Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
|
|
|
o |
|
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 000-16496
Constar International Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
(State or other jurisdiction
of incorporation or organization)
|
|
13-1889304
(I.R.S. Employer
Identification Number) |
|
|
|
One Crown Way, Philadelphia, PA
(Address of principal executive offices)
|
|
19154
(Zip Code) |
(215) 552-3700
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 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):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company þ |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
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
As of June 30, 2009, the aggregate market value of the shares of the registrants common stock
held by non-affiliates was approximately $17,236,800 based upon the closing market price of the
Companys common stock on June 30, 2009.
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 March 24, 2010, 1,750,000 shares of the registrants Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K includes forward-looking statements. Forward-looking
statements can be identified by words such as anticipate, believe, expect, intend, plan,
project, will, may, could, should, pro forma, continues, estimates, potential,
predicts, goal, objective or similar expressions. Statements made regarding future results
are subject to numerous assumptions, uncertainties and risks that may cause future results to be
materially different from the results stated or implied in this document. The following are among
the important factors that could cause actual results to differ materially from any results
projected, forecasted, estimated or budgeted:
|
|
|
Our $220 million of Secured Notes will mature on February 15, 2012. We do not have
sufficient funds on hand to repay them, nor do we expect to generate sufficient funds
from operations to repay them; |
|
|
|
We have had net losses in recent years and may not generate profits in the future; |
|
|
|
Our debt level and our ability to service existing debt or, if necessary, to
refinance that debt; |
|
|
|
The impact of our debt on operating flexibility; |
|
|
|
We expect to fund operations using a credit facility that is subject to conditions
and borrowing base limitations; |
|
|
|
Our ability to comply with the financial and operating covenants in the instruments
governing our indebtedness; |
|
|
|
The market for our products is dominated by a few large purchasers, and a
significant portion of our sales is concentrated with some of them; |
|
|
|
Our concentration of sales in conventional containers, the risk that the market for
such products may decline, our ability to grow our custom business, and the risk of
product obsolescence; |
|
|
|
Customers may not purchase our products in the amounts expected by us under their
contracts; |
|
|
|
The impact of PepsiCos acquisition of formerly independent bottlers, and the
impact of other customer consolidation; |
|
|
|
The impact of increased industry capacity on pricing and volumes; |
|
|
|
General economic and political conditions; |
|
|
|
The impact of price competition on gross margins and profitability; |
|
|
|
The continued movement of customers toward self-manufacturing; |
|
|
|
Our customers success in selling their products in their markets; |
|
|
|
Risks associated with our international operations; |
|
|
|
The terms upon which we acquire resin and our ability to pass through resin related
price increases in our sales; |
|
|
|
Our ability to obtain resins that are compatible with our technologies; |
|
|
|
Increases in the price of petrochemical products such as PET resin and the effect
of such increases on the demand for PET products; |
|
|
|
Our ability to protect our existing technologies and to develop new technologies; |
|
|
|
Our ability to timely market products incorporating our MonOxbar and
DiamondClear technologies; |
1
|
|
|
The expiration of patents pertaining to the MonOxbar technology, and no
patents have been issued on DiamondClear and other technologies; |
|
|
|
Our stock is no longer listed on a national securities exchange, and 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; |
|
|
|
Our ability to maintain an effective system of internal controls and remediate any
material weaknesses or significant deficiencies that may be identified from time to time; |
|
|
|
Legal and regulatory proceedings and developments; |
|
|
|
Seasonal fluctuations in demand and the impact of weather on sales; |
|
|
|
Our ability to identify trends in the markets in which we compete and to offer new
solutions that address the changing needs of these markets; |
|
|
|
Our ability to successfully execute our business model and enhance our product mix; |
|
|
|
As a result of our Chapter 11 reorganization, our historical financial information
may not be indicative of our future financial performance; |
|
|
|
Our ability to successfully prosecute or defend the legal proceedings to which we
are a party; and |
|
|
|
The other factors disclosed from time to time by the Company in its filings with
the Securities and Exchange Commission. |
These factors are not necessarily all of the important factors that could cause actual results
to differ materially from those expressed in any of our forward-looking statements. Other unknown
or unpredictable factors, including without limitation those discussed under Risk Factors below,
could also have material adverse effects on future results. The Company undertakes no obligation to
update publicly any forward-looking statement whether as a result of new information or future
events.
2
PART I
General
Constar International Inc. (the Company or Constar) is a Delaware corporation originally
incorporated in 1927. The Companys principal executive office is located at One Crown Way,
Philadelphia, PA 19154-4599, and its telephone number is (215) 552-3700.
Constar filed for Chapter 11 protection on December 30, 2008 and emerged from Chapter 11 on
May 29, 2009. See Note 2 Emergence from Voluntary Reorganization under Chapter 11 Proceedings
in the accompanying Consolidated Financial Statements for additional information.
Constar produces plastic containers made from polyethylene terephthalate (PET) used as
packaging for food, beverages, and other end use applications The Company also produces plastic
closures representing approximately 5% of 2009 net sales.
The PET Container Market
The Companys products include both bottles and preforms. Preforms are test-tube shaped
intermediate products in the bottle manufacturing process. Some companies purchase preforms that
they self-manufacture into bottles. Preform sales generally carry lower variable per unit
profitability than bottle sales. Preforms are utilized in both conventional and custom
applications. In the United States, the Companys customers typically buy finished bottles, while
its European customers typically buy preforms. Given the recent trend in the United States towards
self manufacturing of conventional products, the Companys bottle volume has decreased and preform volume has
increased. Bottles and preforms accounted for 71% and 29%, respectively, of the conventional volume
in the United States for the year ended December 31, 2009 as compared to 94% and 6%, respectively,
for the same period in 2008.
Beverage categories dominate the PET market. The PET container industry is generally divided
into two product categories, conventional and custom.
The conventional category is larger by volume and is characterized by high volume production
of containers for use in packaging carbonated soft drinks and water. Conventional products are
supplied by independent producers such as Constar, and by bottling companies that make containers
themselves or through captive affiliates. Due to the simplicity and cost advantage of integrating
water bottle production and filling, very few water bottles are produced by independent PET
manufacturers. There has also been some movement by certain companies to manufacture their own
carbonated soft drink bottles. The Company has been able to retain a majority of the preforms from
its customers that have chosen to self-manufacture their bottles. Constars carbonated soft drink
bottle volume has declined due to this self-manufacturing, a shift by consumers towards alternative
beverages, and the negative impact of the economy on the convenience store and gas station
distribution channels.
The custom category consists of containers for food and beverage products with special
packaging requirements, such as an oxygen barrier or the ability to withstand filling at high
temperatures. The custom category is generally characterized by more complex manufacturing
processes, specialized materials, innovative product designs and technological know-how. Because of
these factors, many custom PET applications have greater profitability and higher barriers to entry
than conventional PET packaging. While proprietary technologies exist in this segment, the
technology to produce certain types of custom products is commonly available, which has resulted in
increased competition and reduced profitability for such products.
The Companys net sales by market category for the years ended December 31, 2009 and 2008 are
summarized below:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2009 |
|
|
2008 |
|
Conventional |
|
$ |
427.2 |
|
|
$ |
594.9 |
|
Custom |
|
|
182.5 |
|
|
|
221.2 |
|
Other |
|
|
28.7 |
|
|
|
41.8 |
|
|
|
|
|
|
|
|
Total |
|
$ |
638.4 |
|
|
$ |
857.9 |
|
|
|
|
|
|
|
|
3
Technologies
The Company invests in research and development in order to develop technologies for increased
penetration of the custom PET market.
Oxygen-Barrier Technology. Oxygen barriers inhibit oxygen from penetrating packaging, which
can impact product shelf life by causing flavor and color degradation. The Companys
DiamondClearTM technology, and in particular, the most recent formulation known as
DiamondClear 300, provides several advantages that the Company believes makes
DiamondClear 300 the best oxygen scavenging material on the market.
|
|
|
Exceptional Clarity. Some PET containers with alternative oxygen barrier
technologies appear cloudy, giving a less than perfect presentation when filled and placed
on store shelves. DiamondClear delivers glass-like clarity. |
|
|
|
Barrier Protection. DiamondClear is a powerful oxygen scavenger. DiamondClear
300 is particularly powerful, keeping products fresh and colors vibrant for long periods of
time. |
|
|
|
Recycling. Some oxygen barrier products will negatively impact the PET
recycling stream. DiamondClear 300 provides a significant improvement in recyclability. |
|
|
|
Monolayer Structure. Multilayer oxygen scavenging bottles require special
production equipment to incorporate barrier material between two or more layers of PET.
Monolayer bottles incorporate the scavenging technology into a single layer of PET without
specialized equipment. In a multi-layer structure, layers can separate. This delamination
impairs the bottles clarity and poses aesthetic concerns. DiamondClear monolayer PET
bottles eliminate delamination. |
|
|
|
Light-weighting. Bottling companies wish to minimize container weight to reduce
cost and improve sustainability. As the thickness of a container decreases, the amount of
oxygen that penetrates the package wall increases. DiamondClear 300s robust oxygen
scavenging capacity allows for more light-weighting without compromising shelf life. |
The Company has filed patent applications on the DiamondClear technologies. In addition to
selling PET packaging incorporating DiamondClear, the Company may sell the barrier material
directly to other manufacturers. The Company obtained FDA approval for DiamondClear 300 in July of
2009, following which many customers commenced product testing. Commercial sales of DiamondClear
300 are expected to commence in 2010. The Company commenced sales of earlier generation
DiamondClear products in 2008. Constar also continues to sell products employing its MonOxbar
TM oxygen scavenging technology.
Hot-fill Technology. When a container is filled with a hot food or beverage product, a vacuum
is created as the product cools. The vacuum, if not already considered in the bottle design, can
cause bottle distortion and collapse. The Company has developed technologies that address this
challenge without the use of traditional vacuum panels, which interfere with the grip and labeling
of the container.
|
|
|
Vertical Compensation. PET bottles with vertical compensation technology, or
VCTTM, use concentric rings (or hoop geometry) to absorb vacuum and eliminate
the need for traditional vacuum panels. |
|
|
|
X-4TM. Containers using X-4TM technology absorb the
vacuum in the base, allowing for cylindrical containers with smooth, rigid walls. The X-4
technology provides complete design flexibility to customers converting from glass to PET
who want to retain the same bottle shape. |
Patent applications have been filed on the VCT and X-4 technologies.
CONSTruct is a proprietary software solution, developed by Constar, which automates the
time-intensive process of analyzing and predicting bottle performance when designing new packages.
CONSTruct, developed specifically for PET bottle applications, improves accuracy and reduces
development time for new and revised packaging.
R&D Centers. The Company conducts its major research, development and engineering activities,
as well as testing and product qualification, at in-house laboratories. From laboratory locations
in Alsip, Illinois and Sherburn, United Kingdom, the Companys research, development and
engineering staff provides project support for the design and development needs of its existing and
potential customers, and is responsible for the full range of activity from concept to
commercialization. Research and technology expenditures were $8.0 million and $8.5 million in
2009 and 2008, respectively.
4
Intellectual Property. The Company relies on trade secrets, proprietary know-how, and other
unpatented proprietary technology to maintain its competitive position. The Company attempts to
protect its proprietary know-how and its other trade secrets by
executing, when deemed appropriate,
confidentiality agreements with its customers and employees. The Company may choose to protect
inventions through patent applications, but there can be no assurance that patents will be granted
or, if granted, that patents would be upheld if challenged. The Company cannot be assured that its
competitors will not discover comparable or the same knowledge and techniques through independent
development or other means.
Customers
Generally, Constar supplies its customers pursuant to contracts with terms of one year or
longer. 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. All of the Companys sales are subject to the marketing actions taken by
its customers. In 2009, the Companys top five customers accounted for approximately 59% of the
Companys sales, while the Companys top ten customers accounted for approximately 77% of the
Companys sales. During the same period, purchases by Pepsi accounted for approximately 32% of the
Companys sales and purchases by Cott Corporation accounted for approximately 11% of the Companys
sales. Pepsi, as defined in this document, refers to PepsiCo, Inc., Pepsi Bottling Group, Pepsi
Americas, and the independent bottlers that have designated Pepsis global procurement organization
to negotiate purchasing on their behalf.
Sources and Availability of Raw Materials
PET resin represents approximately 40-45% of the cost of a PET bottle and approximately 75-80%
of the cost of a preform. The Company buys PET resin directly from a diverse base of leading resin
suppliers in the United States, Europe and Asia. The Company believes that the large volume of
resin that it purchases provides leverage that assists it in negotiating favorable resin purchasing
agreements.
Certain customer supply contracts enable customers to soft toll some or all of the resin for
products to be supplied in the respective contracts. In these cases, the customer negotiates resin
pricing directly with resin suppliers, and the Company then purchases the resin requirements for
such customer at the negotiated price. There is an increasing trend of customers seeking to soft
toll resin. Although this has not had a material impact on the Companys ability to obtain
favorable resin pricing, there can be no assurance that additional soft tolling will not have such
impact.
Specific resins are often required for custom applications. Our MonOxbar, DiamondClear 100
and DiamondClear 300 oxygen barrier materials are only qualified with one resin vendor but with
multiple resins that it produces. Testing is in process to identify other commercially available
alternate resins for all barrier materials. The Company anticipates that additional resins will be
qualified shortly but there can be no assurance that such
qualifications will take place. In addition, DiamondClear 300 requires special raw materials that are currently
only available from limited sources in China, India, and Germany. These raw materials also require
long lead times to obtain. Raw materials are processed into DiamondClear by a third party. In the
event that the Company was unable to obtain DiamondClear raw materials, or in the event of any
interruption of supply from the Companys current sole processor, the Company may be unable to sell
products incorporating the DiamondClear technology. One qualified resin needed for MonOxbar will
be discontinued by the end of 2010. An alternate resin has been identified and is being pursued,
however testing a substitute resin may require customer cooperation, may take several months, and
may not result in the qualification of such resin. If the Company cannot obtain the resins that it
requires on reasonable commercial terms, the Companys business may be materially adversely
affected. Any failure to obtain resin on a timely basis at an affordable cost, or any significant
delays or interruptions of supply, could prevent the Company from supplying customers on a timely
basis.
5
Competition
PET competes in the packaging market against a number of materials including glass, metal,
paperboard and other plastics. Various factors affect the choice of packaging material. In the food
and beverage markets, PETs advantages include consumer preference for PET containers
transparency, resealability, light weight and shatter resistance. PET bottles and jars have also
gained acceptance due to PETs custom molding potential, which allows customers to differentiate
their products using innovative designs and shapes that increase promotional appeal.
The Companys major PET industry competitors in the United States are Amcor Ltd., Ball
Corporation, Graham Packaging Company and Plastipak Holdings, Inc. In Europe, the competitive
landscape is much more fragmented.
Competition in the PET industry is intense. In each of the Companys markets, high standards
of service, reliability, and quality are prerequisites to obtaining significant awards of business
from customers. Profit margins are lower in the conventional business and where custom technologies
are commonly available. Differentiation is obtained by price, quality and customer service. In the
custom category, proprietary technology and design capabilities are significant differentiation
factors.
Seasonality
Many of the Companys products have seasonal demand characteristics typically resulting in
higher sales and profits in the second and third quarters compared to the first and fourth
quarters. Sales of single service convenience beverage bottles are strongest in the summer months.
All of Constars sales are subject to marketing actions taken by customers as they adjust their mix
of product presentations.
Working Capital
Historically, the Companys cash requirements were higher during the first six to nine months
of the year to finance seasonal inventory building. As a result of the Companys available capacity
and lean manufacturing initiatives, the Company expects to reduce this need for seasonal working
capital, and that cash requirements will decline accordingly. The Companys working capital
requirements are funded by cash on hand, its revolving credit facility, and cash from operations.
Collection and payment periods tend to be longer for the Companys operations located outside the
United States due to local business practices. Further information relating to the Companys
liquidity and capital resources is set forth under Managements Discussion and Analysis of
Financial Condition and Results of OperationsLiquidity and Capital Resources.
Environmental Liabilities and Costs
The Companys facilities and operations are subject to a variety of federal, state, local and
foreign environmental laws and regulations, including those relating to air emissions, wastewater
discharges, chemical and hazardous waste management, and disposal and remediation of environmental
sites. The Company is also subject to employee health and safety laws. The nature of its operations
exposes the Company to the risk of liabilities or claims with respect to environmental and worker
health and safety matters. The Company believes its operations are in material compliance with
applicable requirements; however, there can be no assurance that material costs will not be
incurred in connection with these liabilities or claims. Based on the Companys experiences to
date, it believes that the future cost of compliance with existing environmental and employee
safety laws and regulations will not have a material adverse effect on the Company. Future events,
including changes in laws and regulations or their interpretations and the discovery of presently
unknown conditions, may nevertheless give rise to additional costs that could be material.
6
Employees
As of December 31, 2009, the Company employed 1,238 employees, with 1,057 in the United States
and 181 in Europe. None of its U.S. employees are unionized. There are union workers at its
Sherburn, United Kingdom plant and its Zevenaar, Netherlands plant. The Company believes that its
employee relations are generally good and that its practices in the areas of training, safety,
progression, retention, lean manufacturing training and team involvement foster continuous
improvement in capabilities and satisfaction levels throughout its workforce.
Financial Information by Segment
The Company has one business segment with manufacturing facilities in the United States and
Europe. For additional information regarding net customer sales and long-lived assets for the
countries in which the Company operates, see Part II, Item 8 Financial Statements and
Supplemental Data Note 25.
Securities Exchange Act Reports
The Company maintains an Internet website at the following address: www.constar.net. The
information on the Companys website is not incorporated by reference into this annual report on
Form 10-K. Constar makes available on or through its website certain reports and amendments to
those reports that Constar files with or furnishes to the SEC in accordance with the Securities
Exchange Act of 1934. These include annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K. Constar makes this information available on its website free of charge
as soon as reasonably practicable after it electronically files the information with, or furnishes
it to, the SEC. You may also read and copy any materials Constar files with the SEC at the SECs
Public Reference Room that is located at 100 F Street, NE, Washington DC 20549. Information about
the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
You can also access Constars filings through the SECs internet site: www.sec.gov.
7
Our business involves a number of risks, some of which are beyond our control. You should
carefully consider each of the risks and uncertainties we describe below, and all of the other
information in this Form 10-K and the Companys other SEC filings. Additional risks and
uncertainties not currently known to us or that we currently deem immaterial may also become
important factors that may harm our business.
We do not have sufficient funds to repay our Secured Notes that mature on February 15, 2012.
Our $220.0 million of Secured Notes mature on February 15, 2012. We do not have sufficient
funds, nor do we anticipate generating sufficient funds, to repay these notes and may not be able
to refinance these notes prior to their maturity. Failure to refinance the Secured Notes within 90
days of their maturity is an event of default under our credit facility. In addition, if we fail to
refinance the Secured Notes prior to the issuance of the
Companys Form 10-K for the year ended December 31, 2010, our auditors may
issue a going concern opinion on our consolidated financial statements. In connection with the
adoption of fresh-start accounting, for purposes of the
Companys financial statements the Secured Notes were adjusted to fair value based upon their
quoted market price; however, the total amount due at maturity remains $220.0 million.
We may not generate profits in the future and we had net losses in recent years.
For the fiscal years ended December 31, 2009 and 2008 we incurred net losses excluding the
impact of reorganization items of $27.2 million and $48.6 million, respectively, and we may not
generate net income in the future. Continuing net losses may limit our ability to service our debt
and fund our operations. Factors contributing to net losses in recent years included, but were not
limited to, price competition and the implementation of price reductions to extend customer
contracts; asset write-downs and impairment charges; delays in conversions to PET from other forms
of packaging; a high proportion of conventional products in our product mix; customers shifting to
self manufacturing of bottles; loss of customers due to contract expirations and competition; and
operating difficulties in our European businesses. These and other factors may adversely affect our
ability to generate profits in the future.
Our indebtedness may reduce our operating flexibility and may adversely affect our ability to
incur additional debt to fund future needs.
Our debt may have important negative consequences for us, such as:
|
|
|
limiting our ability to obtain additional financing for capital
expenditures, working capital, and other general corporate purposes,
particularly because substantially all of our assets are currently
subject to liens; |
|
|
|
increasing our vulnerability to economic downturns and changing market and industry conditions; |
|
|
|
limiting our ability to compete with companies that are not as highly
leveraged and that may be better positioned to withstand economic
downturns; |
|
|
|
impacting the Companys ability to retain existing customers and attract new customers; and |
|
|
|
requiring us to dedicate a substantial portion of our cash flow from
operations to service our debt, thereby reducing the availability of
cash to fund business needs. |
Our credit facility includes borrowing base limitations and other restrictions under which we
may not be able to borrow the full amount of the facility.
We currently plan to finance ordinary business operations through borrowings under our credit
facility. If we are unable to fully access our credit facility, we may become illiquid and we may
be unable to finance our ordinary business activities. Our ability to borrow funds under our credit
facility is subject to our compliance with various covenants as of the date of borrowing. Even if
we are in compliance with all such covenants, the total amount of the facility may be unavailable
because we can only borrow a percentage of the eligible borrowing base. The borrowing base is
comprised of eligible accounts receivable and inventory of our United States and United Kingdom
operations. As the value of such accounts receivable and inventory declines, our ability to borrow
is reduced. Factors that could cause such value to decline include, among other things:
|
|
|
management of working capital; |
|
|
|
a decline in the price of resin or other declines in the prices of our products; |
|
|
|
an increase in the value of the United States dollar relative to foreign currencies; and |
|
|
|
the administrative agent is entitled to conduct field audits and
inventory appraisals that may result in the application of a lower
valuation. |
8
The borrowing base is subject to further limitations, including that:
|
|
|
if inventory is located on properties that we lease and if we are
unable to obtain consents from the landlords such inventory may not be
eligible for inclusion in the borrowing base; and |
|
|
|
the administrative agent has the ability to reduce our borrowing
availability at any time by, for example, establishing reserves or
declaring certain collateral ineligible. |
We must comply with financial and other covenants in our credit facility and other debt
agreements.
Our credit facility contains a financial covenant that require us to maintain $40.0 million of
consolidated EBITDA (calculated on a trailing twelve month basis as of the last day of the then
immediately preceding fiscal quarter) if our borrowing availability during any fiscal quarter falls
below $15.0 million for any period of five consecutive business days during such fiscal quarter.
Based upon its current projections, the Company expects to be in compliance with its debt covenants
during 2010. The Company believes that the trailing twelve month Consolidated EBITDA will fall
below $40.0 million at the end of the second quarter of 2010, but that the Company will remain in
compliance with this covenant because available credit will not fall below $15.0 million for five
consecutive business days. The Companys projected availability and Consolidated EBITDA may be
impacted by unit volume changes, resin price changes, movements in foreign currency, working
capital changes, changes in product mix, factors impacting the value
of the borrowing base, and other factors. In response to these factors, 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 covenant. There can be no assurance that such
actions would be successful.
In addition, our credit facility limits our capital expenditures to $25.0 million per year
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.
Our key technologies are not covered by patents.
The key patents on our Oxbar technology have expired. We have filed patent applications for
our DiamondClear, X-4 and other new technologies related to our custom business. If these patents
are not issued, our ability to compete in the custom business may be materially adversely affected.
We currently maintain patents covering various aspects of the design and construction of our
products, but our patents may not withstand challenge in litigation, and patents do not ensure that
competitors will not develop competing products, design around our patents or infringe upon our
patents.
We market our products internationally and the patent laws of foreign countries may offer less
protection than the patent laws of the United States. Not all of our domestic patents have been
registered in other countries. We also rely on trade secrets, know-how and other unpatented
proprietary technology, and others may independently develop the same or similar technology or
otherwise obtain access to our unpatented technology. To protect our trade secrets, know-how and
other proprietary information, we require employees, consultants, advisors and collaborators to
enter into confidentiality agreements with us. These agreements may not provide meaningful
protection for our trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of this information. In addition, we have from
time to time received letters from third parties suggesting that we may be infringing on their
intellectual property rights, and third parties may bring infringement suits against us. If the
claims of these third parties are successful, we may be required to seek licenses from these third
parties or refrain from using the claimed technology.
9
A significant portion of our sales is concentrated with a few large customers.
In 2009, our sales to Pepsi and Cott Corporation accounted for approximately 32% and 11%,
respectively, of consolidated net sales. The Companys ten largest customers accounted for
approximately 77% and 76% of our consolidated net sales in 2009 and 2008, respectively. Our supply
contract with Pepsi expires on December 31, 2012. The loss or reduction of our business with any of
our significant customers could have a material adverse impact on our net sales, profitability, and
cash flows. A decrease in cash flows may cause the carrying value of our assets to become
unrecoverable and could trigger a write-down of assets due to impairment.
In addition, the market for PET packaging is dominated by a handful of large customers.
Opportunities to obtain significant new awards from such customers are limited, as are the
opportunities to replace any lost business from such customers.
Conventional PET containers account for a significant portion of our consolidated net sales.
For the years ended December 31, 2009 and 2008, approximately 67% and 69%, respectively, of
our sales related to conventional PET containers which are used for carbonated soft drinks and
bottled water. On average, the variable profit margin of the conventional category is lower than
the custom category. The demand for our conventional products is declining due to the trend of
bottlers manufacturing their own bottles in-house. In addition, the single serve carbonated soft
drink market, whose primary distribution channel is gasoline stations and convenience stores, has
declined with the economy and its recovery to historical levels cannot be assured. Furthermore, the
carbonated soft drink market may continue to decline as consumers shift their preferences to
alternative beverages.
Our customers are engaging in self-manufacturing.
Self-manufacturing by customers may have a material adverse impact on the Companys sales
volumes and financial results. The Company believes that the majority of single serve water bottles
are now being self-manufactured. Carbonated soft drink containers are also being self-manufactured,
and the Company expects this transition to continue over time at locations where merchant
suppliers transportation costs are high, and where large volume, low complexity and available
space to install blow-molding equipment exists. While customers may continue to purchase water and
CSD preforms from merchant suppliers to support their in-house blow-molding operations, preform
sales are typically less profitable than bottle sales. In addition, hot-fill custom containers
could shift to self-manufacturing if a customer were to change the product formulation from
hot-fill to cold-fill, or if the customer adopted an aseptic filling process.
Consolidation of our customers may reduce the Companys volumes and profitability.
PepsiCos acquisition of Pepsi Bottling Group and Pepsi Americas provides PepsiCo with the
opportunity to consolidate filling operations and potentially increase its self-manufacturing of
bottles. This may reduce the Companys volume of business with PepsiCo.
Generally, the consolidation of our customers may reduce our net sales and profitability. If
one of our larger customers acquires one of our smaller customers, or if two of our customers
merge, the combined customers negotiating leverage with us may increase and our business with the
combined customer may become less profitable. In addition, if one of our customers is acquired by a
company that has a relationship with one of our competitors, we may lose that customers business.
The consolidation of purchasing power through buyer cooperatives or similar organizations may also
harm our profitability.
Contracts with customers generally do not require them to purchase any minimum amounts of
products from us, and customers may not purchase amounts that meet our expectations.
Our contracts, including those with Pepsi, our largest customer, are generally
requirements-based, granting us all or a percentage of the customers actual requirements for a
particular period of time, instead of a specific commitment of unit volume. In addition, certain
contracts permit customers to terminate contracts if the customer receives an offer from another
manufacturer that we choose not to match. Increases in resin prices relative to alternative
packaging materials, or other price increases, may cause customers to decrease their purchases from
us. Additionally, if customers discontinue products or convert products from one type to another,
we may lose a source of revenues and profits. As a result, despite the existence of supply
contracts with our customers, we face the risk that in the future customers will not continue to
purchase amounts that meet our expectations.
10
Pricing and volumes in our markets are sensitive to production capacity utilization.
Our business is sensitive to industry capacity utilization. Self-manufacturing of water
bottles and carbonated soft drink bottles may result in increased industry capacity, which could
increase price competition and affect our profitability.
If the Companys custom PET packaging business does not grow, our growth and profitability may
be lower than we currently expect.
To the extent that we do not grow custom PET volume as much or as quickly as anticipated, our
profitability may be lower than we currently expect. We believe that one of the keys to our future
success will be our ability to sell more custom PET products, in particular, those products
incorporating the Companys oxygen scavenging material. Partly because of the more complex
technologies required for certain custom PET applications, profitability is generally higher for
custom PET products than for conventional PET products. We believe a number of products will
convert from glass, metal and other packaging to custom PET packaging. The lead time for major new
business projects ranges from two to four years. A slower rate of conversion would limit our growth
opportunities. During 2009, custom beverage sales were reduced due to factors including the
negative impact of prevailing economic conditions on the convenience store and gas station
distribution channels where custom PET single serve beverages are sold. In addition, general
economic conditions may impact our customers willingness to convert to PET from other forms of
packaging. These trends may continue in the future.
Our products and services may become obsolete.
Significant technological changes could render our existing technology or our products and
services obsolete. The markets in which we operate are characterized by rapid technological change,
frequent new product and service introductions and evolving industry standards. Our ability to
compete may be weakened if our existing technologies are rendered obsolete. If we are unable to
respond successfully to technological developments or do not respond in a cost-effective way, or if
we do not develop new technologies, our net sales and profitability may decline. To be successful,
we must adapt to rapidly changing markets by continually improving our products and services and by
developing new products and services to meet the needs of our customers. Our ability to develop
these products and services will depend, in part, on our ability to license leading technologies
useful in our business and develop new offerings and technology that address the needs of our
customers. Similarly, the equipment that we use may be rendered obsolete by new technologies. A
significant investment in new equipment may reduce our profitability.
We are dependent on a limited number of resin and chemical suppliers
Specific resins are often required for custom applications. Our MonOxbar, DiamondClear 100
and DiamondClear 300 oxygen barrier materials are only qualified with one resin vendor but with
multiple resins that it produces. Testing is in process to identify other commercially available
alternate resins for all barrier materials. The Company anticipates that additional resins will be
qualified shortly but there can be no assurance that such
qualifications will take place. In addition, DiamondClear 300 requires special raw materials that are currently
only available from limited sources in China, India, and Germany. These raw materials also require
long lead times to obtain. Raw materials are processed into DiamondClear by a third party. In the
event that the Company was unable to obtain DiamondClear raw materials, or in the event of any
interruption of supply from the Companys current sole processor, the Company may be unable to sell
products incorporating the DiamondClear technology. The only qualified resin needed for MonOxbar
will be discontinued by the end of 2010. An alternate resin has been identified and is being
pursued, however testing a substitute resin may require customer cooperation, may take several
months, and may not result in the qualification of such resin. If the Company cannot obtain the
resins that it requires on reasonable commercial terms, the Companys business may be materially
adversely affected. Any failure to obtain resin on a timely basis at an affordable cost, or any
significant delays or interruptions of supply, could prevent the Company from supplying its
customers on a timely basis.
Increases in the price of resin may negatively impact our financial results and may deter the
growth of the PET market.
PET resin is the principal raw material used in the manufacture of our products. We use large
quantities of PET resin in manufacturing our products. Increases in the price of resin may increase
the cost of our products, reduce our profitability and reduce our prospects for growth. Resin is
subject to substantial price fluctuations. Resin is a petrochemical product and resin prices may
fluctuate with prices in the worldwide oil and gas markets. Political or economic events in oil or
gas producing countries, such as those in the Middle East, may impact the price of resin.
11
Although substantially all of our sales are made pursuant to mechanisms that permit us to pass
changes in the price of resin through to our customers, market conditions may not permit us to
fully pass through any future resin price increases or may force us to grant other concessions to
customers. In addition, the arrangements that we make to limit our exposure to fixed or other resin
pricing mechanisms may not operate as expected, including under circumstances where our resin
suppliers are unable or unwilling to perform. Resin price increases against which we are not
protected may have a material adverse impact on our business. Significant increases in resin
prices, coupled with an inability to promptly pass such increases on to customers, may increase our
cost of products sold and reduce our profitability. A sustained increase in the price of resin may
slow the rate of conversion of alternative packaging materials, such as glass and metal, to PET, or
may make these alternative packaging materials more attractive than PET. A sustained increase in
the price of resin may also result in an increased price to consumers, which may affect consumer
preference for PET packaging. If these factors reduce the demand for PET packaging, it may
significantly reduce our prospects for growth.
Customers may supply us with an increasing amount of resin, which may reduce our ability to
negotiate favorable resin purchase contracts.
Because we are a large purchaser of resin, we enjoy significant leverage in negotiating resin
purchase agreements. To the extent that our customers choose to supply us with an increasing amount
of resin, the amount of resin that we purchase will decline and we may lose some of our leverage in
negotiating resin purchase agreements. If we have to pay higher prices for resin, our costs will
increase and we may not be able to offer our customers pricing terms as favorable as those we offer
now or as favorable as those offered by our competitors.
We earn a significant portion of our revenue in warmer months, and cool weather may result in
lower sales and cash flows.
Unseasonably cool weather could reduce our sales and profitability and cash flows. A
significant portion of our revenue is attributable to the sale of beverage containers. Demand for
beverages tends to peak during the summer months. In the past, significant changes in summer
weather conditions have affected the demand for beverages, which in turn affects the demand for
beverage containers manufactured by us.
Cash flow requirements are the greatest in the first several months of each fiscal year
because of the increased working capital required to build inventory for the warmer months and
because of lower levels of profitability associated with softer sales during the first few months
of each fiscal year. Lower demand due to unseasonably cool weather may have a significant impact on
cash flow because of lower profitability and the impact on working capital.
A small number of stockholders are in a position to influence most of our significant
corporate actions because they hold a significant amount of our common stock.
In their various filings with the Securities and Exchange Commission, FMR L.L.C., Solus
Alternative Capital Management LP, JPMorgan Chase & Co., Trafelet Capital Management L.P., and/or
their respective affiliates, have publicly reported the ownership of approximately 59% of our
common stock in the aggregate. These entities, acting alone or in concert, may be able to influence
the outcome of corporate actions requiring stockholder approval. As a result, these entities are in
a position to influence most of our significant corporate actions.
Our interest expense may increase since indebtedness under the Secured Notes and our Credit
Facility is subject to floating interest rates.
The Secured Notes and our borrowings under our credit facility are subject to floating
interest rates and the amount outstanding under the credit facility will change from time to time.
Changes in economic conditions could result in higher interest rates, thereby increasing our
interest expense and reducing our funds available for operations and other purposes. A 1.0%
increase in market interest rates on our un-hedged floating rate borrowings outstanding as of
December 31, 2009 would result in an annual increase in our interest expense and a decrease in our
income before income taxes of approximately $1.3 million.
We are subject to foreign currency risk and other instabilities from our international
operations.
For the years ended December 31, 2009 and 2008, we derived approximately 20% of our revenue
from sales in foreign currencies. In our financial statements, we translate local currency
financial results into United States dollars based on average exchange rates prevailing during a
reporting period. Our most significant foreign currency exposures are to the British pound and the
Euro. During times of a strengthening United States dollar, our reported international revenue and
earnings will be reduced because the local currency will translate into fewer United States
dollars.
12
We are exposed to the risk of liabilities or claims related to environmental and health and
safety standards.
Our facilities and operations are subject to federal, state, local and foreign environmental
and employee health and safety laws and regulations, including those regarding the use, storage,
handling, generation, transportation, treatment, emission and disposal of certain substances and
remediation of environmental impacts to soil and groundwater. The nature of our operations exposes
us to the risk of liabilities or claims with respect to environmental and worker health and safety
matters.
Currently, we are involved in a small number of compliance and remediation efforts primarily
concerning wastewater discharge and possible soil and groundwater contamination, including
investigations and certain other activities at our Netherlands facility. Based on information
presently available, we do not believe that the cost of these efforts will be material. However,
environmental and health and safety matters cannot be predicted with certainty, and actual costs
may increase materially.
Our operations and profitability could suffer if we experience labor relations problems or if
we do not reach new union agreements on satisfactory terms.
A prolonged work stoppage or strike could prevent us from operating our manufacturing
facilities. The contract with our union employees in our Netherlands facility expires on October
31, 2010. The contract with our hourly union employees in our Sherburn, England facility expires on
December 31, 2010. The workforce is the U.S. is non-union. While we believe that our employee
relations are generally good, there can be no assurance that new contracts can be negotiated and if
so, what impact the terms will have on the Company.
We face product liability risks and the risk of negative publicity if our products fail or if
our customers and suppliers are affected by product liability risks or negative publicity.
Our business is exposed to product liability risk and the risk of negative publicity if our
products fail. In addition, we are exposed to the product liability risk and negative publicity
affecting our customers and suppliers. Because many of our customers are food, beverage and other
consumer products companies, with their own product liability risks, our sales may decline if any
of our customers are sued on a product liability claim, or if they halt production or recall
products voluntarily or involuntarily due to safety concerns. We may also suffer a decline in sales
from the negative publicity associated with such a lawsuit or with adverse public perceptions in
general regarding our products or our customers products that use our containers.
As a result of our Chapter 11 reorganization, our historical financial information may not be
indicative of our future financial performance.
Under fresh-start accounting our assets and liabilities were adjusted to their fair values and
our accumulated deficit was adjusted to zero. Accordingly, our financial condition and results of
operations following our emergence from Chapter 11 may not be comparable to the financial condition
or results of operations reflected in our historical financial statements.
We have a significant amount of goodwill and intangible assets that we may be required to
write down in certain circumstances, which would result in lower reported net income (or higher net
losses) and a reduction to stockholders equity.
At December 31, 2009 we had $118.7 million of goodwill and $31.4 million of intangible assets.
Under accounting principles generally accepted in the United States, we are required to evaluate
our goodwill and trade name at least annually to determine whether the assets are impaired. The
Company has selected October 1 as its annual testing date. Our technology and leasehold interest
intangible assets are tested for impairment whenever a triggering event occurs that indicates the
carrying value may not be recoverable. We may also test our goodwill and trade name for impairment
on an interim basis if a triggering event occurs that would indicate that the fair value of our
company or our trade name has declined. Under certain circumstances, we may be required to
recognize an additional impairment charge.
13
We are subject to lawsuits and claims that could adversely affect our results of operations
and financial position.
We are subject to lawsuits and claims in the normal course of business and related to
businesses operated by predecessor corporations. See Our BusinessLegal Proceedings for a fuller
description of certain cases to which we are currently party. Litigation can be costly and
time-consuming and the outcomes of lawsuits cannot be predicted. A significant judgment against us
could materially and adversely impact our results of operations and financial position. In
addition, certain judgments against us would constitute an event of default under our debt
agreements.
We have underfunded pension plans and an unfunded post-retirement medical/life insurance plan,
which could affect our cash flows and financial condition.
We maintain funded pension plans in the U.S., the U.K. and Holland and an unfunded retiree
medical/life insurance plan in the U.S. In 2009, we contributed approximately $3.8 million in the
aggregate to the pension and retiree medical/life insurance plans, and we expect to contribute
approximately $4.2 million in the aggregate to these plans for 2010. The Companys pension plans
were underfunded by approximately $27.7 million and $33.6 million as of December 31, 2009 and 2008,
respectively. The difference between pension plan obligations and assets, or the funded status of
the plans, significantly affects the net periodic benefit costs of the Companys pension plans and
the ongoing funding requirements of those plans. Among other factors, volatility in the equity and
debt markets, changes in interest rates, investment returns and the market value of plan assets can
substantially increase our future pension plan funding requirements. A significant increase in our
funding requirements could have a negative impact on our results of operations and profitability.
In addition, our unfunded retiree medical and life insurance benefit obligation was approximately
$4.4 million and $5.3 million at December 31, 2009 and 2008, respectively.
The U.S. pension plans assets consist primarily of common stocks and fixed income securities.
If the performance of these investments does not meet our assumptions, the underfunding of the U.S.
pension plan may increase and we may have to contribute additional funds to the U.S. pension plan.
In addition, the Pension Protection Act of 2006 could require us to accelerate the timing of our
contributions to the U.S. pension plan and also increase the premiums that we pay to the Pension
Benefit Guaranty Corporation (the PBGC). The actual impact of the Pension Protection Act on our
U.S. pension plan funding requirements will depend upon the interest rates required for determining
the plans liabilities and the investment performance of the plans assets. An increase in U.S.
pension plan contributions and expenses could decrease our available cash to pay outstanding
obligations and our net income. While the U.S. pension plan continues in effect, we will continue
to incur additional pension obligations. Our U.S. pension plan is subject to the Employee
Retirement Income Security Act of 1974, or ERISA. Under ERISA, the PBGC has the authority to
terminate an underfunded plan under certain circumstances. In the event that our U.S. pension plan
is terminated for any reason while the plan is underfunded, we will incur a liability to the PBGC
that may be equal to the entire amount of the under funding.
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.
Our stock is traded over the counter. We can provide no assurance that we will be able to list
our common stock on a national securities exchange in the future, or that our stock will continue
being traded over the counter. The trading of our common stock over the counter negatively impacts
the trading price of our common stock and the levels of liquidity available to our stockholders.
14
|
|
|
ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
None.
The Companys corporate headquarters are located at One Crown Way, Philadelphia, Pennsylvania.
The Company believes that its plants, which are of varying ages and types of construction, are in
good condition, are suitable for its operations and generally are expected to provide sufficient
capacity to meet its requirements for the foreseeable future. The Company maintains facilities in
the United States and Europe. The locations of these facilities, their respective sizes and
ownership/lease status are as follows:
|
|
|
|
|
|
|
|
|
Location |
|
Type of Facility |
|
Size(1) |
|
|
Ownership Status |
United States |
|
|
|
|
|
|
|
|
Philadelphia, Pennsylvania |
|
Headquarters |
|
|
24,328 |
|
|
Leased |
Alsip, Illinois |
|
Research and Development |
|
|
44,392 |
|
|
Leased |
Atlanta, Georgia |
|
Warehouse |
|
|
186,731 |
|
|
Leased |
Atlanta, Georgia |
|
Plant and Warehouse |
|
|
121,704 |
|
|
Owned |
Charlotte, North Carolina |
|
Warehouse |
|
|
185,768 |
|
|
Leased |
Charlotte, North Carolina |
|
Plant and Warehouse |
|
|
142,500 |
|
|
Owned |
Cheraw,
South Carolina (closed) |
|
Plant and Warehouse |
|
|
91,356 |
|
|
Leased |
Collierville,
Tennessee (closed) |
|
Plant |
|
|
200,001 |
|
|
Owned |
Dallas, Texas |
|
Plant and Warehouse |
|
|
636,480 |
|
|
Leased |
Havre de Grace, Maryland |
|
Plant and Warehouse |
|
|
437,564 |
|
|
Owned |
Havre de Grace, Maryland |
|
Plant and Warehouse |
|
|
175,200 |
|
|
Owned |
Houston,
Texas (closed) |
|
Plant and Warehouse |
|
|
191,537 |
|
|
Leased |
Jackson, Mississippi |
|
Plant and Warehouse |
|
|
127,043 |
|
|
Owned |
Kansas City, Kansas |
|
Warehouse |
|
|
47,277 |
|
|
Leased |
Kansas City, Kansas |
|
Plant and Warehouse |
|
|
236,633 |
|
|
Leased |
Hebron, Ohio |
|
Warehouse |
|
|
211,200 |
|
|
Leased |
Hebron, Ohio |
|
Plant |
|
|
109,800 |
|
|
Leased |
Orlando, Florida |
|
Plant and Warehouse |
|
|
360,000 |
|
|
Leased |
Orlando, Florida |
|
Plant and Warehouse |
|
|
139,332 |
|
|
Leased |
West Chicago, Illinois |
|
Warehouse |
|
|
100,990 |
|
|
Leased |
West Chicago, Illinois |
|
Plant and Warehouse |
|
|
123,100 |
|
|
Owned |
Europe |
|
|
|
|
|
|
|
|
Zevenaar, Netherlands |
|
Plant |
|
|
22,030 |
|
|
Owned |
Sherburn, England |
|
Plant |
|
|
22,748 |
|
|
Owned |
Sherburn, England |
|
Warehouse |
|
|
5,125 |
|
|
Owned |
|
|
|
(1) |
|
In square feet for the properties located in North America and in square meters for the
properties located in Europe, unless otherwise noted. |
All owned U.S. and U.K. real property is subject to a lien under the Secured Notes.
As
part of our restructuring plan, facilities located in Cheraw, South Carolina, Dallas, Texas
and Collierville, Tennessee, were closed during 2009, and a facility located in Houston, Texas was
closed during 2008. The Dallas facility shown in the table above is
separate from the Dallas facility that was closed in 2009.
From time to time the Company secures additional warehouse space on a short-term basis as
needed to meet inventory storage requirements.
|
|
|
ITEM 3. |
|
LEGAL PROCEEDINGS |
As discussed in Note 2 Emergence from Voluntary Reorganization under Chapter 11
Proceedings in the notes to the Consolidated Financial Statements, on December 30, 2008, Constar
and certain of its subsidiaries filed voluntary petitions in the United States Bankruptcy Court for
the District of Delaware seeking reorganization relief under the provisions of Chapter 11 of the
Bankruptcy Code. The Company and such subsidiaries emerged from Chapter 11 on May 29, 2009.
15
The Company, one of its present directors and certain of its former directors, along with
Crown Holdings, Inc., as well as various underwriters, have been named as defendants in a
consolidated securities class action lawsuit filed in the United States District Court for the
Eastern District of Pennsylvania, In re Constar International Inc. Securities Litigation (Master
File No. 03-CV-05020) generally alleging that the registration statement and prospectus for the
Companys initial public offering of its common stock on November 14, 2002 contained material
misrepresentations and/or omissions. This action consolidates previous lawsuits, namely Parkside
Capital LLC v. Constar International Inc et al. (Civil Action No. 03-5020), filed on September 5,
2003 and Walter Frejek v. Constar International Inc. et al. (Civil Action No. 03-5166), filed on
September 15, 2003 In connection with the Companys emergence from Chapter 11 and in accordance
with the Companys Second Amended and Restated Plan of Reorganization (the Plan), all such claims
are to be subordinated pursuant to Section 510(b) of the Bankruptcy Code and treated as equity
interests. The Plan further provides that all pre-petition equity interests in Constar will be
extinguished, as will any claims relating to, or arising in connection with, such equity interests
(or the purchase or sale of such interests), including all indemnification and contribution
obligations related to this action. Accordingly, the Company and the plaintiffs filed a joint
stipulation to dismiss Constar from the action based on the Plan. This stipulation dismissing
Constar from the action was approved by the District Court on November 4, 2009.
On October 8, 2008, Marshall Packaging Co. LLC filed a complaint in the Eastern District of
Texas, C. A. No. 6:08cv394, against the Company, as well as certain bottled water companies,
alleging infringement of U.S. Patent No. RE 38,770, entitled Collapsible Container, and seeking
injunctive relief and monetary damages. The complaint alleged that the Company had infringed and
was infringing the patent by making and selling certain beverage containers, but did not
specifically identify the accused containers. In the third quarter of 2009, the Company entered
into a settlement agreement with Marshall Packaging Co. LLC, the terms of which are confidential.
The settlement did not have a material impact on the Companys financial position or results of
operations.
The Company is subject to other 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 us would constitute an event of default
under our debt agreements.
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 is negotiating to reach
an out of court settlement, but there can be no assurance that any such settlement will be reached.
The Company estimates its maximum exposure, including interest and penalties, at approximately $3.4
million. The Company intends to defend against this matter vigorously. The Company has established
a reserve, including estimated penalties and interest, of $0.9 million at December 31, 2009 and
2008, for this matter. These reserves are included in other liabilities on the consolidated balance
sheets.
Constar has received requests for information or notifications of potential responsibility
from the Environmental Protection Agency (EPA), and certain state environmental agencies for
certain off-site locations. Constar has not incurred any significant costs relating to these
matters. 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 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 Company
has recorded an accrual as of December 31, 2009 and 2008, of $0.2 million for estimated costs
associated with completing the required remediation activities. As more information becomes
available relating to what additional actions may be required at the site, this accrual may be
adjusted. There are no other accruals for environmental matters.
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.
16
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
As a result of the Companys Chapter 11 filing, the Companys common stock (Predecessor
Common Stock) was delisted from the NASDAQ Stock Market (NASDAQ National Market) on January 8,
2009. Subsequent to that date and through the date of our emergence from Chapter 11 on May 29,
2009, our common stock was traded in the over-the-counter market under the symbol CNSTQ.PK. On
May 29, 2009, pursuant to the Plan of Reorganization, all Predecessor Common Stock was cancelled
and 1.75 million shares of new common stock (Successor Common Stock) were issued. The Successor
Common Stock is not listed on an exchange and was available for trading over-the-counter under
the symbol CNRN.PK on May 29, 2009. The Company is currently applying to list its common stock on
the NASDAQ Capital Market. The Companys application has been
approved but the Company has not yet effected the listing.
Financial results of the Company after the adoption of fresh-start accounting on May 1, 2009
(the Successor company) are not comparable to the results of the Company prior to May 1, 2009
(the Predecessor company). In addition, the share price of the Predecessor Common Stock bears no
relation to the share price of the Successor Common Stock.
The following table sets forth, for the periods indicated, the high and low bid prices per
share of the Companys common stock, as quoted on The NASDAQ National Market through January 8,
2009, and as quoted in the over-the-counter market subsequent to that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2009 |
|
|
May 30, 2009 |
|
|
|
|
|
|
|
|
|
1st Quarter |
|
|
to May 29, 2009 |
|
|
to June 30, 2009 |
|
|
3rd Quarter |
|
|
4th Quarter |
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
0.07 |
|
|
$ |
0.05 |
|
|
$ |
16.00 |
|
|
$ |
20.00 |
|
|
$ |
27.00 |
|
Low |
|
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
10.50 |
|
|
$ |
17.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
1st Quarter |
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
4.44 |
|
|
$ |
3.22 |
|
|
$ |
2.52 |
|
|
$ |
1.07 |
|
Low |
|
$ |
1.95 |
|
|
$ |
1.80 |
|
|
$ |
0.62 |
|
|
$ |
0.03 |
|
17
Holders of Common Stock
As of March 22, 2010 there was 1 holder of record of the Companys common stock, however,
substantially all of the Companys outstanding stock is held by depositories or nominees on behalf
of beneficial holders.
Dividends
The Company did not declare dividends on its common stock during the past two fiscal years and
it does not intend to declare dividends on its common stock in the foreseeable future. In addition,
under the terms of our credit facility and the indenture governing the Secured Notes, the Companys
ability to pay dividends or repurchase its common stock is restricted.
Securities Authorized for Issuance Under Equity Compensation Plans
Information with respect to shares of common stock that may be issued under the Companys
equity compensation plans is set forth in Part III, Item 12, Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters, of this Report.
18
|
|
|
ITEM 7. |
|
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 food and beverages. Containers, preforms, and closures represented 63%, 32%,
and 5%, respectively, of net sales in 2009. The Company has operations in the United States, United
Kingdom and Holland. Approximately 80% of the Companys revenues in 2009 were generated in the
United States, with the remainder attributable to its European operations. During 2009, Pepsi and
Cott accounted for approximately 32% and 11%, respectively of the Companys net sales. The top ten
customers accounted for an aggregate of approximately 77% of the Companys net sales in 2009.
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 2009. Over the
last few years, demand for the Companys conventional PET products has decreased significantly due
to a shift to self-manufacturing by beverage companies. The Company believes that this trend for
water bottles is reaching the end of its cycle, with the majority of single serve water bottles now
being produced in-house. Water bottle revenue represented approximately 3% of the Companys 2009
net sales as compared to 12% of net sales in 2006. The Company expects the trend of
self-manufacturing of CSD packages by large beverage companies to continue. CSD self-manufacturing
infrastructure costs are higher than what is required for water because of the complexity
associated with a greater diversity of product types. Thus, 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. 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 and retaining the replacement
preform volume at acceptable margins. 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 are having on the convenience store and gas station distribution
channels. The Company expects these trends to continue.
The Companys strategy is to increase its presence in the custom category of the market. On
average, the variable profit margin of the custom category is higher than the conventional
category. In addition, oxygen barrier technology and innovative bottle designs add value that
generally results in higher margins than custom products produced from commonly available
technology. 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. During 2009, custom
beverage sales were reduced due to the negative impact of prevailing economic conditions on the
convenience store and gas station distribution channels. Approximately 29% of the Companys net
sales in 2009 related to custom PET containers with approximately 10% of these net sales containing
the Companys oxygen scavenging technology.
In negotiations with certain customers for the continuation and the extension of supply
agreements, the Company has historically agreed to price concessions. In 2009, the Company achieved
a net positive impact of price increases of $4.8 million as compared to 2008. However, in 2010, the
impact of contractual price reductions, assuming 2009 constant volume, is expected to be between
$10-12 million. There can be no assurance that this amount will not change as contracts are
renegotiated in 2010. The Company plans to offset the impact of these price reductions through
custom unit growth and cost savings.
The Company believes that it will 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 and declining demand for products
sold in the convenience store and gas station channels of distribution. 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.
19
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.
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 effects. 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
meaningful indicators of actual performance because the effects of the pass-through mechanisms are
affected by the magnitude and timing of these changes. 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 percent 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 percent of net sales to increase. As a result, the Company
believes that volume trends and absolute gross profit trends are better indicators of the Companys
performance.
Chapter 11 Proceedings
Constar emerged from Chapter 11 on May 29, 2009. See Note 1 Emergence from Voluntary
Reorganization under Chapter 11 Proceedings in the accompanying consolidated financial statements
for additional information.
Relationship with Crown
Constar was a wholly owned subsidiary of Crown Holdings, Inc. (Crown) from 1992 until the
closing of Constars initial public offering on November 20, 2002. From November 20, 2002 until the
Companys emergence from bankruptcy, Crown owned 1,255,000 shares, or approximately 10%, of the
Predecessors outstanding common stock. In connection with the Companys reorganization and
emergence from bankruptcy, all existing shares of the Predecessor Companys capital stock were
canceled. Consequently, after May 1, 2009, transactions between Crown and the Company are no longer
presented as related party transactions.
For the four months ended April 30, 2009 and the year ended December 31, 2008, the Company
paid rent to Crown of $0.2 million and $1.7 million, respectively for its Philadelphia
headquarters, a research facility in Alsip, Illinois and a warehouse facility in Belcamp, Maryland.
The leasing arrangements for the Alsip and Belcamp facilities ended in 2008. The Company continues
to rent the Alsip facility from a third party that purchased the building from Crown. The current
Philadelphia lease agreement is on a month-to-month basis.
Under a service agreement, Crown provided certain general and administrative services to the
Company. The current agreement has no fixed expiration date. Instead, the services renew each year
unless either party gives advance notice to terminate the services. In connection with this
agreement, the Company recorded an expense of $0.7 million and $2.4 million for the four months
ended April 30, 2009 and the year ended December 31, 2008, respectively. Amounts due to Crown under
the agreements described above as of April 30, 2009 and December 31, 2008 were $0.9 million and
$0.6 million, respectively.
In November 2007, the Company and Crown entered into a five year supply agreement. Sales to
Crown under the contract were approximately $2.8 million and $8.4 million for the four months ended
April 30, 2009, and the year ended December 31, 2008, respectively. The Company had a net
receivable from Crown of approximately $0.9 million and $0.1 million related to this agreement at
April 30, 2009 and December 31, 2008, respectively.
20
In 2002, the Company entered into a License and Royalty Sharing Agreement with Crown under
which the Company agreed to pay a portion of any royalties earned on licenses of our Oxbar
technology. The Company had a net payable to Crown of approximately $3.4 million and $3.2 million
related to this agreement at April 30, 2009 and December 31, 2008, respectively.
Basis of Presentation
As of May 1, 2009, the Company adopted fresh-start accounting. The Company selected May 1,
2009 as the date to effectively apply fresh-start accounting based on the absence of any material
contingencies at the May 4, 2009 confirmation hearing and the immaterial impact of transactions
between May 1, 2009 and May 4, 2009. 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 Plan, and the application of
fresh-start accounting. References to Predecessor or Predecessor Company refer to the Company
prior to May 1, 2009. See Note 4 Fresh Start Accounting in the notes to the Consolidated
Financial Statements for further details.
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. 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 the 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 in the accompanying consolidated statements of
operations. In addition, pre-petition obligations that were impacted by the Plan were classified as
liabilities subject to compromise on the consolidated balance sheet as of December 31, 2008.
The Company has classified the results of operations of its Italian operation beginning in
2006 as a discontinued operation in the 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 consolidated balance sheets. See Note 20 -
Discontinued Operations for further details. Unless otherwise indicated, amounts provided
throughout this Form 10-K relate to continuing operations only.
For discussions on the results of operations, the Company has combined the results of
operations for the four months ended April 30, 2009 with the results of operations for the eight
months ended December 31, 2009. The combined periods have been compared to the year ended December
31, 2008. The Company believes that the combined financial results provide management and investors
a more meaningful analysis of the Companys performance and trends for comparative purposes.
21
The following discussion should be read in conjunction with the Consolidated Financial
Statements and the accompanying Notes to the Consolidated Financial Statements for the years ended
December 31, 2009 and 2008.
Results of Operations
2009 Compared to 2008
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
(Decrease) |
|
United States |
|
$ |
508.1 |
|
|
|
79.6 |
% |
|
$ |
683.7 |
|
|
|
79.7 |
% |
|
$ |
(175.6 |
) |
|
|
(25.7 |
) |
Europe |
|
|
130.3 |
|
|
|
20.4 |
% |
|
|
174.2 |
|
|
|
20.3 |
% |
|
|
(43.9 |
) |
|
|
(25.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
638.4 |
|
|
|
100.0 |
% |
|
$ |
857.9 |
|
|
|
100.0 |
% |
|
$ |
(219.5 |
) |
|
|
(25.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in United States net sales in 2009 as compared to 2008 was driven primarily by
lower volumes of $92.1 million, the negative impact of the mix shift to preforms from bottles of
$42.6 million and the pass through of lower resin costs to customers accounting for approximately
$44.8 million of the sales decline. Total U.S. PET unit volume decreased 18.9% in 2009 as compared
to 2008. This decrease reflects a conventional unit volume decline of 23.1% and a custom unit
volume decline of 5.9%. 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 continued movement
of water bottlers to self-manufacturing and the impact of the general economic conditions in the
United States. The decline in custom volume was driven by a customer switching its product
formulation from hot-fill to cold-fill. Had this change not occurred, custom unit volume would have
increased 15% and conventional unit volume would have decreased by 29.9% in 2009 as compared to
2008.
The decrease in European net sales in 2009 was primarily due to a weakening of the British
Pound and Euro against the U.S. Dollar of approximately $22.8 million, volume and mix decline of
$17.0 million and the pass through of lower resin costs to customers accounting for approximately
$5.1 million. European PET volume decreased 6.0% while closure volume decreased 15.4% in 2009 as
compared to 2008.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
United States |
|
$ |
25.5 |
|
|
$ |
36.2 |
|
|
$ |
(10.7 |
) |
Europe |
|
|
5.8 |
|
|
|
(1.0 |
) |
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31.3 |
|
|
$ |
35.2 |
|
|
$ |
(3.9 |
) |
|
|
|
|
|
|
|
|
|
|
Percent of net sales |
|
|
4.9 |
% |
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the United States, the decline in gross profit for the year ended December 31, 2009 is
primarily due to the impact of lower sales of $25.3 million, increased depreciation expense of
$11.4 million, a $1.6 million fresh-start accounting
adjustment to inventory and the elimination of the positive impact of one-time adjustments
of $3.8 million that were recorded in 2008, offset in part by
cost reductions from the Companys restructuring programs of
$20.0 million and lower utilities and
freight costs of $10.7 million. During the year ended December 31, 2009, the Company
accelerated the depreciation on idled machinery and equipment resulting in a non-recurring charge
of $6.3 million. The equipment was used to produce conventional products. The equipment was idled
due to the continuing decline in sales of conventional products. The remainder of the
increase in depreciation was primarily due to the revaluation of the Companys assets as a result
of its adoption of fresh-start accounting.
The gross profit improvement in Europe was driven primarily by reduced electricity costs of
approximately $5.3 million, reduced manufacturing costs of $5.1 million and reduced depreciation
expense of $1.3 million offset, in part, by the impact of reduced sales volume of $4.9 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 decreased $2.7 million in 2009 as compared to 2008 driven
primarily by reduced payroll expenses of $1.5 million, reduced expenditures for outside consultants
of $1.5 million and reduced travel and entertainment expenses of $0.8 million. These cost savings
were offset by an increase in a bonus accrual of $1.2 million as the Company did not pay bonuses
related to 2008 performance.
22
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 $8.0 million in 2009 and $8.5 million in 2008.
This decrease was primarily driven by lower expenditures for outside consultants.
Provision for Restructuring
Restructuring charges were $2.2 million in 2009 compared to $4.8 million in 2008. The
restructuring charges recorded in 2009 primarily relate to the restructuring actions taken due to
the impact of the new 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. The
restructuring charges in 2009 consist primarily of facility exit costs. Cash savings realized in
2009 as a result of reducing manufacturing costs and corporate overhead was approximately $22.4
million. See Note 14 Restructuring and other Related Charges in the notes to the accompanying
consolidated financial statements for additional information.
Impairment of Intangible Assets
The Company recorded an impairment charge of $4.0 million related to its trade name intangible
asset. See Note 10 Goodwill and Intangible Assets in the notes to the accompanying
consolidated financial statements for additional information.
Interest Expense
Interest expense decreased $9.6 million to $28.8 million in 2009 from $38.7 million in 2008
primarily due to the conversion of the Companys $175.0 million of Senior Subordinated Notes to
common stock as part of the Companys Plan of Reorganization which reduced interest expense by
approximately $19.3 million, lower interest rates which reduced interest expense by $1.9 million,
and $10.6 million of lower average borrowings under the Companys credit facility which reduced
interest expense by $0.7 million. This was offset by non-cash accretion of $13.6 million of the
fair market value of the Companys Secured Notes to their face value at maturity and a write-off of
deferred financing fees of $1.4 million.
Reorganization Items, Net
The Company has recorded all costs directly related to its Chapter 11 filing as reorganization
expenses. During 2009, the Company incurred certain professional fees and other expenses directly
associated with the bankruptcy proceedings in the amount of $10.6 million. In addition, the Company
recorded a gain of $84.8 million on the conversion of the Senior Subordinated Notes to common stock
and a gain of $68.1 million from the net impact of fresh-start accounting adjustments as
reorganization items. See Note 5 Liabilities Subject to Compromise and Reorganization Items to
the consolidated financial statements for further discussion of reorganization items.
During 2008, the Company adjusted the carrying values of certain prepetition debt, including
related debt issuance costs and debt discounts, costs incurred to obtain debtor-in-possession and
exit financing, and incurred professional fees associated with the bankruptcy cases. These
reorganization items resulted in an expense of $9.2 million, of which $3.9 million represented
non-cash charges.
Other Income (Expense), Net
Other income (expense), net primarily includes gains and losses on foreign currency
transactions including the impact of currency fluctuations on intra-company loan balances, royalty
income and expense, and interest income.
Other income, net was $4.0 million in 2009 compared to other expense, net of $10.7 million in
2008. The increase in other income primarily resulted from a $15.5 million positive impact of
foreign currency on the translation of intra-company balances and offset in part by lower royalty
income of $1.0 million.
(Provision for) Benefit from Income Taxes
In 2009, the Company recorded a provision for income taxes related to continuing operations of
$26.0 million compared to a benefit from income taxes of $0.4 million in 2008, primarily as a
result of the adoption of fresh-start accounting. Income from continuing operations before taxes
was $115.3 million in 2009 compared to a loss of $58.2 million in 2008.
Total unrecognized income tax benefits as of December 31, 2009 and 2008 were $0.7 million and
are included in other liabilities on the consolidated balance sheets. In addition, the Company
had accrued approximately $0.2 million for estimated penalties and interest on uncertain tax
positions as of December 31, 2009 and 2008. The Company believes that it has adequately provided
for any reasonably foreseeable resolution of any tax disputes, but will adjust its reserves if
events so dictate. 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.
23
The
effective tax rate was 22.6% in 2009 compared to essentially zero in 2008. A
reconciliation of the provision for income taxes and the amount of income tax determined by
applying the U.S. federal statutory rate of 35% to pretax income or loss is presented in Note 16 to
the accompanying Notes to the Consolidated Financial Statements.
Liquidity and Capital Resources
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 31, |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
Net cash provided by operations |
|
$ |
25.6 |
|
|
$ |
14.1 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(21.9 |
) |
|
$ |
(23.5 |
) |
|
|
|
|
|
|
|
Net cash
provided by (used in) financing activities |
|
$ |
(15.6 |
) |
|
$ |
19.6 |
|
|
|
|
|
|
|
|
The primary factors that impact cash generated from operations are the seasonality of the
Companys sales, profit margins, and changes in working capital. The Company primarily uses cash
generated from operations and borrowings under its credit facility to meet its short-term liquidity
needs. Net cash provided by operations for 2009 compared to 2008 increased principally due to
decreased cash interest expense of $19.3 million as result of the conversion of $175.0 million of
debt into equity as part of the Companys Plan of Reorganization. This benefit was offset, in part,
by the payment in 2009 of pre-petition liabilities that were accrued for as of December 31, 2008
and legal and other costs incurred as part of the Plan of Reorganization.
Net cash used in investing activities in 2009 was comparable to 2008 but the drivers of the
costs changed. Purchases of property, plant and equipment were reduced by approximately $10.7
million which was offset by an increase in restricted cash of $7.6 million as the Company posted
cash collateral for its interest rate swap. In conjunction with the signing in the first quarter of
2010 of the new credit facility described below (the Credit Agreement), this cash was returned to
the Company and a non-cash reserve of $7.6 million was placed against the Companys borrowing base.
Net cash used in financing activities in 2009 was $15.6 million as the Company repaid
short-term borrowings primarily as a result of its improved cash flow from operations. 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.
Liquidity, defined as cash and borrowing availability under the Credit Agreement, 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. The Company
believes it will have sufficient liquidity to finance its operations over the next 12 months.
On February 11, 2010, the Company entered into the Credit Agreement with General Electric
Capital Corporation (Lender) and terminated its previous credit agreement. The Credit Agreement
provides for up to $75.0 million of available credit, with a sublimit of up to $15 million for the
issuance of letters of credit and up to $15.0 million in the case of swing loans. Available credit
under the 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 |
24
(c) |
|
$2.5 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 in connection with eligibility criteria or otherwise. |
Actual available credit under the 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 December 31, 2009 the Companys borrowing base under its previous credit
agreement was $50.5 million and its available credit was $41.4 million after taking into
consideration the $5.0 million of outstanding borrowings and $4.0 million of outstanding letters of
credit. Available credit at December 31, 2008 under the previous credit agreement was $15.3
million. As of March 18, 2010 the Companys borrowing base under the new Credit Agreement was
$19.4 million and its available credit was $27.2 million after taking into consideration
outstanding borrowings and letters of credit.
The Credit Agreements scheduled expiration date is February 11, 2013. However, the 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 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. 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 Credit Agreement. Collateral under the Credit Agreement is composed 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 Credit Agreement contains certain financial covenants. Capital expenditures may not exceed
$25 million in any fiscal year plus the carry over of up to 75% of such amount from the immediately
preceding fiscal year if not used in that year. In addition, if the amount of available credit
less all outstanding loans and letters of credit during any fiscal quarter is less than $15 million
for any period of five consecutive business days, the Company must maintain Consolidated EBITDA, as
defined in the Credit Agreement, of not less than $40 million, calculated on a trailing twelve
month basis as of the last day of the then immediately preceding fiscal quarter. Based upon its
current projections, the Company expects to be in compliance with its debt covenants during 2010.
The Company believes that the trailing twelve month Consolidated EBITDA will fall below $40.0
million at the end of the second quarter of 2010, but that the Company will remain in compliance with
this covenant because available credit will not fall below $15.0 million for five consecutive
business days. The Companys projected availability and Consolidated EBITDA may be impacted by unit
volume changes, resin price changes, movements in foreign currency,
working capital changes, changes in product mix, factors impacting
the value of the borrowing base, and
other factors. In response to these factors, 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 covenant. There can be no assurance that such actions would be
successful.
The Credit Agreement contains other customary covenants and events of default. If an event of
default should occur and be continuing, the Lender may, among other things, accelerate the maturity
of the Credit Agreement. The 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 old credit facility as of December 31, 2009.
25
Consolidated EBITDA as defined under the Credit Agreement, which we refer to as Adjusted
EBITDA, generally consists of consolidated net income (loss) adjusted to exclude income tax
expense, interest expense, loss from extraordinary items, depreciation and amortization expense,
certain transaction expenses, certain cash restructuring charges and certain non-cash items.
Adjusted EBITDA is not intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be used as an alternative to net income as an
indicator or operating performance or to cash flow as a measure of liquidity. The Companys
management believes that the inclusion of Adjusted EBITDA in this report is appropriate to provide
additional information to investors about the calculation of a financial covenant in the credit
facility that we believe is a material term of the credit facility. Adjusted EBITDA has
limitations as an analytical tool. Some of these limitations are:
|
|
|
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for
capital expenditures or contractual commitments; |
|
|
|
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working
capital needs; |
|
|
|
Adjusted EBITDA does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments, on our debts; |
|
|
|
although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA
does not reflect any cash requirements for such replacements; |
|
|
|
non-cash compensation may be a part of our overall long-term incentive compensation
package, although we exclude it as an expense when evaluating our ongoing operating
performance for a particular period; |
|
|
|
Adjusted EBITDA does not reflect the impact of certain cash charges; and |
|
|
|
other companies may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure. |
Reconciliation of net income to EBITDA
|
|
|
|
|
|
|
Four Quarters |
|
|
|
Ended |
|
(in thousands) |
|
December 31, 2009 |
|
|
|
|
|
|
Net income |
|
$ |
89,086 |
|
Interest expense |
|
|
28,845 |
|
Income taxes |
|
|
25,991 |
|
Depreciation and amortization |
|
|
42,871 |
|
|
|
|
|
EBITDA |
|
$ |
186,793 |
|
|
|
|
|
Reconciliation of EBITDA to Adjusted EBITDA
|
|
|
|
|
|
|
Four Quarters |
|
|
|
Ended |
|
(in thousands) |
|
December 31, 2009 |
|
|
|
|
|
|
EBITDA |
|
$ |
186,793 |
|
Cash restructuring charges |
|
|
2,232 |
|
Cash reorganization charges |
|
|
9,661 |
|
Gain from discharge of debt |
|
|
(84,745 |
) |
Gain from fresh-start accounting adjustments |
|
|
(68,109 |
) |
Other non-cash charges (i) |
|
|
1,271 |
|
|
|
|
|
Adjusted EBITDA |
|
$ |
47,103 |
|
|
|
|
|
|
|
|
(i) |
|
Includes foreign currency translation gains/losses and non-cash charges. |
26
The ability to borrow under our Credit Agreement is primarily driven by borrowing base
limitations. The 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 and a strengthening U.S. dollar tends to
decrease our borrowing base.
Because the Credit Agreements borrowing base increases and decreases based upon varying levels of
accounts receivable and inventory, the ability to borrow under the Credit Agreement tends to
increase when the Companys cash needs are the highest such as when we are building inventories.
The Companys debt structure also includes $220.0 million of Secured Notes due February 15,
2012. The indenture governing the Secured Notes includes such events of default as failure to pay
principal and interest payments, failure to observe certain non-financial covenants, failure to pay
certain judgments, insolvency and other customary events of default and covenants. If an event of
default shall occur and be continuing under the indenture, either the Trustee or holders of a
specified percentage of the applicable notes may accelerate the maturity of such notes. If there
is an event of default under the Credit Agreement that has occurred or is continuing, the Trustee
may accelerate the maturity of the Secured Notes. The Company does not have sufficient funds to
repay the Secured Notes and intends to refinance them prior to their maturity. In connection with
the adoption of fresh-start accounting, for purposes of the
Companys financial statements the Secured Notes were adjusted to fair value based upon
their quoted market price; however, the total amount due at maturity remains at $220.0 million.
Capital Expenditures
Capital expenditures decreased to $14.5 million in 2009 from $25.3 million in 2008. New
capital investments for 2009 included the following:
|
|
|
Purchase of new molds and refurbishment of existing molds for new customer awards; |
|
|
|
Acquisition of new equipment for productivity improvement and capacity expansion
primarily in custom products; |
|
|
|
Costs associated with implementing restructuring plans; and, |
|
|
|
Maintenance and upgrade of facilities. |
The Companys ability to make capital expenditures is limited by the financial covenants
contained in its Credit Agreement. Capital expenditures may not exceed $25 million in any fiscal
year plus the carry over of up to 75% of such amount from the immediately preceding fiscal year if
not used in that year.
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.
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.
The decline in value of the U.S. and global equity markets, coupled with a decline in interest
rates during 2008 created a shortfall between the accounting measurement of the Companys U.S. and
European pension obligations and the market value of the pension assets. This condition required a
balance sheet adjustment in stockholders deficit at December 31, 2008 of $26.6 million.
27
Critical Accounting Policies and Estimates
The accompanying 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 those estimates and
assumptions, impacting the reported results of operations and the financial position of the
Company. The Companys significant accounting policies are more fully described in Note 3 to the
Consolidated Financial Statements. Certain accounting policies, however, are considered to be
critical in that (i) they are most important to the depiction of the Companys financial condition
and results of operations and (ii) their application requires managements most subjective judgment
in making estimates about the effect of matters that are inherently uncertain.
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 they are forecasting future events. If such assets are considered impaired,
they are written down to fair value as appropriate.
In all of our analyses, the undiscounted cash flows of the asset groups significantly exceeded
the carrying amounts of the asset groups, and therefore, we did not need to 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 primary asset, the discount rate and cash flow projections.
The assumptions and methodologies for valuing property, plant and equipment and intangible assets
have been applied consistently during the reporting periods included in this report.
Goodwill Impairment
On an annual basis, or more frequently if facts and circumstances indicate that goodwill may
be impaired, the Company performs an impairment review by comparing the fair value of a reporting
unit, including goodwill, to its carrying value. The impairment review involves a number of
assumptions and judgments including the identification of the appropriate reporting units, the
estimation of future cash flows, and the calculation of estimated fair value. The Companys
estimates of future cash flows include assumptions concerning future operating performance,
economic conditions, and technological changes and may differ from actual future cash flows.
The Company completed its annual goodwill impairment assessment as of October 1, 2009, and
does not believe that the Companys goodwill balance was impaired. In addition to the annual test,
described more fully in Note 10 to the consolidated financial statements, the Company performed an
interim goodwill impairment assessment as of December 31, 2009 since the Companys market
capitalization of $33.3 million was less than the carrying value of its stockholders equity of
$78.6 million. The calculation of the fair value of the Companys reporting unit was performed
consistently with the annual test performed at October 1, 2009, with updated assumptions where
appropriate. The most significant change to the October 1 valuation was a downward revision to
projected cash flows due to declines in the Companys projected sales from its previous projection
utilized in its annual impairment test. Based upon the analysis performed as of December 31, 2009,
the Company failed Step 1 of the goodwill impairment test. Consequently, the Company performed a
hypothetical purchase price allocation to determine the amount of goodwill impairment, if any. The
significant fair value adjustment in the hypothetical purchase price allocation was an increase to long-term
debt. The adjustments to measure the assets, liabilities and intangibles at fair value were for the
purpose of measuring the implied fair value of goodwill. Such adjustments are not reflected in the
consolidated balance sheet.
28
The results of the second step of the goodwill impairment test indicated that goodwill was not
impaired in 2009. 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. If the Company
makes additional downward revisions to its cash flow projections in the future, the Company may
experience material impairment charges to the carrying amount of its goodwill in the future. At
December 31, 2009, an approximate 5% decline in the estimated fair value of the Companys reporting
unit would have resulted in an impairment charge. Recognition of an 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 and could have a negative impact on the
Companys ability to raise capital on attractive terms.
Impairment of Indefinite-Lived Intangible Assets
The Company also performed an annual impairment test of its trade name indefinite-lived
intangible asset as of October 1, 2009 and an interim impairment test as of December 31, 2009. No
triggering events occurred prior to October 1, 2009, that would have caused the Company to believe
that the fair value of its trade name had declined below its carrying value. Impairment in 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. 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 3%, and
a discount rate of approximately 13.5%. Based on these evaluations the Company recorded impairment
charges related to its trade name intangible asset of $1.0 million as of October 1, 2009, and $3.0
million as of December 31, 2009. The impairment charges are included within operating expenses in
the accompanying consolidated statement of operations for the eight months ended December 31, 2009.
The primary factor contributing to the impairment charges were a reduction in sales expectations
from its previous projections utilized in its annual impairment test.
Defined Benefit Pension Plans
Accounting for pensions and postretirement benefit plans requires the use of estimates and
assumptions regarding numerous factors, including discount rates, rates of return on plan assets,
compensation increases, health care cost 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 or postretirement benefits.
The rate of return assumptions are reviewed at each measurement date based on the pension
plans investment policies, current asset allocations and an analysis of the historical returns of
the capital markets. For 2009, the Company used an expected rate of return on plan assets of 8.5%
in the U.S. which was unchanged from 2008. The U.S. plans assumed asset rate of return of
8.5% was based on a calculation using underlying assumed rates of
return of 9.8% for equity
securities and 6.4% for debt securities. An assumed rate of 9.8% was used for equity securities
based on the total return of the S&P 500 for the 25 year period ended December 31, 2009. The
Company believes that the equity securities included in the S&P 500 are representative of the
equity securities in its U.S. plan, and that 25 years provides a sufficient time horizon as a basis
for estimating future returns. The Company used a 6.4% assumed return for debt securities,
consistent with the U.S. plan discount rate and the return on AA corporate bonds with duration
equal to the plans liabilities. The underlying debt securities in the plan are primarily invested
in various corporate and government agency securities and are benchmarked against returns on AA
corporate bonds. The discount rate is developed at each measurement date by reference to published
indices of high-quality bond yields. The European plans assumed asset rate of return of 8% is
based on expected returns by asset class and weighting these returns by the actual allocation by
asset class. Equity securities are expected to return between 8% and 10% over the long-term, while
debt securities are expected to return between 4% and 7%.
A 1.0% change in the expected rate of return on plan assets would have increased 2009 pension
expense by approximately $0.6 million. A 0.5% decrease in the discount rate would have increased
2009 pension expense by $0.2 million.
Inventory
The Company writes down its inventories for estimated slow moving and obsolete goods by
amounts equal to the difference between the carrying cost of the inventory and the estimated market
value based upon assumptions about future demand and market conditions.
29
Income Taxes
Income taxes are accounted for using the asset and liability method under which deferred
income taxes are recognized for the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities and operating losses and tax
credit carry forwards. The effect on deferred taxes for a change in tax rates is recognized in
income in the period that includes the enactment date. Management provides valuation allowances
against the deferred tax assets for amounts which are not considered more likely than not to be
realized.
Self-Insurance
The Company maintains a program of insurance with third-party insurers for certain property,
casualty and other risks. The policies are subject to deductibles and exclusions that result in our
retention of a level of risk on a self-insurance basis. The Company retains the risk with regard to
(i) potential liabilities under a number of health and welfare insurance plans (including workers
compensation) that we sponsor for our employees and (ii) other potential liabilities that are not
insured. The types and amounts of insurance obtained vary from time to time and from location to
location, depending on availability, cost, and our decisions with respect to risk retention. Our
risk and insurance programs are regularly evaluated to seek to obtain the most favorable terms and
conditions. We estimate the liabilities associated with the risks retained by us, in part, by
considering historical claims experience, demographic and severity factors and other actuarial
assumptions which, by their nature, are subject to a degree of variability. Any actuarial
projection of losses concerning workers compensation and general liability is also subject to a
degree of variability. Among the causes of this variability are unpredictable external factors,
future inflations rates, discount rates, litigation trends, legal interpretations, benefits level
changes and claim settlement patterns. The amount of self insurance liability at December 31, 2009
and 2008 was $3.8 million and $4.7 million, respectively.
Related to workers compensation, the Company has insurance that limits its loss per claim to
$250 thousand and its total losses in any policy year to $3.3 million. Related to medical costs,
the Company has a lifetime cap of benefits of $1.5 million per covered participant and a loss limit
of $300 thousand per covered participant, per year. The Company has aggregate stop loss coverage of
$1.0 million if aggregate medical costs exceed $11.4 million annually. The Company would be
responsible for medical costs exceeding $12.4 million.
Recent Accounting Pronouncements
On July 1, 2009, the Financial Accounting Standards Boards (FASB) Accounting Standards
Codification (the Codification or ASC) became effective. The Codification is the single source
of authoritative U.S. Generally Accepted Accounting Principles (GAAP) to be applied by
nongovernmental entities, except for the rules and interpretive releases of the SEC under authority
of federal securities laws, which are sources of authoritative GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of authority. The Codification is
organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical
designation. This Annual Report on Form 10-K contains references to the Codification as needed. The
adoption of the Codification did not have a material impact on the Companys results of operations
or financial condition.
In September 2006, the FASB issued guidance under ASC 820-10 Fair Value Measurements and
Disclosures that establishes a common definition for fair value to be applied to GAAP guidance
requiring use of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements. In February 2008, the FASB delayed the effective
date of the guidance for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually) until January 1, 2009. The adoption of this guidance did not have a material impact
on the Companys results of operations or financial condition.
30
In December 2007, the FASB issued new guidance for business combinations. The new guidance is
contained in ASC 805 Business Combinations. This new guidance revises how acquirors recognize and
measure the consideration transferred, identifiable assets acquired, liabilities assumed,
noncontrolling interests, and goodwill acquired in a business combination. In addition, it expands
required disclosures surrounding the nature and financial effects of business combinations. The new
guidance is effective for fiscal years beginning on or after December 15, 2008 with earlier
adoption prohibited. The impact of this new guidance on the Companys consolidated financial
statements could be material for business combinations which may be consummated subsequent to the
effective date. The application of ASC 805 as a result of applying the fresh-start accounting
provisions of ASC 852 Reorganizations upon emergence from Chapter 11 has resulted in material
adjustments to the historical carrying amounts of the Predecessor Companys assets and liabilities.
The impact of these adjustments is summarized in Note 4 Fresh Start Accounting in the notes to
the Consolidated Financial Statements.
In April 2009, the FASB issued new guidance addressing the fair value of financial
instruments. The new guidance addresses determining fair value when the volume and level of
activity for an asset or liability has significantly decreased and identifying transactions that
are not orderly, and the recognition and presentation of other than temporary impairments. The new
guidance also requires additional disclosures about financial instruments in interim period
financial statements. The Company adopted this guidance in the second quarter of 2009. The adoption
of this guidance did not have a material impact on the Companys results of operations or financial
condition.
Effective
for fiscal years ending after December 15, 2009, ASC 715-20
Compensation
Retirement Benefits, requires additional disclosures about employers plan assets of a defined
benefit pension or other postretirement plan. The requirements include disclosing investing
strategies, major categories of plan assets, concentrations of risk within plan assets, information
about fair value measurements of plan assets, and valuation techniques used to measure the fair
value of plan assets. Adoption of these additional requirements did not have an impact on the
Companys results of operations or financial condition.
31
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
CONSTAR INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
Financial Statement Schedules |
|
|
|
|
|
|
|
|
|
|
|
|
85 |
|
All other schedules are omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
32
Managements Reports on Responsibility for Financial Statements and
Internal Control over Financial Reporting
Managements Report on Responsibility for Financial Statements
Management is responsible for the Consolidated Financial Statements and the other financial
information contained in this Annual Report on Form 10-K. The financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of
America (GAAP) and are considered by management to present fairly the Companys financial position,
results of operations and cash flows. The financial statements include some amounts that are based
on managements best estimates and judgments. The financial statements have been audited by the
Companys independent registered public accounting firm, PricewaterhouseCoopers LLP. The purpose of
their audit is to express an opinion as to whether the Consolidated Financial Statements included
in this Annual Report on Form 10-K present fairly, in all material respects, the Companys
financial position, results of operations and cash flows. Their report is presented on the
following page.
Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. The Companys internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with GAAP. The Companys
internal control over financial reporting includes those policies and procedures that:
|
i. |
|
pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the
Company; |
|
|
ii. |
|
provide reasonable assurance that transactions are
recorded as necessary to permit preparation of
financial statements in accordance with GAAP and
that receipts and expenditures of the Company are
being made only in accordance with authorization of
management and directors of the company; and |
|
|
iii. |
|
provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisitions,
use or disposition of the Companys assets that
could have a material effect on the financial
statements. |
Internal control over financial reporting has certain inherent limitations which may not
prevent or detect misstatements. In addition, changes in conditions and business practices may
cause variation in the effectiveness of internal controls.
Management assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2009, based on criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on
its assessment and those criteria, management concluded that the Company maintained effective
internal control over financial reporting as of December 31, 2009.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued an
audit report on the effectiveness of the Companys internal control over financial reporting as of
December 31, 2009, which is presented on the following page.
|
|
|
|
|
/s/ Michael J. Hoffman
|
|
|
|
/s/ J. Mark Borseth |
|
|
|
|
|
Michael J. Hoffman
|
|
|
|
J. Mark Borseth |
President and Chief Executive Officer
|
|
|
|
Executive Vice President and Chief
Financial Officer |
March 24, 2010
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Constar International Inc:
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Constar International Inc. (Successor)
and its subsidiaries at December 31, 2009, and the results of their operations and their cash flows
for the period from May 1, 2009 to December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial
statement schedule for the period from May 1, 2009 to December 31, 2009 listed in the accompanying
index presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys
management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Managements Report on
Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and on the Companys
internal control over financial reporting based on our integrated audit. We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audit of the
financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the United States Bankruptcy
Court for the District of Delaware confirmed the Companys Second Amended Joint Plan of
Reorganization (the Plan) on May 14, 2009. Confirmation of the Plan resulted in
the discharge of certain claims against the Company that arose before December 30, 2008 and
substantially alters right and interests of equity security holders as provided for in the Plan. The Plan was substantially consummated on May 4, 2009 and the
Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company
adopted fresh start accounting on May 1, 2009.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 24, 2010
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Constar International Inc:
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Constar International Inc.
(Predecessor) and its subsidiaries at December 31, 2008, and the results of their operations and
their cash flows for the period from January 1, 2009 to April 30, 2009 and for the year ended
December 31, 2008 in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed in the
accompanying index for the year ended December 31, 2008 and the period from January 1, 2009 to
April 30, 2009 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. The Companys
management is responsible for these financial statements and financial statement schedule. Our
responsibility is to express opinions on these financial statements and on the financial statement
schedule based on our audits. We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit of the financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company and substantially
all of its subsidiaries voluntarily filed a petition on December 30, 2008 with the United States
Bankruptcy Court for the District of Delaware for reorganization under the provisions of Chapter 11
of the Bankruptcy Code. The Companys Second Amended Joint Plan of Reorganization was
substantially consummated on May 4, 2009 and the Company emerged from bankruptcy. In connection
with its emergence from bankruptcy, the Company adopted fresh start accounting.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 24, 2010
35
Constar International Inc.
Consolidated Balance Sheets
(In thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
|
|
2009 |
|
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,469 |
|
|
|
$ |
14,292 |
|
Accounts receivable, net |
|
|
39,054 |
|
|
|
|
45,695 |
|
Accounts receivable related party |
|
|
|
|
|
|
|
109 |
|
Inventories, net |
|
|
44,058 |
|
|
|
|
49,765 |
|
Prepaid expenses and other current assets |
|
|
7,896 |
|
|
|
|
24,649 |
|
Restricted cash |
|
|
7,589 |
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
896 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
101,066 |
|
|
|
|
135,406 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
151,526 |
|
|
|
|
132,371 |
|
Goodwill and intangible assets, net |
|
|
150,080 |
|
|
|
|
148,813 |
|
Other assets |
|
|
3,592 |
|
|
|
|
1,626 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
406,264 |
|
|
|
$ |
418,216 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
5,000 |
|
|
|
$ |
20,000 |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
220,000 |
|
Accounts payable |
|
|
59,128 |
|
|
|
|
61,747 |
|
Accrued expenses and other current liabilities |
|
|
25,253 |
|
|
|
|
30,081 |
|
Deferred income taxes |
|
|
1,222 |
|
|
|
|
|
|
Accounts payable and accrued expenses related party |
|
|
|
|
|
|
|
3,765 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
90,603 |
|
|
|
|
335,593 |
|
|
|
|
|
|
|
|
|
Long term debt, net of current portion |
|
|
167,919 |
|
|
|
|
|
|
Pension and postretirement liabilities |
|
|
31,105 |
|
|
|
|
38,512 |
|
Deferred income taxes |
|
|
23,531 |
|
|
|
|
896 |
|
Other liabilities |
|
|
14,503 |
|
|
|
|
18,088 |
|
Liabilities subject to compromise |
|
|
|
|
|
|
|
186,229 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
327,661 |
|
|
|
|
579,318 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 19) |
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit): |
|
|
|
|
|
|
|
|
|
Predecessor preferred stock, $.01 par value none issued or
outstanding at December 31, 2008 |
|
|
|
|
|
|
|
|
|
Predecessor common stock, $.01 par value 13,297 shares issued,
12,922 shares outstanding at December 31, 2008 |
|
|
|
|
|
|
|
125 |
|
Successor common stock, $.01 par value, 75,000 shares authorized,
1,750 shares issued and outstanding at December 31, 2009 |
|
|
18 |
|
|
|
|
|
|
Additional paid-in capital |
|
|
101,466 |
|
|
|
|
277,371 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(1,769 |
) |
|
|
|
(50,317 |
) |
Predecessor treasury stock, at cost 375 shares at December 31, 2008 |
|
|
|
|
|
|
|
(1,033 |
) |
Accumulated deficit |
|
|
(21,112 |
) |
|
|
|
(387,248 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
78,603 |
|
|
|
|
(161,102 |
) |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
406,264 |
|
|
|
$ |
418,216 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
36
Constar International Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
April 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
|
2009 |
|
|
2008 |
|
Net customer sales |
|
$ |
421,187 |
|
|
|
$ |
213,925 |
|
|
$ |
850,740 |
|
Net affiliate sales |
|
|
|
|
|
|
|
3,256 |
|
|
|
7,129 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
421,187 |
|
|
|
|
217,181 |
|
|
|
857,869 |
|
Cost of products sold, excluding depreciation and amortization |
|
|
374,680 |
|
|
|
|
189,537 |
|
|
|
789,861 |
|
Depreciation and amortization |
|
|
33,138 |
|
|
|
|
9,733 |
|
|
|
32,811 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
13,369 |
|
|
|
|
17,911 |
|
|
|
35,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
13,019 |
|
|
|
|
7,005 |
|
|
|
22,745 |
|
Research and technology expenses |
|
|
5,284 |
|
|
|
|
2,698 |
|
|
|
8,536 |
|
Provision for restructuring |
|
|
1,584 |
|
|
|
|
648 |
|
|
|
4,811 |
|
Impairment of intangible assets |
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
Gain on disposal of assets |
|
|
(427 |
) |
|
|
|
(396 |
) |
|
|
(1,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
23,460 |
|
|
|
|
9,955 |
|
|
|
34,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(10,091 |
) |
|
|
|
7,956 |
|
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(23,279 |
) |
|
|
|
(5,512 |
) |
|
|
(38,412 |
) |
Interest expense related party |
|
|
|
|
|
|
|
(54 |
) |
|
|
(244 |
) |
Reorganization items, net |
|
|
(1,906 |
) |
|
|
|
144,168 |
|
|
|
(9,190 |
) |
Other income (expense), net |
|
|
2,433 |
|
|
|
|
1,543 |
|
|
|
(10,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(32,843 |
) |
|
|
|
148,101 |
|
|
|
(58,225 |
) |
(Provision for) benefit from income taxes |
|
|
11,816 |
|
|
|
|
(37,807 |
) |
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(21,027 |
) |
|
|
|
110,294 |
|
|
|
(57,778 |
) |
Loss from discontinued operations, net of taxes |
|
|
(85 |
) |
|
|
|
(96 |
) |
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(21,112 |
) |
|
|
$ |
110,198 |
|
|
$ |
(57,835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(12.02 |
) |
|
|
$ |
8.86 |
|
|
$ |
(4.66 |
) |
Discontinued operations |
|
|
(0.04 |
) |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
(12.06 |
) |
|
|
$ |
8.85 |
|
|
$ |
(4.66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
1,750 |
|
|
|
|
12,455 |
|
|
|
12,403 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
37
Constar International Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
April 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(21,112 |
) |
|
|
$ |
110,198 |
|
|
$ |
(57,835 |
) |
Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
33,139 |
|
|
|
|
10,060 |
|
|
|
35,160 |
|
Debt accretion expense |
|
|
13,644 |
|
|
|
|
|
|
|
|
|
|
Impairment of intangible asset |
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
Bad debt expense (recovery) |
|
|
435 |
|
|
|
|
(483 |
) |
|
|
1,841 |
|
Stock-based compensation |
|
|
|
|
|
|
|
591 |
|
|
|
608 |
|
Gain on disposal of assets |
|
|
(427 |
) |
|
|
|
(396 |
) |
|
|
(964 |
) |
Non-cash reorganization costs |
|
|
|
|
|
|
|
|
|
|
|
3,851 |
|
Deferred income taxes |
|
|
(11,800 |
) |
|
|
|
37,835 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
20,177 |
|
|
|
|
(11,480 |
) |
|
|
9,119 |
|
Inventories |
|
|
13,619 |
|
|
|
|
(5,432 |
) |
|
|
20,907 |
|
Prepaid expenses and other current assets |
|
|
(786 |
) |
|
|
|
977 |
|
|
|
5,343 |
|
Accounts payable |
|
|
(19,321 |
) |
|
|
|
6,727 |
|
|
|
(5,138 |
) |
Change in book overdrafts |
|
|
(184 |
) |
|
|
|
10,453 |
|
|
|
(12,695 |
) |
Accrued expenses and other current liabilities |
|
|
(15,771 |
) |
|
|
|
4,905 |
|
|
|
13,965 |
|
Pension and postretirement benefits |
|
|
(587 |
) |
|
|
|
954 |
|
|
|
(571 |
) |
Fresh start accounting adjustments |
|
|
|
|
|
|
|
(68,109 |
) |
|
|
|
|
Reorganization items, net |
|
|
(6,893 |
) |
|
|
|
(79,299 |
) |
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,133 |
|
|
|
|
17,501 |
|
|
|
14,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
1,738 |
|
|
|
|
(9,327 |
) |
|
|
|
|
Purchases of property, plant and equipment |
|
|
(8,793 |
) |
|
|
|
(5,723 |
) |
|
|
(25,322 |
) |
Proceeds from sale of property, plant, and equipment |
|
|
9 |
|
|
|
|
149 |
|
|
|
1,852 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7,046 |
) |
|
|
|
(14,901 |
) |
|
|
(23,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with debt |
|
|
(575 |
) |
|
|
|
|
|
|
|
|
|
Proceeds from short-term financing |
|
|
458,000 |
|
|
|
|
212,723 |
|
|
|
779,096 |
|
Repayment of short-term financing |
|
|
(458,000 |
) |
|
|
|
(227,723 |
) |
|
|
(759,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(575 |
) |
|
|
|
(15,000 |
) |
|
|
19,562 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
73 |
|
|
|
|
(8 |
) |
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
585 |
|
|
|
|
(12,408 |
) |
|
|
10,038 |
|
Cash and cash equivalents at beginning of period |
|
|
1,884 |
|
|
|
|
14,292 |
|
|
|
4,254 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
2,469 |
|
|
|
$ |
1,884 |
|
|
$ |
14,292 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
38
Constar International Inc.
Consolidated Statements of Stockholders Equity (Deficit)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Common |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Treasury |
|
|
Accumulated |
|
|
Stockholders |
|
|
|
Stock |
|
|
Capital |
|
|
Income (Loss) |
|
|
Stock |
|
|
Deficit |
|
|
Equity (Deficit) |
|
|
|
|
|
Balance, December 31, 2007 (Predecessor) |
|
$ |
125 |
|
|
$ |
276,546 |
|
|
$ |
(18,620 |
) |
|
$ |
(945 |
) |
|
$ |
(329,413 |
) |
|
$ |
(72,307 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,835 |
) |
|
|
(57,835 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
3,317 |
|
|
|
|
|
|
|
|
|
|
|
3,317 |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
(290 |
) |
|
|
|
|
|
|
|
|
|
|
(290 |
) |
Amortization of actuarial net loss |
|
|
|
|
|
|
|
|
|
|
3,179 |
|
|
|
|
|
|
|
|
|
|
|
3,179 |
|
Pension and postretirement adjustment to funded status |
|
|
|
|
|
|
|
|
|
|
(25,655 |
) |
|
|
|
|
|
|
|
|
|
|
(25,655 |
) |
Pension curtailment adjustment |
|
|
|
|
|
|
|
|
|
|
(5,757 |
) |
|
|
|
|
|
|
|
|
|
|
(5,757 |
) |
Revaluation of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
(6,491 |
) |
|
|
|
|
|
|
|
|
|
|
(6,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,532 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
(88 |
) |
Issuance of common stock under benefit plans |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Stock-based compensation |
|
|
|
|
|
|
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 (Predecessor) |
|
|
125 |
|
|
|
277,371 |
|
|
|
(50,317 |
) |
|
|
(1,033 |
) |
|
|
(387,248 |
) |
|
|
(161,102 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,198 |
|
|
|
110,198 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
(1,134 |
) |
|
|
|
|
|
|
|
|
|
|
(1,134 |
) |
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
(97 |
) |
Amortization of actuarial net loss |
|
|
|
|
|
|
|
|
|
|
2,016 |
|
|
|
|
|
|
|
|
|
|
|
2,016 |
|
Revaluation of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
951 |
|
|
|
|
|
|
|
|
|
|
|
951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2009 (Predecessor) |
|
|
125 |
|
|
|
277,968 |
|
|
|
(48,581 |
) |
|
|
(1,033 |
) |
|
|
(277,050 |
) |
|
|
(48,571 |
) |
Fresh-Start Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of Predecessor common stock and
elimination of Predecessor accumulated deficit |
|
|
(125 |
) |
|
|
(277,968 |
) |
|
|
|
|
|
|
1,033 |
|
|
|
277,050 |
|
|
|
(10 |
) |
Elimination of Predecessor accumulated
other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
48,581 |
|
|
|
|
|
|
|
|
|
|
|
48,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 1, 2009 (Predecessor) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 1.75 million shares of
common stock in connection with
emergence from Chapter 11 |
|
|
18 |
|
|
|
101,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 1, 2009 (Successor) |
|
|
18 |
|
|
|
101,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,484 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,112 |
) |
|
|
(21,112 |
) |
Pension and postretirement adjustment to funded status |
|
|
|
|
|
|
|
|
|
|
(2,460 |
) |
|
|
|
|
|
|
|
|
|
|
(2,460 |
) |
Revaluation of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
662 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 (Successor) |
|
$ |
18 |
|
|
$ |
101,466 |
|
|
$ |
(1,769 |
) |
|
$ |
|
|
|
$ |
(21,112 |
) |
|
$ |
78,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
39
Constar International Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands unless otherwise noted)
1. Description of Business
Constar International Inc. (the Company or Constar) operates eleven plants in the United
States, one plant in the United Kingdom, and one plant in the Netherlands. Constar produces
polyethylene terephthalate (PET) plastic packaging for beverage, food and other consumer end-use
applications.
2. Emergence from Voluntary Reorganization Under Chapter 11 Proceedings
Background
On December 30, 2008 (the Petition Date), Constar and certain of its
subsidiaries (collectively, the Debtors) filed voluntary petitions in the United States
Bankruptcy Court for the District of Delaware (the Bankruptcy Court) seeking reorganization
relief under the provisions of Chapter 11 of Title 11 of the United States Code (the Bankruptcy
Code). These Chapter 11 cases were jointly administered for procedural purposes under the caption
In re Constar International Inc., et al., Chapter 11 Case No. 08-13432 (PJW) (the Chapter 11
Cases).
Plan
of Reorganization The Debtors Second Amended Joint Plan of Reorganization (the Plan)
provided as follows (capitalized terms used in the bullets below are defined in the Plan):
|
|
Holders of Allowed Administrative Claims,
Priority Tax Claims, Other Priority Claims, and Other
Secured Claims would receive full payment in cash; |
|
|
|
The DIP Credit Facility would be converted into the Companys Exit Facility; |
|
|
|
Holders of Senior Secured Floating Rate Notes
would be deaccelerated and reinstated in full as of
the date immediately preceding the Petition Date; |
|
|
|
Holders of Other Secured Claims, except to the
extent that a Holder agrees otherwise, would receive
one of the following treatments, in full satisfaction,
settlement, release and discharge of and in exchange
for each Allowed Other Secured Claim, at the sole
discretion of the Debtors: (i) payment in full in
Cash; (ii) delivery of the collateral securing any
such Allowed Other Secured Claim; (iii) deacceleration
and reinstatement in full; or (iv) any other treatment
rendering the claim unimpaired; |
|
|
|
Holders of Senior Subordinated Notes would
receive 100% of the new Common Stock of the
reorganized Company (except for stock reserved for
incentive plans) in full satisfaction, settlement, and
release, and discharge of such notes; |
|
|
|
Holders of Allowed General Unsecured Claims would
receive full payment in cash in the ordinary course of
business; |
|
|
|
Section 510(b) Claims (which are subordinated
securities law claims as further described in the Plan
of Reorganization) would be extinguished; and |
|
|
|
Holders of our Common Stock would not receive any
distribution under the Plan of Reorganization and
their shares would be cancelled on the effective date
of the Plan of Reorganization. |
Confirmation and Consummation of the Plan of Reorganization a hearing on the confirmation of
the Plan of Reorganization was held on May 4, 2009. On May 14, 2009, the Bankruptcy Court entered
an order approving and confirming the Plan of Reorganization that was presented in substance during
the May 4, 2009 hearing. The Plan of Reorganization became effective and the Debtors emerged from
Chapter 11 on May 29, 2009 (the Effective Date).
In connection with the consummation of the Plan of Reorganization, on the Effective Date, the
Companys existing Senior Secured Super-Priority Debtor in Possession and Exit Credit Agreement,
dated as of December 31, 2008 (the Exit Facility) was converted into exit financing in accordance
with its terms. Pursuant to the Plan of Reorganization, all existing shares of the Predecessor
Companys (as defined below) capital stock were canceled. In addition, all of the Companys Senior
Subordinated 11% Notes Due 2012 were canceled and the related indenture was terminated (except for
purposes of allowing the note holders to receive distributions under the Plan of Reorganization).
Pursuant to the Restated Certificate of Incorporation of the Company, 75.0 million shares of common
stock in the Successor Company were authorized for issuance, with a par value of $0.01 per share
and according to the Plan of Reorganization, a total of 1.75 million shares of the Companys Common
Stock were distributed to the holders of Senior Subordinated Note Claims. Holders of the Senior
Subordinated Note Claims received ten shares of new Common Stock per one thousand dollars face
amount of the Senior Subordinated Notes.
40
In addition, upon the Effective Date, the following incentive plans were terminated (and any
and all awards granted under such plans were terminated and will no longer be of any force or
effect): (1) the 2007 Non-Employee Directors Equity Incentive Plan; (2) the 2007 Stock-Based
Incentive Compensation Plan; (3) Constar International Inc. Non-Employee Directors Equity
Incentive Plan; (4) Constar International Inc. 2002 Stock-Based Incentive Compensation Plan;
(5) the Amended and Restated Constar International Inc. Supplemental Executive Retirement Plan; and
(6) the Amended and Restated Constar International Inc. Annual Incentive and Management Stock
Purchase Plan, which was replaced by the Constar International Inc. Annual Incentive Plan, adopted
May 26, 2009 (the AIP). For a description of the AIP, please see the Companys Current Report on
Form 8-K filed with the Securities and Exchange Commission on June 1, 2009.
Under the Plan, the Company reduced its total pre-petition liabilities by $186.2 million
through the elimination of the Senior Subordinated Notes plus accrued interest thereon. The
elimination of the Senior Subordinated Notes will result in a reduction to cash interest expense of
approximately $19.3 million annually.
On January 4, 2010, the Bankruptcy Court executed a final decree closing the Chapter 11 Cases.
Certain claims were not resolved in the Chapter 11 process, and the claimants have retained their
rights to such claims. The Company does not believe such claims to be material.
Trading of Common Stock The Predecessor Companys common stock ceased trading on the NASDAQ
stock market on January 8, 2009 and began trading in the over-the-counter market under the symbol
CNSTQ.PK. Upon the Effective Date of the Plan of Reorganization, the outstanding common stock of
the Predecessor Company was cancelled for no consideration. Consequently, the Predecessor Companys
stockholders no longer have any interest as stockholders in the Successor Company by virtue of
their ownership of the Predecessor Companys common stock prior to emergence from bankruptcy. The
common stock of the Successor Company is not listed on an exchange and was available for trading
over-the-counter under the symbol CNRN.PK on May 29, 2009. The Company is currently applying to
list its common stock on the NASDAQ Capital Market. There can be no assurance as to when, or
whether, such listing will be achieved.
3. Summary of Significant Accounting Policies
Basis of Presentation
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. 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 the 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 in the accompanying consolidated statements of
operations. In addition, pre-petition obligations that were impacted by the Plan of Reorganization
were classified as liabilities subject to compromise on the consolidated balance sheet as of
December 31, 2008.
As of May 1, 2009, the Company adopted fresh-start accounting. The Company selected May 1,
2009 as the date to effectively apply fresh-start accounting based on the absence of any material
contingencies at the May 4, 2009 confirmation hearing and the immaterial impact of transactions
between May 1, 2009 and May 4, 2009. 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 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. See Note 4 Fresh-Start Accounting in the notes to
these consolidated financial statements for further details.
The Company has classified the results of operations of its Italian operation as a
discontinued operation in the 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 consolidated balance sheets. See Note 20 Discontinued Operations
for further details. Unless otherwise indicated, amounts provided throughout this Form 10-K relate
to continuing operations only.
Reclassifications Certain reclassifications have been made to prior year balances in order
to conform these balances to the current years presentation.
41
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and expenses in the
consolidated financial statements and accompanying notes. Examples include, but are not limited to,
allowances for doubtful accounts and sales returns, allowances for inventory obsolescence, the
lives of depreciable assets, long-lived asset impairments, goodwill and intangible asset
impairments, valuation allowances for deferred tax assets, self-insurance reserves, pension and
postretirement benefit liabilities, restructuring reserves, asset retirement obligations, the fair
value of derivative financial instruments, and loss contingencies. Actual results may differ
materially from managements estimates.
Under fresh-start accounting, the Companys asset values were remeasured and allocated in
conformity with ASC 805, Business Combinations. In addition, fresh-start accounting also requires
that all liabilities, other than deferred taxes and pension and other postretirement benefit
obligations, be reported at fair value or the present values of the amounts to be paid using
appropriate market interest rates. Deferred taxes were reported in conformity with ASC 740, Income
Taxes. Pension and postretirement liabilities were remeasured in conformity with ASC 715,
Compensation Retirement Benefits.
Estimates of fair value represent the Companys best estimates based on independent appraisals
and valuations, industry data and trends and by reference to relevant market rates and
transactions. The estimates and assumptions are inherently subject to significant uncertainties and
contingencies beyond the control of the Company. Accordingly, we cannot provide assurance that the
estimates, assumptions, and values reflected in the valuations will be realized, and actual results
could vary materially. Any adjustments to the recorded fair values of these assets and liabilities
may impact the amount of recorded goodwill.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
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
were $10,269 and $-0- at December 31, 2009 and 2008, respectively.
Restricted Cash
During 2009 the administrative agent for the Exit Facility required the Company to fully
collateralize its interest rate swap liability with cash. Restricted cash represents the cash
collateral balance at December 31, 2009.
Revenue Recognition
Revenue is recognized from product sales when there is persuasive evidence of an arrangement,
the price is fixed or determinable, the goods are shipped and the title and risk of loss pass to
the customer, and collectability is reasonably assured. Constars business generally does not
operate under a formal inspection/acceptance process. Provisions for discounts and rebates to
customers, and returns and other adjustments, are provided in the same period that the related
sales are recorded. See Note 24 for a description of related party transactions.
Royalty revenues are recognized based on contractual agreements.
42
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The
Company maintains allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. Allowances for doubtful accounts are based on
historical experience and known factors regarding specific customers. If the financial condition of
the Companys customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances would be required. Account balances are charged off against the
allowance when it is probable the receivable will not be recovered. Bad debt expense (recovery) was
$435, $(483), and $1,841 for the eight months ended December 31, 2009, the four months ended April
30, 2009, and the year ended December 31, 2008, respectively. Bad debt expense (recovery) is
included in selling and administrative expenses in the accompanying consolidated statements of
operations.
Inventories
Inventories are stated at the lower of cost or market with the cost principally determined
using an average cost method. Provisions for potentially obsolete or slow-moving inventory are made
based on managements analysis of inventory levels, historical usage and market conditions.
Property, Plant and Equipment
For the Predecessor Company, property, plant and equipment were carried at cost and included
expenditures for new facilities and equipment and those costs which substantially increased the
useful lives of existing assets. For the Successor Company, property, plant, and equipment were
adjusted to fair value as of May 1, 2009, and are currently stated at that value less accumulated
depreciation and amortization. Property, plant and equipment acquired after May 1, 2009, are stated
at acquisition cost less accumulated depreciation and amortization. The Company capitalizes
interest costs associated with significant capital projects using its average borrowing rate. When
property, plant and equipment is retired or otherwise disposed of, the net carrying amount is
eliminated with any gain or loss on disposition recognized in earnings at that time. Maintenance
and repairs are expensed as incurred.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the
assets as follows:
|
|
|
|
|
(In Years) |
|
Successor |
|
Predecessor |
Land improvements |
|
25 |
|
25 |
Building and building improvements |
|
3 to 40 |
|
25 to 40 |
Machinery and equipment |
|
2 to 10 |
|
10 |
Furniture, computer equipment, and tools |
|
2 to 10 |
|
5 to 10 |
Molds |
|
Shorter of the useful life or contract term |
|
5 |
Leasehold improvements |
|
Shorter of the useful life or lease term |
|
Shorter of the useful life or lease term |
When depreciable assets are idled, the Company records depreciation over the revised
expected remaining useful life of the assets considering their estimated salvage value.
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. 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.
Goodwill and Intangible Assets
Goodwill reflects the excess of the reorganization value of the Successor over the fair value
of tangible and identifiable intangible assets as determined upon the adoption of fresh-start
accounting. The Company recorded $118.7 million of goodwill as a result of the adoption of
fresh-start accounting. The goodwill is not deductible for tax purposes.
43
Identifiable intangible assets consist of the Companys trade name, technology, and leasehold
interests. The Companys trade name is an indefinite-lived asset and consequently is not amortized.
Technology and leasehold interests are finite-lived intangible assets and are amortized over their
useful lives.
The Company has one reporting unit and therefore assesses goodwill for impairment at the
consolidated company level. The Companys annual impairment reviews for goodwill and
indefinite-lived intangible assets are performed as of October 1. The Company also performs interim
reviews when the Company determines that a triggering event has occurred that would more likely
than not reduce the fair value of the reporting unit below its carrying value.
The Company uses a two-step impairment test to identify potential goodwill impairment and
measure the amount of a goodwill impairment loss to be recognized (if any). The Step 1 calculation
used to identify potential impairment compares the calculated fair value for the Companys single
reporting unit to its book value, including goodwill, on the measurement date. If the fair value of
the reporting unit is less than its book value, then a Step 2 calculation is performed to measure
the amount of the impairment loss (if any) for the reporting unit.
The Step 2 calculation compares the implied fair value of the goodwill to the book value of
goodwill. The implied fair value of goodwill is equal to the excess of the fair value of the
reporting unit above the fair value of identified assets and liabilities. If the book value of
goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount
equal to the excess (not to exceed the book value of goodwill).
See Note 10 for a description of the Companys annual and interim impairment tests performed
at October 1, 2009 and December 31, 2009.
Derivative Financial Instruments
Derivative instruments are reported as either assets or liabilities in the consolidated
balance sheets at their fair values. Changes in the fair value of derivatives are recorded in
earnings or other comprehensive income, based on whether the instrument is designated as part of a
hedge transaction, and if so, the type of hedge transaction. For a derivative instrument designated
as a cash flow hedge, the effective portion of the derivatives gain or loss is initially reported
as a component of other comprehensive income and subsequently reclassified into earnings in the
period in which earnings are affected by the underlying hedged item. The ineffective portion of all
hedges is recognized in earnings in the current period. Changes in the fair values of derivative
instruments that are not designated as hedges are recorded in current period earnings. See Note 26
for additional information.
Restructuring
The Company records restructuring charges for the costs associated with an exit or disposal
activity in the period in which the liability is incurred. See Note 14 for additional information.
Asset Retirement Obligations
The Company recognizes asset retirement obligations (AROs) and the related asset retirement
costs when a legal obligation to retire the asset exists, including obligations incurred as a
result of the acquisition, construction, or normal operation of a long-lived asset. The fair values
of these AROs are recorded on a discounted basis at the time the obligation is incurred, and
accreted over time using the interest method. Asset retirement costs are recorded by increasing the
carrying amount of the related long-lived assets and depreciating those assets over their estimated
remaining useful life.
Reserves for Self Insurance
The Company maintains a program of insurance with third-party insurers for certain property,
casualty and other risks. The policies are subject to deductibles and exclusions that result in our
retention of a level of risk on a self-insurance basis. The Company retains the risk with regard to
(i) potential liabilities under a number of health and welfare insurance plans (including workers
compensation) that we sponsor for our employees and (ii) other potential liabilities that are not
insured. The types and amounts of insurance obtained vary from time to time and from location to
location, depending on availability, cost, and our decisions with respect to risk retention. Our
risk and insurance programs are regularly evaluated to seek to obtain the most favorable terms and
conditions. We estimate the liabilities associated with the risks retained by us, in part, by
considering historical claims experience, demographic and severity factors and other actuarial
assumptions. Any actuarial projection of losses concerning workers compensation and general
liability is subject to variability. Among the causes of this variability are unpredictable
external factors, future inflation rates, discount rates, litigation trends, legal interpretations,
benefit level changes and claim settlement patterns.
44
The amount of self insurance liability at December 31, 2009 and 2008 was $3.8 million and $4.7
million, respectively.
Related to workers compensation, the Company has insurance that limits its loss per claim to
$250 thousand and its total losses in any policy year to $3.3 million. Related to medical costs,
the Company has a lifetime cap of benefits of $1.5 million per covered participant and a loss limit
of $300 thousand per covered participant, per year. The Company has aggregate stop loss coverage of
$1.0 million if aggregate medical costs exceed $11.4 million annually. The Company is responsible
for medical costs exceeding $12.4 million.
Deferred Financing Costs
Costs related to the issuance of debt are capitalized and amortized to interest expense on a
straight-line basis over the life of the related debt.
Foreign Currency Translation
The financial position and results of operations of the Companys foreign subsidiaries are
measured using local currencies as the functional currency. Assets and liabilities are translated
into U.S. dollars at year-end exchange rates. Income and expense items are translated at average
exchange rates for the year. The translation adjustments for these subsidiaries are recorded in
accumulated other comprehensive income as a separate component of stockholders equity. Cumulative
translation adjustments are not adjusted for income taxes as they relate to earnings permanently
reinvested in foreign subsidiaries. In the event of a divestiture of a foreign subsidiary, the
related foreign currency translation results are reversed from equity to income.
Gains and losses resulting from foreign currency transactions are included in the
determination of net income.
Shipping and Handling Costs
Shipping and handling costs are included as a component of cost of products sold in the
consolidated statements of operations.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of
accounting for income taxes. Under this approach, deferred taxes represent the future tax
consequences expected to occur when the reported amounts of assets and liabilities are recovered or
paid. The provision for income taxes represents income taxes paid or payable for the current year
plus the change in deferred taxes during the year. Deferred taxes result from differences between
the financial and tax bases of the Companys assets and liabilities and are adjusted for changes in
tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax benefit will not be realized.
No provision has been made for income taxes on the portion of unremitted earnings of foreign
subsidiaries which are deemed to be permanently invested in those operations.
The Companys policy is to recognize interest and penalties related to income tax matters in
income tax expense.
Stock-Based Compensation
The Company recognizes compensation expense for awards on a straight-line basis over the
requisite service period. Stock-based compensation expense recognized in the consolidated
statements of operations is based on awards ultimately expected to vest. Forfeitures are estimated
at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. Estimated forfeitures are based upon historical experience.
The fair value of restricted stock awards is equal to the quoted market price of the Companys
common stock at the date of grant. Restricted stock units (RSUs) are classified as liabilities in
the accompanying consolidated financial statements. The fair value of the liabilities related to
the RSUs is remeasured at each balance sheet date. Adjustments to the fair value of the RSU
liabilities are recorded as compensation expense.
45
Net Loss Per 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 at December 31, 2009.
The computation of Diluted EPS for the year ended December 31, 2008 excludes 536 shares of
restricted stock due to the loss for the period.
Research and Technology
Research and technology expenditures are expensed as incurred. Substantially all engineering
and development costs are related to developing new products or designing significant improvements
to existing products or processes. Costs primarily include salaries and benefits, facility costs
and outside services.
Concentration of Credit Risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held
with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits
may be redeemed on demand and are maintained with high quality financial institutions, therefore
bearing minimal credit risk.
The Companys trade receivables result from sales to a relatively few number of customers and
are unsecured. The Company continually assesses the financial strength of its customers to reduce
the risk of loss. Write-offs of uncollectible accounts have historically not been significant.
Fair Value Measurements
The Company measures fair value in accordance with accounting guidance that requires an entity
to base fair value on an exit price and maximize the use of observable inputs and minimize the use
of unobservable inputs when determining an exit price. Fair value is the price to sell an asset or
transfer a liability between market participants as of the measurement date. Fair value
measurements assume the asset or liability is exchanged in an orderly manner; the exchange is in
the principal market for that asset or liability (or in the most advantageous market when no
principal market exists); and the market participants are independent, knowledgeable, able and
willing to transact an exchange.
Considerable judgment is required in interpreting market data used to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily indicative of the
amounts that could be realized in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
A description of the fair value hierarchy follows:
Level 1 Inputs represent unadjusted quoted prices for identical assets or liabilities
exchanged in active markets.
Level 2 Inputs include directly or indirectly observable inputs other than Level 1 inputs
such as quoted prices for similar assets or liabilities exchanged in active or inactive
markets; quoted prices for identical assets or liabilities exchanged in inactive markets;
other inputs that are considered in fair value determinations of the assets or liabilities,
such as interest rates and yield curves that are observable at commonly quoted intervals, and
credit risks; and inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
Level 3 Inputs are unobservable inputs that are used in the measurement of assets and
liabilities. Management is required to use its own assumptions regarding unobservable inputs
because there is little, if any, market activity in the asset or liability or related
observable inputs that can be corroborated at the measurement date. Measurements of
non-exchange traded derivative contract assets and liabilities are primarily based on
valuation models, discounted cash flow models or other valuation techniques that are believed
to be used by market participants. Unobservable inputs require management to make certain
projections and assumptions about the information that would be used by market participants in
pricing an asset or liability.
46
Recent Accounting Pronouncements
On July 1, 2009, the Financial Accounting Standards Boards (FASB) Accounting Standards
Codification (the Codification or ASC) became effective. The Codification is the single source
of authoritative U.S. Generally Accepted Accounting Principles (GAAP) to be applied by
nongovernmental entities, except for the rules and interpretive releases of the SEC under authority
of federal securities laws, which are sources of authoritative GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of authority. The Codification is
organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical
designation. This Annual Report on Form 10-K contains references to the Codification as needed. The
adoption of the Codification did not have a material impact on the Companys results of operations
or financial condition.
In September 2006, the FASB issued guidance under ASC 820-10 Fair Value Measurements and
Disclosures that establishes a common definition for fair value to be applied to GAAP guidance
requiring use of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements. In February 2008, the FASB delayed the effective
date of the guidance for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually) until January 1, 2009. The adoption of this guidance did not have a material impact
on the Companys results of operations or financial condition.
In December 2007, the FASB issued new guidance for business combinations. The new guidance is
contained in ASC 805 Business Combinations. This new guidance revises how acquirors recognize and
measure the consideration transferred, identifiable assets acquired, liabilities assumed,
noncontrolling interests, and goodwill acquired in a business combination. In addition, it expands
required disclosures surrounding the nature and financial effects of business combinations. The new
guidance is effective for fiscal years beginning on or after December 15, 2008 with earlier
adoption prohibited. The impact of this new guidance on the Companys consolidated financial
statements could be material for business combinations which may be consummated subsequent to the
effective date. The application of ASC 805 as a result of applying the fresh-start accounting
provisions of ASC 852 Reorganizations upon emergence from Chapter 11 has resulted in material
adjustments to the historical carrying amounts of the Predecessor Companys assets and liabilities.
The impact of these adjustments is summarized in Note 4 Fresh Start Accounting in the notes to
these consolidated financial statements.
In April 2009, the FASB issued new guidance addressing the fair value of financial
instruments. The new guidance addresses determining fair value when the volume and level of
activity for an asset or liability has significantly decreased and identifying transactions that
are not orderly, and the recognition and presentation of other than temporary impairments. The new
guidance also requires additional disclosures about financial instruments in interim period
financial statements. The Company adopted this guidance in the second quarter of 2009. The adoption
of this guidance did not have a material impact on the Companys results of operations or financial
condition.
Effective for fiscal years ending after December 15, 2009, ASC 715-20 Compensation
Retirement Benefits, requires additional disclosures about employers plan assets of a defined
benefit pension or other postretirement plan. The requirements include disclosing investing
strategies, major categories of plan assets, concentrations of risk within plan assets, information
about fair value measurements of plan assets, and valuation techniques used to measure the fair
value of plan assets. Adoption of these additional requirements did not have an impact on the
Companys results of operations or financial condition.
4. Fresh-Start Accounting
On May 1, 2009, the Company adopted fresh-start accounting. Fresh-start accounting results in
the Company becoming a new entity for financial reporting purposes. Accordingly, the Companys
consolidated financial statements for periods prior to May 1, 2009 are not comparable to
consolidated financial statements presented on or after May 1, 2009.
In applying fresh-start accounting, the Successor Company must determine a value to be
assigned to the equity of the emerging company as of the date of adoption of fresh-start
accounting. To facilitate this calculation the Company first determined the enterprise value of the
Successor Company. The valuation methods included (i) a discounted cash flow analysis, considering
a range of the weighted average cost of capital between 12.5% and 13.5% and multiples of projected
earnings of between 5 and 7 times for its terminal value, (ii) a market multiples analysis,
considering multiple ranges of between 5 and 6.5 times and (iii) precedent transaction multiples of
between 7 and 8 times. This analysis resulted in an estimated enterprise value of between $260
million and $300 million. Due to prevailing economic conditions, the Company used the low end of
this range for purposes of applying fresh-start accounting.
47
The estimated enterprise value, and corresponding equity value, is highly dependent upon
achieving the future financial results set forth in the financial projections included in the
Companys Plan of Reorganization, as filed with the Bankruptcy Court. These projections were
limited by the information available to the Company as of the date of the preparation of the
projections and reflected numerous assumptions concerning anticipated future performance and
prevailing and anticipated market and economic conditions that were and continue to be beyond the
Companys control and that may not materialize. Projections are inherently subject to uncertainties
and to a wide variety of significant business, economic and competitive risks. Therefore
variations from the projections may be material.
After deducting the fair value of the Secured Notes (as determined by quoted market prices)
and the outstanding Exit Facility balance (net of cash), the equity value of the Company was
calculated to be $101.5 million. The estimates and assumptions made in this valuation are
inherently subject to significant uncertainties. Accordingly, there can be no assurance that the
estimates, assumptions, and amounts reflected in the valuations will be realized, and actual
results could vary materially. Moreover, the market value of the Companys common stock may differ
materially from the equity valuation used for accounting purposes.
Fresh-start accounting reflects the value of the Company as determined in the confirmed Plan
of Reorganization. Under fresh-start accounting, the Companys asset values are remeasured and
allocated in conformity with ASC 805, Business Combinations. The excess of reorganization value
over the fair value of tangible and identifiable intangible assets is recorded as goodwill in the
accompanying consolidated balance sheet. Fresh-start accounting also requires that all liabilities,
other than deferred taxes and pension and other postretirement benefit obligations, should be
stated at fair value. Deferred taxes are determined in conformity with ASC 740, Income Taxes.
Pension and postretirement liabilities are remeasured in conformity with ASC 715, Compensation
Retirement Benefits.
Estimates of fair value included in the Successor Company financial statements represent the
Companys best estimates based on independent appraisals and valuations, industry data and trends
and by reference to relevant market rates and transactions. The foregoing estimates and assumptions
are inherently subject to significant uncertainties and contingencies beyond the control of the
Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and
values reflected in the valuations will be realized, and actual results could vary materially.
The following fresh-start consolidated balance sheet presents the financial effects on the
Company of the implementation of the Plan of Reorganization and the adoption of fresh-start
accounting. The effect of the consummation of the transactions contemplated in the Plan of
Reorganization includes the settlement of liabilities and the issuance of common stock.
48
The effects of the Plan of Reorganization and fresh-start reporting on the Companys
consolidated balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications |
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
and |
|
|
Fresh Start |
|
|
Successor |
|
|
|
April 30, |
|
|
Plan of |
|
|
Accounting |
|
|
May 1, |
|
(In thousands) |
|
2009 |
|
|
Reorganization |
|
|
Adjustments |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,884 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,884 |
|
Accounts receivable, net |
|
|
48,021 |
|
|
|
876 |
a |
|
|
(26 |
) g |
|
|
48,871 |
|
Accounts receivable related party |
|
|
876 |
|
|
|
(876 |
) a |
|
|
|
|
|
|
|
|
Inventories, net |
|
|
55,179 |
|
|
|
|
|
|
|
1,621 |
g |
|
|
56,800 |
|
Prepaid expenses and other current assets |
|
|
23,626 |
|
|
|
(13,870 |
) b, k |
|
|
(1,132 |
) g |
|
|
8,624 |
|
Deferred income taxes |
|
|
1,594 |
|
|
|
|
|
|
|
(714 |
) i |
|
|
880 |
|
Current assets of discontinued operations |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
131,490 |
|
|
|
(13,870 |
) |
|
|
(251 |
) |
|
|
117,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
128,938 |
|
|
|
11,216 |
k |
|
|
37,385 |
g |
|
|
177,539 |
|
Goodwill |
|
|
148,813 |
|
|
|
|
|
|
|
(31,500 |
) g, h |
|
|
117,313 |
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
36,404 |
g, h |
|
|
36,404 |
|
Restricted cash |
|
|
9,327 |
|
|
|
|
|
|
|
|
|
|
|
9,327 |
|
Other assets |
|
|
1,265 |
|
|
|
2,654 |
b |
|
|
(2,654 |
) g |
|
|
1,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
419,833 |
|
|
$ |
|
|
|
$ |
39,384 |
|
|
$ |
459,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
5,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,000 |
|
Current portion of long-term debt |
|
|
220,000 |
|
|
|
(220,000 |
) b |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
83,407 |
|
|
|
850 |
a |
|
|
|
|
|
|
84,257 |
|
Accrued expenses and other current liabilities |
|
|
27,165 |
|
|
|
4,148 |
a, c, d |
|
|
(459 |
) g |
|
|
30,854 |
|
Accounts payable and accrued expenses related party |
|
|
4,108 |
|
|
|
(4,108 |
) a |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
1,594 |
|
|
|
|
|
|
|
(1,594 |
) i |
|
|
|
|
Current liabilities of discontinued operations |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
341,405 |
|
|
|
(219,110 |
) |
|
|
(2,053 |
) |
|
|
120,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
|
|
|
|
220,000 |
b |
|
|
(65,725 |
) g |
|
|
154,275 |
|
Pension and postretirement liabilities |
|
|
37,545 |
|
|
|
(367 |
) d |
|
|
(7,424 |
) g |
|
|
29,754 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
38,715 |
i |
|
|
38,715 |
|
Other liabilities |
|
|
16,919 |
|
|
|
|
|
|
|
(2,984 |
) g |
|
|
13,935 |
|
Non-current liabilities of discontinued operations |
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
812 |
|
Liabilities subject to compromise |
|
|
186,229 |
|
|
|
(186,229 |
) e |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
582,910 |
|
|
|
(185,706 |
) |
|
|
(39,471 |
) |
|
|
357,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor common stock |
|
|
125 |
|
|
|
(125 |
) f |
|
|
|
|
|
|
|
|
Predecessor additional paid-in capital |
|
|
277,968 |
|
|
|
(277,968 |
) f |
|
|
|
|
|
|
|
|
Predecessor treasury stock |
|
|
(1,033 |
) |
|
|
1,033 |
f |
|
|
|
|
|
|
|
|
Successor common stock |
|
|
|
|
|
|
18 |
e |
|
|
|
|
|
|
18 |
|
Successor additional paid-in capital |
|
|
|
|
|
|
101,466 |
e |
|
|
|
|
|
|
101,466 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(48,581 |
) |
|
|
|
|
|
|
48,581 |
j |
|
|
|
|
Accumulated deficit |
|
|
(391,556 |
) |
|
|
361,282 |
c, e, f |
|
|
30,274 |
j |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(163,077 |
) |
|
|
185,706 |
|
|
|
78,855 |
|
|
|
101,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
419,833 |
|
|
$ |
|
|
|
$ |
39,384 |
|
|
$ |
459,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Notes to Plan of Reorganization and fresh-start accounting adjustments (in thousands,
unless otherwise noted)
|
|
|
(a) |
|
At April 30, 2009, Crown Holdings, Inc. (Crown) owned approximately 10% of the Predecessor
Companys outstanding common stock. As of May 1, 2009, as a result of the cancellation of the
Predecessor Companys common stock, Crown is no longer considered a related party. This
adjustment reflects the reclassification of amounts formerly classified as related party
transactions. |
|
(b) |
|
These adjustments reflect the reclassification to long-term debt of the $220 million Senior
Notes that had been classified as a current liability on the Predecessor Companys balance
sheet due to the Chapter 11 proceedings and the reclassification of the related deferred
financing fees from current assets to non-current assets. |
|
(c) |
|
This adjustment reflects an accrual of $523 thousand for costs related to a contract that was
rejected as part of the Chapter 11 proceedings. |
|
(d) |
|
As a result of the termination of the Supplemental Executive Retirement Plan the Company
reclassified the outstanding liability under the plan to current liabilities. The liability
was paid in full in June 2009. |
|
(e) |
|
This adjustment reflects the discharge of $186.2 million of liabilities subject to compromise
in accordance with the terms of the Plan of Reorganization and the issuance of 1.75 million shares
of Successor Company common stock to the holders of Senior Subordinated Notes in satisfaction of
such claims. |
|
(f) |
|
This adjustment reflects the cancellation of the Predecessor Companys common stock. |
|
(g) |
|
To record assets and liabilities at their estimated fair values: |
|
|
|
|
|
(In thousands) |
|
|
|
|
Accounts receivable |
|
$ |
(26 |
) |
Inventories |
|
|
1,621 |
|
Prepaid expenses and other current assets |
|
|
(1,132 |
) |
Property, plant, and equipment |
|
|
37,385 |
|
Goodwill |
|
|
(80,081 |
) |
Intangible assets |
|
|
36,404 |
|
Other assets |
|
|
(2,654 |
) |
Accrued expenses and other current liabilities |
|
|
459 |
|
Long-term debt |
|
|
65,725 |
|
Pension and postretirement liabilities |
|
|
7,424 |
|
Other liabilities |
|
|
2,984 |
|
|
|
|
|
Gain on fresh start adjustments before tax |
|
|
68,109 |
|
Elimination of other comprehensive income |
|
|
48,581 |
|
Less: tax effect on fresh-start adjustments |
|
|
(37,835 |
) |
|
|
|
|
Total change in equity |
|
$ |
78,855 |
|
|
|
|
|
|
|
|
(h) |
|
To eliminate Predecessor goodwill. |
|
(i) |
|
To adjust deferred taxes to reflect the impact of fresh-start accounting fair value
adjustments. |
|
(j) |
|
To reset accumulated other comprehensive loss and accumulated deficit to zero. |
|
(k) |
|
To reclassify pallets used for shipping products to customers from prepaid expenses to
property, plant, and equipment. |
During the fourth quarter of 2009 the Company recorded an adjustment to correct errors in the
allocation of its reorganization value. The adjustment resulted in a $1,369 increase to goodwill,
a decrease to property, plant and equipment of $3,754, a decrease to pension liabilities of $1,529,
and a decrease to deferred tax liabilities of $856. The adjustment to property, plant and equipment
resulted from errors discovered as a result of the Companys physical inventory count of its
property, plant, and equipment in December of 2009. The adjustment to pension liabilities resulted
from errors in employee census data that were discovered at year end. These
adjustments had no impact on the gain from fresh-start accounting adjustments. Based upon an
evaluation of the impact of these accounting errors, both individually and in the
aggregate, the Company concluded that both the qualitative and quantitative impact of these
errors were not material to the previously issued financial statements.
50
5. Liabilities Subject to Compromise and Reorganization Items
Liabilities subject to compromise refers to pre-petition obligations that were impacted by the
Chapter 11 reorganization process. At December 31, 2009, there were no liabilities subject to
compromise due to our emergence from bankruptcy. For further information regarding the discharge of
liabilities subject to compromise see Note 4.
Liabilities subject to compromise at December 31, 2008, are summarized in the following table:
|
|
|
|
|
|
|
Predecessor |
|
(In thousands) |
|
December 31, 2008 |
|
|
|
|
|
|
Subordinated Notes |
|
$ |
175,000 |
|
Accrued interest on Subordinated Notes |
|
|
11,229 |
|
|
|
|
|
|
|
$ |
186,229 |
|
|
|
|
|
Subsequent to its Chapter 11 filing, the Company recorded post-petition interest expense on
its prepetition obligations only to the extent it believed the interest would be paid during the
bankruptcy proceeding or that it was probable the interest would be an allowed claim. Had the
Company recorded interest expense on its liabilities subject to compromise, interest expense would
have been higher by $6,417 for the four months ended April 30, 2009 and $53 for the year ended
December 31, 2008.
The Company incurred certain professional fees and other expenses directly associated with the
bankruptcy proceedings. In addition, the Company made adjustments to the carrying value of certain
prepetition liabilities. Such costs and adjustments are classified as reorganization items, net
in the accompanying consolidated statements of operations and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2009 |
|
|
2008 |
|
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 |
|
|
(1,775 |
) |
|
|
|
(6,905 |
) |
|
|
(2,795 |
) |
Write-off of debt issuance costs related to debt subject to compromise |
|
|
|
|
|
|
|
|
|
|
|
(2,041 |
) |
Write-off of debt discount on debt subject to compromise |
|
|
|
|
|
|
|
|
|
|
|
(1,005 |
) |
Write-off of debt issuance costs associated with Revolver Loan |
|
|
|
|
|
|
|
|
|
|
|
(805 |
) |
DIP and Exit Financing fees |
|
|
|
|
|
|
|
(100 |
) |
|
|
(2,268 |
) |
Other, net |
|
|
(131 |
) |
|
|
|
(1,158 |
) |
|
|
(276 |
) |
|
|
|
|
|
|
|
|
|
|
|
Reorganization items, net |
|
$ |
(1,906 |
) |
|
|
$ |
144,168 |
|
|
$ |
(9,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
The Successor Company made cash payments of $9,025 for the eight months ended December 31,
2009, and the Predecessor Company made cash payments of $3,014 for the four months ended April 30,
2009 related to reorganization items.
51
6. Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Trade accounts receivable |
|
$ |
35,427 |
|
|
|
$ |
40,796 |
|
Less: allowance for doubtful accounts |
|
|
(322 |
) |
|
|
|
(1,904 |
) |
|
|
|
|
|
|
|
|
Net trade accounts receivable |
|
|
35,105 |
|
|
|
|
38,892 |
|
Value added taxes recoverable |
|
|
2,202 |
|
|
|
|
4,331 |
|
Miscellaneous receivables |
|
|
1,747 |
|
|
|
|
2,472 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,054 |
|
|
|
$ |
45,695 |
|
|
|
|
|
|
|
|
|
The Company wrote off approximately $136 and $1,103 of trade receivables against the allowance
for doubtful accounts in 2009 and 2008, respectively.
7. Inventories
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Finished goods |
|
$ |
27,715 |
|
|
|
$ |
34,021 |
|
Raw materials and supplies |
|
|
16,343 |
|
|
|
|
15,744 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44,058 |
|
|
|
$ |
49,765 |
|
|
|
|
|
|
|
|
|
The inventory balance has been reduced by reserves for obsolete and slow-moving inventories of
$1,185 and $707 as of December 31, 2009 and 2008, respectively.
8. Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Land and improvements |
|
$ |
15,812 |
|
|
|
$ |
3,438 |
|
Buildings and improvements |
|
|
50,708 |
|
|
|
|
93,405 |
|
Machinery and equipment |
|
|
121,975 |
|
|
|
|
578,062 |
|
|
|
|
|
|
|
|
|
|
|
|
188,495 |
|
|
|
|
674,905 |
|
Less: accumulated depreciation and amortization |
|
|
(40,303 |
) |
|
|
|
(545,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
148,192 |
|
|
|
|
129,258 |
|
Construction in progress |
|
|
3,334 |
|
|
|
|
3,113 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
151,526 |
|
|
|
$ |
132,371 |
|
|
|
|
|
|
|
|
|
Depreciation expense was $32,327, $9,040 and $31,108 for the eight months ended December 31,
2009, the four months ended April 30, 2009, and the year ended
December 31, 2008, respectively. The Company recorded
accelerated depreciation on idled assets in the amount of $6,275 for
the year ended December 31, 2009, of which $3,722 was recorded in the
fourth quarter.
During the fourth quarter of 2009, the Company reduced the carrying value of property, plant
and equipment by $3,754 to correct an error in the April 30, 2009 fresh-start accounting allocation
of its reorganization value. See Note 4.
52
9. Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Deposits |
|
$ |
1,294 |
|
|
|
$ |
1,003 |
|
Contract acquisition fees |
|
|
940 |
|
|
|
|
|
|
Deferred financing costs, net |
|
|
552 |
|
|
|
|
|
|
Supplies |
|
|
342 |
|
|
|
|
112 |
|
Other |
|
|
464 |
|
|
|
|
511 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,592 |
|
|
|
$ |
1,626 |
|
|
|
|
|
|
|
|
|
10. Goodwill and Intangible Assets
The Company performed its annual goodwill impairment assessment as of October 1, 2009. In
performing the impairment assessment, the Company estimated the fair value of its single reporting
unit using the following valuation methods and assumptions:
|
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
discounting 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 3% growth rate to estimate the terminal value of the business. Cash
flows were discounted at a rate of 10.4%. |
|
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 approximately 10% 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 5.3 for 2010 and a market multiple of 4.7 for 2011. A weighting 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 October 1, 2009. A
control premium of 20% was assumed to determine the Companys equity value. |
The Company believes that the valuation methods described above, weighted equally, provides a
value representative of the fair value of the Company better than the use of a single technique.
53
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 assumptions used would have on the fair value of the Companys reporting unit at
October 1, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Assumed |
|
Decrease in |
|
Valuation Method |
|
Assumption |
|
Change |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Discounted cash flow |
|
Projected cash flows |
|
10% decrease |
|
$ |
(14.4 |
) |
Discounted cash flow |
|
Terminal year growth rate |
|
100 basis point decrease |
|
$ |
(9.4 |
) |
Discounted cash flow |
|
Discount rate |
|
100 basis point increase |
|
$ |
(6.5 |
) |
|
|
|
|
|
|
|
|
|
Market approach |
|
Projected cash flows |
|
10% decrease |
|
$ |
(16.7 |
) |
Market approach |
|
Market multiple |
|
20% discount to peer average |
|
$ |
(18.0 |
) |
Market approach |
|
Control premium |
|
10% control premium |
|
$ |
(4.1 |
) |
As of October 1, 2009, a decrease of approximately $2.4 million in the estimated fair value of
the implied equity of Companys reporting unit would have caused the Company to perform a Step 2
goodwill impairment analysis.
Based upon the results of the annual impairment assessment the Companys does not believe that
its goodwill was impaired as of October 1, 2009. In making the determination that goodwill was not
impaired at October 1, 2009, the Company considered both qualitative and quantitative factors,
including the effect of its recent emergence from bankruptcy and the limited volume of trading of
its securities in the equity and debt markets.
In addition to the annual test described above, the Company performed an interim goodwill
impairment assessment as of December 31, 2009 since the Companys market capitalization of $33.3
million was less than the carrying value of its stockholders equity of $78.6 million. The
calculation of the fair value of the Companys reporting unit was performed consistently with the
annual test performed at October 1, 2009, with updated assumptions where appropriate. The most
significant change to the October 1 valuation was a downward revision to projected cash flows due
to declines in the Companys projected sales from its previous projections utilized in its annual
impairment test. Based upon the analysis performed as of December 31, 2009, the Company failed Step
1 of the goodwill impairment test. Consequently, the Company performed a hypothetical purchase
price allocation to determine the amount of goodwill impairment, if any. The significant fair value
adjustment in the hypothetical purchase price allocation was an increase to long-term debt. The adjustments to
measure the assets, liabilities and intangibles at fair value were for the purpose of measuring the
implied fair value of goodwill. The adjustments are not reflected in the consolidated balance
sheet.
The results of the second step of the goodwill impairment test indicated that goodwill was not
impaired as of December 31, 2009. However, 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. If the Company makes additional downward revisions to its cash flow projections in the
future, the Company may experience a material impairment charge to the carrying amount of its
goodwill. At December 31, 2009, an approximate 5% decline in the estimated fair value of the
Companys reporting unit would have resulted in an impairment charge. Recognition of an 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 and could have a
negative impact on the Companys ability to raise capital on attractive terms.
The Company also performed an annual impairment test of its indefinite-lived intangible asset
as of October 1, 2009 and an interim impairment test as of December 31, 2009. 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 assets and their fair values. 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 3%, and
a discount rate of approximately 13.5%. Based on these evaluations the Company recorded
impairment charges related to its trade name intangible asset of $1.0 million as of October 1,
2009, and $3.0 million as of December 31, 2009. These impairment charges are included within
operating expenses in the accompanying consolidated statement of operations for the eight months
ended
December 31, 2009. The primary factor contributing to the impairment charges was a reduction
in sales expectations from its previous projection utilized in its annual impairment test.
54
The following table presents a summary of the activity related to the carrying value of
goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
April 30, 2009 |
|
|
|
|
|
|
Ended |
|
|
Fresh-start |
|
|
Four Months |
|
|
Year Ended |
|
|
|
December 31, |
|
|
Accounting |
|
|
Ended April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
Adjustments |
|
|
2009 |
|
|
2008 |
|
Beginning balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
117,313 |
|
|
$ |
381,872 |
|
|
$ |
381,872 |
|
|
$ |
381,872 |
|
Accumulated impairment losses |
|
|
|
|
|
|
(233,059 |
) |
|
|
(233,059 |
) |
|
|
(233,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,313 |
|
|
|
148,813 |
|
|
|
148,813 |
|
|
|
148,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh-start accounting adjustments, net |
|
|
|
|
|
|
(31,500 |
) |
|
|
|
|
|
|
|
|
Correction of errors (see note 4) |
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of the carrying value of indefinite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Trade name |
|
|
25,500 |
|
|
|
|
|
|
Accumulated impairment losses |
|
|
(4,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,500 |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, 2009 |
|
|
|
Estimated |
|
Gross |
|
|
|
|
|
|
|
|
|
Life |
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
(In thousands) |
|
(in years) |
|
Amount |
|
|
Amortization |
|
|
Value |
|
Technology |
|
4 to 12 |
|
$ |
9,700 |
|
|
$ |
(805 |
) |
|
$ |
8,895 |
|
Leasehold interests |
|
4 |
|
|
1,204 |
|
|
|
(201 |
) |
|
|
1,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
10,904 |
|
|
$ |
(1,006 |
) |
|
$ |
9,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $1,006 for the eight months ended December 31, 2009 and is included
within cost of goods sold in the accompanying consolidated statements of operations.
The following table summarizes the expected amortization expense for finite-lived intangible
assets:
|
|
|
|
|
(In thousands) |
|
|
|
|
2010 |
|
$ |
1,509 |
|
2011 |
|
|
1,509 |
|
2012 |
|
|
1,509 |
|
2013 |
|
|
909 |
|
2014 |
|
|
608 |
|
After 2014 |
|
|
3,854 |
|
|
|
|
|
|
|
$ |
9,898 |
|
|
|
|
|
55
11. Accrued Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Salaries, benefits, and other employee costs |
|
$ |
6,235 |
|
|
|
$ |
10,005 |
|
Value added taxes |
|
|
4,015 |
|
|
|
|
4,824 |
|
Interest |
|
|
1,610 |
|
|
|
|
1,870 |
|
Other accrued taxes |
|
|
1,865 |
|
|
|
|
2,120 |
|
Asset retirement obligations (See Note 17) |
|
|
1,264 |
|
|
|
|
2,163 |
|
Customer incentives |
|
|
1,491 |
|
|
|
|
|
|
Other current liabilities |
|
|
8,773 |
|
|
|
|
9,099 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,253 |
|
|
|
$ |
30,081 |
|
|
|
|
|
|
|
|
|
12. Debt
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Short-term: |
|
|
|
|
|
|
|
|
|
Exit Facility |
|
$ |
5,000 |
|
|
|
$ |
|
|
Revolver |
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
Total short-tem debt |
|
$ |
5,000 |
|
|
|
$ |
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
|
Secured Notes |
|
$ |
167,919 |
|
|
|
$ |
220,000 |
|
Less current portion |
|
|
|
|
|
|
|
(220,000 |
) |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
$ |
167,919 |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, there were $4.0 million and $10.1 million, respectively,
outstanding under letters of credit. The weighted-average interest rates on short-term borrowings
outstanding at December 31, 2009 and 2008 were 7% and 2%, respectively.
In connection with the Companys reorganization and emergence from bankruptcy, on the
Effective Date, all of the Companys 11% Senior Subordinated Notes Due 2012 were canceled and the
related indenture was terminated. Pursuant to the Plan of Reorganization the holders of Class 4
Senior Subordinated Note Claims (as defined in the Plan) received ten shares of new Common Stock
per one thousand dollars in face amount of the Senior Subordinated Notes. In addition, the
Companys existing revolving credit facility, the Senior Secured Super-Priority Debtor in
Possession and Exit Credit Agreement (Exit Facility) was converted into an exit facility. The
Exit Facility provided for a credit facility of up to $75.0 million, subject to borrowing base
limitations, reserves imposed by the agent in its discretion and certain covenants. Interest
accrued under the Exit Facility at fluctuating interest rates with a floor of 6.75%. The Company
was in compliance with the covenants of the Exit Facility as of December 31, 2009.
On February 11, 2010, the Company entered into the Credit Agreement with General Electric
Capital Corporation (Lender) and terminated its previous credit agreement. The Credit Agreement
provides for up to $75.0 million of available credit, with a sublimit of up to $15.0 million for
the issuance of letters of credit and up to $15.0 million in the case of swing loans. Available
credit under the 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) |
|
$2.5 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 in connection with
eligibility criteria or otherwise. |
56
The Credit Agreement contains certain financial covenants. Capital expenditures in any fiscal
year may not exceed $25 million plus the carry over of up to 75% of such amount from the
immediately preceding fiscal year if not used in that year. In addition, if the amount of
available credit less all outstanding loans and letters of credit during any fiscal quarter is less
than $15 million for any period of five consecutive business days, the Company must maintain
Consolidated EBITDA, as defined in the Credit Agreement, of not less than $40 million, calculated
on a trailing twelve month basis as of the last day of the then immediately preceding fiscal
quarter. The Company expects to be in compliance with its debt covenants during 2010. Based upon
its current projections though, the Company believes that the trailing twelve month Consolidated
EBITDA will fall below $40.0 million at the end of the second quarter of 2010, but that the Company
will remain in compliance with this covenant because available credit will not fall below $15.0
million for five consecutive business days. The Companys projected availability and Consolidated
EBITDA may be impacted by unit volume changes, resin price changes, movements in foreign currency,
working capital changes, changes in product mix, factors impacting the value of the borrowing base, and other factors.
In response to these factors, 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 covenant.
There can be no assurance that such actions would be successful.
The Credit Agreement contains other customary covenants and events of default. If an event of
default should occur and be continuing, the Lender may, among other things, accelerate the maturity
of the Credit Agreement. The 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 will pay monthly a commitment fee equal to 0.75% per year on the undrawn portion
of the 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. 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 Credit Agreement. Collateral securing the obligations under the 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
intangibles of the Company and its domestic and United Kingdom subsidiaries.
The Credit Agreements scheduled expiration date is February 11, 2013. However, the Credit
Agreement may terminate earlier if the Companys Secured Notes are not refinanced at least 90 days
prior to their scheduled due date or in the case of an event of default.
The Companys outstanding long-term debt at 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. The Company effectively exchanged its
floating interest rate for a fixed rate of 7.9% through February 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
UK subsidiary. Substantially all of the Companys property, plant, and equipment are pledged as
collateral for the Secured Notes.
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 December 31, 2009. If an event of default shall occur
and be continuing under the indenture, either the Trustee or holders of a specified percentage of
the applicable notes may accelerate the maturity of such notes. If there is an event of default
under the Credit Agreement that has occurred or is continuing, the Trustee may accelerate the
maturity of the Secured Notes.
57
Upon the adoption of fresh-start accounting, the Company adjusted the Secured Notes to fair
value based upon their quoted market price. The Company currently expects to record accretion
expense of approximately $22.8 million in 2010, $25.8 million in 2011 and $3.5 million in 2012. For
the eight months ended December 31, 2009, the Company recorded $13.6 million of accretion expense
which is included in interest expense in the accompanying consolidated statement of operations.
13. Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Interest rate swap (see Note 26) |
|
$ |
6,485 |
|
|
|
$ |
8,512 |
|
Asset retirement obligations (see Note 17) |
|
|
4,278 |
|
|
|
|
3,665 |
|
Post-employment benefits |
|
|
1,308 |
|
|
|
|
1,623 |
|
Deferred rent |
|
|
966 |
|
|
|
|
3,435 |
|
Non-current liabilities of discontinued operations |
|
|
881 |
|
|
|
|
773 |
|
Other |
|
|
585 |
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
$ |
14,503 |
|
|
|
$ |
18,088 |
|
|
|
|
|
|
|
|
|
The Company has recorded asset retirement obligations primarily associated with its leased
plant facilities. Post-employment benefits consist primarily of disability and severance benefits
for U.S. personnel. Deferred rent is the result of the recognition of rent expense on a
straight-line basis over the lease term.
14. Restructuring and Other Related Charges
On October 10, 2008, the Company executed a new 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. The Company continues to service the Houston plants PET
business using existing assets at the Companys Dallas, Texas facility.
In connection with the restructuring actions described above (the 2008 Restructuring), the
Company expects to incur total charges of approximately $10.5$12.8 million, depending on the
Companys ability to enter into a sublease agreement for a leased facility. The total charges
include (i) an estimated $2.5 million related to costs to exit facilities, (ii) an estimated $1.5
million related to employee severance and other termination benefits the majority of which was paid
in the fourth quarter of 2008 with the remainder paid in 2009, and (iii) approximately $7.7 million
of accelerated depreciation and other non-cash charges. The Companys estimated future rental cost
due under the current facility lease agreement has been reduced by the potential of a sublease
agreement. If the Company is unable to negotiate a sublease, the estimated cash costs associated
with the lease agreements, including executory and other exit costs, would be approximately $1.2
million in 2010.
Cash savings realized in 2009 as a result of reducing manufacturing and corporate overhead was
approximately $22.4 million. These restructuring actions were substantially complete at the end of
2009.
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 customer sales volume provided by the Salt Lake City supply
agreement has been shifted to other production facilities. The company did not incur any
restructuring expenditures in 2009 related to the Salt Lake City shut-down.
58
The following table presents a summary of the restructuring reserve activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Plan |
|
|
2008 Plans |
|
|
|
|
|
|
Severance |
|
|
Contract |
|
|
|
|
|
|
Contract |
|
|
Severance |
|
|
|
|
|
|
|
|
|
and |
|
|
and Lease |
|
|
|
|
|
|
and Lease |
|
|
and |
|
|
|
|
|
|
|
|
|
Termination |
|
|
Termination |
|
|
Other |
|
|
Termination |
|
|
Termination |
|
|
Other |
|
|
|
|
|
|
Benefits |
|
|
Costs |
|
|
Costs |
|
|
Costs |
|
|
Benefits |
|
|
Costs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008 (Predecessor) |
|
$ |
228 |
|
|
$ |
488 |
|
|
$ |
228 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
944 |
|
Charges to income |
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
553 |
|
|
|
1,539 |
|
|
|
823 |
|
|
|
3,177 |
|
Payments |
|
|
(216 |
) |
|
|
(586 |
) |
|
|
(229 |
) |
|
|
(308 |
) |
|
|
(921 |
) |
|
|
(802 |
) |
|
|
(3,062 |
) |
Adjustments |
|
|
2 |
|
|
|
(164 |
) |
|
|
1 |
|
|
|
(118 |
) |
|
|
(64 |
) |
|
|
|
|
|
|
(343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 (Predecessor) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
554 |
|
|
|
21 |
|
|
|
716 |
|
Charges to income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320 |
|
|
|
34 |
|
|
|
298 |
|
|
|
652 |
|
Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(336 |
) |
|
|
(451 |
) |
|
|
(238 |
) |
|
|
(1,025 |
) |
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009 (Predecessor) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
111 |
|
|
|
137 |
|
|
|
81 |
|
|
|
343 |
|
Charges to income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320 |
|
|
|
45 |
|
|
|
1,277 |
|
|
|
1,642 |
|
Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(385 |
) |
|
|
(116 |
) |
|
|
(1,029 |
) |
|
|
(1,530 |
) |
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 (Successor) |
|
$ |
14 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
46 |
|
|
$ |
|
|
|
$ |
329 |
|
|
$ |
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2008, the Company recorded additional reserves for
supplies of $2,080, wrote off deferred rent of $180 which reduced restructuring expense, recorded
$77 of other costs and recorded accretion expense related to an asset retirement obligation of $6.
Also, as a result of the 2008 Restructuring the Company recorded accelerated depreciation and other
non-cash charges of $3,440 which are included in cost of products sold in the consolidated
statement of operations.
15. Pension and Postretirement Benefits
Historically, all of the Companys U.S. salaried and hourly personnel participated in a
defined benefit pension plan. The benefits under this plan for salaried employees were based
primarily on years of service and remuneration near retirement. The benefits for hourly employees
were based primarily on years of service and a fixed monthly multiplier. Effective April 1, 2007,
the Company amended its U.S. defined benefit pension plan. Under the amendment, plan benefits were
frozen as of March 31, 2007 for plan participants with age plus service as of December 31, 2007
that is less than 65 (65 points). For salaried participants with at least 65 points, benefit
accruals on or after April 1, 2007 are based on the corporate salaried benefit formula with the
final average earnings percentage reduced to 1% per year of future service. Past service benefits
will continue to be based on the final average earnings at retirement, where applicable. There is
no change in the benefit formula for hourly participants with at least 65 points. Employees hired
after April 1, 2007 are not eligible to participate in the pension plan.
Employees of the U.K. operation participated in a contributory pension plan with a benefit
based on years of service and final salary. Under the U.K. plan, participants contributed 5% of
their salary each year and the U.K. operation contributed the balance, which was approximately 22%
of salary. Effective February 28, 2010, the U.K. pension plan was frozen.
Employees in the Netherlands operation are entitled to a retirement benefit based on years of
service and average salary. The plan is financed via participating annuity contracts and the values
of the participation rights approximate the unfunded service obligation based on future
compensation increases.
During the fourth quarter of 2009, the Company reduced the U.S. pension liability by $1,529 to
correct an error in the April 30, 2009 fresh-start accounting allocation of its reorganization
value. See Note 4.
Due to a reduction in its workforce as a result of the 2008 Restructuring, the Company
recorded a curtailment charge of $39 for the year ended December 31, 2008. The curtailment resulted
in an increase in the benefit obligation and a decrease in accumulated other comprehensive income
of $5,796.
59
The components of net periodic pension cost are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
Predecessor |
|
|
|
Eight Months Ended |
|
|
|
Four Months Ended |
|
|
Year Ended |
|
|
|
December 31, 2009 |
|
|
|
April 30, 2009 |
|
|
December 31, 2008 |
|
(In thousands) |
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
Service cost |
|
$ |
355 |
|
|
$ |
363 |
|
|
$ |
718 |
|
|
|
$ |
207 |
|
|
$ |
168 |
|
|
$ |
375 |
|
|
$ |
667 |
|
|
$ |
653 |
|
|
$ |
1,320 |
|
Interest cost |
|
|
3,530 |
|
|
|
430 |
|
|
|
3,960 |
|
|
|
|
1,752 |
|
|
|
171 |
|
|
|
1,923 |
|
|
|
5,250 |
|
|
|
649 |
|
|
|
5,899 |
|
Expected return on plan assets |
|
|
(3,028 |
) |
|
|
(395 |
) |
|
|
(3,423 |
) |
|
|
|
(1,504 |
) |
|
|
(168 |
) |
|
|
(1,672 |
) |
|
|
(6,021 |
) |
|
|
(856 |
) |
|
|
(6,877 |
) |
Recognized actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,585 |
|
|
|
106 |
|
|
|
1,691 |
|
|
|
2,171 |
|
|
|
224 |
|
|
|
2,395 |
|
Recognized prior service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
(12 |
) |
|
|
6 |
|
|
|
59 |
|
|
|
(42 |
) |
|
|
17 |
|
Curtailment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense |
|
$ |
857 |
|
|
$ |
398 |
|
|
$ |
1,255 |
|
|
|
$ |
2,058 |
|
|
$ |
265 |
|
|
$ |
2,323 |
|
|
$ |
2,165 |
|
|
$ |
628 |
|
|
$ |
2,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A measurement date of December 31 was used for all plans presented below. Changes in the
pension benefit obligations, plan assets, and funded status were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months Ended |
|
|
|
Four Months Ended |
|
|
Year Ended |
|
|
|
December 31, 2009 |
|
|
|
April 30, 2009 |
|
|
December 31, 2008 |
|
(In thousands) |
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
Change in Benefit Obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period |
|
$ |
74,617 |
|
|
$ |
9,795 |
|
|
$ |
84,412 |
|
|
|
$ |
84,192 |
|
|
$ |
9,784 |
|
|
$ |
93,976 |
|
|
$ |
76,960 |
|
|
$ |
12,457 |
|
|
$ |
89,417 |
|
Service cost |
|
|
355 |
|
|
|
363 |
|
|
|
718 |
|
|
|
|
207 |
|
|
|
179 |
|
|
|
386 |
|
|
|
667 |
|
|
|
653 |
|
|
|
1,320 |
|
Interest cost |
|
|
3,530 |
|
|
|
430 |
|
|
|
3,960 |
|
|
|
|
1,752 |
|
|
|
185 |
|
|
|
1,937 |
|
|
|
5,250 |
|
|
|
649 |
|
|
|
5,899 |
|
Actuarial (gain) loss |
|
|
11,887 |
|
|
|
2,631 |
|
|
|
14,518 |
|
|
|
|
(10,313 |
) |
|
|
(194 |
) |
|
|
(10,507 |
) |
|
|
4,780 |
|
|
|
(539 |
) |
|
|
4,241 |
|
Participant contributions |
|
|
|
|
|
|
152 |
|
|
|
152 |
|
|
|
|
|
|
|
|
62 |
|
|
|
62 |
|
|
|
|
|
|
|
274 |
|
|
|
274 |
|
Benefits paid |
|
|
(2,852 |
) |
|
|
(369 |
) |
|
|
(3,221 |
) |
|
|
|
(1,221 |
) |
|
|
(323 |
) |
|
|
(1,544 |
) |
|
|
(3,465 |
) |
|
|
(482 |
) |
|
|
(3,947 |
) |
Foreign currency translation |
|
|
|
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
102 |
|
|
|
102 |
|
|
|
|
|
|
|
(3,228 |
) |
|
|
(3,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period |
|
|
87,537 |
|
|
|
14,002 |
|
|
|
101,539 |
|
|
|
|
74,617 |
|
|
|
9,795 |
|
|
|
84,412 |
|
|
|
84,192 |
|
|
|
9,784 |
|
|
|
93,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period |
|
|
54,034 |
|
|
|
6,608 |
|
|
|
60,642 |
|
|
|
|
53,765 |
|
|
|
6,610 |
|
|
|
60,375 |
|
|
|
73,188 |
|
|
|
10,567 |
|
|
|
83,755 |
|
Actual returns on plan assets |
|
|
11,664 |
|
|
|
1,895 |
|
|
|
13,559 |
|
|
|
|
462 |
|
|
|
(426 |
) |
|
|
36 |
|
|
|
(18,998 |
) |
|
|
(2,252 |
) |
|
|
(21,250 |
) |
Employer contributions |
|
|
1,677 |
|
|
|
382 |
|
|
|
2,059 |
|
|
|
|
1,028 |
|
|
|
581 |
|
|
|
1,609 |
|
|
|
3,040 |
|
|
|
963 |
|
|
|
4,003 |
|
Participant contributions |
|
|
|
|
|
|
152 |
|
|
|
152 |
|
|
|
|
|
|
|
|
62 |
|
|
|
62 |
|
|
|
|
|
|
|
274 |
|
|
|
274 |
|
Benefits paid |
|
|
(2,852 |
) |
|
|
(369 |
) |
|
|
(3,221 |
) |
|
|
|
(1,221 |
) |
|
|
(323 |
) |
|
|
(1,544 |
) |
|
|
(3,465 |
) |
|
|
(482 |
) |
|
|
(3,947 |
) |
Foreign currency rate changes |
|
|
|
|
|
|
677 |
|
|
|
677 |
|
|
|
|
|
|
|
|
104 |
|
|
|
104 |
|
|
|
|
|
|
|
(2,460 |
) |
|
|
(2,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period |
|
|
64,523 |
|
|
|
9,345 |
|
|
|
73,868 |
|
|
|
|
54,034 |
|
|
|
6,608 |
|
|
|
60,642 |
|
|
|
53,765 |
|
|
|
6,610 |
|
|
|
60,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of period |
|
$ |
23,014 |
|
|
$ |
4,657 |
|
|
$ |
27,671 |
|
|
|
$ |
20,583 |
|
|
$ |
3,187 |
|
|
$ |
23,770 |
|
|
$ |
30,427 |
|
|
$ |
3,174 |
|
|
$ |
33,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, 2009 |
|
|
|
December 31, 2008 |
|
(In thousands) |
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
Amounts recognized on the
consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability |
|
$ |
48 |
|
|
$ |
516 |
|
|
$ |
564 |
|
|
|
$ |
64 |
|
|
$ |
|
|
|
$ |
64 |
|
Non-current liability |
|
|
22,966 |
|
|
|
4,141 |
|
|
|
27,107 |
|
|
|
|
30,363 |
|
|
|
3,174 |
|
|
|
33,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability |
|
$ |
23,014 |
|
|
$ |
4,657 |
|
|
$ |
27,671 |
|
|
|
$ |
30,427 |
|
|
$ |
3,174 |
|
|
$ |
33,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income, pretax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial losses |
|
$ |
(3,251 |
) |
|
$ |
(1,130 |
) |
|
$ |
(4,381 |
) |
|
|
$ |
(55,952 |
) |
|
$ |
(6,079 |
) |
|
$ |
(62,031 |
) |
Prior service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(233 |
) |
|
|
436 |
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,251 |
) |
|
$ |
(1,130 |
) |
|
$ |
(4,381 |
) |
|
|
$ |
(56,185 |
) |
|
$ |
(5,643 |
) |
|
$ |
(61,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net loss is not expected to be amortized from accumulated other comprehensive loss
into net periodic benefit costs during 2010.
60
The following table provides a summary of pension plans with accumulated benefit obligations
in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, 2009 |
|
|
|
December 31, 2008 |
|
(In thousands) |
|
U.S. |
|
|
Europe |
|
|
Total |
|
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
For all plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation |
|
|
83,808 |
|
|
|
10,174 |
|
|
|
93,982 |
|
|
|
|
80,595 |
|
|
|
7,234 |
|
|
|
87,829 |
|
Plans with accumulated benefit
obligations in excess of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
|
87,537 |
|
|
|
12,911 |
|
|
|
100,448 |
|
|
|
|
84,192 |
|
|
|
9,784 |
|
|
|
93,976 |
|
Fair value of plan assets |
|
|
64,523 |
|
|
|
9,345 |
|
|
|
73,868 |
|
|
|
|
53,765 |
|
|
|
6,610 |
|
|
|
60,375 |
|
Assumptions
Weighted-average assumptions used in determining the pension benefit obligations at December
31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
2009 |
|
|
|
2008 |
|
|
|
U.S. |
|
|
Europe |
|
|
|
U.S. |
|
|
Europe |
|
Discount rate |
|
|
6.10 |
% |
|
|
5.61 |
% |
|
|
|
6.40 |
% |
|
|
5.80 |
% |
Rate of compensation increase |
|
|
3.00 |
% |
|
|
4.22 |
% |
|
|
|
3.00 |
% |
|
|
3.92 |
% |
Weighted-average assumptions used in determining the net periodic benefit cost for the plans
at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Year ended |
|
|
|
For months ended |
|
|
Year ended |
|
|
|
December 31, 2009 |
|
|
|
April 30, 2009 |
|
|
December 31, 2008 |
|
|
|
U.S. |
|
|
Europe |
|
|
|
U.S. |
|
|
Europe |
|
|
U.S. |
|
|
Europe |
|
Discount rate |
|
|
7.25 |
% |
|
|
6.40 |
% |
|
|
|
6.40 |
% |
|
|
5.90 |
% |
|
|
6.75 |
% |
|
|
5.61 |
% |
Rate of compensation increase |
|
|
3.00 |
% |
|
|
3.86 |
% |
|
|
|
3.00 |
% |
|
|
3.87 |
% |
|
|
3.00 |
% |
|
|
3.90 |
% |
Expected return on plan assets |
|
|
8.50 |
% |
|
|
8.00 |
% |
|
|
|
8.50 |
% |
|
|
7.96 |
% |
|
|
8.50 |
% |
|
|
8.22 |
% |
The discount rate assumption used to determine the pension obligation in the U.S. is based on
current yield rates in the AA bond market. The current years discount rate was selected using a
method that matches projected payouts from the plan with a zero-coupon AA bond yield curve. This
yield curve was constructed from the underlying bond price and yield data collected as of the
plans measurement date as is represented by a series of annualized, individual discount rates with
durations ranging from six months to thirty years. Each discount rate in the curve was derived from
an equal weighting of the AA or higher bond universe, apportioned into distinct maturity groups.
These individual discount rates are then converted into a single equivalent discount rate which is
then used for discount purposes. The discount rates for the European pension plans were determined
based on the yields available on high quality Sterling and Euro denominated corporate bonds, the
proceeds of which are expected to match in terms of currency and term the projected benefit
payments.
The expected long-term rates of return for the U.S. plan are determined at each measurement
date based on a review of the actual plan assets and the historical returns of the capital markets.
The U.S. plans 2009 assumed asset rate of return of 8.5% was based on a calculation using
underlying assumed rates of return of 9.8% for equity securities and 6.4% for debt securities. An
assumed rate of 9.8% was used for equity securities based on the total return of the S&P 500 for
the 25 year period ended December 31, 2008. The Company used a 6.4% assumed return for debt
securities, consistent with the U.S. plan
discount rate and the return on AA corporate bonds with duration equal to the plans
liabilities. The European plans assumed asset rate of return of 8% is based on expected returns by
asset class and weighting these returns by the actual allocation by asset class. Equity securities
are expected to return between 8% and 10% over the long-term, while debt securities are expected to
return between 4% and 7%.
A 1.0% decrease in the expected rate of return on plan assets would have increased 2009
pension expense by approximately $605. A 0.5% decrease in the discount rate would have increased
2009 pension expense by $199.
61
Plan Assets
The Companys investment strategy for its U.S. defined benefit pension plan is to maximize
long-term rate of return on plan assets within an acceptable level of risk. For the U.S. plan,
target asset allocations are set using a minimum and maximum range for each asset category as a
percentage of the total funds market value. The asset allocation and the investment policies are
reviewed semi-annually to determine if changes are necessary. In order to meet target asset
allocations, assets may be invested in a mixture of domestic mid and large capitalization common
stocks, domestic small capitalization common stocks, domestic investment grade bonds, international
common stocks and cash equivalents. The investment process is monitored by an investment committee
comprised of various senior executives from within the Company. The Company does not believe there
is a significant concentration of risk within the plan assets given the diversification of asset
types.
The European plans investment strategy is to maintain a diversified but pro-equity approach
to maximize the long-term return on the plans assets while minimizing investment risks and meet
funding requirements. The Trustees periodically review the investments held for suitability and
appropriate diversification.
The following tables present the target asset allocations as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets |
|
|
|
|
|
|
|
at December 31, |
|
U.S. Plan Assets |
|
Target Allocation |
|
|
2009 |
|
|
2008 |
|
Equity securities |
|
50%-70% |
|
|
|
61 |
% |
|
|
70 |
% |
Debt securities |
|
30%-50% |
|
|
|
36 |
% |
|
|
26 |
% |
Other |
|
0%-3% |
|
|
|
3 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets |
|
|
|
at December 31, |
|
Europe Plan Assets |
|
2009 |
|
|
2008 |
|
Equity securities |
|
|
83 |
% |
|
|
76 |
% |
Debt securities |
|
|
13 |
% |
|
|
13 |
% |
Real estate |
|
|
1 |
% |
|
|
1 |
% |
Other |
|
|
3 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
The fair values, by asset category, of assets of defined benefit pension plans for both the
U.S. and Europe at December 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 |
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
|
|
(In thousands) |
|
Assets |
|
|
Inputs |
|
|
|
|
Asset Category |
|
(Level 1) |
|
|
(Level 2) |
|
|
Total |
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
1,574 |
|
|
$ |
|
|
|
$ |
1,574 |
|
Mutual Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond funds |
|
|
23,410 |
|
|
|
|
|
|
|
23,410 |
|
Domestic small-cap equity funds |
|
|
7,688 |
|
|
|
|
|
|
|
7,688 |
|
Domestic large-cap equity funds |
|
|
24,045 |
|
|
|
|
|
|
|
24,045 |
|
International large-cap equity funds (a) |
|
|
7,806 |
|
|
|
|
|
|
|
7,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
64,523 |
|
|
$ |
|
|
|
$ |
64,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Pooled funds (b) |
|
$ |
|
|
|
$ |
9,345 |
|
|
$ |
9,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily comprised of investments in Europe and the Pacific Basin. |
|
(b) |
|
Comprised of approximately 65% European and U.S. common stocks, 17% Asia/Pacific Basin and
emerging markets common stocks, and 13% bonds. The remainder represents cash and other investments. |
62
Cash Flows
Estimated 2010 contributions to the Companys defined benefit pension plans are expected to be
$3,128 and $895 for the U.S. plan and Europe plans, respectively. These estimates may change based
on plan asset performance.
The following benefit payments are expected to be paid for the year(s) ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
Europe |
|
|
Total |
|
2010 |
|
|
4,101 |
|
|
|
598 |
|
|
|
4,699 |
|
2011 |
|
|
4,288 |
|
|
|
622 |
|
|
|
4,910 |
|
2012 |
|
|
4,559 |
|
|
|
646 |
|
|
|
5,205 |
|
2013 |
|
|
4,851 |
|
|
|
672 |
|
|
|
5,523 |
|
2014 |
|
|
5,077 |
|
|
|
738 |
|
|
|
5,815 |
|
2015-2019 |
|
|
29,762 |
|
|
|
4,401 |
|
|
|
34,163 |
|
Other Postretirement Benefits
In the U.S., the Company sponsors unfunded plans to provide health care and life insurance
benefits to pensioners and survivors. Generally, the medical plans pay a stated percentage of
medical expenses reduced by deductibles and other coverage. Life insurance benefits are generally
provided by insurance contracts. The Company reserves the right, subject to existing agreements, to
change, modify or discontinue the plans. This plan was closed to new participants as of
December 31, 2002. Only employees as of that date that met certain employment experience and were
of a certain age will be allowed to receive benefits under this plan at time of retirement.
The components of net periodic postretirement cost are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
Predecessor |
|
|
|
Eight Months Ended |
|
|
|
Four Months Ended |
|
|
Year Ended |
|
(In thousands) |
|
December 31, 2009 |
|
|
|
April 30, 2009 |
|
|
December 31, 2008 |
|
Interest cost |
|
$ |
232 |
|
|
|
$ |
109 |
|
|
$ |
332 |
|
Recognized actuarial loss |
|
|
|
|
|
|
|
261 |
|
|
|
784 |
|
Recognized prior service costs |
|
|
|
|
|
|
|
(102 |
) |
|
|
(307 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other postretirement benefits expense |
|
$ |
232 |
|
|
|
$ |
268 |
|
|
$ |
809 |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months Ended |
|
|
|
Four Months Ended |
|
|
Year Ended |
|
(In thousands) |
|
December 31, 2009 |
|
|
|
April 30, 2009 |
|
|
December 31, 2008 |
|
Benefit obligation beginning of period |
|
$ |
5,173 |
|
|
|
$ |
5,310 |
|
|
$ |
6,066 |
|
Interest cost |
|
|
232 |
|
|
|
|
109 |
|
|
|
332 |
|
Participant contributions |
|
|
93 |
|
|
|
|
50 |
|
|
|
145 |
|
Actuarial (gain) loss |
|
|
(1,047 |
) |
|
|
|
(229 |
) |
|
|
(916 |
) |
Benefits paid |
|
|
(83 |
) |
|
|
|
(67 |
) |
|
|
(317 |
) |
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation end of period |
|
$ |
4,368 |
|
|
|
$ |
5,173 |
|
|
$ |
5,310 |
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Amounts recognized on the
consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
Current liability |
|
$ |
370 |
|
|
|
$ |
335 |
|
Non-current liability |
|
|
3,998 |
|
|
|
|
4,975 |
|
|
|
|
|
|
|
|
|
|
|
$ |
4,368 |
|
|
|
$ |
5,310 |
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other
comprehensive income, pretax: |
|
|
|
|
|
|
|
|
|
Net actuarial gains (losses) |
|
$ |
1,046 |
|
|
|
$ |
(2,351 |
) |
Prior service costs |
|
|
|
|
|
|
|
4,598 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,046 |
|
|
|
$ |
2,247 |
|
|
|
|
|
|
|
|
|
The estimated net actuarial gain for other postretirement plans that will be amortized from
accumulated other comprehensive loss into net periodic benefit cost during 2010 is $62.
The health care accumulated postretirement benefit obligation was determined at December 31,
2009 using a health care cost trend rate of 12.0%, decreasing to 6.5% in 2020. The discount rate
was 5.81% and 6.65% for December 31, 2009 and 2008, respectively.
Increasing the assumed health care cost trend by one percentage point would increase the
accumulated postretirement benefit obligation by approximately $349 and the total of service and
interest cost by $20. Decreasing the assumed health care cost trend by one percentage point would
decrease the accumulated postretirement benefit obligation by $303 and the total of service and
interest cost by $18.
The accumulated gains and losses in excess of 10% of the greater of the accumulated
postretirement pension obligation or the market related value of plan assets are amortized over the
average remaining service period of active participants.
Defined Contribution Plan
The Company sponsors a 401(k) Retirement Savings Plan that covers substantially all U.S.
employees. The Companys contributions to the plan were $1,545 and $1,968 in 2009 and 2008,
respectively. Effective January 1, 2010, the Company froze its contributions to the plan.
16. Income Taxes
Pre-tax income (loss) was generated under the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
|
April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2009 |
|
|
2008 |
|
U.S. |
|
$ |
(36,687 |
) |
|
|
$ |
147,236 |
|
|
$ |
(41,753 |
) |
Europe |
|
|
3,844 |
|
|
|
|
865 |
|
|
|
(16,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(32,843 |
) |
|
|
$ |
148,101 |
|
|
$ |
(58,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
64
The benefit (provision) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2009 |
|
|
2008 |
|
Current tax (provision) benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
(10 |
) |
|
|
$ |
(18 |
) |
|
$ |
56 |
|
Europe |
|
|
|
|
|
|
|
45 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
27 |
|
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (provision) benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
12,188 |
|
|
|
|
(36,926 |
) |
|
|
|
|
Europe |
|
|
(362 |
) |
|
|
|
(908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,826 |
|
|
|
|
(37,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit (provision) for income taxes |
|
$ |
11,816 |
|
|
|
$ |
(37,807 |
) |
|
$ |
447 |
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amount of income tax determined by applying
the applicable U.S. federal statutory tax rate of 35% to pre-tax income/(loss) as a result of the
following differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2009 |
|
|
2008 |
|
Pre-tax benefit (expense) at 35% |
|
$ |
11,496 |
|
|
|
$ |
(51,835 |
) |
|
$ |
20,379 |
|
State tax (provision) benefit |
|
|
1,205 |
|
|
|
|
(3,002 |
) |
|
|
(45 |
) |
Non-U.S. operations at different rates |
|
|
983 |
|
|
|
|
(560 |
) |
|
|
(5,375 |
) |
Non-deductible reorganization costs |
|
|
(667 |
) |
|
|
|
(2,451 |
) |
|
|
(1,776 |
) |
Non-deductible goodwill |
|
|
|
|
|
|
|
(28,028 |
) |
|
|
|
|
Restricted
stock cancellation |
|
|
|
|
|
|
|
(570 |
) |
|
|
|
|
Other non-deductible costs |
|
|
24 |
|
|
|
|
(23 |
) |
|
|
2 |
|
Taxable dividend distributions |
|
|
(1,225 |
) |
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
|
|
|
|
|
48,662 |
|
|
|
(12,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
Benefit from (provision for) income taxes |
|
$ |
11,816 |
|
|
|
$ |
(37,807 |
) |
|
$ |
447 |
|
|
|
|
|
|
|
|
|
|
|
|
65
The components of deferred tax assets and (liabilities) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Eight Months |
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits |
|
$ |
14,425 |
|
|
$ |
14,059 |
|
|
$ |
18,620 |
|
Restructuring reserves |
|
|
150 |
|
|
|
132 |
|
|
|
302 |
|
Mark-to-market cash flow hedge |
|
|
2,496 |
|
|
|
2,911 |
|
|
|
3,297 |
|
Net operating loss carry-forwards |
|
|
56,372 |
|
|
|
52,420 |
|
|
|
51,269 |
|
Other Accruals |
|
|
3,448 |
|
|
|
4,349 |
|
|
|
3,218 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset |
|
|
76,891 |
|
|
|
73,871 |
|
|
|
76,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual interest |
|
|
(3,087 |
) |
|
|
(2,470 |
) |
|
|
|
|
Secured debt fair value adjustment |
|
|
(20,048 |
) |
|
|
(25,301 |
) |
|
|
|
|
Cancellation of debt income |
|
|
(32,622 |
) |
|
|
(32,622 |
) |
|
|
|
|
Property, plant, and equipment |
|
|
(24,138 |
) |
|
|
(27,981 |
) |
|
|
(10,590 |
) |
Intangible assets |
|
|
(12,087 |
) |
|
|
(14,014 |
) |
|
|
|
|
Other |
|
|
(918 |
) |
|
|
(1,670 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax (liability) |
|
|
(92,900 |
) |
|
|
(104,058 |
) |
|
|
(10,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance |
|
|
(8,744 |
) |
|
|
(7,648 |
) |
|
|
(66,116 |
) |
|
|
|
|
|
|
|
|
|
|
Total Deferred tax asset / (liability) |
|
|
(24,753 |
) |
|
|
(37,835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, the Company had federal net operating loss carry forwards in
the amount of $131.9 million and $106.0 million, respectively. The federal net operating loss
carry forwards will begin to expire in the year 2023. The Companys ability to use the federal net
operating loss carry forwards is subject to certain limitations due to ownership changes as defined
by rules pursuant to Section 382 of the Internal Revenue Code of 1986 as amended.
Generally, the discharge of a debt obligation for an amount less than the adjusted issue price
creates cancellation of indebtedness income (CODI), which must be included in the obligors taxable
income. However, recognition of CODI is limited for a taxpayer that is a debtor in a reorganization
case if the discharge is granted by the court or pursuant to a plan of reorganization approved by
the court. In the Companys case, the Plan of Reorganization enabled the Debtors to qualify for
this bankruptcy exclusion rule. The CODI triggered by discharge of debt under the Plan of
Reorganization will affect the taxable income of the Debtors for the
2010 tax return by potentially reducing
certain income tax attributes otherwise available in the following order: (i) net operating losses
(NOLs) for the year of discharge and net operating loss carryforwards; (ii) most credit
carryforwards, including the general business credit and the minimum tax credit; (iii) net capital
losses for the year of discharge and capital loss carryforwards; and (iv) the tax basis of the
debtors assets.
As of December 31, 2009 and 2008, the Company had state net operating loss carry forwards in
the amount of $109.5 million and $135.7 million, respectively. The state net operating loss carry
forwards began to expire in 2007 and continue to expire through 2024.
In the United Kingdom the Company had foreign operating loss carry forwards of $22.8 million
and $22.6 million as of December 31, 2009 and 2008, respectively. In the Netherlands the Company
had foreign operating loss carry forwards of $0.2 million and $0.0 million as of December 31, 2009
and 2008, respectively. The Company believes that the deferred tax assets in the U.S. and Holland
are recoverable and therefore no valuation allowance was recorded for these assets.
The Company has recorded a full valuation allowance against the net deferred tax asset
position of its UK subsidiary due to uncertainties surrounding the companys ability to recognize
those deferred tax assets in the future. The Company believes that
the deferred tax assets in the U.S. and Holland are recoverable and
therefore no valuation allowance was recorded for these assets.
No provision has been made for income taxes on the portion of unremitted earnings of foreign
subsidiaries which are deemed to be permanently invested in those operations. Unremitted earnings
of foreign subsidiaries are insignificant.
66
The following table summarizes the activity related to unrecognized tax benefits:
|
|
|
|
|
(In thousands) |
|
|
|
|
Balance at January 1, 2008 (Predecessor) |
|
$ |
678 |
|
Additions for tax positions of prior years |
|
|
5 |
|
Reductions for tax positions of prior years |
|
|
(106 |
) |
Foreign currency translation impact |
|
|
26 |
|
|
|
|
|
Balance at December 31, 2008 (Predecessor) |
|
|
603 |
|
Additions for tax positions of prior years |
|
|
60 |
|
Foreign currency translation impact |
|
|
(29 |
) |
|
|
|
|
Balance at April 30, 2009 (Predecessor) |
|
$ |
634 |
|
|
|
|
|
|
|
|
|
|
Balance at May 1, 2009 (Successor) |
|
$ |
634 |
|
Settlements |
|
|
(3 |
) |
Foreign currency translation impact |
|
|
50 |
|
|
|
|
|
Balance at December 31, 2009 (Successor) |
|
$ |
681 |
|
|
|
|
|
Total unrecognized tax benefits as of December 31, 2009 were $0.7 million. Total unrecognized
tax benefits as of April 30, 2009, and December 31, 2008 were $0.6 million. Total unrecognized
tax benefits primarily relate to discontinued operations. Total unrecognized tax benefits are
included in other liabilities on the consolidated balance sheets. In addition, the Company had
accrued approximately $0.2 million for estimated penalties and interest on uncertain tax positions
as of December 31, 2009, April 30, 2009 and
December 31, 2008. The Company believes it is reasonably
possible that the tax matters related to its discontinued operation
will be settled within the next twelve months. See Note 19 for
further details. The Company believes that it has
adequately provided for any reasonably foreseeable resolution of any tax disputes, but will adjust
its reserves if events so dictate. 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.
The following table presents the tax years that remain subject to examination:
|
|
|
|
|
|
|
|
|
|
|
Examination Years Open |
|
Jurisdiction |
|
From |
|
|
To |
|
United States: |
|
|
|
|
|
|
|
|
Federal |
|
|
2005 |
|
|
|
2009 |
|
States (varies by jurisdictions) |
|
|
2004 |
|
|
|
2009 |
|
United Kingdom |
|
|
2008 |
|
|
|
2009 |
|
Netherlands |
|
|
2005 |
|
|
|
2009 |
|
Italy (discontinued operation) |
|
|
2005 |
|
|
|
2009 |
|
17. Asset Retirement Obligations
The Company has asset retirement obligations (AROs) resulting from certain leased facilities
where a contractual commitment exists to remove equipment and leasehold improvements and return the
property to a specified condition when the lease terminates. At December 31, 2009 and 2008, the
retirement asset related to the AROs approximated $4,115 and $3,250, respectively.
67
The following table presents the activity related to AROs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Fresh-start |
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Accounting |
|
|
Ended |
|
|
Year Ended |
|
(In thousands) |
|
December 31, 2009 |
|
|
|
Adjustments |
|
|
April 30, 2009 |
|
|
December 31, 2008 |
|
Beginning balance |
|
$ |
6,068 |
|
|
|
$ |
6,566 |
|
|
$ |
5,828 |
|
|
$ |
5,714 |
|
Accretion expense |
|
|
347 |
|
|
|
|
|
|
|
|
134 |
|
|
|
431 |
|
Revisions to estimates |
|
|
284 |
|
|
|
|
|
|
|
|
759 |
|
|
|
322 |
|
Settlements |
|
|
(1,157 |
) |
|
|
|
|
|
|
|
(155 |
) |
|
|
(639 |
) |
Fresh-start accounting adjustments |
|
|
|
|
|
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
5,542 |
|
|
|
$ |
6,068 |
|
|
$ |
6,566 |
|
|
$ |
5,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. Lease Commitments
Constar leases certain property, including warehousing facilities that are classified as
operating leases and, as such, are not capitalized. Terms of the leases, including purchase
options, renewals, maintenance costs and escalation clauses, vary by lease.
The following is a schedule of future minimum lease payments under long-term operating leases:
|
|
|
|
|
(In thousands) |
|
|
|
|
Year Ending December 31, |
|
|
|
|
2010 |
|
$ |
8,448 |
|
2011 |
|
|
7,227 |
|
2012 |
|
|
5,925 |
|
2013 |
|
|
4,434 |
|
2014 |
|
|
1,266 |
|
Thereafter |
|
|
2,521 |
|
|
|
|
|
Net minimum lease payments |
|
$ |
29,821 |
|
|
|
|
|
Total rent expense was $7,048, $3,614 and $11,138 for the eight months ended December 31,
2009, the four months ended April 30, 2009 and the year ended December 31, 2008, respectively.
19. Commitments and Contingencies
As discussed in Note 1 Emergence from Voluntary Reorganization under Chapter 11
Proceedings in the notes to these consolidated financial statements, on the Petition Date, Constar
and the other Debtors filed voluntary petitions in the Bankruptcy Court seeking reorganization
relief under the provisions of Chapter 11 of the Bankruptcy Code. The Chapter 11 Cases were jointly
administered under the caption In re Constar International Inc., et al., Chapter 11 Case No.
08-13432 (PJW). The Debtors emerged from Chapter 11 on May 29, 2009.
The Company, one of its present directors and certain of its former directors, along with
Crown Holdings, Inc., as well as various underwriters, have been named as defendants in a
consolidated securities class action lawsuit filed in the United States District Court for the
Eastern District of Pennsylvania, In re Constar International Inc. Securities Litigation (Master
File No. 03-CV-05020) generally alleging that the registration statement and prospectus for the
Companys initial public offering of its common stock on November 14, 2002 contained material
misrepresentations and/or omissions. This action consolidates previous lawsuits, namely Parkside
Capital LLC v. Constar International Inc et al. (Civil Action No. 03-5020), filed on September 5,
2003 and Walter Frejek v. Constar International Inc. et al. (Civil Action No. 03-5166), filed on
September 15, 2003. In connection with the Companys emergence from Chapter 11 and in accordance
with the Plan of Reorganization, all such claims are to be subordinated pursuant to Section 510(b)
of the Bankruptcy Code and treated as equity interests. The Plan of Reorganization further provides
that all pre-petition equity interests in Constar will be extinguished, as will any claims relating
to, or arising in connection with, such equity interests (or the purchase or sale of such
interests), including all indemnification and contribution obligations related to this action.
Accordingly, the Company and the plaintiffs filed a joint stipulation to dismiss Constar from the
action based on the Plan of Reorganization. This stipulation dismissing Constar from the action was
approved by the District Court on November 4, 2009.
68
On October 8, 2008, Marshall Packaging Co. LLC filed a complaint in the Eastern District
of Texas, C. A. No. 6:08cv394, against the Company, as well as certain bottled water companies,
alleging infringement of U.S. Patent No. RE 38,770, entitled Collapsible Container, and seeking
injunctive relief and monetary damages. The complaint alleged that the Company had infringed and
was infringing the patent by making and selling certain beverage containers, but did not
specifically identify the accused containers. In the third quarter of 2009, the Company entered
into a settlement agreement with Marshall Packaging Co. LLC, the terms of which are confidential.
The settlement did not have a material impact on the Companys financial position or results of
operations.
The Company is subject to other 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 us would constitute an event of default under our debt agreements.
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 is negotiating to
reach an out of court settlement, but there can be no assurance that any such settlement will be
reached. The Company estimates its maximum exposure, including interest and penalties, at
approximately $3.4 million. The Company intends to defend against this matter vigorously. The
Company has established a reserve, including estimated penalties and interest, of $0.9 million at
December 31, 2009 and 2008, in respect to this matter. These reserves are included in non-current
liabilities of discontinued operations on the consolidated balance sheets.
Constar has received requests for information or notifications of potential responsibility
from the Environmental Protection Agency (EPA), and certain state environmental agencies for
certain off-site locations. Constar has not incurred any significant costs relating to these
matters. 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 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 Company
has recorded an accrual as of December 31, 2009 and 2008 of $0.2 million for estimated costs
associated with completing the required remediation activities. 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 other accruals for
environmental matters.
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 will have a material
adverse effect on our financial position, cash flows or results of operations.
20. 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 discontinued 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 consolidated statements of operations for all
periods presented.
69
The following summarizes the assets and liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2008 |
|
Assets of Discontinued Operations: |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
|
|
|
|
$ |
14 |
|
Prepaid expenses and other current assets |
|
|
337 |
|
|
|
|
328 |
|
|
|
|
|
|
|
|
|
Total current assets of discontinued operations |
|
$ |
337 |
|
|
|
$ |
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of Discontinued Operations: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
44 |
|
|
|
$ |
87 |
|
|
|
|
|
|
|
|
|
Total current liabilities of discontinued operations |
|
|
44 |
|
|
|
|
87 |
|
Other liabilities |
|
|
881 |
|
|
|
|
773 |
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations |
|
$ |
925 |
|
|
|
$ |
860 |
|
|
|
|
|
|
|
|
|
Total current assets of discontinued operations are included in prepaid expenses and
other current assets, total current liabilities are included in accrued expenses and other
current liabilities and other liabilities of discontinued operations are included in other
liabilities on the accompanying consolidated balance sheets.
The following is a summary of the results of operations for discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months |
|
|
|
Four Months |
|
|
|
|
|
|
Ended |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations before income taxes |
|
|
(80 |
) |
|
|
|
(17 |
) |
|
|
(60 |
) |
(Provision for) benefit from income taxes |
|
|
(5 |
) |
|
|
|
(79 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(85 |
) |
|
|
$ |
(96 |
) |
|
$ |
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
21. Stockholders Equity
In connection with the Companys reorganization and emergence from bankruptcy, all existing
shares of the Predecessor Companys capital stock were canceled. In addition, in the same
connection, all of the Companys 11% Senior Subordinated Notes Due 2012 were canceled and the
related indenture was terminated (except for purposes of allowing the noteholders to receive
distributions under the Plan of Reorganization). The holders of the Class 4 Senior Subordinated
Note Claims (as defined in the Plan of Reorganization) received ten shares of new Common Stock per
one thousand dollars in face amount of the Senior Subordinated Notes.
Pursuant to the Restated Certificate of Incorporation of the Company, 75.0 million shares of
common stock in the Successor Company are authorized for issuance, par value $0.01 per share, of
which 1.75 million shares were issued pursuant to the Plan of Reorganization. The holders of the
Companys common stock are entitled to one vote per share with respect to each matter on which the
holders of our common stock are entitled to vote. Additional shares of the Companys authorized
common stock may be issued, as determined by the board of directors of our company from time to
time, without approval of holders of the common stock, except as may be required by applicable law
or the rules of any stock exchange or automated quotation system on which our securities may be
listed or traded.
70
22. Accumulated Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months Ended December 31, 2009 |
|
|
|
Four Months Ended April 30, 2009 |
|
|
|
Pre-tax |
|
|
Tax (Expense) |
|
|
After-tax |
|
|
|
Pre-tax |
|
|
Tax (Expense) |
|
|
After-tax |
|
(In thousands) |
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
Pension and postretirement liabilities |
|
$ |
(3,335 |
) |
|
|
875 |
|
|
$ |
(2,460 |
) |
|
|
$ |
1,919 |
|
|
|
|
|
|
$ |
1,919 |
|
Cash-flow hedge |
|
|
1,076 |
|
|
|
(414 |
) |
|
|
662 |
|
|
|
|
951 |
|
|
|
|
|
|
|
951 |
|
Foreign currency translation adjustments |
|
|
29 |
|
|
|
|
|
|
|
29 |
|
|
|
|
(1,134 |
) |
|
|
|
|
|
|
(1,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
(2,230 |
) |
|
$ |
461 |
|
|
$ |
(1,769 |
) |
|
|
$ |
1,736 |
|
|
$ |
|
|
|
$ |
1,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Year Ended December 31, 2008 |
|
|
|
Pre-tax |
|
|
Tax (Expense) |
|
|
After-tax |
|
(In thousands) |
|
Amount |
|
|
Benefit |
|
|
Amount |
|
Pension and postretirement liabilities |
|
$ |
(28,523 |
) |
|
|
|
|
|
$ |
(28,523 |
) |
Cash-flow hedge |
|
|
(6,491 |
) |
|
|
|
|
|
|
(6,491 |
) |
Foreign currency translation adjustments |
|
|
3,317 |
|
|
|
|
|
|
|
3,317 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(31,697 |
) |
|
$ |
|
|
|
$ |
(31,697 |
) |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
(In thousands) |
|
December 31, 2009 |
|
|
|
December 31, 2008 |
|
Pension and postretirement liabilities |
|
$ |
(2,460 |
) |
|
|
$ |
(49,066 |
) |
Cash-flow hedge |
|
|
662 |
|
|
|
|
(8,512 |
) |
Foreign currency translation adjustments |
|
|
29 |
|
|
|
|
7,261 |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
$ |
(1,769 |
) |
|
|
$ |
(50,317 |
) |
|
|
|
|
|
|
|
|
23. Stock-Based Compensation
In connection with the Plan of Reorganization, the Company was authorizedwithout further
shareholder approvalto issue 194 thousand shares of common stock to employees and directors.
Two-thirds of this amount, or 130 thousand shares, were to be in the form of stock options. On
November 5, 2009 the Companys stockholders approved the Constar International Inc. 2009 Equity
Compensation Plan (the 2009 Plan). The purpose of the 2009 Plan is to allow the Company to issue
130 thousand shares as either stock options or as performance shares. The Company will issue such
130 thousand shares under the 2009 Plan, and not under the authority provided by the Plan. The 2009 Plan is administered by the Compensation and Benefits Committee of the
Board of Directors, which determines all terms of the awards. There have been no awards issued
under these plans as of December 31, 2009.
Prior to the Effective Date (see note 2), the Company maintained stock-based incentive
compensation plans for employees of the Company and stock-based compensation plans for directors.
On the Effective Date, the following incentive plans were terminated: (1) the 2007 Non-Employee
Directors Equity Incentive Plan; (2) the 2007 Stock-Based Incentive Compensation Plan; (3) Constar
International Inc. Non-Employee Directors Equity Incentive Plan; (4) Constar International Inc.
2002 Stock-Based Incentive Compensation Plan; and, (5) the Amended and Restated Constar
International Inc. Annual Incentive and Management Stock Purchase Plan, which was replaced by the
Constar International Inc. Annual Incentive Plan, adopted on May 26, 2009. On the Effective Date,
all outstanding equity awards granted under the above plans were cancelled in accordance with the
terms of the Plan.
71
The following table summarizes total stock-based compensation expense included in the
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Four Months Ended |
|
|
Year Ended |
|
(in thousands) |
|
April 30, 2009 |
|
|
December 31, 2008 |
|
Restricted stock |
|
$ |
597 |
|
|
$ |
817 |
|
Restricted stock units |
|
|
(6 |
) |
|
|
(209 |
) |
|
|
|
|
|
|
|
|
|
$ |
591 |
|
|
$ |
608 |
|
|
|
|
|
|
|
|
24. Related Party Transactions
Constar was a wholly owned subsidiary of Crown Holdings, Inc. (Crown) from 1992 until the
closing of Constars initial public offering on November 20, 2002. From November 20, 2002 until the
Companys emergence from bankruptcy, Crown owned 1,255,000 shares, or approximately 10%, of the
Predecessors outstanding common stock. In connection with the Companys reorganization and
emergence from bankruptcy, all existing shares of the Predecessor Companys capital stock were
canceled. Consequently, after May 1, 2009, transactions between Crown and the Company are no longer
presented as related party transactions.
For the four months ended April 30, 2009, and the year ended December 31, 2008, the Company
paid rent to Crown of $0.2 million and $1.7 million, respectively, for its Philadelphia
headquarters, a research facility in Alsip, Illinois and a warehouse facility in Belcamp, Maryland.
The leasing arrangements for the Alsip and Belcamp facilities ended in 2008. The Company continues
to rent the Alsip facility from a third party who purchased the building from Crown. The current
Philadelphia lease agreement is on a month-to-month basis.
Under a service agreement, Crown provided certain general and administrative services to the
Company. The current agreement has no fixed expiration date. Instead, the services renew each year
unless either party gives advance notice to terminate the services. In connection with this
agreement, the Company recorded an expense of $0.7 million and $2.4 million for the four months
ended April 30, 2009 and the year ended December 31, 2008, respectively. Amounts due to Crown under
the agreements described above as of April 30, 2009 and December 31, 2008 were $0.9 million and
$0.6 million, respectively.
In November 2007, the Company and Crown entered into a five year supply agreement. Sales to
Crown under the contract were approximately $2.8 million and $8.4 million for the four months ended
April 30, 2009, and the year ended December 31, 2008, respectively. The Company had a net
receivable from Crown of approximately $0.9 million and $0.1 million related to this agreement at
April 30, 2009 and December 31, 2008, respectively.
In 2002, the Company entered into a License and Royalty Sharing Agreement with Crown under
which the Company agreed to pay a portion of any royalties earned on licenses of our Oxbar
technology. The Company had a net payable to Crown of approximately $3.4 million and $3.2 million
related to this agreement at April 30, 2009 and December 31, 2008, respectively.
25. Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Eight Months Ended |
|
|
|
Four Months Ended |
|
|
Year Ended |
|
(In thousands) |
|
December 31, 2009 |
|
|
|
April 30, 2009 |
|
|
December 31, 2009 |
|
Foreign exchange gains (losses) |
|
$ |
2,259 |
|
|
|
$ |
1,321 |
|
|
$ |
(11,874 |
) |
Royalty income |
|
|
473 |
|
|
|
|
418 |
|
|
|
1,877 |
|
Royalty expense |
|
|
(286 |
) |
|
|
|
(185 |
) |
|
|
(875 |
) |
Interest income |
|
|
42 |
|
|
|
|
12 |
|
|
|
136 |
|
Other |
|
|
(55 |
) |
|
|
|
(23 |
) |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
$ |
2,433 |
|
|
|
$ |
1,543 |
|
|
$ |
(10,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange losses are primarily the result of the impact of currency fluctuations
on intra-company loan balances and transaction losses associated with purchase agreements.
72
26. Derivative Financial Instruments
Effective January 1, 2009, the Company implemented the new disclosure provisions of ASC 815,
Derivatives and Hedging. The new guidance enhances the previously required disclosures to provide
users of financial statements with a better understanding of the objectives of a companys
derivative use and the risks managed.
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.
An interest rate swap 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 exposure to variability in expected future cash flows as a result of the floating interest rate
associated with the Secured Notes. The notional amount of the interest rate swap is $100.0 million.
By entering into the interest rate swap agreement, the Company effectively exchanged its floating
interest rate of LIBOR plus 3.375% for a fixed rate of 7.9% over the remaining term of the
underlying notes. Market and credit risks associated with this instrument are regularly reviewed by
the Companys executive management. The Company accounts for this interest rate swap as a cash flow
hedge and assumes that there is no ineffectiveness in the hedging relationship. Consequently,
changes in the fair value of the interest rate swap are recognized entirely in other comprehensive
income. See Note 31.
As of December 31, 2009, the administrative agent for the Exit Facility required the Company
to collateralize the interest rate swap liability with cash in the amount of $7,589. This cash
collateral is presented as restricted cash on the consolidated balance sheet as of December 31,
2009.
The fair value of derivative contracts is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities |
|
|
|
|
|
Fair Value |
|
(In thousands) |
|
Balance |
|
Successor |
|
|
Predecessor |
|
Derivatives designated as hedging |
|
Sheet |
|
December 31, |
|
|
December 31, |
|
instruments under Statement 133 |
|
Location |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Other liabilities |
|
$ |
6,485 |
|
|
$ |
8,512 |
|
The effect of derivative contracts on the statement of operations and on accumulated
other comprehensive income (loss) is summarized in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Eight Months Ended December 31, 2009 |
|
|
|
|
|
|
|
Location of |
|
Amount of |
|
|
|
Amount of |
|
|
Gain or (Loss) |
|
Gain or (Loss) |
|
|
|
Gain or (Loss) |
|
|
Reclassified |
|
Reclassified |
|
|
|
Recognized |
|
|
from |
|
from |
|
(In thousands) |
|
in OCI on |
|
|
Accumulated |
|
Accumulated |
|
Derivatives in Statement 133 |
|
Derivative |
|
|
OCI into Income |
|
OCI into Income |
|
cash flow hedging relationships |
|
(Effective Portion) |
|
|
(Effective Portion) |
|
(Effective Portion) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
662 |
|
|
Interest expense |
|
$ |
(2,653 |
) |
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Four Months Ended April 30, 2009 |
|
|
|
|
|
|
|
Location of |
|
Amount of |
|
|
|
Amount of |
|
|
Gain or (Loss) |
|
Gain or (Loss) |
|
|
|
Gain or (Loss) |
|
|
Reclassified |
|
Reclassified |
|
|
|
Recognized |
|
|
from |
|
from |
|
(In thousands) |
|
in OCI on |
|
|
Accumulated |
|
Accumulated |
|
Derivatives in Statement 133 |
|
Derivative |
|
|
OCI into Income |
|
OCI into Income |
|
cash flow hedging relationships |
|
(Effective Portion) |
|
|
(Effective Portion) |
|
(Effective Portion) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
951 |
|
|
Interest expense |
|
$ |
(974 |
) |
|
|
|
|
|
|
|
|
|
The Company expects to record reclassifications from accumulated other comprehensive loss
to earnings within the next twelve months in the amount of $3,912.
27. Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis as of December
31, 2009 are summarized in the following table by the type of inputs applicable to the fair value
measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 measurements 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.
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and
short-term debt approximate fair value. The fair value of debt and derivative financial instruments
are based on quoted market prices.
The following table presents the estimated fair value of the Companys long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
December 31, 2009 |
|
|
|
December 31, 2008 |
|
(In thousands) |
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
Assets (liabilities) |
|
Amount |
|
|
Fair Value |
|
|
|
Amount |
|
|
Fair Value |
|
Senior Notes |
|
|
(167,919 |
) |
|
|
(182,050 |
) |
|
|
|
(220,000 |
) |
|
|
(121,000 |
) |
The following table presents
losses related to the Companys assets and liabilities that were measured at fair value on a nonrecurring
basis during the eight months ended December 31, 2009 aggregated by the level in the fair value hierarchy
within which those measurements fall (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted |
|
|
Significant Other |
|
|
Unobservable |
|
|
Total |
|
|
|
Prices |
|
|
Observable Inputs |
|
|
Inputs |
|
|
Fair |
|
(In thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Value |
|
Goodwill |
|
$ |
|
|
|
$ |
|
|
|
$ |
118,682 |
|
|
$ |
118,682 |
|
Trade name |
|
$ |
|
|
|
$ |
|
|
|
$ |
21,500 |
|
|
$ |
21,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the Companys
annual and interim impairment tests, the Company recorded impairment charges of $4,000 related to its trade name
during the eight months ended December 31, 2009. See Note 10 for a description of a 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.
28. Major Customers
During 2009 purchases by Pepsi and Cott Corporation accounted for approximately 32% and 11%,
respectively, of the Companys net sales. During 2008, purchases by Pepsi accounted for
approximately 40% of the Companys net sales. No other customer accounted for more than 10% of the
Companys net sales in 2009 or 2008. In 2009 and 2008, the Companys top five customers accounted
for an aggregate of 59% and 62%, respectively, of the Companys sales, while the Companys top ten
customers accounted for an aggregate of 77% and 76%, respectively, of the Companys sales.
74
29. Segment and Geographic Area Information
The Company has only one business segment. The Company has manufacturing facilities in the
United States and Europe which have similar economic characteristics. Each plant operation is
similar in the nature of its products, production processes, the types or classes of customers for
products and the methods used to distribute products.
Net sales (based upon the country where the point of sale occurred) and long-lived assets for
the countries in which Constar operated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
|
|
|
Eight |
|
|
Four |
|
|
|
|
|
|
|
|
|
|
Months |
|
|
Months |
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
Ended |
|
|
Ended |
|
|
Year Ended |
|
|
Successor |
|
|
Predecessor |
|
|
|
December 31, |
|
|
April 30, |
|
|
December 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
327,965 |
|
|
$ |
180,086 |
|
|
$ |
682,579 |
|
|
$ |
131,074 |
|
|
$ |
114,145 |
|
United Kingdom |
|
|
81,657 |
|
|
|
33,733 |
|
|
|
151,155 |
|
|
|
10,448 |
|
|
|
14,171 |
|
Holland |
|
|
11,565 |
|
|
|
3,362 |
|
|
|
24,135 |
|
|
|
10,004 |
|
|
|
4,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
421,187 |
|
|
$ |
217,181 |
|
|
$ |
857,869 |
|
|
$ |
151,526 |
|
|
$ |
132,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30. Supplemental Disclosure of Cash Flow Information
The following table summarizes supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Eight |
|
|
Four |
|
|
|
|
|
|
Months |
|
|
Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
April 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2009 |
|
|
2008 |
|
Interest payments |
|
$ |
10,778 |
|
|
$ |
4,344 |
|
|
$ |
29,090 |
|
|
|
|
|
|
|
|
|
|
|
Income tax payments |
|
$ |
494 |
|
|
$ |
25 |
|
|
$ |
192 |
|
|
|
|
|
|
|
|
|
|
|
75
31. Subsequent Event
On February 11, 2010, the Company entered into a new credit agreement with General Electric
Capital Corporation and concurrently terminated the Exit Facility agreement. See Note 12.
Also on February 11, 2010, the counterparty to the Companys interest rate swap agreement
novated its rights under the swap agreement to a third party. The fixed leg payment of the swap
agreement was also modified from a previous fixed rate of 7.9% to a new fixed rate of 8.17%. The
Company accounted for the novation as a termination of the original 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.
Consequently, on February 11, 2009, the Company began to reclassify out of accumulated other
comprehensive income and into earnings deferred gains related to the interest rate swap.
32. Condensed Consolidating Financial Information
Each of the Companys domestic and United Kingdom restricted subsidiaries guarantees the
Secured Notes, on a senior secured basis. Prior to the cancellation of the Senior Subordinated
Notes pursuant to the Plan of Reorganization, the Companys domestic and United Kingdom restricted
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 restricted subsidiaries. The following condensed consolidating financial statements are
required in accordance with Regulation S-X Rule 3-10.
76
Condensed Consolidating Balance Sheet
December 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
12 |
|
|
|
310,677 |
|
|
|
17,977 |
|
|
|
(227,600 |
) |
|
|
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 |
) |
|
|
|
|
Other assets |
|
|
552 |
|
|
|
2,728 |
|
|
|
312 |
|
|
|
|
|
|
|
3,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
406,264 |
|
|
$ |
625,916 |
|
|
$ |
28,294 |
|
|
$ |
(654,210 |
) |
|
$ |
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 |
|
|
202,330 |
|
|
|
24,441 |
|
|
|
829 |
|
|
|
(227,600 |
) |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
1,222 |
|
|
|
|
|
|
|
|
|
|
|
1,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
209,011 |
|
|
|
104,988 |
|
|
|
4,204 |
|
|
|
(227,600 |
) |
|
|
90,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
167,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,919 |
|
Pension and postretirement liabilities |
|
|
|
|
|
|
30,053 |
|
|
|
1,052 |
|
|
|
|
|
|
|
31,105 |
|
Deferred income taxes |
|
|
(55,754 |
) |
|
|
78,038 |
|
|
|
1,247 |
|
|
|
|
|
|
|
23,531 |
|
Other liabilities |
|
|
6,485 |
|
|
|
7,137 |
|
|
|
881 |
|
|
|
|
|
|
|
14,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
327,661 |
|
|
|
220,216 |
|
|
|
7,384 |
|
|
|
(227,600 |
) |
|
|
327,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit) |
|
|
78,603 |
|
|
|
405,700 |
|
|
|
20,910 |
|
|
|
(426,610 |
) |
|
|
78,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity (deficit) |
|
$ |
406,264 |
|
|
$ |
625,916 |
|
|
$ |
28,294 |
|
|
$ |
(654,210 |
) |
|
$ |
406,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminations |
|
|
Company |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
13,933 |
|
|
$ |
359 |
|
|
$ |
|
|
|
$ |
14,292 |
|
Intercompany receivable |
|
|
|
|
|
|
210,818 |
|
|
|
10,375 |
|
|
|
(221,193 |
) |
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
43,466 |
|
|
|
2,338 |
|
|
|
|
|
|
|
45,804 |
|
Inventories, net |
|
|
|
|
|
|
47,142 |
|
|
|
2,619 |
|
|
|
4 |
|
|
|
49,765 |
|
Prepaid expenses and other current assets |
|
|
4,692 |
|
|
|
19,078 |
|
|
|
537 |
|
|
|
|
|
|
|
24,307 |
|
Deferred income taxes |
|
|
|
|
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
896 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
342 |
|
|
|
|
|
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
4,692 |
|
|
|
335,333 |
|
|
|
16,570 |
|
|
|
(221,189 |
) |
|
|
135,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
128,678 |
|
|
|
4,056 |
|
|
|
(363 |
) |
|
|
132,371 |
|
Goodwill |
|
|
|
|
|
|
148,813 |
|
|
|
|
|
|
|
|
|
|
|
148,813 |
|
Investments in subsidiaries |
|
|
463,610 |
|
|
|
16,528 |
|
|
|
|
|
|
|
(480,138 |
) |
|
|
|
|
Other assets |
|
|
|
|
|
|
1,514 |
|
|
|
112 |
|
|
|
|
|
|
|
1,626 |
|
Non-current assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
468,302 |
|
|
$ |
630,866 |
|
|
$ |
20,738 |
|
|
$ |
(701,690 |
) |
|
$ |
418,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
20,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
20,000 |
|
Current portion of long-term debt |
|
|
220,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,000 |
|
Accounts payable and accrued liabilities |
|
|
4,141 |
|
|
|
89,312 |
|
|
|
2,053 |
|
|
|
|
|
|
|
95,506 |
|
Intercompany payable |
|
|
190,523 |
|
|
|
30,549 |
|
|
|
480 |
|
|
|
(221,552 |
) |
|
|
|
|
Current liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
434,664 |
|
|
|
119,861 |
|
|
|
2,620 |
|
|
|
(221,552 |
) |
|
|
335,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement liabilities |
|
|
|
|
|
|
37,695 |
|
|
|
817 |
|
|
|
|
|
|
|
38,512 |
|
Deferred income taxes |
|
|
|
|
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
896 |
|
Other liabilities |
|
|
8,511 |
|
|
|
8,804 |
|
|
|
|
|
|
|
|
|
|
|
17,315 |
|
Non-current liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
773 |
|
|
|
|
|
|
|
773 |
|
Liabilities subject to compromise |
|
|
186,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
629,404 |
|
|
|
167,256 |
|
|
|
4,210 |
|
|
|
(221,552 |
) |
|
|
579,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit) |
|
|
(161,102 |
) |
|
|
463,610 |
|
|
|
16,528 |
|
|
|
(480,138 |
) |
|
|
(161,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity (deficit) |
|
$ |
468,302 |
|
|
$ |
630,866 |
|
|
$ |
20,738 |
|
|
$ |
(701,690 |
) |
|
$ |
418,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Condensed Consolidating Statement of Operations
For the eight months ended December 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantor |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
409,609 |
|
|
$ |
11,578 |
|
|
$ |
|
|
|
$ |
421,187 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
364,403 |
|
|
|
10,277 |
|
|
|
|
|
|
|
374,680 |
|
Depreciation |
|
|
|
|
|
|
32,680 |
|
|
|
458 |
|
|
|
|
|
|
|
33,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
12,526 |
|
|
|
843 |
|
|
|
|
|
|
|
13,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
12,904 |
|
|
|
115 |
|
|
|
|
|
|
|
13,019 |
|
Research and technology expenses |
|
|
|
|
|
|
5,284 |
|
|
|
|
|
|
|
|
|
|
|
5,284 |
|
Impairment of Intangible Assets |
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
Provision for restructuring |
|
|
|
|
|
|
1,584 |
|
|
|
|
|
|
|
|
|
|
|
1,584 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
23,345 |
|
|
|
115 |
|
|
|
|
|
|
|
23,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (Loss) |
|
|
|
|
|
|
(10,819 |
) |
|
|
728 |
|
|
|
|
|
|
|
(10,091 |
) |
Interest expense |
|
|
(23,279 |
) |
|
|
(424 |
) |
|
|
424 |
|
|
|
|
|
|
|
(23,279 |
) |
Reorganization items, net |
|
|
(1,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,906 |
) |
Other income (expense), net |
|
|
|
|
|
|
2,361 |
|
|
|
72 |
|
|
|
|
|
|
|
2,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
(25,185 |
) |
|
|
(8,882 |
) |
|
|
1,224 |
|
|
|
|
|
|
|
(32,843 |
) |
(Provision for) benefit from income taxes |
|
|
6,923 |
|
|
|
5,255 |
|
|
|
(362 |
) |
|
|
|
|
|
|
11,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(18,262 |
) |
|
|
(3,627 |
) |
|
|
862 |
|
|
|
|
|
|
|
(21,027 |
) |
Equity earnings |
|
|
(2,850 |
) |
|
|
777 |
|
|
|
|
|
|
|
2,073 |
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
(85 |
) |
|
|
|
|
|
|
(85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(21,112 |
) |
|
$ |
(2,850 |
) |
|
$ |
777 |
|
|
$ |
2,073 |
|
|
$ |
(21,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the four months ended April 30, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantor |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
213,819 |
|
|
$ |
3,362 |
|
|
$ |
|
|
|
$ |
217,181 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
185,975 |
|
|
|
3,562 |
|
|
|
|
|
|
|
189,537 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminations |
|
|
Company |
|
Net sales |
|
$ |
|
|
|
$ |
833,734 |
|
|
$ |
24,135 |
|
|
$ |
|
|
|
$ |
857,869 |
|
Cost of products sold, excluding depreciation |
|
|
|
|
|
|
766,419 |
|
|
|
23,442 |
|
|
|
|
|
|
|
789,861 |
|
Depreciation |
|
|
|
|
|
|
31,995 |
|
|
|
816 |
|
|
|
|
|
|
|
32,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
35,320 |
|
|
|
(123 |
) |
|
|
|
|
|
|
35,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
|
|
|
|
22,359 |
|
|
|
386 |
|
|
|
|
|
|
|
22,745 |
|
Research and technology expenses |
|
|
|
|
|
|
8,536 |
|
|
|
|
|
|
|
|
|
|
|
8,536 |
|
Provision for restructuring |
|
|
|
|
|
|
4,811 |
|
|
|
|
|
|
|
|
|
|
|
4,811 |
|
(Gain) loss on disposal of assets |
|
|
|
|
|
|
(1,227 |
) |
|
|
|
|
|
|
|
|
|
|
(1,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
34,479 |
|
|
|
386 |
|
|
|
|
|
|
|
34,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
841 |
|
|
|
(509 |
) |
|
|
|
|
|
|
332 |
|
Interest expense |
|
|
(38,656 |
) |
|
|
(315 |
) |
|
|
559 |
|
|
|
|
|
|
|
(38,412 |
) |
Interest expense related party |
|
|
|
|
|
|
(244 |
) |
|
|
|
|
|
|
|
|
|
|
(244 |
) |
Reorganization costs |
|
|
(9,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,190 |
) |
Other income (expense), net |
|
|
|
|
|
|
(10,690 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
(10,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
(47,846 |
) |
|
|
(10,408 |
) |
|
|
29 |
|
|
|
|
|
|
|
(58,225 |
) |
(Provision for) benefit from income taxes |
|
|
|
|
|
|
57 |
|
|
|
390 |
|
|
|
|
|
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(47,846 |
) |
|
|
(10,351 |
) |
|
|
419 |
|
|
|
|
|
|
|
(57,778 |
) |
Equity earnings |
|
|
(9,989 |
) |
|
|
362 |
|
|
|
|
|
|
|
9,627 |
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(57,835 |
) |
|
$ |
(9,989 |
) |
|
$ |
362 |
|
|
$ |
9,627 |
|
|
$ |
(57,835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
Condensed Consolidating Statement of Cash Flows
For the eight months ended December 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantor |
|
|
Eliminations |
|
|
Company |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(21,112 |
) |
|
$ |
(2,850 |
) |
|
$ |
777 |
|
|
$ |
2,073 |
|
|
$ |
(21,112 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
23 |
|
|
|
32,666 |
|
|
|
450 |
|
|
|
|
|
|
|
33,139 |
|
Debt accretion |
|
|
13,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,644 |
|
Impairment of Intangible Asset |
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
(427 |
) |
Reorganization items |
|
|
(6,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,893 |
) |
Fresh Start accounting adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings |
|
|
2,850 |
|
|
|
(777 |
) |
|
|
|
|
|
|
(2,073 |
) |
|
|
|
|
Changes in operating assets and liabilities |
|
|
(12,460 |
) |
|
|
(407 |
) |
|
|
(1,351 |
) |
|
|
|
|
|
|
(14,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
|
(23,948 |
) |
|
|
32,205 |
|
|
|
(124 |
) |
|
|
|
|
|
|
8,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
1,738 |
|
|
|
|
|
|
|
|
|
|
|
1,738 |
|
Purchases of property, plant and equipment |
|
|
|
|
|
|
(7,747 |
) |
|
|
(1,046 |
) |
|
|
|
|
|
|
(8,793 |
) |
Proceeds from the sale of property, plant and equipment |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(6,000 |
) |
|
|
(1,046 |
) |
|
|
|
|
|
|
(7,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with exit facility |
|
|
(575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(575 |
) |
Proceeds from Revolver loan |
|
|
458,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458,000 |
|
Repayment of Revolver loan |
|
|
(458,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(458,000 |
) |
Net change in intercompany loans |
|
|
24,523 |
|
|
|
(25,546 |
) |
|
|
1,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
23,948 |
|
|
|
(25,546 |
) |
|
|
1,023 |
|
|
|
|
|
|
|
(575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
46 |
|
|
|
27 |
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
705 |
|
|
|
(120 |
) |
|
|
|
|
|
|
585 |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
1,317 |
|
|
|
567 |
|
|
|
|
|
|
|
1,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
2,022 |
|
|
$ |
447 |
|
|
$ |
|
|
|
$ |
2,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the four months ended April 30, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantor |
|
|
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 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 Revolver loan |
|
|
212,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,723 |
|
Repayment of Revolver loan |
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year ended December 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Total |
|
|
|
Parent |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminations |
|
|
Company |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(57,835 |
) |
|
$ |
(9,989 |
) |
|
$ |
362 |
|
|
$ |
9,627 |
|
|
$ |
(57,835 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,995 |
|
|
|
32,381 |
|
|
|
784 |
|
|
|
|
|
|
|
35,160 |
|
(Gain) loss on disposal of assets |
|
|
|
|
|
|
(964 |
) |
|
|
|
|
|
|
|
|
|
|
(964 |
) |
Stock-based compensation |
|
|
|
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
608 |
|
Non-Cash reorganization costs |
|
|
3,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,851 |
|
Equity earnings |
|
|
9,989 |
|
|
|
(362 |
) |
|
|
|
|
|
|
(9,627 |
) |
|
|
|
|
Changes in operating assets and liabilities |
|
|
(14,077 |
) |
|
|
48,649 |
|
|
|
(1,251 |
) |
|
|
|
|
|
|
33,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(56,077 |
) |
|
|
70,323 |
|
|
|
(105 |
) |
|
|
|
|
|
|
14,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
|
|
|
|
(25,115 |
) |
|
|
(207 |
) |
|
|
|
|
|
|
(25,322 |
) |
Proceeds from the sale of property, plant and equipment |
|
|
|
|
|
|
1,852 |
|
|
|
|
|
|
|
|
|
|
|
1,852 |
|
Proceeds form the cash surrender value of life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(23,263 |
) |
|
|
(207 |
) |
|
|
|
|
|
|
(23,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Revolver loan |
|
|
779,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
779,096 |
|
Repayment of Revolver loan |
|
|
(759,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(759,534 |
) |
Net change in intercompany loans |
|
|
36,515 |
|
|
|
(36,238 |
) |
|
|
(277 |
) |
|
|
|
|
|
|
|
|
Costs associated with debt refinancing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
56,077 |
|
|
|
(36,238 |
) |
|
|
(277 |
) |
|
|
|
|
|
|
19,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
(183 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
10,639 |
|
|
|
(601 |
) |
|
|
|
|
|
|
10,038 |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
3,294 |
|
|
|
960 |
|
|
|
|
|
|
|
4,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
13,933 |
|
|
$ |
359 |
|
|
$ |
|
|
|
$ |
14,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
Schedule IIValuation and Qualifying Accounts and Reserves
(Dollars in thousands)
Allowances deducted from assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Fresh-Start |
|
|
Balance at |
|
|
|
Beginning of |
|
|
|
|
|
|
|
|
|
|
Accounting |
|
|
End of |
|
|
|
Period |
|
|
Additions |
|
|
Deductions |
|
|
Adjustments |
|
|
Period |
|
For the Eight Months Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
$ |
|
|
|
|
435 |
|
|
|
(113 |
) |
|
|
|
|
|
$ |
322 |
|
Inventory |
|
$ |
|
|
|
|
2,213 |
|
|
|
(1,028 |
) |
|
|
|
|
|
$ |
1,185 |
|
Deferred taxes |
|
$ |
7,648 |
|
|
|
16,111 |
|
|
|
(15,015 |
) |
|
|
|
|
|
$ |
8,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Four Months Ended April 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
$ |
1,904 |
|
|
|
(483 |
) |
|
|
(23 |
) |
|
|
(1,398 |
) |
|
$ |
|
|
Inventory |
|
$ |
707 |
|
|
|
467 |
|
|
|
(72 |
) |
|
|
(1,102 |
) |
|
$ |
|
|
Deferred taxes |
|
$ |
66,116 |
|
|
|
40,180 |
|
|
|
(98,648 |
) |
|
|
|
|
|
$ |
7,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
$ |
1,166 |
|
|
|
1,841 |
|
|
|
(1,103 |
) |
|
|
|
|
|
$ |
1,904 |
|
Inventory |
|
$ |
693 |
|
|
|
1,266 |
|
|
|
(1,252 |
) |
|
|
|
|
|
$ |
707 |
|
Deferred taxes |
|
$ |
41,310 |
|
|
|
27,189 |
|
|
|
(2,383 |
) |
|
|
|
|
|
$ |
66,116 |
|
85
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
The Company maintains a system of disclosure controls and procedures to give reasonable
assurance that information required to be disclosed in the Companys reports filed or submitted
under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC. 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 December 31, 2009, 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.
There has been no change in the Companys internal control over financial reporting that
occurred during the fourth quarter of 2009 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting. The Company has
completed its evaluation of its internal controls and has concluded that the Companys system of
internal controls over financial reporting was effective as of December 31, 2009. The Companys
report on internal control over financial reporting is included in Part II, Item 8 of
this Annual Report on Form 10-K.
The Company continues to take appropriate steps to enhance the reliability of its internal
control over financial reporting. Management has identified areas for improvement and discussed
them with the Companys Audit Committee and independent registered public accounting firm.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
The Companys Annual Meeting of Stockholders was held on November 5, 2009. The matters voted
upon and the results thereof were as follows.
For the election of directors, the vote was:
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Withheld |
|
Michael J. Balduino |
|
|
1,451,218 |
|
|
|
2,752 |
|
Eric A. Balzer |
|
|
1,451,218 |
|
|
|
2,752 |
|
Michael J. Hoffman |
|
|
1,451,961 |
|
|
|
2,009 |
|
Lawrence V. Jackson |
|
|
1,451,218 |
|
|
|
2,752 |
|
Ruth J. Mack |
|
|
1,451,218 |
|
|
|
2,752 |
|
L. White Matthews, III |
|
|
1,451,961 |
|
|
|
2,009 |
|
Prior to the Annual Meeting of Stockholders, Mr. Jason Pratt resigned from the Constar Board
of Directors in connection with a change in his employment circumstances.
For the approval of the 2009 Equity Compensation Plan, the vote was:
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
|
Abstain |
|
1,175,010 |
|
|
9,640 |
|
|
|
2,210 |
|
For the ratification of PricewaterhouseCoopers LLP as the Companys independent registered
public accounting firm for 2009, the vote was:
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
|
Abstain |
|
1,453,302 |
|
|
212 |
|
|
|
455 |
|
86
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Executive Officers of the Registrant
Our executive officers, their ages and their positions are as follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Title |
Michael J. Hoffman (1)
|
|
|
49 |
|
|
President, Chief Executive Officer and Director |
J. Mark Borseth (2)
|
|
|
51 |
|
|
Executive Vice President and Chief Financial Officer |
James C.T. Bolton (3)
|
|
|
55 |
|
|
Senior Vice President,
Administration and Strategic Planning |
Donald P. Deubel (4)
|
|
|
46 |
|
|
Senior Vice President, Corporate Technologies |
Jerry A. Hatfield (5)
|
|
|
51 |
|
|
Senior Vice President, Operations |
David Schroeder (6)
|
|
|
41 |
|
|
Senior Vice President, Sales and Marketing |
David J. Waksman (7)
|
|
|
43 |
|
|
Senior Vice President, Human Resources, General Counsel and Secretary |
Christopher P. Phelan (8)
|
|
|
42 |
|
|
Vice President and General Manager, European Operations |
|
|
|
(1) |
|
Michael J. Hoffman. Mr. Hoffman has been President and Chief
Executive Officer and a director of our Company since May 2002.
Mr. Hoffman has been President of Constar, Inc. since October
2000. Mr. Hoffman was previously Vice President of Operations for
Constar, Inc. since 1995, and director of Crown Cork & Seal
Company, Inc.s Aerosol Manufacturing division from 1993 to 1995.
Prior to that, Mr. Hoffman was a Plant Superintendent, and then a
Plant Manager, in several United States branches of Crown Cork &
Seal Company, Inc. from 1987 to 1993. Prior to 1987, Mr. Hoffman
was a Plant Superintendent for Continental Can Company and held
various other plant management positions. |
|
(2) |
|
J. Mark Borseth. Mr. Borseth was appointed as our Executive Vice
President and Chief Financial Officer in September 2009. Mr. Borseth
was the Senior Vice President, Chief Financial Officer of Eclipse
Aviation, an aircraft manufacturer, from May 2007 through August 2009.
Eclipse Aviation filed for bankruptcy in November 2008. Prior to that,
from 1984 to April 2007, Mr. Borseth held a series of financial and
general management positions with 3M, including Vice President, Global
Business Process from 2004 to 2007, and Corporate Treasurer in 2003. |
|
(3) |
|
James C.T. Bolton. Mr. Bolton has been Senior Vice President,
Administration and Strategic Planning of our Company since May 2002.
Previously, Mr. Bolton had been Senior Vice President, Strategic
Planning and Information Systems for the Americas Division of Crown
Cork & Seal Company, Inc. since 2001. Prior to that, Mr. Bolton was
Vice President, Finance of Constar, Inc. from 1996 to 2001. Mr. Bolton
was Vice President, Finance and Planning for the International
Division of Crown Cork & Seal Company, Inc. from 1992 to 1996. Prior
to that, Mr. Bolton was Director of Insurance for Crown Cork & Seal
Company, Inc. and was responsible for all benefits and
property/casualty coverage in the U.S. from 1984 to 1992. Mr. Bolton
also worked in the Treasury and Audit departments of Crown Cork & Seal
Company, Inc. from 1978 to 1984. |
|
(4) |
|
Donald P. Deubel. Mr. Deubel has been Senior Vice President, Corporate
Technologies of our Company since November 2008. Previously, he was
Vice President, Corporate Technologies since September 2002. Previously, Mr.
Deubel had been Director of Packaging Development of Constar, Inc.
from July 2000 to September 2002 and Senior Manager of Closure
Engineering and Corporate Technologies for Crown Cork & Seal Company,
Inc. from December 1997 to July 2000. |
|
(5) |
|
Jerry A. Hatfield. Mr. Hatfield has been Senior Vice President,
Operations of our Company since September, 2007. Mr. Hatfield was
previously our Vice President, Operations from March 2003 to September
2007, Western Regional Manager from 2001 to 2003, and an Operations
Manager from 1999 to 2001. Prior to that, Mr. Hatfield was a Plant
Superintendent and then a Plant Manager of a Crown Cork & Seal
Company, Inc. can and closure facility from 1991 to 1998. |
|
(6) |
|
David Schroeder. Mr. Schroeder has served as Senior Vice President of
Sales and Marketing since March 2010. In 2009 Mr. Schroeder was the
Chief Operating Officer of Medical Instill Technologies, a provider of
packaging and dispensing solutions for aseptic, non-preserved
products. From 1995-2008, Mr. Schroeder held a variety of sales,
business development and management positions with the Tetra Laval
Group. Most recently, from 2005-2008 Mr. Schroeder was Managing
Director, Zone Vice President North America for Tetra Lavals Sidel
business, a manufacturer of packaging equipment. |
|
(7) |
|
David J. Waksman. Mr. Waksman has been Senior Vice President, Human
Resources, General Counsel and Secretary of our Company since April
2008. Prior to that he, was Vice President, General Counsel and
Secretary of our Company since July 2003. Previously, Mr. Waksman was
a partner at the law firm of Dechert LLP. |
|
(8) |
|
Christopher P. Phelan. Mr. Phelan has been Vice President and General
Manager, European Operations of our Company since July 2007. Since
January 2004, Mr. Phelan had been Technical Director of our European
operations. Prior to that, Mr. Phelan was employed by Rexam as
Technical/Operations Director. |
87
Directors of the Registrant
We have provided information below about our directors, including their ages, term of service as
directors, business experience, and service on other boards of directors. We have also included
information about each directors specific experience, qualifications, attributes or skills that
led the board to conclude that he or she should serve as a director of the Company, in light of our
business and structure.
|
|
|
|
|
|
|
Name |
|
Age |
|
Title |
L. White Matthews, III (1)
|
|
64 |
|
|
Chairman of the Board of Directors |
Michael J. Balduino (2)
|
|
59 |
|
|
Director |
Eric A. Balzer (3)
|
|
61 |
|
|
Director |
Michael J. Hoffman (4)
|
|
49 |
|
|
Director |
Lawrence V. Jackson (5)
|
|
56 |
|
|
Director |
Ruth J. Mack (6)
|
|
55 |
|
|
Director |
|
|
|
(1) |
|
L White Matthews, III. Mr. Matthews has served as a director and chairman of the Board since
May 2009. Mr. Matthews has been retired since September 2001. From July 1999 until September 2001,
Mr. Matthews served as Executive Vice President and Chief Financial Officer of Ecolab, Inc., as
well as a member of its Board of Directors. Mr. Matthews was retired from May 1998 to July 1999.
From February 1977 to May 1998, Mr. Matthews served in various financial positions with Union
Pacific Corporation. From November 1989 to May 1998 he was Executive Vice President and Chief
Financial Officer of Union Pacific and he was a member of its Board of Directors from 1994 to 1998.
Mr. Matthews is a director of Imation Corp. and Matrixx Initiatives, Inc. As Chairman of our Board
of Directors and Chairman of our Boards Nominating and Governance Committee, Mr. Matthews brings
his experience from years of service on the boards of several public and privately-held companies,
as well as his experience as a senior executive. These experiences have provided him with a depth
and breath of knowledge in dealing with governance, leadership, strategic, financial and accounting
matters. |
|
(2) |
|
Michael J. Balduino. Mr. Balduino has served as a director since May 2009. Mr. Balduino
retired from International Paper Company at the end of 2009, where he most recently served as
Senior Vice President-Consumer Packaging since 2008. Mr. Balduino previously served with
International Paper Company as Senior Vice President responsible for consumer products converting
business and President-Shorewood Packaging Corp. from 2004 to 2008; and as Senior Vice
President-Sales and Marketing from 2000 to 2003. Mr. Balduino brings his packaging experience to
the Board, as well as his experience as the senior executive of a publicly-traded company. |
|
(3) |
|
Eric A. Balzer. Mr. Balzer has served as a director since May 2009. Mr. Balzer has been the
Chief Financial Officer of Ramtron International Corporation since 2004. Prior to that, he was
Senior Vice President, Operations of Advanced Energy Industries from 1990-1999. Mr. Balzer is a
director of Ramtron International Corporation and Cap Terra Financial Group. Mr. Balzer serves as
the Chair of our Audit Committee owing to his knowledge of finance, accounting and auditing
procedures gained through his work experience, including as the Chief Financial Officer of a
publicly-traded company. Mr. Balzer has been designed as an Audit Committee Financial Expert. Mr.
Balzer also brings a knowledge of lean manufacturing techniques that are being adopted by the
Company. |
|
(4) |
|
Michael J. Hoffman. Mr. Hoffman has been President and Chief Executive Officer and a director
of our Company since May 2002. Mr. Hoffman has been President of Constar, Inc. since October 2000.
Mr. Hoffman was previously Vice President of Operations for Constar, Inc. since 1995, and director
of Crown Cork & Seal Company, Inc.s Aerosol Manufacturing
division from 1993 to 1995. Prior to that, Mr. Hoffman was a Plant Superintendent, and then a Plant
Manager, in several United States branches of Crown Cork & Seal Company, Inc. from 1987 to 1993.
Prior to 1987, Mr. Hoffman was a Plant Superintendent for Continental Can Company and held various
other plant management positions. Mr. Hoffman has a knowledge of Constar gained through his 15
years of service to the Company. He also brings manufacturing expertise acquired throughout his
career. |
|
(5) |
|
Lawrence V. Jackson. Mr. Jackson has served as a director since May 2009. Mr. Jackson has
been the Chief Executive Officer of Sourcemark LLC since 2007, and a Senior Advisor to New Mountain
Capital since 2008. Mr. Jackson was the President and Chief Executive Officer, Global Procurement
of Wal-Mart Stores, Inc. from 2006 to 2007, and he was the Executive Vice President and Chief
People Officer of Wal-Mart Stores, Inc. from 2004 to 2006. Mr. Jackson was the President and Chief
Operating Officer of Dollar General Stores, Inc. from 2003 to 2004, and the Senior Vice President,
Supply Operations of Safeway, Inc. from 1997 to 2003. Prior to that Mr. Jackson enjoyed a 16-year
career at PepsiCo, Inc., beginning as plant manager and ending as Senior Vice President, Chief
Operating Officer, Worldwide Operations of PepsiCo Food Systems. Mr. Jackson is a director of
ProLogis and Assurant, Inc. Mr. Jackson is an experienced executive of several notable companies.
His history with major retailers and consumer product companies allows him to offer perspectives on
important customers and markets. |
88
|
|
|
(6) |
|
Ruth J. Mack. Ms. Mack has served as a director since May 2009. Ms. Mack was President,
WinCup Plastics and Executive Vice President, New WinCup Holdings from 2006-2009. From 1999-2006,
she worked for Alcoa, Inc., most recently as Vice President, Alcoa and Group President Alcoa
Packaging & Consumer Products. Prior roles included Vice President, Reynolds Metals Company and
General Manager, Reynolds Consumer Products and President Alcoa Consumer Products. Previous to
Alcoa, Ms. Mack held a series of general management, marketing, sales, product development,
distribution and logistics positions in multinational companies such as General Mills, PepsiCo,
Nestle, Pillsbury and WLR Foods. Ms. Mack brings to our Board her experience as a senior
executive with a variety of companies performing both general management and more specialized
roles. These experiences have provided Ms. Mack with a breadth of knowledge in such areas as
strategic development, marketing and general management. |
Audit Committee. The current members of the Audit Committee are Messrs. Balzer, Jackson and
Matthews, each of whom is independent under Nasdaq listing standards and applicable SEC
regulations. Mr. Balzer chairs this Committee.
Audit Committee Financial Expert. The Board of Directors has determined that Mr. Balzer is an
audit committee financial expert as defined by regulations promulgated under the Securities Act
of 1933. Mr. Balzer is independent under Nasdaq listing standards.
Code of Ethics. We have adopted a Code of Ethics
that applies to our principal executive officer, principal financial officer and corporate controller. Our Corporate Governance Guidelines and Code of Ethics are
available on the Investor RelationsCorporate Governance section of our web site at
www.constar.net.
Section 16(a) Beneficial Ownership Reporting Compliance. The rules of the Securities and
Exchange Commission require the Company to disclose late filings of stock transaction reports by
its executive officers, directors and greater than 10% stockholders. Based solely upon a review of
reports filed by these persons, all Section 16(a) filing requirements have been met during 2009,
except that a Form 3 due on June 8, 2009 filed by Sola Ltd, Solus GP LLC and Christopher Pucillo
was filed on June 9, 2009.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
The following table provides certain summary information concerning the compensation earned by
our principal executive officer and our two most highly paid executive officers (other than our
principal executive officer) employed by us or our subsidiaries during the years ended December 31,
2009 and 2008. The following table also provides certain summary information regarding one
of our former executive officers.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Incentive Plan |
|
|
All other |
|
|
|
|
|
|
|
|
|
|
Salary |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Total |
|
Name and Principal Position |
|
Year |
|
|
($) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($) |
|
|
($) |
|
Michael J. Hoffman |
|
|
2009 |
|
|
|
497,950 |
|
|
|
0 |
|
|
|
161,336 |
|
|
|
309,571 |
(3) |
|
|
968,857 |
|
President and Chief Executive Officer |
|
|
2008 |
|
|
|
474,238 |
|
|
|
229,500 |
|
|
|
2,915 |
|
|
|
43,512 |
(4) |
|
|
750,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James C.T. Bolton |
|
|
2009 |
|
|
|
259,995 |
|
|
|
0 |
|
|
|
56,354 |
|
|
|
58,330 |
(5) |
|
|
374,679 |
|
Senior Vice President, Administration and Strategic Planning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher P. Phelan(6) |
|
|
2009 |
|
|
|
230,190 |
|
|
|
0 |
|
|
|
124,303 |
|
|
|
34,020 |
(7) |
|
|
388,513 |
|
Vice President and General
Manager, European Operations |
|
|
2008 |
|
|
|
259,270 |
|
|
|
0 |
|
|
|
0 |
|
|
|
36,907 |
(8) |
|
|
296,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter S. Sobon (9) |
|
|
2009 |
|
|
|
280,025 |
|
|
|
0 |
|
|
|
0 |
|
|
|
412,618 |
(10) |
|
|
692,643 |
|
|
|
|
2008 |
|
|
|
324,450 |
|
|
|
94,500 |
|
|
|
997 |
|
|
|
22,591 |
(11) |
|
|
442,538 |
|
89
|
|
|
(1) |
|
The dollar amounts reported in this column represent the grant date fair value
calculated according to ASC 718 of restricted stock awards granted in fiscal
year 2008 pursuant to the 2007 Stock-Based Incentive Compensation Plan. The
fair value of restricted stock awards is equal to the quoted market price of
the Companys common stock at the date of grant. Restricted stock units
(RSUs) are classified as liabilities in the accompanying consolidated
financial statements. The fair value of the liabilities related to the RSUs is
remeasured at each balance sheet date. Adjustments to the fair value of the RSU
liabilities are recorded as compensation expense. |
|
(2) |
|
Non-equity incentive plan compensation for 2009 represents amounts earned under
the 2009 Annual Incentive Plan. Non-equity incentive plan compensation for
2008 represents interest earned on deferred non-equity incentive plan
compensation. See Narrative Disclosure to Summary Compensation Table for an
explanation of the timing of payment of such amounts. |
|
(3) |
|
Includes $265,658 paid in connection with termination of the Companys
Supplemental Executive Retirement Plan; a $12,000 car benefit; $9,987 country
club expense reimbursement and $5,779 gross up for such reimbursement; and
$15,299 in 401(k) matching funds. |
|
(4) |
|
Includes a $12,000 car benefit, $9,623 country club expense reimbursement and
$5,587 tax gross-up for such reimbursement, and $15,500 in 401(k) matching
funds. The Company determined that excess matching funds in the
amounts of $5,150 and $4,274 were contributed to Mr. Hoffmans 401(k)
account in 2008 and 2009, respectively. These amounts were
forfeited to the Company in 2009 and 2010, respectively. |
|
(5) |
|
Includes $36,296 paid in connection with termination of the Companys
Supplemental Executive Retirement Plan; a $9,000 car benefit; and $12,105 in
401(k) matching funds. The Company determined that excess matching funds of $1,080 were
contributed to Mr. Boltons 401(k)
account in 2009. These amounts were forfeited to the Company in 2010. |
|
(6) |
|
Payments to Mr. Phelan were made in British pounds. Compensation data for 2009
has been converted to U.S. dollars using the 2009 daily average exchange rate
of 1.57 dollars per pound. Compensation data for 2008 has been converted to
U.S. dollars using the 2008 daily average exchange rate of 1.85 dollars per
pound. |
|
(7) |
|
Includes a $33,523 car benefit. |
|
(8) |
|
Includes a $36,289 car benefit. |
|
(9) |
|
Mr. Sobon resigned as an executive officer of the Company on September 23, 2009. |
|
(10) |
|
Includes $360,000 paid in connection with the rejection of Mr. Sobons
employment agreement with the Company; accrued but untaken vacation pay of
$22,911; $12,369 paid in connection with termination of the Supplemental
Executive Retirement Plan; $9,348 in 401(k) matching funds; and a $6,975 car
benefit. |
|
(11) |
|
Includes a $9,000 car benefit and $12,415 in 401(k) matching funds. The Company
has determined that excess matching funds in the amount of $2,065 were
contributed to Mr. Sobons 401(k) account. This amount was forfeited to the
Company in 2009. |
Narrative Disclosure to Summary Compensation Table
The
Annual Incentive Plan. One of the Companys main vehicles of incentive compensation is
the Annual Incentive Plan (the AIP). Adopted in 2009, the AIP replaced the Annual Incentive and
Management Stock Purchase Plan (the MSPP). In order to understand how AIP awards are reported in
the Summary Compensation Table, it is important to understand how this plan works.
Target Awards. Under the AIP, each executive officer has a target bonus amount expressed
as a percentage of the executive officers base salary. A portion of the target bonus is tied
to individual performance criteria for each executive officer, and the remaining portion is
generally tied to financial performance criteria for the Company. Executives with
responsibilities over business units with distinct financial goals may be assigned a third
weighting based on unit performance. Bonus award determinations are typically made during the
first quarter of each year, after audited financial results for the previous year are
available.
90
Under the 2009 AIP, the financial performance criteria included EBITDA (as defined in the
Companys then-current credit facility) targets ranging from $45 million to $56 million, the
attainment of which would have resulted in awards ranging from 20% to 100% of the portion of
the target bonus attributable to financial performance. If the Company was not free cash flow
positive in 2009, then the payout percentage would have been reduced by 10% (for example, a 30%
payout would have been reduced to a 20% payout). Based on the Company’s results in
2009, executive officers were awarded bonuses per the AIP.
Company financial
performance made up 85%, 70%, and 40% of Mr. Hoffman’s,
Mr. Bolton’s and Mr. Phelan’s respective target bonuses.
Based on 2009 EBITDA results, the named executives earned 30% of this portion
of their respective bonuses, and the cash flow deduction did not apply.
Personal goals made up 15% and 30% of Mr. Hoffman’s and Mr.
Bolton’s respective target bonuses. Both executives were awarded 100% of
their target bonuses attributable to personal performance.
Mr. Hoffman’s personal goals were to complete the Company’s
Chapter 11 while improving Company financial performance.
Mr. Bolton’s personal goals included the preparation of information
technology upgrades; promoting business process changes to support certain
internal reports; and supporting the information and analysis initiatives of
certain Company departments. Mr. Phelan’s unit and personal goals
made up 50% and 10%, respectively, of his target bonus. He was awarded 100% of
his target bonus attributable to these two measures. Mr. Phelan’s
unit goal was to achieve $4.0 million of EBITDA from the Company’s
European business. Mr. Phelan’s personal goals included such matters
as achieving operating income targets for the U.K. and Holland plants,
delivering increased business volume for the Holland plant, introducing certain
improvements to the Company’s inspection systems, achieving energy
savings and making certain changes to the European workforce.
Finally, during 2009 the Company imposed mandatory reductions to AIP bonuses for all United States
personnel under which Mr. Hoffman’s bonus was reduced by 20% and
Mr. Bolton’s bonus was reduced by 15%. The foregoing components of
the 2009 awards are summarized in the table below. The table below does not
include the matching feature described under “—How awards are
Paid.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Hoffman |
|
|
Christopher Phelan |
|
|
James Bolton |
|
Maximum corporate portion of
award |
|
$ |
423,257 |
|
|
$ |
69,057 |
|
|
$ |
90,998 |
|
Actual corporate portion of award |
|
$ |
126,977 |
|
|
$ |
20,717 |
|
|
$ |
27,300 |
|
Maximum unit portion of award |
|
|
N/A |
|
|
$ |
86,321 |
|
|
|
N/A |
|
Actual unit portion of award |
|
|
N/A |
|
|
$ |
86,321 |
|
|
|
N/A |
|
Maximum personal portion of award |
|
$ |
74,693 |
|
|
$ |
17,264 |
|
|
$ |
38,999 |
|
Actual personal portion of award |
|
$ |
74,693 |
|
|
$ |
17,264 |
|
|
$ |
38,999 |
|
Mandatory reduction |
|
$ |
(40,334 |
) |
|
|
N/A |
|
|
$ |
(9,945 |
) |
Maximum total award |
|
$ |
497,950 |
|
|
$ |
172,642 |
|
|
$ |
129,997 |
|
Actual award |
|
$ |
161,336 |
|
|
$ |
124,303 |
|
|
$ |
56,354 |
|
How Awards are Paid. Under the AIP, an award is paid 50% in cash as soon as practicable,
and the remaining 50% is deferred for one year at a 5% interest rate, compounded on a daily
basis. Plan participants are fully vested in the deferred bonus and any interest credited to
the deferred bonus. Additionally, the deferred portion of the bonus is
matched with an equal amount of cash that is payable three years from the award date plus
5% interest, compounded on a daily basis. The match is not fully vested upon award. If a
participant terminates employment (i) due to death or disability, then the match will fully
vest; (ii) due to retirement or involuntary termination, then the match vests on a pro-rata
basis; (iii) due to voluntary termination or an involuntary termination for cause, then the
match is forfeited.
What is Non-Equity Incentive Plan Compensation? Payments under the AIP and MSPP are
categorized as Non-Equity Incentive Plan Compensation in the Summary Compensation Table. The
total amount of the award is reported as compensation for the year in which the award was
earned.
What is included in 2009 and 2008 Non-Equity Incentive Plan Compensation? The amounts
reported for 2009 represent the amount awarded under the plan, excluding the match described
above because the match vests over time and was not earned in 2009. The amounts reported for
2008 represent interest earned on deferred MSPP payments.
Stock Awards. No stock was granted to any of the named executive officers in 2009. The 2008
stock awards shown in the Summary Compensation Table were cancelled in connection with the
Companys bankruptcy. There were no outstanding equity awards to any of the named executive
officers at fiscal year-end 2009.
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present |
|
|
Payments |
|
|
|
|
|
Value of |
|
|
During |
|
|
|
|
|
Accumulated |
|
|
Last |
|
|
|
|
|
Benefit |
|
|
Fiscal Year |
|
Name |
|
Plan Name |
|
($) |
|
|
($) |
|
Michael J. Hoffman |
|
Constar Pension Plan |
|
|
142,889 |
|
|
|
0 |
|
Michael J. Hoffman |
|
Constar Supplemental |
|
|
0 |
|
|
|
265,658 |
|
|
|
Executive Retirement Plan |
|
|
|
|
|
|
|
|
James C.T. Bolton |
|
Constar Pension Plan |
|
|
297,195 |
|
|
|
0 |
|
James C.T. Bolton |
|
Constar Supplemental |
|
|
0 |
|
|
|
36,296 |
|
|
|
Executive Retirement Plan |
|
|
|
|
|
|
|
|
Walter S. Sobon |
|
Constar Pension Plan |
|
|
0 |
|
|
|
0 |
|
Walter S. Sobon |
|
Constar Supplemental |
|
|
0 |
|
|
|
12,369 |
|
|
|
Executive Retirement Plan |
|
|
|
|
|
|
|
|
Christopher Phelan(1) |
|
Constar UK Retirement |
|
|
130,737 |
|
|
|
0 |
|
|
|
Benefits Scheme |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Because he is not a U.S. employee, Mr. Phelan was not eligible to
participate in the Constar Pension Plan or the SERP. We maintain a
separate stand-alone pension plan for the benefit of our employees in
the United Kingdom, called the Constar International UK Limited
Retirement Benefits Scheme (the UK Plan), in which Mr. Phelan
participates. |
91
United States Pension Plans
The Constar Pension Plan. The Constar Pension Plan is a tax-qualified defined benefit pension
plan. For purposes of eligibility, including eligibility for early retirement, vesting and benefit
accrual, the Constar Pension Plan recognizes all service recognized on behalf of our employees for
pension purposes by Crown Holdings, Inc. (our former parent company) prior to our initial public
offering.
Prior to April 1, 2007, with respect to our executive officers, the Constar Pension Plan
provided normal retirement benefits at age 65 determined generally as 1.25% of the participants
final five year average base rate of pay multiplied by the participants years of service. This
formula applied to all eligible salaried employees employed at our corporate headquarters,
including our U.S.-based named executive officers. Other participants in the Constar Pension Plan
who were paid hourly and/or employed at other locations received benefits under different formulas.
Effective April 1, 2007, benefit accruals under the Constar Pension Plan were discontinued for all
participants except those who (1) were actively employed on April 1, 2007, (2) had at least 15
years of service as of December 31, 2007 and (3) had a combined age and years of service of at
least 65 as of December 31, 2007. Participants who met these requirements are grandfathered
participants. Grandfathered salaried participants, regardless of job location, will continue to
accrue benefits under a new, less generous benefit formula of 1% of the participants final five
year average base rate of pay multiplied by the participants years of service after March 31,
2007. The benefits of employees who are not grandfathered were frozen as of March 31, 2007 and
such employees will accrue no additional benefits after that date.
Mr. Hoffman and Mr. Bolton are grandfathered
participants and Mr. Sobon is not a grandfathered participant. Under federal law for 2009, benefits
from the Constar Pension Plan were limited to $195,000 per year and may be based only on the first
$245,000 of a participants annual compensation.
Benefits are generally payable beginning at age 65 in the form of a joint and 50% survivor
annuity for married participants and a single life annuity for unmarried participants. Participants
may elect other optional annuity forms of benefit of equivalent actuarial value. Benefits may not
be paid in the form of a lump sum unless the actuarial present value of the participants benefit
is $1,000 or less. An executive officer who has reached age 55 and completed at least 15 years of
service may elect to retire early with reduced benefits. Mr. Bolton is the only officer named in
the above table eligible for early retirement from the Constar Pension Plan.
The Supplemental Executive Retirement Plan. We previously maintained the Constar Supplemental
Executive Retirement Plan (the SERP), a non-qualified supplemental pension plan. The SERP was
intended to provide additional benefits to employees who were designated as participants in writing
by us and whose benefits under the Constar Pension Plan were restricted by the federal limits on
annual benefits and compensation described above. The SERP provided benefits to these participants
on the same basis as the Constar Pension Plan; however, the executives accrued benefits without
regard to the federal limits on annual benefits and compensation imposed on the Constar Pension
Plan. Effective April 1, 2007, benefit accruals under the SERP were discontinued for all
participants other than grandfathered participants (as defined above), and reduced as described
above for all grandfathered participants in the same manner as under the Constar Pension Plan. In
connection with the Companys emergence from Chapter 11, the SERP was terminated. In connection
with such termination certain named executive officers received lump sum payments as shown in the
Pension Benefits table above.
Offset of Crown Pension Plan Benefits. Pursuant to an agreement with Crown entered into in
connection with our IPO, benefits earned under the Constar Pension Plan and SERP will be offset by
any benefits the employee earned under the defined benefit pension plans sponsored by Crown (the
Crown Pension Plans). Crown is responsible for the portion of the pension benefits that accrued
while our employees were participants in the Crown Pension Plans prior to our initial public
offering. This offset is reflected in the numbers set forth in the Pension Benefits table above.
Actuarial Assumptions. The values reported in the table above for the Constar Pension Plan are
the present values as of December 31, 2009 of each named executive officers normal retirement
benefit payable at age 65, calculated using a discount rate of 6.1% and mortality assumptions based
on the RP-2000 Mortality Table. These assumptions are the same as the assumptions used for
financial reporting purposes in our Form 10-K for the year ended December 31, 2009.
Funded Status of Constar Pension Plan. As of December 31, 2009, the Constar Pension Plan was
underfunded on a GAAP basis by approximately $24.4 million.
European Pension Plan. We also maintain the Constar International UK Limited Retirement
Benefit Scheme (the UK Plan) covering eligible employees in the United Kingdom who are at least
age 21 and who elect to participate in the UK Plan. The UK Plan provides normal retirement benefits
at age 65 determined generally under the following formula: 1/60th of the
participants highest average salary over any three consecutive years during the last ten years of
employment, times years of service. Participating employees pay into the UK Plan 5% of their
pre-tax earnings and we contribute the balance necessary to fund the
benefit. Effective February 28, 2010, the UK Plan was frozen.
92
Vesting will occur after a participant has completed two years of service. If a participant
terminates employment before becoming vested, he or she will be refunded all employee contributions
and will forfeit the employer portion. Benefits are generally payable beginning at age 65 in the
form of a monthly annuity, with a 50% survivor annuity payable to a spouse or other dependent. In
addition, if death occurs within five years after retirement, a spouse or other dependent will
receive a lump sum payment equal to what the participants lifetime monthly payments would have
been had the participant lived for the balance of the five years.
Participants may elect to receive a portion of their pension in a lump sum, the amount of
which is based on the participants age at retirement; provided that the monthly benefit payable
after the lump sum is withdrawn is not less than a government-required guaranteed minimum pension.
A participant who has reached age 55 but has not reached age 60 may elect to retire early with
reduced benefits. A participant who is at least age 60 may elect to retire early with an unreduced
pension. A participant who is forced to retire due to serious ill health is entitled to the amount
of the pension he or she would have received had he or she continued to work until age 65. Early
and ill health retirements require the consent of the Company. Currently, none of the U.K.-based
officers named in the above table are eligible for early retirement.
The value reported in the table above for the UK Plan is the present value as of December 31,
2009 of Mr. Phelans normal retirement benefit payable at age 65, calculated using a discount rate
of 5.75% and post- retirement mortality assumptions based on the PA 92 tables and a retirement age
of 65. These assumptions are the same as the assumptions used for financial reporting purposes in
this Annual Report on Form 10-K.
Funded Status of UK Plan. As of December 31, 2009, the UK Plan was underfunded on a GAAP basis
by approximately $3.6 million.
Potential Payments Upon Termination or Change in Control
Messrs. Hoffman and Bolton. In connection with the Companys emergence from Chapter 11, we
entered into amended and restated employment agreements with Messrs. Hoffman and Bolton effective
as of May 29, 2009.
The term of employment pursuant to each executives agreement will continue indefinitely
unless his employment with the Company is terminated under specific circumstances expressly
described in the agreement. If the executives employment with the Company has not been terminated
under the circumstances expressly described in the agreement within three years after the
occurrence of a change in control, the employment agreement will terminate, and the executive will
become an at will employee of the Company. The executive will not be entitled to any severance
payments as a result of any termination of employment occurring after such third anniversary of a
change in control.
If we terminate the executives employment without cause or he resigns for good reason prior
to a change in control, he is entitled to: (i) base salary earned but unpaid as of the date of the
termination; (ii) a lump sum payment equal to one times base salary plus one times his target bonus
and matching incentive under the AIP in the case of Mr. Bolton, and in the case of Mr. Hoffman, two
times base salary plus two times his target bonus and matching incentive under the AIP, for the
year in which such termination occurs; (iii) continuation of medical benefits in effect as of the
date of termination for a period of one year in the case of Mr. Bolton, and in the case of Mr.
Hoffman, two years, following the date of termination at the Companys sole expense; (iv) immediate
payment of any unpaid expense reimbursements and unused accrued vacation days through the date of
termination; and (v) any other payments and/or benefits which he is entitled to receive under any
employee benefit plans or the AIP pursuant to the terms of such plans or arrangements.
If we terminate the executives employment without cause or he resigns for good reason within
six months prior to or three years following a change in control, the severance payable to the
executive described above increases to two times base salary plus two times his target bonus and
matching incentive under the AIP in the case of Mr. Bolton, and in the case of Mr. Hoffman, three
times base salary plus three times his target bonus and matching incentive under the AIP, for the
year in which such termination occurs; and the medical benefits continuation period will be
extended to two years in the case of Mr. Bolton, and in the case of Mr. Hoffman, three years,
following termination of employment. If the executive becomes subject to the golden parachute
excise tax imposed under Section 4999 of the Internal Revenue Code, he will receive an additional
payment in an amount sufficient to offset the effects of such excise tax.
If the executives employment is terminated due to his death or disability, we are required to
pay him (i) any base salary earned but unpaid as of the date of termination and base salary
continuation through the end of the month in which termination occurs, (ii) a pro-rata payment
equal to his target bonus for the year of termination (including the matching incentive of 50% of
such target bonus) under the AIP multiplied by a fraction, the numerator of which is the number of
days in the year up to the date of termination and the denominator of which is 365, (iii) immediate
payment of any unpaid expense reimbursements and unused accrued vacation days through the date of
termination and (iv) any other payments and/or benefits which the executive is entitled to receive
under any employee benefit plans or the AIP pursuant to the terms of such plans or arrangements.
93
Each executive is subject to non-solicitation and non-competition covenants for a period of
time following termination of his employment (the restricted period) as follows: (i) if we
terminate his employment without cause or he resigns for good reason prior to a change in control,
the restricted period is equal to twelve months in the case of Mr. Bolton, and in the case of Mr.
Hoffman, twenty-four months, following termination of employment, (ii) if we terminate his
employment without cause or he resigns for good reason within six months prior to or three years
following a change in control, the restricted period is equal to twenty-four months in the case of
Mr. Bolton, or in the case of Mr. Hoffman, thirty-six months, following termination of employment,
or (iii) otherwise, the restricted period is equal to twelve months following termination of
employment. Each executive is also subject to an indefinite confidentiality covenant and a
covenant to assign to us any invention developed by him (or with his participation) within
one year after his termination of employment. All severance payments are contingent on the
executives execution of a release of claims in favor of the Company.
For purposes of the above-described agreement, cause is generally defined as (i) a willful
and material act of gross misconduct, (ii) the conviction of the executive of, or plea of guilty or
nolo contendere by the executive to (A) any felony or (B) a misdemeanor (involving moral turpitude
or fraud) either of which result in incarceration, (iii) willful acts of moral turpitude by the
executive that result in material financial loss to the Company, (iv) any willful and material
failure to follow the lawful reasonable instructions of the Board of Directors, (v) a material and
willful breach by the executive of his employment agreement or any other written agreement between
him and the Company, (vi) the Executives willful and material violation of any of the Companys
written employment policies, (vii) the executives failure to cooperate with a bona fide internal
investigation or an investigation by regulatory or law enforcement authorities, or (viii) after
being advised of the commencement of any such investigation, the willful destruction or willful
failure to preserve documents or other materials known to be relevant to any such investigation or
the willful inducement of others to fail to cooperate or to produce documents or other materials in
connection with any such investigation. Good reason is generally defined as a change in the
executives authority, duties, responsibilities, reporting obligations or principal employment
location by more than 30 miles, a reduction in base salary, a reduction in the aggregate benefits
payable to the executive, we discontinue the AIP without immediately replacing such plan with a
plan that is the substantial economic equivalent of such plan, a failure by us to pay compensation
or benefits to the executive when due or a failure or refusal by our successor to assume the
executives employment agreement. Change in control generally means (i) the acquisition by an
unrelated third party, pursuant to a sale, merger, consolidation, reorganization or similar
transaction, of more than 30% of our common stock, (ii) the liquidation or dissolution of us or a
sale of substantially all of our assets, or (iii) a change in the individuals who represent a
majority of the membership of our Board of Directors over a 24-month period, provided that new
directors approved by two-thirds of the board shall be excluded from any such determination;
provided, however, that the confirmation of the Companys Plan of Reorganization and the Companys
emergence from Chapter 11 did not constitute a change of control for purposes of the employment
agreement.
Mr. Phelan. We have also entered into a change in control agreement with Mr. Phelan. This
agreement will extend for a one-year term each January 1 unless notice of non-extension is
delivered by either party no later than June 30 of the preceding year. Notwithstanding the above,
this Agreement will terminate on the earlier of (i) the second anniversary of a change in control,
or (ii) the executives attainment of normal retirement age as defined under our defined benefit
pension plan. This agreement provides that in the event the executives employment is terminated
without cause by us or he resigns his employment for good reason within two years following a
change in control, or prior to a change in control with the executive reasonably demonstrating that
the termination without cause or for good reason was in connection with the change in control, the
executive is entitled to: (i) a lump sum payment equal to two times his then current base salary
plus two times his target annual bonus for the year of termination (but not including the matching
incentive of 50% of such target bonus under the AIP); (ii) continuation of medical benefits (at the
same cost to the executive) for a period beginning on the date of such termination of employment
and ending on the earlier of the 24-month anniversary of such termination or the date that the
executive attains age sixty-five; (iii) immediate payment of all of his deferred compensation; and
(iv) immediate cash-out, vesting or exercisability of all outstanding equity-based or
performance-based awards. The foregoing severance payments are contingent on the executives
execution of a release of claims in favor of us. The executive is subject to six-month
non-solicitation and non-competition covenants following termination of his employment. He is also
subject to an indefinite confidentiality covenant.
94
For purposes of the above-described agreement, cause is generally defined as gross
misconduct or negligence, theft of company assets, continued failure to follow the lawful
instructions of the Company or conviction of a criminal offense (other than a road traffic offense
not involving a prison sentence). Good reason is generally defined as a change in the executives
authority, duties, responsibilities, reporting obligations or principal employment location by more
than 50 miles, a reduction in base salary or benefits, a failure by us to pay compensation or
benefits to the executive when due or a failure or refusal by our successor to assume the
executives change in control agreement. Change in control generally means (i)
the acquisition by an unrelated third party, pursuant to a sale, merger, consolidation,
reorganization or similar transaction, of more than 30% of our common stock, (ii) the liquidation
or dissolution of us or a sale of substantially all of our assets, or (iii) a change in the
individuals who represent a majority of the membership of our Board of Directors over a 24-month
period, provided that new directors approved by two-thirds of the board shall be excluded from any
such determination; provided, however, that the confirmation of the Companys Plan of
Reorganization and the Companys emergence from Chapter 11 did not constitute a change of control
for purposes of the employment agreement.
Estimated Payments. Estimated payments to each of the named executive officers under the
above-described agreements upon termination without cause or for good reason prior to a change in
control are as follows (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
Estimated |
|
|
Continued |
|
|
|
|
|
|
Cash |
|
|
Health |
|
|
|
|
|
|
Payment |
|
|
Benefits |
|
|
Total |
|
|
|
($) |
|
|
($) |
|
|
($) |
|
Michael J. Hoffman |
|
|
2,489,750 |
(2) |
|
|
46,837 |
(3) |
|
|
2,536,587 |
|
James C. T. Bolton |
|
|
454,992 |
(4) |
|
|
23,419 |
(5) |
|
|
478,411 |
|
Christopher P. Phelan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All amounts above are based on the assumption that the triggering
event for the payments occurred on December 31, 2009. |
|
(2) |
|
This amount is estimated to equal two times the executives base
salary plus two times the executives target bonus and matching
incentive under the AIP. |
|
(3) |
|
This amount is estimated to equal the premium payments for 24 months of health coverage at our sole expense. |
|
(4) |
|
This amount is estimated to equal one times the executives base
salary plus one times the executives target bonus and matching
incentive under the AIP. |
|
(5) |
|
This amount is estimated to equal premium payments for 12 months of health coverage at our sole expense. |
Estimated payments to each of the named executive officers under the above-described
agreements upon termination without cause or for good reason in connection with a change in control
are as follows (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
|
|
|
Estimated |
|
|
Continued |
|
|
Estimated |
|
|
|
|
|
|
Cash |
|
|
Health |
|
|
Excise Tax |
|
|
|
|
|
|
Payment |
|
|
Benefits |
|
|
Gross-Up |
|
|
Total |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Michael J. Hoffman |
|
|
3,734,625 |
(2) |
|
|
70,256 |
(3) |
|
|
1,626,964 |
(4) |
|
|
5,431,845 |
|
James C. T. Bolton |
|
|
909,983 |
(5) |
|
|
46,837 |
(6) |
|
|
302,547 |
(7) |
|
|
1,259,367 |
|
Christopher P. Phelan (8) |
|
|
805,665 |
(9) |
|
|
2,255 |
(10) |
|
|
|
|
|
|
807,920 |
|
|
|
|
(1) |
|
All amounts above are based on the assumption that the triggering
event for the payments occurred on December 31, 2009. |
|
(2) |
|
This amount is estimated to equal three times the executives base
salary plus three times the executives target bonus and matching
incentive under the AIP. |
|
(3) |
|
This amount is estimated to equal premium payments for 36 months of health coverage at our sole expense. |
|
(4) |
|
This amount does not reflect the value of Mr. Hoffmans three-year
non-competition and non-solicitation agreement with us. Such value
may be offset from the parachute payments attributed to Mr. Hoffman in
connection with a change in control. |
|
(5) |
|
This amount is estimated to equal two times the
executives base salary plus two times the
executives target bonus and matching incentive
under the AIP. |
|
(6) |
|
This amount is estimated to equal premium payments for 24 months of health coverage at our sole expense. |
95
|
|
|
(7) |
|
This amount does not reflect the value of the executives two-year
non-competition and non-solicitation agreement with us. Such value
may be offset from the parachute payments attributed to the executive
in connection with a change in control. |
|
(8) |
|
Payments to Mr. Phelan are converted to US Dollars at the average daily exchange rate for 2009 of $1.56593 to £1. |
|
(9) |
|
This amount is estimated to equal two times the executives base salary plus two times the executives target bonus. |
|
(10) |
|
This amount is estimated to equal the employer-paid portion of
premium payments for 24 months of health coverage. |
Estimated payments to each of the named executive officers under the above-described
agreements upon his death or disability are as follows (1):
|
|
|
|
|
|
|
Estimated |
|
|
|
Cash |
|
|
|
Payment |
|
Name |
|
($)(2) |
|
Michael J. Hoffman |
|
|
746,925 |
|
James C. T. Bolton |
|
|
194,996 |
|
|
Christopher P. Phelan |
|
|
|
|
|
|
|
(1) |
|
All amounts above are based on the assumption that the triggering
event for the payments occurred on December 31, 2009. |
|
(2) |
|
This amount is equal to the executives target bonus and matching incentive under the AIP. |
Mr. Sobon. Mr. Sobons employment agreement was rejected by the Company in connection with
its Chapter 11 proceeding. Payments made to Mr. Sobon in respect of such rejection are described
in the footnotes to the Summary Compensation Table.
Director Compensation
Current Board of Directors. We paid the following cash compensation to our current Board of
Directors for their 2009 service. These amounts include fees earned
in 2009 that were paid in 2010. These directors assumed office upon the Companys emergence from
Chapter 11. Our Chief Executive Officer is a member of the Board of Directors but does not receive
any compensation for such service.
|
|
|
|
|
|
|
Fees |
|
|
|
Earned |
|
|
|
or Paid |
|
|
|
in Cash |
|
Name |
|
($) |
|
Michael J. Balduino |
|
|
40,580 |
|
Eric A. Balzer |
|
|
53,486 |
|
Lawrence V. Jackson |
|
|
45,080 |
|
Ruth J. Mack |
|
|
50,486 |
|
L. White Matthews |
|
|
89,832 |
|
96
The fees described above were paid in accordance with the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance Fee for |
|
|
|
Annual |
|
|
Board or Applicable |
|
|
|
Retainer |
|
|
Committee Meeting |
|
Position |
|
($) |
|
|
($) |
|
Chairman of the Board of Directors |
|
|
120,000 |
|
|
|
1,500 |
|
Non-Chairman Director |
|
|
45,000 |
|
|
|
1,500 |
|
Chairman of the Audit Committee |
|
|
10,000 |
|
|
|
1,000 |
|
Non-Chairman Member of the Audit Committee |
|
|
0 |
|
|
|
1,000 |
|
Chairman of the Compensation and Benefits Committee |
|
|
10,000 |
|
|
|
1,000 |
|
Non-Chairman Member of the Compensation and
Benefits Committee |
|
|
0 |
|
|
|
1,000 |
|
Chairman of the Nominating and Corporate
Governance Committee |
|
|
5,000 |
|
|
|
1,000 |
|
Non-Chairman Member of the Nominating and
Corporate Governance Committee |
|
|
0 |
|
|
|
1,000 |
|
In addition, Directors are to annually receive $60,000 of restricted stock. No awards have yet
been made. All directors will be reimbursed for travel expenses incurred in connection with Board
of Directors and committee meetings. Mr. Jason Pratt joined the Companys Board of Directors upon
the Companys emergence from Chapter 11, and subsequently resigned. Mr. Pratt was a Principal and
Managing Director of one of the Companys stockholders, and was not being currently paid for his
Board service other than reimbursement of travel expenses. Upon his resignation from the Board of
Directors, Mr. Pratt was paid $10,000.
Mr. Matthews serves as the Chairman of our Board of Directors and the Chairman of our
Nominating and Corporate Governance Committee. In recognition of this dual service, commencing in
2010 no annual retainer will be payable to Mr. Matthews for his service as Chairman of our
Nominating and Corporate Governance Committee.
Former Board of Directors. We paid the following cash compensation to our former Board of
Directors for their 2009 service. These Directors resigned upon the Companys emergence from Chapter 11. Our Chief
Executive Officer was a member of the former Board of Directors but did not receive any
compensation for such service.
|
|
|
|
|
|
|
Fees |
|
|
|
Earned |
|
|
|
or Paid |
|
|
|
in Cash |
|
Name |
|
($) |
|
James A. Lewis |
|
|
31,313 |
|
Michael D. McDaniel |
|
|
34,343 |
|
Frank J. Mechura |
|
|
47,755 |
|
John P. Neafsey |
|
|
65,648 |
|
Angus F. Smith |
|
|
51,552 |
|
A. Alexander Taylor |
|
|
36,843 |
|
The fees described above were paid in accordance with the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance Fee for |
|
|
|
Annual |
|
|
Board or Applicable |
|
|
|
Retainer |
|
|
Committee Meeting |
|
Position |
|
($) |
|
|
($) |
|
Chairman of the Board of Directors |
|
|
91,500 |
|
|
|
2,000 |
|
Non-Chairman Director |
|
|
56,500 |
|
|
|
1,000 |
|
Chairman of the Audit Committee |
|
|
14,000 |
|
|
|
2,000 |
|
Non-Chairman Member of the Audit Committee |
|
|
3,500 |
|
|
|
1,500 |
|
Chairman of the Compensation Committee |
|
|
5,000 |
|
|
|
1,500 |
|
Non-Chairman Member of the Compensation Committee |
|
|
2,500 |
|
|
|
1,000 |
|
Chairman of the Nominating and Corporate Governance Committee |
|
|
5,000 |
|
|
|
1,500 |
|
Non-Chairman Member of the Nominating and Corporate
Governance Committee |
|
|
2,500 |
|
|
|
1,000 |
|
Notwithstanding the foregoing, each Committee had a maximum number of meetings per year for
which attendance fees were payable. Attendance fees were payable for up to 12 Audit Committee
meetings per year, up to three Compensation Committee meetings per year, and up to two Nominating
and Corporate Governance Committee meetings per year.
97
In addition, all directors were reimbursed for travel expenses incurred in connection with
Board of Directors and committee meetings.
Mr. Neafsey was the Chairman of our Board of Directors and the Chairman of our Nominating and
Corporate Governance Committee. In recognition of this dual service, since the second quarter of
2006 no annual retainer was payable to Mr. Neafsey for his service as Chairman of our Nominating
and Corporate Governance Committee.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The following table sets forth certain information as of December 31, 2009 with respect to our
equity compensation plans (including individual compensation arrangements) under which our equity
securities are authorized for issuance, aggregated by (i) all compensation plans previously
approved by our security holders, and (ii) all compensation plans not previously approved by our
security holders. The table includes:
|
|
|
the number of securities to be issued upon the exercise of outstanding options; |
|
|
|
the weighted-average exercise price of the outstanding options; and |
|
|
|
the number of securities that remain available for future issuance under the plans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
securities to be |
|
|
|
|
|
|
securities |
|
|
|
issued upon |
|
|
Weighted-average |
|
|
remaining available |
|
|
|
exercise of |
|
|
exercise price of |
|
|
for future issuance |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
under equity |
|
Plan Category |
|
warrants and rights |
|
|
warrants and rights |
|
|
compensation plans |
|
Equity compensation plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by security holders (1) |
|
|
|
|
|
|
|
|
|
|
129,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not approved by security holders (2) |
|
|
|
|
|
|
|
|
|
|
64,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
194,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents securities available for issuance under the 2009 Equity Compensation Plan. |
|
(2) |
|
Represents securities available for issuance under the Plan of Reorganization
adopted in connection with the Companys emergence from Chapter 11. |
Under the Plan of Reorganization adopted in connection with the Companys emergence from
Chapter 11, the Company was authorized, without further shareholder approval, to issue 194,444
shares of common stock to employees and
directors under a Management Incentive Plan (MIP). Two-thirds of that amount, or 129,629
shares, was to be in the form of stock options and the remaining one
third was to be in the form of
restricted stock. The 2009 Equity Compensation Plan, approved by the shareholders, allows the
Company to issue the 129,629 shares in the form of stock options under that plan rather than under
the MIP. The remaining 64,815 shares are to be issued as restricted stock units under the MIP.
Under the MIP, the allocation and grant terms are to be set by the Compensation and Benefits
Committee.
No equity grants have yet been made under the plans described above. The Company is seeking
to re-list its stock on NASDAQ, and currently intends to issue equity to the Companys Board of
Directors and executive management after obtaining the listing.
98
The following table sets forth certain information regarding beneficial ownership of our
Common Stock as of March 15, 2010. The table includes the number of shares beneficially owned by (i)
each person or group that is known to us to be the beneficial owner of more than 5% of our
outstanding Common Stock, (ii) each of our directors and executive officers named in the summary
compensation table and (iii) all of our directors and executive officers as a group. Beneficial
ownership is determined in accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities.
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares |
|
|
Percent of |
|
|
|
Beneficially |
|
|
Shares |
|
5% Beneficial Owners, Directors, Named Officers |
|
Owned |
|
|
Outstanding |
|
Solus Alternative Asset Management LP, Solus GP LLC,
and Christopher Pucillo |
|
|
425,280 |
|
|
|
24.3 |
% |
430 Park Avenue, 9th Floor
New York, NY 10022 (1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JP Morgan Chase & Co. |
|
|
250,250 |
|
|
|
14.3 |
% |
270 Park Avenue
New York, NY 10017 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FMR LLC 82 Devonshire Street
Boston, MA 02109 (1)(3) |
|
|
175,600 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
Trafelet Capital Management, L.P.,
Trafelet & Company LLC and Remy Trafelet (1)(4)
590 Madison Avenue, 26thFloor
New York, NY 10022 |
|
|
159,600 |
|
|
|
9.1 |
% |
|
|
|
|
|
|
|
|
|
Peritus I Asset Management LLC
26 W. Anapamu Street, 3rd Floor
Santa Barbara, CA 93101 (1)
|
|
|
92,450 |
|
|
|
5.3 |
% |
|
Michael J. Balduino |
|
|
0 |
|
|
|
0 |
|
Eric A. Balzer |
|
|
0 |
|
|
|
0 |
|
Lawrence V. Jackson |
|
|
0 |
|
|
|
0 |
|
Ruth J. Mack |
|
|
0 |
|
|
|
0 |
|
L. White Matthews III |
|
|
0 |
|
|
|
0 |
|
Michael J. Hoffman |
|
|
0 |
|
|
|
0 |
|
James C.T. Bolton |
|
|
0 |
|
|
|
0 |
|
Christopher Phelan |
|
|
0 |
|
|
|
0 |
|
Walter S. Sobon |
|
|
0 |
|
|
|
0 |
|
All directors and executive officers
as a group (14 persons) |
|
|
0 |
|
|
|
0 |
|
|
|
|
(1) |
|
The number of shares beneficially owned is derived from reports
filed by each such beneficial owner under Section 13 or Section
16 of the Securities Exchange Act of 1934. |
|
(2) |
|
According to the Schedule 13G filed by the named persons on June 9,
2009, Solus GP LLC is the general partner of Solus Alternative Asset
Management LP and Christopher Pucillo
is the managing member of Solus GP LLC. |
|
(3) |
|
According to the Schedule 13G filed by the named person on September
10, 2009, Fidelity Management & Research Company is the beneficial
owner of 169,100 shares of Constar common stock (equal to 9.7% of the
outstanding shares), and Fidelity Capital & Income Fund is the
beneficial owner of 115,450 shares of Constar common stock (equal to
6.6% of the outstanding shares). Additional information regarding the
beneficial ownership of such shares is contained within such Schedule
13G. |
|
(4) |
|
According to the Schedule 13G filed by the named persons on January
21, 2010, the reported shares are held by several private investment funds
for which Trafelet Capital Management, L.P. serves as the investment
manager. Trafelet & Company, LLC serves as the general partner of
Trafelet Capital Management, L.P. and Remy Trafelet serves as managing
member of Trafelet & Company, LLC. |
The address of each director and executive officer is One Crown Way, Philadelphia,
Pennsylvania 19154-4599.
99
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
For a description of certain relationships and related transactions, see Managements
Discussion and Analysis of Financial Condition and Results of OperationsRelationship with Crown.
Policy for Approval of Related Person Transactions
The Board of Directors has adopted a written policy for the treatment of related person
transactions. The policy defines a Related Person Transaction as a transaction (A) in which (1)
the Company was, is or would be a participant, and (2) any Related Person had, has or would have a
direct or indirect interest (other than solely as a result of being a director or a less than 10
percent beneficial owner (but not a general partner) of another entity that is a party to the
transaction); or (B) that is required to be disclosed under Item 404(a) of Regulation S-K. The
policy defines a Related Person as a person (A) who is or was (at any time since the beginning of
the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they
are not presently such a person) an (1) executive officer, director or nominee for election as a
director of the Company, or (2) Immediate Family Member of any of the foregoing; or (B) who is or
was (at any time when the relevant transaction occurred or existed) (1) a greater than 5 percent
beneficial owner of the Companys common stock; or (2) an Immediate Family Member of such
beneficial owner. The policy defines Immediate Family Member as a persons spouse, parents,
stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law and anyone residing in such persons home (other
than a tenant or employee).
Under the policy, the Audit Committee reviews the material facts of each Related Person
Transaction and either approves or disapproves of the entry into the Related Person Transaction. If
advance approval of a Related Person Transaction is not feasible or was not obtained, then the
Audit Committee shall review the material facts of the Related Person Transaction and either ratify
or disapprove of the entry into the Related Person Transaction. The Audit Committee may approve or
ratify only those Related Person Transactions that are in, or are not inconsistent with, the best
interests of the Company and its stockholders, as the Audit Committee determines in good faith. In
determining whether to approve or ratify a Related Person Transaction, the Audit Committee shall
take into account all of the facts and circumstances that the Audit Committee deems appropriate,
including but not limited to whether the Related Person Transaction is on terms no less favorable
than terms generally available to an unaffiliated third-party under the same or similar
circumstances, the nature of the Related Persons interest in the transaction, the nature of the
relationship among the relevant Related Persons, the amount involved, any benefit to the Company
and any impact on director independence.
No director may participate in any discussion or approval of a Related Person Transaction for
which he or she is a Related Person, except that the director shall provide all material
information concerning the Related Person Transaction to the Audit Committee.
If a Related Person Transaction will be ongoing, the Audit Committee may establish guidelines
for the Companys management to follow in its ongoing dealings with the Related Person. Thereafter,
the Audit Committee, on at least an annual basis, shall review and assess ongoing relationships
with the Related Person to see that they are in compliance with the Committees guidelines and that
the Related Person Transaction remains appropriate.
A Related Person Transaction shall not be invalid, void or voidable under applicable law
solely because the Audit Committee shall fail to approve or ratify such Related Person Transaction.
Director Independence
Each member of the Board of Directors is independent under NASDAQ listing standards, except
that Mr. Hoffman is not independent because he is an executive officer of the Company. All members
of the Audit Committee, Compensation
and Benefits Committee, and Nominating and Corporate Governance Committee are independent
under NASDAQ listing standards.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTING FEES AND SERVICES |
Audit Fees. The aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the year ended December 31, 2009 for the audit of our financial
statements and internal controls for the year ended December 31, 2009 (including the delivery of
reports required by Section 404 of the Sarbanes-Oxley Act) and the review of our quarterly
financial statements filed on Form 10-Q in 2009 were $1,616,000. The
aggregate fees billed for professional services rendered by PricewaterhouseCoopers LLP for the year
ended December 31, 2008 for the audit of our financial statements and internal controls for the
year ended December 31, 2008 (including the delivery of reports required by Section 404 of the
Sarbanes-Oxley Act) and the review of our quarterly financial statements filed on Form 10-Q in 2008
were approximately $1,540,000.
Audit-Related Fees. In 2009, PricewaterhouseCoopers LLP billed the Company $12,000 for
services rendered in connection with an SEC comment letter. In 2008, PricewaterhouseCoopers LLP
billed the Company $9,000 for services rendered in connection with their retention in accordance
with the applicable requirements of the Bankruptcy Code, and $18,000 for services rendered in
connection with an SEC comment letter.
100
Tax Fees. For 2009 and 2008, the aggregate fees billed for tax services rendered by
PricewaterhouseCoopers LLP were approximately $16,000 and $10,000, respectively. These figures
primarily related to the preparation of tax returns for the Companys operations in the United
Kingdom and Holland.
All Other Fees. There were no fees billed by PricewaterhouseCoopers LLP for the year ended
December 31, 2009 for any services other than as described above, other than reorganization related
fees of approximately $245,000 and subscription fees for an accounting and tax research program in
the amount of $3,000. There were no fees billed by PricewaterhouseCoopers LLP for the
year ended December 31, 2008 for any services other than as described above, other than
subscription fees for an accounting and tax research program in the amount of $3,000.
All the services as described above were approved by our Audit Committee. In accordance with
the charter of our Audit Committee, all auditing services and, except as provided in the following
sentence, all non-audit services to be provided by any independent registered public accounting
firm of the Company shall be pre-approved by the Audit Committee; in addition, the Audit Committee
may delegate such pre-approval duty to one or more designated members of the Audit Committee who
are also independent directors of the Board of Directors; provided, that any decisions of any
member of the Audit Committee to whom such duty has been delegated shall also be presented to the
full Audit Committee at its next scheduled meeting. The pre-approval requirement described in the
preceding sentence shall not apply to non-audit services for the Company if (a) the aggregate
amount of all such non-audit services provided to the Company constitutes not more than five
percent of the total amount of revenues paid by the Company to its independent registered public
accounting firm during the fiscal year in which the non-audit services are provided; (b) such
services were not recognized by the Company at the time of the engagement to be non-audit services;
and (c) such services are promptly brought to the attention of the Audit Committee and approved,
prior to the completion of the audit, by the Audit Committee or by one or more members of the Audit
Committee who are also independent directors of the Board of Directors to whom authority to grant
pre-approvals has been delegated by the Audit Committee. The Audit Committee will review and
consider all PricewaterhouseCoopers LLP professional services when assessing auditor independence.
101
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) All Financial Statements:
The Financial Statements listed in the Index to Consolidated Financial Statements
Schedules are filed as part of this report (See Part II Item 8).
(2) Financial Statement Schedules:
The Financial Statement Schedules listed in the Index to Consolidated Financial
Statements Schedules are filed as part of this report (See Part II Item 8).
(3) Exhibits:
The following is a list of exhibits filed as part of this annual report on Form 10-K.
Where so indicated, exhibits which were previously filed are incorporated by reference.
|
|
|
|
|
|
3.1 |
|
|
Restated Certificate of Incorporation (incorporated by
reference to Exhibit 1 of the Companys Registration Statement
on Form 8-A filed on June 1, 2009). |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws (incorporated by reference to
Exhibit 2 of the Companys Registration Statement on Form 8-A
filed on June 1, 2009). |
|
|
|
|
|
|
4.1 |
|
|
Indenture, dated as of February 11, 2005 among Constar
International Inc., the Note Guarantors party thereto, and the
Bank of New York, as Trustee, relating to the Companys Senior
Secured Floating Rate Notes due 2012 (incorporated by
reference to Exhibit 4.1 of the Companys Current Report on
Form 8-K, filed on February 17, 2005). |
|
|
|
|
|
|
4.2 |
|
|
U.S. Security Agreement, dated as of February 11, 2005
among Constar International Inc., the Domestic Restricted
Subsidiaries party thereto, as Grantors, and the Bank of
New York, as Trustee (incorporated by reference to
Exhibit 4.4 of the Companys Current Report on Form 8-K,
filed on February 17, 2005). |
|
|
|
|
|
|
4.3 |
|
|
Amendment No. 1 to U.S. Security Agreement, dated as of
February 11, 2010, by and among Constar International
Inc., Constar, Inc., DT, Inc., BFF Inc., Constar Foreign
Holdings, Inc. and The Bank of New York Mellon
(incorporated by reference to Exhibit 4.3 of the
Companys Current Report on Form 8-K, filed on February
17, 2010). |
|
|
|
|
|
|
4.4 |
|
|
Access, Use and Intercreditor Agreement, dated as of
February 11, 2010, by and among General Electric Capital
Corporation, The Bank of New York Mellon, The Bank of New
York Mellon, London Branch, Constar International Inc.,
Constar, Inc., DT, Inc., BFF Inc., Constar Foreign
Holdings, Inc. and Constar International U.K. Limited
(incorporated by reference to Exhibit 4.5 of the
Companys Current Report on Form 8-K, filed on February
17, 2010). |
|
|
|
|
|
|
4.5 |
|
|
Debenture, dated as of February 11, 2005, between Constar
International UK Ltd, as Chargor, and the Bank of New
York (acting out of its London office) as Security
Trustee (incorporated by reference to Exhibit 4.6 of the
Companys Current Report on Form 8-K, filed on February
17, 2005). |
|
|
|
|
|
|
4.6 |
|
|
Deed of Amendment Relating to a Debenture dated 11
February 2005, dated as of February 11, 2010, by and
between Constar International U.K. Limited and The Bank
of New York Mellon (incorporated by reference to Exhibit
4.4 of the Companys Current Report on Form 8-K, filed on
February 17, 2010). |
|
|
|
|
|
|
10.1 |
|
|
Supply Agreement between Constar, Inc. and Pepsi-Cola
Advertising and Marketing, Inc. dated as of January 1,
2009 (incorporated by reference to Exhibit 10.1 of the Companys
Annual Report on Form 10-K filed on March 31, 2009). |
|
|
|
|
|
|
10.2 |
|
|
Credit Agreement, dated as of February 11, 2010, by and
among Constar International Inc., Constar, Inc., DT,
Inc., BFF Inc., Constar Foreign Holdings, Inc., Constar
International U.K. Limited, each of the other Persons
party thereto that is designated as a Credit Party,
General Electric Capital Corporation, for itself as
lender and as agent for the lenders from time to time
party thereto, and the lenders from time to time party
thereto (the schedules and exhibits to the Credit
Agreement have been omitted; a copy of any omitted
schedule or exhibit will be furnished to the Securities
and Exchange Commission supplementally upon request)
(incorporated by reference to Exhibit 10.3 of the
Companys Current Report on Form 8-K, filed on February
17, 2010). |
102
|
|
|
|
|
|
10.3 |
|
|
Guaranty and Security Agreement, dated as of February 11,
2010, by Constar International Inc., Constar, Inc., DT,
Inc., BFF Inc., Constar Foreign Holdings, Inc. and each
of the other entities from time to time party thereto, in
favor of General Electric Capital Corporation
(incorporated by reference to Exhibit 10.4 of the
Companys Current Report on Form 8-K, filed on February
17, 2010). |
|
|
|
|
|
|
10.4 |
|
|
Deed of Charge and Assignment, dated as of February 11,
2010, by and between Constar International U.K. Limited
and General Electric Capital Corporation (incorporated by
reference to Exhibit 10.5 of the Companys Current Report
on Form 8-K, filed on February 17, 2010). |
|
|
|
|
|
|
10.5 |
|
|
Guaranty and Indemnity, dated as of February 11, 2010, by
and between Constar International U.K. Limited and
General Electric Capital Corporation (incorporated by
reference to Exhibit 10.6 of the Companys Current Report
on Form 8-K, filed on February 17, 2010). |
|
|
|
|
|
|
10.6 |
|
|
Charge Over Shares, dated as of February 11, 2010, by and
between Constar Foreign Holdings, Inc. and General
Electric Capital Corporation (incorporated by reference
to Exhibit 10.7 of the Companys Current Report on Form
8-K, filed on February 17, 2010). |
|
|
|
|
|
|
10.7 |
|
|
Subordination Agreement, dated as of February 11, 2010,
by and among Constar International Holland (Plastics)
B.V., Constar International UK Limited and General
Electric Capital Corporation (incorporated by reference
to Exhibit 10.8 of the Companys Current Report on Form
8-K, filed on February 17, 2010). |
|
|
|
|
|
|
10.8 |
|
|
Amended and Restated Executive Employment Agreement,
dated as of May 29, 2009, by and between Constar
International Inc. and Michael J. Hoffman (incorporated
by reference to Exhibit 99.2 of the Companys Current
Report on Form 8-K filed on June 4, 2009).* |
|
|
|
|
|
|
10.9 |
|
|
Amended and Restated Executive Employment Agreement,
dated as of May 29, 2009, by and between Constar
International Inc. and James C.T. Bolton (incorporated by
reference to Exhibit 99.3 of the Companys Current Report
on Form 8-K filed on June 4, 2009).* |
|
|
|
|
|
|
10.10 |
|
|
Amended and Restated Executive Employment Agreement, dated
as of May 29, 2009 by and between Constar International
Inc. and David J. Waksman (incorporated by reference to
Exhibit 99.4 of the Companys Current Report on Form 8-K
filed on June 4, 2009).* |
|
|
|
|
|
|
10.11 |
|
|
Agreement, dated as of September 23, 2009, between Constar
International Inc. and J. Mark Borseth (incorporated by
reference to Exhibit 99.1 of the Companys Current Report
on Form 8-K filed on September 23, 2009).* |
|
|
|
|
|
|
10.12 |
|
|
Change of Control Agreement (incorporated by reference to
Exhibit 10.27 of the Companys Registration Statement on
Form S-1 (Reg. No. 333-88878) filed on September 17,
2002).* |
|
|
|
|
|
|
10.12 |
a |
|
Form of amendment to Change of Control Agreement
(incorporated by reference to Exhibit 10.27a filed with the
Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, filed on November 14, 2007).* |
|
|
|
|
|
|
10.12 |
b |
|
Agreement dated August 1, 2007 between Constar
International Inc. and Chris Phelan (incorporated by
reference to Exhibit 10.27b filed with the Companys
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007, filed on November 14, 2007).* |
|
|
|
|
|
|
10.13 |
|
|
Constar International Inc. 2009 Equity Compensation Plan
(incorporated by reference to Exhibit A of the Companys
Definitive Proxy Statement filed on September 28, 2009).* |
|
|
|
|
|
|
10.14 |
|
|
Constar International Inc. Annual Incentive Plan
(incorporated by reference to Exhibit 99.1 of the
Registrants Current Report on Form 8-K filed on June 1,
2009).* |
|
|
|
|
|
|
10.15 |
|
|
Constar International Inc. Short-Term Incentive Plan
(incorporated by reference to Exhibit 10.28 of the
Companys Registration Statement on Form S-1 (Reg. No.
333-88878) filed on October 17, 2002).* |
103
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of Constar International Inc. |
|
|
|
|
|
|
23.1 |
|
|
Consent of PricewaterhouseCoopers LLP. |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1 |
|
|
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. |
|
|
|
|
|
|
32.2 |
|
|
Certification of Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Management contract or compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 15(b) of this Report. |
|
|
|
Confidential treatment granted. |
104
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.
|
|
|
|
|
|
Constar International Inc.
|
|
Dated: March 24, 2010 |
By: |
/s/ J. Mark Borseth
|
|
|
|
J. Mark Borseth |
|
|
|
Executive Vice President and
Chief Financial Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
SIGNATURE |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/ Michael J. Hoffman
Michael J. Hoffman
|
|
President, Chief Executive
Officer and Director
(principal
executive officer)
|
|
March 24, 2010 |
|
|
|
|
|
/s/ J. Mark Borseth
J. Mark Borseth
|
|
Executive Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
|
|
March 24, 2010 |
|
|
|
|
|
/s/ L. White Matthews
L. White Matthews
|
|
Director
|
|
March 24, 2010 |
|
|
|
|
|
|
|
Director
|
|
March 24, 2010 |
Michael J. Balduino |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 24, 2010 |
Eric A. Balzer |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 24, 2010 |
Lawrence V. Jackson |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 24, 2010 |
Ruth J. Mack |
|
|
|
|
105