EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The year 2001 was a challenging year for Corn Products International, Inc. given
the difficult economic environment worldwide and local currency weakness in
South America and Asia/Africa. Despite these difficulties, however, net income
increased from the prior year (which included special charges of $0.37 per
diluted common share), significant operating cash flows were generated (although
less than last year), and sales volume grew 4 percent, an important fundamental
in our business.
In North America, our joint marketing company, CornProductsMCP Sweeteners LLC
("CPMCP"), which we formed with Minnesota Corn Processors, LLC, commenced
operations to better serve our customer base. However, selling prices for our
products were depressed and the economic recession unfavorably affected our
business in the region. This, coupled with higher energy costs and low
by-product pricing that began to recover during the year, caused operating
income in the region to decline 16 percent. In South America, operating earnings
increased 11 percent as we achieved strong year-over-year sales volume growth
despite the weak economic conditions in the region. In Asia/Africa, operating
income fell 17 percent primarily due to local currency weakness in the region.
RECENT DEVELOPMENTS AND OUTLOOK
In response to political and economic uncertainties in Argentina, the Argentine
government established a currency exchange holiday between December 20, 2001 and
January 11, 2002. On January 6, 2002, the Argentine government announced a
devaluation of its currency and established an "official" exchange rate to be
used in settling import/export transactions only. All other transactions are
subject to a "free" rate that was initially established with the reopening of a
trading market on January 11, 2002.
The devaluation of the Argentine peso gave rise to the recognition of an
additional other comprehensive loss of approximately $90 million for 2001, which
is included in the accumulated other comprehensive loss account within the
stockholders' equity section of the consolidated balance sheet. We also
recognized a $7 million foreign currency transaction loss ($4.6 million, net of
income taxes) in the fourth quarter of 2001 pertaining to certain US dollar
denominated import/export bank indebtedness owed by the Argentine subsidiary.
The devaluation of the Argentine currency and other economic and policy
developments in Argentina could have an impact on the Company's financial
position and operating results in future periods, and such effects could be
significant. For example, the Company would recognize an additional foreign
currency transaction loss in the event that the settlement rate applicable to
the US dollar denominated import/export indebtedness of the Argentine subsidiary
increases above the current official rate for settlement of these transactions.
Additionally, continued weakening of the Argentine peso relative to the US
dollar could result in the recognition of additional foreign currency
translation losses in accumulated other comprehensive income and a reduction in
the Company's total stockholders' equity. It is currently anticipated that local
product price increases will lag devaluations, although local operating costs,
measured in terms of US dollars, are expected to decline. Given the current
situation, we do not expect that the devaluation will have a materially adverse
impact on the Company's future financial position, results of operations or cash
flows, although no assurance can be given that such expectations will be
realized.
On January 1, 2002, the Mexican Congress passed a value-added tax on beverages
sweetened with high fructose corn syrup (HFCS), which on March 5, 2002, was
suspended until September 30, 2002. In response to the enactment of the tax,
which at the time effectively ended the use of HFCS for beverages in Mexico, we
ceased production of HFCS 55 at our San Juan del Rio plant, one of our four
plants in Mexico. Effective with the March 5, 2002 suspension of the tax, we
resumed the production and sale of HFCS in Mexico. Management is seeking a
permanent repeal of the tax. While the tax was in place, we estimate that our
2002 net earnings were reduced by approximately $0.05 to $0.06 per diluted share
per month, reflecting our inability to sell HFCS in Mexico during that time. In
the event the tax is not permanently repealed by September 30, 2002, the
Company's financial position, as well as its future operating results and cash
flows, could be adversely affected.
Based on managements' current expectations, including those described above,
management believes that 2002 net income will improve from the past year.
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
NET INCOME. The Company reported net income of $57 million, or $1.60 per diluted
common share for the year 2001, as compared to $48 million, or $1.35 per diluted
common share for 2000. The 2001 results include $5.4 million ($3.5 million
after-tax) of non-recurring earnings from a tax refund, net of certain one-time
charges. The results for 2000 include 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
non-recurring earnings from the current year results and the special charges
recorded in 2000, the Company earned $53 million, or $1.50 per diluted share in
2001, down from $61 million, or $1.72 per diluted share in 2000. This decrease
principally reflects weaker foreign currencies, higher energy costs and
increased financing costs, which more than offset favorable contributions from
sales volume growth, improved selling prices and a reduction in minority
interest in earnings.
NET SALES. A summary of net sales is shown below:
Increase
(in millions) 2001 2000 (Decrease) % Change
- ------------- ---- ---- ---------- --------
North America $1,212 $1,157 $ 55 5%
South America 440 460 (20) -4%
Asia/Africa 235 248 (13) -5%
------ ------ ---- ----
Total $1,887 $1,865 $ 22 1%
====== ====== ==== ====
Net sales for 2001 grew 1 percent to $1.89 billion from $1.87 billion in 2000,
as increased sales in North America more than offset sales declines in South
America and Asia/Africa.
Increased volume worldwide and improved price/mix resulted in net sales growth
of 4 percent and 3 percent, respectively, which was largely offset by a 6
percent reduction attributable to weaker foreign currencies, particularly in
Brazil and Korea. Sales in North America grew 5 percent, reflecting 3 percent
volume growth and 2 percent price/mix improvement. Significantly higher volume
and improved price/mix in both Canada and Mexico more than offset a volume
decline in the United States. South America sales
declined 4 percent as currency weakness throughout the region more than offset
an 8 percent growth attributable to increased volume and a 3 percent price/mix
improvement. The value of local currencies in relation to the US dollar fell in
each country within the region, with the decline in the Brazilian real having
the most significant impact. Local currency weakness also caused sales in
Asia/Africa to decline in terms of US dollars from last year. Sales in
Asia/Africa decreased 5 percent as weaker currencies in Korea, and to a lesser
extent in Pakistan, more than offset 4 percent price/mix improvement and 2
percent volume growth in the region.
COST OF SALES AND OPERATING EXPENSES. Cost of sales for 2001 increased 2 percent
to $1.59 billion from $1.56 billion in 2000, on sales volume growth of 4
percent. Excluding the effect of non-recurring items, cost of sales increased
approximately 3 percent from last year, while gross margins declined to 15
percent from 16 percent in 2000. The reduction in the gross profit margin
principally reflects higher energy costs and lower by-product selling prices,
particularly during the first half of 2001.
Selling, general and administrative ("SG&A") expenses for 2001 increased to $148
million from $135 million in 2000, due in part to the recording of certain
non-recurring costs. Excluding the non-recurring costs, SG&A expenses totaled
$143 million, representing 7.6 percent of net sales, up from 7.3 percent in
2000. This increase resulted mainly from higher administrative costs and
increased general corporate expenses.
Earnings from non-consolidated affiliates and other income for 2001 increased to
$15 million from $5 million in 2000, primarily due to the recording of our share
of the earnings of CPMCP, our new joint marketing company that is accounted for
under the equity method, partially offset by reduced fee and royalty income.
OPERATING INCOME. A summary of operating income is shown below:
Favorable Favorable
(Unfavorable) (Unfavorable)
(in millions) 2001 2000 Variance % Change
- ------------- ---- ---- -------- --------
North America $ 62 $ 74 $(12) (16%)
South America 68 61 7 11%
Asia/Africa 45 54 (9) (17%)
Corporate expenses (14) (13) (1) (8%)
----- ----- ---- -----
Total $ 161 $ 176 $(15) (9%)
Non-recurring items 5 (20) 25 nm*
----- ----- ---- -----
Operating income $ 166 $ 156 $ 10 6%
===== ===== ==== =====
*nm - not meaningful
Operating income for 2001 increased 6 percent to $166 million from $156 million
in 2000. However, excluding the non-recurring earnings recorded in 2001 and the
special charges taken in 2000, operating income declined 9 percent to $161
million from $176 million in 2000. The decline in operating income reflects
reduced earnings in North America and Asia/Africa of 16 percent and 17 percent,
respectively, which more than offset an 11 percent improvement in South America.
The decrease in North America resulted primarily from higher energy costs and
lower by-product selling prices, particularly during the first half of 2001. The
lower results in Asia/Africa principally reflect unfavorable translation effects
associated
with the previously mentioned currency weakness in the region. South America
operating income grew 11 percent as earnings in the Southern Cone of South
America almost doubled from 2000, more than offsetting lower operating profits
in Brazil.
FINANCING COSTS. Financing costs increased to $64 million in 2001 from $54
million in 2000. This increase was primarily due to the recognition of $8
million of foreign currency transaction losses in 2001 ($7 million of which
resulted from the previously mentioned devaluation of the Argentine peso), as
compared to foreign currency transaction gains of $1 million in 2000. A decrease
in capitalized interest and higher average outstanding indebtedness due to
acquisition related borrowings, partially offset by lower weighted average
interest rates, also contributed to the increased financing costs.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 35 percent for
both 2001 and 2000. The tax rates reflect 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 decreased to $9
million in 2001 from $18 million in 2000. This decrease mainly reflects the
increase in the Company's ownership interest in Doosan Corn Products Korea,
Inc., our Korean affiliate, from 50 to 75 percent, effective January 2001.
COMPREHENSIVE LOSS. The Company recorded a comprehensive loss of $93 million in
2001 compared to a comprehensive loss of $15 million in 2000. The increased loss
principally reflects unfavorable currency translation adjustments and, to a
lesser extent, net losses of $20 million (net of tax benefits) on cash flow
hedges as required by Statement of Financial Accounting Standards No. 133. See
also the section hereinafter entitled New Accounting Standards. For 2001, the
Company recorded a negative currency translation adjustment of $130 million,
compared to negative currency translation adjustments of $63 million and $72
million in 2000 and 1999, respectively. The unfavorable $130 million currency
translation adjustment for 2001 primarily reflects the impact of the Argentine
currency devaluation and the continued weakness of other local currencies
relative to the US dollar, particularly the Brazilian real.
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 the previously mentioned
special charges of $20 million ($13 million after-tax). 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 the net income for 2000 primarily
reflected lower selling prices for sweeteners in North America, lower selling
prices for by-products and higher energy costs worldwide, the special charges,
and increased interest expense and minority interest, which more than offset
significantly improved operating results for South America and Asia/Africa.
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%
South America 460 364 96 26%
Asia/Africa 248 131 117 89%
------ ------ ------ ---
Total $1,865 $1,735 $ 130 7.5%
====== ====== ====== ===
Net sales for 2000 increased 7.5 percent to $1.87 billion from $1.74 billion in
1999, as significant sales increases in South America and Asia/Africa 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
South America included sales contributed from acquired operations in Argentina.
Excluding the effect of the acquisition, South America sales increased
approximately 13 percent as improved price/mix and volume growth added
approximately 15 percent and 2 percent, respectively, while currency translation
resulted in a 4 percent reduction. The sales increase for Asia/Africa
principally reflected sales contributed from the operations acquired in our
December 1999 Korean acquisition. Excluding the effect of the acquisition,
Asia/Africa sales were up 2 percent, reflecting slightly improved price/mix and
modest volume growth. The sales decrease in North America reflected a 9 percent
reduction due to price/mix, with a 2 percent improvement from increased volume.
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 profit for
2000 increased 7 percent from 1999 to $306 million. Driven mainly by growth from
the aforementioned acquisitions, gross profits in South America increased 23
percent, while gross profits in Asia/Africa nearly doubled from last year. 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 Asia/Africa was offset by decreases in North America
and South America.
Operating expenses for 2000, which include the previously mentioned $20 million
of non-recurring 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:
Favorable Favorable
(Unfavorable) (Unfavorable)
(in millions) 2000 1999 Variance % Change
North America $ 74 $ 93 $(19) (20%)
South America 61 49 12 24%
Asia/Africa 54 29 25 86%
Corporate expenses (13) (14) 1 7%
----- ----- ---- ---
Total $ 176 $ 157 $ 19 12%
Special charges (20) -- (20) nm*
----- ----- ---- ---
Operating income $ 156 $ 157 $ (1) (1%)
===== ===== ==== ===
*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 non-recurring
special charges, operating income increased 12 percent from 1999, as significant
improvement in Asia/Africa and South America 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 in 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 Korean and
Argentine operations.
LIQUIDITY & CAPITAL RESOURCES
At December 31, 2001, the Company's total assets were $2.23 billion, down from
$2.34 billion at December 31, 2000. Stockholders' equity declined to $857
million at December 31, 2001 from $960 million at December 31, 2000. These
decreases primarily reflect unfavorable translation effects resulting from the
stronger US dollar in relation to foreign currencies.
At December 31, 2001, the Company had total debt outstanding of $756 million,
compared to $720 million at December 31, 2000. The debt outstanding includes
$200 million of 8.45 percent senior notes due 2009 and $112 million of affiliate
long-term debt. The current portion of long-term debt is $290 million. The
Company also has $154 million of affiliate short-term borrowings. The principal
source of the Company's liquidity comes from its internally generated cash flow
that is supplemented by its ability to raise funds in both the equity and debt
markets. The Company currently has a shelf registration statement under which it
can issue an additional $400 million of debt. In addition, the Company has a
$340 million revolving credit facility, of which $277 million was drawn as of
year end. The Company expects to refinance this facility during 2002. The
Company also has $375 million of unused operating lines of credit in various
countries in which it operates. The weighted average interest rate on total
Company indebtedness was approximately 7.1 percent and 8.4 percent for 2001 and
2000, respectively.
NET CASH FLOWS
A summary of operating cash flows is shown below:
(in millions) 2001 2000
- ------------- ---- ----
Net income $ 57 $ 48
Depreciation and amortization 127 135
Income from non-consolidated affiliates (14) (1)
Foreign currency transaction (gains) losses 8 (1)
Deferred taxes 2 15
Minority interest in earnings 9 18
Changes in working capital (16) (1)
Other (2) (25)
----- -----
Cash provided from operations $ 171 $ 188
===== =====
The Company generated $171 million of operating cash flows in 2001, compared to
$188 million last year. This decrease primarily reflects an increase in working
capital, due in part, to margin calls on corn futures contracts of approximately
$20 million and $8 million of energy credit receivables relating to a
co-generation facility in Stockton, California, partially offset by a reduction
in inventories. The Company will continue to hedge its corn purchases through
the use of corn futures contracts and, accordingly, will be required to make or
be entitled to receive cash deposits for margin calls depending upon the
movement in the market price for corn. The cash provided from operations was
used to fund most of the Company's 2001 investing and financing activities. The
remainder of the investing and financing activities were funded with proceeds
from net borrowings of $46 million. Listed below are the Company's primary
investing and financing activities for 2001 (in millions):
- - Capital expenditures $ 94
- - Payments to acquire additional business
(primarily Korea and Thailand) 79
- - Dividends paid 23
- - Payments on debt 83
- - Proceeds from borrowings 129
In February 2002, the minority interest shareholders in Arancia Corn Products,
S.A. de C.V. ("Arancia"), our Mexican subsidiary, exercised their right to
require the Company to purchase the remaining minority interest in Arancia.
Accordingly, in March 2002 the Company purchased the remaining minority interest
in Arancia for approximately $42 million in cash and common stock.
On February 5, 2002, the Company sold its Beloit, Wisconsin based Enzyme
Bio-Systems Ltd. subsidiary ("EBS") to Genencor International, Inc. ("Genencor")
for approximately $35 million cash (including working capital). Concurrently,
the Company entered into a 7-year supply agreement with Genencor whereby the
Company will purchase enzymes to be used in its manufacturing process at market
prices. The sale of EBS will not have a material impact on the Company's
financial statements.
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.
RISK AND UNCERTAINTIES
The Company operates in one business segment, corn refining, and is managed on a
geographic regional basis. 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 a 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 manage other financial risks discussed below.
COMMODITY COSTS. The Company's finished products are made primarily from corn.
Purchased corn accounts for between 40 percent and 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 which extend 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. Outside of North
America, 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, 2001, 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 non-US
operations are subject to foreign currency exchange fluctuations, as well as to
political, economic and other risks, such as those previously described in the
Recent Developments and Outlook section pertaining to Argentina and Mexico.
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. However, the Company may occasionally 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 33 percent of the Company's borrowings are
fixed rate bonds and loans. The remaining 67 percent of the Company's borrowings
are at floating interest rates of which approximately 10 percent are long-term
loans and 57 percent are short-term credit facilities. Should short-term rates
change, this could affect our interest cost. A hypothetical increase of 1
percentage point in the weighted average interest rate for 2001 would have
increased interest expense and lowered pretax income for 2001 by approximately
$4 million.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") discusses the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period.
In response to the SEC's Release No. 33 - 8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," we identified the most critical
accounting principles upon which the financial statements are based and that
involve the most complex or subjective decisions and assessments. These policies
relate to hedging activities; goodwill and other intangible assets; and
property, plant and equipment and depreciation. We disclose these accounting
policies in the notes to the consolidated financial statements. The MD&A should
be read in conjunction with the consolidated financial statements and related
notes included elsewhere in this Annual Report to Stockholders.
NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS 133"
("SFAS 138"). SFAS 133 and 138 establish standards for recognition and
measurement of derivatives and hedging activities, and require that all
derivative instruments be recorded on the balance sheet at their respective fair
values. Upon adoption, the Company recorded a cumulative effect type credit of
$14 million (net of income taxes of $8 million) to accumulated other
comprehensive income (loss), to recognize at fair value all derivatives that
were designated as hedges of variable cash flows of certain forecasted
transactions.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), which supersedes APB Opinion No. 17, "Intangible Assets".
SFAS 142 addresses how intangible assets that are acquired individually or with
a group of other assets (but not those acquired in a business combination)
should be accounted for in financial statements upon their acquisition. SFAS 142
also addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements. SFAS 142
stipulates that goodwill should no longer be amortized and should instead be
subject to an annual impairment assessment. The provisions of SFAS 142 are
required to be applied effective January 1, 2002. Except for the requirement to
discontinue the recording of goodwill amortization (which approximated $11
million annually), at this time, the Company believes the adoption of SFAS 142
will not have a material effect on the consolidated financial statements.
Additionally, in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which addresses financial accounting and
reporting for legal obligations associated with the retirement of tangible
long-lived assets and the related asset retirement costs. The Company is
required to adopt SFAS 143 on January 1, 2003. The impact of the adoption of
SFAS 143, if any, is not expected to be significant.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"). While SFAS 144 retains many of the fundamental
recognition and measurement provisions of SFAS 121, it changes the criteria
required to be met to classify an asset as held for sale. SFAS 144 also
supersedes the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," and, among other things, broadens reporting for
discontinued operations to include a component of an entity, rather than just a
segment of a business. The Company is required to adopt the provisions of SFAS
144 effective January 1, 2002. Management does not expect the adoption of SFAS
144 to have a material impact on the consolidated financial statements.
FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements concerning the Company's
financial position, business and future earnings and 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 political, 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, energy costs and availability and changes in regulatory controls
regarding quotas, tariffs, taxes 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.
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 judgements.
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 include 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 22, 2002
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, 2001
and 2000, 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, 2001. 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, 2001 and 2000, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
As described in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities, as of January 1, 2001.
KPMG, LLP
Chicago, Illinois
January 22, 2002
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
2001 2000 1999
---- ---- ----
Net sales before shipping and handling costs $ 2,034 $ 2,036 $ 1,880
Less - shipping and handling costs 147 171 145
------- ------- -------
Net sales 1,887 1,865 1,735
Cost of sales 1,588 1,559 1,450
------- ------- -------
GROSS PROFIT 299 306 285
------- ------- -------
Selling, general and administrative costs 148 135 134
Special charges -- 20 --
Earnings from non-consolidated affiliates and other
income (15) (5) (6)
------- ------- -------
133 150 128
------- ------- -------
OPERATING INCOME 166 156 157
Financing costs-net 64 54 35
------- ------- -------
Income before income taxes and minority interest 102 102 122
Provision for income taxes 36 36 43
Minority interest in earnings 9 18 5
------- ------- -------
======= ======= =======
NET INCOME $ 57 $ 48 $ 74
======= ======= =======
Weighted average common shares outstanding:
Basic 35.3 35.3 37.3
Diluted 35.5 35.3 37.4
Basic and diluted earnings per common share:
Net income per common share $ 1.60 $ 1.35 $ 1.98
See notes to the consolidated financial statements.
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2001 2000
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 65 $ 41
Accounts receivable - net 279 274
Inventories 201 232
Prepaid expenses 10 8
------- -------
TOTAL CURRENT ASSETS 555 555
------- -------
Property, plant and equipment, at cost
Land 92 91
Buildings 326 372
Machinery and equipment 2,328 2,452
------- -------
2,746 2,915
Less accumulated depreciation (1,453) (1,508)
------- -------
1,293 1,407
Goodwill and other intangible assets
(less accumulated amortization of $26 and $16) 283 313
Deferred tax asset 20 2
Investments 41 28
Other assets 35 34
======= =======
TOTAL ASSETS $ 2,227 $ 2,339
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings and current portion of long-term debt $ 444 $ 267
Accounts payable 143 136
Accrued liabilities 88 83
------- -------
TOTAL CURRENT LIABILITIES 675 486
------- -------
Non-current liabilities 50 47
Long-term debt 312 453
Deferred income taxes 186 185
Minority interest in subsidiaries 147 208
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
at December 31, 2001 and 2000 1 1
Additional paid-in capital 1,073 1,073
Less: Treasury stock (common stock; 2,253,578 and 2,391,913 shares in
2001 and 2000, respectively) at cost (56) (60)
Deferred compensation - restricted stock (3) (3)
Accumulated other comprehensive loss (333) (183)
Retained earnings 175 132
------- -------
TOTAL STOCKHOLDERS' EQUITY 857 960
------- -------
======= =======
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,227 $ 2,339
======= =======
See notes to the consolidated financial statements.
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
YEAR ENDED DECEMBER 31,
(IN MILLIONS)
2001 2000 1999
---- ---- ----
NET INCOME $ 57 $ 48 $ 74
Other comprehensive income (loss):
Gain (loss) on cash flow hedges:
Cumulative effect of adoption of SFAS 133, net of
income taxes of $8 million 14 -- --
Unrealized gains (losses) on cash flow hedges, net of income
tax effect of $11 million (21) -- --
Amount of (gains) losses on cash flow hedges
reclassified to earnings, net of income tax effect of
$7 million (13) -- --
Currency translation adjustment (130) (63) (72)
----- ---- ----
COMPREHENSIVE INCOME (LOSS) $ (93) $(15) $ 2
===== ==== ====
See notes to the consolidated financial statements.
CORN PRODUCTS INTERNATIONAL, INC. - CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN TREASURY DEFERRED COMPREHENSIVE RETAINED
(IN MILLIONS) STOCK CAPITAL STOCK COMPENSATION INCOME (LOSS) EARNINGS
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
----- ------- ---- --- ----- ----
Net income 57
Dividends declared (14)
Cumulative effect of adoption
of SFAS 133, net of income
taxes of $8 million 14
Unrealized gains (losses) on
cash flow hedges, net of
income tax effect of $11
million (21)
Amount of (gains) losses on cash
flow hedges reclassified to
earnings, net of income tax
effect of $7 million (13)
Issuance of common stock on
exercise of stock options 4
Currency translation adjustment (130)
----- ------- ---- --- ----- ----
BALANCE, DECEMBER 31, 2001 $ 1 $ 1,073 $(56) $(3) $(333) $175
===== ======= ==== === ===== ====
See notes to the consolidated financial statements.
CORN PRODUCTS INTERNATIONAL, INC. - Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31,
(in millions)
2001 2000 1999
---- ---- ----
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 57 $ 48 $ 74
Non-cash charges (credits) to net income:
Depreciation and amortization 127 135 122
Deferred income taxes 2 15 5
Minority interest in earnings 9 18 5
Earnings from non-consolidated affiliates (14) (1) (1)
Foreign currency transaction (gains) losses 8 (1) 2
Changes in trade working capital:
Accounts receivable and prepaid expenses (30) 3 (21)
Inventories 20 (12) (23)
Accounts payable and accrued liabilities (6) 8 40
Other (2) (25) 2
----- ----- -----
Cash provided by operating activities 171 188 205
----- ----- -----
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Capital expenditures (94) (143) (162)
Proceeds from disposal of plants and properties 2 1 9
Payments for acquisitions, net of cash acquired (79) (120) (118)
----- ----- -----
Cash used for investing activities (171) (262) (271)
----- ----- -----
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Payments on debt (83) (135) (181)
Proceeds from borrowings 129 267 281
Dividends paid (23) (14) (13)
Issuance (repurchase) of common stock 4 (44) (19)
----- ----- -----
Cash provided by financing activities 27 74 68
----- ----- -----
----- ----- -----
Effects of foreign exchange rate changes on cash (3) -- 3
----- ----- -----
Increase in cash and cash equivalents 24 -- 5
Cash and cash equivalents, beginning of period 41 41 36
===== ===== =====
Cash and cash equivalents, end of period $ 65 $ 41 $ 41
===== ===== =====
See notes to the consolidated financial statements.
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 accounting principles generally accepted in the United States 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 in stockholders' equity as a
component of accumulated other comprehensive income (loss). 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. The Company incurs foreign currency transaction
gains/losses relating to assets and liabilities that are denominated in a
currency other than the functional currency. For 2001, 2000 and 1999 the Company
incurred foreign currency transaction (gains) losses of $8 million, ($1 million)
and $2 million, respectively.
CASH AND CASH EQUIVALENTS - Cash equivalents consist of all instruments
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 net realizable
value. Costs are determined using the first-in, first-out (FIFO) method.
INVESTMENTS - Investments in the common stock of affiliated companies over which
the Company does not exercise significant influence are accounted for under the
cost method and are carried at cost or less. Investments that enable the Company
to exercise significant influence, but do not represent a controlling interest,
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. The Company would recognize a loss on these
investments when there is a loss in value of an investment which is other than a
temporary decline.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION - Property, plant and equipment
are stated at cost less accumulated depreciation. Depreciation is generally
computed on the straight-line method over the estimated useful lives of
depreciable assets, which range 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. The Company reviews the recoverability of the
net book value of property, plant and equipment for impairment whenever events
and circumstances indicate that the net book value of an asset may not be
recoverable from estimated future cash
flows expected to result from its use and eventual disposition. If this review
indicates that the carrying values will not be recovered, the carrying values
would be reduced and an impairment loss would be recognized.
GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill represents the excess of cost
over fair value of net assets acquired. Goodwill and other identifiable
intangible assets are amortized using the straight-line method over their
estimated useful or legal lives, not exceeding 40 years. The carrying values of
goodwill and intangible 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.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which supersedes APB
Opinion No. 17, "Intangible Assets." SFAS 142 addresses how intangible assets
that are acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in financial
statements upon their acquisition. SFAS 142 also addresses how goodwill and
other intangible assets should be accounted for after they have been initially
recognized in the financial statements. SFAS 142 stipulates that goodwill should
no longer be amortized and should instead be subject to an annual impairment
assessment. The provisions of SFAS 142 are required to be applied effective
January 1, 2002. Except for the requirement to discontinue the recording of
goodwill amortization (which approximates $11 million annually), at this time,
the Company believes the adoption of SFAS 142 will not have a material effect on
the consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"). While SFAS 144 retains many of the fundamental
recognition and measurement provisions of SFAS 121, it changes the criteria
required to be met to classify an asset as held for sale. SFAS 144 also
supersedes the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," and, among other things, broadens reporting for
discontinued operations to include a component of an entity, rather than just a
segment of a business. The Company is required to adopt the provisions of SFAS
144 effective January 1, 2002. Management does not expect the adoption of SFAS
144 to have a material impact on the consolidated financial statements.
REVENUE RECOGNITION - The Company recognizes operating revenues at the time
title to the goods and all risks of ownership transfer to customers. This
generally occurs upon the date of shipment, except in the case of consigned
inventories where title passes and the transfer of ownership risk occurs when
the goods are used by the customer. Shipping and handling costs are separately
reported on the face of the Statements of Income and are deducted in arriving at
net sales. In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 further defines the basic principles of revenue
recognition and was adopted by the Company on October 1, 2000. The adoption of
SAB No. 101 did not have a material effect on the consolidated financial
statements.
HEDGING INSTRUMENTS - Effective January 1, 2001, the Company adopted Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an Amendment of SFAS 133" ("SFAS 138"). SFAS 133 and 138 establish standards for
recognition and measurement of derivatives and hedging activities and require
that all derivative instruments be recorded on the balance sheet at their
respective fair values. Upon adoption, the Company recorded a cumulative effect
type credit of $14 million (net of income taxes of $8 million) to other
comprehensive income (loss), to recognize at fair value all derivatives that
were designated as hedges of variable cash flows of certain forecasted
transactions.
The Company enters into futures contracts, which are designated as hedges of
specific volumes of commodities (corn and natural gas) that will be purchased
and processed in a future month. These readily marketable exchange-traded
futures contracts are recognized on the December 31, 2001 consolidated balance
sheet at their fair value. On the date the derivative futures contract is
entered into, the Company designates the futures contract as a hedge of variable
cash flows of certain forecasted purchases of corn or natural gas used in the
manufacturing process ("a cash flow" hedge). The Company formally documents all
relationships between the futures contracts which serve as the hedging
instruments and the hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all futures contracts that are designated as cash-flow hedges to
specific forecasted transactions. The Company also formally assesses, both at
the hedge's inception and on an ongoing basis, whether the futures contracts
that are used in hedging transactions are highly effective in offsetting changes
in cash flows of hedged items. When it is determined that a futures contract is
not highly effective as a hedge or that it has ceased to be a highly effective
hedge, the Company discontinues hedge accounting prospectively.
Changes in the fair value of a futures contract that is highly effective and
that is designated and qualifies as a cash-flow hedge are recorded in other
comprehensive income, net of applicable income taxes, and recognized in the
consolidated statement of income when the finished goods produced using the
hedged item are sold. The maximum term over which the Company hedges exposures
to the variability of cash flows for commodity price risk is 12 months.
The Company discontinues hedge accounting prospectively when it is determined
that the derivative is no longer effective in offsetting changes in the cash
flows of the hedged item, the derivative expires or is sold, terminated or
exercised, the derivative is de-designated as a hedging instrument because it is
unlikely that a forecasted transaction will occur, or management determines that
designation of the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued because it is probable that a forecasted
transaction will not occur, the Company continues to carry the derivative on the
balance sheet at its fair value, and gains and losses that were accumulated in
other comprehensive income are recognized immediately in earnings. In all other
situations in which hedge accounting is discontinued, the Company continues to
carry the derivative at its fair value on the consolidated balance sheet, and
recognizes any changes in its fair value in earnings.
EARNINGS PER COMMON SHARE - Basic earnings per common share is computed by
dividing net income by the weighted average number of shares outstanding, which
totaled 35.3 million for 2001 and 2000 and 37.3 million for 1999. Diluted
earnings per share (EPS) is computed by dividing net income by the weighted
average number of shares outstanding, including the dilutive effects of stock
options outstanding. The weighted average number of shares outstanding for
diluted EPS were 35.5 million, 35.3 million and 37.4 million for 2001, 2000 and
1999, respectively. In 2001, 2000 and 1999, options to purchase 1,001,666,
1,829,366 and 1,054,800 shares of common stock, respectively, were excluded from
the calculation of the weighted average number of shares outstanding for diluted
EPS because their effects were anti-dilutive.
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 a
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 - RECENT EVENTS
In response to political and economic uncertainties in Argentina, the Argentine
government established a currency exchange holiday between December 20, 2001 and
January 11, 2002. On January 6, 2002, the Argentine
government announced a devaluation of its currency and established an "official"
exchange rate to be used in settling import/export transactions only. All other
transactions are subject to a "free" rate that was initially established with
the reopening of a trading market on January 11, 2002.
The devaluation of the Argentine peso gave rise to the recognition of an
additional other comprehensive loss of approximately $90 million for 2001, which
is included in the accumulated other comprehensive loss account within the
stockholders' equity section of the consolidated balance sheet. The Company also
recognized a $7 million foreign currency transaction loss ($4.6 million, net of
income taxes) in the fourth quarter of 2001 pertaining to certain US dollar
denominated import/export bank indebtedness owed by the Argentine subsidiary.
The devaluation of the Argentine currency and other economic and policy
developments in Argentina could have an impact on the Company's financial
position and operating results in future periods, and such effects could be
significant. For example, the Company would recognize an additional foreign
currency transaction loss in the event that the settlement rate applicable to
the US dollar denominated import/export indebtedness of the Argentine subsidiary
increases above the current official rate for settlement of these transactions.
Additionally, continued weakening of the Argentine peso relative to the US
dollar could result in the recognition of additional foreign currency
translation losses in accumulated other comprehensive income and a reduction in
the Company's total stockholders' equity.
On January 1, 2002, the Mexican Congress passed a value-added tax on beverages
sweetened with high fructose corn syrup (HFCS), which on March 5, 2002, was
suspended until September 30, 2002. In response to the enactment of the tax,
which at the time effectively ended the use of HFCS for beverages in Mexico, we
ceased production of HFCS 55 at our San Juan del Rio plant, one of our four
plants in Mexico. Effective with the March 5, 2002 suspension of the tax, we
resumed the production and sale of HFCS in Mexico. Management is seeking a
permanent repeal of the tax. In the event the tax is not permanently repealed by
September 30, 2002, the Company's financial position, as well as its future
operating results and cash flows, could be adversely affected.
NOTE 4 - ACQUISITIONS
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS 141"), which supersedes APB Opinion No. 16,
"Business Combinations," and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." SFAS 141 addresses financial accounting
and reporting for business combinations and requires that all business
combinations within the scope of SFAS 141 be accounted for using only the
purchase method. The provisions of SFAS 141 became effective for all business
combinations initiated after June 30, 2001. The adoption of SFAS 141 did not
have a material effect on the Company's consolidated financial statements.
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, and its businesses in Chile and Uruguay. The
company paid $83 million in cash to acquire net assets with a fair value of $14
million, consisting of $124 million of assets and $110 million of liabilities.
Goodwill of $69 million was recorded.
In October 1998, the Company entered into certain agreements to purchase its
then 49 percent owned non-consolidated affiliate, Arancia S.A. de C.V.
("Arancia"), in a series of three transactions that would be completed over the
next several years. In accordance with the agreements, on December 2, 1998 the
Company completed the first in the series of transactions by acquiring a
controlling interest in Arancia and began to consolidate this business in its
financial statements. On January 18, 2000, the Company completed the second in
the series of transactions by increasing its ownership in Arancia to 90 percent
for $41 million, consisting of cash and common stock. 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. 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 2.22 percent, 7.02 percent and 6.52 percent at December 31,
2001, 2000 and 1999, respectively.
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 in cash. The results of the business are included in the accompanying
financial statements from the first quarter of 1999. The fair value of the net
assets of Bang-IL was $41 million, consisting of $42 million of assets and $1
million of liabilities. Goodwill of $24 million was recorded. In December 1999,
the Company combined its business with the corn-refining business of Doosan
Corporation, also a Korean corporation, by contributing its interest in Bang-IL
and paying $47 million in cash in exchange for a 50 percent interest in the
combined business, Doosan Corn Products Korea, Inc. ("DCPK"). The fair value of
the net liabilities acquired from Doosan Corporation was $69 million, consisting
of $74 million of assets and $143 million of liabilities. Goodwill of $116
million was recorded. 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 interest in
DCPK from 50 percent to 75 percent for $65 million in cash. The Company recorded
$10 million of goodwill related to this purchase. Beginning in 2005, the Company
will have the option to acquire, and the minority interest shareholders will
have the right to require the Company to acquire, the 25 percent ownership
interest in DCPK currently held by the minority interest shareholders.
Also, on March 2, 2001, the Company acquired a controlling 60 percent interest
in a small starch and sweetener company in Thailand. In January 2002, the
Company increased its ownership interest to 70 percent. Additionally, 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 Company's acquisitions 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.
NOTE 5 - JOINT MARKETING COMPANY
On December 1, 2000, the Company and Minnesota Corn Processors, LLC ("MCP")
consummated an operating agreement to form CornProductsMCP Sweeteners LLC
("CPMCP"), a joint marketing company that, effective January 1, 2001, began
distributing throughout the United States sweeteners supplied from the Company
and MCP. CPMCP is owned equally by the Company and MCP through membership
interests providing each company with a 50 percent voting interest in CPMCP.
Additionally, CPMCP's Board of Directors is composed of an equal number of
representatives from both members. The Company accounts for its interest in
CPMCP as a non-consolidated affiliate using the equity method of accounting.
Both the Company and MCP continue to own and operate their respective production
facilities and sell all U.S. production of certain designated sweeteners to
CPMCP for exclusive distribution in the United States. Additionally, any
designated sweetener production from the Company's operations in Canada and
Mexico that is sold in the U.S. is distributed through CPMCP. Sales to CPMCP are
made at predetermined market-related prices.
Sales to CPMCP are recognized at the time title to the goods and all risks of
ownership transfer to CPMCP. The Company eliminates 100 percent of the profit
associated with sales to CPMCP until the risk of ownership and title to the
product pass from CPMCP to its customers.
The Company records its share of CPMCP's net earnings as earnings from a
non-consolidated affiliate. The amount recorded represents the Company's
allocated share of the net earnings of CPMCP, based upon the percentage of
designated product volumes supplied to CPMCP by the Company as compared to the
total designated product volumes supplied to CPMCP by the Company and the
venture partner, MCP.
The following table summarizes the Company's transactions with CPMCP for 2001:
(in millions)
Sales to CPMCP $ 416
Purchases from CPMCP 23
Commission expense to CPMCP 2
Fees and charges from CPMCP 14
Receivables due from CPMCP at December 31 36
Payables due to CPMCP at December 31 3
Summarized financial information for CPMCP at December 31, 2001 and for the year
then ended is shown below:
(in millions)
-------------------------------------------------------------------------
Current assets $ 100
Non-current assets 3
-------------------------------------------------------------------------
Total assets $103
=========================================================================
Current liabilities $ 74
-------------------------------------------------------------------------
Total equity 29
-------------------------------------------------------------------------
Total liabilities and equity $103
=========================================================================
(in millions)
-------------------------------------------------------------------------
Net sales $ 782
Gross profit 38
Net income $ 27
=========================================================================
NOTE 6 - 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 included 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 7 - FINANCIAL INSTRUMENTS, DERIVATIVES AND HEDGING ACTIVITIES
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, accounts payable
and short-term borrowings approximate fair values. The fair value of the
Company's long-term debt is estimated by discounting the future cash flows of
each instrument at rates currently available to the Company for similar debt
instruments of comparable maturities. 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, 2001 and 2000, was $594 million and
$508 million, respectively.
DERIVATIVES
The Company uses derivative financial instruments to manage the exposure to
price risk related to corn and natural gas purchases used in the manufacturing
process. The Company does not enter into derivative instruments for any purpose
other than cash flow hedging purposes. That is, the Company does not speculate
using derivative instruments.
The derivative financial instruments that the Company uses in its management of
commodity-price risk consist of open futures contracts and options traded
through regulated commodity exchanges. By using derivative financial instruments
to hedge exposures to changes in commodity prices, the Company exposes itself to
market risk. Market risk is the adverse effect on the value of a financial
instrument that results from a change in commodity prices. The market risk
associated with commodity-price contracts is managed by establishing and
monitoring parameters that limit the types and degree of market risk that may be
undertaken.
The Company maintains a commodity-price risk management strategy that uses
derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by commodity-price volatility. The manufacturing of the
Company's products requires a significant volume of corn and natural gas. Price
fluctuations in corn and natural gas cause market values of corn inventory to
differ from its cost and the actual purchase price of corn and natural gas to
differ from anticipated prices.
The Company periodically enters into futures and option contracts for a portion
of its anticipated corn and natural gas usage over the next twelve months, in
order to hedge the price risk associated with fluctuations in market prices. The
contracts limit the unfavorable effect that price increases will have on corn
and natural gas purchases. All of the Company's futures and option contracts
have been designated as cash flow hedges.
Unrealized gains and losses associated with marking the corn and natural gas
futures and option contracts to market are recorded as a component of other
comprehensive income (loss) and included in the stockholders' equity section of
the consolidated balance sheet as part of accumulated other comprehensive income
(loss). These amounts are subsequently reclassified into earnings in the month
in which the related corn or natural gas is used or in the month a hedge is
determined to be ineffective.
The Company assesses the effectiveness of a hedge with a corn or natural gas
futures or option contract based on changes in the contract's intrinsic value.
The changes in the market value of such contracts has historically been, and is
expected to continue to be, highly effective at offsetting changes in the price
of the hedged item. The amounts representing the ineffectiveness of these cash
flow hedges are not significant.
At December 31, 2001, the Company's accumulated other comprehensive income
(loss) account included $20 million of unrealized losses, net of a $10 million
tax benefit, related to derivative instruments that hedge the anticipated cash
flows from future transactions, which are expected to be recognized in earnings
within the next twelve months. Transactions and events expected to occur over
the next twelve months that will necessitate reclassifying these derivatives
losses to earnings include the sale of finished goods inventory that includes
previously hedged purchases of raw corn. There were no cash flow hedges
discontinued during the year.
NOTE 8 - FINANCING ARRANGEMENTS
The Company had total debt outstanding of $756 million and $720 million at
December 31, 2001 and 2000, respectively. Short-term borrowings consist
primarily of amounts outstanding under the Company's five-year, $340 million
unsecured U.S. revolving credit facility that expires in December 2002, and
borrowings under various unsecured local country operating lines of credit.
As of December 31, short-term borrowings consist of the following:
(in millions) 2001 2000
---- ----
Borrowings in various currencies (2.95%-28.00%) $154 $196
Current portion of long-term debt 290 71
---- ----
Total $444 $267
In 1999, the Company filed a shelf registration with the Securities and Exchange
Commission for borrowings of 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) 2001 2000
---- ----
U.S. revolving credit facility, due
December 2002 (2.33%) $277 $209
8.45% senior notes, due 2009 200 200
Korean term loans, due 2002-2004, (6.81% - 9.21%) 62 --
Canadian term loans, due 2005 (3.31% - 3.34%) 57 27
Others, due in varying amounts through 2008,
fixed and floating interest rates ranging
from 1.00% - 17.93% 6 88
---- ----
Total $602 $524
---- ----
Less current maturities 290 71
---- ----
Long-term debt $312 $453
==== ====
Maturities of long-term debt are $12 million in 2003, $81 million in 2004, $19
million in 2005, $- million in 2006 and $200 million in 2007 and thereafter.
NOTE 9 - LEASES
The Company leases rail cars and certain machinery and equipment under various
operating leases. Rental expense under operating leases was $21.1 million, $20.4
million and $17.8 million in 2001, 2000 and 1999, respectively. Minimum lease
payments due on leases existing at December 31, 2001 are shown below:
(IN MILLIONS)
YEAR MINIMUM LEASE PAYMENT
- --------------------------------------------------------------------------------
2002 $17.6
2003 14.6
2004 11.4
2005 9.3
2006 7.7
Balance thereafter 9.2
NOTE 10 - INCOME TAXES
Income before income taxes and the components of the provision for income taxes
are shown below:
(in millions) 2001 2000 1999
----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES:
United States $ (9) $ (10) $ 11
Outside the United States 111 112 111
----- ----- -----
Total $ 102 $ 102 $ 122
----- ----- -----
PROVISION FOR INCOME TAXES:
Current tax expense
US federal $ 2 $ 1 $ 6
State and local 2 1 1
Foreign 30 19 31
----- ----- -----
Total current $ 34 $ 21 $ 38
----- ----- -----
Deferred tax expense (benefit)
US federal $ (6) $ (4) $ (6)
State and local (1) (1) (1)
Foreign 9 20 12
----- ----- -----
Total deferred $ 2 $ 15 $ 5
----- ----- -----
Total provision $ 36 $ 36 $ 43
===== ===== =====
Deferred income taxes are provided for the tax effects of temporary differences
between the financial reporting basis and tax basis of assets and liabilities.
Significant temporary differences at December 31, 2001 and 2000, respectively,
are attributable to:
(in millions) 2001 2000
----- -----
Plants and properties $ 186 $ 201
----- -----
Gross deferred tax liabilities 186 201
----- -----
Employee benefit reserves 14 10
Pensions 3 3
Hedging/derivative contracts 11 --
Other -- 13
----- -----
Gross deferred tax assets 28 26
----- -----
Valuation allowance (8) (8)
----- -----
Total deferred tax liabilities $ 166 $ 183
===== =====
The Company maintained a valuation allowance of $8 million at December 31, 2001
and 2000, 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:
2001 2000 1999
---- ---- ----
Provision for tax at U.S. statutory rate 35.0% 35.0% 35.0%
Taxes related to foreign income (0.1) (2.2) (3.0)
State and local taxes - net 0.4 1.8 (0.1)
Nondeductible goodwill 1.0 1.1 1.0
Other items - net (1.3) (0.7) 2.1
---- ---- ----
Provision at effective tax rate 35.0% 35.0% 35.0%
==== ==== ====
Provisions are made for estimated U.S. and foreign income taxes, less credits
that may be available, on distributions from foreign subsidiaries to the extent
dividends are anticipated. No provision has been made for income taxes on
approximately $395 million of undistributed earnings of foreign subsidiaries at
December 31, 2001, as such amounts are considered permanently reinvested.
NOTE 11 - BENEFIT PLANS
The Company and its subsidiaries sponsor noncontributory defined benefit pension
plans covering substantially all employees in the United States and Canada, and
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 make contributions to the
plans in amounts that are 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.
Domestic salaried employees are covered by 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. U.S. salaried employees are provided
with access to postretirement medical insurance through Retirement Health Care
Spending Accounts. 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 also accrue interest credits using a rate equal to a
specified amount above the yield on five-year Treasury notes. Employees can use
the amounts accumulated in these accounts, including credited interest, to
purchase postretirement medical insurance. Employees become eligible for
benefits when they meet minimum age and service requirements. The Company
recognizes the cost of these postretirement benefits by accruing a flat dollar
amount on an annual basis for each domestic salaried employee. 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, 2001, 2000 and 1999:
(IN MILLIONS) U.S. PLANS NON-U.S. PLANS
----------------------------------------------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Service cost $ 2 $ 2 $ 2 $ 2 $ 1 $ 1
Interest cost 4 4 4 3 3 3
Expected return on plan assets (5) (6) (5) (4) (4) (4)
Charges due to salaried voluntary
severance program -- (2) -- -- -- --
---- ---- ---- ---- ---- ----
Net pension cost $ 1 ($2) $ 1 $ 1 $-- $--
==== ==== ==== ==== ==== ====
The changes in benefit obligations and plan assets during 2001 and 2000, as well
as the funded status and the amounts recognized in the Company's consolidated
balance sheets related to the Company's pension plans at December 31, 2001 and
2000, were as follows:
(IN MILLIONS) U.S. PLANS NON-U.S. PLANS
2001 2000 2001 2000
---- ---- ---- ----
BENEFIT OBLIGATION
At January 1 $ 52 $ 57 $ 55 $ 52
Service cost 2 2 2 1
Interest cost 4 4 3 3
Benefits paid (1) (1) (2) (2)
Actuarial loss 4 1 -- 2
Curtailments -- 3 -- --
Settlements (9) (14) -- --
Amendments 1 -- -- --
Foreign currency exchange -- -- (3) (1)
==== ==== ==== ====
Benefit obligation at December 31 $ 53 $ 52 $ 55 $ 55
==== ==== ==== ====
FAIR VALUE OF PLAN ASSETS
At January 1 $ 55 $ 64 $ 56 $ 53
Actual return on plan assets (4) 5 1 5
Employer contributions 1 -- 1 1
Benefits paid (10) (14) (3) (2)
Foreign currency exchange -- -- (3) (1)
==== ==== ==== ====
Fair value of plan assets at December 31 $ 42 $ 55 $ 52 $ 56
==== ==== ==== ====
Funded status $(11) $ 3 $ (3) $ 1
Unrecognized net actuarial loss (gain) (3) (16) 7 2
Unrecognized prior service cost 4 3 1 1
---- ---- ---- ----
Net prepaid pension asset (liability) $(10) ($10) $ 5 $ 4
==== ==== ==== ====
Included in the pension benefits above are nonqualified pension plans. For these
nonqualified plans, both the projected benefit obligation and accumulated
benefit obligation exceeded the fair value of plan assets by $4 million as of
December 31, 2001 and $5 million as of December 31, 2000. For qualified plans in
the U.S., the projected benefit obligation and accumulated benefit obligation
exceeded the fair value of plan assets by $7 million and by $4 million,
respectively, as of December 31, 2001.
The following weighted average assumptions were used to determine the Company's
obligations under the pension plans:
U.S. PLANS NON-U.S. PLANS
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Discount rates 7.5% 8.0% 8.0% 6.5% 6.5% 6.5%
Rate of compensation increase 4.5% 5.0% 5.0% 4.5% 4.5% 4.5%
Expected return on plan assets 9.0% 9.5% 9.5% 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 $5.5 million,
$5.6 million and $4.4 million in 2001, 2000 and 1999, respectively.
POSTRETIREMENT BENEFIT PLANS - Net postretirement benefit costs consisted of the
following for the years ended December 31, 2001, 2000 and 1999:
(IN MILLIONS)
2001 2000 1999
---- ---- ----
Service cost $1 $1 $1
Interest cost 2 1 1
Net amortization and deferral -- -- (1)
Voluntary separation program -- 2 --
-- -- --
Net postretirement benefit costs $3 $4 $1
== == ==
The Company's postretirement benefit plans currently are not funded. The changes
in the benefit obligations of the plans during 2001 and 2000, and the amounts
recognized in the Company's consolidated balance sheets at December 31, 2001 and
2000, were as follows:
(IN MILLIONS) 2001 2000
---- ----
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
At January 1 $ 26 $ 21
Service cost 1 1
Interest cost 2 1
Actuarial (gain) loss (1) 1
Amendments 1 --
Curtailments -- 2
---- ----
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
At December 31 $ 29 $ 26
Unrecognized net actuarial (loss) gain 2 (3)
Unrecognized prior service cost (2) 4
---- ----
ACCRUED POSTRETIREMENT BENEFIT COSTS $ 29 $ 27
==== ====
Annual increases in the per capita cost of healthcare benefits of 9 percent were
assumed for 2001 and 2002 for healthcare-related postretirement benefits,
declining to 5.0 percent by the year 2010 and remaining at that level
thereafter. An increase in the assumed healthcare cost trend rate by 1
percentage point increases the accumulated postretirement benefit obligation at
December 31, 2001 by $3 million, while a decrease in the rate by 1 percentage
point decreases the obligation 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 $0.3 million.
The accumulated postretirement benefit obligation for U.S. plans was determined
using an assumed discount rate of 7.5 percent and 8 percent at December 31, 2001
and 2000, respectively. The accumulated postretirement benefit obligation at
December 31, 2001 and 2000, for Canadian plans was determined using an assumed
discount rate of 6.5 percent.
NOTE 12 - SUPPLEMENTARY INFORMATION
BALANCE SHEET - Supplementary information is set forth below:
(in millions) 2001 2000
----- -----
ACCOUNTS RECEIVABLE - NET
Accounts receivable - trade $ 234 $ 260
Accounts receivable - other 52 21
Allowance for doubtful accounts (7) (7)
----- -----
Total accounts receivable - net $ 279 $ 274
----- -----
INVENTORIES
Finished and in process $ 91 $ 100
Raw materials 75 95
Manufacturing supplies 35 37
----- -----
Total inventories $ 201 $ 232
----- -----
ACCRUED LIABILITIES
Compensation expenses $ 11 $ 10
Dividends payable 4 4
Accrued interest 8 11
Taxes payable on income 14 10
Taxes payable other than taxes on income 14 15
Other 37 33
----- -----
Total accrued liabilities $ 88 $ 83
----- -----
NON-CURRENT LIABILITIES
Employees' pension, indemnity, retirement, and other $ 48 $ 45
Other non-current liabilities 2 2
----- -----
Total non-current liabilities $ 50 $ 47
===== =====
INCOME STATEMENT - Supplementary information is set forth below:
(in millions) 2001 2000 1999
---- ---- ----
FINANCING COSTS
Interest expense $ 59 $ 59 $ 38
Interest income (3) (4) (5)
Foreign currency transaction losses (gains) 8 (1) 2
---- ---- ----
Financing costs-net $ 64 $ 54 $ 35
==== ==== ====
STATEMENTS OF CASH FLOW - Supplementary information is set forth below:
(in millions) 2001 2000 1999
---- ---- ----
Interest paid $62 $70 $27
Income taxes paid 30 34 29
==== ==== ====
NOTE 13 -- 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 of the Company's
outstanding voting securities, 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 holding at least 15 percent of the Company's outstanding
voting securities 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 and 419,900 shares of its
common stock at an average purchase price of $23.91 and $27.23 per share, during
2000 and 1999, 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 retired 22,905, 18,335 and 6,382
shares of its common stock to treasury during 2001, 2000 and 1999, respectively,
by both repurchasing shares from employees under the stock incentive plan and
through the cancellation of forfeited restricted stock. The Company repurchased
shares from employees at average purchase prices of $27.92, $23.10, and $30.15,
or fair value at the date of purchase, during 2001, 2000 and 1999, respectively.
All of the acquired shares are held as common stock in treasury, less shares
issued to employees under the stock incentive plan.
During 2001, the Company issued, from treasury, 19,930 restricted common shares
and 141,310 common shares upon the exercise of stock options 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 both December 31,
2001 and 2000, 2,549,650 shares had been repurchased under this program at a
total cost of approximately $64 million.
Set forth below is a reconciliation of common stock share activity for the years
ended December 31, 1999, 2000 and 2001.
(Shares of common stock, in thousands) ISSUED HELD IN TREASURY OUTSTANDING
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 37,611 51 37,560
Issuance of restricted stock as
compensation 47 (3) 50
Stock options exercised 2 (1) 3
Purchase/acquisition of treasury stock -- 656 (656)
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 37,660 703 36,957
Issuance in connection with acquisition -- (79) 79
Issuance of restricted stock as
compensation -- (100) 100
Stock options exercised -- (17) 17
Purchase/acquisition of treasury stock -- 1,884 (1,884)
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 37,660 2,391 35,269
Issuance of restricted stock as
compensation -- (19) 19
Stock options exercised -- (141) 141
Purchase/acquisition of treasury stock -- 23 (23)
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 37,660 2,254 35,406
- -------------------------------------------------------------------------------------------------------
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 held
by Company employees were converted to stock options to acquire Corn Products
International common stock. These stock options retain their original vesting
schedules and expiration dates. The Company granted additional nonqualified
options to purchase 546,300, 805,500 and 413,000 shares of the Company's common
stock during 2001, 2000 and 1999, respectively. These options are exercisable
upon vesting, which occurs in 50 percent increments at the one and two-year
anniversary dates of the date of grant. As of December 31, 2001, 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, assuming the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net income would have been $54 million or $1.52 per share in
2001, $44 million or $1.25 per share in 2000 and $69 million or $1.85 per share
in 1999. For purposes of this pro forma disclosure under SFAS 123, the estimated
fair market value of the awards is amortized to expense over the applicable
vesting period.
The fair value of the awards was estimated at the grant dates using the
Black-Scholes option pricing model with the following weighted average
assumptions for 2001, 2000 and 1999, respectively: risk-free interest rates of
5.88 percent, 5.98 percent and 5.67 percent in 2001, 2000 and 1999; volatility
factor of 1.42 percent, 8.28 percent and 35 percent in 2001, 2000 and 1999; and
a weighted average expected life of the awards of 7.4 years, 7.84 years and 5
years in 2001, 2000 and 1999. A dividend yield of 1.13 percent and 1.38 percent
was assumed for 2001 and 2000, respectively. No dividends were assumed for 1999.
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 STOCK AVERAGE
OPTION OPTION EXERCISE SHARES OF
(shares in thousands) SHARES PRICE RANGE PRICE RESTRICTED STOCK
- --------------------- ------ ----------- ----- ----------------
Outstanding at January 1, 1999 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
Granted 546 27.78 to 32.31 28.71 26
Exercised / vested (141) 13.06 to 32.31 25.40 (31)
Cancelled (54) 22.75 to 32.31 27.55 (19)
------ ----------------
OUTSTANDING AT DECEMBER 31, 2001 2,904 $ 13.90 to 32.31 $ 28.05 170
The following table summarizes information about stock options outstanding at
December 31, 2001:
(shares in thousands)
AVERAGE REMAINING WEIGHTED
OPTIONS WEIGHTED AVERAGE CONTRACTUAL LIFE OPTIONS AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE (YEARS) EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- -------------- ------- ----------- --------------
$13.90 to 16.1563 61 $15.41 2.9 61 $15.40
16.1564 to 19.3875 3 16.39 3.2 3 16.39
19.3876 to 22.6188 152 20.94 4.2 152 20.94
22.6189 to 25.8500 436 23.11 7.6 271 23.33
25.8501 to 29.0813 1,266 27.92 8.4 547 27.11
29.0814 to 32.3125 986 32.31 6.0 986 32.31
2,904 $28.05 7.1 2,020 $28.31
The number of options exercisable at December 31, 2000 and 1999 was 1.38 million
and 692 thousand, respectively. The weighted average fair value of options
granted during 2001, 2000 and 1999 was $7.72, $7.05 and $26.87, respectively.
NOTE 14 - SEGMENT INFORMATION
The Company operates in one business segment, corn refining, and is managed on a
geographic regional basis. Its North America operations include corn-refining
businesses in the United States, Canada and Mexico and its non-consolidated
equity interest in CPMCP. Also included in this group is the North American
enzyme business. Its Rest of World operations have been separated into South
America and Asia/Africa. Previously, such operations were combined and reported
as Rest of World. Prior year information is presented for comparability
purposes. The Company's South America operations include corn-refining
businesses in Brazil, Argentina, Colombia, Chile, Ecuador and Uruguay. The
Company's Asia/Africa operations include corn-refining businesses in Korea,
Pakistan, Malaysia, Thailand and Kenya.
(in millions) 2001 2000 1999
------- ------- -------
SALES TO UNAFFILIATED CUSTOMERS (a):
North America $ 1,212 $ 1,157 $ 1,240
Rest of World
South America 440 460 364
Asia/Africa 235 248 131
------- ------- -------
Total $ 1,887 $ 1,865 $ 1,735
======= ======= =======
OPERATING INCOME (b):
North America $ 62 $ 74 $ 93
Rest of World
South America 68 61 49
Asia/Africa 45 54 29
Corporate (14) (13) (14)
Non-recurring earnings 5 -- --
Special charges -- (20) --
------- ------- -------
TOTAL $ 166 $ 156 $ 157
======= ======= =======
TOTAL ASSETS (c):
North America $ 1,430 $ 1,396 $ 1,439
Rest of World
South America 489 647 450
Asia/Africa 308 296 328
------- ------- -------
TOTAL $ 2,227 $ 2,339 $ 2,217
======= ======= =======
DEPRECIATION AND AMORTIZATION:
North America $ 87 $ 93 $ 92
Rest of World
South America 28 29 24
Asia/Africa 12 13 6
------- ------- -------
TOTAL $ 127 $ 135 $ 122
======= ======= =======
CAPITAL EXPENDITURES:
North America $ 52 $ 104 $ 120
Rest of World
South America 28 28 36
Asia/Africa 14 11 6
------- ------- -------
TOTAL $ 94 $ 143 $ 162
======= ======= =======
NOTES:
(a) Sales between segments for each of the periods presented represented less
than 0.6 percent of total sales and are therefore not presented.
(b) Includes earnings from non-consolidated affiliates accounted for under the
equity method as follows: North America - $13 million in 2001; South
America - $1 million in each of 2001, 2000 and 1999.
(c) Includes investments in non-consolidated affiliates accounted for under the
equity method as follows: North America - $13 million at December 31, 2001;
South America - $4 million at December 31, 2001, and $3 million at both
December 31, 2000 and 1999.
The following table presents net sales to unaffiliated customers by country of
origin:
NET SALES
------------------------------------------
(in millions) YEAR ENDED DECEMBER 31, 2001 2000 1999
------ ------ ------
United States $ 599 $ 629 $ 692
Mexico 390 359 359
Canada 224 169 189
Brazil 200 256 217
Korea 155 172 58
Argentina 100 95 48
Others 219 185 172
------ ------ ------
Total $1,887 $1,865 $1,735
====== ====== ======
The following table presents long-lived assets by country:
LONG-LIVED ASSETS
------------------------------------------
(in millions) AT DECEMBER 31, 2001 2000 1999
------ ------ ------
United States $ 434 $ 446 $ 471
Mexico 457 464 431
Canada 151 163 165
Brazil 131 145 153
Korea 186 188 216
Argentina 135 242 88
Others 158 134 151
------ ------ ------
Total $1,652 $1,782 $1,675
====== ====== ======
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows:
(in millions, except per share amounts) 1st QTR 2nd QTR 3rd QTR 4th QTR
----- ----- ----- -----
2001
Net sales before shipping and handling costs $499 $521 $506 $508
Less: shipping and handling costs 44 39 32 32
----- ----- ----- -----
Net sales $455 $482 $474 $476
Gross profit 75 73 84 67
Net income 13 15 20 9
Basic earnings per common share $0.36 $0.43 $0.55 $0.26*
Diluted earnings per common share $0.36 $0.43 $0.55 $0.26*
----- ----- ----- -----
2000
Net sales before shipping and handling costs $482 $516 $524 $514
Less: shipping and handling costs 38 42 45 46
----- ----- ----- -----
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
----- ----- ----- -----
* Includes a $7 million ($4.6 million, net of tax, or $0.13 per common share)
foreign currency transaction loss, related to the Argentine currency
devaluation (see Note 3).
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
------ ------ ------ ------
2001
Market price range of common stock
High $29.19 $32.00 $33.64 $37.00
Low 24.85 24.50 27.65 27.30
Close 25.66 32.00 28.73 35.25
Dividends declared per common share $0.10 $0.10 $0.10 $0.10
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
The number of shareholders of the Company's stock at December 31, 2001 was
approximately 12,000.
NINE-YEAR FINANCIAL HIGHLIGHTS *
(in millions, except per share amounts) 2001 2000 1999 1998 1997
------- ------- ------- ------- -------
SUMMARY OF OPERATIONS
Net sales $ 1,887 $ 1,865 $ 1,735 $ 1,448 $ 1,418
Restructuring and spin-off charges - net -- 13 -- -- 83
Net income (loss) as previously
reported 57 48 77 43 (75)
Adjustment for effect of a change
in accounting for inventories -- -- (3) -- (1)
Net income (loss) as adjusted 57 48 74 43 (76)
Basic earnings per common share:
Net income as previously reported $ 1.60 $ 1.35 $ 2.06 $ 1.19 $ (2.10)
Adjustment for effect of a change
in accounting for inventories -- -- (0.08) (0.01) (0.03)
Net income as adjusted $ 1.60 $ 1.35 $ 1.98 $ 1.18 $ (2.13)
Cash dividends declared per
common share $ 0.40 $ 0.40 $ 0.36 $ 0.16 --
------- ------- ------- ------- -------
BALANCE SHEET DATA
Working capital $ (120) $ 69 $ 104 $ 46 $ (83)
Plants and properties - net 1,293 1,407 1,349 1,298 1,057
Total assets 2,227 2,339 2,217 1,956 1,676
Total debt 756 720 544 404 350
Stockholders' equity 857 960 1,030 1,059 992
Shares outstanding, year end 35.4 35.3 36.9 37.6 35.6
------- ------- ------- ------- -------
STATISTICAL DATA
Depreciation and amortization $ 127 $ 135 $ 122 $ 95 $ 95
Capital expenditures 94 143 162 91 100
Maintenance and repairs 82 78 84 67 69
Total employee costs 194 195 192 131 142
------- ------- ------- ------- -------
(in millions, except per share amounts) 1996 1995 1994 1993
------- ------- ------- -------
SUMMARY OF OPERATIONS
Net sales $ 1,524 $ 1,387 $ 1,385 $ 1,243
Restructuring and spin-off charges - net -- (23) 12 --
Net income (loss) as previously
reported 23 135 100 99
Adjustment for effect of a change
in accounting for inventories 2 1 (2) 2
Net income (loss) as adjusted 25 136 98 101
Basic earnings per common share:
Net income as previously reported $ 0.64 $ 3.79 $ 2.81 $ 2.78
Adjustment for effect of a change
in accounting for inventories 0.06 0.03 (0.06) 0.06
Net income as adjusted $ 0.70 $ 3.82 $ 2.75 $ 2.84
Cash dividends declared per
common share -- -- -- --
------- ------- ------- -------
BALANCE SHEET DATA
Working capital $ 151 $ 33 $ 113 $ 44
Plants and properties - net 1,057 920 830 792
Total assets 1,676 1,315 1,214 1,121
Total debt 350 363 294 209
Stockholders' equity 1,033 606 555 491
Shares outstanding, year end -- -- -- --
------- ------- ------- -------
STATISTICAL DATA
Depreciation and amortization $ 88 $ 82 $ 80 $ 78
Capital expenditures 192 188 145 122
Maintenance and repairs 61 65 65 57
Total employee costs 170 164 149 177
------- ------- ------- -------
* All periods prior to 2000 have been retroactively restated to reflect
the change in accounting for inventories effective January 1, 2000.
Note: 1997 and prior per share amounts are pro forma and have been computed by
dividing net income (loss) by the shares outstanding, which were 35.6 million at
December 31, 1997, the spin-off and distribution date. For the purpose of this
calculation, the shares outstanding at December 31, 1997 were assumed to be
outstanding for all periods prior.