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EXHIBIT 13.1
MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW AND OUTLOOK
The strategy of Corn Products International, Inc., is to drive for delivered
cost leadership in the markets we serve and to maintain our product leadership
positions, globally in dextrose and regionally in starch; in North America, to
continue to restore acceptable profitability in the United States and seek
investment opportunities to strengthen this important business; in the Rest of
World, to further improve our solid South American business through investing in
profitable internal and external growth opportunities; and elsewhere, to
selectively enter new markets through acquisitions and alliances. In addition,
we plan to evaluate major growth investment opportunities in and outside our
current geographic and product portfolio reach and act on those we judge to be
clearly beneficial to our long-term market position and earnings growth. We
believe that this strategy will produce continuing business expansion,
attractive profit growth and steadily improving shareholder value.
In line with this strategy during 1999, we maintained our focus on cost
efficiency, quality products and growth opportunities. Our earnings per share
advanced 73 percent, operating income grew 93 percent, and volumes increased 29
percent from 1998. We achieved these excellent results despite the impact of
unfavorable foreign currency values and slow economic activity in some important
markets.
We grew our worldwide dextrose volumes significantly, supplying growing markets
from our flagship dextrose plant in the United States and from locations in Asia
and Latin America. In addition, we commenced production at our new world-class
dextrose facility in Argentina, supplying the Southern Cone of South America. In
North America, we strengthened our position across all sectors. And, despite the
highly competitive US marketplace, especially in high fructose corn syrup
(HFCS), we increased US profitability through improved pricing, cost reduction
and higher volumes. The newly added Mexican business achieved strong results and
the Canadian business performed well.
In the Rest of World, we delivered continued volume and profit growth. Our
January 1999 Korean acquisition produced excellent results. This helped our Rest
of World segment overcome the effects of the economic difficulties in South
America resulting from the January 1999 devaluation of the Brazilian $real.
Colombia and Pakistan also contributed to the overall improvement, while
profitability in Brazil, our largest South American market, remained healthy.
For 2000, we plan to build on the success achieved in 1999, and we expect
earnings per share to grow at a double-digit rate on solid volume growth.
In North America, benefiting from our NAFTA position, we plan on restoring
acceptable levels of profitability in the United States. While we are encouraged
with our US earnings progress in 1999, we expect that continued low HFCS pricing
will moderate the rate of profit improvement. Given the US pricing environment,
we plan to focus on cost structure changes and optimizing volume and product
mix.
In the Rest of World, we expect a significant increase in profits within the
Mercosur countries, resulting from our cost containment efforts and from
improved market conditions. We plan to improve our solid South American business
further through timely growth investments.
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Elsewhere, we plan to enhance our other geographic positions selectively. In
late December 1999, we combined our Korean business with the corn-refining
business of Doosan Corporation, strengthening our position in this important
Asian market. We expect the combined business to add approximately $100 million
to our net sales in 2000.
FORMATION OF CORN PRODUCTS INTERNATIONAL
Corn Products International, Inc., became an independent and public company as
of December 31, 1997, after being spun off from CPC International Inc. (CPC),
now Bestfoods. This discussion and the comparative financial statements included
in this Annual Report were prepared by attributing the historical data for CPC's
Corn Refining Business to the Company. The results for the periods prior to
December 31, 1997, were extracted from the consolidated results of CPC, of which
the Company was an integral part until it was spun off as a separate operation.
This may not necessarily be indicative of the result of operations or the
financial position that the Company would have obtained during the periods shown
had it been independent.
RESULTS OF OPERATIONS
NET SALES. 1999 net sales totaled $1,735 million, up 20 percent from 1998 sales
of $1,448 million. Volumes increased 29 percent with the addition of sales from
the acquired companies in Mexico and Korea. Sales from these acquisitions
contributed 26 percent. Lower currency exchange rates throughout the world
resulted in an 11-percent reduction in revenues, while improved price/mix added
2 percent. In North America, net sales grew 34 percent from 1998, reflecting the
addition of the Mexican operation. Excluding the Mexican business, net sales
were 1 percent lower than 1998. Volume increased 3 percent, while prices
declined 4 percent, which reflected lower corn costs. In the US and Canadian
market, dextrose sales and volumes increased by double digits. HFCS prices
continued to improve. In the Rest of World, net sales were 4 percent lower than
last year, due primarily to lower foreign currency values, principally in
Brazil, Colombia and Pakistan. This reduced sales by 28 percent. Excluding the
Korean acquisition, higher volumes added 3 percent, while price increases added
11 percent.
1998 net sales grew 2 percent to $1,448 million from $1,418 million in 1997,
with 4 percent higher volume. 1998 pricing was lower in some areas than in 1997,
reflecting the pass-through of lower corn costs and lower exchange rates. In
North America, net sales grew by 5 percent, including one month of additional
sales from our Mexican operations, resulting from our increased investment.
Pricing in the US business rebounded from a disappointing 1997 with a 4-percent
increase in net sales on 1-percent higher volume. The down cycle in HFCS prices,
which hit a low in 1997, improved somewhat in 1998, but remained low versus
historical levels. In Canada, lower pricing and lower exchange rates offset
volume gains, resulting in a 9-percent reduction in net sales. In the Rest of
World, net sales declined 2 percent as lower exchange rates and prices more than
offset volume gains of 7 percent.
COST OF SALES AND OPERATING EXPENSES. 1999 cost of sales was up 13 percent from
last year, but well below the 29-percent increase in volumes, as gross and net
corn costs declined and we continued to achieve improved operating efficiencies.
Gross profits for the year increased 70 percent from 1998 to $290 million. Gross
profit margins improved for the third year, climbing to 17 percent of net sales
from 12 percent in 1998 and 10 percent in 1997. The 1999 improvement
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in the gross profit margin is largely attributable to North America, where gross
profit margins more than doubled from 1998, and reflects lower corn costs and
manufacturing expenses.
Cost of sales for 1998 was marginally lower than 1997, despite the 4-percent
increase in volume. Lower cost of sales resulted from lower corn costs and
operating efficiencies. The Rest of World operations achieved good profit,
although somewhat moderated by financial turmoil in emerging markets.
Operating expenses for 1999 totaled $134 million, a 33-percent increase from
1998, reflecting the inclusion of the Mexican and Korean businesses and higher
corporate expenses. The increase in corporate expenses is attributable to costs
associated with strategic development initiatives and performance-based
compensation expenses.
1998 operating expense rose 6 percent to $101 million from $95 million in 1997.
The increase was largely due to corporate costs associated with being a
stand-alone entity. Excluding the corporate cost, 1998 operating expense
declined 2 percent from the prior year.
1999 fee, royalty and other income decreased to $6 million from $14 million in
1998. The decline is attributable to the former Mexican joint venture now being
consolidated. Other fees and income remained fairly constant compared to the
prior year.
Fee, royalty and other income advanced in 1998, compared to 1997, primarily due
to improved results in the Mexican joint venture.
RESTRUCTURING CHARGE. In 1997, the Company recorded a $94 million pretax ($71
million after-tax) restructuring charge. The charge was primarily for severance
and severance-related costs for more than 200 employees, principally in the
Company's international operations. By the end of fiscal 1999, the Company had
fully utilized the restructuring provision.
SPIN-OFF COSTS. In 1997, the Company also recorded a $15 million pretax ($12
million after-tax) charge for costs related to the spin-off of the Corn Refining
Business from CPC.
OPERATING INCOME. 1999 operating income was up 93 percent from 1998 to $162
million from $84 million. North America operating income increased nearly
fivefold to $95 million, up from $18 million in 1998. The improvement came from
higher profit margins in the United States and Canada and the inclusion of full
earnings from the Mexican operation. Rest of World 1999 operating income
advanced 7 percent from 1998 to $81 million from $76 million, reflecting the
strong performance of the Korean acquisition. This increase more than offset
declines in South America, which resulted from the economic crisis created by
the January 1999 Brazilian currency devaluation.
Operating income for 1998 was $84 million, up from $48 million in 1997,
excluding the 1997 special charges for spin-off and restructuring. In North
America, 1998 operating income improved $50 million from 1997, reflecting
improved margins in HFCS and glucose and solid results in Mexico. In the Rest of
World, operating income was down 7 percent to $76 million from the $82 million
achieved in 1997.
FINANCING COSTS. 1999 financing costs totaled $35 million, up from $13 million
in 1998 and $28 million in 1997. The increased financing costs reflect the debt
taken on with the Mexican and Korean transactions and higher interest rates on
the conversion of $200 million in short-term debt to long-term fixed rate senior
notes issued in August 1999.
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1998 financing costs decreased approximately 50 percent to $13 million from $28
million in 1997, as the Company significantly reduced its borrowings through
most of the year. Lower borrowings resulted from better operating performance
and consequently improved cash flow.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for 1999 and 1998
was 35 percent. This tax rate represents the favorable effect of foreign source
income in countries where tax rates are generally lower than in the United
States. In 1997, the Company reported a pretax loss arising from restructuring
and spin-off charges. The tax benefit rate attributed to these special items was
24 percent. The tax rate attributed to 1997 operating profits was 35 percent,
resulting in a net effective rate of 21 percent for 1997.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. In 1997, the Company
recorded a $3 million after-tax charge because of a change in accounting
principle. The change in accounting principle resulted from a pronouncement by
the Emerging Issues Task Force (EITF) requiring companies to expense certain
previously capitalized reengineering costs.
MINORITY STOCKHOLDERS INTEREST IN EARNINGS. Minority stockholders' interest in
earnings increased to $5 million in 1999 from $3 million in 1998. The increase
is attributable to the minority interest in our Mexican affiliate acquired in
December 1998. 1998 minority stockholders' interest increased to $3 million from
$2 million in 1997 and was attributable to the minority interest in our Pakistan
affiliate.
NET INCOME. 1999 net income grew 80 percent to $77 million from $43 million in
1998. The improvement is attributable to the North America operations and the
accretive business additions in Mexico and Korea. Net income for 1998 was $43
million, compared to $11 million in 1997, excluding the after-tax effect of
special charges in 1997. The improvement in net income largely reflected the
improvement in the North American business, as well as the lower financing
costs. The 1997 net loss was $75 million, including the special charges for
restructuring, spin-off and the cumulative effect of the change in accounting
principle.
1999 earnings per fully diluted share increased 73 percent to $2.06 from $1.19
per fully diluted share in 1998. 1997 earnings per fully diluted share totaled
$0.30 before the restructuring and spin-off costs and the change in accounting
principle, or a loss of $2.10 after these charges.
COMPREHENSIVE INCOME. 1999 comprehensive income declined to $5 million from $18
million in 1998. This decrease resulted from improved net income which was
offset by a negative $72 million currency translation adjustment, principally
caused by the devaluation of the Brazilian $real to the US dollar. The currency
translation adjustments reflect the impact of translating net assets and
liabilities denoted in local currencies to US dollars at lower currency rates.
1998 comprehensive income improved to $18 million from a loss of $86 million in
1997. The 1998 improvement was attributable to improved net income partially
offset by a negative $25 million currency translation adjustment.
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LIQUIDITY & CAPITAL RESOURCES
At December 31, 1999, the Company's total assets increased to $2,212 million
from $1,946 million at December 31, 1998. The increase in total assets reflects
the acquisition of the Korean business adding to our asset base, partially
offset by the effects of lower exchange rates, principally in Brazil, used to
translate our foreign asset values.
In the past two years, the Company has invested $253 million in capital projects
to modernize or expand plant facilities in line with projected market demand.
The Company plans to continue investing to meet profitable customer demand and
drive for delivered cost leadership.
NET CASH FLOWS. 1999 net cash flows were used to fund the Company's capital
investment program and the quarterly dividend payments. During 1999, net cash
flows were also used to help fund the acquisition of our Korean affiliate, the
acquisition of 19-percent minority interest in our Pakistan affiliate and the
previously announced common stock repurchase program. For the year ending
December 31, 1999, net cash flows from operating activities were $198 million,
compared to $90 million for 1998, reflecting the higher net income and lower
working capital change. Cash used for investing activities totaled $271 million
for 1999, reflecting the acquisitions in Korea, increased investment in Pakistan
and $162 million in capital investments.
Cash flows in 1998 funded the Company's working capital, capital expenditure
program and a modest dividend payment. Net cash flows from 1998 operations were
$90 million, down from $215 million in 1997. The 1997 cash flows included the
results of the additional quarter in operations outside North America due to the
change in the year-end reporting period. 1997 cash flows from operations were
exceptionally high, despite the net loss for the year, and resulted from
reductions in trade working capital, combined with the adjustment for the
restructuring charge and spin-off costs described above.
Cash used for investing activities in 1998 was $60 million, compared to $133
million in 1997. This decrease resulted from lower capital expenditures of $91
million, compared to $116 million in 1997, the receipt of the repayment of the
$60 million loan made by the Company to Arancia-CPC and the initial payment on
the Arancia transaction.
The Company has a $340 million 5-year-revolving-credit facility in the United
States due December 2002. In addition, the Company has a number of short-term
credit facilities consisting of operating lines of credit. At December 31, 1999,
the Company had total debt outstanding of $544 million, compared to $404 million
at December 31, 1998. The increase in debt is attributable to the Korean
acquisitions and the increased investment in Pakistan. The debt outstanding
consisted of $200 million in public debt issued during the third quarter of
1999, as well as affiliate long-term debt of $181 million, mostly assumed in the
Arancia transaction. The current portion of long-term debt is $59 million. In
addition, the Company has $163 million in affiliate short-term borrowings
against local country operating lines in various currencies. At December 31,
1999, no funds were drawn against the unsecured revolving credit facility in the
United States. The interest rate of affiliate debt ranged from 5.38 percent to
25 percent. The Company expects these credit facilities, together with cash flow
from operations, to provide sufficient operating funds for capital expenditures
in support of its business strategies and/or the payments of dividends to its
stockholders.
MINORITY STOCKHOLDERS INTEREST. 1999 minority stockholders' interest increased
to $199 million from $91 million in 1998. This increase is attributable to the
merger of our Korean business with the corn-refining business of Doosan
Corporation at the end of December 1999.
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RISK AND UNCERTAINTIES
The Company operates in one business segment and in 22 countries. In each
country, the business and assets are subject to varying degrees of risk and
uncertainty. The Company insures its business and assets in each country against
insurable risk in a manner that it deems appropriate. Because of its diversity,
the Company believes that the risk of loss from non-insurable events in any one
country would not have a material adverse effect on the Company's operations as
a whole. The Company believes there is no concentration of risk with any single
customer or supplier, or small group of customers or suppliers, whose failure or
non-performance would materially affect the Company's results. The Company also
has policies to handle other financial risks discussed below.
COMMODITY COSTS. The Company's finished products are made primarily from corn.
Purchased corn accounts for 40 percent to 65 percent of finished product costs.
In North America, the Company sells a large portion of finished product at firm
prices established in supply contracts for up to one year. In order to minimize
the effect of volatility in the cost of corn related to these firm-priced supply
contracts, the Company enters into corn futures contracts or takes hedging
positions in the corn futures market. From time to time, the Company may also
enter into anticipatory hedges. These contracts typically mature within one
year. At expiration, the Company settles the derivative contracts at a net
amount equal to the difference between the then-current price of corn and the
fixed contract price. While these hedging instruments are subject to
fluctuations in value, changes in the value of the underlying exposures the
Company is hedging generally offset such fluctuations. While the corn futures
contracts or hedging positions are intended to minimize the volatility of corn
costs on operating profits, occasionally the hedging activity can result in
losses, some of which may be material. In the Rest of World, sales of finished
product under long-term, firm-priced supply contracts are not material.
The Company's hedging instruments generally relate to contracted firm-priced
business. Based on the Company's overall commodity hedge exposure at December
31, 1999, a hypothetical 10-percent change in market rates applied to the fair
value of the instruments would have no material impact on the Company's
earnings, cash flows, financial position or fair value of commodity price,
risk-sensitive instruments over a one-year period.
INTERNATIONAL OPERATIONS AND FOREIGN EXCHANGE. For more than 70 years, the
Company has operated a multinational business subject to the risks inherent in
operating in foreign countries, with foreign currencies. The Company's US
dollar-denominated results are subject to foreign exchange fluctuations, and its
non-US operations are subject to political, economic and other risks.
Because the Company primarily sells world commodities, it believes that local
prices will adjust relatively quickly to offset the effect of a local
devaluation. The Company generally does not enter into foreign currency hedging
transactions. The Company's policy is to hedge only commercial transactions that
do not use the currency of the country in which the operating unit responsible
for the transaction is located.
INTEREST RATE EXPOSURE. Approximately 40 percent of the Company's borrowings are
long-term fixed rate bonds. Of the remaining 60 percent of the Company's
borrowings, approximately 30 percent are short-term credit facilities with
floating interest rates, and 30 percent are long-term
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loans with variable interest rates primarily tied to the London Interbank
offered rate (LIBOR). Should short-term rates change, this could affect our
interest cost. Current economic projections do not indicate a significant change
in the interest rate in the near future.
READINESS FOR THE YEAR 2000. The Year 2000 (Y2K) issue resulted from certain
computer programs, which used two digits rather than four to define the
applicable year. During 1997, the Company developed a plan ("the Program") and
established a team with appropriate senior management support to identify and
correct Y2K issues. The Program included the repair or replacement, when
necessary, of critical internal systems, hardware and software throughout its
plants, building facilities and business systems, the review of critical vendors
and the development of contingency plans. The Program, to achieve Y2K readiness,
resulted in an expense of $10 million. Capital expenditures indirectly related
to Y2K added an additional $10 million to the cost of the Program.
The Company's manufacturing and administrative processes operated as usual on
January 1, 2000, and the Company has not experienced any disruptions in its
operations from Y2K-related issues in 2000.
FORWARD LOOKING STATEMENTS
This Annual Report contains or may contain certain forward-looking statements
concerning the Company's financial position, business and future prospects, in
addition to other statements using words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend" and other similar expressions. These
statements contain certain inherent risks and uncertainties. Although we believe
our expectations reflected in these forward-looking statements are based on
reasonable assumptions, stockholders are cautioned that no assurance can be
given that our expectations will prove correct. Actual results and developments
may differ materially from the expectations conveyed in these statements, based
on factors such as the following: fluctuations in worldwide commodities markets
and the associated risks of hedging against such fluctuations; fluctuations in
aggregate industry supply and market demand; general economic, business and
market conditions in the various geographic regions and countries in which we
manufacture and sell our products, including fluctuations in the value of local
currencies; and, increased competitive and/or customer pressure in the
corn-refining industry. Our forward-looking statements speak only as of the date
on which they are made and we do not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the date of
the statement. If we do update or correct one or more of these statements,
investors and others should not conclude that we will make additional updates or
corrections. For a further description of risk factors, see the Company's most
recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q
and 8-K.
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REPORT OF MANAGEMENT
THE MANAGEMENT OF CORN PRODUCTS INTERNATIONAL, INC., is responsible for the
financial and operating information contained in this Annual Report, including
the financial statements covered by the independent auditors' report. The
statements were prepared in conformity with generally accepted accounting
principles in the United States and include, where necessary, informed estimates
and judgments.
The results for the periods prior to January 1, 1998, were extracted from the
consolidated results of CPC International Inc., of which the Company was an
integral part until it was spun off as a separate operation on December 31,
1997. Those results may not necessarily be indicative of the results of
operations or financial position that would have been obtained if the Company
had been a separate, independent company during the period shown.
The Company maintains systems of accounting and internal control designed to
provide reasonable assurance that assets are safeguarded against loss, and that
transactions are executed and recorded properly so as to ensure that the
financial records are reliable for preparing financial statements.
Elements of these control systems are the establishment and communication of
accounting and administrative policies and procedures, the selection and
training of qualified personnel and continuous programs of internal audits.
The Company's financial statements are reviewed by its Audit Committee, which is
composed entirely of independent outside directors. This Committee meets
periodically with the independent auditors and management to review the scope
and results of the annual audit, interim reviews, internal controls, internal
auditing and financial reporting matters. The independent auditors have direct
access to the Audit Committee.
James W. Ripley
Chief Financial Officer
January 28, 2000
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REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CORN PRODUCTS INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of Corn Products
International, Inc., and its subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of income, comprehensive
income, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Corn Products
International, Inc., and its subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Chicago, Illinois
January 28, 2000
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CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
------------- -------------- ---------------
1999 1998 1997
------------- -------------- ---------------
Net sales $1,735 $1,448 $1,418
Cost of sales 1,445 1,277 1,280
------------- -------------- ---------------
GROSS PROFIT 290 171 138
------------- -------------- ---------------
Selling, general and administrative costs 134 101 95
Restructuring and spin-off costs - net -- -- 109
Fee, royalty and other income (6) (14) (5)
------------- -------------- ---------------
128 87 199
------------- -------------- ---------------
OPERATING INCOME (LOSS) 162 84 (61)
Financing costs, net 35 13 28
------------- -------------- ---------------
Income (loss) before income taxes and minority interest 127 71 (89)
Income taxes (provision) benefit (45) (25) 19
Minority stockholder interest (5) (3) (2)
------------- -------------- ---------------
NET INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE 77 43 (72)
Cumulative effect of change in accounting principle net -- -- 3
of income tax benefits of $2 million
------------- -------------- ---------------
============= ============== ===============
NET INCOME (LOSS) $ 77 $ 43 $ (75)
============= ============== ===============
Weighted average common shares outstanding:
Basic 37.3 36.0 35.6
Diluted 37.4 36.1 35.6
Earnings (loss) per common share*
Basic and diluted:
Net income (loss) before change in accounting principle $2.06 $1.19 $(2.02)
Cumulative effect of change in accounting principle -- -- $(0.08)
Net income (loss) per common share $2.06 $1.19 $(2.10)
See notes to the consolidated financial statements.
* 1997 per share amounts are pro forma.
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CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1999 1998
-------------------- ------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41 $ 36
Accounts receivable - net 261 224
Inventories 212 175
Prepaid expenses 6 6
Deferred tax asset 17 24
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 537 465
- --------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost
Land 91 61
Buildings 314 305
Machinery and equipment 2,369 2,287
-------------------- ------------------
2,774 2,653
Less accumulated depreciation (1,425) (1,355)
-------------------- ------------------
1,349 1,298
Goodwill and other intangible assets
(less accumulated amortization of $5 and $0) 270 129
Investments 27 28
Other assets 29 26
================================================================================================================================
TOTAL ASSETS $2,212 $1,946
================================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings and current portion of long-term debt $ 222 $ 250
Accounts payable 109 96
Accrued liabilities 90 59
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 421 405
- --------------------------------------------------------------------------------------------------------------------------------
Non-current liabilities 63 63
Long-term debt 322 154
Deferred taxes on income 180 180
Minority stockholders' interest 199 91
STOCKHOLDERS' EQUITY
Preferred stock - authorized 25,000,000 shares-
$0.01 par value, none issued -- --
Common stock - authorized 200,000,000 shares-
$0.01 par value - 37,659,887 and 37,611,396 issued
on December 31, 1999 and 1998, respectively 1 1
Additional paid in capital 1,067 1,066
Less: Treasury stock (common stock; 703,399 and 51,374 shares in 1999 (20) (1)
and 1998, respectively) at cost
Deferred compensation - restricted stock (2) (2)
Accumulated comprehensive income (loss) (120) (48)
Retained earnings 101 37
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,027 1,053
- --------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,212 1,946
================================================================================================================================
See notes to the consolidated financial statements.
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CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
YEAR ENDED DECEMBER 31
(IN MILLIONS)
-------------- ------------- --------------
1999 1998 1997
-------------- ------------- --------------
NET INCOME (LOSS) $77 $43 $(75)
Other comprehensive income/loss
Currency translation adjustment (72) (25) (11)
-------------- ------------- --------------
COMPREHENSIVE INCOME (LOSS) $ 5 $18 $(86)
============== ============= ==============
See notes to the consolidated financial statements.
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
(IN MILLIONS) COMMON ADDITIONAL TREASURY DEFERRED ACCUMULATED RETAINED NET
STOCK PAID-IN STOCK COMPENSATION COMPREHENSIVE EARNINGS STOCKHOLDER
CAPITAL INCOME (LOSS) INVESTMENT
---------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $0 $ 0 $ 0 $ 0 $ (12) $ 0 $1,037
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (75)
Net income for the change in 10
reporting period
Transfer from CPC-net 1,008 (972)
Currency translation (11)
adjustment
Stock issued in connection 1
with spin-off
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $1 $1,008 $ 0 $ 0 $ (23) $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 43
Dividends declared (6)
Issuance of common stock 51
in connection with
acquisition
Issuance of restricted 6
common stock as
compensation
Deferred compensation - (2)
restricted stock
Stock options exercised 1
Purchase of treasury stock (1)
Currency translation (25)
adjustment
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $1 $1,066 $ (1) $(2) $ (48) $ 37 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 77
Dividends declared (13)
Issuance of restricted 1
common stock as
compensation
Purchase of treasury stock (19)
Currency translation (72)
adjustment
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $1 1,067 $(20) $(2) $(120) $101 $ 0
- --------------------------------===================================================================================================
See notes to the consolidated financial statements.
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CORN PRODUCTS INTERNATIONAL, INC. - Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31
(in millions)
1999 1998 1997
-------- --------- ---------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net income (loss) $77 $43 $(75)
Net income for the change in reporting period -- -- 10
Non-cash charges to net income:
Depreciation and amortization 122 95 103
Restructuring and spin-off charges -- -- 109
Cumulative effect of change in accounting principle - net -- -- 3
Deferred taxes 7 10 10
Other - net -- -- 1
Changes in trade working capital:
Accounts receivable and prepaid items (21) (5) 34
Inventories (28) (32) 34
Income taxes 8 3 --
Other assets 1 (5) --
Accounts payable and accrued liabilities 32 (19) (14)
- -----------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 198 90 215
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Capital expenditures (162) (91) (116)
Proceeds from disposal of plants and properties 9 2 4
Payment for acquisition, net of cash acquired (118) (31) --
Investments in and loans to unconsolidated affiliates -- 60 (21)
- -----------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (271) (60) (133)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Payments on short term borrowings, net of proceeds (98) (86) --
Proceeds from issuance (payments on) long-term debt 198 (10) (23)
Other non-current liabilities 7 21 --
Dividends paid (13) (3) --
Cost of common stock repurchased (19) (1) --
Increase (decrease) in transfer from CPC International, Inc.-net -- -- (6)
- -----------------------------------------------------------------------------------------------------------
Net cash flows from (used for) financing activities 75 (79) (29)
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2 (49) 53
Cash and cash equivalents, beginning of period 36 85 32
- -----------------------------------------------------------------------------------------------------------
Effects of foreign exchange on cash 3 -- --
- -----------------------------------------------------------------------------------------------------------
===========================================================================================================
Cash and cash equivalents, end of period $41 $36 $85
===========================================================================================================
See notes to the consolidated financial statements.
13
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE BUSINESS
Corn Products International, Inc., (the "Company"), was founded in 1906 and
became an independent and public company as of December 31, 1997, after
being spun off from CPC International Inc. ("CPC"), now Bestfoods. The
Company is in one business segment, corn refining, with operations in 22
countries and produces a wide variety of products.
The financial statements at December 31, 1997, reflect the effects of the
spin-off. The Company carries its assets and liabilities at historical
cost. The historical actions of CPC's Corn Refining Business, including
CPC's accounting policies, are attributable to the Company. The financial
results for the year ended December 31, 1997, included in these financial
statements are not necessarily indicative of the results that would have
occurred if the Company had been an independent and public company during
that time.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include all
significant subsidiaries. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Certain prior year amounts have been reclassified to conform with the
current year's presentation. These reclassifications had no effect on
previously recorded net income or stockholders' equity.
Prior to the 1998 financial year, the accounts of subsidiaries outside
North America were based on fiscal years ending September 30; however, as
of December 31, 1997, the Company changed the fiscal year-end for its
subsidiaries located outside North America to that of its North American
operation, which is the calendar year. The results of the three-month stub
period for 1997 were included as an adjustment of stockholders' equity.
Assets and liabilities of foreign subsidiaries, other than those whose
functional currency is the US dollar, are translated at current exchange
rates with the related translation adjustments reported as a separate
component of stockholders' equity. Income statement accounts are translated
at the average exchange rate during the period. Where the US dollar is
considered the functional currency, monetary assets and liabilities are
translated at current exchange rates with the related adjustment included
in net income. Non-monetary assets and liabilities are translated at
historical exchange rates.
CASH AND CASH EQUIVALENTS - Cash equivalents consist of all investments
purchased with an original maturity of three months or less, and which have
virtually no risk of loss in value.
INVENTORIES are stated at the lower of cost or market. In the United
States, inventory is valued at cost on the last-in, first-out method. Had
the first-in, first-out method been used for US inventories, the carrying
value of these inventories would have increased by $5 million and $8
14
15
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
million in 1999 and 1998, respectively. Outside the United States,
inventories generally are valued at average cost.
INVESTMENTS are carried at cost or less, adjusted to reflect the Company's
proportionate share of income or loss, less dividends received.
DEPRECIATION, AMORTIZATION, AND GOODWILL VALUATION -- Depreciation is
generally computed on the straight-line method over the estimated useful
life of depreciable assets at rates ranging from 10 to 50 years for
buildings and three to 20 years for all other assets. Where permitted by
law, accelerated depreciation methods are used for tax purposes. Goodwill
represents the excess of cost over fair value of net assets acquired and is
amortized over a period not exceeding 40 years, using the straight-line
method. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. Negative operating results
and negative cash flows from operations, among other factors, could be
indicative of the impairment of goodwill. If this review indicates that
goodwill will not be recoverable, the Company's carrying value of the
goodwill would be reduced.
REVENUE RECOGNITION - The Company recognizes operating revenues upon
shipment of goods to customers, except for consigned inventories where the
revenue is recognized at the time the shipment is used by the customer.
HEDGING INSTRUMENTS - The Company follows a policy of hedging its exposure
to commodity fluctuations with commodity futures contracts for its North
American corn purchases. All firm-priced business is hedged; other business
may or may not be hedged at any given time, based on management's decisions
as to the need to fix the cost of such raw materials to protect the
Company's profitability. Realized gains and losses arising from such
hedging transactions are considered an integral part of the cost of these
commodities and are included in the cost when purchased.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 2000. The
Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or be
recognized in other comprehensive income until the hedged item is
recognized in earnings. The derivative's change in fair value, which is not
directly offset by hedging, will be immediately recognized in earnings.
EARNING PER COMMON SHARE - Basic earnings per common share were computed by
dividing net income (loss) by the weighted average shares outstanding, 37.3
million at December 31, 1999, 36.0 million at December 31, 1998, and 35.6
million at December 31, 1997, the distribution date. For the purpose of
this calculation and the diluted earnings per share (EPS), the shares
outstanding at December 31, 1997, were assumed to be outstanding for all
prior periods. Diluted EPS were computed by dividing net income (loss) by
the weighted average shares outstanding at December 31, 1999, 1998 and
1997, including the dilutive effects of stock options outstanding for a
total of 37.4, 36.1 and 35.6 million, respectively. In 1999, options on
1,054,800 shares of common stock were not included in the calculation of
the weighted average
15
16
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
shares for the diluted EPS because their effects would be antidilutive.
1997 EPS is presented on a pro forma basis, assuming 35.6 million shares
were outstanding.
CHANGE IN ACCOUNTING PRINCIPLE - In November 1997, Emerging Issues Task
Force (EITF) issued No. 97-13, "Accounting for Business Process
Reengineering Costs," which requires that certain costs related to
reengineering business processes, either done separately or in conjunction
with an information technology project, be expensed rather than
capitalized. This requirement was effective in the fourth quarter of 1997
and required that any unamortized balance of previously capitalized costs
be expensed and treated as a change in accounting principle. Accordingly,
for the year ended December 31, 1997, the Company recorded a cumulative
effect of a change in accounting principle of $5 million before taxes, $3
million after taxes, or $0.08 per common share.
RISK AND UNCERTAINTIES - The Company operates in one business segment and
in 22 countries. In each country, the business and assets are subject to
varying degrees of risk and uncertainty. The Company insures its business
and assets in each country against insurable risk in a manner that it deems
appropriate. Because of its diversity, the Company believes that the risk
of loss from non-insurable events in any one country would not have a
material adverse effect on the Company's operations as a whole.
Additionally, the Company believes there is no concentration of risk with
any single customer or supplier, or small group of customers or suppliers,
whose failure or non-performance would materially affect the Company's
results.
NOTE 3 - ACQUISITIONS
During 1999, the Company acquired the corn wet-milling business of Bang-IL
Industrial Co., Ltd., a Korean corporation, through an asset purchase for
$65 million and included the results of the business from the first quarter
of 1999. In December, the Company completed the second phase of its entry
into Korea by combining its business with the corn-refining business of
Doosan Corporation, also a Korean corporation, for $47 million. The Company
maintains a controlling interest in the combined company. Also, in the
second quarter of 1999, the Company increased its ownership of its Pakistan
affiliate to approximately 70 percent by purchasing an additional
19-percent interest. All of the acquisitions in 1999 were accounted for
under the purchase method. Had the acquisitions occurred at the beginning
of the year, the effect on the Company's pro forma financial statements
would not have been significant.
During the first quarter of 1995, the Company entered into a joint venture
with Arancia, S.A. de C.V. (the "Joint Venture"), a corn-refining business
located in Mexico. This investment had been accounted for under the equity
method. In October 1998, the Company entered into certain agreements to
purchase the remaining interest in its Joint Venture in three transactions
over the next several years. The closing of the initial transaction
occurred on December 2, 1998, whereby the Company obtained effective
control of the Joint Venture through the issuance of common stock and the
payment of cash. The Company has the option to acquire all of the remaining
interest in the Joint Venture in two additional transactions. On January
18, 2000, the Company completed the second transaction through the transfer
of common stock from treasury and payment of cash. The transaction was
accounted for under the purchase method.
16
17
The fair value of the net assets of the Joint Venture at December 2, 1998,
was $136 million. In addition, the Company recorded goodwill of $127
million. The Company has reflected the series of transactions as if they
were completed on December 2, 1998. The future installment payments are
reflected as minority stockholders' interest and accrued interest at the
same rate as the Company's short-term US credit facility, which was 6.52
percent and 5.45 percent at December 31, 1999 and 1998, respectively.
NOTE 4 - SPIN-OFF AND RESTRUCTURING
SPIN-OFF FROM AND TRANSACTIONS WITH CPC, NOW BESTFOODS
On December 31, 1997, CPC distributed 100 percent of the Corn Products
International common stock through a special dividend to its shareholders.
After the spin-off, CPC had no direct ownership of the Company. In
connection with the spin-off, the Company entered into various agreements
for the purpose of governing certain of the ongoing relationships between
CPC and the Company after the distribution. The Company has entered into a
tax indemnification agreement that requires the Company to indemnify CPC
against tax liabilities arising from the loss of the tax-free
reorganization status of the spin-off. This agreement restricted the
Company, for a two-year period ending December 31, 1999, from entering into
certain transactions, including limitations on liquidation, merger or
consolidation with another company, certain issuance and redemption of its
common stock and the distribution or sale of certain assets.
A master supply agreement was negotiated to supply CPC and its affiliates
with certain corn-refining products at prices based generally on prevailing
market conditions for a minimum two-year term, ending December 31, 1999.
The Company continues to supply CPC under the extension of the master
supply agreement or the terms of locally negotiated supply agreements,
based generally on prevailing market conditions.
The Company had sales to CPC for the years ended December 31, 1999 and
1998, of $128 million and $161 million, respectively. Prior to the
spin-off, intercompany sales with CPC for the year ended December 31, 1997,
amounted to $177 million.
RESTRUCTURING CHARGES - NET AND SPIN-OFF COSTS
In 1997, the Company recorded a $15 million pretax spin-off charge and a
$94 million pretax restructuring charge from CPC. The spin-off charge
utilized entirely during 1997 encompassed the direct costs of the spin-off,
including legal, tax and investment banking fees. The restructuring charge,
$76 million of which was utilized in 1997, $9 million in 1998, and $9
million in 1999, included the costs of the separation of facilities that
were used by CPC to produce both consumer foods and corn-derived products,
employee costs and other charges.
17
18
NOTE 5 - FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, accounts
payable and short-term borrowings approximate fair values. Based on market
quotes or interest rates currently available to the Company for issuance of
debt with similar terms and remaining maturities, the fair value of
long-term debt, including the current portion of long-term debt at December
31, 1999 and 1998, was $377 million and $161 million, respectively.
COMMODITIES
At December 31, 1999 and 1998, the Company had open corn commodity futures
contracts of $196 million and $295 million, respectively. Contracts open
for delivery beyond March 31, 2000, amounted to $158 million, of which $50
million is due in May 2000, $41 million is due in July 2000, $35 million is
due in September 2000 and $32 million is due in December 2000. At December
31, 1999, the price of corn under these contracts was $5 million above
market quotations of the same dates.
NOTE 6 - FINANCING ARRANGEMENTS
The Company had total debt outstanding of $544 million and $404 million on
December 31, 1999 and 1998, respectively. Short-term borrowings consist
primarily of various unsecured local country lines of credit for
operations. The Company also has available for use an unsecured credit line
facility in the United States, which provides for a maximum of $340 million
in borrowings. No funds were drawn on the facility at December 31, 1999.
At December 31, short-term borrowings consist of the following:
(in millions) 1999 1998
--------------- ---------------
Korean revolving credit facility (8.3%) $ 31 $ --
US revolving credit facility -- 152
Other borrowings in various currencies (5.38% - 25% interest) 132 91
Current portion of long-term debt 59 7
----------------------------------------------------------------------------------------------------
Total $ 222 $ 250
====================================================================================================
18
19
During 1999, the Company filed a shelf registration with the Securities and
Exchange Commission for borrowings up to $600 million. Under this filing,
the Company issued $200 million of 8.45% senior notes maturing in 2009.
Long-term debt consists of the following at December 31:
(in millions) 1999 1998
--------------- ---------------
8.45% senior notes, due 2009 $ 200 $ --
Mexican Import Credit Facility, due 2001 at LIBOR + 1.75% 40 40
Mexican Import Credit Facility, due 2007 at LIBOR + 3.30% 60 60
Mexican Export Credit, due 2000 at LIBOR + 1.49% 24 24
Other, due in varying amounts through 2007, fixed and floating
interest rates ranging from 6.57% - 21.37% 57 37
----------------------------------------------------------------------------------------------------
Total $ 381 $ 161
----------------------------------------------------------------------------------------------------
Less current maturities 59 7
----------------------------------------------------------------------------------------------------
Long-term debt $ 322 $ 154
====================================================================================================
Maturities of long-term debt are $64 million in 2001, $12 million in 2002,
$11 million in 2003, $235 million in 2004 and thereafter. The LIBOR rate at
December 31, 1999 was 6.13%.
NOTE 7 - LEASES
The Company leases rail cars and certain machinery and equipment under
various operating leases. Rental expense under operating leases was $17.8
million, $18.7 million, and $18.3 million in 1999, 1998 and 1997,
respectively. Minimum lease payments existing at December 31, 1999 are
shown below:
---------------------------------------------------------------------
(IN MILLIONS)
YEAR MINIMUM LEASE PAYMENT
---------------------------------------------------------------------
2000 $16.2
2001 10.5
2002 7.6
2003 6.7
Balance thereafter 32.9
19
20
NOTE 8 - INCOME TAXES
Income before income taxes and the components of the provision for income
taxes are shown below:
-------------------------------------------------------------------------------------------------------------
(in millions) 1999 1998 1997
-------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES:
United States $ 16 $ 8 $(128)
Outside the United States 111 63 39
-------------------------------------------------------------------------------------------------------------
Total $127 $71 $ (89)
-------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES:
Current tax expense
US federal 6 1 (31)
State and local 1 1 (4)
Foreign 31 13 6
-------------------------------------------------------------------------------------------------------------
Total current $ 38 $15 $ (29)
-------------------------------------------------------------------------------------------------------------
Deferred tax expense (benefit)
US federal (4) 5 7
State and local (1) -- 2
Foreign 12 5 1
-------------------------------------------------------------------------------------------------------------
Total deferred 7 10 10
-------------------------------------------------------------------------------------------------------------
Total provision (benefit) $ 45 $25 $ (19)
=============================================================================================================
Deferred income taxes are provided for tax effects of temporary differences
between the financial reporting basis and tax basis of assets and
liabilities. Significant temporary differences at December 31, 1999 and
December 31, 1998, respectively, are as follows:
-------------------------------------------------------------------------------------------------------------
(in millions) 1999 1998
-------------------------------------------------------------------------------------------------------------
Plants and properties $195 $210
-------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 195 210
-------------------------------------------------------------------------------------------------------------
Restructuring reserves -- 2
Employee benefit reserves 10 11
Pensions 5 4
Other 21 39
-------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 36 56
-------------------------------------------------------------------------------------------------------------
Valuation allowance (4) (2)
-------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $163 $156
=============================================================================================================
The valuation allowance at December 31, 1999 increased to $4 million from
$2 million at December 31, 1998, as it is more likely than not that certain
foreign net operating loss carryforwards will not be fully utilized to
offset taxable income.
20
21
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate follows:
-------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------------------------------
Provision for tax at U.S. statutory rate 35.0% 35.0% (35.0)%
Taxes related to foreign income (3.0) (2.3) (7.5)
State and local taxes - net (0.1) 0.5 (1.5)
Restructuring and spin-off charges -- 14.0
Non-deductible Goodwill 1.0
Other items - net 2.1 1.8 8.7
-------------------------------------------------------------------------------------------------------------
Provision at effective tax rate 35.0% 35.0% (21.3)%
=============================================================================================================
Provisions are made for estimated US and foreign income taxes, less credits
which may be available, on distributions from foreign subsidiaries to the
extent dividends are anticipated. No provision has been made for income
taxes on approximately $309 million of undistributed earnings of foreign
subsidiaries at December 31, 1999, as such amounts are considered
permanently reinvested.
21
22
NOTE 9. BENEFIT PLANS
The Company and its subsidiaries sponsor non-contributory defined benefit
pension plans covering substantially all employees in the United States and
Canada, including certain employees in other foreign countries. Plans for
most salaried employees provide pay-related benefits based on years of
service. Plans for hourly employees generally provide benefits based on
flat dollar amounts and years of service. The Company's general funding
policy is to provide contributions within the limits of deductibility under
current tax regulations. Certain foreign countries allow income tax
deductions without regard to contribution levels, and the Company's policy
in those countries is to make the contribution required by the terms of the
applicable plan. Domestic plan assets consist primarily of common stock,
corporate debt securities and short-term investment funds.
Effective January 1, 1998, the plan for domestic salaried employees was
amended to a defined benefit "cash balance" pension plan, which provides
benefits based on service and company credits to the participating
employees' accounts of between 3 percent and 10 percent of base salary,
bonus and overtime.
The Company also provides healthcare and life insurance benefits for
retired employees in the United States and Canada. Effective January 1,
1998, the Company amended its US post-retirement medical plans for salaried
employees to provide Retirement Health Care Spending Accounts. The Company
provides access to retiree medical insurance post-retirement. US salaried
employees accrue an account during employment, which can be used after
employment to purchase post-retirement medical insurance from the Company
and Medigap or Medicare HMO policies after age 65. The accounts are
credited with a flat dollar amount, and indexed for inflation annually
during employment. The accounts accrue interest credits using a rate equal
to a specified amount above the yield on 5-year Treasury notes. These
employees become eligible for benefits when they meet minimum age and
service requirements. The Company accrues a flat dollar amount on an annual
basis for each domestic salaried employee. These amounts, plus credited
interest, can be used to purchase post-retirement medical insurance. The
Company has the right to modify or terminate these benefits. Healthcare
benefits for retirees outside the United States and Canada are generally
covered through local government plans.
PENSION PLANS - Net pension cost (income) consisted of the following for
the years ended December 31, 1999, 1998 and 1997:
(IN MILLIONS) U.S. PLANS NON-U.S. PLANS
------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------------------------------------------------------------------------
Service cost $ 2 $ 2 $ 3 $ 1 $ 1 $ 1
Interest cost 4 4 4 3 3 3
Expected return on plan assets (5) (4) (22) (4) (3) (3)
Net amortization and deferral -- (1) 17 -- (1) --
------------------------------------------------------------------------------------------------------
Net pension cost $ 1 $ 1 $ 2 $-- $-- $ 1
======================================================================================================
22
23
The changes in benefit obligations and plan assets, as well as the funded
status of the Company's pension plans at December 31, 1999 and 1998,
respectively were as follows:
(IN MILLIONS) U.S. PLANS NON-U.S. PLANS
1999 1998 1999 1998
BENEFIT OBLIGATION AT
January 1 $57 $52 $47 $45
Service cost 2 2 1 1
Interest cost 4 4 3 3
Benefits paid (2) (1) (2) (1)
Actuarial (gain) loss (4) -- -- --
Foreign currency exchange -- -- 3 (1)
=======================================================================================================
Benefit obligation at December 31 $57 $57 $52 $47
=======================================================================================================
FAIR VALUE OF PLAN ASSETS AT
at January 1 $63 $60 46 48
Actual return on plan assets 3 4 6 1
Employer contributions -- -- 1 1
Benefits paid (2) (1) (2) (2)
Foreign currency exchange -- -- 2 (2)
=======================================================================================================
Fair value of plan assets at December 31 $64 $63 $53 $46
=======================================================================================================
Funded status $ 7 $ 6 1 ($1)
Unrecognized net actuarial loss (gain) (23) (22) 1 3
Unrecognized prior service cost 4 4 1 1
-------------------------------------------------------------------------------------------------------
Net prepaid pension asset (liability) ($12) ($12) $ 3 $3
=======================================================================================================
Included in the pension benefits above, are non-qualified pension plans.
The Company is therefore not required to set aside assets in order to fund
these plans. As a result, for these non-qualified plans, both the projected
benefit obligation and accumulated benefit obligation exceeded the fair
value of plan assets by $5 million as of December 31, 1999 and 1998.
The following weighted average assumptions were used to determine the
Company's obligations under the plans:
U.S. PLANS NON-U.S. PLANS
-----------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
Discount rates 8.0 % 6.75 % 7.0 % 6.5 % 6.5 % 7.4 %
Rate of compensation increase 5.0 % 3.75 % 5.0 % 4.5 % 4.5 % 5.5 %
Expected return on plan assets 9.5 % 8.25 % 10.0 % 8.5 % 8.5 % 8.5 %
===========================================================================================================
The Company and certain of its subsidiaries maintain defined contribution
plans. Contributions are determined by matching a percentage of employee
contributions. Amounts charged to expense for defined contribution plans
totaled $4.4 million, $4.2 million and $3.6 million, in 1999, 1998, and
1997, respectively.
23
24
POST-EMPLOYMENT BENEFIT PLANS - Net post-employment benefit costs consisted
of the following for the years ended December 31, 1999, 1998 and 1997:
(IN MILLIONS)
----------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------
Service cost $ 1 $ 1 $ 1
Interest cost 1 1 1
Net amortization and deferral (1) (1) --
----------------------------------------------------------------
Net post-employment costs $ 1 $ 1 $ 2
================================================================
The Company's post-employment benefit plans currently are not funded. The
changes in the benefit obligations of the plans at December 31, 1999 and
1998, respectively, were as follows:
(IN MILLIONS) 1999 1998
ACCUMULATED POST-EMPLOYMENT BENEFIT OBLIGATION
at January 1 $17 $15
Service cost 1 1
Interest cost 1 1
Actuarial (gain) loss 2 --
----------------------------------------------------------------------
ACCUMULATED POST-EMPLOYMENT BENEFIT OBLIGATION
at December 31 ($21) ($17)
Unrecognized net actuarial loss (gain) 2 -
Unrecognized prior service cost (4) (5)
----------------------------------------------------------------------
ACCRUED POST-EMPLOYMENT BENEFIT COSTS ($23) ($22)
======================================================================
Annual increases in per capita cost of health care benefits of 8 percent
pre-age-65 and 6.75 percent post-age-65 were assumed for 1999 to 2000 for
health care related post-retirement employment benefit, gradually declining
to 5.5% by the year 2002 and remaining at that level thereafter. An
increase or decrease in the assumed health care cost trend rate by 1
percentage point, increases or decreases the accumulated post-employment
benefit obligation at December 31, 1999 by $1.7 million, with a
corresponding effect on the service and interest cost components of the net
periodic post-retirement benefit cost for the year then ended of $0.2
million.
The accumulated post-employment benefit obligation for U.S. plans at
December 31, 1999 and 1998, was determined using assumed discount rates of
8% and 6.75%, respectively. The accumulated post-employment benefit
obligation at December 31, 1999 and 1998, for Canadian plans was determined
using an assumed discount rate of 6.5%.
24
25
NOTE 10 - SUPPLEMENTARY INFORMATION
BALANCE SHEET - supplementary information is set forth below:
-------------------------------------------------------------------------------------------------------------
(in millions) 1999 1998
-------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE - NET
Accounts receivable - trade $222 $193
Accounts receivable - other 44 36
Allowance for doubtful accounts (5) (5)
-------------------------------------------------------------------------------------------------------------
Total accounts receivable - net 261 224
-------------------------------------------------------------------------------------------------------------
INVENTORIES
Finished and in process 84 110
Raw materials 97 43
Manufacturing supplies 31 22
-------------------------------------------------------------------------------------------------------------
Total inventories 212 175
-------------------------------------------------------------------------------------------------------------
ACCRUED LIABILITIES
Compensation expenses 15 12
Dividends payable 4 3
Accrued interest 10 3
Restructuring reserves -- 9
Taxes payable on income 9 --
Taxes payable other than taxes on income 13 12
Other 39 20
-------------------------------------------------------------------------------------------------------------
Total accrued liabilities 90 59
-------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES
Employee's pension, indemnity, retirement, and related provisions 43 39
Other noncurrent liabilities 20 24
-------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 63 63
=============================================================================================================
25
26
INCOME STATEMENT - supplementary information is set forth below:
- -------------------------------------------------------------------------------------------------------------------------------
(in millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
FINANCING COSTS
Interest expense 38 16 29
Interest income (5) (3) (1)
Foreign exchange loss 2 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Financing costs, net 35 13 28
===============================================================================================================================
STATEMENT OF CASH FLOWS - supplementary information is set forth below:
- -------------------------------------------------------------------------------------------------------------------------------
(in millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Interest paid $27 11 19
Income taxes paid $29 12 10
- -------------------------------------------------------------------------------------------------------------------------------
===============================================================================================================================
NOTE 11 -- STOCKHOLDERS' EQUITY
COMMON STOCK
During 1999, the Company issued 47,800 restricted common shares and 1,534 common
shares upon the exercise of stock options under the stock incentive plan.
During 1998, the Company issued 1,764,706 common shares in connection with the
purchase of the controlling interest of Arancia-Corn Products, S.A. de C.V. In
addition, the Company substituted 143,018 restricted common shares upon the
spin-off and issued 36,600 additional restricted shares and 72,712 common shares
upon the exercise of stock options under the stock incentive plan.
PREFERRED STOCK AND STOCKHOLDER'S RIGHTS PLAN
The Company has authorized 25 million shares of $0.01 par value preferred stock,
of which one million shares were designated as Series A Junior Participating
Preferred Stock for the stockholders' rights plan. Under this plan, each share
of the Corn Products International common stock issued in the distribution
carries with it the right to purchase one one-hundredth of a share of preferred
stock. The rights will at no time have voting power or pay dividends. The rights
will become exercisable if a person or group acquires or announces a tender
offer that would result in the acquisition of 15 percent or more of the Corn
Products International common stock. When exercisable, each full right entitles
a holder to buy one one-hundredth of a share of Series A Junior Participating
Preferred Stock at a price of $120. If the Company is involved in a merger or
other business combination with a stockholder with at least 15 percent, each
full right will entitle a holder to buy a number of the acquiring company's
shares having a value of twice
26
27
the exercise price of the right. Alternatively, if a 15-percent stockholder
engages in certain self-dealing transactions or acquires the Company in such a
manner that Corn Products International and its common stock survive, or if any
person acquires 15 percent or more of the Corn Products International common
stock, except pursuant to an offer for all shares at a fair price, each full
right not owned by a stockholder with at least 15 percent may be exercised for
Corn Products International common stock (or, in certain circumstances, other
consideration) having a market value of twice the exercise price of the right.
The Company may redeem the rights for one cent each at any time before an
acquisition of 15 percent or more of its voting securities. Unless redeemed
earlier, the rights will expire on December 31, 2007.
TREASURY STOCK
The Company purchased on the open market 419,900 and 33,000 shares of its common
stock at an average purchase price of $27.23 and $28.70 per share, during the
years ended December 31, 1999 and 1998, respectively. In addition, the Company
acquired 231,350 shares in a single block trade for $32.77 per share, or the
average market price on the date of purchase. Also, the Company acquired 6,382
and 18,454 shares of its common stock through conversion from cancelled
restricted shares and repurchase from employees under the stock incentive plan
at an average purchase price of $30.15 and $30.76 per share, or fair value at
the date of purchase, during the years ended December 31, 1999 and 1998,
respectively. All of the acquired shares are held as common stock in treasury,
less shares issued to employees under the stock incentive plan.
On September 16, 1998, the Company's Board of Directors approved a repurchase
program of up to 2 million shares. This program began immediately upon
announcement and the shares are being repurchased over a three-year period at
times determined by management. At December 31, 1999, 684,250 shares were
repurchased under this program at a total cost of approximately $20 million. On
January 21, 2000, the Company's Board of Directors authorized an increase in the
stock repurchase program to 6 million shares of common stock over a five-year
period.
STOCK OPTION PLAN
The Company has established a stock incentive plan for certain key employees. In
addition, all existing CPC stock options of Company employees were converted to
stock options to acquire Corn Products International common stock. These stock
options retain their vesting schedules and existing expiration dates. The
Company granted additional non-qualified options to purchase 413,000 and
1,097,200 shares of the Company's common stock during 1999 and 1998,
respectively. These options are exercisable upon vesting and vest in 50-percent
increments at one- and two-year anniversary dates from the date of grant. As of
December 31, 1999, certain of these non-qualified options have been forfeited
due to the termination of employees.
In addition to stock options, 50,670 and 36,600 shares were granted under the
restricted stock award provisions of the plan at December 31, 1999 and 1998,
respectively. The cost of these awards is being amortized over the applicable
restriction period.
Under the provisions of SFAS 123, the Company accounts for stock-based
compensation using the intrinsic value method prescribed by APB 25. On a pro
forma basis, net income would have been $72 million or $1.93 per share in 1999,
$38 million or $1.05 per share in 1998 and a loss
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of $76 million or $2.13 per share in 1997. For purposes of this pro forma
disclosure under SFAS 123, the estimated fair market value of the awards is
amortized to expense over the awards' applicable vesting period.
The fair value of the awards was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
5.67, 5.67 and 6.57 percent; volatility factor of 35 percent; and a weighted
average expected life of the awards of five years. No dividends were assumed for
the periods presented.
The Black-Scholes model requires the input of highly subjective assumptions and
does not necessarily provide a reliable measure of fair value.
A summary of stock option and restricted stock transactions for the years ended
December 31 follows:
1999 1998
STOCK OPTIONS RESTRICTED STOCK OPTIONS RESTRICTED
STOCK STOCK
Number of shares:
- ------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,478,506 122,376 477,371 143,018
Granted 413,000 50,670 1,097,200 36,600
Exercised / vested (2,534) (17,580) (72,712) (44,598)
Canceled (11,300) (1,567) (23,353) (12,644)
Outstanding at end of year 1,877,672 153,899 1,478,506 122,376
- ------------------------------------------------------------------------------------------------------------
Exercisable at end of year 691,938 -- 393,806 --
- ------------------------------------------------------------------------------------------------------------
Price range at end of year $13.06-32.31 -- $13.06-32.31 --
- ------------------------------------------------------------------------------------------------------------
Weighted average exercise price $28.72 -- $29.24 --
- ------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the current year $26.87 -- $11.38 --
- ------------------------------------------------------------------------------------------------------------
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NOTE 12 - GEOGRAPHIC INFORMATION
The Company operates in one business segment - corn refining - and is
managed on a geographic regional basis. Its North American operations
include its wholly owned corn-refining businesses in the United States and
Canada and majority ownership in Mexico. Its Rest of World businesses
include primarily 100-percent-owned corn-refining operations in South
America and joint ventures and alliances in Asia, Africa and other areas.
Also included in this group is its North American enzyme business.
-------------------------------------------------------------------------------------------------------------
(in millions) 1999 1998 1997
-------------------------------------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS:
North America $1,217 $ 909 $ 871
Rest of the World 518 539 547
-------------------------------------------------------------------------------------------------------------
Total $1,735 $1,448 $1,418
=============================================================================================================
OPERATING INCOME:
North America 95 18 $ (32)
Rest of the World 81 76 82
Corporate (14) (10) (2)
Restructuring and spin-off costs -- -- (109)*
-------------------------------------------------------------------------------------------------------------
TOTAL $ 162 $ 84 $ (61)
=============================================================================================================
TOTAL ASSETS:
North America $1,376 $1,316 $1,089
Rest of the World 836 630 577
-------------------------------------------------------------------------------------------------------------
TOTAL $2,212 $1,946 $1,666
=============================================================================================================
DEPRECIATION AND AMORTIZATION:
North America $ 88 $ 63 $ 63
Rest of the World 34 32 32
-------------------------------------------------------------------------------------------------------------
TOTAL $ 122 $ 95 $ 95
=============================================================================================================
CAPITAL EXPENDITURES:
North America $ 118 $ 40 $ 53
Rest of the World 44 51 47
-------------------------------------------------------------------------------------------------------------
TOTAL $ 162 $ 91 $ 100
=============================================================================================================
All data for Rest of World is based on a 12-month fiscal year.
*1997 includes a $30 million charge from CPC for consumer and corporate
restructuring; $30 million for North American corn refining; $49 million
for other restructuring costs.
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SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows:
- ------------------------------------------------------------------------------------------------------------
(in millions, except per share amounts) 1st QTR 2nd QTR 3rd QTR 4th QTR
- ------------------------------------------------------------------------------------------------------------
1999
Net sales $ 397 $ 441 $ 445 $ 452
Gross profit 64 77 77 72
Net income 16 22 22 17
Basic earnings per common share $0.42 $0.58 $0.61 $0.45
Diluted earnings per common share $0.42 $0.58 $0.61 $0.45
- ------------------------------------------------------------------------------------------------------------
1998
Net sales $ 339 $ 367 $ 359 $ 383
Gross profit 39 40 44 48
Net income 8 11 13 11
Basic earnings per common share $0.22 $0.30 $0.35 $0.32
Diluted earnings per common share $0.22 $0.30 $0.35 $0.32
- ------------------------------------------------------------------------------------------------------------
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is listed and traded on the New York Stock Exchange.
The following table sets forth, for the periods indicated, the high, low and
closing market prices of the common stock and common stock cash dividends.
- ------------------------------------------------------------------------------------------------------------
1st QTR 2nd QTR 3rd QTR 4th QTR
- ------------------------------------------------------------------------------------------------------------
1999
Market price range of common stock
High $30.37 $32.13 $35.25 $33.81
Low 21.56 22.50 29.75 29.00
Close 23.94 30.44 30.44 32.75
Dividends declared per common share $0.08 $0.08 $0.10 $0.10
1998
Market price range of common stock
High $35.87 $38.31 $33.82 $30.37
Low 27.00 31.50 23.25 23.00
Close 35.87 33.87 25.25 30.37
- ------------------------------------------------------------------------------------------------------------
Dividends declared per common share -- -- $ 0.08 $ 0.08
- ------------------------------------------------------------------------------------------------------------
The number of shareholders of the Company's stock at December 31, 1999 was
approximately 15,000.
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SEVEN-YEAR FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
(in millions, except per share amounts) 1999 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales $ 1,735 $ 1,448 $ 1,418 $ 1,524 $ 1,387 $ 1,385 $ 1,243
Restructuring and spin-off charges - net -- -- 83 -- (23) 12 --
Net income (loss) 77 43 (75) 23 135 100 99
Basic earnings per common share $ 2.06 $ 1.19 $ (2.10) $ 0.64 $ 3.79 $ 2.81 $ 2.78
Cash dividend declared per common share $ 0.36 $ 0.16 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $ 116 $ 60 $ (73) $ 147 $ 31 $ 106 $ 33
Plants and properties - net 1,349 1,298 1,057 1,057 920 830 792
Total assets 2,212 1,946 1,666 1,663 1,306 1,207 1,110
Total debt 544 404 350 350 363 294 209
Stockholders' equity 1,027 1,053 986 1,025 600 550 484
Shares outstanding, year-end in millions 36.9 37.6 35.6 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA*
Depreciation and amortization $ 122 $ 95 $ 95 $ 88 $ 82 $ 80 $ 78
Capital expenditures 162 91 100 192 188 145 122
Maintenance and repairs 84 67 69 61 65 65 57
Total employee costs 192 131 142 170 164 149 177
- -------------------------------------------------------------------------------------------------------------------------------
* All data is based on a 12-month fiscal year
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