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 Fiscal Year Ended December 31, 2002
OR
| ¨ | 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 |
13-1889304 | |
| (State of other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) | |
| One Crown Way, Philadelphia, PA |
19154 | |
| (Address of principal executive offices) |
(Zip Code) |
(215) 552-3700
(Registrant’s 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:
Title of Each Class
Common Stock, $.01 Par Value
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 and 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 x No ¨
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 Registrant’s 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. ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x
As of March 14, 2003, 12,015,000 shares of the Registrant’s Common Stock, excluding shares held in Treasury, were issued and outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant (treating Crown Cork & Seal Company, Inc. and the Company’s directors and executive officers as the Company’s only affiliates for these purposes) on such date was $75,175,450.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Notice of Annual Meeting and Proxy Statement dated March 28, 2003 are incorporated by Reference into Part III hereof. Only those portions specifically cited in Part III hereof as being so incorporated are to be deemed filed as part of this Annual Report on Form 10-K.
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| Item 5. |
Market for Registrant’s Common Stock and Related Stockholder Matters |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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| Item 15. |
Exhibits, Financial Statement Schedules and Reports on Form 8-K |
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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 “anticipates”, “believes”, “expects”, “planned”, “scheduled”, 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:
| • | The level of demand for packaging requiring the Company’s proprietary technologies and know-how; |
| • | Continued conversion from metal, glass and other materials for packaging to plastic packaging; |
| • | The commercial success of the Company’s customers; |
| • | The terms upon which the Company acquires resin and its ability to reflect those terms in its sales; |
| • | General economic and political conditions, including those that affect the price of petrochemical products such as PET resin; |
| • | The Company’s ability to comply with restrictive covenants contained in the instruments governing its indebtedness; |
| • | The Company’s debt levels and its ability to obtain financing and service debt; |
| • | The Company’s ability to protect its existing technologies and to develop new technologies; |
| • | The Company’s ability to control costs; |
| • | The Company’s additional costs incurred as an independent public company; |
| • | Legal and regulatory proceedings and developments; |
| • | Weather conditions; |
| • | The Company’s ability to identify trends in its markets and to offer new solutions that address the changing needs of these markets; |
| • | The Company’s ability to successfully execute its business model; |
| • | The Company’s ability to compete successfully against competitors; 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 the Company’s forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Constar undertakes no obligation to update publicly any forward-looking statement whether as a result of new information or future events.
General
Constar International Inc. (the “Company” or “Constar”) is a global producer of PET, or polyethylene terephthalate, plastic containers for food and beverages. Constar manufactures PET containers for conventional PET applications in soft drinks and water and for custom PET applications. Custom PET containers are used for food, juices, teas, new age beverages, beer and flavored alcoholic beverages, all of which require advanced technologies, processing know-how or innovative designs.
Some foods and beverages are sensitive to oxygen and require special protective packaging. Oxbar, the Company’s oxygen-scavenging technology, allows Constar to produce the special packaging required for the protection of oxygen sensitive products. The Company has also developed proprietary methods for addressing the challenges of hot-filling PET containers. The Company has experienced many past conversions of product lines to PET, including soft drinks and water. This gives the Company a strong understanding of the market dynamics associated with expected future large scale conversions to PET. The Company is engaged in development projects with leading consumer product companies to deliver the next generation of PET technologies, and has commenced commercial trials and filed patent applications for some of these technologies.
The PET Container Industry
The PET container industry is generally divided into two product types: conventional PET, which includes beverage containers for soft drinks and water, and custom PET, which includes containers that generally require specialized performance characteristics.
The conventional PET container industry consists of high volume production of containers for use in packaging soft drinks and water. The industry is supplied by independent producers, as well as captive manufacturers.
The custom PET container industry is characterized by complex manufacturing processes, unique materials, innovative product designs and technological know-how for products with special shelf-life requirements. Because of the greater required manufacturing complexity, many custom PET applications have greater profitability and higher barriers to entry than conventional PET.
PET products include both bottles and preforms. Preforms are test tube-shaped intermediate products in the bottle manufacturing process. Some companies purchase preforms that they process into bottles at their own manufacturing facilities. Preforms are utilized in both conventional and custom applications. In the United States, PET bottle manufacturers generally sell completed bottles. In Europe, PET bottle manufacturers generally sell preforms.
The PET container business is a rapidly growing component of the United States packaging market due to new introductions of multi-pack single serve soft drinks in supermarkets and club stores, continued growth in water and smaller sized soft drink containers and conversion opportunities. Most of these conversion opportunities involve the use of custom PET technologies. The PET container business is a rapidly growing component of the European packaging market due to accelerating conversion trends in water, soft drinks, juices and beer, and other products.
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, PET containers have been gaining market share due to consumer preference for PET containers’ transparency, resealability, light weight and shatter resistance. PET bottles and jars have also gained acceptance due to PET’s custom molding potential, which allows customers to differentiate their products using innovative designs and shapes that increase promotional appeal.
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Historically, conversions to PET from glass have occurred first in larger size bottles within a product category, and then proliferated to smaller sizes. This was the case for two liter soft drinks in the late 1970s, hot-fill gallon juices in the late 1980s, and 1.5 liter water bottles in the mid-1990s, as well as in many food conversions such as edible oil, salad dressings, peanut butter, and mayonnaise. The four main reasons for this phenomenon are:
| • | Because larger bottles have less surface area in proportion to volume contained, permeation rates for oxygen and carbon dioxide are less critical to shelf-life. |
| • | The cost of the package in relation to the cost of the product contained is lower in larger bottles. The higher per-bottle costs needed to achieve specialized properties in a large bottle have less impact on a product’s cost per ounce. |
| • | Larger glass bottles are proportionately heavier because strength is achieved partly by increasing the thickness of the glass, while PET’s intrinsic strength does not require significantly greater wall thickness for large bottles. This issue makes PET bottles cost competitive with, and lighter than, glass bottles. |
| • | Larger glass bottles are more prone to breakage because of their greater wall surface and weight. Because of their greater mass, they are potentially more damaging when dropped and broken. The shatter resistant nature of PET has even greater importance in larger bottle applications. |
Glass conversions in large bottles have typically been followed by conversions of small size bottles. This has resulted from both lower costs achieved over time by scale advantages and new technology, and from stronger demand arising when consumer familiarity and preference for larger size bottles in PET transfers to smaller sizes.
Opportunities to Leverage Strong Conventional PET Infrastructure
The Company is one of the largest North American suppliers of PET containers for conventional PET applications in soft drinks and water. The Company’s large manufacturing base allows it to service its customers globally while achieving economies of scale and negotiating leverage with suppliers. The Company is one of the largest purchasers of PET resin in North America, which it believes provides it with negotiating leverage necessary to obtain resin at favorable prices.
The Company believes that its conversion opportunities into custom PET packaging are significantly aided by the following economies of scale provided by its conventional PET business:
| • | Many of the assets, skills and processes used to manufacture conventional PET products are directly applicable to custom PET manufacturing. |
| • | Many of the same consumer product companies that buy soft drink and water bottles from Constar are also buyers of custom containers. |
| • | Since the Company’s existing plants in the United States are already located in proximity to most major markets, the Company can serve custom PET conversion opportunities by adding equipment to its existing plants. Because the manufacturing process is highly automated, much of the cost of operating a bottle making plant is in indirect overhead spending such as warehousing, facility leasing and general administration, which can be more broadly distributed when more bottle-making activity is combined into a plant. |
Key Markets and Products
The Company is a leading producer of PET containers for food and beverages. The Company’s products are used in a variety of end-use markets, including soft drinks, water, peanut butter, edible oils, salad dressing, juices, teas, beer, flavored alcoholic beverages and coffee. The Company supplies PET products for such well-known brands as Pepsi, Coca-Cola, Dr. Pepper, 7Up, Canada Dry, Evian, Gordon’s, Aquafina, Fanta, Lipton, Peter Pan, Folger’s, Mike’s Hard Lemonade, Rolling Rock and Smirnoff Ice. The Company primarily manufactures and sells bottles in the United States. In Europe, the Company primarily sells preforms. Approximately 78% of the Company’s 2002 revenue was attributable to sales in the United States and approximately 22% was attributable to sales in Europe.
3
Conventional PET
The Company’s conventional PET sales relate primarily to containers for use in packaging soft drinks and water. In 2002, conventional PET products represented approximately 79% of the Company’s sales.
Soft Drinks. Constar is a leading independent provider of PET containers to the United States soft drinks market. The Company is the largest domestic supplier of PET containers to PepsiCo, as well as a leading supplier to Cadbury Schweppes plc, the maker of Dr. Pepper and 7Up.
Water. The Company is the largest supplier to PepsiCo’s water brand Aquafina in the United States. Larger water bottlers, including Perrier’s, Nestlé S.A. and Coca-Cola, predominantly manufacture their own containers. Most companies except for Coca-Cola generally buy water bottles or preforms from PET bottle merchants.
Custom PET
Custom PET products represented approximately 15% of Constar’s sales in 2002. The Company believes that custom PET applications represent significant growth opportunities for the Company. Additionally, custom PET applications generally provide higher margins and have higher barriers to entry than conventional PET, due to greater manufacturing complexity.
Custom PET Technologies
Custom PET technologies are necessary to produce PET bottles for foods and beverages that require advanced technologies for packaging, such as scavenger and hot-fill. Scavenger technologies inhibit oxygen from penetrating the packaging, which can cause the flavor and the color of the product to degrade. Hot-fill technologies are used to allow pouring of heat processed beverages into bottles that can withstand high temperatures without deforming. In the past, products requiring these characteristics were generally packaged in glass. Currently available technologies allow these products to be packaged in PET, which is more desirable than glass because of PET’s light weight and shatter resistance.
Oxygen Scavenger. The Company’s Oxbar technology increases product shelf-life by inhibiting oxygen from entering the packaging. An additional benefit of Oxbar is that the barrier technology can be incorporated in the preforms from which plastic bottles are blown. This is an important competitive advantage since preforms can be shipped more economically than bottles and allow for the blowing of oxygen-scavenger bottles on the world’s existing base of blow-molding equipment without modification.
Constar is progressing in its effort to develop “monolayer” oxygen-scavenging bottles. As opposed to its existing “multi-layer” oxygen-scavenging bottles, which have Oxbar between two layers of PET, monolayer bottles incorporate the scavenging technology into a single layer container. This will introduce oxygen-scavenging properties into preforms made on conventional injection presses, eliminating significant incremental costs of multi-layer injection molding. The Company’s existing Oxbar patents cover monolayer oxygen-scavenging technology and Constar is testing monolayer bottles for commercial use.
Hot-fill. The Company possesses expertise and patents that enable it to manufacture bottles that can withstand the hot-fill process. Products within this market are filled at temperatures in excess of 180 degrees Fahrenheit. Hot-fill bottles require specialized equipment and processes that allow the bottles to withstand this heat without deforming. Hot-fill bottles also use vacuum panels to withstand the vacuum created inside the bottle when the contents cool after filling. In response to customer requests for new hot-fill packages, the Company has developed a next generation heat-set container. This new technology allows the Company to produce creative product designs without vacuum panels that meet customer requirements and offer the potential for lighter-weight bottles. The Company is currently testing the container for commercial use.
4
Pasteurization. The Company has expertise and proprietary functional design features that enable its PET bottles to be filled on the same filling lines as glass bottles for pasteurized beer. During pasteurization, the sealed bottle and its contents are subjected to heat, which both increases the internal pressure of the bottle and decreases the rigidity of the bottle. The Company’s pasteurizable bottle has a proprietary base design that resists deformation during this process, and a proprietary neck design that expands slightly under heat and pressure to reduce stress on the base.
Customers
Generally, Constar supplies its customers pursuant to contracts with terms of one year or longer. The Company typically protects itself from fluctuations in the price of PET resin through customer contracts that contain price adjustments based on the price of resin. In 2002, the Company’s top five customers accounted for 50% of the Company’s sales, while the Company’s top ten customers accounted for 63% of the Company’s sales. During the same period, purchases by PepsiCo accounted for 37% of the Company’s sales. Other than PepsiCo, no customer accounted for more than 10% of the Company’s sales in 2002.
Research and Development
The Company conducts its major technology and product development work, as well as testing and product qualification, in-house. From laboratory locations in Alsip, Illinois and Wantage, United Kingdom, Constar’s research and development staff provides project support for the design and development needs of its existing and potential customers, and is responsible for the full range of development activity from concept to commercialization. The Company paid its former parent, Crown Cork & Seal Company, Inc. (“Crown”), technology charges of $12.1 million, $13.2 million and $12.5 million in 2002, 2001 and 2000, respectively. The charges represent payments for technology services, including research and development, product testing, legal expenses and laboratory maintenance from shared Crown facilities.
The Company’s research and development staff have advanced degrees in chemical engineering, mechanical engineering and polymer science. Their skills include statistics, process monitoring, process control, product design, computer assisted design, and computer aided engineering. Typical activities of the staff include:
| • | determination of ideal design, lightest weight, and optimum finish; |
| • | design development to enhance product preference; |
| • | use of predictive tools to minimize development cycle; |
| • | unit cavity production and the making of samples; |
| • | blow-mold trials in the process lab and in the field; |
| • | setting process parameters and specifications; and |
| • | assisting its customers’ tests of new containers. |
Sales and Marketing
The Company’s management structure includes three regional vice presidents of sales and a vice president of marketing. In addition to having responsibility for overseeing regional sales, each vice president of sales also has product line management responsibilities for certain product lines.
Sources and Availability of Raw Materials
The Company buys PET resin directly from resin suppliers in the United States, Europe and Asia. While specialized PET resin is required for hot-fill and other applications, most of the major PET manufacturers supply a full range of resin specifications. The Company believes that the large volume of resin that it purchases provides leverage that assists it in negotiating favorable resin purchasing agreements.
5
The Company buys labels from several suppliers, mostly in the United States, for application to bottles for its customers. The Company’s ability to work closely with its customers to forecast, order, and stock the large number of different labels they need and to deliver labeled bottles as needed is an important element of the service it provides.
Competition
PET containers compete with glass bottles, metal cans, paperboard containers and other packaging materials. The Company’s major industry competitors in the United States are Amcor Ltd., Ball Corporation, Graham Packaging Company, Owens-Illinois, Inc. and Plastipak Holdings, Inc. In Europe, the competitive landscape is much more fragmented.
In all of the Company’s markets, high standards of service, reliability, and quality performance are prerequisites to obtaining significant awards of business from customers. Margins are tight in the conventional soft drink and water business, and differentiation is obtained by cost advantage of scale, design and execution capability, and the ability to bring synergies to the supply relationship through innovation and organizational integration. While these capabilities are also valuable for custom PET, the major basis for competition in custom PET applications is technology, since patent protection, know-how, and highly specialized equipment and process techniques are required to manufacture custom PET products.
The PET business is highly capital intensive, with whole manufacturing lines often committed to the requirements of a single customer. An important element of competition is the strength of each company’s process for evaluation, design, presentation and execution of new product development opportunities presented by the packaging needs of customers. Product design, engineering and investment decisions made when new capacity is acquired, and the financial and contractual terms obtained with customers to support that investment, are key determinants of a company’s success in this market. Flexibility of the manufacturing platform, large scale plants that distribute overhead costs broadly and continuous improvement are sources of competitive cost advantage.
Intellectual Property
The Company’s portfolio of intellectual property assets includes U.S. and foreign utility and design patents and patent applications. Among these assets are a number of patents on its oxygen-scavenging technology, as well as patents related to its line of hot-fill bottles. The earliest of the U.S. oxygen-scavenging patents is not due to expire for approximately six years. The Company also owns registrations of, and/or pending applications for registration of, the trademarks CONSTAR, OXBAR and other marks in the United States and various foreign jurisdictions.
The Company’s OXBAR technology is subject to a worldwide royalty-free cross-license with Rexam AB, which owns several patents relating to oxygen-scavenging technology. The cross-license agreement gives both parties the right to use and sublicense each other’s oxygen-scavenging technology patents but not each other’s know-how. The Company is currently negotiating a new cross-license arrangement with Rexam that would modify the parties’ respective rights to the oxygen-scavenging technology. Chevron Phillips Chemical Company LP and Chevron Research and Technology Company, collectively referred to as Chevron, hold a royalty-based, exclusive, worldwide license under certain of the Company’s oxygen-scavenging patents to make, use, and sell a defined type of oxygen-scavenging material and a defined set of products incorporating such material. The Company received a favorable ruling against Chevron in a lawsuit based on the scope of this license, which is more fully described under “Legal Proceedings” below.
In addition, the Company relies on proprietary know-how, continuing technological innovation and other trade secrets to develop products and maintain its competitive position. The Company attempts to protect its proprietary know-how and its other trade secrets by executing, when appropriate, confidentiality agreements with its customers and employees. The Company cannot assure you that its competitors will not discover comparable or the same knowledge and techniques through independent development or other means.
6
Environmental Liabilities and Costs
The Company’s 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 and chemical and hazardous waste management and disposal. The Company is also subject to employee 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. There can be no assurance that material costs will not be incurred in connection with these liabilities or claims. Based on its experiences to date, the Company believes that the future cost of compliance with existing environmental and employee safety laws and regulations will not have a material adverse effect. However, future events, including changes in laws and regulations or their interpretations, may give rise to additional costs that could be material.
Certain environmental laws hold current owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances. Because of its operations, the long history of industrial operations at some of its facilities, the operations of predecessor owners or operators of certain of its businesses, and the use, production and release of hazardous substances at these sites and at surrounding sites, the Company may be affected by liability provisions of environmental laws. Various facilities have experienced some level of regulatory scrutiny in the past and are, or may become, subject to further regulatory inspections, future requests for investigation or liability for past practices.
The Didam, Netherlands facility has been identified as having impacts to 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 Constar’s Didam facility but it also appears to extend from an upgradient neighboring property. At the request of Dutch authorities, the Company’s environmental consultant is in the process of implementing additional investigations at the facility, the results of which will be submitted to the Dutch authorities. Constar has a liability of $0.2 million for costs associated with completing the required investigations and certain other activities that may be required at the Didam facility. As more information becomes available relating to what additional actions may be required at the site, including potential remediation activities, this accrual maybe adjusted, as necessary, to reflect the new information. The Company has no other accruals for environmental matters.
The Comprehensive Environmental Response, Compensation, and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, or CERCLA, provides for responses to and joint and several liability for releases of hazardous substances into the environment. The Company has received requests for information or notifications of potential liability from the Environmental Protection Agency, or EPA, under CERCLA and certain state environmental agencies under state superfund laws for off-site locations. The Company has been identified by the Wisconsin Department of Natural Resources as a potentially responsible party at three related sites in Wisconsin and agreed to share in the remediation costs with one other party. Remediation is ongoing at two of these sites and remediation has been completed at the third site. The Company 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. The Company has not incurred any significant costs relating to these matters and does not believe that it will incur material costs in the future in responding to conditions at these sites.
Employees
As of December 31, 2002, the Company employed approximately 2,057 employees, with approximately 1,728 in the United States and approximately 329 in Europe. None of its U.S. employees are unionized, however there are union workers at its Sherburn, United Kingdom plant and its Didam, Netherlands plant. The contract with its union employees in the Didam plant will expire on September 30, 2003 and the contract with the union employees in the Sherburn plant will expire on December 31, 2003. The Company believes that its employee relations are good and that its practices in the areas of training, progression, retention, and team involvement foster continuous improvement in capabilities and satisfaction levels throughout its workforce.
7
History
Prior to its initial public offering in November 2002, Constar was a wholly owned subsidiary of Crown. The Company was originally incorporated in 1927. From 1969 until it was acquired by Crown in October 1992, Constar operated as an independent publicly held corporation. The Company’s principal executive offices are located at One Crown Way, Philadelphia, PA 19154-4599 and the phone number is (215) 552-3700.
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The Company’s corporate headquarters are located at One Crown Way, Philadelphia, PA. The Company maintains facilities in the United States and Europe, and has a joint venture interest in Turkey. The locations of these facilities, their respective sizes and ownership/lease status are as follows:
| Location |
Type of Facility |
Size(1) |
Ownership Status | |||
| NORTH AMERICA |
||||||
| Philadelphia, Pennsylvania |
Headquarters |
23,000 |
Leased | |||
| Alsip, Illinois |
Research and Development |
33,300 |
Leased | |||
| Atlanta, Georgia |
Warehouse |
145,202 |
Leased | |||
| Atlanta, Georgia(2) |
Plant |
121,704 |
Owned | |||
| Atlanta, Georgia(2) |
Administrative |
38,438 |
Owned | |||
| Birmingham, Alabama |
Warehouse |
66,000 |
Leased | |||
| Birmingham, Alabama(2) |
Plant |
184,723 |
Leased | |||
| Charlotte, North Carolina |
Warehouse |
59,250 |
Leased | |||
| Charlotte, North Carolina |
Warehouse |
127,091 |
Leased | |||
| Charlotte, North Carolina(2) |
Plant |
83,250 |
Owned | |||
| Collierville, Tennessee |
Plant |
81,210 |
Leased | |||
| Dallas, Texas |
Plant |
198,099 |
Leased | |||
| Dallas, Texas |
Warehouse |
201,661 |
Leased | |||
| Havre de Grace, Maryland (Clark Road)(2) |
Plant |
437,564 |
Owned | |||
| Havre de Grace, Maryland (Old Bay Lane) |
Plant |
67,200 |
Leased | |||
| Houston, Texas |
Plant |
191,537 |
Leased | |||
| Houston, Texas |
Warehouse |
58,637 |
Leased | |||
| Jackson, Mississippi |
Plant |
90,435 |
Leased | |||
| Jackson, Mississippi |
Sidetrack |
1,600 ft |
Leased | |||
| Kansas City, Kansas |
Warehouse |
47,277 |
Leased | |||
| Kansas City, Kansas(2) |
Plant |
236,633 |
Leased | |||
| Memphis, Tennessee |
Warehouse |
136,847 |
Leased | |||
| Newark, Ohio |
Warehouse |
211,200 |
Leased | |||
| Newark, Ohio(2) |
Plant |
109,800 |
Leased | |||
| Orlando, Florida |
Warehouse |
164,640 |
Leased | |||
| Orlando, Florida(2) |
Plant |
180,332 |
Leased | |||
| Orlando, Florida(3) |
Warehouse |
180,000 |
Leased | |||
| Reserve, Louisiana |
Plant |
187,500 |
Leased | |||
| West Chicago, Illinois(2) |
Plant |
123,100 |
Owned | |||
| Williamsburg, Virginia |
Warehouse |
25,000 |
Leased | |||
| EUROPE |
||||||
| Didam, Netherlands |
Plant |
174,913 |
Owned | |||
| Izmir, Turkey |
Plant |
69,966 |
Owned by joint venture | |||
| Sherburn, England |
Plant |
237,000 |
Owned | |||
| Sherburn, England |
Warehouse |
399,997 |
Leased |
| (1) | In square feet, unless otherwise noted. |
| (2) | These properties are held subject to mortgages granted under the Company’s senior secured credit facility. |
| (3) | Lease agreement was effective March 1, 2003. |
The Company from time to time secures additional warehouse space on a short-term basis as needed to meet inventory storage requirements.
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Prior to Constar’s initial public offering, Crown Cork & Seal Technologies Corporation (“CCK Technologies”) held the patents relating to Oxbar and has subsequently contributed them to the Company as part of the restructuring concurrent with the Company’s initial public offering. CCK Technologies filed a lawsuit seeking unspecified monetary damages on April 8, 1999 in the U.S. District Court for the District of Delaware against Continental PET Technologies, Inc., a subsidiary of Owens-Illinois, Inc., alleging that Continental PET is infringing one of its U.S. Oxbar-related patents. Continental PET has for many years held a leading market position in multi-layer PET bottle production because of its control of a proprietary technology for multi-layer injection of preforms. With the recent development by others of alternative multi-layer technologies for production of PET bottles, the Company and other PET bottle manufacturers are now able to offer multi-layer bottles to customers. To the Company’s knowledge, Continental PET is the only producer other than Constar in the United States market with commercial sales of multilayer oxygen-scavenging bottles. CCK Technologies has claimed that the materials that Continental PET uses and has used since at least 1998 to achieve oxygen-scavenging properties for the bottles it sells infringe CCK Technologies’ Oxbar patents. Chevron intervened in the action on May 31, 2000 to assert cross-claims seeking a declaratory judgment that its rights under its license from CCK Technologies include exclusive rights to the particular application of Oxbar technology in multi-layer PET bottles used by Continental PET, as well as certain other rights. On November 25, 2002, the U.S. District Court for the District of Delaware ruled in favor of CCK Technologies, confirming that the license granted to Chevron did not include the rights that CCK Technologies claims are being infringed by Continental PET and finding instead that Continental PET’s bottles are within the rights retained by CCK Technologies. Subject to any appeal by Chevron, the decision will allow Constar to pursue the lawsuit that Crown initiated against Continental PET. On January 22, 2003, the Company was substituted for CCK Technologies in the lawsuit. Currently pending before the court are the Company’s request to lift the stay of the action as to Continental PET, which was entered pending resolution of the Chevron claims, and Chevron’s request for certification pursuant to F.R. Civ. P. 54(b) so that it may file an immediate appeal.
The Company is also one of 42 defendants in a patent infringement action seeking unspecified monetary damages brought on August 3, 1999 by North American Container, Inc. in the U.S. District Court for the Northern District of Texas based on its patent for a certain plastic container design. The other defendants include many of the principal plastic container manufacturers, various food and beverage companies, and three grocery store chains. The defendants have filed motions for summary judgments that were referred to a Special Master appointed by the court. The Special Master has recommended that those motions be granted in major part and that the defendants be permitted to file a renewed motion for summary judgment, due April 4, 2003, as to allegedly infringing containers not covered in the Special