PET
BUSINESS
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 container
applications include food, juices, teas, sport drinks, new age beverages, beer
and flavored alcoholic beverages, most of which require a combination of
advanced technologies, processing know-how and innovative designs.
Constar's technologies are aimed at enabling the Company to meet the specific
needs of products being converted from other forms of packaging to PET. Oxbar™ ,
Constar's oxygen-scavenging technology, enables the Company to produce the
special packaging required to extend the shelf life of oxygen sensitive
products. The Company believes that Oxbar is the PET industry's best performing
oxygen barrier technology. Furthermore, the Food and Drug Administration
recently approved for commercial use Constar's next-generation monolayer Oxbar
technology. The Company has also developed methods for addressing the challenges
of hot-filling containers. Constar is focused on providing its customer base
with the best service through technological innovation, new product development
and lowest-cost production. The Company actively seeks new business where its
technologies and other competitive strengths can yield attractive and
sustainable profitability.
History
Constar is a Delaware corporation. Originally incorporated in 1927, the Company
was an independent publicly held corporation from 1969 to 1992, when it was
purchased by Crown Cork & Seal Company, Inc. ("Crown"). Constar has been a
public company since its initial public offering in November 2002. The Company's
principal executive office is located at One Crown Way, Philadelphia, PA
19154-4599, and its telephone number is
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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 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, manufacturers generally sell completed bottles. In Europe,
manufacturers generally sell preforms.
The PET container business is a rapidly growing component of the United States
packaging market due to continued growth in water and isotonics, conversion
opportunities from other forms of packaging and the introduction of smaller
sized soft drink containers. Many of these conversion opportunities involve the
use of advanced or proprietary PET technologies.
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.
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 sized bottles in PET
transfers to smaller sizes.
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
and flavored alcoholic beverages. The Company supplies PET products for such
well-known brands as Pepsi, Coca-Cola, Dr. Pepper, 7Up, Motts, Shasta, Peter
Pan, Aquafina, Wishbone, Smucker's, Veryfine, Snapple and Smirnoff Ice. The
Company primarily manufactures and sells bottles in the United States. In
Europe, the Company primarily sells preforms. Approximately 74% of the Company's
2004 revenue was attributable to sales in the United States and the remainder
was attributable to sales in Europe.
The Company supplies bottles and preforms in both the conventional and custom
PET markets. Preforms are test-tube shaped intermediate products that are
purchased by manufacturers for processing into finished bottles at their
manufacturing facilities.
Conventional PET
The Company's conventional PET sales relate primarily to containers for use in
packaging soft drinks and water. In 2004, conventional PET products represented
approximately 80% 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 a leading U.S. supplier of PET
containers to PepsiCo, as well as a leading supplier to
Cadbury Schweppes plc, the maker of Dr. Pepper and 7Up. Constar's strategy in
this market segment is to maintain its relatonships with major customers,
improve margins and only invest when projects improve overall conventional
margins.
Water. The Company is the largest supplier to PepsiCo's water brand, Aquafina,
in the United States. Other large water bottlers, including Nestl S.A., Groupe
Danone and Coca-Cola, predominantly manufacture their own containers. Constar
maintains a strong position with a number of independent water bottlers.
Constar's strategy in this market is to maintain current relationships and grow
profitability along with its customers' growth within this market.
Custom PET
Custom PET products represented approximately 15% of Constar's sales in 2004.
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.
Propietary Technologies
Custom PET technologies are necessary to produce PET bottles for foods and
beverages that require advanced technologies for packaging, such as
oxygen-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.
The Company has recently developed "monolayer" oxygen-scavenging bottles as an
addition to its "multi-layer" product offering. Multi-layer oxygen-scavenging
bottles have Oxbar between two layers of PET. Monolayer bottles incorporate the
scavenging technology into a single layer container. This introduces
oxygen-scavenging properties into preforms made on conventional injection
presses, eliminating significant incremental costs of multi-layer injection
molding. Combined with monolayer Oxbar's outstanding oxygen barrier performance,
Constar believes monolayer Oxbar has both a cost and performance advantage over
competing technologies. Monolayer Oxbar bottles are not as transparent as
multi-layer bottles, so customers desiring glass-like clarity may prefer
multi-layer products. The Company's existing Oxbar patents cover monolayer
oxygen-scavenging technology. Constar expects to begin shipping its first
monolayer bottles in the second quarter of 2005.
Food. Constar manufactures containers for well-known brands including ConAgra
Grocery Products' Wesson Oil, Healthy Choice peanut butter, Uniliver's Wishbone
Salad Dressings, and Smucker's Toppings. Constar also produces bottles for some
of the largest producers of quality private-labeled food products.
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
structural design features that absorb and withstand 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 that allows the Company to produce creative
product designs without the structural design features that meet customer
requirements and offer the potential for lighter-weight bottles. Constar is also
working to expand other applications of hot-fill technology. The Company
supplies hot-fill bottles for brands such as Arizona Iced Tea, Snapple, Gatorade
Propel and Veryfine. The Company supplies a full range of sizes, from gallon
bottles for juices to single serve bottles.
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. In line with the Company's
strategy for capturing conversion opportunities, Constar plans to apply its
Oxbar technology first to target larger capacity, multi-serve bottle glass
conversions and then target smaller, single serve bottle conversions as the
market expands.
Customers
Generally, Constar supplies its customers pursuant to contracts with terms of
one year or longer. Substantially all of the Company's sales are under contracts
containing provisions that allow for the pass through of changes in the price of
PET resin. In 2004, the Company's top five customers accounted for approximately
60% of the Company's sales, while the Company's top ten customers accounted for
approximately 75% of the Company's sales. During the same period, purchases by
PepsiCo accounted for approximately 30% of the Company's sales while Coca-Cola
accounted for approximately 13% of the Company sales. Other than PepsiCo and
Coca-Cola, no customer accounted for more than 10% of the Company's sales in
2004. The Company is continually seeking ways to expand its customer base.
Sales and Marketing
The Company's management structure includes a senior vice president of sales and
marketing, 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.
Research and Development
The Company conducts its major technology and product development work, as well
as testing and product qualification, at in-house laboratories. From laboratory
locations in Alsip, Illinois and Sherburn, 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's
research and development staff have advanced degrees in chemical engineering,
mechanical engineering and polymer science. 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.
Sources and Availability of Raw Materials
The Company buys PET resin directly from a diversed base of leading resin
suppliers in the United States, Europe and Asia. While specialized PET resin is
required for some hot-fill and other specific 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.
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 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 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. Some of this technology, however, is commercially available.
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 three years.
The earliest of the Company's European patents is not due to expire for
approximately two 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. Chevron Phillips Chemical Company LP holds a
royalty-based, exclusive, worldwide license to the Oxbar patents, but not for
rigid polyester packages such as PET containers. Constar has granted
royalty-bearing licenses to some of its competitors for certain applications of
the Oxbar patents.
Table of Contents
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.
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 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 Constar 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 Company's 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.
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.
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 Constar's 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. Following the results of recent testing,
remediation is not required to begin until 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 an accrual of $0.2 million for costs associated with
completing the required investigations and certain other activities that may be
required at the Didam facility. 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. Constar 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. Constar 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. 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. The Company
has not incurred any significant costs relating to these matters to date 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, 2004, the Company employed 2,004 employees, with 1,678 in the
United States and 326 in Europe. None of its U.S. employees are unionized, but
there are union workers at its Sherburn, United Kingdom plant and its Didam,
Netherlands plant. 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.
Securities Exchange Act Reports
Constar maintains an Internet website at the following address:
🔒 Bấm Cảm ơn hoặc Trả lời để xem LinkThe information on the Company's 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 SEC's Public Reference Room
that is located at 450 Fifth 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 Constar's filings through the SEC's internet
site:
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