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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For Quarterly Period Ended March 31, 2007

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



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Constar International Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-1889304                          
|(State or 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)



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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  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes ̈No  x

As of May 9, 2007, 12,578,244 shares of the
Registrants Common Stock were outstanding.



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##### Table of Contents

TABLE OF CONTENTS



|                             |  |                                                                                       |  |            
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | -----------
|                             |  |                                                                                       |  | Page Number
|PART IFINANCIAL INFORMATION |  |                                                                                      
|                             |  |                                                                                      
|Item 1.                      |  | Financial Statements (Unaudited)                                                      |  | 3          
|                             |  | Condensed Consolidated Balance Sheets                                                 |  | 3          
|                             |  | Condensed Consolidated Statements of Operations                                       |  | 4          
|                             |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5          
|                             |  | Condensed Consolidated Statement of Stockholders Equity (Deficit)                    |  | 6          
|                             |  | Notes to Condensed Consolidated Financial Statements                                  |  | 7          
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 23         
|Item 3.                      |  | Quantitative and Qualitative Disclosure about Market Risk                             |  | 28         
|Item 4.                      |  | Controls and Procedures                                                               |  | 29         
|                             | 
|PART IIOTHER INFORMATION    |  |                                                                                      
|                             |  |                                                                                      
|Item 1.                      |  | Legal Proceedings                                                                     |  | 29         
|Item 1A.                     |  | Risk Factors                                                                          |  | 29         
|Item 6.                      |  | Exhibits                                                                              |  | 29         
|Signatures                   |  | 31                                                                                   



2



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##### Table of Contents

PART IFINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

CONSTAR INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                                                       |  | March 31, 2007 |          |   | December 31, 2006 |  
|ASSETS                                                                                                                                                 |  |                |          |   |                   |   |          |  
|Current Assets:                                                                                                                                        |  |                |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                                                              |  | $              | 5,866    |   |                   | $ | 19,370   |  
|Accounts receivable, net                                                                                                                               |  |                | 74,605   |   |                   |   | 61,101   |  
|Accounts receivable - related party                                                                                                                    |  |                | 551      |   |                   |   | 856      |  
|Inventories, net                                                                                                                                       |  |                | 87,798   |   |                   |   | 83,355   |  
|Prepaid expenses and other current assets                                                                                                              |  |                | 8,826    |   |                   |   | 11,274   |  
|Deferred income taxes                                                                                                                                  |  |                | 2,334    |   |                   |   | 2,257    |  
|Current assets of discontinued operations                                                                                                              |  |                | 476      |   |                   |   | 11,602   |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Total current assets                                                                                                                                   |  |                | 180,456  |   |                   |   | 189,815  |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Property, plant and equipment, net                                                                                                                     |  |                | 149,617  |   |                   |   | 148,235  |  
|Goodwill                                                                                                                                               |  |                | 148,813  |   |                   |   | 148,813  |  
|Other assets                                                                                                                                           |  |                | 14,716   |   |                   |   | 15,813   |  
|Non-current assets of discontinued operations                                                                                                          |  |                | 1,286    |   |                   |   | 1,286    |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Total assets                                                                                                                                           |  | $              | 494,888  |   |                   | $ | 503,962  |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                  |  |                |          |   |                   |   |          |  
|Current Liabilities:                                                                                                                                   |  |                |          |   |                   |   |          |  
|Short-term debt                                                                                                                                        |  | $              | 2,220    |   |                   | $ |         |  
|Accounts payable                                                                                                                                       |  |                | 80,656   |   |                   |   | 82,611   |  
|Accounts payable - related party                                                                                                                       |  |                | 886      |   |                   |   | 950      |  
|Accrued expenses and other current liabilities                                                                                                         |  |                | 37,181   |   |                   |   | 31,433   |  
|Current liabilities of discontinued operations                                                                                                         |  |                | 275      |   |                   |   | 8,680    |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Total current liabilities                                                                                                                              |  |                | 121,218  |   |                   |   | 123,674  |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Long-term debt                                                                                                                                         |  |                | 393,530  |   |                   |   | 393,466  |  
|Pension and postretirement liabilities                                                                                                                 |  |                | 18,068   |   |                   |   | 19,143   |  
|Deferred income taxes                                                                                                                                  |  |                | 2,334    |   |                   |   | 2,257    |  
|Other liabilities                                                                                                                                      |  |                | 8,468    |   |                   |   | 8,117    |  
|Non-current liabilities of discontinued operations                                                                                                     |  |                | 2,742    |   |                   |   | 2,144    |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Total liabilities                                                                                                                                      |  |                | 546,360  |   |                   |   | 548,801  |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Commitments and contingent liabilities                                                                                                                 |  |                |          |   |                   |   |          |  
|                                                                                                                                                       |  |               
|Stockholders deficit:                                                                                                                                 |  |                |          |   |                   |   |          |  
|Preferred Stock, $.01 par value - none issued or outstanding at March 31, 2007 and December 31, 2006                                                   |  |                |         |   |                   |   |         |  
|Common stock, $.01 par value - 12,809 shares issued; 12,560 shares and 12,576 shares outstanding at March 31, 2007 and December 31,
2006, respectively |  |                | 125      |   |                   |   | 125      |  
|Additional paid-in capital                                                                                                                             |  |                | 275,904  |   |                   |   | 275,754  |  
|Accumulated other comprehensive loss                                                                                                                   |  |                | (18,634  | ) |                   |   | (18,958  | )
|Treasury stock, at cost - 247 and 233 shares at March 31, 2007 and December 31, 2006, respectively                                                     |  |                | (832     | ) |                   |   | (704     | )
|Accumulated deficit                                                                                                                                    |  |                | (308,035 | ) |                   |   | (301,056 | )
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Total stockholders deficit                                                                                                                            |  |                | (51,472  | ) |                   |   | (44,839  | )
|                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Total liabilities and stockholders deficit                                                                                                            |  | $              | 494,888  |   |                   | $ | 503,962  |  
|                                                                                                                                                       |  |                |          |   |                   |   |          |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



3



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CONSTAR INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                              |         |   |      |   |         |  
|------------------------------------------------------------ |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                             |  | Three months ended March 31, |        
|                                                             |  | 2007                         |         |   | 2006 |  
|Net customer sales                                           |  | $                            | 211,615 |   |      | $ | 219,857 |  
|Net affiliate sales                                          |  |                              | 1,066   |   |      |   | 957     |  
|                                                             |  |                              |         |   |      |   |         |  
|Net sales                                                    |  |                              | 212,681 |   |      |   | 220,814 |  
|Cost of products sold, excluding depreciation                |  |                              | 192,965 |   |      |   | 200,406 |  
|Depreciation                                                 |  |                              | 7,511   |   |      |   | 7,959   |  
|                                                             |  |                              |         |   |      |   |         |  
|Gross profit                                                 |  |                              | 12,205  |   |      |   | 12,449  |  
|                                                             |  |                              |         |   |      |   |         |  
|Selling and administrative expenses                          |  |                              | 6,724   |   |      |   | 7,396   |  
|Research and technology expenses                             |  |                              | 1,614   |   |      |   | 1,338   |  
|Provision for restructuring                                  |  |                              | 303     |   |      |   | 44      |  
|                                                             |  |                              |         |   |      |   |         |  
|Total operating expenses                                     |  |                              | 8,641   |   |      |   | 8,778   |  
|                                                             |  |                              |         |   |      |   |         |  
|Operating income                                             |  |                              | 3,564   |   |      |   | 3,671   |  
|                                                             |  |                             
|Interest expense                                             |  |                              | (10,274 | ) |      |   | (10,147 | )
|Other income (expense), net                                  |  |                              | 368     |   |      |   | 145     |  
|                                                             |  |                              |         |   |      |   |         |  
|(Loss) Income from continuing operations before income taxes |  |                              | (6,342  | ) |      |   | (6,331  | )
|(Provision for) benefit from income taxes                    |  |                              | (6      | ) |      |   | (88     | )
|                                                             |  |                              |         |   |      |   |         |  
|Loss from continuing operations                              |  |                              | (6,348  | ) |      |   | (6,419  | )
|Income (loss) from discontinued operations, net of taxes     |  |                              | 47      |   |      |   | 76      |  
|                                                             |  |                              |         |   |      |   |         |  
|Net loss                                                     |  | $                            | (6,301  | ) |      | $ | (6,343  | )
|                                                             |  |                              |         |   |      |   |         |  
|Basic and diluted earnings (loss) per common share:          |  |                              |         |   |      |   |         |  
|Continuing operations                                        |  | $                            | (0.51   | ) |      | $ | (0.53   | )
|Discontinued operations                                      |  |                              |        |   |      |   | 0.01    |  
|                                                             |  |                              |         |   |      |   |         |  
|Net loss per share                                           |  | $                            | (0.51   | ) |      | $ | (0.52   | )
|                                                             |  |                              |         |   |      |   |         |  
|Weighted average common shares outstanding:                  |  |                              |         |   |      |   |         |  
|Basic and Diluted                                            |  |                              | 12,294  |   |      |   | 12,197  |  
|                                                             |  |                              |         |   |      |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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CONSTAR INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                |  |                             |          |   |      |   |          |  
|------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                |  | Three months endedMarch 31, |         
|                                                                                |  | 2007                        |          |   | 2006 |  
|Cash flows from operating activities:                                           |  |                             |          |   |      |   |          |  
|Net loss                                                                        |  | $                           | (6,301   | ) |      | $ | (6,343   | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |          |   |      |   |          |  
|Depreciation and amortization                                                   |  |                             | 8,118    |   |      |   | 8,729    |  
|Bad debt expense (recovery)                                                     |  |                             |         |   |      |   | (506     | )
|Restructuring and other exit activities                                         |  |                             | (163     | ) |      |   | (83      | )
|Stock-based compensation                                                        |  |                             | 418      |   |      |   | 239      |  
|Reclassification gain of foreign currency translation adjustments               |  |                             | (142     | ) |      |   |         |  
|Deferred income taxes                                                           |  |                             |         |   |      |   | 28       |  
|(Gain) loss on disposal of assets                                               |  |                             | (80      | ) |      |   | (36      | )
|Minority interest                                                               |  |                             | (83      | ) |      |   | 19       |  
|Changes in operating assets and liabilities:                                    |  |                             |          |   |      |   |          |  
|Accounts receivable                                                             |  |                             | (2,000   | ) |      |   | (5,520   | )
|Inventories                                                                     |  |                             | (4,247   | ) |      |   | (6,415   | )
|Prepaid expenses and other current assets                                       |  |                             | 2,671    |   |      |   | 974      |  
|Accounts payable and accrued expenses                                           |  |                             | (5,460   | ) |      |   | (461     | )
|Change in outstanding overdrafts                                                |  |                             | 561      |   |      |   | 640      |  
|Pension and postretirement benefits                                             |  |                             | (221     | ) |      |   | 316      |  
|                                                                                |  |                             |          |   |      |   |          |  
|Net cash used in operating activities                                           |  |                             | (6,929   | ) |      |   | (8,419   | )
|                                                                                |  |                             |          |   |      |   |          |  
|Cash flows from investing activities:                                           |  |                             |          |   |      |   |          |  
|Purchases of property, plant and equipment                                      |  |                             | (8,649   | ) |      |   | (6,680   | )
|Proceeds from the sale of property, plant and equipment                         |  |                             | 80       |   |      |   | 36       |  
|                                                                                |  |                             |          |   |      |   |          |  
|Net cash used in investing activities                                           |  |                             | (8,569   | ) |      |   | (6,644   | )
|                                                                                |  |                             |          |   |      |   |          |  
|Cash flows from financing activities:                                           |  |                             |          |   |      |   |          |  
|Proceeds from Revolver loan                                                     |  |                             | 193,427  |   |      |   | 223,265  |  
|Repayment of Revolver loan                                                      |  |                             | (191,207 | ) |      |   | (208,130 | )
|Costs associated with debt financing                                            |  |                             | (248     | ) |      |   | (299     | )
|Repayment of other debt                                                         |  |                             |         |   |      |   | (1,540   | )
|Other                                                                           |  |                             |         |   |      |   | (35      | )
|                                                                                |  |                             |          |   |      |   |          |  
|Net cash provided by financing activities                                       |  |                             | 1,972    |   |      |   | 13,261   |  
|                                                                                |  |                             |          |   |      |   |          |  
|Effect of exchange rate changes on cash and cash equivalents                    |  |                             | 22       |   |      |   | 61       |  
|                                                                                |  |                             |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                       |  |                             | (13,504  | ) |      |   | (1,741   | )
|Cash and cash equivalents at beginning of period                                |  |                             | 19,370   |   |      |   | 9,663    |  
|                                                                                |  |                             |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                      |  | $                           | 5,866    |   |      | $ | 7,922    |  
|                                                                                |  |                             |          |   |      |   |          |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

CONSTAR INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

(In thousands)

(Unaudited)



|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|------------------------------------------------------------ |  | ------------ | --- | -------------------------- | - | ------- | ------------------------------------ |  | - | -------------- | - |  | --------------------- | ---- | - | ------------------- | - | ------ | --------------------------- |  | - | -------- | - |  | - | ------- | -
|                                                             |  | Common Stock |     | Additional Paid-in Capital |   |         | Accumulated Other Comprehensive loss |  |   | Treasury Stock |   |  | Unearned Compensation |      |   | Accumulated Deficit |   |        | Total Stockholders Deficit | 
|Balance, December 31, 2005                                   |  | $            | 125 |                            | $ | 276,331 |                                      |  | $ | (27,441        | ) |  | $                     | (457 | ) |                     | $ | (1,384 | )                           |  | $ | (289,034 | ) |  | $ | (41,860 | )
|Net loss                                                     |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   | (6,343   | ) |  |   | (6,343  | )
|Foreign currency translation adjustments                     |  |              |     |                            |   |         |                                      |  |   | 536            |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | 536     |  
|Revaluation of cash flow hedge                               |  |              |     |                            |   |         |                                      |  |   | 2,072          |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | 2,072   |  
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|Comprehensive loss                                           |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | (3,735  | )
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|Issuance of restricted stock                                 |  |              |     |                            |   | 319     |                                      |  |   |                |   |  |                       |      |   |                     |   | (319   | )                           |  |   |          |   |  |   |        |  
|Forfeitures of restricted stock                              |  |              |     |                            |   | (4      | )                                    |  |   |                |   |  |                       | (42  | ) |                     |   | 11     |                             |  |   |          |   |  |   | (35     | )
|Stock-based compensation                                     |  |              |    |                            |   |        |                                      |  |   |               |   |  |                       |     |   |                     |   | 239    |                             |  |   |         |   |  |   | 239     |  
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|Balance, March 31, 2006                                      |  | $            | 125 |                            | $ | 276,646 |                                      |  | $ | (24,833        | ) |  | $                     | (499 | ) |                     | $ | (1,453 | )                           |  | $ | (295,377 | ) |  | $ | (45,391 | )
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|Balance, December 31, 2006                                   |  | $            | 125 |                            | $ | 275,754 |                                      |  | $ | (18,958        | ) |  | $                     | (704 | ) |                     | $ |       |                             |  | $ | (301,056 | ) |  | $ | (44,839 | )
|Net loss                                                     |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   | (6,301   | ) |  |   | (6,301  | )
|Foreign currency translation adjustments                     |  |              |     |                            |   |         |                                      |  |   | 249            |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | 249     |  
|Reclassification of foreign currency translation adjustments |  |              |     |                            |   |         |                                      |  |   | (142           | ) |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | (142    | )
|Amortization of prior service cost                           |  |              |     |                            |   |         |                                      |  |   | (79            | ) |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | (79     | )
|Amortization of actuarial net loss                           |  |              |     |                            |   |         |                                      |  |   | 867            |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | 867     |  
|Revaluation of cash flow hedge                               |  |              |     |                            |   |         |                                      |  |   | (571           | ) |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | (571    | )
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|Comprehensive loss                                           |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   | (5,977  | )
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|Cumulative effect adjustment due to the adoption of FIN 48   |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   | (678     | ) |  |   | (678    | )
|Treasury stock purchased                                     |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       | (128 | ) |                     |   |        |                             |  |   |          |   |  |   | (128    | )
|Stock-based compensation                                     |  |              |    |                            |   | 150     |                                      |  |   |               |   |  |                       |     |   |                     |   |       |                             |  |   |         |   |  |   | 150     |  
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  
|Balance, March 31, 2007                                      |  | $            | 125 |                            | $ | 275,904 |                                      |  | $ | (18,634        | ) |  | $                     | (832 | ) |                     | $ |       |                             |  | $ | (308,035 | ) |  | $ | (51,472 | )
|                                                             |  |              |     |                            |   |         |                                      |  |   |                |   |  |                       |      |   |                     |   |        |                             |  |   |          |   |  |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



6



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##### Table of Contents

CONSTAR INTERNATIONAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar and share amounts in thousands, unless otherwise noted)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America and in accordance with Securities and Exchange Commission (SEC) regulations for interim financial reporting. In the opinion of management, these
consolidated financial statements contain all adjustments of a normal and recurring nature necessary to provide a fair statement of the financial position, results of operations and cash flows for the periods presented. Results for interim periods
should not be considered indicative of results for a full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in Constar International Inc.s (the
Company or Constar) Annual Report on Form 10-K for the year ended December 31, 2006. The Condensed Consolidated Financial Statements include the accounts of the Company and all of its subsidiaries in which a controlling
interest is maintained.

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), the Company has classified the results of operations of its Turkish joint venture and its Italian operation as discontinued operations in the condensed consolidated statements of operations for all
periods presented. The assets and related liabilities of these entities have been classified as assets and liabilities of discontinued operations on the condensed consolidated balance sheets. See Note 3 in Notes to Condensed Consolidated Financial
Statements for further discussion of the divestitures. Unless otherwise indicated, amounts provided throughout this Form 10-Q relate to continuing operations only.

The Company recorded a liability and a one-time charge to cost of sales for $435 in the first quarter of 2007. The liability related to a transaction that occurred in a prior period and was discovered during a review of documentation
related to a payment processed subsequent to March 31, 2007. The Company concluded that the adjustment was not material to previously issued financial statements, the anticipated results for the year or the trend in earnings.

Reclassifications  Certain reclassifications have been made to prior year balances in order to conform these balances to the current years
presentation.

2. Recent Accounting Pronouncements

In
June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be
taken on a tax return. The Company adopted FIN 48 at the beginning of the first quarter of 2007. Upon adoption as of January 1, 2007, the Company recorded a reserve for uncertain tax positions in the amount of $0.7 million. This adjustment was
recorded as a cumulative effect adjustment to the opening balance of accumulated deficit.

The Companys policy is to recognize interest and penalties
related to income tax matters in income tax expense. At March 31, 2007 the Company has $0.2 million accrued for interest and penalties.



|                                  |  |                        |  |     
|--------------------------------- |  | ---------------------- |  | ----
|                                  |  | Examination Years Open
|Jurisdiction                      |  | From                   |  | To  
|United States:                    |  |                        |  |     
|Federal                           |  | 2003                   |  | 2006
|States (varies by jurisdictions)  |  | 2002                   |  | 2006
|United Kingdom                    |  | 2005                   |  | 2006
|Netherlands                       |  | 2001                   |  | 2006
|Italy - (discontinued operation)  |  | 2002                   |  | 2006
|Turkey - (discontinued operation) |  | Pending tax clearance 

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS



7



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##### Table of Contents

157 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 157 to have a material impact on
our results of operations or financial condition.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have a material impact on our results of operations or financial condition.

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 Accounting for Collateral Assignment Split-Dollar Life Insurance
Agreements (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the
collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The Company is currently assessing the impact of EITF 06-10 on its consolidated financial position and results of operations.

In September 2006, the FASB ratified the EITF consensus on EITF Issue No. 06-4, Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements(EITF 06-4). EITF 06-4 indicates that an employer should recognize a liability for future post-employment benefits based on the substantive agreement with
the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company is currently assessing the impact of EITF 06-4 on its consolidated financial position and results of operations.

3. Discontinued Operations

The supply agreement of the
Companys Turkish joint venture has expired and the Company has decided to discontinue the joint ventures operations. Operations of the joint venture ceased in May 2006. The joint ventures manufacturing assets were sold in December
2006. The Company is currently seeking buyers for the land and buildings of the joint venture. In addition, the Company has decided to close its Italian operation since its principal customer notified the Company that the customer would not renew
its contract effective January 1, 2007.

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), the Company has classified the results of operations of its Turkish joint venture and its Italian operation as discontinued operations in the condensed consolidated statements
of operations for all periods presented. The assets and related liabilities of these entities have been classified as assets and liabilities of discontinued operations on the condensed consolidated balance sheets.

The following summarizes the assets and liabilities of discontinued operations:



|                                                     |  |                |       |                   |   |       
|---------------------------------------------------- |  | -------------- | ----- | ----------------- | - | ------
|                                                     |  | March 31, 2007 |       | December 31, 2006
|Assets of Discontinued Operations:                   |  |                |       |                   |   |       
|Accounts receivable                                  |  | $              | 434   |                   | $ | 11,482
|Inventory                                            |  |                | 3     |                   |   | 82    
|Prepaid expenses and other current assets            |  |                | 39    |                   |   | 38    
|                                                     |  |                |       |                   |   |       
|Total current assets of discontinued operations      |  |                | 476   |                   |   | 11,602
|Property, plant and equipment, net                   |  |                | 1,286 |                   |   | 1,286 
|                                                     |  |                |       |                   |   |       
|Total assets of discontinued operations              |  | $              | 1,762 |                   | $ | 12,888
|                                                     |  |                |       |                   |   |       
|Liabilities of Discontinued Operations:              |  |                |       |                   |   |       
|Accounts payable and accrued expenses                |  | $              | 275   |                   | $ | 8,680 
|                                                     |  |                |       |                   |   |       
|Total current liabilities of discontinued operations |  |                | 275   |                   |   | 8,680 
|Income taxes payable                                 |  |                | 678   |                   |   |      
|Other liabilities                                    |  |                | 50    |                   |   | 47    
|Minority interests                                   |  |                | 2,014 |                   |   | 2,097 
|                                                     |  |                |       |                   |   |       
|Total liabilities of discontinued operations         |  | $              | 3,017 |                   | $ | 10,824
|                                                     |  |                |       |                   |   |       



8



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##### Table of Contents

The following is a summary of the results of operations for discontinued operations for the three months ended
March 31, 2007 and 2006:



|                                                                                     |  |      |     |   |      |   |       |  
|------------------------------------------------------------------------------------ |  | ---- | --- | - | ---- | - | ----- | -
|                                                                                     |  | 2007 |     |   | 2006 |  
|Net sales                                                                            |  | $    | 212 |   |      | $ | 9,879 |  
|                                                                                     |  |     
|Income (loss) from discontinued operations before income taxes and minority interest |  |      | (36 | ) |      |   | 100   |  
|Benefit from income taxes                                                            |  |      |    |   |      |   | (5    | )
|                                                                                     |  |      |     |   |      |   |       |  
|Income (loss) from discontinued operations before minority interest                  |  |      | (36 | ) |      |   | 95    |  
|Minority interest                                                                    |  |      | 83  |   |      |   | (19   | )
|                                                                                     |  |      |     |   |      |   |       |  
|Income from discontinued operations                                                  |  | $    | 47  |   |      | $ | 76    |  
|                                                                                     |  |      |     |   |      |   |       |  

The Company has accrued an estimate of the total amount of restructuring charges expected to be incurred as a
result of the plan to close the joint venture operations in Turkey. The following table presents an analysis of the restructuring reserve activity for the three months ended March 31, 2007:



|                             |  |                        |      |  
|---------------------------- |  | ---------------------- | ---- | -
|                             |  | Severance and Benefits |     
|                             | 
|                             | 
|Balance at December 31, 2006 |  | $                      | 115  |  
|Charges to income            |  |                        | 51   |  
|Payments                     |  |                        | (111 | )
|Adjustments                  |  |                        | (5   | )
|                             |  |                        |      |  
|Balance at March 31, 2007    |  | $                      | 50   |  
|                             |  |                        |      |  

4. Accounts Receivable



|                                      |  |                |        |   |                   |   |        |  
|------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                      |  | March 31, 2007 |        |   | December 31, 2006 |  
|Trade and notes receivable            |  | $              | 67,434 |   |                   | $ | 53,337 |  
|Less: allowance for doubtful accounts |  |                | (396   | ) |                   |   | (1,047 | )
|                                      |  |                |        |   |                   |   |        |  
|Net trade and notes receivables       |  |                | 67,038 |   |                   |   | 52,290 |  
|Value added taxes recoverable         |  |                | 4,060  |   |                   |   | 6,451  |  
|Miscellaneous receivables             |  |                | 3,507  |   |                   |   | 2,360  |  
|                                      |  |                |        |   |                   |   |        |  
|Total                                 |  | $              | 74,605 |   |                   | $ | 61,101 |  
|                                      |  |                |        |   |                   |   |        |  

5. Inventories



|                           |  |                |        |                   |   |       
|-------------------------- |  | -------------- | ------ | ----------------- | - | ------
|                           |  | March 31, 2007 |        | December 31, 2006
|Finished goods             |  | $              | 53,970 |                   | $ | 51,237
|Raw materials and supplies |  |                | 33,828 |                   |   | 32,118
|                           |  |                |        |                   |   |       
|Total                      |  | $              | 87,798 |                   | $ | 83,355
|                           |  |                |        |                   |   |       

The finished goods inventory balance has been reduced by reserves for obsolete and slow-moving
inventories of $1,106 and $931 as of March 31, 2007 and December 31, 2006, respectively.

6. Property, Plant and Equipment



9



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##### Table of Contents

|                                                |  |                |          |   |                   |   |          |  
|----------------------------------------------- |  | -------------- | -------- | - | ----------------- | - | -------- | -
|                                                |  | March 31, 2007 |          |   | December 31, 2006 |  
|Land and improvements                           |  | $              | 3,819    |   |                   | $ | 3,806    |  
|Buildings and improvements                      |  |                | 70,069   |   |                   |   | 70,078   |  
|Machinery and equipment                         |  |                | 584,402  |   |                   |   | 584,263  |  
|                                                |  |                |          |   |                   |   |          |  
|                                                |  |                | 658,290  |   |                   |   | 658,147  |  
|Less: accumulated depreciation and amortization |  |                | (529,690 | ) |                   |   | (522,513 | )
|                                                |  |                |          |   |                   |   |          |  
|                                                |  |                | 128,600  |   |                   |   | 135,634  |  
|Construction in progress                        |  |                | 21,017   |   |                   |   | 12,601   |  
|                                                |  |                |          |   |                   |   |          |  
|Property, Plant and Equipment, net              |  | $              | 149,617  |   |                   | $ | 148,235  |  
|                                                |  |                |          |   |                   |   |          |  

7. Debt

The
Companys outstanding debt consists of $175.0 million of Senior Subordinated Notes due December 1, 2012 (Subordinated Notes), $220.0 million of Senior Secured Floating Rate Notes due February 15, 2012 (Senior
Notes) and a $75.0 million Senior Secured Asset Based Revolving Credit Facility (Revolver Loan). The Subordinated Notes bear interest at a rate of 11.0% per annum. Interest on the Subordinated Notes is payable semi-annually on
each December 1 and June 1. The Senior Notes bear interest at the rate of three-month LIBOR plus 3.375% per annum. Interest on the Senior Notes is reset quarterly.

On March 20, 2007, the Company amended the terms of the Revolver Loan. The amendment increased the aggregate lending commitments from $70.0 million to $75.0 million. The amendment also:



| |  |  | Lowered interest charges by 50 basis points;
| | - |  | --------------------------------------------



| |  |  | Lowered the cost on the unused portion of the facility;
| | - |  | -------------------------------------------------------



| |  |  | Lowered the excess collateral availability requirement to $15.0 million from $20.0 million, and;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Extended the scheduled termination date of the Revolver Loan from February 11, 2009 to February 11, 2012.
| | - |  | ---------------------------------------------------------------------------------------------------------

In order to access the additional $5.0 million of the amended Revolver Loan (from $70.0 million to $75.0 million), the Company would have to satisfy the Consolidated
Fixed Charge Coverage Ratios contained in the indentures governing the Companys Senior Notes and Subordinated Notes. Currently, the Company cannot satisfy these ratios.

Under the Revolver Loan, interest charges for loans are calculated based on a floating rate plus a fixed margin. Under the amendment, the fixed margin rates are reduced by 50 basis points to the following rates:



|                                                                |  |                 |   |  |                       |  
|--------------------------------------------------------------- |  | --------------- | - |  | --------------------- | -
|Monthly Available Credit                                        |  | Base Rate Loans |   |  | Eurodollar Rate Loans |  
|Greater than $50.0 million                                      |  | 0.50            | % |  | 1.50                  | %
|Less than or equal $50.0 million and greater than $25.0 million |  | 0.75            | % |  | 1.75                  | %
|Less than or equal to $25.0 million                             |  | 1.00            | % |  | 2.00                  | %

In addition, under the Revolver Loan, there was a 0.5% per annum unused commitment fee. Under the amendment,
this rate is reduced as follows:



|                                    |  |         |  
|----------------------------------- |  | ------- | -
|Monthly Available Credit            |  | FeeRate |  
|Greater than $ 25.0 million         |  | 0.375   | %
|Less than or equal to $25.0 million |  | 0.25    | %

A summary of short-term and long-term debt follows:



10



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##### Table of Contents

|                          |  |                |         |   |                   |   |         |  
|------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                          |  | March 31, 2007 |         |   | December 31, 2006 |  
|Short-Term:               |  |                |         |   |                   |   |         |  
|Revolver                  |  | $              | 2,220   |   |                   | $ |        |  
|                          |  |                |         |   |                   |   |         |  
|Long-Term:                |  |                |         |   |                   |   |         |  
|Senior notes              |  | $              | 220,000 |   |                   | $ | 220,000 |  
|Senior subordinated notes |  |                | 175,000 |   |                   |   | 175,000 |  
|Unamortized debt discount |  |                | (1,470  | ) |                   |   | (1,534  | )
|                          |  |                |         |   |                   |   |         |  
|                          |  | $              | 393,530 |   |                   | $ | 393,466 |  
|                          |  |                |         |   |                   |   |         |  

At March 31, 2007, there was $4.2 million outstanding under letters of credit.

8. Restructuring

In September 2003, the Company implemented a cost
reduction initiative (2003 Plan) under which it closed facilities in Birmingham, Alabama and Reserve, Louisiana. The 2003 Plan was completed during the three months ended March 31, 2007.

The following table presents an analysis of the 2003 Plans restructuring reserve activity for the three months ended March 31, 2007:



|                             |  |                         |      |  
|---------------------------- |  | ----------------------- | ---- | -
|                             |  | Lease Termination Costs |     
|Balance at December 31, 2006 |  | $                       | 98   |  
|Charges to income            |  |                         | 7    |  
|Payments                     |  |                         | (105 | )
|Adjustments                  |  |                         |     |  
|                             |  |                         |      |  
|Balance at March 31, 2007    |  | $                       |     |  
|                             |  |                         |      |  

During the three months ended March 31, 2007, the Company charged $266 of equipment relocation costs and $30
of severance costs related to our U.S. operations to restructuring expense.

9. Commitments and Contingencies

The Company and certain of its present and former directors, along with Crown Holdings, Inc., as well as various underwriters, have been named as defendants in a
consolidated putative 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). 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. The consolidated and amended complaint, filed June 17, 2004, generally alleges that the registration statement and prospectus for the Companys initial public offering of its common stock on
November 14, 2002 contained material misrepresentations and/or omissions. Plaintiffs claim that defendants in these lawsuits violated Sections 11 and 15 of the Securities Act of 1933. Plaintiffs seek class action certification and an award
of damages and litigation costs and expenses. Under the Companys charter documents, an agreement with Crown and an underwriting agreement with Crown and the underwriters, Constar has incurred certain indemnification and contribution
obligations to the other defendants with respect to this lawsuit. The court denied the Companys motion to dismiss for failure to state a claim upon which relief may be granted on June 7, 2005 and the Companys answer was filed on
August 8, 2005. The Special Master issued a Report and Order denying the Companys motion for judgment on the pleadings on February 22, 2006. The Company filed objections to the Report and Order on March 6, 2006. The court heard
the objections on May 1, 2006 and issued an order overruling the objections on May 24, 2006. The case is now proceeding with class certification and discovery. The Company believes the claims in the action are without merit and intends to
defend against them vigorously. The Company cannot reasonably estimate the amount of any loss that may result from this matter.

10. Accumulated
Other Comprehensive Loss



11



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##### Table of Contents

Accumulated other comprehensive loss consisted of the following:



|                                         |  |                |         |   |                   |   |         |  
|---------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                         |  | March 31, 2007 |         |   | December 31, 2006 |  
|Postretirement liabilities               |  | $              | (22,599 | ) |                   | $ | (23,387 | )
|Cash-flow hedge, net of tax              |  |                | 1,581   |   |                   |   | 2,152   |  
|Foreign currency translation adjustments |  |                | 2,384   |   |                   |   | 2,277   |  
|                                         |  |                |         |   |                   |   |         |  
|Accumulated other comprehensive loss     |  | $              | (18,634 | ) |                   | $ | (18,958 | )
|                                         |  |                |         |   |                   |   |         |  

11. Stock-Based Compensation

The Company has a stock-based incentive compensation plan (the 2002 Plan) under which employees may be granted deferred stock, restricted stock, stock appreciation rights (SAR) and incentive or
non-qualified stock options. The Company also has a plan (the Directors Plan) under which non-employee directors may be granted restricted stock or non-qualified stock options to purchase shares of Common Stock. The 2002 Plan and the
Directors Plan, together, are referred to hereafter as the Plans. The Plans are administered by the Compensation Committee of the Board of Directors, which determines the vesting provisions, the form of payment for shares and all other
terms of the options or grants.

The maximum number of shares reserved under the 2002 Plan is 850 shares. The maximum number of shares reserved under the
Directors Plan is 25. At March 31, 2007, 29 shares were available for future grants under the 2002 Plan and 6 shares were available for future grants under the Directors Plan.

Options granted are to be issued at prices not less than fair market value on the date of grant and expire up to ten years after the grant date in the case of the 2002 Plan and up to five years after the grant date in
the case of the Directors Plan. To date, all grants under the Directors Plan have been restricted stock grants.

In connection with the Companys
Annual Incentive & Management Stock Purchase Plan (Incentive Plan) the Company may issue restricted stock units (RSUs). RSUs may be paid, at the discretion of the Compensation Committee of the
Companys Board of Directors, in (i) cash or (ii) stock. Any payments in stock would be made from available shares authorized under the 2002 Stock Based Incentive Compensation Plan or another shareholder-authorized plan.

The following table summarizes employee stock option activity for the three months ended March 31, 2007:



|                                 |  |                        |   |  |                                           |       |                                                     |     |                                          |   |  
|-------------------------------- |  | ---------------------- | - |  | ----------------------------------------- | ----- | --------------------------------------------------- | --- | ---------------------------------------- | - | -
|                                 |  | Options (in thousands) |   |  | Weighted Average Exercise Price Per Share |       | Weighted Average Remaining Contractual Term (years) |     | Aggregate Intrinsic Value (in thousands)
|Outstanding at December 31, 2006 |  | 169                    |   |  | $                                         | 12.00 |                                                     |     |                                          |   |  
|Granted                          |  |                       |   |  |                                           |       |                                                     |     |                                          |   |  
|Exercised                        |  |                       |   |  |                                           |       |                                                     |     |                                          |   |  
|Forfeited                        |  | (3                     | ) |  |                                           |      |                                                     |     |                                          |   |  
|                                 |  |                        |   |  |                                           |       |                                                     |     |                                          |   |  
|Outstanding at March 31, 2007    |  | 166                    |   |  | $                                         | 12.00 |                                                     | 0.6 |                                          | $ | 
|                                 |  |                        |   |  |                                           |       |                                                     |     |                                          |   |  
|Exercisable at March 31, 2007    |  | 166                    |   |  | $                                         | 12.00 |                                                     | 0.6 |                                          | $ | 
|                                 |  |                        |   |  |                                           |       |                                                     |     |                                          |   |  

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between the Companys closing common stock price on the last trading day of the first quarter of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option
holders exercised their options on March 31, 2007. The aggregate intrinsic value varies based on the fair market value of the Companys common stock. The total number of in-the-money options exercisable as of March 31, 2007 was zero.

The following table summarizes restricted stock activity during the three months ended March 31, 2007:



12



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##### Table of Contents

|                             |  |                  |   |  |                                        |  |       |   |  |   |     
|---------------------------- |  | ---------------- | - |  | -------------------------------------- |  | ----- | - |  | - | ----
|(Shares in thousands)        |  | Number
of Shares |   |  | Weighted Average Grant Date Fair Value
|                             |  | 2002 Plan        |   |  | Directors Plan                         |  | Total |   | 
|Nonvested, December 31, 2006 |  | 288              |   |  | 10                                     |  | 298   |   |  | $ | 5.03
|Granted                      |  |                 |   |  |                                       |  |      |   |  |   |    
|Vested                       |  | (42              | ) |  |                                       |  | (42   | ) |  |   | 5.57
|Forfeited                    |  |                 |   |  |                                       |  |      |   |  |   |    
|                             |  |                  |   |  |                                        |  |       |   |  |   |     
|Nonvested, March 31, 2007    |  | 246              |   |  | 10                                     |  | 256   |   |  |   | 4.94
|                             |  |                  |   |  |                                        |  |       |   |  |   |     

As of March 31, 2007, there was $0.9 million of unrecognized compensation cost related to restricted stock
which is expected to be recognized over a weighted average period of 1.7 years. Total fair value of shares vested was $384 for the three months ended March 31, 2007.

The following table summarizes restricted stock unit activity for the three months ended March 31, 2007:



|                               |  |                                 
|------------------------------ |  | --------------------------------
|(RSUs in thousands)           |  | Number of Restricted Stock Units
|Outstanding, December 31, 2006 |  | 174                             
|Granted                        |  | 76                              
|                               |  |                                 
|Outstanding, March 31, 2007    |  | 250                             
|                               |  |                                 

The RSUs generally vest between three and four years from the grant date. During the three months ended
March 31, 2007, in connection with the Companys incentive compensation plan, the Company issued 76 RSUs which cliff-vest three years from the date of grant.

RSUs are classified as liabilities in the accompanying condensed consolidated financial statements. The fair value of the liabilities related to the RSUs is remeasured at each balance sheet date and
adjustments to the fair value of the RSU liabilities are recorded as compensation expense. The fair value of the liabilities associated with the outstanding RSUs was $683 as of March 31, 2007.

The following table summarizes total stock-based compensation expense included in the Condensed Consolidated Statements of Operations for the three months ended
March 31, 2007 and 2006:



|                       |  |      |     |      |   |    
|---------------------- |  | ---- | --- | ---- | - | ---
|(in thousands)         |  | 2007 |     | 2006
|Restricted stock       |  | $    | 150 |      | $ | 187
|Restricted stock units |  |      | 268 |      |   | 52 
|                       |  |      |     |      |   |    
|                       |  | $    | 418 |      | $ | 239
|                       |  |      |     |      |   |    

12. Earnings (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 Companys potentially dilutive securities include potential common shares related to our stock options and restricted stock. Diluted EPS includes the impact of
potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would be anti-dilutive. Diluted EPS also excludes the impact of potential common shares related to our stock options in
periods in which the option exercise price is greater than the average market price of our common stock for the period.



13



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##### Table of Contents

The following table presents a reconciliation between the weighted average number of basic shares outstanding and the
weighted average number of fully diluted shares outstanding.



|                                            |  |                              |  |       
|------------------------------------------- |  | ---------------------------- |  | ------
|(shares in thousands)                       |  | Three months ended March 31,
|                                            |  | 2007                         |  | 2006  
|Basic weighted average shares outstanding   |  | 12,294                       |  | 12,197
|Potentially dilutive securities:            |  |                              |  |       
|Employee stock options                      |  |                             |  |      
|Restricted stock                            |  |                             |  |      
|                                            |  |                              |  |       
|Total                                       |  |                             |  |      
|                                            |  |                              |  |       
|Diluted weighted average shares outstanding |  | 12,294                       |  | 12,197
|                                            |  |                              |  |       

Diluted EPS for the three months ended March 31, 2007 and 2006 excludes approximately 0.2 million stock
options because the option price was greater than the average market price of our common stock. Diluted EPS for the three months ended March 31, 2007 and 2006 excludes approximately 0.3 million shares of restricted stock due to the loss
for the period.

13. Pension and Other Postretirement Benefits

The components of net periodic pension cost for the three months ended March 31, 2007 and 2006 were as follows:



|                                   |  |      |        |   |        |   |      |       |  |   |        |   |  |        |        |   |       |   |      |   |  |   |        |  
|---------------------------------- |  | ---- | ------ | - | ------ | - | ---- | ----- |  | - | ------ | - |  | ------ | ------ | - | ----- | - | ---- | - |  | - | ------ | -
|(in thousands)                     |  | 2007 |        |   | 2006   |  
|                                   |  | U.S. |        |   | Europe |   |      | Total |  |   | U.S.   |   |  | Europe |        |   | Total |  
|Service cost                       |  | $    | 258    |   |        | $ | 177  |       |  | $ | 435    |   |  | $      | 559    |   |       | $ | 255  |   |  | $ | 814    |  
|Interest cost                      |  |      | 1,194  |   |        |   | 162  |       |  |   | 1,356  |   |  |        | 1,132  |   |       |   | 139  |   |  |   | 1,271  |  
|Expected return on plan assets     |  |      | (1,469 | ) |        |   | (208 | )     |  |   | (1,677 | ) |  |        | (1,296 | ) |       |   | (156 | ) |  |   | (1,452 | )
|Amortization of net loss           |  |      | 648    |   |        |   | 42   |       |  |   | 690    |   |  |        | 849    |   |       |   | 42   |   |  |   | 891    |  
|Amortization of prior service cost |  |      | 16     |   |        |   | (18  | )     |  |   | (2     | ) |  |        | 38     |   |       |   |     |   |  |   | 38     |  
|                                   |  |      |        |   |        |   |      |       |  |   |        |   |  |        |        |   |       |   |      |   |  |   |        |  
|Total pension expense              |  | $    | 647    |   |        | $ | 155  |       |  | $ | 802    |   |  | $      | 1,282  |   |       | $ | 280  |   |  | $ | 1,562  |  
|                                   |  |      |        |   |        |   |      |       |  |   |        |   |  |        |        |   |       |   |      |   |  |   |        |  

The Company estimates that its expected contribution to its pension plans for 2007 will be approximately $4.9
million of which $1.2 million was paid during the three months ended March 31, 2007.

Other Postretirement Benefits

The components of other postretirement benefits cost were as follows for the three months ended March 31, 2007 and 2006:



|                                            |  |      |     |   |      |   |     |  
|------------------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|(in thousands)                              |  | 2007 |     |   | 2006 |  
|Interest cost                               |  | $    | 63  |   |      | $ | 62  |  
|Amortization of net loss                    |  |      | 178 |   |      |   | 171 |  
|Amortization of prior service cost          |  |      | (77 | ) |      |   | (77 | )
|                                            |  |      |     |   |      |   |     |  
|Total other postretirement benefits expense |  | $    | 164 |   |      | $ | 156 |  
|                                            |  |      |     |   |      |   |     |  

14. Income Taxes



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During the three months ended March 31, 2007, the Company recorded a valuation allowance of $1.2 million to offset
net operating losses and deferred tax assets generated for the U.S. and foreign operations during 2007. The Company does not currently anticipate realizing deferred tax assets to the extent the assets exceed deferred tax liabilities.

15. Derivative Financial Instruments

The Company
reviews opportunities and options to reduce the Companys financial risks and exposure. The Company may enter into a derivative instrument by approval of the Companys executive management based on guidelines established by the
Companys Board of Directors. Market and credit risks associated with this instrument are regularly reviewed by the Companys executive management.

The Company has an interest rate swap for a notional amount of $100.0 million relating to its Senior Secured Floating Rate Notes. 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. 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
Companys debt due in 2012.

The Company accounted for this interest rate swap as a cash flow hedge and assumes that there is no ineffectiveness in
the hedging relationship and recognizes in other comprehensive income the entire change in the fair value of the swap. The fair value of the interest rate swap asset was $1.6 million at March 31, 2007 and $2.2 million at December 31, 2006.
For the three months ended March 31, 2007, the Company recorded an unrealized loss in other comprehensive income of $0.6 million.

16. Other Income
(Expense)

Other income (expense) consisted of the following for the three months ended March 31, 2007 and 2006:



|                                                   |  |      |     |   |      |   |     |  
|-------------------------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|(in thousands)                                     |  | 2007 |     |   | 2006 |  
|Royalty income                                     |  | $    | 245 |   |      | $ | 137 |  
|Other income                                       |  |      | 79  |   |      |   |    |  
|Interest income                                    |  |      | 51  |   |      |   | 20  |  
|Foreign exchange gains (losses)                    |  |      | 14  |   |      |   | (12 | )
|Decrease in cash surrender value of life insurance |  |      | (21 | ) |      |   |    |  
|                                                   |  |      |     |   |      |   |     |  
|Other income, net                                  |  | $    | 368 |   |      | $ | 145 |  
|                                                   |  |      |     |   |      |   |     |  

17. Segment Information

The Company has only one operating segment and one reporting unit. The Company has operating plants in the United States and Europe.

Net customer sales by country for the three months ended March 31, 2007 and 2006 were as follows:



|               |  |      |         |      |   |        
|-------------- |  | ---- | ------- | ---- | - | -------
|(in thousands) |  | 2007 |         | 2006
|United States  |  | $    | 164,144 |      | $ | 181,543
|United Kingdom |  |      | 29,563  |      |   | 26,010 
|Other          |  |      | 17,908  |      |   | 12,304 
|               |  |      |         |      |   |        
|               |  | $    | 211,615 |      | $ | 219,857
|               |  |      |         |      |   |        

18. Condensed Consolidating Financial Information



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The Companys Senior Notes are guaranteed on a senior basis by each of the Companys domestic and United
Kingdom restricted subsidiaries. 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 Senior 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:



| |  |  | Balance sheets as of March 31, 2007 and December 31, 2006;
| | - |  | ----------------------------------------------------------



| |  |  | Statements of operations for the three months ended March 31, 2007 and March 31, 2006; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Statements of cash flows for the three months ended March 31, 2007 and March 31, 2006.
| | - |  | --------------------------------------------------------------------------------------



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CONDENSED CONSOLIDATING BALANCE SHEET

MARCH 31, 2007

(In thousands)

(Unaudited)



|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|---------------------------------------------------- |  | ------ | ------- | - | ---------- | - | -------------- |  | - | ------------ | - |  | ------------- | -------- | - |  | - | ------- | -
|                                                     |  | Parent |         |   | Guarantors |   | Non-Guarantors |  |   | Eliminations |   |  | Total Company |         
|ASSETS                                               |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Current Assets:                                      |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Cash and cash equivalents                            |  | $      |        |   |            | $ | 1,283          |  | $ | 4,583        |   |  | $             |         |   |  | $ | 5,866   |  
|Intercompany receivables                             |  |        |        |   |            |   | 118,856        |  |   | 7,788        |   |  |               | (126,644 | ) |  |   |        |  
|Accounts receivable, net                             |  |        |        |   |            |   | 67,102         |  |   | 8,054        |   |  |               |         |   |  |   | 75,156  |  
|Inventories, net                                     |  |        |        |   |            |   | 83,121         |  |   | 4,677        |   |  |               |         |   |  |   | 87,798  |  
|Prepaid expenses and other current assets            |  |        |        |   |            |   | 8,529          |  |   | 297          |   |  |               |         |   |  |   | 8,826   |  
|Deferred income taxes                                |  |        |        |   |            |   | 2,334          |  |   |             |   |  |               |         |   |  |   | 2,334   |  
|Current assets of discontinued operations            |  |        |        |   |            |   |               |  |   | 476          |   |  |               |         |   |  |   | 476     |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Total current assets                                 |  |        |        |   |            |   | 281,225        |  |   | 25,875       |   |  |               | (126,644 | ) |  |   | 180,456 |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Property, plant and equipment, net                   |  |        |        |   |            |   | 144,309        |  |   | 5,308        |   |  |               |         |   |  |   | 149,617 |  
|Goodwill                                             |  |        |        |   |            |   | 148,813        |  |   |             |   |  |               |         |   |  |   | 148,813 |  
|Investments in subsidiaries                          |  |        | 461,261 |   |            |   | 20,839         |  |   |             |   |  |               | (482,100 | ) |  |   |        |  
|Other assets                                         |  |        | 10,367  |   |            |   | 4,349          |  |   |             |   |  |               |         |   |  |   | 14,716  |  
|Non-current assets of discontinued operations        |  |        |        |   |            |   |               |  |   | 1,286        |   |  |               |         |   |  |   | 1,286   |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Total assets                                         |  | $      | 471,628 |   |            | $ | 599,535        |  | $ | 32,469       |   |  | $             | (608,744 | ) |  | $ | 494,888 |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Current Liabilities:                                 |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Short-term debt                                      |  | $      | 2,220   |   |            | $ |               |  | $ |             |   |  | $             |         |   |  | $ | 2,220   |  
|Accounts payable and accrued liabilities             |  |        | 9,488   |   |            |   | 101,553        |  |   | 7,682        |   |  |               |         |   |  |   | 118,723 |  
|Intercompany payable                                 |  |        | 117,862 |   |            |   | 7,567          |  |   | 1,215        |   |  |               | (126,644 | ) |  |   |        |  
|Current liabilities of discontinued operations       |  |        |        |   |            |   |               |  |   | 275          |   |  |               |         |   |  |   | 275     |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Total current liabilities                            |  |        | 129,570 |   |            |   | 109,120        |  |   | 9,172        |   |  |               | (126,644 | ) |  |   | 121,218 |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Long-term debt, net of current portion               |  |        | 393,530 |   |            |   |               |  |   |             |   |  |               |         |   |  |   | 393,530 |  
|Pension and postretirement liabilities               |  |        |        |   |            |   | 18,352         |  |   | (284         | ) |  |               |         |   |  |   | 18,068  |  
|Deferred income taxes                                |  |        |        |   |            |   | 2,334          |  |   |             |   |  |               |         |   |  |   | 2,334   |  
|Other liabilities                                    |  |        |        |   |            |   | 8,468          |  |   |             |   |  |               |         |   |  |   | 8,468   |  
|Non-current liabilities of discontinued operations   |  |        |        |   |            |   |               |  |   | 2,742        |   |  |               |         |   |  |   | 2,742   |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Total liabilities                                    |  |        | 523,100 |   |            |   | 138,274        |  |   | 11,630       |   |  |               | (126,644 | ) |  |   | 546,360 |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Commitments and contingent liabilities               |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|                                                     |  |        |         |   |           
|Stockholders equity (deficit)                       |  |        | (51,472 | ) |            |   | 461,261        |  |   | 20,839       |   |  |               | (482,100 | ) |  |   | (51,472 | )
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  
|Total liabilities and stockholders equity (deficit) |  | $      | 471,628 |   |            | $ | 599,535        |  | $ | 32,469       |   |  | $             | (608,744 | ) |  | $ | 494,888 |  
|                                                     |  |        |         |   |            |   |                |  |   |              |   |  |               |          |   |  |   |         |  



17



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CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2006

(In thousands)



|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|---------------------------------------------------- |  | ------ | ------- | - | ---------- | - | -------------- |  | ------------ | ------ |  | ------------- | -------- | - |  | - | ------- | -
|                                                     |  | Parent |         |   | Guarantors |   | Non-Guarantors |  | Eliminations |        |  | Total Company |         
|ASSETS                                               |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Current Assets:                                      |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Cash and cash equivalents                            |  | $      |        |   |            | $ | 16,288         |  | $            | 3,082  |  | $             |         |   |  | $ | 19,370  |  
|Intercompany receivables                             |  |        |        |   |            |   | 118,470        |  |              | 7,394  |  |               | (125,864 | ) |  |   |        |  
|Accounts receivable, net                             |  |        |        |   |            |   | 55,867         |  |              | 6,090  |  |               |         |   |  |   | 61,957  |  
|Inventories, net                                     |  |        |         |   |            |   | 77,874         |  |              | 5,481  |  |               |          |   |  |   | 83,355  |  
|Prepaid expenses and other current assets            |  |        |         |   |            |   | 11,109         |  |              | 165    |  |               |          |   |  |   | 11,274  |  
|Deferred income taxes                                |  |        |        |   |            |   | 2,257          |  |              |       |  |               |         |   |  |   | 2,257   |  
|Current assets of discontinued operations            |  |        |        |   |            |   |               |  |              | 11,602 |  |               |         |   |  |   | 11,602  |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Total current assets                                 |  |        |        |   |            |   | 281,865        |  |              | 33,814 |  |               | (125,864 | ) |  |   | 189,815 |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Property, plant and equipment, net                   |  |        |        |   |            |   | 142,803        |  |              | 5,432  |  |               |         |   |  |   | 148,235 |  
|Goodwill                                             |  |        |        |   |            |   | 148,813        |  |              |       |  |               |         |   |  |   | 148,813 |  
|Investments in subsidiaries                          |  |        | 457,299 |   |            |   | 19,757         |  |              |       |  |               | (477,056 | ) |  |   |        |  
|Other assets                                         |  |        | 11,243  |   |            |   | 4,570          |  |              |        |  |               |          |   |  |   | 15,813  |  
|Non-current assets of discontinued operations        |  |        |        |   |            |   |               |  |              | 1,286  |  |               |         |   |  |   | 1,286   |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Total assets                                         |  | $      | 468,542 |   |            | $ | 597,808        |  | $            | 40,532 |  | $             | (602,920 | ) |  | $ | 503,962 |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Current Liabilities:                                 |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Accounts payable and accrued liabilities             |  |        | 4,602   |   |            |   | 103,965        |  |              | 6,427  |  |               |         |   |  |   | 114,994 |  
|Intercompany payable                                 |  |        | 115,313 |   |            |   | 7,397          |  |              | 3,154  |  |               | (125,864 | ) |  |   |        |  
|Current liabilities of discontinued operations       |  |        |        |   |            |   |               |  |              | 8,680  |  |               |         |   |  |   | 8,680   |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Total current liabilities                            |  |        | 119,915 |   |            |   | 111,362        |  |              | 18,261 |  |               | (125,864 | ) |  |   | 123,674 |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Long-term debt                                       |  |        | 393,466 |   |            |   |               |  |              |       |  |               |         |   |  |   | 393,466 |  
|Pension and postretirement liabilities               |  |        |        |   |            |   | 18,837         |  |              | 306    |  |               |         |   |  |   | 19,143  |  
|Deferred income taxes                                |  |        |        |   |            |   | 2,257          |  |              |       |  |               |         |   |  |   | 2,257   |  
|Other liabilities                                    |  |        |         |   |            |   | 8,053          |  |              | 64     |  |               |          |   |  |   | 8,117   |  
|Non-current liabilities of discontinued operations   |  |        |        |   |            |   |               |  |              | 2,144  |  |               |         |   |  |   | 2,144   |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Total liabilities                                    |  |        | 513,381 |   |            |   | 140,509        |  |              | 20,775 |  |               | (125,864 | ) |  |   | 548,801 |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Commitments and contingent liabilities               |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|                                                     |  |        |         |   |           
|Stockholders equity (deficit)                       |  |        | (44,839 | ) |            |   | 457,299        |  |              | 19,757 |  |               | (477,056 | ) |  |   | (44,839 | )
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  
|Total liabilities and stockholders equity (deficit) |  | $      | 468,542 |   |            | $ | 597,808        |  | $            | 40,532 |  | $             | (602,920 | ) |  | $ | 503,962 |  
|                                                     |  |        |         |   |            |   |                |  |              |        |  |               |          |   |  |   |         |  



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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2007

(In thousands)

(Unaudited)



|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|------------------------------------------------------------ |  | ------ | ------- | - | ---------- | - | ------- | -------------- |  | - | ------------ | - |  | ------------- | ------ | - |  | - | ------- | -
|                                                             |  | Parent |         |   | Guarantors |   |         | Non-Guarantors |  |   | Eliminations |   |  | Total Company |       
|Net sales                                                    |  | $      |        |   |            | $ | 194,773 |                |  | $ | 17,908       |   |  | $             |       |   |  | $ | 212,681 |  
|Cost of products sold, excluding depreciation                |  |        |        |   |            |   | 176,745 |                |  |   | 16,220       |   |  |               |       |   |  |   | 192,965 |  
|Depreciation                                                 |  |        |        |   |            |   | 7,243   |                |  |   | 268          |   |  |               |       |   |  |   | 7,511   |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Gross profit                                                 |  |        |        |   |            |   | 10,785  |                |  |   | 1,420        |   |  |               |       |   |  |   | 12,205  |  
|Selling and administrative expenses                          |  |        |        |   |            |   | 6,520   |                |  |   | 204          |   |  |               |       |   |  |   | 6,724   |  
|Research and technology expenses                             |  |        |        |   |            |   | 1,614   |                |  |   |             |   |  |               |       |   |  |   | 1,614   |  
|Provision for restructuring                                  |  |        |        |   |            |   | 303     |                |  |   |             |   |  |               |       |   |  |   | 303     |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Total operating expenses                                     |  |        |        |   |            |   | 8,437   |                |  |   | 204          |   |  |               |       |   |  |   | 8,641   |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Operating income                                             |  |        |        |   |            |   | 2,348   |                |  |   | 1,216        |   |  |               |       |   |  |   | 3,564   |  
|Interest expense                                             |  |        | (10,014 | ) |            |   | (346    | )              |  |   | 86           |   |  |               |       |   |  |   | (10,274 | )
|Other income (expense), net                                  |  |        |        |   |            |   | 388     |                |  |   | (20          | ) |  |               |       |   |  |   | 368     |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Income (loss) from continuing operations before income taxes |  |        | (10,014 | ) |            |   | 2,390   |                |  |   | 1,282        |   |  |               |       |   |  |   | (6,342  | )
|Provision for income taxes                                   |  |        |        |   |            |   | (6      | )              |  |   |             |   |  |               |       |   |  |   | (6      | )
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Income (loss) from continuing operations                     |  |        | (10,014 | ) |            |   | 2,384   |                |  |   | 1,282        |   |  |               |       |   |  |   | (6,348  | )
|Equity earnings                                              |  |        | 3,713   |   |            |   | 1,329   |                |  |   |             |   |  |               | (5,042 | ) |  |   |        |  
|Income from discontinued operations, net of taxes            |  |        |        |   |            |   |        |                |  |   | 47           |   |  |               |       |   |  |   | 47      |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Net income (loss)                                            |  | $      | (6,301  | ) |            | $ | 3,713   |                |  | $ | 1,329        |   |  | $             | (5,042 | ) |  | $ | (6,301  | )
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  



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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2006

(In thousands)

(Unaudited)



|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|------------------------------------------------------------ |  | ------ | ------- | - | ---------- | - | ------- | -------------- |  | - | ------------ | - |  | ------------- | ------ | - |  | - | ------- | -
|                                                             |  | Parent |         |   | Guarantors |   |         | Non-Guarantors |  |   | Eliminations |   |  | Total Company |       
|Net sales                                                    |  | $      |        |   |            | $ | 208,509 |                |  | $ | 12,305       |   |  |               |        |   |  | $ | 220,814 |  
|Cost of products sold, excluding depreciation                |  |        |        |   |            |   | 188,729 |                |  |   | 11,677       |   |  |               |        |   |  |   | 200,406 |  
|Depreciation                                                 |  |        |        |   |            |   | 7,803   |                |  |   | 156          |   |  |               |       |   |  |   | 7,959   |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Gross profit                                                 |  |        |        |   |            |   | 11,977  |                |  |   | 472          |   |  |               |       |   |  |   | 12,449  |  
|                                                             |  |        |         |   |           
|Selling and administrative expenses                          |  |        |        |   |            |   | 7,162   |                |  |   | 234          |   |  |               |        |   |  |   | 7,396   |  
|Research and technology expenses                             |  |        |        |   |            |   | 1,338   |                |  |   |             |   |  |               |       |   |  |   | 1,338   |  
|Provision for restructuring                                  |  |        |        |   |            |   | 44      |                |  |   |             |   |  |               |       |   |  |   | 44      |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Total operating expenses                                     |  |        |        |   |            |   | 8,544   |                |  |   | 234          |   |  |               |       |   |  |   | 8,778   |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Operating income                                             |  |        |        |   |            |   | 3,433   |                |  |   | 238          |   |  |               |       |   |  |   | 3,671   |  
|Interest expense                                             |  |        | (10,001 | ) |            |   | (181    | )              |  |   | 35           |   |  |               |       |   |  |   | (10,147 | )
|Other income (expense), net                                  |  |        |        |   |            |   | 190     |                |  |   | (45          | ) |  |               |       |   |  |   | 145     |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Income (loss) from continuing operations before income taxes |  |        | (10,001 | ) |            |   | 3,442   |                |  |   | 228          |   |  |               |       |   |  |   | (6,331  | )
|Provision for income taxes                                   |  |        |        |   |            |   | (69     | )              |  |   | (19          | ) |  |               |       |   |  |   | (88     | )
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Income (loss) from continuing operations                     |  |        | (10,001 | ) |            |   | 3,373   |                |  |   | 209          |   |  |               |       |   |  |   | (6,419  | )
|Equity earnings                                              |  |        | 3,658   |   |            |   | 285     |                |  |   |             |   |  |               | (3,943 | ) |  |   |        |  
|Income from discontinued operations, net of taxes            |  |        |        |   |            |   |        |                |  |   | 76           |   |  |               |       |   |  |   | 76      |  
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  
|Net income (loss)                                            |  | $      | (6,343  | ) |            | $ | 3,658   |                |  | $ | 285          |   |  | $             | (3,943 | ) |  | $ | (6,343  | )
|                                                             |  |        |         |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |         |  



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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2007

(In thousands)

(Unaudited)



|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ------ | -------- | - | ---------- | - | ------- | -------------- |  | - | ------------ | - |  | ------------- | ------ | - |  | - | -------- | -
|                                                                                         |  | Parent |          |   | Guarantors |   |         | Non-Guarantors |  |   | Eliminations |   |  | Total Company |       
|Cash flows from operating activities:                                                    |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net income (loss)                                                                        |  | $      | (6,301   | ) |            | $ | 3,713   |                |  | $ | 1,329        |   |  | $             | (5,042 | ) |  | $ | (6,301   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Depreciation and amortization                                                            |  |        | 617      |   |            |   | 7,301   |                |  |   | 200          |   |  |               |       |   |  |   | 8,118    |  
|Stock-based compensation                                                                 |  |        |         |   |            |   | 418     |                |  |   |             |   |  |               |       |   |  |   | 418      |  
|Reclassification gain of foreign currency translation adjustments                        |  |        |         |   |            |   |        |                |  |   | (142         | ) |  |               |        |   |  |   | (142     | )
|Equity earnings                                                                          |  |        | (3,713   | ) |            |   | (1,329  | )              |  |   |             |   |  |               | 5,042  |   |  |   |         |  
|Changes in operating assets and liabilities                                              |  |        | 4,886    |   |            |   | (15,836 | )              |  |   | 1,928        |   |  |               |       |   |  |   | (9,022   | )
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net cash provided by (used in) operating activities                                      |  |        | (4,511   | ) |            |   | (5,733  | )              |  |   | 3,315        |   |  |               |       |   |  |   | (6,929   | )
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Cash flows from investing activities:                                                    |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Purchases of property, plant and equipment                                               |  |        |         |   |            |   | (8,649  | )              |  |   |             |   |  |               |       |   |  |   | (8,649   | )
|Proceeds from the sale of property, plant and equipment                                  |  |        |         |   |            |   | 80      |                |  |   |             |   |  |               |       |   |  |   | 80       |  
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net cash used in investing activities                                                    |  |        |         |   |            |   | (8,569  | )              |  |   |             |   |  |               |       |   |  |   | (8,569   | )
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Cash flows from financing activities:                                                    |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Proceeds from Revolver loan                                                              |  |        | 193,427  |   |            |   |        |                |  |   |             |   |  |               |       |   |  |   | 193,427  |  
|Repayment of Revolver loan                                                               |  |        | (191,207 | ) |            |   |        |                |  |   |             |   |  |               |       |   |  |   | (191,207 | )
|Net change in intercompany loans                                                         |  |        | 2,539    |   |            |   | (701    | )              |  |   | (1,838       | ) |  |               |       |   |  |   |         |  
|Costs associated with debt refinancing                                                   |  |        | (248     | ) |            |   |        |                |  |   |             |   |  |               |       |   |  |   | (248     | )
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |        | 4,511    |   |            |   | (701    | )              |  |   | (1,838       | ) |  |               |       |   |  |   | 1,972    |  
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Effect of exchange rate changes on cash and cash equivalents                             |  |        |         |   |            |   | (2      | )              |  |   | 24           |   |  |               |       |   |  |   | 22       |  
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                     |  |        |         |   |            |   | (15,005 | )              |  |   | 1,501        |   |  |               |       |   |  |   | (13,504  | )
|Cash and cash equivalents at beginning of period                                         |  |        |         |   |            |   | 16,288  |                |  |   | 3,082        |   |  |               |       |   |  |   | 19,370   |  
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Cash and cash equivalents at end of period                                               |  | $      |         |   |            | $ | 1,283   |                |  | $ | 4,583        |   |  | $             |       |   |  | $ | 5,866    |  
|                                                                                         |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  



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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2006

(In thousands)

(Unaudited)



|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|-------------------------------------------------------------------------------------------------- |  | ------ | -------- | - | ---------- | - | ------- | -------------- |  | - | ------------ | - |  | ------------- | ------ | - |  | - | -------- | -
|                                                                                                   |  | Parent |          |   | Guarantors |   |         | Non-Guarantors |  |   | Eliminations |   |  | Total Company |       
|Cash flows from operating activities:                                                              |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net income (loss)                                                                                  |  | $      | (6,343   | ) |            | $ | 3,645   |                |  | $ | 285          |   |  | $             | (3,930 | ) |  | $ | (6,343   | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Depreciation and amortization                                                                      |  |        | 546      |   |            |   | 7,803   |                |  |   | 380          |   |  |               |       |   |  |   | 8,729    |  
|Stock-based compensation                                                                           |  |        |         |   |            |   | 239     |                |  |   |             |   |  |               |       |   |  |   | 239      |  
|Equity earnings                                                                                    |  |        | (3,645   | ) |            |   | (285    | )              |  |   |             |   |  |               | 3,930  |   |  |   |         |  
|Changes in operating assets and liabilities                                                        |  |        | 5,278    |   |            |   | (17,555 | )              |  |   | 1,233        |   |  |               |       |   |  |   | (11,044  | )
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net cash provided by (used in) operating activities                                                |  |        | (4,164   | ) |            |   | (6,153  | )              |  |   | 1,898        |   |  |               |       |   |  |   | (8,419   | )
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Cash flows from investing activities:                                                              |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Purchases of property, plant and equipment                                                         |  |        |         |   |            |   | (6,377  | )              |  |   | (303         | ) |  |               |       |   |  |   | (6,680   | )
|Proceeds from the sale of property, plant and equipment                                            |  |        |         |   |            |   | 36      |                |  |   |             |   |  |               |       |   |  |   | 36       |  
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net cash used in investing activities                                                              |  |        |         |   |            |   | (6,341  | )              |  |   | (303         | ) |  |               |       |   |  |   | (6,644   | )
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Cash flows from financing activities:                                                              |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Proceeds from Revolver loan                                                                        |  |        | 223,265  |   |            |   |        |                |  |   |             |   |  |               |       |   |  |   | 223,265  |  
|Repayment of Revolver loan                                                                         |  |        | (208,130 | ) |            |   |        |                |  |   |             |   |  |               |       |   |  |   | (208,130 | )
|Net change in intercompany loans                                                                   |  |        | (10,672  | ) |            |   | 10,672  |                |  |   |             |   |  |               |       |   |  |   |         |  
|Costs associated with debt refinancing                                                             |  |        | (299     | ) |            |   |        |                |  |   |             |   |  |               |       |   |  |   | (299     | )
|Other financing activities                                                                         |  |        |         |   |            |   | (35     | )              |  |   | (1,540       | ) |  |               |       |   |  |   | (1,575   | )
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net cash provided by (used in) financing activities                                                |  |        | 4,164    |   |            |   | 10,637  |                |  |   | (1,540       | ) |  |               |       |   |  |   | 13,261   |  
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Effect of exchange rate changes on cash and cash equivalents                                       |  |        |         |   |            |   | 34      |                |  |   | 27           |   |  |               |       |   |  |   | 61       |  
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Net increase in cash and cash equivalents                                                          |  |        |         |   |            |   | (1,823  | )              |  |   | 82           |   |  |               |       |   |  |   | (1,741   | )
|Cash and cash equivalents at beginning of period                                                   |  |        |         |   |            |   | 6,744   |                |  |   | 2,919        |   |  |               |       |   |  |   | 9,663    |  
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  
|Cash and cash equivalents at end of period                                                         |  | $      |         |   |            | $ | 4,921   |                |  | $ | 3,001        |   |  | $             |       |   |  | $ | 7,922    |  
|                                                                                                   |  |        |          |   |            |   |         |                |  |   |              |   |  |               |        |   |  |   |          |  



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Overview

Constar International Inc. (the Company or Constar) is a global producer of PET, or
polyethylene terephthalate, plastic containers for food, beverages, and other end use applications. 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, household chemicals, beer and flavored alcoholic beverages, most of which require a combination of advanced technologies, processing know-how and innovative designs. Beverage
categories dominate the PET market.

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. Constars oxygen-scavenging technology, Oxbar®, enables the Company to produce the special packaging required to extend the shelf life of oxygen sensitive products. In 2005 Constar
commenced commercial sales of its monolayer Oxbar technology, MonOxbar. In January 2007, the Companys
DiamondClearoxygen scavenger technology completed the Food and Drug Administrations food contact
notification process and is now available for certain food applications. DiamondClearis a monolayer oxygen
barrier material that can be incorporated into PET containers to produce glass-like clarity. The Company believes that its portfolio of oxygen scavenging products represents the industrys best-performing oxygen barrier technologies. The
Company has also developed methods for heat-setting containers without the use of traditional vacuum panels. 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.

Substantially all of the Companys sales are covered by contracts. The volume-weighted average life of the Companys contracts, excluding PepsiCo, is approximately 3.3 years. Some of these contracts come up
for renewal each year, and are often offered to the market for competitive bidding. The Companys main contract with PepsiCo, its largest customer, is scheduled to expire on December 31, 2008. The Company is discussing an extension with
PepsiCo and there can be no assurance of the outcome of these discussions. In addition, in negotiations with certain customers for the continuation and the extension of supply agreements, the Company has agreed to price concessions. By the end of
2008, the net negative impact of contractual pricing is expected to be approximately $8.0 million compared to 2006, with price concessions of approximately $14.0 million to $16.0 million occurring in 2007.

Approximately 78% of the Companys revenues in the first three months of 2007 were generated in the United States, with the remainder attributable to its European
operations. During the first three months of 2007, one customer accounted for approximately 38.9% of the Companys consolidated revenues, while the top ten customers accounted for an aggregate of approximately 71.3% of the Companys
consolidated revenues. Approximately 72.8% of the Companys sales in the first three months of 2007 related to conventional PET containers which are primarily used for carbonated soft drinks (CSD) and bottled water.

The Company believes that water bottlers will continue to shift towards manufacturing their own bottles. This is an accelerating trend in the industry. In addition, the
Company believes that some future movement toward self-manufacturing of CSD packages is likely, particularly where freight costs are a significant factor. Increased self-manufacturing may result in excess capacity among merchant suppliers and create
pricing pressures. As a result, profitability from conventional sales is expected to continue to decline over the next few years. The Company believes that in most cases, customers will continue to purchase conventional preforms from merchant
suppliers.

The Company is a producer of higher profit custom products that are used in such packaging applications as hot-filled beverages, food,
household chemicals, beer and flavored alcoholic beverages, most of which require containers with special performance characteristics. Part of the Companys strategy is to increase its presence in this higher profit and growth segment of the
market. Approximately 20.9% of the Companys sales in the first three months of 2007 related to custom PET containers. Custom unit volume declined approximately 7.9% in the first quarter of 2007. This decrease was driven by the temporary
suspension of production by a customer and the softening in demand for some of the Companys customers products.



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##### Table of Contents

The primary raw material and component cost of the Companys products is PET resin, which is a commodity available
globally. The price of PET resin is subject to frequent fluctuations as a result of raw material costs, overseas markets, PET production capacity and seasonal demand. Constar is one of the largest purchasers of PET resin in North America, which it
believes provides it with negotiating leverage. Higher resin prices may impact the demand for PET packaging where customers have a choice between PET and other forms of packaging. However, recent price increases for glass and aluminum may soften the
demand for the use of those products.

There is currently a shortage of supply for purified isophthalic acid (IPA), a raw material for the
production of PET. This shortage is being caused by the shut-down of a U.S. plant that produces a significant amount of IPA, and it is uncertain when this plant will resume production. The Company maintains a diverse group of resin
suppliers, including foreign-based suppliers and a supplier that manufactures its own IPA. As a result, the Company does not currently expect that the IPA shortage will impact the Companys operations. It is unclear when normal IPA
production will resume. A prolonged shortage of IPA supply could tighten the availability of PET and cause an increase in PET prices.

Substantially
all of the Companys sales are made pursuant to contracts that allow for the pass-through of changes in the price of PET resin to its customers. Period-to-period comparisons of gross profit and gross profit as a percentage of 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 resin price changes.

The Company is highly leveraged. As of March 31, 2007, the Companys debt structure consisted of a $75.0 million credit agreement, $220.0 million of secured notes and $175.0 million of subordinated notes. As of March 31,
2007, the Company had $2.2 million outstanding under its Revolver Loan and $4.2 million outstanding under letters of credit. Interest expense for the first three months of 2007 was $10.3 million.

Results of Operations

Three Months Ended March 31, 2007 and
2006

Net Sales



|                      |      |                              |       |                     |   |       |                       |   |       |   |  |      |   
|--------------------- | ---- | ---------------------------- | ----- | ------------------- | - | ----- | --------------------- | - | ----- | - |  | ---- | --
|                      |      | Three months ended March 31, |       | Increase (Decrease) |   |       | % Increase (Decrease) |  
|(dollars in millions) |      |                              |      
|                      | 2007 |                              | 2006  |                     |  
|United States         |      | $                            | 165.2 |                     | $ | 182.5 |                       | $ | (17.3 | ) |  | (9.5 | )%
|Europe                |      |                              | 47.5  |                     |   | 38.3  |                       |   | 9.2   |   |  | 24.0 | % 
|                      |      |                              |       |                     |   |       |                       |   |       |   |  |      |   
|Total                 |      | $                            | 212.7 |                     | $ | 220.8 |                       | $ | (8.1  | ) |  | (3.7 | )%
|                      |      |                              |       |                     |   |       |                       |   |       |   |  |      |   

The decrease in consolidated sales was driven by a decline in conventional and custom unit volumes. The decline in
conventional unit volume was driven by a decrease in water volume due to the continued movement of water bottlers to self-manufacturing. In addition, CSD volume decreased due to consumers shifting their preferences from carbonated soft drinks to
non-carbonated drinks such as energy drinks and teas, some of which are in non-PET forms of packaging. The decrease in water and CSD bottle volumes was partially offset by an increase in preform volume, and a strengthening of the British Pound and
Euro against the dollar.

In the U.S., net sales in the first quarter of 2007 decreased compared to net sales in the first quarter of 2006. The decrease in
U.S. net sales was principally driven by declines in unit volume. Total U.S. unit volume decreased 8.7 % over the first quarter of 2006. Custom unit volume decreased 7.9 %, while conventional unit volume declined 9.8 % compared to the
first quarter of 2006.

The increase in European net sales in the first quarter of 2007 was primarily due to favorable foreign currency translations along
with increased total unit volume of 6.3 % compared to the first quarter of 2006.



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Gross Profit



|                      |      |                              |      |      |                     |   |      |   |  |   |      |  
|--------------------- | ---- | ---------------------------- | ---- | ---- | ------------------- | - | ---- | - |  | - | ---- | -
|                      |      | Three months ended March 31, |      |      | Increase (Decrease) |  
|(dollars in millions) |      |                             
|                      | 2007 |                              |      | 2006 |                     |  
|United States         |      | $                            | 11.6 |      |                     | $ | 12.6 |   |  | $ | (1.0 | )
|Europe                |      |                              | 0.6  |      |                     |   | (0.2 | ) |  |   | 0.8  |  
|                      |      |                              |      |      |                     |   |      |   |  |   |      |  
|Total                 |      | $                            | 12.2 |      |                     | $ | 12.4 |   |  | $ | (0.2 | )
|                      |      |                              |      |      |                     |   |      |   |  |   |      |  
|Percent of net sales  |      |                              | 5.7  | %    |                     |   | 5.6  | % |  |   |      |  
|                      |      |                              |      |      |                     |   |      |   |  |   |      |  

The decrease in gross profit in the first quarter of 2007 compared to the first quarter of 2006 was the result of
lower pricing, decreased volumes and the impact of a one-time charge, partially offset by improved customer and product mix, lower manufacturing costs and the impact of the Companys ongoing Best Cost Producer program focused on long-term
manufacturing productivity improvements. The Company recorded a liability and a one-time charge to cost of sales for $435 in the first quarter of 2007. The liability related to a transaction that occurred in a prior period and was discovered during
a review of documentation related to a payment processed subsequent to March 31, 2007. The Company concluded that the adjustment was not material to previously issued financial statements, the anticipated results for the year or the trend in
earnings.

Selling and Administrative Expenses

Selling and administrative expenses decreased $0.7 million, or 9.1%, to $6.7 million in the first quarter of 2007 from $7.4 million in the first quarter of 2006. This decrease was primarily driven by lower legal and audit fees.

Research and Technology Expenses

Research and technology
expenses were $1.6 million in the first quarter of 2007 compared to $1.3 million in the first quarter of 2006. The research and technology expenses relate to spending for the Companys existing proprietary technologies and new emerging
technologies.

Provision for Restructuring

During the first quarter of 2007 the Company recorded restructuring charges of $0.3 million, which consisted of equipment relocation and severance costs related to our U.S. operations.

Operating Income

Operating income decreased to $3.6 million
in the first quarter of 2007 compared to $3.7 million in the first quarter of 2006. This decrease in operating income primarily relates to increased restructuring expenses of $0.3 million and the one-time charge of $0.4 million, partially offset by
the improved operating performance described above.

Interest Expense

Interest expense increased $0.2 million to $10.3 million in the first quarter of 2007 from $10.1 million in the first quarter of 2006 as a result of a higher effective interest rate partially offset by lower average
borrowings.

Other (Income) Expense, net

Other
income was $0.4 million in the first quarter of 2007 compared to $0.1 million in the first quarter of 2006. The increase in other income primarily resulted from increases in royalty income, interest income, and foreign currency gains, partially
offset by a decrease in the cash surrender value of life insurance policies.

Benefit from Income Taxes

The Company recorded no provision for income taxes for the first quarter of 2007 compared to a provision of $0.1 million in the first quarter of 2006. During the
first quarter of 2007 the Company recorded a valuation allowance of $1.2 million to offset net operating losses and deferred tax assets generated for the U.S. and foreign operations during the first quarter of 2007. During the first quarter of 2006,
the Company recorded an additional valuation allowance of $2.1 million to offset net operating losses and deferred tax assets generated for the U.S. and foreign operations.



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Income from Discontinued Operations, net of taxes

Income from discontinued operations in the first quarter of 2007 and 2006 was approximately $0.1 million. The income is related to the shutdown and run-off of operations in Turkey, which began in May 2006, and in
Italy, which began in December 2006. Unless otherwise indicated, amounts provided throughout this Form 10-Q relate to continuing operations only.

Net
Loss

Net loss in the first quarter of 2007 was $6.3 million, or $0.51 loss per basic and diluted share, compared to a net loss in the first quarter of
2006 of $6.3 million, or $0.52 loss per basic and diluted share.

Liquidity and Capital Resources

The Companys outstanding debt consists of $175.0 million of Senior Subordinated Notes due December 1, 2012 (Subordinated Notes), $220.0 million of
Senior Secured Floating Rate Notes due February 15, 2012 (Senior Notes) and a $75.0 million Senior Secured Asset Based Revolving Credit Facility (Revolver Loan). The Subordinated Notes bear interest at a rate of
11.0% per annum. Interest on the Subordinated Notes is payable semi-annually on each December 1 and June 1. The Senior Notes bear interest at the rate of three-month LIBOR plus 3.375% per annum. Interest on the Senior Notes is
reset quarterly.

At March 31, 2007, there was $220.0 million outstanding on the Senior Notes, $175.0 million outstanding on the Subordinated Notes,
$2.2 million outstanding on the Revolver Loan, and $4.2 million of letters of credit outstanding under the Revolver Loan.

The Revolver Loan imposes
maximum capital expenditures of $47.5 million in 2007 and 2008. These capital expenditure covenants allow for the carry forward of a certain amount of spending below covenant levels in previous periods. In 2006, Constar spent $23.5 million in
capital expenditures, allowing $14.3 million to be carried over to 2007. The Company currently expects to spend between $30.0 million and $35.0 million in capital expenditures in 2007.

Liquidity, defined as cash and availability under the Revolver Loan, is a key measure of the Companys ability to finance its operations. The principal determinant of 2007 liquidity will be 2007 financial
performance. Liquidity at March 31, 2007 was $65.0 million as compared to $42.5 million at March 31, 2006.

Liquidity will vary on a daily,
monthly and quarterly basis based upon the seasonality of the Companys sales as well as the factors mentioned above. The Companys cash requirements are typically greater during the first and second quarters of each 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.

Cash Flows

The following table presents selected cash flow data.



|                                          |  |                              |      |   |                     |   |      |   |  |   |       |  
|----------------------------------------- |  | ---------------------------- | ---- | - | ------------------- | - | ---- | - |  | - | ----- | -
|                                          |  | Three months ended March 31, |      |   | Increase (Decrease) |  
|(dollars in millions)                     |  |                             
|                                          |  | 2007                         |      |   | 2006                |   |     
|Net cash used in operating activities     |  | $                            | (6.9 | ) |                     | $ | (8.4 | ) |  | $ | (1.5  | )
|                                          |  |                              |      |   |                     |   |      |   |  |   |       |  
|Net cash used in investing activities     |  | $                            | (8.6 | ) |                     | $ | (6.6 | ) |  | $ | 2.0   |  
|                                          |  |                              |      |   |                     |   |      |   |  |   |       |  
|Net cash provided by financing activities |  | $                            | 2.0  |   |                     | $ | 13.3 |   |  | $ | (11.3 | )
|                                          |  |                              |      |   |                     |   |      |   |  |   |       |  

Net cash used in operations for the three months ended March 31, 2007 compared to the three months ended
March 31, 2006, decreased primarily due to working capital improvement of $2.3 million. Days sales in accounts receivable increased slightly to approximately 31.8 days at March 31, 2007 from 30.9 days at March 31, 2006. This



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increase was the result of a delay in payment from certain of the Companys European customers. Inventory days decreased to approximately 39.4 days at
March 31, 2007 from 45.4 days at March 31, 2006. Days payable in accounts payable and accrued liabilities decreased to 53.3 days at March 31, 2007 compared to 55.0 days at March 31, 2006.

The increase in net cash used in investing activities was due to an increase in capital spending. Capital expenditures primarily related to custom projects and our Best
Cost Producer program.

Net cash provided by financing activities for the three months ended March 31, 2007 was primarily comprised of net borrowings
of $2.2 million on the Revolver Loan. Net cash provided by financing activities for the three months ended March 31, 2006 was primarily comprised of net borrowings of $15.1 million on the Revolver Loan offset by the repayment of $1.5 million of
other debt.

Commitments

Information regarding the
Companys contingent liabilities appears in Part I within Item 1 of this report under Note 9 to the accompanying Condensed Consolidated Financial Statements, which information is incorporated herein by reference.

Stockholders Deficit

Stockholders deficit increased to
$51.5 million at March 31, 2007 from $44.8 million deficit at December 31, 2006. This increase was primarily due to a net loss in the first quarter of 2007 of $6.3 million, a negative adjustment of $0.7 million due to the adoption of FIN
48, and a loss on the revaluation of a cash flow hedge of $0.6 million, which was partially offset by pension amortization of $0.8 million and currency translation adjustments of $0.1 million during the three months ended March 31, 2007.

Recent Accounting Pronouncements

In June 2006, the
Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax
return. The Company adopted FIN 48 at the beginning of the first quarter of 2007. Upon adoption as of January 1, 2007, the Company recorded a reserve for uncertain tax positions in the amount of $0.7 million. This adjustment was recorded as a
cumulative effect adjustment to the opening balance of accumulated deficit.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about
such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 157 to have a material impact on our results of operations or financial condition.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have a material impact on our results of operations or financial condition.

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 Accounting for Collateral Assignment Split-Dollar Life Insurance
Agreements (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the
collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The Company is currently assessing the impact of EITF 06-10 on its consolidated financial position and results of operations.



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In September 2006, the FASB ratified the EITF consensus on EITF Issue No. 06-4, Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements(EITF 06-4). EITF 06-4 indicates that an employer should recognize a liability for future post-employment benefits based on
the substantive agreement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company is currently assessing the impact of EITF 06-4 on its consolidated financial position and results of operations.

Forward-Looking Statements

Statements included herein
that are not historical facts (including, but not limited to, any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto), are forward-looking statements
within the meaning of the federal securities laws. In addition, the Company and its representatives may from time to time make other oral or written statements which are also forward-looking statements.

These forward-looking statements are based on the Companys current expectations and projections about future events. Statements that include the words
expect, believe, intend, plan, anticipate, project, will, may, could, should, pro forma, continues,
estimates, potential, predicts, goal, objective and similar statements of a future nature identify forward-looking statements. These forward-looking statements and forecasts are subject to
risks, uncertainties and assumptions. The Company cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. The Company does not
intend to review or revise any particular forward-looking statement or forecast in light of future events.

A discussion of important factors that could
cause the actual results of operations or financial condition of the Company to differ from expectations has been set forth in the Companys Annual Report on Form 10-K for the year ended December 31, 2006 under the captions
Cautionary Statement Regarding Forward Looking Statements and Item 1.A Risk Factors and is incorporated herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q and have been or may be discussed
from time to time in the Companys other filings with the Securities and Exchange Commission.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Market Risk

In the normal course of business, the Company is exposed to fluctuations in currency values, interest rates, commodity prices
and other market risks.

The Company derived approximately 22% of total revenues from sales in foreign currencies during the three months ended
March 31, 2007. In the Companys financial statements, operating results in local currency are translated into U.S. dollars based on average exchange rates during the period and balance sheet items are translated at rates in effect on the
balance sheet date. During periods of a strengthening dollar, the Companys U.S. dollar financial results related to operations conducted in foreign currencies are reduced because the local currency amounts are translated into fewer U.S.
dollars. Conversely, as the dollar weakens, the Companys foreign results reported in U.S. dollars will increase accordingly. Based on the Companys revenues in the first three months of 2007 from its foreign locations that utilize
currencies other than the U.S. dollar, a 10.0% increase in the U.S. dollar value would result in approximately a $4.3 million reduction in net sales. The Company may enter into foreign exchange contracts to reduce the effects of fluctuations in
foreign currency exchange rates on assets, liabilities, firm commitments and anticipated transactions. However, the Company does not generally hedge its exposure to translation gains or losses on non-U.S. net assets. At March 31, 2007, the
Company had no foreign currency derivative contracts outstanding.



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Under the procedures and controls of the Companys risk management, the Company entered into an agreement to manage
the floating interest rate on a portion of the Companys Senior Notes. The interest rate swap involved the exchange of floating interest payments based on three month LIBOR rate for a fixed rate. The Company uses the interest rate swap to
manage and hedge its exposure to interest rate risks. Therefore, the Company has an exposure to interest rate risk on the portion of the Senior Notes and borrowings under the Revolver Loan that is not part of the cash flow hedge. The extent of the
Companys interest rate risk in connection with the Revolver Loan and the Senior Notes is not quantifiable or predictable because of the variability of future interest rates and borrowing requirements. Based on borrowing levels as of
March 31, 2007, a 1.0% change in LIBOR would have resulted in an increase of $1.2 million in annual interest expense. However, current amounts borrowed under the Revolver Loan might not be representative of future borrowings which will be based
on our future requirements and seasonal needs.

The principal raw materials used in the manufacture of the Companys products are resins that are
petrochemical derivatives. The markets for these resins are cyclical, and are characterized by fluctuations in supply, demand and pricing. Substantially all of the Companys sales are made under contracts that allow for the pass-through of
changes in the price of PET resin under various pass-through mechanisms. PET resin is our principal raw material and a major component of cost of goods sold. Period-to-period comparisons of gross profit and gross profit as a percentage of 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 resin price changes.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

The Company maintains a system of disclosure controls and procedures for financial reporting to give reasonable assurance that information
required to be disclosed in the Companys reports submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. Thee 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 March 31, 2007, the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), together with management,
conducted an evaluation of the effectiveness of the Companys disclosure controls and procedures pursuant to Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls
and procedures are effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

PART IIOther Information



|Item 1. | Legal Proceedings
|------- | -----------------

Information regarding legal proceedings
involving the Company appears in Part I within Item 1 of this quarterly report under Note 9 to the Condensed Consolidated Financial Statements, which information is incorporated herein by reference.



|Item 1A. | Risk Factors
|-------- | ------------

Risks Related to Our Business and Industry

There is currently a shortage of a key raw material that is used in the production of PET resin.



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There is currently a shortage of supply for purified isophthalic acid (IPA), a raw material for the
production of PET. This shortage is being caused by the shut-down of a U.S. plant that produces a significant amount of IPA, and it is uncertain when this plant will resume production. A prolonged shortage of IPA supply could tighten the
availability of PET and cause an increase in PET prices.

In addition to the other information set forth in this report, you should carefully consider the
factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks facing us. Additional risk and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or
operating results.



|Item 6. | Exhibits
|------- | --------



|       |  |                                                                                                                                                                                                                                     
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30a |  | Amendment No. 1 to Pledge and Security Agreement, dated as of March 20, 2007, among Constar International Inc., as a Grantor, each other Grantor from time to time a party thereto, and
Citicorp USA, Inc., as Administrative Agent.
|       | 
|10.32a |  | Debenture, dated as of March 20, 2007, between Constar International U.K. Ltd. and Citibank, N.A., London Branch, as Security Trustee.                                                                                            
|       | 
|10.38  |  | Share Mortgage, dated as of February 11, 2005, between Constar Foreign Holdings, Inc., as Chargor, and Citicorp USA, Inc., as Administrative Agent.                                                                                 
|       | 
|10.38a |  | Share Mortgage, dated as of March 20, 2007, between Constar Foreign Holdings, Inc., as Chargor, and Citicorp USA, Inc., as Administrative Agent.                                                                                    
|       | 
|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 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                        

---

| | Confidential treatment requested.
|-- | ---------------------------------



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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: May 15, 2007 |  | By:                        |  | /s/ WALTER S. SOBON                                                                                                            
|                    |  |                            |  | Walter S. Sobon Executive Vice President and Chief Financial Officer (duly authorized officer and principal
accounting officer)



31