
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
4,087 |
|
|
|
(18,680 |
) |
|
|
(407 |
) |
|
|
|
|
|
|
(15,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
8 |
|
|
|
(16 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
(12,616 |
) |
|
|
208 |
|
|
|
|
|
|
|
(12,408 |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
13,933 |
|
|
|
359 |
|
|
|
|
|
|
|
14,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
1,317 |
|
|
$ |
567 |
|
|
$ |
|
|
|
$ |
1,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
23. Subsequent Events
On August 12, 2010 the Company entered into an amended credit agreement with the Agent (as
amended, the GE Credit Agreement) that included changes to certain terms, covenants, applicable
interest rate margins and the sublimit for letters of credit. The
following discussion is not a complete description of the GE Credit
Agreement or its recent amendment. The amendment is filed as an
exhibit to this Form 10-Q and the original agreement was filed
with a Form 8-K on February 17, 2010. Prior to this amendment of the GE
Credit Agreement, if the amount of available credit less all outstanding loans and letters of
credit during any fiscal quarter was less than $15.0 million for any period of five consecutive
business days during any fiscal quarter, the Company was required to maintain consolidated EBITDA,
as defined in the GE Credit Agreement, of not less than $40.0 million, calculated on a trailing
twelve month basis as of the last day of the then immediately preceding fiscal quarter. The
amendment changed the minimum available credit less outstanding loans and letters of credit
requirement to $12.5 million for any period of five consecutive business days during any fiscal
month or $7.5 million at any time. The minimum consolidated EBITDA for the trailing twelve months
was replaced by a minimum Fixed Charge Coverage Ratio of 1.0:1.0. The minimum Fixed Charge
Coverage Ratio is defined as consolidated EBITDA (which is an
adjusted measure of earnings defined in the GE Credit Agreement) divided by the sum of interest expense (excluding
non-cash accretion of interest on the Secured Notes), cash capital expenditures net of cash
proceeds from the disposition of capital assets, scheduled payments of principal, income taxes paid
in cash, and cash dividends and other equity distributions. Additionally, the letter of credit
sublimit was increased to $20 million, and a reduction to the borrowing base was increased from
$2.5 million to $5.0 million. The EBITDA annual cash restructuring expense add-back was increased
from $1.5 million to $3.0 million for the fiscal years ended December 31, 2010 and 2011 and the 1%
prepayment premium was reset for a one-year period from the amendments effective date.
The applicable interest rate margin charged on amounts outstanding under the GE Credit
Agreement was based upon usage of available credit and after the amendment will be based upon the
minimum Fixed Charge Coverage Ratio.
38
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a manufacturer of PET plastic containers, preforms, and plastic closures used
for the packaging of beverages, food and other consumer end-use applications. Containers, preforms,
and closures represented 68%, 16%, and 16%, respectively, of net sales in the first six months of
2010. The Company has operations in the United States, United Kingdom and Holland. Approximately
76% of the Companys revenues in the first six months of 2010 were generated in the United States,
with the remainder attributable to its European operations. During the first six months of 2010,
Pepsi accounted for approximately 32% of the Companys net sales and the top ten customers
accounted for an aggregate of approximately 73% of the Companys net sales.
There are two primary market categories within the PET market, conventional and custom.
Conventional PET containers are primarily used for packaging carbonated soft drinks (CSD) and
bottled water. The conventional market is the largest market category for PET packaging.
Conventional products represented approximately 67% of the Companys net sales in the first six
months of 2010. Over the last few years, demand for the Companys conventional PET products has
decreased significantly due to a shift to self-manufacturing. Other factors that have contributed
to an overall decline in demand for CSD packaging in the United
States include consumers shifting their
preferences to alternative beverages such as teas, juices and energy drinks, and the negative
impact that prevailing economic conditions have had on the convenience store and gas station
distribution channels. The Company expects the trend of self-manufacturing of CSD packages to
continue. The Company expects a transition over time at locations where independent producers
transportation costs are high, and where large volume, low complexity and available space to
install blow-molding equipment exists. The Company believes that in most cases, customers will
continue to purchase water and CSD preforms from independent producers to support their in-house
blow-molding operations. Preforms generally carry lower per unit profitability than bottles. The
Company plans to continue its efforts to offset the potential financial impact on the Company of
customers blowing their own bottles through cost reductions, plant consolidations, growth, and
retaining the replacement preform volume at acceptable margins.
The Companys strategy to partially offset losses of conventional volumes is to increase its
presence in the custom category of the market. The Companys hot-fill capabilities, oxygen barrier
technology and innovative bottle designs such as our X-4 and vertical compensation technology
(VCT) add value that generally results in higher
margins than conventional products. Execution of the Companys strategy, timing of customers
self-manufacturing initiatives, vendor financial requirements, general economic conditions or
changes in consumer behavior among other factors may impact the Companys ability to grow. If the
Company cannot offset decreases to conventional business at acceptable volume levels, the Company
may have to close plants and undertake other cost containment activities. To the extent these
activities are not sufficient, the Companys projected earnings and liquidity may be adversely
impacted and may hinder the Companys ability to restructure the Secured Notes.
For custom products that require oxygen barrier technology, the Company believes its oxygen
scavenging technology, DiamondClear, is the best performing oxygen barrier technology in the
market today. The Company believes that there are growth opportunities for its DiamondClear
technology where it replaces less effective oxygen barrier technology and in the conversion of
oxygen sensitive products packaged in glass and other packaging materials. Approximately 27% of the
Companys net sales in the first six months of 2010 related to custom PET containers with
approximately 28% of these net sales containing the Companys DiamondClear or earlier
generation Oxbar oxygen scavenging technologies.
In negotiations with certain customers for the continuation and the extension of supply
agreements, the Company has historically agreed to price concessions. In 2010, the impact of
contractual price reductions in the U.S., assuming 2009 constant volume, is expected to be between
$8-10 million. There can be no assurance that this amount will not change as contracts are
renegotiated in 2010. The Company will attempt to offset the impact of these price reductions
through custom unit growth and cost savings.
39
The Company believes that it could continue to face several sources of pricing pressure. One
source is customer consolidation. When customers aggregate their purchasing power by combining
their operations with other customers or purchasing through buying cooperatives, the profitability
of the Companys business tends to decline. Another source of pricing pressure may come as a result
of excess capacity in the industry driven by self-manufacturing. In addition, certain contracts
permit customers to terminate contracts if the customer receives an offer from another manufacturer
that the Company chooses not to match.
As is common in its industry, the Companys contracts are generally requirements-based,
granting it all or a percentage of the customers actual requirements for a particular period of
time, instead of a specific commitment of unit volume. The typical term for the Companys customer
supply contracts is three to four years. Thus, while there may be variations from year to year, in
any given year between 15-40% of our customer contracts may be scheduled to expire. The Companys
contract with Pepsi, its largest customer, expires on December 31, 2012. Customers often put
expiring contracts out for competitive bidding, which means that the Company may not retain the
business, or may be forced to make price concessions in order to retain the business. Currently,
approximately 17% of the Companys U.S. estimated 2010 volume is not under contract.
The primary raw material and component cost of the Companys products is PET resin, which is a
commodity available globally. The price the Company pays for PET resin is subject to frequent
fluctuations resulting from changes in the cost of raw materials used to make PET resin, which are
affected by prices of oil and its derivatives in the United States and overseas markets, normal
supply and demand influences, and seasonal demand. Substantially all of the Companys sales are
made pursuant to mechanisms that allow for the pass-through of changes in the price of PET resin to
its customers. The timing of these adjustments to selling prices typically lags 30-90 days behind a
change in the price of resin. The Company believes that the impact of this lag is immaterial over
time. In addition to PET resin, the Company has the ability to pass through changes in
transportation and energy costs on the majority of its volume.
As a result of the Companys ability to pass through certain costs to its customers, the
Company may experience a change in net sales without a corresponding change in gross profit.
Therefore, period to period comparisons of gross profit as a percentage of net sales may not be a
meaningful indicator of actual performance. For example, assuming gross profit is a constant, when
pass through related costs increase, the Companys net sales will increase as a result of the costs
passed through to customers, and gross profit as a percentage of net sales will decline. The
opposite is true during periods of decreasing costs; the Companys net sales will be lower causing
gross profit as a percentage of net sales to increase. As a result, the Company believes that
absolute gross profit trends are better indicators of the Companys performance.
Based on communications from the Companys largest U.S. customer, the Company expects this
customer to increase its self-manufacturing of conventional containers. The Company does not expect
this increase to materially impact the Companys financial results in 2010. The Company expects
that in 2011 this action will reduce its U.S. bottle volumes by approximately 20%-25% as compared
to estimated 2010 bottle volumes. The Company anticipates an increase in preform volumes to this
customer to offset the loss of conventional bottle volume. The change in sales mix will negatively impact the
Companys results as preforms generally carry lower variable per unit profitability than bottles.
The Company is evaluating the actions that it will take in response to this expected volume loss,
including its growth plans, potential cost reductions, plant closures and replacement preform
volume.
As a result of lower fair value estimates, during the second quarter of 2010 the Company
recorded total impairment charges of $37.6 million of which $32.5 million and $5.1 million related
to its goodwill and trade name, respectively. The change in the estimated fair values that caused
the goodwill and trade name impairments were predominately attributable to lower actual cash flows
and lower projected cash flows and sales primarily due to the estimated impact of its largest U.S.
customers intention to increase its self-manufacturing of conventional containers.
40
Basis of Presentation
As of May 1, 2009, the Company adopted fresh-start accounting. The adoption of fresh-start
accounting resulted in the Company becoming a new entity for financial reporting purposes.
Accordingly, the financial
statements prior to May 1, 2009 are not comparable with the financial statements for periods
on or after May 1, 2009. References to Successor or Successor Company refer to the Company on
or after May 1, 2009, after giving effect to the cancellation of Constar common stock issued prior
to the effective date of the Companys emergence from Chapter 11, the issuance of new Constar
common stock in accordance with the related Plan of Reorganization, and the application of
fresh-start accounting. References to Predecessor or Predecessor Company refer to the Company
prior to May 1, 2009. For further information, see Note 4 Fresh-Start Accounting of the notes
to the Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009.
For discussions on the results of operations, the Company has combined the results of
operations for the one month ended April 30, 2009 with the results of operations for the two months
ended June 30, 2009 and the results of operations for the four months ended April 30, 2009 with the
results of operations for the two months ended June 30, 2009. The combined periods have been
compared to the results of operations for the three and six months ended June 30, 2010. The Company
believes that these combined financial results provide management and investors a more meaningful
analysis of the Companys performance and trends for comparative purposes.
The Company has classified the results of operations of its Italian operation beginning in
2006 as a discontinued operation in the condensed consolidated statements of operations for all
periods presented. The assets and related liabilities of this entity have been classified as assets
and liabilities of discontinued operations on the condensed consolidated balance sheets. See Note
21 Discontinued Operations for further details. Unless otherwise indicated, amounts provided
throughout this Form 10-Q relate to continuing operations only.
The following discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements
in Part 1, Item 1 of this report.
Results of Operations
Net Sales
Three Months Ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
% |
|
|
|
June 30, |
|
|
Increase |
|
|
Increase |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
(Decrease) |
|
United States |
|
$ |
117.0 |
|
|
$ |
142.0 |
|
|
$ |
(25.0 |
) |
|
|
(17.6 |
)% |
Europe |
|
|
40.7 |
|
|
|
37.3 |
|
|
|
3.4 |
|
|
|
9.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
157.7 |
|
|
$ |
179.3 |
|
|
$ |
(21.6 |
) |
|
|
(12.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in United States net sales in the second quarter of 2010 as compared to the same
period in 2009 was driven primarily by lower volumes and a change in product mix of $28.5 million
and lower pricing of $2.3 million, offset in part by the pass through of higher resin costs to
customers of $5.7 million. Total U.S. PET unit volume decreased 17.0% in the second quarter of 2010
as compared to the same period in 2009. This decrease reflects a conventional unit volume decline
of 14.5% and a custom unit volume decline of 22.9%. The decline in conventional volume is primarily
due to reduced volume under the Pepsi cold-fill agreement that went into effect on January 1, 2009.
The decline in custom unit volume is due to the loss of a customer contract for custom preforms.
Excluding this loss, custom unit volume was flat as compared to the same period last year.
The increase in European net sales in the second quarter of 2010 as compared to the same
period in 2009 was primarily due to a change in product mix of $3.2 million and the pass through of
higher resin costs to customers of $2.5 million partially offset by a weakening of the British
Pound and Euro against the U.S. Dollar of $2.0 million. European PET volume increased 7.1% while
closure volume decreased 9.6% in the second quarter of 2010 as compared to the same period in 2009.
41
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
June 30, |
|
|
Increase |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
United States |
|
$ |
7.5 |
|
|
$ |
14.5 |
|
|
$ |
(7.0 |
) |
Europe |
|
|
2.0 |
|
|
|
3.2 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9.5 |
|
|
$ |
17.7 |
|
|
$ |
(8.2 |
) |
|
|
|
|
|
|
|
|
|
|
Percent of net sales |
|
|
6.0 |
% |
|
|
9.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the United States, the decline in gross profit in the second quarter of 2010 as compared to
the same period in 2009 is primarily due to the impact of higher manufacturing costs of $4.9
million, lower sales of $2.5 million, reduced pricing of $2.3 million, and a one-time benefit of
$1.4 million recorded in 2009 to reverse an accrual for the estimated cost of a price reduction in
a sales contract that did not occur, offset in part by cost reductions from the Companys
restructuring programs of $1.9 million. In addition, gross profit in 2009 was negatively impacted
by a $1.6 million adjustment to inventory as a result of the adoption of fresh-start accounting.
Approximately 20% of the increase in manufacturing costs was due to a customer audit that occurred
during the quarter. The audit has been resolved at the affected locations. The expenses the
Company incurred in the second quarter of 2010 may not be indicative of future expenditures. The
remainder of the manufacturing cost increase was primarily due to the impact of lower volumes on
overhead absorption.
The gross profit decrease in Europe was driven primarily by higher manufacturing costs of
approximately $5.8 million offset in part by increased resin pricing that was passed through to
customers of approximately $4.8 million.
Selling and Administrative Expenses
Selling and administrative expense includes compensation and related expenses for employees in
the selling and administrative functions as well as other operating expenses not directly related
to manufacturing or research, development and engineering activities.
Selling and administrative expenses increased 52.0% to $7.6 million in the second quarter of
2010 from $5.0 million in the same period in 2009 driven primarily by accrued severance payments of
$2.4 million and increased professional fees of $0.4 million. Accrued severance payments primarily
relate to payments due under an employment agreement with the Companys former chief executive
officer.
Goodwill and Intangible Asset Impairments
In the second quarter of 2010, the Company recorded impairment charges of $32.5 million and
$5.1 million related to its goodwill and trade name intangible asset, respectively. See Note 8 -
Goodwill and Intangible Assets in the notes to the accompanying condensed consolidated financial
statements for additional information.
Research and Technology Expenses
Research and technology expenses, which include engineering and development costs related to
developing new products and designing significant improvements to existing products, are expensed
as incurred. Research and technology expenses were $1.6 million in the second quarter of 2010 and
$2.1 million in the second quarter of 2009. This decrease was primarily driven by lower payroll
expenses.
42
Provision for Restructuring
Restructuring charges were $0.3 million in the second quarter of 2010 compared to $0.4 million
in the second quarter of 2009. The restructuring charges recorded in 2010 primarily relate to the
restructuring actions taken due to the impact of the Pepsi supply agreement, including the closure
of three U.S. manufacturing facilities and a reduction of operations in three other manufacturing
facilities, and the 2008 shutdown of the Companys Houston, Texas facility as a result of
previously disclosed customer losses and a strategic decision to exit the Companys limited
extrusion blow-molding business. See Note 10 Restructuring in the notes to the accompanying
condensed consolidated financial statements for additional information.
Interest Expense
Interest expense increased $1.6 million to $8.7 million in the second quarter of 2010 from
$7.1 million in the second quarter of 2009 due to $2.3 million of non-cash accretion of the fair
market value of the Companys Secured Notes to their face value at maturity and an increase in
amortization of deferred financing fees of $0.1 million, offset in part by changes in the fair
value of the interest rate swap that represent hedge ineffectiveness of $0.7 million, lower
interest rates which reduced interest expense by $0.2 million, and reclassification adjustments
related to the Companys previous interest rate swap of $0.1 million.
Reorganization Items, net
During the second quarter of 2009, the Company incurred certain professional fees and other
expenses directly associated with the bankruptcy proceedings. In addition, the Company recorded a
gain on the conversion of the Senior Subordinated Notes to common stock and the net impact of
fresh-start accounting adjustments. See Note 3 Reorganization Items in the notes to the
accompanying condensed consolidated financial statements for additional information.
Other Income (Expense), net
Other income (expense), net primarily includes gains and losses on foreign currency
transactions, royalty income and expense, and interest income.
Other expense, net was $1.1 million in the second quarter of 2010 compared to other income,
net of $4.8 million in the second quarter of 2009. The increase in other expense primarily resulted
from a $5.8 million negative foreign currency impact.
Provision for Income Taxes
Income tax expense (benefit) was $(7.5) million for the three months ended June 30, 2010 and
$37.0 million for the three months ended June 30, 2009 ($37.8 million for the one month ended April
30, 2009 and $(0.8) million for the two months ended June 30, 2009). The loss from continuing
operations before taxes was $47.3 million in the second quarter of 2010 as compared to income from
continuing operations before taxes of $154.7 million in the second quarter of 2009. The Companys
effective tax rate for the full year 2010 is expected to be approximately 21%.
The Company is in discussions with the Italian tax authorities regarding the tax returns filed
by the Companys Italian subsidiary for fiscal years 2002-2004. The Company estimates its maximum
exposure, including interest and penalties, at approximately $3.2 million. The Company intends to
defend against this matter vigorously. The Company has commenced proceedings to wind up its Italian
subsidiary.
Total unrecognized income tax benefits as of June 30, 2010, and December 31, 2009 were $0.6
million and $0.7 million, respectively, and are included in other liabilities on the condensed
consolidated balance sheets. In addition, the Company had accrued approximately $0.2 million for
estimated penalties and interest on uncertain tax positions as of June 30, 2010 and December 31,
2009. Substantially all of the unrecognized income tax benefits and related estimated penalties and
interest relate to the Companys discontinued operation in Italy. The Company
believes that it has adequately provided for any reasonably foreseeable resolution of any tax
disputes, but will adjust its reserves as events require. The Company believes it is reasonably
possible that the tax matters related to its discontinued operation will be settled in the next
twelve months. The settlement amount may differ materially from the Companys current estimate. To
the extent that the ultimate results differ from the original or adjusted estimates of the Company,
the effect will be recorded in the provision for income taxes.
43
Six Months Ended June 30, 2010 and 2009
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
% |
|
|
|
June 30, |
|
|
Increase |
|
|
Increase |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
(Decrease) |
|
United States |
|
$ |
221.5 |
|
|
$ |
275.3 |
|
|
$ |
(53.8 |
) |
|
|
(19.5 |
)% |
Europe |
|
|
70.7 |
|
|
|
63.7 |
|
|
|
7.0 |
|
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
292.2 |
|
|
$ |
339.0 |
|
|
$ |
(46.8 |
) |
|
|
(13.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in U.S. net sales for the six months ended June 30, 2010 as compared to the same
period in 2009 was driven primarily by lower volumes and a change in product mix of $58.4 million
and lower pricing of $3.9 million, offset in part by the pass through of higher resin costs to
customers of $8.5 million. Total U.S. PET unit volume decreased 19.0% for the six months ended June
30, 2010 as compared to the same period in 2009. This decrease reflects a conventional unit volume
decline of 17.4% and a custom unit volume decline of 23.0%. The decline in conventional volume is
primarily due to reduced volume under the new Pepsi cold-fill agreement that went into effect on
January 1, 2009. The decline in custom unit volume is due to the loss of a customer contract for
custom preforms. Excluding this loss, custom unit volume was flat as compared to the same period
last year.
The increase in European net sales for the six months ended June 30, 2010 as compared to the
same period in 2009 was primarily due to a change in product mix of $4.5 million and the pass
through of higher resin costs to customers of $4.1 million offset in part by lower volumes of $1.0
million and a weakening of the British Pound and Euro against the U.S. Dollar of $0.6 million.
European PET volume increased 4.0% and closure volume decreased 7.9% for the six months ended June
30, 2010 as compared to the same period in 2009.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
June 30, |
|
|
Increase |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
United States |
|
$ |
7.7 |
|
|
$ |
24.7 |
|
|
$ |
(17.0 |
) |
Europe |
|
|
2.8 |
|
|
|
3.3 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10.5 |
|
|
$ |
28.0 |
|
|
$ |
(17.5 |
) |
|
|
|
|
|
|
|
|
|
|
Percent of net sales |
|
|
3.6 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in U.S. gross profit for the six months ended June 30, 2010 as compared to the
same period in 2009 is primarily due to the impact of lower sales of $9.1 million, higher
manufacturing costs of $6.5 million reduced pricing of $3.9 million, an increase in depreciation
expense of $2.2 million, and a one-time benefit of $1.4 million recorded in 2009 to reverse an
accrual for the estimated cost of a price reduction in a sales contract that did not occur, offset
in part by cost reductions from the Companys restructuring programs of $3.3 million and a
settlement of a dispute with a former customer of $0.9 million. In addition, gross profit in 2009
was negatively impacted by a $1.6 million adjustment to inventory as a result of the adoption of
fresh-start accounting. Approximately 16% of the increase in manufacturing costs was due to a
customer audit that occurred during the first six months of 2010. The audit has been resolved at the
affected locations. The expenses the Company incurred during the first six months of 2010 may not
be indicative of future expenditures. The increase in depreciation was
primarily due to the revaluation of the Companys assets as a result of its adoption of
fresh-start accounting as well as accelerated depreciation on idled machinery and equipment
resulting in a non-recurring charge of $1.0 million. The remainder of the manufacturing cost
increase was primarily due to the impact of lower volumes on overhead absorption.
44
The gross profit decrease in Europe was driven primarily by higher manufacturing costs of
approximately $6.2 million, offset in part by increased resin pricing that was passed through to
customers of approximately $5.7 million.
Selling and Administrative Expenses
Selling and administrative expenses increased 19.8% to $12.1 million for the six months ended
June 30, 2010 from $10.1 million for the same period in 2009 driven primarily by accrued severance
payments of $2.4 million, increased professional fees of $0.4 million and a decrease in bad debt
recoveries of $0.6 million, offset in part by reduced payroll expenses of $1.2 million. Accrued
severance payments primarily relate to payments due under an employment agreement with the
Companys former chief executive officer.
Goodwill and Intangible Asset Impairments
For the six months ended June 30, 2010, the Company recorded impairment charges of $32.5
million and $5.1 million related to its goodwill and trade name intangible asset, respectively. See
Note 8 Goodwill and Intangible Assets in the notes to the accompanying condensed consolidated
financial statements for additional information.
Research and Technology Expenses
Research and technology expenses, which include engineering and development costs related to
developing new products and designing significant improvements to existing products, are expensed
as incurred. Research and technology expenses were $3.3 million for the six months ended June 30,
2010 and $3.9 million for the same period in 2009.
Provision for Restructuring
Restructuring charges were $0.6 million for the six months ended June 30, 2010 compared to
$0.9 million for the same period in 2009. The restructuring charges recorded for the six months
ended June 30, 2010 primarily relate to the restructuring actions taken due to the impact of the
Pepsi supply agreement and the shutdown of the Companys Houston, Texas facility as a result of
previously disclosed customer losses and a strategic decision to exit the Companys limited
extrusion blow-molding business. See Note 10 Restructuring in the notes to the accompanying
condensed consolidated financial statements for additional information.
Interest Expense
Interest expense increased $6.4 million to $17.8 million for the six months ended June 30,
2010 from $11.4 million for the for the same period in 2009 due to $7.7 million of non-cash
accretion of the fair market value of the Companys Secured Notes to their face value at maturity,
offset in part by lower interest rates which reduced interest expense by $0.6 million, changes in
the fair value of the interest rate swap that represent hedge ineffectiveness of $0.4 million and
reclassification adjustments related to the Companys previous interest rate swap of $0.3 million.
Reorganization Items, net
During the six months ended June 30, 2009, the Company incurred certain professional fees and
other expenses directly associated with the bankruptcy proceedings. In addition, the Company
recorded the gain on the conversion of the Senior Subordinated Notes to common stock and the net
impact of fresh-start accounting. See
Note 3 Reorganization Items in the notes to the accompanying condensed consolidated
financial statements for additional information.
45
Other Expense (Income), net
Other expense, net was $1.9 million for the six months ended June 30, 2010 compared to other
income, net of $4.9 million for the same period in 2009. The expense for the six months ended June
30, 2010 primarily resulted from a $6.7 million negative foreign currency impact.
Provision for Income Taxes
Income tax expense (benefit) was $(12.9) million for the six months ended June 30, 2010 and
$37.0 million for the six months ended June 30, 2009 ($37.8 million for the four months ended April
30, 2009 and $(0.8) million for the two months ended June 30, 2009). Loss from continuing
operations before taxes was $62.2 million for the six months ended June 30, 2010 as compared to
income of $150.0 million for the six months ended June 30, 2009.
Total unrecognized income tax benefits as of June 30, 2010 and December 31, 2009 were $0.6
million and $0.7 million, respectively, and are included in other liabilities on the condensed
consolidated balance sheets. In addition, the Company had accrued approximately $0.2 million for
estimated penalties and interest on uncertain tax positions as of June 30, 2010 and December 31,
2009. Substantially all of the unrecognized income tax benefits and related estimated penalties and
interest relate to the Companys discontinued operation in Italy. The Company has commenced
proceedings to wind up its Italian subsidiary. The Company believes that it has adequately provided
for any reasonably foreseeable resolution of any tax disputes, but will adjust its reserves as
events require. The Company believes it is reasonably possible that the tax matters related to its
discontinued operation will be settled in the next twelve months. The settlement amount may differ
materially from the Companys current estimate. To the extent that the ultimate results differ from
the original or adjusted estimates of the Company, the effect will be recorded in the provision for
income taxes.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
June 30, |
|
|
Increase |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Net cash provided by (used in) operating activities |
|
$ |
(2.5 |
) |
|
$ |
28.5 |
|
|
$ |
(31.0 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
$ |
2.7 |
|
|
$ |
(20.0 |
) |
|
$ |
(22.7 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
$ |
(1.0 |
) |
|
$ |
(20.1 |
) |
|
$ |
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
The primary factors that impact cash generated from operations are the seasonality of the
Companys sales, profit margins, and changes in working capital. Working capital is impacted by the
normal timing of purchases to meet customer demand and the timing of payments to vendors in
accordance with negotiated terms that may vary from year to year and during the year. The Company
primarily uses cash generated from operations and borrowings under its credit facilities to meet
its short-term liquidity needs. Net cash used in operations for the six months ended June 30, 2010
decreased compared to the same period in 2009 principally due to a higher net loss and changes in
working capital of $13.0 million. The changes in working capital were primarily due to payments of
accounts payable being delayed in 2009 due to the Companys bankruptcy proceedings which had an
impact of $18.4 million on working capital, and a $6.2 million impact on working capital of reduced
inventories in 2010 as compared to 2009.
The decrease in net cash used in investing activities for the six months ended June 30, 2010
was driven by the return of cash collateral for the interest rate swap to the Company of $7.6
million as compared to a payment of cash collateral of $11.8 million for the six months ended June
30, 2009, a decrease in capital expenditures of $2.9 million and an increase in proceeds from the
sale of property, plant, and equipment of $0.5 million.
46
Net cash used in financing activities for the six months ended June 30, 2010 decreased $19.1
million as the Company had net short-term borrowings of $0.8 million as compared to net short-term
debt repayments of $20.0
million for the six months ended June 30, 2009. In addition, the Company paid $1.9 million in
2010 for costs related to obtaining its new GE Credit Agreement.
Liquidity, defined as cash and borrowing availability under the Companys credit facilities,
will vary on a daily, monthly and quarterly basis based upon the seasonality of the Companys sales
as well as the impact of changes in the price of resin, the Companys cash generated from operating
activities, the change in the value of the U.S. dollar as compared to the British pound, reserves
and revaluations imposed by the administrative agent and other factors. The Companys cash
requirements are typically greater during the first six to nine months of the year because of the
build-up of inventory levels in anticipation of the seasonal sales increase during the warmer
months and the collection cycle from customers following the higher seasonal sales. Based upon the
terms and conditions of the Companys debt obligations and the Companys most recent projections,
the Company believes that cash generated from operations and amounts available under its credit
facilities will be sufficient to finance its operations over the next 12 months.
On February 11, 2010, the Company entered into a revolving credit facility with General
Electric Capital Corporation (Agent) and terminated its previous credit agreement. On August 12,
2010 the Company entered into an amended credit agreement with the Agent (as amended, the GE
Credit Agreement) as summarized in the table below, that included changes to certain terms,
covenants, applicable interest rate, margins and the sublimit for letters of credit. The following
discussion is not a complete description of the GE Credit Agreement or its recent amendment. The
amendment is filed as an exhibit to this Form 10-Q and the agreement was filed with a Form 8-K on
February 17, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term |
|
Original GE Credit Agreement |
|
Amendment |
Minimum available credit
less outstanding loans and
letters of credit |
|
$15.0 million for any period of five
consecutive business days during any
fiscal quarter |
|
$12.5 million for any period of five
consecutive business days during any
fiscal month or $7.5 million at any
time |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum consolidated
EBITDA for trailing
twelve months |
|
$40.0 million, if minimum available
credit less outstanding loans and letters
of credit are not maintained |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Fixed Charge
Coverage Ratio for trailing
twelve months |
|
N/A |
|
1.0:1.0, if minimum available credit
less outstanding loans and letters of
credit are not maintained |
|
|
Letters of Credit sublimit |
|
$15.0 million |
|
$20.0 million |
|
|
EBITDA annual cash
expense add-backs |
|
$1.5 million annually for cash
restructuring expense |
|
$3.0 million annually for cash
restructuring expense for fiscal years
ended December 31, 2010 and 2011,
$1.5 million for fiscal year ended
December 31, 2012 |
|
|
Availability Block |
|
$2.5 million |
|
$5.0 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate either
|
|
|
|
LIBOR
|
|
Base
|
|
Fixed Charge
|
|
LIBOR
|
|
Base
|
LIBOR or a Base Rate plus a spread
|
|
Usage
|
|
Spread
|
|
Spread
|
|
Coverage
|
|
Spread
|
|
Spread
|
|
|
<$30M
|
|
|
3.75 |
% |
|
|
2.75 |
% |
|
>1.2:1.0
|
|
|
3.75 |
% |
|
|
2.75 |
% |
|
|
$30-$50M
|
|
|
4.00 |
% |
|
|
3.00 |
% |
|
1.0 1.2:1.0
|
|
|
4.00 |
% |
|
|
3.00 |
% |
|
|
>$50M
|
|
|
4.25 |
% |
|
|
3.25 |
% |
|
<1.0:1.0
|
|
|
4.25 |
% |
|
|
3.25 |
% |
The
GE Credit Agreement provides for up to $75.0 million of available credit. Available credit
under the GE Credit Agreement is limited to a borrowing base calculated as a sum of eligible
accounts receivable plus eligible inventory value less certain reserves and adjustments.
47
The Company amended the GE Credit Agreement to enhance liquidity and enhance its ability to
restructure the Secured Notes. The minimum Fixed Charge Coverage Ratio is defined as consolidated
EBITDA (which is an adjusted measure of earnings defined in the GE
Credit Agreement) divided by the sum of interest expense (excluding non-cash accretion of interest on the
Secured Notes), cash capital expenditures net of cash proceeds from the disposition of capital
assets, scheduled payments of principal, income taxes paid in
cash, and cash dividends and other equity distributions. The 1% prepayment premium in the GE
Credit Agreement was reset for a one-year period from the amendments effective date.
The ability to borrow under our GE Credit Agreement fluctuates from time to time and is
primarily driven by borrowing base limitations. The GE Credit Agreement borrowing base is impacted
by changes in resin prices and the foreign currency exchange rate of the British pound. An increase
in resin prices results in higher book values of our inventory that also result in an increase to
the borrowing base limit. A weakening U.S. dollar versus the British pound causes an increase in
the value of our U.K. inventory when its value is translated into U.S. dollars. Consequently, a
weakening U.S. dollar tends to increase our borrowing base while a strengthening U.S. dollar has
the opposite effect. Because the GE Credit Agreements borrowing base increases and decreases based
upon varying levels of accounts receivable and inventory, the ability to borrow under the GE Credit
Agreement tends to increase when the Companys cash needs are the highest such as when we are
building inventories. Also, available credit under the GE Credit Agreement will fluctuate because
it depends on inventory and accounts receivable values that fluctuate and is subject to
discretionary reserves and revaluation adjustments that may be imposed by the Agent from time to
time and other limitations.
As of June 30, 2010 the Companys borrowing base under the GE Credit Agreement was $54.0
million and its available credit was $44.1 million.
The GE Credit Agreements scheduled expiration date is February 11, 2013. However, the GE
Credit Agreement may terminate earlier if the Companys Secured Notes are not refinanced at least
90 days prior to their scheduled maturity date of February 15, 2012, or in the case of an event of
default.
The Company will pay monthly a commitment fee equal to 0.75% per year on the undrawn portion
of the GE Credit Agreement. Loans will bear interest at the rates in the above table. The
interest rate at June 30, 2010 was 6.5%. Letters of credit carry an issuance fee of 0.25% per
annum of the outstanding amount and a monthly fee accruing at a rate per year of 4% of the average
daily amount outstanding.
The Company, its U.S. subsidiaries and its UK subsidiary jointly and severally guarantee the
obligations under the GE Credit Agreement. Collateral securing the obligations under the GE Credit
Agreement consists of all of the stock of the Companys domestic and United Kingdom subsidiaries,
65% of the stock of the Companys other foreign subsidiaries, and all of the inventory, accounts
receivable, investment property, instruments, chattel paper, documents, deposit accounts and
certain intangibles of the Company and its domestic and United Kingdom subsidiaries.
The GE Credit Agreement contains certain financial covenants that include limitations on
yearly capital expenditures, available credit and a minimum Fixed Charge Coverage Ratio. The Credit
Agreement contains other customary covenants and events of default. If an event of default should
occur and be continuing, the Agent may, among other things, accelerate the maturity of the GE
Credit Agreement. The GE Credit Agreement also contains cross-default provisions if there is an
event of default under the Secured Notes that has occurred or is continuing. The Company was in
compliance with the covenants of the GE Credit Agreement as of June 30, 2010.
Based upon its current projections, the Company expects to be in compliance with its debt
covenants during 2010. The Companys projected available credit, based upon its most recent
earnings and financial projections will exceed $12.5 million for all five consecutive business day
periods in 2010 and not fall bellow $7.5 million at any time. Additionally, the Companys
projections indicate that it would be in compliance with the minimum Fixed Charge Coverage Ratio
during this period.
The Companys projected available credit may be impacted by, among other things, unit volume
changes, resin price changes, changes in foreign currency exchange rates, working capital changes,
vendor demands for letters of credit, changes in product mix, factors impacting the value of the
borrowing base, and other factors such as those disclosed in Managements Discussion and Analysis
of Financial Condition and Results of Operations Overview. In the event that it appeared to the
Company that the debt covenants would not be met, the Company would plan to delay or eliminate
certain capital expenditures, reduce its inventory, institute cost reduction initiatives, seek
additional funding related to its unsecured assets or seek a waiver of the debt covenants. There
can be no
assurance that such actions would be successful or that such actions would not have a material
adverse effect on the Companys business, results of operations or liquidity.
48
On April 29, 2010, Constar International Holland (Plastics) B.V. (Constar Holland), which is
an indirect subsidiary of the Company organized under the laws of the Netherlands, entered into a
receivables financing agreement and an inventory financing agreement (the ING Credit Agreements)
with ING Commercial Finance B.V., a company organized under the laws of the Netherlands (Lender).
The receivables financing agreement provides for advances of up to 85% (subject to certain
exclusions and limitations) of the face amount of Constar Hollands approved receivables. The
inventory financing agreement provides for advances of up to 50% (subject to certain exclusions and
limitations) of the acquisition cost of Constar Hollands raw materials in inventory, including a
margin for overhead.
The actual amount of financing available under the ING Credit Agreements will fluctuate from
time to time because it depends on inventory and accounts receivable values that can fluctuate and
is subject to limitations and exclusions that the Lender may impose in its discretion and other
limitations. Although the amount of financing under the ING Credit Agreements will fluctuate as
described above, the Company currently anticipates that generally at least $5 million will be
available, which is the maximum amount that the Company currently anticipates that it would borrow
because additional borrowings would require ING to accede to a subordination agreement in favor of
the Agent of the GE Credit Agreement.
Advances under each ING Credit Agreement bear interest at EURIBOR plus 2% per year and a
credit commission of 1/24% per month. A turnover commission of 0.20% is also applicable to the
receivables financing agreement.
The initial duration of each ING Credit Agreement is for two years. At the end of this period,
the ING Credit Agreements automatically renew for successive one-year periods unless at least
90 days notice of earlier termination is given by either party. In addition, the ING Credit
Agreements may terminate earlier in the case of an event of default. If Constar Holland terminates
the ING Credit Agreements early (other than as a result of certain changes to the terms made by the
Lender), or there is a termination due to an event of default, Constar Holland must pay the total
amount of interest and commissions that the Lender would have received if the ING Credit Agreements
had continued for the remaining agreed upon term.
Constar Hollands obligations under the financing agreements are secured by its receivables
and inventory and related rights.
The ING Credit Agreements and related agreements with the Lender contain covenants,
representations and warranties and events of default. Events of default include, but are not
limited to:
|
|
|
a dividend or other distribution from Constar Holland causing its
equity capital to amount to less than 35% of total assets; |
|
|
|
|
a breach of a covenant, representation, warranty or certification made
in connection with an ING Credit Agreement, including a default in the
payment of any amount due under the ING Credit Agreements; |
|
|
|
|
a default or acceleration with respect to financing or guarantee
agreements of Constar Holland of more than 50,000 or the
occurrence of certain insolvency events; and |
|
|
|
|
Constar Holland becoming subject to certain judgments. |
If an event of default shall occur and be continuing under an ING Credit Agreement, the Lender
may, among other things, accelerate the maturity of the ING Credit Agreements.
49
The Companys outstanding long-term debt at June 30, 2010 and December 31, 2009, consists of
$220.0 million face value of Secured Notes due February 15, 2012. The Secured Notes bear interest
at the rate of three-month LIBOR plus 3.375% per annum. Interest on the Secured Notes is reset and
payable quarterly on each
February 15, May 15, August 15 and November 15. In 2005 the Company entered into an interest
rate swap for a notional amount of $100 million under which the Company exchanged its floating
interest rate for a fixed rate of 7.9%. On February 11, 2010, the counterparty to the interest rate
swap novated its rights under the swap agreement to a third party. The fixed payment of the swap
agreement was also modified from the previous fixed rate of 7.9% to a new fixed rate of 8.17%. The
interest rate swap agreement terminates on February 15, 2012. The Company may redeem some or all of
the Secured Notes at any time under the circumstances and at the prices described in the indenture
governing the Secured Notes. The indenture governing the Secured Notes contains provisions that
require the Company to make mandatory offers to purchase outstanding Secured Notes in connection
with a change in control, asset sales and events of loss. The Secured Notes are guaranteed by all
of the Companys U.S. subsidiaries and its U.K. subsidiary. Substantially all of the Companys
property, plant, and equipment are pledged as collateral for the Secured Notes.
Upon the adoption of fresh-start accounting, the Company adjusted the carrying value of its
Secured Notes to fair value of $154.3 million based upon their quoted market price at April 30,
2009; however, the total amount due at maturity remains $220.0 million. The Company currently
expects to record accretion expense of approximately $11.7 million for the remainder of 2010,
$25.8 million in 2011 and $3.5 million in 2012. For the three months and six months ended June 30,
2010, the Company recorded accretion expense of $5.6 million and $11.0 million, respectively. For
the two months ended June 30, 2009 the Company recorded accretion expense of $3.3 million.
Accretion expense is included in interest expense in the accompanying condensed consolidated
statement of operations.
There are no financial covenants related to the Secured Notes. The Secured Notes contain
certain non-financial covenants that, among other things, restrict the Companys ability to incur
indebtedness, create liens, sell assets, and enter into transactions with affiliates. The Company
was in compliance with these covenants at June 30, 2010. If an event of default shall occur and be
continuing under the indenture, including without limitation as a result of the acceleration of
indebtedness under the GE Credit Agreement upon an event of default, either the trustee or holders
of a specified percentage of the applicable notes may accelerate the maturity of such notes.
As previously disclosed, the Company does not anticipate generating sufficient funds to repay
the Secured Notes. The Company has retained a financial advisor to assist in exploring all
alternatives, which may include, among other things, exchanging the Secured Notes for equity and/or
new debt, a negotiated or bankruptcy court supervised restructuring, or a sale of the Company. Any
such transaction could cause substantial dilution to, or the cancellation of, the Companys common
stock. There can be no assurance that any particular alternative will be available.
Capital Expenditures
Capital expenditures decreased to $5.5 million for the six months ended June 30, 2010 as
compared to capital expenditures of $8.4 million for the same
period in 2009. The decrease was driven by lower production volumes
in 2010 and non-recurring expenditures made in 2009 related to the
Companys restructuring plans. Based on information currently
available, the Company estimates 2010 capital spending will be lower than 2009 capital
expenditures.
Pension Funding
Under current funding rules, we estimate that the funding requirements under our pension plans
for 2010 will be approximately $4.0 million. If the return on plan assets is less than expected or
if discount rates decline from current levels, plan contribution requirements could increase
significantly in the future. During the six months ended June 30, 2010, the Company made pension
plan contributions of $1.7 million.
Accounting for pension plans requires the use of estimates and assumptions regarding numerous
factors, including discount rates, rates of return on plan assets, compensation increases,
mortality rates, and employee turnover. Actual results may differ from the Companys actuarial
assumptions, which may have an impact on the amount of reported expense or liability for pensions.
50
Commitments and Contingent Liabilities
Information regarding the Companys contingent liabilities appears in Note 11 Commitments
and Contingencies in the notes to the accompanying Condensed Consolidated Financial Statements,
which information is incorporated herein by reference.
Critical Accounting Policies and Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States which require that management
make numerous estimates and assumptions. Actual results could differ from these estimates and
assumptions, impacting the reported results of operations and financial condition of the Company.
For a discussion of the Companys critical accounting policies, see Item 7 Managements Discussion
and Analysis of Financial Condition and Results of Operations in the Companys Form 10-K filed on
March 24, 2010.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be held and used when events
or changes in circumstances indicate the carrying value may not be recoverable. Such circumstances
would include items such as a significant decrease in the market price of the long-lived asset, a
significant adverse change in the manner which the assets is being used or in its physical
condition or a history of operating cash flow losses associated with use of the asset. The carrying
amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash
flows expected to result from the use of the asset and its eventual disposition. The Company
monitors its assets for potential impairment on a quarterly basis.
For purposes of recognition and measurement of an impairment loss, long-lived assets such as
property, plant and equipment, are grouped with other assets at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets. Based upon these
criteria, the Company has identified three asset groups with one each in the U.S., U.K., and
Holland. In the case where the carrying amount of an asset or asset group is not recoverable, an
impairment loss is recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. The key variables that the Company must estimate include
assumptions regarding future sales volume, prices and other economic factors. Significant
management judgment is involved in estimating these variables, and they include inherent
uncertainties since it is a forecast of future events. If such assets are considered impaired, they
are written down to fair value as appropriate.
As a result of the Companys expectations regarding its largest U.S. customers intention to
increase its self-manufacturing of conventional containers (as discussed above), the Company
revised its U.S. cash flow and earnings projections downward. Consequently, the Company performed
an interim impairment test of its U.S. long-lived asset group, including its finite lived
intangible assets. The results of the test indicated that no impairment of long-lived assets
existed at June 30, 2010, since the sum of the undiscounted cash flows of the asset group
significantly exceeded its carrying amount. Therefore, the Company did not measure the asset
groups fair value to determine whether an impairment loss should be recognized. In the event a
fair value analysis would be required, the Company would rely on appraisals and discounted cash
flow analyses in order to estimate the fair value of assets. Significant assumptions for discounted
cash flow purposes are the life of the assets, the discount rate and cash flow projections.
51
Goodwill Impairment
The Company performed an interim goodwill impairment assessment as of June 30, 2010 since the
aggregate trading value of its common stock of $13.7 million was significantly less than the
carrying value of its stockholders equity.
Since the Company adopted fresh-start accounting on April 30, 2009 through the first quarter
of 2010 the Company used discounted cash flow analysis and a market multiple method to estimate the
fair value of its single
reporting unit. For the impairment test performed as of June 30, 2010, the Company added an
additional component to the enterprise fair value estimate by including the fair value of the
Company based upon quoted market prices. The Company changed its method of valuation in the second
quarter of 2010 since the Companys common stock was listed on the NASDAQ Capital Market on April
9, 2010 and the Company believes that sufficient time has elapsed and trading has occurred for the
market in Constars stock to have more fully developed as of June 30, 2010. Therefore the Company
believes that quoted market prices have become an appropriate component in the estimated fair value
of the Company. The Company assigned a lower weight to the fair value based upon quoted market
prices since trading volumes are low and inconsistent, with the remainder divided equally between
the discounted cash flow analysis and a market multiple method. For a discussion of the discounted
cash flow and market multiple valuation methods and the underlying assumptions of these methods see
Note 8 Goodwill and Intangible Assets in the notes to the accompanying Condensed Consolidated
Financial Statements.
Based upon the analysis performed as of June 30, 2010, the Company failed Step 1 of the
goodwill impairment test. The change in the fair value of the Companys single reporting unit that
caused the Company to fail Step 1 was predominately attributable to lower actual and projected cash
flows. Consequently, the Company performed a hypothetical purchase price allocation to determine
the amount of goodwill impairment. The significant fair value adjustments in the hypothetical
purchase price allocation were to property, plant and equipment, amortizable intangible assets,
long-term debt, and pension and postretirement liabilities. The adjustments to measure the assets
and liabilities at fair value were for the purpose of measuring the implied fair value of goodwill.
The adjustments are not reflected in the condensed consolidated balance sheet. The assumptions and
methodologies for valuing our assets and liabilities have been applied consistently during the
reporting periods included in this report.
The results of the second step of the goodwill impairment test indicated that goodwill was
impaired by $32.5 million on a pre-tax basis as of June 30, 2010. If the Companys fair value
continues to decline in the future, the Company may experience additional material impairment
charges to the carrying amount of its goodwill. Recognition of impairment of a significant portion
of goodwill would negatively affect the Companys reported results of operations and total
capitalization, the effect of which could be material.
Impairment of Indefinite-Lived Intangible Assets
As a result of the Companys expectations regarding its largest U.S. customers intention to
increase its self-manufacturing of conventional containers (as discussed above), the Company
revised its U.S. cash flow and earnings projections downward. Consequently, the Company performed
an interim impairment test of its indefinite-lived intangible asset, consisting exclusively of its
trade name, as of June 30, 2010. An impairment of the carrying value of an indefinite-lived
intangible asset is recognized whenever its carrying value exceeds its fair value. The amount of
impairment recognized is the difference between the carrying value of the asset and its fair value.
The Company estimated the fair value of its trade name by performing a discounted cash flow
analysis using the relief-from-royalty method. This approach treats the trade name as if it were
licensed by the Company rather than owned, and calculates its value based on the discounted cash
flows of the projected license payments. The relief-from-royalty method is consistent with the
method the Company employed in prior periods and the method employed to initially value the trade
name upon the adoption of fresh-start accounting on April 30, 2009. Fair value estimates are based
on assumptions concerning the amount and timing of estimated future cash flows and assumed discount
and growth rates, reflecting varying degrees of perceived risk. Significant estimates and
assumptions used to estimate the fair value of the Companys trade name were internal sales
projections, a long-term growth rate of 2.75%, and a discount rate of 13.9%. Based on this
evaluation the Company recorded an impairment charge related to its trade name intangible asset of
$5.1 million as of June 30, 2010. This impairment charge is included within operating expenses in
the accompanying condensed consolidated statement of operations for the three and six months ended
June 30, 2010. The primary factor contributing to the impairment charge was a reduction in sales
expectations from the Companys previous projection utilized in its impairment test performed at
December 31, 2009.
52
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires
additional disclosures about fair value measurements including transfers in and out of Levels 1 and
2 and a higher level of
disaggregation for the different types of financial instruments. For the reconciliation of
Level 3 fair value measurements, information about purchases, sales, issuances and settlements are
presented separately. This standard is effective for interim and annual reporting periods beginning
after December 15, 2009 with the exception of revised Level 3 disclosure requirements which are
effective for interim and annual reporting periods beginning after December 15, 2010. Comparative
disclosures are not required in the year of adoption. The Company adopted the provisions of the
standard on January 1, 2010. The adoption of these new requirements did not have a material impact
on the Companys results of operations or financial condition.
Forward-Looking Statements
Statements included herein that are not historical facts (including, but not limited to, any
statements concerning plans and objectives of management for future operations or economic
performance, or assumptions related thereto), are forward-looking statements within the meaning
of the federal securities laws. In addition, the Company and its representatives may from time to
time make other oral or written statements which are also forward-looking statements.
These forward-looking statements are based on the Companys current expectations and
projections about future events. Statements that include the words expect, believe, intend,
plan, anticipate, project, will, may, could, should, pro forma, continues,
estimates, potential, predicts, goal, objective and similar statements of a future nature
identify forward-looking statements. These forward-looking statements and forecasts are subject to
risks, uncertainties and assumptions. The Company cautions that forward-looking statements are not
guarantees and that actual results could differ materially from those expressed or implied in the
forward-looking statements. The Company does not intend to review or revise any particular
forward-looking statement or forecast in light of future events.
A discussion of important factors that could cause the actual results of operations or
financial condition of the Company to differ from expectations has been set forth in the Companys
Annual Report on Form 10-K for the year ended December 31, 2009 under the captions Cautionary
Statement Regarding Forward Looking Statements and Item 1.A Risk Factors and is incorporated
herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q and have
been or may be discussed from time to time in the Companys other filings with the Securities and
Exchange Commission.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures for financial reporting
that are designed to give reasonable assurance that information required to be disclosed in the
Companys reports submitted under the Securities Exchange Act of 1934, as amended (the Exchange
Act), is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. These controls and procedures also give
reasonable assurance that information required to be disclosed in such reports is accumulated and
communicated to management to allow timely decisions regarding required disclosures.
As of June 30, 2010, the Companys Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), together with management, conducted an evaluation of the effectiveness of the Companys
disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures
are effective.
53
Changes in Internal Control Over Financial Reporting
There was no change in the Companys internal control over financial reporting that occurred
during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART IIOther Information
Item 1. Legal Proceedings
Information regarding legal proceedings involving the Company appears in Part I within Item 1
of this quarterly report under Note 11 Commitments and Contingencies to the Condensed
Consolidated Financial Statements, which information is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form
10-K for the year ended December 31, 2009, which could materially affect the Companys business,
financial condition or future results. The risks described in the Companys Annual Report on Form
10-K are not the only risks facing the Company. Additional risk and uncertainties not currently
known to the Company or that it currently deems to be immaterial also may materially adversely
affect the Companys business, financial condition or operating results.
The following risk factor from the Companys Annual Report on Form 10-K is deleted:
Our stock is not listed on a national securities exchange. It will likely be more difficult
for stockholders and investors to sell our common stock or to obtain accurate quotations of the
share price of our common stock.
The following risk factors have been updated or added:
A restructuring of our Secured Notes may result in substantial dilution to, or the
cancellation of, our currently outstanding common stock.
As previously disclosed, we do not anticipate generating sufficient funds to repay the Secured
Notes. We have retained a financial advisor to assist in exploring all of our alternatives, which
may include, among other things, exchanging the Secured Notes for equity and/or new debt, a
negotiated or bankruptcy court supervised restructuring, or a sale of the Company. Any such
transaction could cause substantial dilution to, or the cancellation of, the Companys common
stock. There can be no assurance that any particular alternative will be available.
We have incurred, and may in the future incur, significant impairment charges, which result in
lower reported net income (or higher net losses) and a reduction to stockholders equity.
Under accounting principles generally accepted in the United States, we are required to
evaluate our long-lived assets and goodwill for impairment whenever a triggering event occurs that
indicates the carrying value may not be recoverable. Goodwill is also required to be tested at
least annually and we have selected October 1 as our annual testing date.
At June 30, 2010 we wrote off $32.5 million of goodwill and $5.1 million related to our trade
name intangible asset. Following the write off, at June 30, 2010 we had $162.1 million of
long-lived assets and $86.2 million of goodwill. We may in the future record additional
significant impairment charges to earnings in the period in which any impairment of our long-lived
assets or goodwill is determined. Such charges have resulted, and could in the future result, in
significantly lower reported net income (or higher net losses) and a reduction to stockholders
equity.
54
We must comply with financial and other covenants in our GE Credit Agreement and
other debt agreements.
The GE Credit Agreement contains a financial covenant that requires us to maintain a fixed
charge coverage ratio of 1.0:1.0 if our available credit under that facility falls below $12.5
million for any period of five consecutive
business days during any fiscal month or $7.5 million at any time. This ratio is defined as
consolidated EBITDA (which is an adjusted measure of earnings defined in the GE Credit Agreement)
divided by the sum of interest expense (excluding non-cash accretion of interest on the Secured
Notes), cash capital expenditures net of cash proceeds from the disposition of capital assets,
scheduled payments of principal, income taxes paid in cash, and cash dividends and other equity
distributions and is calculated on a trailing twelve month basis as of the last day of the then
immediately preceding fiscal month. The Companys projected available credit, consolidated EBITDA
and compliance with the fixed charge coverage ratio may be impacted by, among other things, unit
volume changes, resin price changes, movements in foreign currency, working capital changes, vendor
demands for letters of credit, changes in product mix, factors impacting the value of the borrowing
base, and other factors including those in Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview. In the event that it appeared that this covenant
would not be met, we would plan to delay or eliminate certain capital expenditures, reduce
inventories, institute cost reduction initiatives, seek additional funding related to its unsecured
assets or seek a waiver of the debt covenants. There can be no assurance that such actions would be
successful or that such actions would not have a material adverse effect on our business, results
of operations or liquidity.
In addition, our credit facility limits our capital expenditures to $25.0 million per year,
net of cash proceeds from the disposition of capital assets, with a carryover permitted into the
immediately following year of 75% of any unused portion. Our credit facility and the indenture
governing our Secured Notes also contain covenants customary for such financings that, among other
things, restrict our ability to sell assets, incur debt, incur liens and engage in certain
transactions. These restrictions may limit our operating flexibility or our ability to take
advantage of potential business opportunities as they arise. These covenants may have a material
adverse impact on our operations.
Our failure to comply with any of these covenants may constitute an event of default. Our
credit facility and indenture also contain other events of default customary for such financings.
If an event of default was to occur and we are unable to obtain an amendment or waiver, the lenders
could declare outstanding borrowings immediately due and payable, discontinue further lending to
us, apply any of our cash to repay outstanding loans, or foreclose on assets. We cannot provide
assurance that we would have sufficient liquidity to repay or refinance borrowings upon an event of
default. In addition, the credit facility and indenture contain provisions under which a default or
acceleration of one of such documents may result in a cross acceleration of the other.
We expect our largest U.S. customer to increase its self-manufacturing of conventional
containers, which we expect will result in significant volume loss.
We expect that increased self-manufacturing by our largest U.S. customer will reduce its U.S.
bottle purchases from us by approximately 20%-25% as compared to estimated 2010 bottle volumes. The
Company anticipates an increase in preform volumes to this customer
to offset the loss of conventional bottle
volume. The change in sales mix will negatively impact the Companys results as preforms generally
carry lower variable per unit profitability than bottles. Increased self-manufacturing may have
several effects on the Company, including but not limited to a reduced borrowing base under the GE
Credit Agreement. The Company is evaluating the actions that it will take in response to this
expected volume loss, including potential cost reductions, plant closures and replacement preform
volume. There can be no assurance that any such actions would be successful or that such actions
would avert a material adverse effect on our business, results of operations, financial position,
cash flows or liquidity. Customers self-manufacturing plans are not within our control and such
plans may change from time to time.
55
Our declining stockholders equity may cause our common stock to be delisted from the NASDAQ
Capital Market, which could negatively impact the market value and liquidity of our common stock
and our ability to access the capital markets.
Stockholders equity at June 30, 2010 was approximately $28 million. In order to maintain our
listing on the NASDAQ Capital Market, we must maintain minimum stockholders equity of $2.5 million
which could be reduced by write-offs (such as those we took as of June 30, 2010) and other
factors. If we cannot meet this standard or any of the alternative listing standards, then NASDAQ
may commence proceedings to delist our common stock. If a delisting of our common stock were to
occur, we would expect any trading of our common stock to take place only in the over-the-counter
market. Accordingly, we would expect the market value and liquidity of our common stock and our
ability to access the capital markets, to be adversely impacted. There may be other negative
implications, including the potential loss of confidence by actual or potential customers,
suppliers and employees and the loss of institutional investor interest.
Legislative changes could reduce demand for our products.
Our business model is dependent on the demand for our customers products in multiple channels
and locations. Taxes on the sale of our customers products could result in decreased demand for
our products, which could negatively impact our business, prospects, financial condition and
results of operations. In 2009, members of the U.S. Congress raised the possibility of a federal
tax on the sale of certain sugar beverages, including non-diet soft drinks, fruit drinks, teas and
flavored water, to help pay the cost of healthcare reform. Some state and local governments are
considering similar taxes. If enacted, such taxes could result in decreased demand for our products
and negatively impact our business, prospects, financial condition and results of operations.
In addition, certain state and local governments have considered laws that would restrict our
customers ability to distribute their sweetened beverage products in schools and other venues. If
enacted, these restrictions could result in decreased demand for our products and negatively impact
our business, prospects, financial condition and results of operations.
Recent federal health care legislation could increase our expenses.
We are self-insured with respect to our healthcare coverage and do not purchase third party
insurance for the health insurance benefits provided to employees. We are currently assessing the
potential impact of federal health care legislation which could adversely affect our financial
condition through increased costs. In March 2010, the Patient Protection and Affordable Care Act
(the Act) and the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act)
were signed into law. The Act, as modified by the Reconciliation Act, includes a large number of
healthcare provisions to take effect over the next four years, including expanded dependent
coverage, incentives for businesses to provide health care benefits, a prohibition on the denial of
coverage and denial of claims on pre-existing conditions, a prohibition on limits on essential
benefits, and other expansions of health care benefits and coverage. The costs of these provisions
are expected to be funded by a variety of taxes and fees. Some of these taxes and fees, as well as
certain health care changes required by these acts, are expected to result, directly or indirectly,
in increased health care costs for us. For example, the requirement to provide coverage for
children up to the age of twenty-six and the prohibition on limits on essential benefits (whereas
we currently cap health-related benefits) could result in increased costs to us. At this time, we
cannot quantify the impact, if any, that the legislation may have on us. There is no assurance that
we will be able to absorb and/or pass through the costs of such legislation in a manner that will
not adversely impact our business, prospects, financial condition and results of operations.
56
Item 6. Exhibits
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10.1
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Financing and Service Agreement (and Master Instrument of Pledge) dated April 29, 2010 between
Constar International Holland (Plastics) B.V. and ING Commercial Finance B.V. |
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10.2
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Agreement on Stock Financing and Financing of Acquisition of Goods dated April 29, 2010 between
Constar International Holland (Plastics) B.V. and ING Commercial Finance B.V. |
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10.3
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Deed of Possessory Lien on Stock dated April 29, 2010 between Constar International Holland
(Plastics) B.V. and ING Commercial Finance B.V. |
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10.4
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(Master) Instrument of Pledge Relating to Orders on Hand dated April 29, 2010 between Constar
International Holland (Plastics) B.V. and ING Commercial Finance B.V. |
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10.5
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Statement of Intended Abstraction dated April 29, 2010 between Constar International Holland
(Plastics) B.V. and ING Commercial Finance B.V. |
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10.6
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Amendment Number One to Constar International Inc. 2009 Equity Compensation Plan. |
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10.7
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Amendment No. 1 to Credit Agreement among Constar, Inc., the Credit Parties thereto, the Lenders
party thereto and General Electric Capital Corporation, as Agent, dated August 12, 2010 |
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31.1
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of Executive Vice President and Chief Financial Officer Pursuant to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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Constar International Inc.
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Dated: August 16, 2010 |
By: |
/s/ J. Mark Borseth
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J. Mark Borseth |
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Executive Vice President and
Chief Financial Officer
(duly authorized officer and
principal financial officer) |
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58