1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW AND OUTLOOK
The primary objective of Corn Products International, Inc. is to improve returns
to its shareholders by increasing profitability, investing selectively for
growth and leveraging the businesses' strength through acquisitions and
alliances. We constantly strive to be the lowest delivered cost producer, while
ensuring quality products that meet our customers needs.
In North America, our highest priority is to improve the US business
profitability as we seek opportunities that broaden our market presence and
better utilize our infrastructure and existing facilities. We plan on taking
full advantage of our unique position in NAFTA as the only corn refiner with
facilities in all three NAFTA markets: Canada, Mexico and the United States.
In our Rest of World segment we intend to further improve our solid South
American business by achieving significant profit growth in this region with
emphasis on our Southern Cone of South American operations. In Asia and Africa,
we plan to expand within our current business geography and enter new markets
through acquisitions and alliances. In addition, we plan to evaluate major
growth investment opportunities within and outside our current reach and act on
those we judge to be clearly beneficial to long-term earnings growth. We believe
that this strategy will produce ongoing business expansion, attractive profit
growth and improving shareholder value.
The Year 2000 was a difficult year for Corn Products International. In the
United States, the pricing environment weakened during the annual contracting of
our sweetener business. A 30-year record low for corn oil prices and record high
energy costs also affected our entire business. These higher energy costs and
low by-product returns could not be passed onto customers in the United States
and Canada due to the predominance of annually priced contracts. This situation
created lower-than-expected earnings.
The impact of these factors overshadowed the significant progress toward the
fulfilling of our Vision of being "Your local resource - Worldwide". However, in
line with our strategy, we maintained our focus on cost efficiency, quality
products and growth opportunities during 2000.
In North America, the weak pricing environment and the impact of the high energy
costs and low corn oil pricing during the year were reflected in the lower
results, with operating income down 20 percent before special charges. To deal
with this, we achieved important cost reduction goals through a workforce
reduction primarily in the United States. In addition, we strengthened our
business through the establishment of a joint marketing company, CornProductsMCP
Sweeteners LLC, with Minnesota Corn Processors, LLC to market and distribute
sweeteners supplied from both companies commencing in 2001.
In the Rest of World, we delivered excellent operating results based on
acquisitions and base business volume and profit growth. In March, we completed
the acquisition of IMASA, the largest corn refiner in Argentina, and
consolidated it into our businesses in Argentina, Uruguay and Chile. Major
phases of the integration were completed and the benefits of this integrated
business are being realized. In Korea, we formed a joint venture with the
corn-refining business of Doosan late in December 1999. It produced excellent
results and its integration with our existing Korean business was very
successful. Brazil, Colombia and Pakistan also contributed to the overall
improvement in profitability with Rest of World operating income up 47 percent
from the prior year.
For 2001, we expect that our worldwide business will improve over last year,
despite continuing high energy costs and low by-product returns.
2
In North America, in anticipation of another difficult year, we plan on focusing
on our new business model, realizing the logistic synergies, changing our cost
structure and optimizing volume and product mix. We will continue to seek
investment and alliance opportunities to strengthen this business.
In the Rest of World, we currently expect a significant increase in profits
within the Southern Cone countries, resulting from both volume growth and
improved market conditions. We plan to improve our solid South American business
further by taking advantage of recently completed capital projects and making
timely growth investments. In Asia and Africa, we plan to enhance our positions
with selective investments within our existing geography and enter into new
markets through acquisitions and alliances. In January 2001, we increased our
investment to 75 percent in our Korean business, increasing our ownership in
this important Asian business.
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
NET INCOME. The Company reported net income of $48 million, or $1.35 per diluted
common share, for the year 2000, as compared to $74 million, or $1.98 per
diluted common share, for 1999. The results for 2000 include nonrecurring
special charges of $20 million ($13 million after-tax) pertaining to a workforce
reduction program ($17.5 million) and the write-off of certain capital projects
($2.5 million). Excluding the special charges of $0.37 per diluted common share,
2000 net earnings were $1.72 per diluted common share.
In 2000, the Company changed its inventory costing method in the United States
from last in-first out (LIFO) to first in-first out (FIFO) to establish a
uniform inventory costing method for its worldwide operations. Prior year
financial statements have been retroactively restated to reflect the change in
accounting principle. The decrease in net income for 2000 primarily reflects
lower selling prices for sweeteners in North America, lower selling prices for
by-products and higher energy costs worldwide, the special charges, and
increases in interest expense and minority interest, which more than offset
significantly improved operating results for the Rest of World business.
NET SALES. A summary of net sales is shown below:
INCREASE
(in millions) 2000 1999 (DECREASE) % CHANGE
- ------------------- ------ ------ ---------- --------
North America $1,157 $1,240 $ (83) -7%
Rest of World 708 495 213 43%
------ ------ ------ -----
Total $1,865 $1,735 $ 130 7.5%
====== ====== ====== =====
Net sales for 2000 increased 7.5 percent to $1,865 million from $1,735 million
in 1999, as a 43 percent increase in Rest of World sales more than offset a 7
percent sales decline in North America.
Worldwide volume improvement resulted in 11 percent sales growth, which more
than offset a 4 percent sales reduction due to price/mix. The sales increase for
the Rest of World includes sales contributed from acquired operations in Korea
and Argentina. Excluding the effects of the acquisitions, Rest of World sales
increased approximately 10 percent as improved price/mix and higher volume added
approximately 11 percent and 2 percent, respectively, while currency translation
resulted in a 3 percent reduction. The sales decrease in North America reflects
a 9 percent reduction due to price/mix, with a 2 percent improvement from
increased volume.
3
COST OF SALES AND OPERATING EXPENSES. Cost of sales for 2000 increased 8 percent
from 1999 on sales volume growth of approximately 11 percent. Gross profits for
2000 increased 7 percent from 1999 to $306 million. Gross profits in the Rest of
World increased 49 percent, driven mainly by growth from acquisitions in Korea
and Argentina. In North America, gross profits declined 19 percent due to
reduced margins resulting from lower product selling prices and higher energy
costs. Gross profit margin as a percentage of sales was 16 percent for 2000,
unchanged from 1999, as an improvement in Rest of World was offset by a decrease
in North America.
Operating expenses for 2000, which include the previously mentioned $20 million
of nonrecurring special charges, totaled $155 million. Excluding the special
charges, operating expenses increased 1 percent from 1999 primarily reflecting
operating expenses of the acquired Korean and Argentine businesses, largely
offset by reduced North American costs and lower corporate expenses.
OPERATING INCOME. A summary of operating income is shown below:
INCREASE
(in millions) 2000 1999 (DECREASE) % CHANGE
- ------------------------ ----- ----- ---------- --------
North America $ 74 $ 93 $ (19) -20.4%
Rest of World 115 78 37 47.4%
Corporate expenses (13) (14) 1 -7.1%
----- ----- ----- -------
TOTAL $ 176 $ 157 $ 19 12.1%
Special charges (20) - (20) nm*
----- ----- ----- -------
OPERATING INCOME $ 156 $ 157 $ (1) -0.6%
===== ===== ===== =======
* nm-not meaningful
Operating income for 2000, including the special charges of $20 million, was
$156 million, compared to $157 million in 1999. Excluding the nonrecurring
special charges, operating income increased 12 percent from 1999, as a 47
percent improvement in Rest of World operations, driven principally by growth in
Korea and Argentina, more than offset a 20 percent decline in North America. The
decrease in North America was mainly due to lower average selling prices for
sweeteners and by-products, combined with higher energy costs.
FINANCING COSTS. Financing costs increased to $54 million for 2000 from $35
million in 1999. This increase was attributable to increased debt levels mainly
associated with acquisitions and common stock repurchases and higher weighted
average interest rates.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 35 percent for
both 2000 and 1999. The tax rates reflect the favorable effect of foreign source
income in countries where tax rates are generally lower than in the United
States. The decrease in the provision for income taxes reflects the lower pretax
earnings in 2000 as compared to 1999.
MINORITY INTEREST IN EARNINGS. The increase in minority interest in earnings
from $5 million in 1999 to $18 million in 2000 reflects an increase in the
minority shareholders' interest and increased earnings from the Korea and
Argentine operations.
1999 COMPARED WITH 1998
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 33 percent from 1998, reflecting the
addition of the Mexican operation.
4
Excluding the Mexican business, net sales were 2 percent lower than in 1998.
Volume increased 3 percent, while prices declined 4 percent. 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 in 1998, 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.
COST OF SALES AND OPERATING EXPENSES. 1999 cost of sales was up 14 percent from
last year, but well below the 29 percent increase in volumes, as gross and net
corn costs declined and we achieved improved operating efficiencies. Gross
profits for the year increased 67 percent from 1998 to $285 million. Gross
profit margins improved for the third year, climbing to 16 percent of net sales
from 12 percent in 1998 and 10 percent in 1997. The 1999 improvement in the
gross profit margin is largely attributable to North America, where gross profit
margins almost doubled from 1998, and reflects lower corn costs and
manufacturing expenses.
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.
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.
OPERATING INCOME. 1999 operating income was up 87 percent to $157 million from
$84 million in 1998. North America operating income increased nearly fourfold to
$93 million, up from $21 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 $78 million from $73 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.
FINANCING COSTS. 1999 financing costs totaled $35 million, up from $13 million
in 1998. 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.
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.
MINORITY INTEREST IN EARNINGS. Minority 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.
NET INCOME. 1999 net income grew 72 percent to $74 million from $43 million in
1998. The improvement is attributable to the North America operations and the
accretive business additions in Mexico and Korea. 1999 earnings per diluted
share increased 68 percent to $1.98 from $1.18 per diluted share in 1998.
5
LIQUIDITY & CAPITAL RESOURCES
At December 31, 2000, the Company's total assets were $2,339 million, up from
$2,217 million at December 31, 1999. The increase in total assets primarily
reflects the acquisition of the Argentine business, partially offset by
translation effects resulting from the stronger US dollar in relation to foreign
currencies.
The Company has a $340 million 5-year revolving credit facility in the United
States due December 2002 (the US revolving credit facility). In addition, the
Company has a number of short-term credit facilities consisting of operating
lines of credit. At December 31, 2000, the Company had total debt outstanding of
$720 million, compared to $544 million at December 31, 1999. The debt
outstanding includes $209 million of borrowings outstanding under the US
revolving credit facility, $200 million of 8.45 percent senior notes due 2009,
as well as affiliate long-term debt of $115 million. The current portion of
long-term debt is $71 million. In addition, the Company has $196 million in
affiliate short-term borrowings against local country operating lines in various
currencies. The weighted average interest rate on total Company indebtedness was
approximately 8.4 percent and 7.7 percent for 2000 and 1999, respectively.
NET CASH FLOWS
A summary of operating cash flows is shown below:
(in millions) 2000 1999
- ---------------------------------- ----- -----
Net income $ 48 $ 74
Depreciation and amortization 135 122
Deferred taxes 15 5
Minority interest in earnings 18 5
Changes in working capital (4) (3)
----- -----
Cash flows from operations $ 212 $ 203
===== =====
The Company generated $212 million of operating cash flows in 2000, which it
used to fund a large portion of its investing and financing activities. The
remaining portion of its investing and financing activities was funded with
proceeds from net borrowings of $131 million. Listed below are the Company's
primary investing and financing activities for 2000 (in millions):
- Capital expenditures $143
- Payments to acquire additional business in Argentina and Mexico 120
- Cost of common stock repurchased 44
- Dividends paid to common stockholders 14
- Payments on short-term borrowings, net of proceeds 105
- Proceeds from long-term debt 236
The Company expects that its operating cash flows and borrowing availability
under its credit facilities will be more than sufficient to fund its anticipated
capital expenditures, dividends and other investing and/or financing strategies.
6
RISK AND UNCERTAINTIES
The Company operates domestically and internationally in one business segment.
In each country where we conduct business, 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 this geographic dispersion, 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 nonperformance 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 its 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, 2000, 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 and
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 commercial transactions and
certain liabilities that are denominated in a currency other than the currency
of the operating unit entering into the underlying transaction.
INTEREST RATE EXPOSURE. Approximately 30 percent of the Company's borrowings are
long-term fixed rate bonds. Of the remaining 70 percent of the Company's
borrowings, approximately 30 percent are short-term credit facilities with
floating interest rates, and 40 percent are long-term 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.
7
ADOPTION OF NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and
Hedging Activities," which is required to be adopted by the Company in the first
quarter of 2001. SFAS 133 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.
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, market
and weather 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 changes in regulatory controls regarding quotas, tariffs
and biotechnology issues; 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
or 8-K.
8
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 accounting principles generally
accepted in the United States of America and include, where necessary, informed
estimates and judgments.
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 19, 2001
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,
2000 and 1999, 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, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its inventory costing method in the United States of America in 2000.
KPMG LLP
Chicago, Illinois
January 19, 2001
9
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------- -------------- ---------------
2000 1999* 1998*
------------- -------------- ---------------
Net sales $1,865 $1,735 $1,448
Cost of sales 1,559 1,450 1,277
------------- -------------- ---------------
GROSS PROFIT 306 285 171
------------- -------------- ---------------
Selling, general and administrative costs 135 134 101
Special charges 20 -- --
Fee, royalty and other income (5) (6) (14)
------------- -------------- ---------------
150 128 87
------------- -------------- ---------------
OPERATING INCOME 156 157 84
Financing costs, net 54 35 13
------------- -------------- ---------------
Income before income taxes and minority interest 102 122 71
Income taxes provision 36 43 25
Minority interest in earnings 18 5 3
------------- -------------- ---------------
============= ============== ===============
NET INCOME $48 $74 $43
============= ============== ===============
Weighted average common shares outstanding:
Basic 35.3 37.3 36.0
Diluted 35.3 37.4 36.1
Basic and diluted earnings per common share:
Net income per common share $1.35 $1.98 $1.18
See notes to the consolidated financial statements.
* - As restated (see Note 3).
10
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) 2000 1999*
-------------------- ------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $41 $41
Accounts receivable - net 274 261
Inventories 232 217
Prepaid expenses 8 6
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 555 525
- --------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost
Land 91 91
Buildings 372 314
Machinery and equipment 2,452 2,369
-------------------- ------------------
2,915 2,774
Less accumulated depreciation (1,508) (1,425)
-------------------- ------------------
1,407 1,349
Goodwill and other intangible assets
(less accumulated amortization of $16 and $5) 313 270
Deferred tax asset 2 17
Investments 28 27
Other assets 34 29
================================================================================================================================
TOTAL ASSETS $2,339 $2,217
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings and current portion of long-term debt $267 $222
Accounts payable 136 109
Accrued liabilities 83 90
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 486 421
- --------------------------------------------------------------------------------------------------------------------------------
Noncurrent liabilities 47 63
Long-term debt 453 322
Deferred taxes on income 185 182
Minority interest in subsidiaries 208 199
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 issued
on December 31, 2000 and 1999 1 1
Additional paid in capital 1,073 1,073
Less: Treasury stock (common stock; 2,391,913 and 703,399 shares in
2000 and 1999, respectively) at cost (60) (20)
Deferred compensation - restricted stock (3) (2)
Accumulated comprehensive income (loss) (183) (120)
Retained earnings 132 98
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 960 1,030
- --------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,339 $2,217
================================================================================================================================
See notes to the consolidated financial statements.
* - As restated (see Note 3).
11
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
YEAR ENDED DECEMBER 31
(IN MILLIONS)
-------------- ------------- --------------
2000 1999* 1998*
-------------- ------------- --------------
NET INCOME $48 $74 $43
Other comprehensive income (loss)
Currency translation adjustment (63) (72) (25)
-------------- ------------- --------------
COMPREHENSIVE INCOME (LOSS) ($15) $2 $18
============== ============= ==============
See notes to the consolidated financial statements.
* - As restated (see Note 3).
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
(IN MILLIONS) COMMON ADDITIONAL TREASURY DEFERRED ACCUMULATED RETAINED
STOCK PAID-IN STOCK COMPENSATION COMPREHENSIVE EARNINGS
CAPITAL INCOME (LOSS)
-------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997* $1 $1,014 $ 0 $ 0 $ (23) $ 0
- ---------------------------------------------------------------------------------------------------------------------------
Net income 43
Dividends declared (6)
Issuance of common stock in
connection with acquisition 51
Issuance of restricted common
stock as compensation 6
Deferred compensation -
restricted stock (2)
Stock options exercised 1
Purchase of treasury stock (1)
Currency translation adjustment (25)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998* $1 $1,072 $ (1) $(2) $ (48) $ 37
- ---------------------------------------------------------------------------------------------------------------------------
Net income 74
Dividends declared (13)
Issuance of restricted common
stock as compensation 1
Purchase of treasury stock (19)
Currency translation adjustment (72)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999* $1 $1,073 $(20) $(2) $(120) $ 98
- ---------------------------------------------------------------------------------------------------------------------------
Net income 48
Dividends declared (14)
Issuance of restricted common
stock as compensation 1 (1)
Issuance of common stock in
connection with acquisition 3
Purchase of treasury stock (44)
Currency translation adjustment (63)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $1 $1,073 $(60) $(3) $(183) $132
- --------------------------------------=====================================================================================
See notes to the consolidated financial statements.
* - As restated (see Note 3).
12
CORN PRODUCTS INTERNATIONAL, INC. - Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
(in millions)
2000 1999* 1998*
-------- --------- --------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net income $ 48 $ 74 $ 43
Non-cash charges to net income:
Depreciation and amortization 135 122 95
Deferred taxes 15 5 10
Minority interest in earnings 18 5 3
Changes in trade working capital:
Accounts receivable and prepaid items 3 (21) (5)
Inventories (12) (23) (32)
Income taxes 1 8 3
Other assets (6) 1 (5)
Accounts payable and accrued liabilities 10 32 (19)
- --------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 212 203 93
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Capital expenditures (143) (162) (91)
Proceeds from disposal of plants and properties 1 9 2
Payments for acquisitions, net of cash acquired (120) (118) (31)
Repayment of loan by unconsolidated affiliate -- -- 60
- --------------------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (262) (271) (60)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Payments on short-term borrowings, net of proceeds (105) (98) (86)
Proceeds from (payments on) long-term debt 236 198 (10)
Dividends paid (14) (13) (3)
Cost of common stock repurchased (44) (19) (1)
Other (23) 2 18
- --------------------------------------------------------------------------------------------------------------------
Net cash flows from (used for) financing activities 50 70 (82)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents -- 2 (49)
Cash and cash equivalents, beginning of period 41 36 85
- --------------------------------------------------------------------------------------------------------------------
Effects of foreign exchange rate changes on cash -- 3 --
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
Cash and cash equivalents, end of period $ 41 $ 41 $ 36
====================================================================================================================
See notes to the consolidated financial statements.
* - As restated (see Note 3).
13
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"). The Company operates
domestically and internationally in one business segment, corn refining,
and produces a wide variety of products.
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.
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. Nonmonetary 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 - Inventories are stated at the lower of cost or market. Costs
are determined using the first-in, first-out (FIFO) method.
INVESTMENTS - Most of the Company's investments are accounted for under the
cost method and are carried at cost or less. Certain other investments are
accounted for under the equity method; such 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 over lives ranging from 10 to 50 years for
buildings and 3 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 values of goodwill and long-lived assets are reviewed
if the facts and circumstances suggest that they may be impaired. Negative
operating results and negative cash flows from operations, among other
factors, could be indicative of the impairment of assets. If this review
indicates that carrying values will not be recoverable, the Company's
carrying values would be reduced.
14
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 price 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.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and
Hedging Activities," which is required to be adopted by the Company in the
first quarter of 2001. SFAS 133 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.
EARNINGS PER COMMON SHARE - Basic earnings per common share is computed by
dividing net income by the weighted average shares outstanding, 35.3
million for 2000, 37.3 million for 1999 and 36.0 million for 1998. Diluted
earnings per share (EPS) is computed by dividing net income by the weighted
average shares outstanding, including the dilutive effects of stock options
outstanding. The weighted average shares outstanding for diluted EPS were
35.3 million, 37.4 million and 36.1 million for 2000, 1999 and 1998,
respectively. In 2000 and 1999, options on 1,829,366 and 1,054,800 shares
of common stock, respectively, were not included in the calculation of the
weighted average shares for the diluted EPS because their effects would be
antidilutive.
RISKS AND UNCERTAINTIES - The Company operates domestically and
internationally in one business segment. 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 this geographic dispersion,
the Company believes that the risk of loss from noninsurable 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 nonperformance would materially
affect the Company's results.
NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 2000, the Company changed its inventory costing method
in the United States from the last in-first out (LIFO) method to the first
in-first out (FIFO) method. The change in accounting principle, which has
been applied retroactively, was made to conform the inventory valuation
method in the US operations to the method used for all the Company's other
operations.
15
The effect of this change resulted in an increase in income of $0.7
million, or $0.02 per share in 2000, a decrease in income of $3.1 million,
or $0.08 per share in 1999, and a decrease in income of $0.3 million, or
$0.01 per share in 1998. As the Company was spun-off, effective December
31, 1997, no retained earnings were carried forward. The effect of
restatement on periods prior to January 1, 1998, has been reflected in the
Company's additional paid-in capital. The effect of this restatement
resulted in an increase in additional paid-in capital as of December 31,
1997, of $6 million.
NOTE 4 - ACQUISITIONS
During 2000, the Company completed a multi-step transaction through the
acquisition of a controlling interest in Industrias de Maiz S.A. ("IMASA")
of Argentina. Upon completion of the transaction, the Company controls
approximately 73 percent of its Southern Cone businesses, which include
IMASA, Productos de Maiz of Argentina, as well as its businesses in Chile
and Uruguay. The acquisition was accounted for under the purchase method.
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. Prior to December 2, 1998, 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
1,764,706 shares of common stock and the payment of cash. On January 18,
2000, the Company increased its ownership in Arancia to 90 percent by
completing the second transaction through the transfer of common stock from
treasury and payment of cash. The series of transactions have been
accounted for under the purchase method. The Company has the option to
acquire, and the minority interest shareholders have the option to require
the Company to acquire, the remaining minority interest in Arancia prior to
December 31, 2003, for approximately $35 million plus interest from
December 2, 1998. The future installment payments are reflected as minority
interest in subsidiaries and accrue interest at the same rate as the
Company's US credit facility, which was 7.02 percent and 6.52 percent at
December 31, 2000 and 1999, respectively.
During 2000, cash consideration for the Mexican and Argentine acquisitions
totaled $120 million.
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 1999, 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 accounts for its Korean operations as a consolidated subsidiary as
it has a controlling interest in the combined company. On January 5, 2001,
the Company increased its ownership in the combined company from 50 percent
to 75 percent for $65 million in cash.
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 described above occurred at the beginning of the
respective years, the effect on the Company's financial statements would
not have been significant.
16
NOTE 5 - SPECIAL CHARGES
In 2000, the Company recorded a $20 million charge pertaining to a
workforce reduction program and the write-off of nonproductive assets. The
charges consisted of $17.5 million for severance, pension and other
post-employment benefit costs associated with the workforce reduction and
$2.5 million related to the write-off of certain capital projects. The
workforce reduction program affected approximately 266 employees, 109 of
whom were located in the United States. The workforce reduction principally
affected employees in U.S. sales and business development, as well as
employees in North America and South America manufacturing operations and
includes the integration of the Southern Cone sales and administrative
functions following the IMASA acquisition. As of December 31, 2000, all 266
of the employees affected by the workforce reduction program had terminated
employment with the Company.
As of December 31, 2000, the Company had utilized the entire $20 million
accrual, $17.5 million for employee separation costs and $2.5 million
related to the write-off of certain capital projects.
NOTE 6 - 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, 2000 and 1999, was $508 million and $377 million, respectively.
COMMODITIES
At December 31, 2000 and 1999, the Company had open corn commodity futures
contracts of $199 million and $196 million, respectively. Contracts open
for delivery beyond March 31, 2001, amounted to $156 million, of which $52
million is due in May 2001, $56 million is due in July 2001, $17 million is
due in September 2001, $30 million is due in December 2001, and $1 million
is due in March 2002. At December 31, 2000, the price of corn under these
contracts was $17 million below market quotations of the same dates. At
December 31, 1999, the price of corn under these contracts was $5 million
above market quotations of the same dates.
17
NOTE 7 - FINANCING ARRANGEMENTS
The Company had total debt outstanding of $720 million and $544 million at
December 31, 2000 and 1999, respectively. Short-term borrowings consist
primarily of various unsecured local country operating lines of credit. As
of December 31, short-term borrowings consist of the following:
(in millions) 2000 1999
------ ------
Canadian revolving credit facilities (6.45%) $ 48 $ 20
Other borrowings in various currencies (4.24% - 23.65%) 148 143
Current portion of long-term debt 71 59
-------------------------------------------------------------------------
Total $267 $222
The Company has a $340 million 5 year unsecured revolving credit facility
in the United States due December 2002. In 1999, the Company filed a shelf
registration with the Securities and Exchange Commission for borrowings up
to $600 million. In 1999, the Company issued $200 million of 8.45% senior
notes under the shelf registration.
Long-term debt consists of the following at December 31:
(in millions) 2000 1999
------ ------
U.S. revolving credit facility, due 2002 (6.93%) $ 209 $--
8.45% senior notes, due 2009 200 200
Mexican import credit facility, due 2001 at LIBOR + 1.75% 40 40
Canadian term loans, due 2005 (7.11% - 7.20%) 27 --
Others, due in varying amounts through 2008, fixed and
floating interest rates ranging from 1.00% - 17.27% 48 141
-----------------------------------------------------------------------------
Total $ 524 $ 381
-----------------------------------------------------------------------------
Less current maturities 71 59
-----------------------------------------------------------------------------
Long-term debt $453 $ 322
=============================================================================
Maturities of long-term debt are $215 million in 2002, $5 million in 2003,
$12 million in 2004, $21 million in 2005 and $200 million in 2006 and
thereafter. The LIBOR rate at December 31, 2000 was 6.20 percent.
18
NOTE 8 - LEASES
The Company leases rail cars and certain machinery and equipment under
various operating leases. Rental expense under operating leases was $20.4
million, $17.8 million and $18.7 million in 2000, 1999 and 1998,
respectively. Minimum lease payments existing at December 31, 2000 are
shown below:
- -----------------------------------------------------------------
(IN MILLIONS)
YEAR MINIMUM LEASE PAYMENT
- -----------------------------------------------------------------
2001 $15.8
2002 13.6
2003 11.5
2004 8.5
2005 6.5
Balance thereafter 22.7
NOTE 9 - INCOME TAXES
Income before income taxes and the components of the provision for income
taxes are shown below:
- ----------------------------------------------------------------------------
(in millions) 2000 1999 1998
- ----------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES:
United States $(10) $ 11 $ 8
Outside the United States 112 111 63
- ----------------------------------------------------------------------------
Total $102 $122 $71
- ----------------------------------------------------------------------------
PROVISION FOR INCOME TAXES:
Current tax expense
US federal $ 1 $ 6 $ 1
State and local 1 1 1
Foreign 19 31 13
- ----------------------------------------------------------------------------
Total current $ 21 $ 38 $15
- ----------------------------------------------------------------------------
Deferred tax expense (benefit)
US federal $ (4) $ (6) $ 5
State and local (1) (1) --
Foreign 20 12 5
- ----------------------------------------------------------------------------
Total deferred 15 5 10
- ----------------------------------------------------------------------------
Total provision $ 36 $ 43 $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, 2000 and
1999, respectively, are attributable to:
-------------------------------------------------------------
(in millions) 2000 1999
-------------------------------------------------------------
Plants and properties $201 $195
Inventory -- 2
-------------------------------------------------------------
Gross deferred tax liabilities 201 197
-------------------------------------------------------------
Employee benefit reserves 10 10
Pensions 3 5
Other 13 21
-------------------------------------------------------------
Gross deferred tax assets 26 36
-------------------------------------------------------------
Valuation allowance (8) (4)
-------------------------------------------------------------
Total deferred tax liabilities $183 $165
=============================================================
The valuation allowance at December 31, 2000, increased to $8 million from
$4 million at December 31, 1999, as it is more likely than not that certain
foreign net operating loss carry forwards will not be fully utilized to
offset taxable income.
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate follows:
-------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------
Provision for tax at U.S. statutory rate 35.0% 35.0% 35.0%
Taxes related to foreign income (2.2) (3.0) (2.3)
State and local taxes - net 1.8 (0.1) 0.5
Nondeductible goodwill 1.1 1.0 --
Other items - net (0.7) 2.1 1.8
-------------------------------------------------------------------
Provision at effective tax rate 35.0% 35.0% 35.0%
===================================================================
Provisions are made for estimated U.S. 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 $356 million of undistributed earnings of
foreign subsidiaries at December 31, 2000, as such amounts are considered
permanently reinvested.
20
NOTE 10 - BENEFIT PLANS
The Company and its subsidiaries sponsor noncontributory 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 U.S. postretirement medical plans for
salaried employees to provide Retirement Health Care Spending Accounts. The
Company provides access to retiree medical insurance postretirement. U.S.
salaried employees accrue an account during employment, which can be used
after employment to purchase postretirement 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 postretirement 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, 2000, 1999 and 1998:
(IN MILLIONS) U.S. PLANS NON-U.S. PLANS
- -------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Service cost $2 $ 2 $ 2 $ 1 $ 1 $ 1
Interest cost 4 4 4 3 3 3
Expected return on plan assets (6) (5) (4) (4) (4) (3)
Charges due to salaried voluntary
severance program (2) -- -- -- -- --
Net amortization and deferral -- -- (1) -- -- (1)
- -------------------------------------------------------------------------------------------------------
Net pension cost ($2) $ 1 $ 1 $-- $-- $ --
========================================================================================================
21
The changes in benefit obligations and plan assets, as well as the funded
status of the Company's pension plans at December 31, 2000 and 1999,
respectively, were as follows:
(IN MILLIONS) U.S. PLANS NON-U.S. PLANS
----------------- -----------------
2000 1999 2000 1999
----------------- -----------------
BENEFIT OBLIGATION
At January 1 $57 $57 $52 $47
Service cost 2 2 1 1
Interest cost 4 4 3 3
Benefits paid (1) (2) (2) (2)
Actuarial (gain) loss 1 (4) 2 --
Curtailments 3 -- -- --
Settlements (14) -- -- --
Foreign currency exchange -- -- (1) 3
=============================================================================================
Benefit obligation at December 31 $52 $57 $55 $52
=============================================================================================
FAIR VALUE OF PLAN ASSETS
At January 1 $64 $63 $53 $46
Actual return on plan assets 5 3 5 6
Employer contributions -- -- 1 1
Benefits paid (14) (2) (2) (2)
Foreign currency exchange -- -- (1) 2
=============================================================================================
Fair value of plan assets at December 31 $55 $64 $56 $53
=============================================================================================
Funded status $3 $7 $1 $1
Unrecognized net actuarial loss (gain) (16) (23) 2 1
Unrecognized prior service cost 3 4 1 1
- ---------------------------------------------------------------------------------------------
Net prepaid pension asset (liability) ($10) ($12) $4 $3
=============================================================================================
Included in the pension benefits above are nonqualified pension plans. The
Company is not required to set aside assets in order to fund these plans.
As a result, for these nonqualified plans, both the projected benefit
obligation and accumulated benefit obligation exceeded the fair value of
plan assets by $5 million as of December 31, 2000 and 1999.
The following weighted average assumptions were used to determine the
Company's obligations under the plans:
U.S. PLANS NON-U.S. PLANS
- ----------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
Discount rates 8.0% 8.0 % 6.75 % 6.5 % 6.5 % 6.5 %
Rate of compensation increase 5.0 % 5.0 % 3.75 % 4.5 % 4.5 % 4.5 %
Expected return on plan assets 9.5 % 9.5 % 8.25 % 8.5 % 8.5 % 8.5 %
====================================================================================================
22
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 $5.6 million, $4.4 million and $4.2 million, in 2000, 1999 and
1998, respectively.
POSTRETIREMENT BENEFIT PLANS - Net postretirement benefit costs consisted
of the following for the years ended December 31, 2000, 1999 and 1998:
(IN MILLIONS)
-------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------
Service cost $1 $1 $1
Interest cost 1 1 1
Net amortization and deferral -- (1) (1)
Voluntary separation program 2 -- --
-------------------------------------------------------------------
Net post-retirement costs $4 $1 $1
===================================================================
The Company's postretirement benefit plans currently are not funded. The
changes in the benefit obligations of the plans at December 31, 2000 and
1999, respectively, were as follows:
(IN MILLIONS) 2000 1999
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
At January 1 $21 $17
Service cost 1 1
Interest cost 1 1
Actuarial (gain) loss 1 2
Curtailments 2 --
---------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
At December 31 $26 $21
Unrecognized net actuarial (loss) gain (3) (2)
Unrecognized prior service cost 4 4
---------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COSTS $27 $23
=====================================================================
Annual increases in per capita cost of healthcare benefits of 8 percent
pre-age 65 and 6.75 percent post-age 65 were assumed for 2000 to 2001 for
healthcare related postretirement employment benefits, declining to 5.5
percent 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 postretirement
benefit obligation at December 31, 2000 by $2 million, with a corresponding
effect on the service and interest cost components of the net periodic
postretirement benefit cost for the year then ended of $0.2 million.
The accumulated postretirement benefit obligation for U.S. plans at
December 31, 2000 and 1999, was determined using an assumed discount rate
of 8 percent. The accumulated postretirement benefit obligation at December
31, 2000 and 1999, for Canadian plans was determined using an assumed
discount rate of 6.5 percent.
23
NOTE 11 - SUPPLEMENTARY INFORMATION
BALANCE SHEET - Supplementary information is set forth below:
- ------------------------------------------------------------------------------
(in millions) 2000 1999
- ------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE - NET
Accounts receivable - trade $ 260 $ 222
Accounts receivable - other 21 44
Allowance for doubtful accounts (7) (5)
- ------------------------------------------------------------------------------
Total accounts receivable - net $ 274 $ 261
- ------------------------------------------------------------------------------
INVENTORIES
Finished and in process $ 100 $ 88
Raw materials 95 98
Manufacturing supplies 37 31
- ------------------------------------------------------------------------------
Total inventories $ 232 $ 217
- ------------------------------------------------------------------------------
ACCRUED LIABILITIES
Compensation expenses $ 10 $ 15
Dividends payable 4 4
Accrued interest 11 10
Taxes payable on income 10 9
Taxes payable other than taxes on income 15 13
Other 33 39
- ------------------------------------------------------------------------------
Total accrued liabilities $ 83 $ 90
- ------------------------------------------------------------------------------
NONCURRENT LIABILITIES
Employees' pension, indemnity, retirement,
and related provisions $ 45 $ 43
Other noncurrent liabilities 2 20
- ------------------------------------------------------------------------------
Total noncurrent liabilities $ 47 $ 63
==============================================================================
INCOME STATEMENT - Supplementary information is set forth below:
- ------------------------------------------------------------------------------
(in millions) 2000 1999 1998
- ------------------------------------------------------------------------------
FINANCING COSTS
Interest expense $ 59 $ 38 $ 16
Interest income (4) (5) (3)
Foreign exchange loss (gain) (1) 2 --
- ------------------------------------------------------------------------------
Financing costs, net $ 54 $ 35 $ 13
==============================================================================
STATEMENTS OF CASH FLOW - Supplementary information is set forth below:
- --------------------------------------------------------------------------------
(in millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Interest paid $ 70 $ 27 $ 11
Income taxes paid 34 29 12
- --------------------------------------------------------------------------------
24
NOTE 12 - STOCKHOLDERS' EQUITY
PREFERRED STOCK AND STOCKHOLDERS' RIGHTS PLAN
The Company has authorized 25 million shares of $0.01 par value preferred
stock, of which 1 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 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
holding 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 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 1,865,400, 419,900 and 33,000
shares of its common stock at an average purchase price of $23.91, $27.23
and $28.70 per share, during the years ended December 31, 2000, 1999 and
1998, respectively. Additionally, in 1999 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 18,335, 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 $23.10, $30.15 and $30.76 per share,
or fair value at the date of purchase, during the years ended December 31,
2000, 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.
During 2000, the Company issued, from treasury, 99,842 restricted common
shares and 16,585 common shares upon the exercise of stock options under
the stock incentive plan. Also, the Company issued 78,794 common shares
from treasury in connection with the second step of the Arancia
acquisition.
On January 21, 2000, the Company's Board of Directors authorized an
increase in the stock repurchase program from the previously authorized 2
million shares to 6 million shares of common stock over a five-year period.
At December 31, 2000, 2,549,650 shares had been repurchased under this
program at a total cost of approximately $64 million.
25
STOCK INCENTIVE PLAN
The Company has established a stock incentive plan for certain key
employees. In addition, following the spin-off from CPC, 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 nonqualified options to purchase 805,500, 413,000 and
1,097,200 shares of the Company's common stock during 2000, 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, 2000, certain of these nonqualified options have
been forfeited due to the termination of employees.
In addition to stock options, the Company awards shares of restricted stock
to certain key employees. The cost of these awards is being amortized over
the applicable restriction periods.
The Company accounts for stock-based compensation using the intrinsic value
method. On a pro forma basis, net income would have been $44 million or
$1.25 per share in 2000, $69 million or $1.85 per share in 1999 and $38
million or $1.04 per share in 1998. 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 dates using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates
of 5.98, 5.67 and 5.67 percent; volatility factor of 8.28 percent in 2000
and 35 percent in 1999 and 1998; and a weighted average expected life of
the awards of 7.84 years in 2000 and 5 years in 1999 and 1998. A
dividend yield of 1.38 percent was assumed for 2000. No dividends were
assumed for 1999 and 1998.
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 last
three years follows:
WEIGHTED
STOCK AVERAGE
OPTIONS STOCK OPTION EXERCISE SHARES OF
(shares in thousands) SHARES PRICE RANGE PRICE RESTRICTED STOCK
- -----------------------------------------------------------------------------------------------------------
Outstanding at January 1, 1998 477 $12.59 to 24.03 $20.16 143
Granted 1,097 28.06 to 32.31 32.23 37
Exercised / vested (72) 12.59 to 22.53 16.47 (45)
Cancelled (23) 13.06 to 32.31 23.95 (13)
----- ----
Outstanding at December 31, 1998 1,479 13.06 to 32.31 29.24 122
Granted 413 26.87 26.87 51
Exercised / vested (3) 20.76 to 22.55 21.47 (18)
Cancelled (11) 26.87 to 32.31 31.59 (1)
----- ----
Outstanding at December 31, 1999 1,878 13.06 to 32.31 28.72 154
Granted 806 22.75 to 27.41 25.39 93
Exercised / vested (17) 20.76 to 22.55 21.47 (46)
Cancelled (114) 26.87 to 32.31 28.89 (7)
----- ----
OUTSTANDING AT DECEMBER 31, 2000 2,553 $13.06 to 32.31 $27.71 194
- ----------------------------------------------------------------------------------------------------------
26
The following table summarizes information about stock options outstanding at
December 31, 2000:
(shares in thousands)
AVERAGE
WEIGHTED REMAINING
OPTIONS AVERAGE CONTRACTUAL LIFE OPTIONS WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE (YEARS) EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------
$13.0583 to 16.1563 64 $15.30 3.8 64 $15.30
16.1564 to 19.3875 3 16.39 4.2 3 16.39
19.3876 to 22.6188 185 21.01 4.9 185 21.01
22.6189 to 25.8500 471 23.08 8.8 123 24.03
25.8501 to 29.0813 813 27.18 8.6 216 26.99
29.0814 to 32.3125 1,017 32.31 7.1 786 32.31
----- -----
2,553 $27.71 1,377 $28.39
- -----------------------------------------------------------------------------------------------------------------------
The amount of options exercisable at December 31, 1999 and 1998, was 692
thousand and 394 thousand, respectively. The weighted average fair values
of options granted during 2000, 1999 and 1998, were $7.05, $26.87 and
$11.38, respectively.
NOTE 13 - 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. Also included in this group is its
North American enzyme business. Its Rest of World businesses include
corn-refining operations in South America and joint ventures and alliances
in Asia, Africa and other areas.
- -------------------------------------------------------------------------------
(in millions) 2000 1999 1998
- -------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS:
North America $1,157 $1,240 $934
Rest of World 708 495 514
- -------------------------------------------------------------------------------
TOTAL $1,865 $1,735 $1,448
===============================================================================
OPERATING INCOME:
North America $74 $93 $21
Rest of World 115 78 73
Corporate (13) (14) (10)
Special charges (20) -- --
- -------------------------------------------------------------------------------
TOTAL $156 $157 $84
===============================================================================
TOTAL ASSETS:
North America $1,396 $1,439 $1,378
Rest of World 943 778 576
- -------------------------------------------------------------------------------
TOTAL $2,339 $2,217 $1,954
===============================================================================
DEPRECIATION AND AMORTIZATION:
North America $93 $92 $67
Rest of World 42 30 28
- -------------------------------------------------------------------------------
TOTAL $135 $122 $95
===============================================================================
CAPITAL EXPENDITURES:
North America $104 $120 $41
Rest of World 39 42 50
- -------------------------------------------------------------------------------
TOTAL $143 $162 $91
===============================================================================
27
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
- -----------------------------------------------------------------------------------------------------------
2000
Net sales $444 $474 $479 $468
Gross profit 78 85 73 70
Net income 4 19 13 12
Basic earnings per common share $0.10 $0.55 $0.36 $0.34
Diluted earnings per common share $0.10 $0.55 $0.36 $0.34
- -----------------------------------------------------------------------------------------------------------
1999
Net sales $397 $441 $445 $452
Gross profit 64 77 77 67*
Net income 16 22 22 14*
Basic earnings per common share $0.42 $0.58 $0.61 $0.37*
Diluted earnings per common share $0.42 $0.58 $0.61 $0.37*
- -----------------------------------------------------------------------------------------------------------
* Restated to reflect change in accounting for inventories.
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
- ----------------------------------------------------------------------------------------------
2000
Market price range of common stock
High $33.00 $27.25 $27.25 $29.50
Low 22.44 22.63 19.00 22.00
Close 24.06 26.50 22.75 29.06
Dividends declared per common share $0.10 $0.10 $0.10 $0.10
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
- ----------------------------------------------------------------------------------------------
The number of shareholders of the Company's stock at December 31, 2000 was
approximately 13,500.
28
EIGHT-YEAR FINANCIAL HIGHLIGHTS *
- -------------------------------------------------------------------------------------------------------------------------------
(in millions, except per share amounts) 2000 1999 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales $1,865 $1,735 $1,448 $1,418 $1,524 $1,387 $1,385 $1,243
Restructuring and spin-off charges - net 13 -- -- 83 -- (23) 12 --
Net income (loss) 48 74 43 (76) 25 136 98 101
Basic earnings per common share $1.35 $1.98 $1.18 $(2.13) $0.70 $3.82 $2.75 $2.84
Cash dividend declared per common share $0.40 $0.36 $0.16 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $69 $104 $46 $(83) $151 $33 $113 $44
Plants and properties - net 1,407 1,349 1,298 1,057 1,057 920 830 792
Total assets 2,339 2,217 1,956 1,676 1,676 1,315 1,214 1,121
Total debt 720 544 404 350 350 363 294 209
Stockholders' equity 960 1,030 1,059 992 1,033 606 555 491
Shares outstanding, year-end in millions 35.3 36.9 37.6 35.6 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA
Depreciation and amortization $135 $122 $95 $95 $88 $82 $80 $78
Capital expenditures 143 162 91 100 192 188 145 122
Maintenance and repairs 78 84 67 69 61 65 65 57
Total employee costs 195 192 131 142 170 164 149 177
- -------------------------------------------------------------------------------------------------------------------------------
* All periods prior to 2000 have been restated to reflect the change in
accounting for inventories.
Note: 1997 and prior per share amounts are pro forma.