29806--3/29/2007--CONSTAR_INTERNATIONAL

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{gas, price, oil}

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Risks Related to Our Business and Industry We may not generate profits in the future and we had net losses in recent years. If we do not generate sufficient cash flow, we will not be able to service our debt and provide for ongoing operations. Our debt may negatively impact our liquidity, limit our ability to obtain additional financing and harm our competitive position. We currently plan to finance ordinary business operations through borrowings under our credit facility, which are subject to conditions and borrowing base limitations. Our interest expense may increase since indebtedness under the secured notes and our credit facility is subject to floating interest rates. Our flexibility in operating our business and our ability to repay our indebtedness may be limited as a result of certain covenant restrictions in the instruments governing our indebtedness. Conventional PET containers account for over 76% of our sales and generally carry low profit margins. The market for conventional products may decline. Pricing and volumes in our markets are sensitive to production capacity utilization. If the market for custom PET packaging does not grow as large or as quickly as we anticipate, our growth and profitability may be lower than we currently expect. A significant portion of our sales is concentrated with a small number of customers. Our net sales and profitability may decline if we lose PepsiCo as a customer or if PepsiCo reduces the number of containers that it purchases from us. The loss of our intellectual property rights, for which we enjoy limited protection, would negatively impact our ability to compete in the PET industry. We have licensed Oxbar to some of our competitors which may allow our licensed competitors to compete more effectively with us. The competitive advantages of our Oxbar technology may also be weakened by the sublicense rights held by a third party. Our products and services may become obsolete. Our business and operations may be disrupted if we have difficulty replacing key personnel. As our customers change their product lines and marketing strategies, demand for our products may fluctuate. Consolidation of our customers may increase their negotiating leverage and reduce our net sales and profitability. We may lose business to other forms of packaging or to our competitors in the PET industry. If we do not have adequate funds to meet our capital needs, our business may be impaired and our profitability reduced. We require large quantities of resin to manufacture our products so that increases in the price of resin may negatively impact our financial results and may deter the growth of the PET market. Customers may supply us with an increasing amount of resin, which may reduce our ability to negotiate favorable resin purchase contracts. Any failure to obtain resin on a timely basis or any significant interruptions in the supply of resin could prevent us from supplying our customers on a timely basis and disrupt our operations. We depend on a small number of suppliers for some of the manufacturing equipment that we would need to expand. We earn a significant portion of our revenue in warmer months, and cool summer weather may result in lower sales. The seasonal nature of our business impacts our cash flows. 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. We are subject to foreign currency risk and other instabilities from our international operations. Higher energy costs or frequent or sustained power interruptions may increase our operating costs and limit our ability to supply our customers. We are exposed to the risk of liabilities or claims related to environmental and health and safety standards. 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 operations and profitability could suffer if we experience labor relations problems or if we do not reach new union agreements on satisfactory terms. We have a significant amount of goodwill and may be required to write down goodwill in certain circumstances, which would result in lower reported net income (or higher net losses) and a reduction of our net worth. We may not be able to report accurately our financial results or prevent fraud if we fail to maintain an effective system of internal controls. We are subject to lawsuits and claims that could adversely affect our results of operations and financial position. We have underfunded pension plans and an unfunded post-retirement medical/life insurance plan, which could affect our cash flow and financial condition. Risks Related to Our Relationship with Crown Holdings, Inc. If we lose the benefit of our agreements with Crown, the costs of the services we receive may increase. As the corporate services provided by Crown decrease and as we develop internal information technology and other services, our business may be disrupted. We could be liable for Crown s pension obligations if the Crown pension plans are terminated and it is determined that the principal purpose of Crown s sale of our equity was to evade pension liability. Two of our directors may have conflicts of interest because of their positions with Crown.

Full 10-K form ▸

29806--3/29/2007--CONSTAR_INTERNATIONAL_INC