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Exhibit 13
1997 ANNUAL REPORT
CORN PRODUCTS INTERNATIONAL, INC.
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1842
Thomas Kingsford finds the first practical means for separating
starch from corn.
1858
Edwardsburg Starch Company (later Canada Starch Company) begins
operations in Canada.
1901
New York Glucose Company is incorporated,
E.T. Bedford named president.
A NEW COMPANY
WITH A PROUD HISTORY
1906
Corn Products Refining Company is incorporated February 6, 1906, in
New Jersey, through merger of leading corn refining companies,
including New York Glucose Company. Canada Starch Company registers
Casco as a trademark.
1908
Construction of Argo plant begins in Illinois.
1916
Corn Products creates its first safety program.
1919
Corn Products purchases controlling interest in Canada Starch
Company. First dividend declared on CPR stock.
1923
Patent for crystalline dextrose granted. Cerelose(R) first used as
trademark for pure dextrose in the U.S.
1928-1930
Latin American refining operations established in Argentina, Brazil,
and Mexico.
1955
Corn Products invents cationic starch for the paper-making industry.
1958
Corn Products Refining Company and The Best Foods, Inc. merge,
forming Corn Products Company.
1969
Corn Products Company name changed to CPC International Inc. on
April 23, 1969.
1976
Production of Invertose(R) high fructose corn syrup begins at Argo
plant.
1981-1982
Construction of three new North American corn refining plants
completed at Stockton, California; Winston-Salem, North Carolina;
and Port Colborne, Ontario.
1984
Partnership formed between Canada Starch Company and a London,
Ontario corn refiner, to form Casco Company.
1985
Corn Products rebuilds Argo plant. Enzyme BioSystems begins
production at new plant in Beloit, Wisconsin.
1986
Rebuilt Argo plant begins operations.
1987
Canada Starch Company acquires 100% ownership of Casco. European corn
refining operations sold in restructuring.
1994-1996
Argo plant germ oil and dextrose capacity increase completed. Cali,
Colombia plant rebuilt. Arancia-CPC joint venture established.
1997 CORN PRODUCTS INTERNATIONAL, INC. SPINS OFF FROM CPC INTERNATIONAL
INC., BECOMING A SEPARATE, NEW COMPANY, WITH HEADQUARTERS IN THE
CHICAGO AREA; STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE USING
THE SYMBOL CPO.
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[CORN PRODUCTS INTERNATIONAL LOGO]
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1997 ANNUAL REPORT
Index
Letter to Shareholders . . . . . . . . . . . . . . 2
Business Description . . . . . . . . . . . . . . . 4
Management's Discussion and Analysis . . . . . . . 8
Independent Auditors' Report . . . . . . . . . . .13
Financial Statements . . . . . . . . . . . . . . .14
Supplemental Financial Information . . . . . . . .32
Shareholder Information . . . . . Inside Back Cover
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LETTER TO SHAREHOLDERS
AS YOU RECEIVE this first annual report, our company, Corn Products
International, Inc., is nearing the end of its first quarter as an
independent entity. The spin-off of Corn Products' operations from
CPC International (now Bestfoods) was completed on December 31, 1997, and
shares of Corn Products were distributed to CPC shareholders in January,
1998. Our stock now trades under the New York Stock Exchange ticker symbol
CPO.
TO OUR SHAREHOLDERS,
EMPLOYEES, CUSTOMERS,
SUPPLIERS, COMMUNITIES...
We begin our new corporate life with two overall advantages: deep
experience in a traditionally prosperous and growing industry, and a long
history of successful performance over extended periods of time.
We have now added the advantage of total focus on corn refining. As
less than 20% of CPC - a corporation that sought its growth primarily in
the consumer foods business - Corn Products was well run and
adequately supported within its existing parameters. But its opportunities
to expand in scope were limited. As a separate company - on its own and
filled with the excitement and challenge of independence - Corn Products
and its management "live and breathe" for just one highly promising
business... corn refining.
It must also be said that we begin during a difficult period in our
industry. While the market for corn refining products continues to
grow, substantial capacity expansion during 1996 and 1997 in the North
American high fructose corn syrup sector outpaced demand, reducing
profitability sharply. This has affected the performance of Corn Products,
in 1996 and 1997 and into 1998. Our performance in 1996 was affected, in
addition, by extreme swings in the cost of corn, fueled by strong
international demand for this commodity, a low U.S. inventory, and the fear
of a disappointing harvest. In fact, the 1996 and 1997 harvests turned out
to be among the best in history, and corn costs re-turned to nearly normal
levels in 1997, continuing into 1998. Long-term, of course, a plentiful
supply of corn - the norm rather than the exception - is advantageous to
the industry.
While we cannot completely avoid these difficulties in North America
any more than our competitors can, we do have important strengths that keep
us competitive now and will give us an edge as North American conditions
improve.
LOW COSTS
We believe our plants are in excellent shape, following a strong
modernization and expansion program over the last five years. They are
also strategically located to minimize transportation costs.
LEADING POSITIONS
We have strong market positions in the United States, number one positions
in many international markets, and world leadership in dextrose. We have
an excellent and continuing record of protecting and expanding these
leadership positions, and building new ones.
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ORGANIZATIONAL DEPTH
Around the world, Corn Products' highly experienced local organizations,
headed by strong local management teams, leverage decades of
experience and extensive technical, product, and market know-how. In
addition, stock option incentives link management rewards directly to
performance by aligning management effectiveness with shareholder value.
STRONG FINANCE
As is clearly apparent from our opening balance sheet, we start out with
sound financing. We also expect to have a strong cash flow in 1998
and thereafter, which should contribute to financial stability, and
position Corn Products to invest in new growth opportunities around the
world.
WIDE GEOGRAPHIC PRESENCE
AND OPPORTUNITIES
In 1997, as our North American operations were being affected by the high
fructose corn syrup situation, sales of our international operations surged
13% and profits advanced by over 60%. Currently, our worldwide business
comprises operations and alliances in 21 countries, giving us the ability
to offset, in part, adverse conditions in any one market. And while we
continue to focus intently on restoring profitability to the largest part
of our business - in North America - we also evaluate every opportunity for
international expansion, as we build our company for the future.
LEVERAGING OUR STRENGTHS TO INCREASE
SHAREHOLDER VALUE
Our objectives and strategy are firmly and permanently in place. We will
strive for continuous growth in volume and profits, which we expect to
translate into continuously increasing returns to our shareholders. We
plan to do this by aggressively leveraging and building all of our
strengths - our low cost operations, leading market positions, experienced
organization, financial strength, and geographic infrastructure and
opportunities.
As indicated in our industry-related comments above, we do not expect
to see an immediate strong return to historical profit levels. However,
Corn Products' financial performance in the fourth quarter of 1997 was by
far the best of 1997. This gives us cause for optimism that 1998 will be a
year of good progress in the turnaround of our business.
[PHOTO]
OUR PLEDGE TO OUR SHAREHOLDERS, EMPLOYEES,
CUSTOMERS, SUPPLIERS, COMMUNITIES...
We feel extremely fortunate to set out on our new course supported by many
constituencies that value our past accomplishments and appreciate our
opportunities in the years ahead. We can assure you all that the Corn
Products management team is absolutely dedicated to rewarding your
confidence in us and our exciting enterprise. We are committed to doing
everything in our power to ensure that this new company, Corn Products
International, fully realizes its potential and returns continuously
increasing rewards to its many loyal stakeholders.
/s/ Konrad Schlatter
---------------------------
KONRAD SCHLATTER
Chairman and
Chief Executive Officer
/s/ Samuel C. Scott
---------------------------
SAMUEL C. SCOTT
President and
Chief Operating Officer
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BUSINESS DESCRIPTION
CORN PRODUCTS INTERNATIONAL, INC., established on January 1, 1998 as a new,
independent company, arises from old and established roots. Until recently,
our operations were managed as a division of CPC International, a worldwide
food company. In fact, corn refining was the original business of CPC,
dating back to 1906. Gradually, however, as CPC expanded its consumer foods
operations, corn refining became a relatively small part of the total
company with needs and opportunities diverging from those of its parent.
Early in 1997, a decision was made to spin off CPC's corn refining
operations, recognizing that it was in the interest of shareholders to
create a totally separate company focusing exclusively on the challenges and
opportunities of the corn refining industry.
A "NEW" COMPANY...
WITH A PROUD HISTORY
We begin our new, independent life as one of the largest corn
refiners in the world and the leading corn refiner in Latin America. We
are the world's leading producer of dextrose, and have strong regional
leadership in corn starch.
Our organization spans 21 countries and 38 plants with operations
generating approximately $2.5 billion in sales. It comprises fully
consolidated operations in 10 countries with 19 plants and sales of
about $1.5 billion. It further includes joint ventures and allied
operations in an additional 11 countries, with another 19 plants and
unconsolidated sales of approximately $1 billion. About 60% of our revenues
are generated in North America; the rest comes from Latin America, Asia and
Africa. We supply products, derived chiefly from corn, to more than 60
industries. In short, we are well positioned geographically and in terms of
our product portfolio to grow aggressively in North American and
International markets.
Thousands of experienced men and women working in our solidly
established local operations, share a determination and commitment to grow
this business profitably and quickly. They have invested their energies and
know-how with us over many years. And now they are eager to participate in
an exciting future, as Corn Products International, Inc. builds an
independent, focused, and rewarding corn refining business.
OPERATIONS
Our organizations and plants are among the most modern in the industry.
Over the last five years, we have invested over $900 million in our
own facilities and through joint ventures. The plants are strategically
located near markets and starch sources further enhancing efficiencies.
This geographic breadth and our deep technical experience and market and
product know-how enable us to ship starch and dextrose products cost
effectively to any market in the world we choose to participate.
NORTH AMERICA. In the U.S., Canada, and Mexico, Corn Products
International, Inc. operates 11 plants, producing regular and modified
starches, dextrose, high fructose and high maltose corn syrups and corn
syrup solids, dextrins and maltodextrins, caramel color, and sorbitol. Corn
Products is the dextrose market leader in the U.S. A 100 million-pound
dextrose expansion was completed at our Argo plant in Bedford Park,
Illinois in January 1996. The plant is a major supplier of starch and
dextrose products for our U.S. and export customers.
Plants in Winston-Salem, North Carolina, and Stockton, California enjoy
strong market shares in their local areas, as do the Cardinal, London, and
Port Colborne, Ontario, plants. Our three Canadian and three U.S.
plants have all been updated to use energy cogeneration.
In Mexico, Corn Products' joint venture with Arancia Industrial S.A. de
C.V. is that country's largest corn refiner. The venture was the
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first in Mexico to produce High Fructose Corn Syrup-55, the
sweetener-of-choice of the bottling industry, in a market second only to
the U.S. A new high fructose corn syrup facility in San Juan Del Rio was
completed in November 1996.
OTHER OPERATIONS. Corn Products is the largest corn refiner in Latin
America, with leading market shares in Chile, Brazil and Colombia,
and a strong position in Argentina. Our 10-plant network produces regular,
modified, waxy and tapioca starches, high maltose and corn syrups, dextrins
and maltodextrins, dextrose, caramel color, sorbitol, and vegetable
adhesives.
Recent improvements include the rebuilding of the Cali, Colombia
facility to increase capacity and better serve the region with new
products, such as high maltose corn syrup for the brewing industry. In
Brazil, recent modernization and expansion of the Mogi Guacu plant is
helping the Company maximize operating efficiencies, increase capacity, and
produce new products.
We also have subsidiaries in Kenya, Malaysia, and Pakistan. In
Pakistan, we have recently completed a sizable grind increase and are
continuing to add capacity. The three plants in this group produce
modified, regular, waxy and tapioca starches, dextrins, glucose, dextrose,
and caramel color.
In addition, we have strategic alliances through technical license
agreements, some including equity investments, with companies in
Australia, India, Japan, New Zealand,Thailand, South Africa, Zimbabwe,
Serbia, and Venezuela. The 15 plants, as a group, produce high fructose,
glucose, and high maltose syrups (both corn and tapioca), regular,
modified, waxy and tapioca starches, dextrose and dextrins, maltodextrins,
and caramel color. These products have leading market positions in most of
these markets.
OBJECTIVE AND STRATEGY
Corn Products' objective is to continuously generate growth in volume and
profit which, we believe, will translate into continuously increasing
returns to our shareholders. Our basic strategy, therefore, is to focus our
management, technical, and financial resources on our areas of strength.
Specifically, we plan to:
PROTECT AND GROW LEADING MARKET POSITIONS. As the No. 1 worldwide dextrose
producer, as well as a regional leader in starch and high maltose corn
syrup, we intend to continue to leverage our knowledge and expertise
through-out the world, expanding capacity to meet current and anticipated
customer needs. We also intend to continue growing our position as a
leading corn refiner in all markets where we have strong leadership
positions, anywhere in the world.
DRIVE FOR DELIVERED COST LEADERSHIP. We have implemented, and anticipate
continuing to implement, cost-saving and productivity programs to enhance
competitiveness. This includes improving facility reliability by further
developing our successful preventive maintenance programs, as well as
ensuring consistent logistical excellence.
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BUSINESS DESCRIPTION
PROVIDE HIGH-QUALITY PRODUCTS AND SUPERIOR SERVICE VALUED BY OUR
CUSTOMER. Delivering high quality products and providing superior customer
service has been a strength of our company. We plan on continuing to
improve our service levels and focus on customer needs to protect and gain
additional preferred supplier relationships. We believe that localized
operations and close relations with customers enable us to reach a broader
customer base and increase our overall profitability.
EXPAND IN NEW MARKETS AND ENTER NEW MARKETS. With trade barriers
falling throughout the world, we believe we are well positioned to seize
opportunities through our worldwide network. Our local operations and
strategic relationships around the world provide a strong base for
expansion into newly accessible markets. Also, we aim to form additional
strategic alliances with local corn refiners as a cost-effective method of
expanding into emerging markets. Local corn refiners have unique knowledge
of regional customers, markets, and other business and political
conditions. We know how to leverage that knowledge with our advanced
technology, global business experience, management and production
applications skills, and existing customer relationships.
PRODUCTS AND MARKETS SERVED
Corn Products International, Inc. serves customers in more than 60
different industries, including food and beverage, pharmaceutical,
corrugated, paper and brewing. We also serve the animal feed markets
worldwide. The following describes our principal products and their primary
uses:
SWEETENERS
HIGH FRUCTOSE CORN SYRUP (HFCS). Today, Corn Products produces two main
types of HFCS: HFCS-55, which is primarily used as a sweetener in
soft drinks made in the United States, Canada, Mexico, and Japan; and
HFCS-42, which is used as a sweetener in various consumer foods, such as
fruit-flavored beverages, yeast-raised breads, rolls, doughs, ready-to-eat
cakes, chocolate milk, yogurt, and ice cream.
GLUCOSE CORN SYRUPS. Corn Syrups are fundamental ingredients in many
industrial products and are widely used in food products such as baked
goods, snack foods, beverages, canned fruits, condiments, candy and other
sweets, dairy products, ice cream, jams and jellies, prepared mixes, and
table syrups. Corn Products offers corn syrups that are manufactured
through an ion-exchange process, a method that creates the highest quality,
purest corn syrups.
HIGH MALTOSE CORN SYRUP is a glucose syrup with a unique carbohydrate
profile,making it ideal for use as a source of fermentable sugars in
brewing beer. High maltose syrups are also used in the production of
confections, canning. and other food processing applications.
DEXTROSE. Corn Products was granted the first U.S. patent for
dextrose in 1923. Today we produce dextrose products that are grouped in
three different categories - monohydrate, anhydrous, and specialty.
Monohydrate dextrose is used across the food industry in many of the same
products as glucose corn syrups, especially in confectionery applications.
Anhydrous dextrose is used to make solutions for intravenous injection and
other pharmaceutical applications, as well as some specialty food
applications. Specialty dextrose products are used in a wide range of
applications, from confectionery tableting to dry mixes to carriers for
high intensity sweeteners.
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Dextrose also has a wide range of industrial applications, including
use in wall board and production of biodegradable surfactants (surface
agents), humectants (moisture agents), and as the base for fermentation
products including vitamins, organic acids, amino acids, and alcohol.
MALTODEXTRINS AND GLUCOSE AND CORN SYRUP SOLIDS have a multitude of food
applications, including formulations where liquid corn syrups cannot be
used. Maltodextrins are resistant to browning, provide excellent
solubility, have a low hygroscopicity (do not retain moisture), and are
ideal for their carrier/bulking properties. Corn Syrup Solids have a bland
flavor, remain clear in solution, are easy to handle, and also provide
bulking properties.
STARCHES
We trace our roots to Thomas Kingsford, who found the first practical means
to separate starch from corn in 1842. At that time, starch was used to
give an attractive finish to fabrics. Today, starches are important
components in a wide range of processed foods, used particularly as
thickeners and binders. Corn starch is also sold to corn starch packers for
sale to consumers. Starches are also used in paper production to produce a
smooth surface for printed communications and improve strength in today's
recycled papers. In the corrugating industry, starches are used to produce
high quality adhesives for production of shipping containers, display
board, and other corrugated applications.
The textile industry has successfully used starches for over a
century to provide size and finishes for manufactured products.
Industrial starches are used in the production of construction
materials, adhesives, pharmaceuticals, and cosmetics, as well as in mining,
water filtration, and oil and gas drilling.
Two of the more specialized industrial starches sold by Corn Products are:
CATIONIC STARCHES, used by papermakers to increase productivity, conserve
energy, improve quality, and allow for more effective use of recycled
fibers.
CARRIER STARCHES, used primarily by corrugators to increase adhesion,
provide flatter surfaces for printing, and improve efficiency.
ENZYMES
Enzymes are produced and marketed for a variety of food and industrial
applications.
CO-PRODUCTS
REFINED CORN OIL is sold to packers of cooking oil and to producers of
margarine, salad dressings, shortening, mayonnaise, and other foods.
CORN GLUTEN FEED is sold as animal feed.
CORN GLUTEN MEAL and STEEPWATER are sold as additives for animal feed.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
On December 31, 1997, CPC International Inc. spun off its Corn Refining
Business as a separate independent company. This discussion and the
financial statements included in this Annual Report were prepared by
attributing the historical data for the Corn Refining Business of CPC
International Inc. to the Company utilizing accounting policies consistent
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
with those applied in the preparation of CPC's historical financial
statements. Since the Corn Refining Business was operated as a division of
CPC during the periods presented, such financial information and statements
may not necessarily reflect the consolidated results of operations or
financial position of the Company or what the results of operations would
have been if the Company had been an independent, public company during
those periods.
OVERVIEW AND OUTLOOK
Following several years of attractive growth, the Company's profits
declined sharply in 1996 and 1997. The primary reason for the profit
decline in 1997 was a significant expansion of high fructose corn syrup
industry capacity in North America ahead of demand which has been growing
at about 5% per year. The current supply/demand imbalance caused North
American high fructose corn syrup prices to fall sharply and made this
important product unprofitable for the Company in 1997. Based on the
Company's 90 years of experience in the corn refining industry, we expect
the continuing growing demand by the various user industries to gradually
fill current industry surplus capacity.
In 1998, the Company intends to focus in all its markets and
operations on improving prices, volume, costs and efficiencies by
continuing to strive for optimal product selection, optimal production
capacity usage, cost reductions in purchasing, manufacturing and
administration, and improvement in quality of products and customer
service. More specifically:
- IN NORTH AMERICA, in view of the industry over-capacity in high
fructose corn syrup and the resulting depressed profit margins, the
Company's strategy is to seek sales and profit growth by shifting
production, to the extent its existing capacity permits, away from high
fructose corn syrup to products with better margins. The Company plans to
concentrate its capital expenditures on cost reduction projects at existing
facilities. The Company also intends to maximize export sales by making
full use of its worldwide infrastructure.
- IN OTHER PARTS OF THE WORLD, the Company plans to concentrate on
meeting growing demand. In 1998, several plant expansions are expected
to be completed. The Company also intends to explore expansion into new
markets across borders, using its existing strong positions and facilities.
It further plans to continue to explore an increased participation in the
corn refining industry internationally, through joint ventures and
technology transfers.
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RESULTS OF OPERATIONS
NET SALES. In 1997, despite volume growth of 5%, net sales for the year
decreased 7% to $1,418 million compared with net sales of $1,524 million
for the same period in 1996. This change was due entirely to a 16% decline
in sales in North America, where lower corn costs in combination with
excess supply in the high fructose corn syrup business resulted in
significantly lower prices. Excess supply was caused by a significant
capacity expansion in the industry, the entry of a new competitor into the
market and lower than expected increase in demand from Mexico. In other
international operations, sales increased 11% compared with 1996 on volume
gains of 13%.
Net sales in 1996 advanced 9.9% to $1.5 billion on increased volume
of 4.8% and also reflecting corn cost-pushed higher pricing. All geographic
areas contributed to the increase over the prior year. North America
accounted for the majority of the sales gain. This was attributable to a
6.0% volume increase and corn cost-pushed higher pricing. In Other
Operations, Latin America sales improved 1.1% on an increase in volumes of
1.6% but were partially offset by slightly lower prices. Volumes in Asia
and Africa were up significantly, but increased prices were fully offset by
weaker currency values.
COST OF SALES AND OPERATING EXPENSES.
Cost of sales as a percentage of net sales in 1997 was 90% compared with
91% in 1996 and 78% in 1995, resulting in gross profit margins of 10%,
9% and 22% for each of these periods, respectively. The margins in 1997 and
1996 were significantly lower than recent levels and reflect the extremely
low high fructose corn syrup pricing during 1997 and high corn costs in
1996. The sharp and unusual increase in the cost of corn during 1996 could
not be fully passed on in increased prices. Also in 1996, the Company took
a $40 million write down for certain liquidated corn futures positions when
corn prices fell sharply toward the end of that year.
POLICY ON HEDGING. The Company follows a policy of hedging its exposure to
commodities fluctuations with commodities futures contracts for certain of
its North American corn purchases. All firm priced business is hedged when
contracted. Other business may or may not be hedged at any given time based
on management's judgment as to the need to fix the costs of its raw
materials to protect the Company's profitability. Realized gains and losses
arising from such hedging transactions are considered an integral part of
the cost of those commodities and are included in the cost when purchased.
RESTRUCTURING CHARGE - NET. In 1997, the Company recorded a $94 million
pre-tax ($71 million after tax) restructuring charge. This charge
included primarily severance and severance-related costs for more than 200
employees as part of the overall realignment of the business. The majority
of the restructuring is taking place in the Company's international
operations.
In 1995, the Company recorded a pre-tax gain of $52 million from the
sale of its ethanol business in the U.S. This was partially offset by a
pre-tax restructuring charge of $15 million. This restructuring was
designed to ensure competitiveness.
SPIN-OFF COSTS. In 1997, the Company also recorded a $15 million charge
($12 million after taxes) representing the direct costs of the spin-off
of the Corn Refining Business including fees in the legal, tax and
investment banking areas.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING INCOME. Excluding the restructuring charge and spin-off costs
described above, 1997 operating income of $45 million declined 26% versus
1996. The decline was primarily attributable to the unfavorable high
fructose situation in North America discussed above. In the rest of the
world, the Company's volumes and margins improved.
The 70% decrease in 1996 Operating Income compared to 1995 reflects
mainly the unusually high corn prices in 1996, as well as the $40
million corn futures write down discussed above. In North America, margins
declined significantly as a result of higher corn costs which were not
passed on in increased pricing. In Other Operations volume improvements
were more than offset by reduced margins related to higher corn costs.
FINANCING COSTS. Financing costs in 1997 were $28 million compared with
$28 million in 1996. Debt allocated from the parent company was held
consistent during this period and interest rates were relatively stable.
Financing costs were also constant between 1996 and 1995.
PROVISION FOR INCOME TAXES. In 1997 the Company reported a pre-tax loss.
This loss arose from the restructuring and spin-off charges noted
above. The tax benefit rate attributed to these special items was 24%. A
35% rate was applied to the Company's operating profits. This resulted in a
net effective tax rate of 21% for the year. It cannot be assumed that the
35% effective tax rate is indicative of effective tax rates for future
periods. This will depend on the mix of United States and International
earnings as well as actual income tax rates in the various jurisdictions in
which the Company operates.
The effective tax rate in 1996 was 33.6%, compared with 38.5% in 1995.
The 4.9% decline was due chiefly to a decrease in tax rates in certain
foreign jurisdictions and an increase in the proportion of the
Company's worldwide income represented by foreign income, which, on
average, was taxed at a lower rate than U.S. income.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. A $3 million
after-taxes charge resulted from a recently issued accounting pronouncement
put forth by the Emerging Issues Task Force (EITF) requiring that certain
process reengineering costs previously capitalized be expensed in the
fourth quarter of 1997.
NET INCOME (LOSS). Excluding the after-tax restructuring charge and
spin-off costs described above and the cumulative effect of change in
accounting principle, the Company reported for 1997 net income of $11
million, compared with net income of $23 million in 1996. Including the
restructuring and spin-off charges, the net loss was $75 million.
In 1996, the Company's net income declined to $23 million from $135
million in 1995, mainly as a result of the adverse corn prices and the corn
futures write down discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that future cash flows will be sufficient to fund
operations, to provide for adequate capital expenditures in support of its
growth strategy.
Most of the Company's plants have been modernized and expanded in line
with projected market demand and no major capacity additions are planned for
1998.
Worldwide capital expenditures of approximately $70 to $100 million per
year are planned from 1998 through 2000, primarily for identified cost
reduction opportunities. This represents a significant reduction from the
annual average capital expenditures of $150 million for the last
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five years. New capacity expansion (other than projects already in
progress) will be directed to products or market areas where the Company
anticipates significant growth or has identified market demand.
The Company established a $340 million 5-year revolving credit
facility in the U.S. and a six-month $100 million bridge loan in Canada
to provide funds to satisfy the Company's obligations with CPC and for
working capital and other general corporate purposes. In addition, the
Company has a number of short-term credit facilities in its foreign
operations consisting of operating lines of credit. The Company expects
that these credit facilities, together with cash flow from operations, will
provide it with sufficient operating funds.
NET CASH FLOWS. Net cash flows from operations of $215 million for the year
ended 1997, (which number includes 15 months of cash flows for
International operations - see Note 1 to Consolidated Statements of Cash
Flows, page 17), improved significantly over a $105 million deficit for the
same period in 1996, despite a net loss in 1997. This resulted from
reductions in trade working capital, higher depreciation and the adjustment
of the net loss for the restructuring charge and spin-off costs described
above. The benefit of increased cash flows from operations and lower
investment requirements in 1997 resulted in a significant improvement in
net cash outflows after investment of $82 million versus a $356 million
deficit in 1996.
In 1996, lower net income, together with higher working capital and
higher capital expenditures, resulted in a negative cash flow from
operations of $105 million. Capital expenditures during 1996 were mainly
for plant expansions and efficiency projects. A $60 million loan to the
Company's unconsolidated Mexican joint venture helped finance the
construction of a high fructose corn syrup plant to serve the Mexican soft
drink industry's conversion to high fructose corn syrup.
YEAR 2000 - The year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable
year. During 1997, the Company developed a plan to address the year 2000
issue and began converting its computer systems to be year 2000 compliant.
Currently, the Company believes it will complete its efforts in advance of
the year 2000, and is expensing all costs associated with these systems
changes as the costs are incurred. Additionally, a review of our suppliers
and customers is being made to assure that they are working toward year
2000 compliance.
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements concerning
the Company. Although the Company believes its expectations reflected in
such forward-looking statements are based on reasonable assumptions, no
assurance can be given that such expectations will prove correct and that
actual results and developments may differ materially. Important factors
that could cause actual results to differ include fluctuations in worldwide
commodities markets and the associated risks of hedging against such
fluctuations; fluctuations in aggregate industry supply and market demand;
general economic, business and market conditions in the various geographic
regions and countries in which the Company manufactures and sells its
products, including fluctuations in the value of local currencies; and
increased competitive and/or customer pressure in the corn refining
industry. For a further description of these factors, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
11
14
REPORT OF
MANAGEMENT
THE MANAGEMENT OF CORN PRODUCTS is responsible for the financial and
operating information contained in this Annual Report, including the
financial statements covered by the independent auditors' report. These
statements represent financial data extracted from the consolidated results
of CPC International Inc., of which the Company was an integral part until
it was spun off as a separate operation on December 31, 1997. The
statements were prepared in conformity with United States generally
accepted accounting principles and include, where necessary, informed
estimates and judgements. The results may not necessarily be indicative of
the results of operations or financial position that would have been
obtained if the Company had been a separate independent company during the
period shown.
The Company maintains systems of accounting and internal control
designed to provide reasonable assurance that assets are safeguarded
against loss, and that transactions are executed and recorded properly so
as to ensure that the financial records are reliable for preparing
financial statements.
Elements of these control systems are the establishment and
communication of accounting and administrative policies and
procedures, the selection and training of qualified personnel, and
continuous programs of internal audits.
The Company's financial statements will be reviewed by its Audit
Committee, which is composed entirely of outside Directors. This
Committee will meet 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 will have direct access to the Audit
Committee.
/s/ James W. Ripley
------------------------
JAMES W. RIPLEY
Chief Financial Officer
February 11, 1998
12
15
[KPMG PEAT MARWICK LLP LOGO]
INDEPENDENT
AUDITORS'
REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CORN PRODUCTS INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of Corn Products
International, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three year period ended December 31, 1997. These
consolidated financial statements are the responsibility of
the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Corn
Products International, Inc. and Subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the Consolidated Financial Statements, the
Company changed its method of accounting for business process reengineering
costs in 1997.
/S/ KPMG Peat Marwick LLP
- ----------------------------
KPMG PEAT MARWICK LLP
New York, New York
February 11, 1998
13
16
CONSOLIDATED
STATEMENTS OF
INCOME
CORN PRODUCTS INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
YEAR END DECEMBER 31,
$ MILLIONS (EXCEPT PER SHARE AMOUNT) 1997 1996 1995
- -------------------------------------------------------------------------------
Net sales . . . . . . . . . . . . . . . . . . $1,418 $1,524 $1,387
Cost of sales . . . . . . . . . . . . . . . . 1,280 1,381 1,083
- -------------------------------------------------------------------------------
GROSS PROFIT. . . . . . . . . . . . . . . . . 138 143 304
- -------------------------------------------------------------------------------
Selling, general, and administrative . . . . 90 88 102
Restructuring charges - net . . . . . . . . . 94 -- (37)
Spin-off costs . . . . . . . . . . . . . . . 15 -- --
Equity in (earnings) of unconsolidated
affiliates. . . . . . . . . . . . . . . . . -- (10) (12)
- -------------------------------------------------------------------------------
Expenses and other income - net . . . . . . . 199 78 53
- -------------------------------------------------------------------------------
OPERATING INCOME (LOSS) . . . . . . . . . . . (61) 65 251
Financing costs . . . . . . . . . . . . . . . 28 28 28
- -------------------------------------------------------------------------------
Income (loss) before income taxes and
minority interest . . . . . . . . . . . . . (89) 37 223
Provision (benefit) for income taxes. . . . . (19) 12 86
Minority stockholders' interest . . . . . . . 2 2 2
- -------------------------------------------------------------------------------
Net income (loss) before change in
accounting principle . . . . . . . . . . . $ (72) $ 23 $ 135
Cumulative effect of change in accounting
principle net of tax . . . . . . . . . . . 3 -- --
- -------------------------------------------------------------------------------
NET INCOME (LOSS) . . . . . . . . . . . . . . (75) 23 135
===============================================================================
PRO FORMA EARNINGS (LOSS) PER COMMON SHARE
Basic and Diluted:
Net income before change in
accounting principle . . . . . . . . $(2.02) $ 0.64 $ 3.79
Cumulative effect of change in
accounting principle . . . . . . . . (0.08) -- --
- -------------------------------------------------------------------------------
NET INCOME (LOSS) . . . . . . . . . . . . . . $(2.10) $ 0.64 $ 3.79
===============================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
17
CONSOLIDATED
BALANCE
SHEETS
CORN PRODUCTS INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
YEAR END DECEMBER 31, $ MILLIONS 1997 1996
- -------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . $ 85 $ 32
Accounts receivable - net . . . . . . . . 175 209
Due from CPC- net . . . . . . . . . . . . 7 8
Inventories . . . . . . . . . . . . . . . 123 162
Prepaid expenses. . . . . . . . . . . . . 13 8
Other current assets. . . . . . . . . . . -- 6
Deferred tax asset. . . . . . . . . . . . 20 9
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS. . . . . . . . . . 423 434
Investments in and loans to
unconsolidated affiliates . . . . . . . 168 149
Plants and properties - net . . . . . . . 1,057 1,057
Other assets . . . . . . . . . . . . . . 18 23
- -------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . $1,666 $1,663
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable . . . . . . . . . . . . . . $ 337 $ 162
Accounts payable. . . . . . . . . . . . . 90 83
Accrued liabilities . . . . . . . . . . . 69 42
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES . . . . . . . 496 287
- -------------------------------------------------------------------------------
Noncurrent liabilities . . . . . . . . . 37 60
Long-term debt . . . . . . . . . . . . . 13 188
Deferred taxes on income . . . . . . . . 128 94
Minority stockholders' interest . . . . . 6 9
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 - 35,594,360 issued and
outstanding on December 31, 1997. . . 1 --
- Additional paid in capital. . . . . . . 1,020 --
Cumulative translation adjustment . . . . (35) (12)
Retained earnings . . . . . . . . . . . . -- --
Net stockholders' investment . . . . . . -- 1,037
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . 986 1,025
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . $1,666 $1,663
===============================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
18
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS'
EQUITY
CORN PRODUCTS INTERNATIONAL, INC.
- -----------------------------------------------------------------------------------------------------------------
ADDITIONAL CUMULATIVE NET
PREFERRED COMMON PAID-IN TRANSACTION RETAINED STOCKHOLDERS'
$ MILLION STOCK STOCK CAPITAL ADJUSTMENT EARNINGS INVESTMENT TOTAL
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 . . . . . $0 $0 $ 0 $ (15) $ 0 $ 565 $ 550
- -----------------------------------------------------------------------------------------------------------------
Net Income . . . . . . . . . . . . 135 135
Transfer from CPC, net. . . . . . . (90) (90)
Translation adjustment. . . . . . . 5 5
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995. . . . . . $0 $0 $ 0 $ (10) $ 0 $ 610 $ 600
- -----------------------------------------------------------------------------------------------------------------
Net Income . . . . . . . . . . . . 23 23
Transfer from CPC, net. . . . . . . 404 404
Translation adjustment. . . . . . . (2) (2)
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996. . . . . . $0 $0 $ 0 $ (12) $ 0 $1,037 $1,025
- -----------------------------------------------------------------------------------------------------------------
Net Income . . . . . . . . . . . . (75) (75)
Net income for the change
in reporting period . . . . . . 10 10
Transfer from CPC, net. . . . . . . 1,020 (972) 48
Translation adjustment. . . . . . . (23) (23)
Stock issued in connection
with spin-off . . . . . . . . . 1 1
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997. . . . . . $0 $1 $1,020 $ (35) $ 0 $ 0 $ 986
=================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[A16
19
CORN PRODUCTS INTERNATIONAL, INC.
- ----------------------------------------------------------------------------------------------------- Consolidated
YEAR END DECEMBER 31, $ MILLIONS 1997(1) 1996 1995 Statements of
- ----------------------------------------------------------------------------------------------------- Cash Flows
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $(75) $23 $135
Net income for the change in reporting period . . . . . . 10 -- --
Non-cash charges (credits) to net income
Depreciation and amortization. . . . . . . . . . . . . . . 103 88 83
Restructuring charges - net. . . . . . . . . . . . . . . . 94 -- (37)
Spin-off costs . . . . . . . . . . . . . . . . . . . . . . 15 -- --
Cumulative effect of change in accounting principle - net 3 -- --
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . 10 (17) (6)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . 1 (23) 1
Equity in earnings of unconsolidated affiliates . . . . . . . -- (1) (9)
Changes in trade working capital
Accounts receivable and prepaid items. . . . . . . . . . . 34 (95) (7)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 34 (50) 10
Due (to) from CPC Inc. . . . . . . . . . . . . . . . . . . 1 (2) 1
Accounts payable and accrued liabilities . . . . . . . . . (15) (28) 3
- -----------------------------------------------------------------------------------------------------
Net cash flows from (used for) operating activities . . . . . 215 (105) 174
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Capital expenditures paid . . . . . . . . . . . . . . . . . . (116) (192) (188)
Proceeds from the disposal of plants and properties . . . . . 4 1 2
Proceeds from businesses sold . . . . . . . . . . . . . . . . -- -- 67
Investment in and loans to unconsolidated affiliates. . . . . (21) (60) (13)
- -----------------------------------------------------------------------------------------------------
Net cash flows used for investing activities. . . . . . . . . (133) (251) (132)
- -----------------------------------------------------------------------------------------------------
Net cash flows after investments . . . . . . . . . . . . . . 82 (356) 42
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
Net change in debt . . . . . . . . . . . . . . . . . . . . . -- (12) 58
Increase in transfers from CPC - net . . . . . . . . . . . . (6) 404 (90)
Other liabilities (deposits) . . . . . . . . . . . . . . . . (23) (35) (13)
- -----------------------------------------------------------------------------------------------------
Net cash flows from (used for) financing activities . . . . . (29) 357 (45)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents . . . . . . 53 1 (3)
Cash and cash equivalents, beginning of period. . . . . . . . 32 31 34
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period. . . . . . . . . . . $85 $32 $31
======================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) 1997 includes 15 months of cash flows for international operations
(see Note 2)
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . $19 $19 $14
Income taxes paid . . . . . . . . . . . . . . . . . . . . $10 $11 $69
======================================================================================================
17
20
CORN PRODUCTS INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
Notes to
Consolidated
Financial
Statements
NOTE 1 BASIS OF PRESENTATION
On February 26, 1997, the Board of Directors of CPC International Inc. ("CPC")
approved the spin-off of CPC's corn refining and related businesses (the "Corn
Refining Business") to its stockholders. Subsequently, CPC formed Corn Products
International, Inc. (the "Company") to assume the operations of the Corn
Refining Business. As a result of the spin-off on December 31, 1997, CPC
distributed 100% of the Company's common stock (the "Corn Products Common
Stock") through a special dividend to its shareholders. The financial
statements at December 31, 1997 reflect the effects of the spin-off.
The Company carries its assets and liabilities at historical cost. The
historical actions of CPC's Corn Refining Business, including CPC's accounting
policies, are attributable to the Company. The financial results in these
financial statements are not necessarily indicative of the results that would
have occurred if the Company had been an independent public company during the
periods presented or of future results of the Company.
- -------------------------------------------------------------------------------
NOTE 2 SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION/CHANGES IN REPORTING PERIOD - The consolidated
financial statements include the accounts of the Company and its majority owned
subsidiaries. The accounts of subsidiaries outside of North America are based
on fiscal years ending September 30; however, as of December 31, 1997 the
Company changed the fiscal year end for its subsidiaries located outside North
America to that of its North American operation, which is the calendar year.
The results of the three month stub period are included as an adjustment of
shareholder's equity.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign
subsidiaries other than those in highly inflationary economies are translated
at current exchange rates with the related translation adjustments reported as
a separate component of stockholders' equity. Income statement accounts are
translated at the average exchange rate during the period. In highly
inflationary economies where the U.S. dollar is considered the functional
currency, monetary assets and liabilities are translated at current exchange
rates with the related adjustment included in net income. Non-monetary assets
and liabilities are translated at historical exchange rates.
CASH AND CASH EQUIVALENTS - Cash equivalents consist of all investments
purchased with an original maturity of three months or less, and which have
virtually no risk of loss in value.
INVENTORIES - are stated at the lower of cost or market. In the U.S.,
corn is valued at cost on the last-in, first-out method. Had the first-in,
first-out method been used for U.S. inventories, the carrying value of these
inventories would have increased by $10.5 million and $12.7 million in 1997 and
1996, respectively. Outside the U.S., inventories generally are valued at
average cost.
ENVIRONMENTAL CONTINGENCIES - The Company accounts for environmental
contingencies in accordance with Statement of Financial Accounting Standards
(FAS 5), "Accounting for Contingencies," which requires expense recognition
when it is both "probable" that an obligation exists and that the obligation
can be "reasonably estimated."
18
21
CORN PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (2) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN UNCONSOLIDATED AFFILIATES are carried at cost or less, adjusted
to reflect the Company's proportionate share of income or loss less dividends
received. At December 31, 1997, undistributed earnings of unconsolidated
affiliates was $10.4 million, primarily representing companies of which the
Company owns 50% or less.
PLANTS AND PROPERTIES - Plants and properties are stated at cost. Depreciation
is generally computed on the straight-line method over the estimated useful
lives of depreciable assets at rates ranging from 10 to 50 years for buildings
and 5 to 20 years for all other assets. Where permitted by law, accelerated
depreciation methods are used for tax purposes. Long-lived assets are reviewed
for impairment whenever the facts and circumstances indicate that the carrying
amount may not be recoverable.
INCOME TAXES - Deferred income taxes reflect the differences between the assets
and liabilities recognized for financial reporting purposes and amounts
recognized for tax purposes. Deferred taxes are based on tax laws as currently
enacted. The Company makes provisions for estimated U.S. and foreign income
taxes, less available tax credits and deductions, that may be incurred on the
remittance by the Company's subsidiaries of undistributed earnings, except
those deemed to be indefinitely reinvested.
COMMODITIES - The Company follows a policy of hedging its exposure to
commodities fluctuations with commodities futures contracts for its North
American corn purchases. All firm priced business is hedged, other business may
or may not be hedged at any given time based on management's decisions as to
the need to fix the cost of such raw materials to protect the Company's
profitability. Realized gains and losses arising from such hedging
transactions are considered an integral part of the cost of these commodities
and are included in the cost when purchased.
EARNINGS PER COMMON SHARE - Effective December 1997, FAS 128, "Earnings Per
Share," requires a dual presentation of earnings per share - Basic and diluted.
Basic earnings per common share has been computed by dividing net income (loss)
by the shares outstanding, 35.6 million at December 31, 1997, the distribution
date. For the purpose of this calculation and the diluted earnings per share,
the shares outstanding at December 31, 1997 were assumed to be outstanding for
all periods. Diluted earnings per share has been computed by dividing net
income (loss) by the shares outstanding at December 31, 1997, including the
dilutive effects of stock options outstanding for a total of 36.0 million.
19
22
NOTES TO CONSOLIDATED CORN PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (2) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RISKS AND UNCERTAINTIES - The Company operates in one business segment and in
more than 20 countries. In each country, the business is subject to varying
degrees of risk and uncertainty. It insures its business and assets in each
country against insurable risks in a manner that it deems appropriate. Because
of its diversity, the Company believes that the risk of loss from non-insurable
events in any one country would not have a material adverse effect on the
Company's operations as a whole. Additionally, the Company believes there is no
concentration of risk with any single customer or supplier, or small group of
customers or suppliers, whose failure or non-performance would materially affect
the Company's results.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CHANGE IN ACCOUNTING PRINCIPLE - In November 1997 Emerging Issues Task Force
(EITF) issued No. 97-13 "Accounting for Business Process Reengineering Costs,"
which requires that certain costs related to reengineering business processes
either done separately or in conjunction with an information technology project
be expensed rather than capitalized. This requirement was effective in the
fourth quarter of 1997 and required that any unamortized balance of previously
capitalized costs be expensed and treated as a change in accounting principle.
Accordingly, the Company has recorded a cumulative effect of a change in
accounting principle of $5 million before taxes, $3 million after taxes, or
$0.08 per common share.
NEW ACCOUNTING PRONOUNCEMENTS - FAS 130, "Reporting Comprehensive Income," was
issued in June 1997 and is effective for the Company commencing with the first
quarter of 1998. This statement requires separate financial statement disclosure
of comprehensive income which encompasses changes in net assets values derived
from activity from both owner and nonowner sources. The Company will comply with
the requirements of this Statement.
"SEGMENT INFORMATION" - Also in June 1997, FAS 131, "Disclosure About Segments
of an Enterprise and Related Information," was issued. This statement is
effective commencing with fiscal 1998. The Company currently complies with the
requirements of this new statement. The Company is in one business segment -
corn refining - and produces a wide variety of products.
20
23
CORN PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (3) SPIN-OFF FROM AND TRANSACTIONS WITH CPC INTERNATIONAL INC.
On December 31, 1997, CPC distributed 100% of the Corn Products Common
Stock through a special dividend to its shareholders. After the spin-off,
CPC International Inc. had no direct ownership of the Company. In connection
with the spin-off, the Company entered into various agreements for the purpose
of governing certain of the ongoing relationships between CPC and the Company
after the distribution.
The Company has entered into a tax indemnification agreement that
requires the Company to indemnify CPC against tax liabilities arising from the
loss of the tax-free reorganization status of the spin-off. This agreement
could restrict the Company, for a two year period, from entering into certain
transactions, including limitations on the liquidation, merger or consolidation
with another company, certain issuances and redemptions of our common stock and
the distribution or sale of certain assets. Prior to the distribution, the
Company and certain of its subsidiaries assumed from CPC, and borrowed from
third parties, an aggregate of $350 million of debt. The Company transferred
these proceeds to CPC International Inc. as part of the distribution.
During 1997, CPC maintained a centralized cash management system to
finance its domestic operations. Cash deposits from the Company were
transferred to CPC on a daily basis and CPC funded the Company's disbursement
bank accounts as required. Intercompany interest expense was allocated based on
CPC's effective borrowing rate applied to the intercompany debt which was
apportioned based on the cash flow requirements of the Company.
CPC provided certain general and administrative services to the Company
including tax, treasury, risk management and insurance, legal, information
systems and human resources. These expenses were allocated to the Company based
on actual usage or other methods which management believes are reasonable.
These allocations were $5.7 million, $9.3 million and $14.3 million in fiscal
years 1997, 1996 and 1995, respectively. These costs could have been different
had the Company operated as an independent public company during the periods
presented.
A master supply agreement has been negotiated to supply CPC and its
affiliates with certain corn refining products at prices based generally on
prevailing market conditions for a minimum two year term. The Company had
intercompany sales with CPC for the years ended December 31, 1997, 1996 and
1995, amounting to the following: $177 million, $157 million and $154 million,
respectively.
21
24
NOTES TO CONSOLIDATED CORN PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (4) FINANCING ARRANGEMENTS
Prior to the distribution, the Company assumed from CPC, and borrowed from
third parties, an aggregate of $350 million of debt. At December 31, 1997, the
Company had total debt outstanding of $350 million. The debt outstanding
consisted of $190 million drawn from an unsecured revolving Credit Facility of
$340 million in the United States at a rate of 6.2%. The balance of debt
outstanding consists of borrowings by the Company's Canadian operations of $100
million, and $60 million from various other operations at variable market rates
with a weighted average rate of 10.5%.
- ------------------------------------------------------------------------------
NOTE (5) RESTRUCTURING CHARGES - NET AND SPIN-OFF COSTS
In 1997, the Company recorded a $94 million pre-tax restructuring charge and a
$15 million pre-tax spin-off charge from CPC. The restructuring charge includes
the costs of the separation of facilities that were used by CPC to produce both
consumer foods and corn-derived products. The majority of the restructuring is
taking place in the Company's international operations. The spin-off charge
includes the direct costs of the spin-off including legal, tax and investment
banking fees. The restructuring charge and the charge for the spin-off costs
are summarized below:
- -------------------------------------------------------------------------------
1997 CHARGE TO BE UTILIZED IN
$ MILLIONS CHARGE UTILIZED FUTURE PERIODS
- -------------------------------------------------------------------------------
RESTRUCTURING CHARGES - NET
Employee costs . . . . . . . . . . . 54 47 7
Plant and support facilities . . . . 23 19 4
Other. . . . . . . . . . . . . . . . 17 10 7
- -------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . $94 $76 $18
===============================================================================
Spin-off costs . . . . . . . . . . . . $15 $15 $0
===============================================================================
22
25
CORN PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (6) PENSION PLANS
The Company and its subsidiaries have a number of noncontributory
defined-benefit pension plans covering substantially all U.S. employees,
including certain employees in foreign countries. Plans for most salaried
employees provide pay-related benefits based on years of service. Plans for
hourly employees generally provide benefits based on flat dollar amounts and
years of service. The Company's general funding policy is to provide
contributions within the limits of deductibility under current tax regulations.
Certain foreign countries allow income tax deductions without
regard to contribution levels, and the Company's policy in those countries is
to make the contribution required by the terms of the plan. Domestic plan
assets consist primarily of common stock, real estate, corporate debt
securities and short-term investment funds.
Effective January 1, 1998, the plan for domestic salaried employees was
amended to a "cash balance" pension plan which provides benefits based on
service and Company credits to the employee's accounts of between 3% and 10% of
base salary, bonus and overtime.
The components of net periodic pension cost are shown below:
- ------------------------------------------------------------------------------
U.S. Plans
- ------------------------------------------------------------------------------
$ MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------
Service cost (benefits earned during the period). . . . $3 $3 $2
Interest cost on projected benefit obligation . . . . . 4 7 7
Actual return on plan assets. . . . . . . . . . . . . . (22) (15) (17)
Net amortization and deferral . . . . . . . . . . . . . 17 8 11
- ------------------------------------------------------------------------------
Net periodic pension cost . . . . . . . . . . . . . . . $2 $3 $3
==============================================================================
NON U.S. PLANS
- ------------------------------------------------------------------------------
$ MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------
Service cost (benefits earned during the period) . . . $1 $1 $1
Interest cost on projected benefit obligation . . . . 3 3 2
Actual return on plan assets . . . . . . . . . . . . . (3) (3) (2)
- ------------------------------------------------------------------------------
Net periodic pension cost . . . . . . . . . . . . . . $1 $1 $1
==============================================================================
23
26
NOTES TO CONSOLIDATED CORN PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (6) PENSION PLANS (CONTINUED)
The funded status for the Company's major pension plans is as follows:
------------------------ --------------------------
ASSETS EXCEED ACCUMULATED BENEFITS
U.S. PLANS ACCUMULATED BENEFITS EXCEED ASSETS
- ------------------------------------------------------------------------------------- --------------------------
$ MILLIONS 1997 1996 1997 1996
- ------------------------------------------------------------------------------------- --------------------------
Actuarial present value of benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . . $(44) $(75) -- $(6)
Nonvested . . . . . . . . . . . . . . . . . . . . (5) (2) -- (4)
- ------------------------------------------------------------------------------------- --------------------------
Accumulated benefit obligation. . . . . . . . . . . . (49) (77) -- (10)
Effect of projected future compensation levels. . . . (3) (29) -- --
- ------------------------------------------------------------------------------------- --------------------------
Projected benefit obligation . . . . . . . . . . . . (52) (106) -- (10)
Plan assets at fair value . . . . . . . . . . . . . . 60 110 -- --
- ------------------------------------------------------------------------------------- --------------------------
Plan assets in excess of (less than)
projected benefit obligation . . . . . . . . . . . 8 4 -- (10)
Unrecognized net loss (gain). . . . . . . . . . . . . (24) (8) -- --
Unrecognized prior service cost . . . . . . . . . . . 4 5 -- --
Unrecognized net transition obligation. . . . . . . . -- 1 -- 2
- ------------------------------------------------------------------------------------- --------------------------
Prepaid (accrued) pension cost at December 31 . . . . $(12) $2 -- $(8)
=================================================================================================================
The 1997 balances reflect the net transfer of $11.5 million accrued pension
cost from CPC. The 1996 number reflects the obligation for retirees prior to
the distribution which was maintained by CPC.
------------------------ --------------------------
ASSETS EXCEED ACCUMULATED BENEFITS
NON U.S. PLANS ACCUMULATED BENEFITS EXCEED ASSETS
- ------------------------------------------------------------------------------------- --------------------------
$ MILLIONS 1997 1996 1997 1996
- ------------------------------------------------------------------------------------- --------------------------
Actuarial present value of benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . . $(34) $(25) $(2) --
Nonvested . . . . . . . . . . . . . . . . . . . . (1) (2) -- --
- -------------------------------------------------------------------------------------- -------------------------
Accumulated benefit obligation . . . . . . . . . . . (35) (27) (2) --
Effect of projected future compensation levels . . . (7) (4) (1) --
- -------------------------------------------------------------------------------------- -------------------------
Projected benefit obligation . . . . . . . . . . . . (42) (31) (3) --
Plan assets at fair value. . . . . . . . . . . . . . 45 31 -- --
- -------------------------------------------------------------------------------------- -------------------------
Plan assets in excess of (less than)
projected benefit obligation . . . . . . . . . . . 3 -- (3) --
Unrecognized net loss (gain) . . . . . . . . . . . . -- -- -- --
Unrecognized prior service cost . . . . . . . . . . 1 1 -- --
Unrecognized net transition obligation . . . . . . . (1) 3 -- --
- --------------------------------------------------------------------------------------- ------------------------
Prepaid (accrued) pension cost at December 31 . . . $3 $4 $(3) --
=================================================================================================================
24
27
CORN PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (6) PENSION PLANS (CONTINUED)
Assumptions used in accounting for the Company's defined-benefit pension and
retirement plans at December 31 are as follows:
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
U.S. PLANS
Weighted average discount rates . . . . . . . . . 7.0% 7.0% 6.6%
Rate of increase in compensation levels . . . . . 5.0% 5.5% 5.3%
Long-term rate of return on plan assets . . . . . 10.0% 8.6% 9.7%
NON-U.S. PLANS
Weighted average discount rates . . . . . . . . . 7.4% 8.2% 8.0%
Rate of increase in compensation levels . . . . . 5.5% 5.5% 5.5%
Long-term rate of return on plan assets . . . . . 8.5% 8.5% 8.5%
==========================================================================
In addition, the Company sponsors defined-contribution pension plans covering
certain domestic and foreign employees. Contributions are determined by
matching a percentage of employee contributions. Expense recognized in 1997,
1996 and 1995 was $3.6 million, $2.9 million and $2.7 million, respectively.
- --------------------------------------------------------------------------
NOTE (7) OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS
The Company provides health care and life insurance benefits for retired
employees in the United States and Canada. Effective January 1, 1998, the
Company amended its U.S. post-retirement medical plans for salaried employees
to provide Retirement Health Care Spending Accounts. The Company provides
access to retiree medical insurance post-retirement. U.S. salaried employees
accrue an account during employment which can be used after employment to
purchase post-retirement medical insurance from the Company and Medigap or
Medicare HMO policies after age 65. The accounts are credited with a flat
dollar amount ($500 for 1998, indexed for inflation) annually during
employment. The accounts accrue interest credits using a rate equal to a
specified amount above the yield on 5-year Treasury notes. These employees
become eligible for benefits when they meet minimum age and service
requirements. The Company accrues a flat dollar amount on an annual basis for
each domestic salaried employee. These amounts, plus credited interest, can be
used to purchase post-retirement medical insurance. The Company has the right
to modify or terminate these benefits.
25
28
NOTES TO CONSOLIDATED CORN PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (7) OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS (CONTINUED)
The following table sets forth the status of the Company's post-retirement
benefit obligations as of December 31, 1997 and 1996:
- ------------------------------------------------------------------------------
$ MILLIONS 1997 1996
- ------------------------------------------------------------------------------
ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION (APBO):
Retirees. . . . . . . . . . . . . . . . . . . . . . $(1) $(27)
Fully eligible active plan participants . . . . . . (8) (11)
Other active plan participants. . . . . . . . . . . (6) (13)
- ------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . (15) (51)
- ------------------------------------------------------------------------------
Unrecognized prior service cost . . . . . . . . . . . . (4) (1)
Unrecognized (gains)/losses . . . . . . . . . . . . . . (1) --
- ------------------------------------------------------------------------------
Accrued post-retirement benefit cost at December 31 . . $(20) $(52)
==============================================================================
The 1997 accrual reflects the transfer of $19 million from CPC of accumulated
post-retirement benefit obligations. The 1996 number reflects the obligation
for retirees prior to the distribution which was maintained by CPC.
Net periodic post-retirement benefit cost included the following components:
- ------------------------------------------------------------------------------
$ MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------
Service cost (benefits earned during the year). . . . $1 $1 $1
Interest cost on the accumulated post-retirement
benefit obligation 1 4 4
Net amortization and deferral . . . . . . . . . . . . -- (1) --
- ------------------------------------------------------------------------------
Net periodic post-retirement benefit. . . . . . . . . $2 $4 $5
==============================================================================
Annual increases in per capita cost of health care benefits of 9.5% pre-age-65
and 7.5% post-age-65 were assumed for 1997 to 1998. Rates were assumed to
decrease by 1% thereafter until reaching 4.5%. Increasing the assumed health
care cost trend rate by 1% increases the APBO at December 31, 1997 by $1.0
million, with a corresponding effect on the service and interest cost components
of the net periodic post-retirement benefit cost for the year then ended of $.6
million. The discount rate used to determine the APBO for 1997 and 1996 is 7.5%
and 7.0%, respectively.
- ------------------------------------------------------------------------------
NOTE (8) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
During the first quarter of 1995, the Company entered into a joint venture with
Arancia Industrial, S.A. de C.V., a corn refining business located in Mexico.
This investment has been accounted for under the equity method.
During 1997, the Company contributed $10 million to this joint venture
and also made a final contingency payment of $11 million to its joint venture
partner. In 1996, the Company loaned this joint venture $60 million
which was repaid in January 1998.
26
29
CORN PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (9) SUPPLEMENTARY BALANCE SHEET INFORMATION
Supplementary Balance Sheet information is set forth below:
- ------------------------------------------------------------------------------
$MILLIONS 1997 1996
- ------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE - NET
Accounts receivable - trade . . . . . . . . . . . . . $146 $149
Accounts receivable - other accounts receivable . . . 33 63
Allowance for doubtful accounts . . . . . . . . . . . (4) (3)
- ------------------------------------------------------------------------------
Total accounts receivable - net . . . . . . . . . . . 175 209
- ------------------------------------------------------------------------------
INVENTORIES
Finished and in process . . . . . . . . . . . . . . . 51 69
Raw materials . . . . . . . . . . . . . . . . . . . . 43 65
Manufacturing supplies. . . . . . . . . . . . . . . . 29 28
- ------------------------------------------------------------------------------
Total inventories . . . . . . . . . . . . . . . . . . 123 162
- ------------------------------------------------------------------------------
PLANTS AND PROPERTIES
Land. . . . . . . . . . . . . . . . . . . . . . . . . 52 50
Buildings . . . . . . . . . . . . . . . . . . . . . . 496 480
Machinery and equipment . . . . . . . . . . . . . . . 1,650 1,587
Accumulated depreciation. . . . . . . . . . . . . . . (1,141) (1,060)
- ------------------------------------------------------------------------------
Plants and properties, net. . . . . . . . . . . . . . 1,057 1,057
- ------------------------------------------------------------------------------
ACCRUED LIABILITIES
Compensation expenses . . . . . . . . . . . . . . . . 2 3
Capital additions . . . . . . . . . . . . . . . . . . -- 8
Accrued interest. . . . . . . . . . . . . . . . . . . -- 3
Restructuring reserves. . . . . . . . . . . . . . . . 18 --
Taxes payable other than taxes on income . . . . . . 10 11
Other . . . . . . . . . . . . . . . . . . . . . . . . 39 17
- ------------------------------------------------------------------------------
Total accrued liabilities . . . . . . . . . . . . . . 69 42
- ------------------------------------------------------------------------------
NONCURRENT LIABILITIES
Employees' pension, indemnity, retirement,
and related provisions 35 58
Other noncurrent liabilities . . . . . . . . . . . . 2 2
- ------------------------------------------------------------------------------
Total noncurrent liabilities . . . . . . . . . . . . 37 60
==============================================================================
27
30
NOTES TO CONSOLIDATED CORN PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (10) FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, accounts payable
and debt approximate fair values.
COMMODITIES
At December 31, 1997, the Company had open corn commodity futures contracts of
$154 million. Contracts open for delivery beyond March 31, 1998, amounted to
$88 million, of which $59 million is due in May, 1998, $28 million is due in
July, 1998, and $1 million in December, 1998. At December 31, 1997, the price
of corn under these contracts was $5.3 million above market quotations of the
same date.
During the fourth quarter of 1996, the Company recognized a loss of $40
million for certain liquidated corn futures. These futures had been designed to
protect anticipated firm-priced business against an expected run-up in corn
prices. When corn prices instead fell sharply and the business as anticipated
did not materialize, the Company liquidated the futures contracts.
- ------------------------------------------------------------------------------
NOTE (11) INCOME TAXES
Income before income taxes and the components of the provision for income taxes
are shown below:
- ------------------------------------------------------------------------------
$ MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES:
United States . . . . . . .. . . . . . . $(128) $(20) $136
Outside the United States .. . . . . . . 39 57 87
- ------------------------------------------------------------------------------
Total . . . . . . . . . .. . . . . . . $(89) $37 $223
- ------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES:
Current tax expense
U.S. federal . . . . . . . . . . . . . . (31) 27 57
State and local. . . . . . . . . . . . . (4) (2) 12
Foreign. . . . . . . . . . . . . . . . . 6 4 23
- ------------------------------------------------------------------------------
Total current. . . . . . . . . . . . . $(29) $29 $92
- ------------------------------------------------------------------------------
Deferred tax expense (benefit)
U.S. federal . . . . . . . . . . . . . . 7 (22) (11)
State and local. . . . . . . . . . . . . 2 1 (3)
Foreign. . . . . . . . . . . . . . . . . 1 4 8
- ------------------------------------------------------------------------------
Total deferred . . . . . . . . . . . . 10 (17) (6)
- ------------------------------------------------------------------------------
Total provision . . . . . . . . . . . . . $(19) $12 $86
==============================================================================
28
31
CORN PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (11) INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences which comprise the
deferred tax liabilities and assets at December 31, 1997 and 1996, are as
follows:
- -------------------------------------------------------------------------
$ MILLIONS 1997 1996
- -------------------------------------------------------------------------
Plants and properties . . . . . . . $134 $121
Pensions. . . . . . . . . . . . . . 13 1
- -------------------------------------------------------------------------
Gross deferred tax liabilities. . . 147 122
- -------------------------------------------------------------------------
Restructuring reserves. . . . . . . 11 --
Employee benefit reserves . . . . . 14 28
Other . . . . . . . . . . . . . . . 14 17
- -------------------------------------------------------------------------
Gross deferred tax assets . . . . . 39 45
- -------------------------------------------------------------------------
Valuation allowance . . . . . . . . -- (8)
- -------------------------------------------------------------------------
Total deferred tax liabilities. . . $108 $85
=========================================================================
Total net deferred tax liabilities and assets shown above included current and
noncurrent elements. Under the terms of the distribution, CPC will be
responsible for substantially all income taxes prior to December 31, 1997.
Accordingly the valuation allowance has been reduced to 0 at December 31, 1997.
A reconciliation of the federal statutory tax rate to the Company's effective
tax rate follows:
- ---------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------
Provision for tax at U.S. statutory rate . (35.0)% 35.0% 35.0%
Taxes related to foreign income . . . . . . (7.5) (0.6) 0.2
State and local taxes - net . . . . . . . . (1.5) (0.5) 1.4
Restructuring and spin-off charges . . . . 14.0 -- --
Other items - net . . . . . . . . . . . . . 8.7 (0.3) 1.9
- ---------------------------------------------------------------------------
Provision at effective tax rate . . . . . . (21.3)% 33.6% 38.5%
===========================================================================
The effective rate on the tax benefit of 21.3% derived from a lower benefit
associated with the restructuring and spin-off charges, lower tax on average
from foreign jurisdictions and an assumed rate for CPC International Inc.
Taxes that would result from dividend distributions by foreign
subsidiaries to the U.S. are provided to the extent dividends are anticipated.
As of December 31, 1997, approximately $344 million of retained earnings of
foreign subsidiaries are retained indefinitely by the subsidiaries for capital
and operating requirements.
- ---------------------------------------------------------------------------
NOTE (12) LEASES
The Company leases rail cars and certain machinery and equipment under various
operating leases. Rental expense for operating leases was $18.3 million, $12.2
million and $8.9 million in 1997, 1996 and 1995, respectively. Minimum lease
payments existing at December 31, 1997 are shown at right:
-------------------------------------
MINIMUM
LEASE PAYMENT
YEAR (MILLIONS)
-------------------------------------
1998 $17.9
1999 14.0
2000 12.5
2001 8.2
Balance thereafter 39.8
29
32
NOTES TO CONSOLIDATED CORN PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 13 STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 200 million shares of $0.01 par value common stock.
On December 31, 1997, 35.6 million shares were distributed to the shareholders
of CPC International Inc.
PREFERRED STOCK AND STOCKHOLDER'S RIGHTS PLAN
The Company has authorized 25 million shares of $0.01 par value preferred stock
of which one million shares were designated as Series A Junior Participating
Preferred Stock for the stockholder's rights plan. Under this plan, each share
of the Corn Products Common Stock issued in the distribution carries with it
the right to purchase one one-hundredth of a share of preferred stock. The
rights will at no time have voting power or pay dividends. The rights will
become exercisable if on or before December 31, 1999, a person or group
acquires or announces a tender offer that would result in the acquisition of
10% or more of the Corn Products Common Stock or after December 31, 1999 would
result in the acquisition of 15% or more of the Corn Products 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 10%
or more stockholder on or before December 31, 1999 or a 15% or more stockholder
thereafter, 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 10% or 15% stockholder (as applicable) engages in
certain self-dealing transactions or acquires the Company in such a manner that
the Corn Products Company and its common stock survive, or if any person
acquires 10% or 15% or more of the Corn Products Common Stock (as applicable),
except pursuant to an offer for all shares at a fair price, each full right not
owned by a 10% or 15% or more stockholder may be exercised for Corn Products
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 10% or 15% or
more of its voting securities (as applicable). Unless redeemed earlier, the
rights will expire on December 31, 2007.
STOCK OPTION PLAN
The Company has established a stock option plan for certain key employees. In
addition, all existing CPC stock options of Company employees were converted to
stock options to acquire Corn Products Common Stock. These stock options retain
their vesting schedules and existing expiration dates.
Under the provisions of FAS 123, the Company accounts for stock-based
compensation using the intrinsic value method prescribed by APB 25.
As of December 31, 1997, there were 477,371 options outstanding with an
exercise price ranging from $12.59 to $24.03, and a weighted average exercise
price of $19.91.
In addition to stock options, 143,000 shares were converted under the
restricted stock award provisions of the plan. The cost of these awards is
being amortized over the restriction period.
30
33
CORN PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE (14) GEOGRAPHIC INFORMATION
The Company operates in one business segment - Corn Refining - and is managed
on a geographic regional basis. Its North American Operations include its
wholly owned Corn Refining businesses in the United States and Canada and its
49% joint venture in Mexico, which is accounted for on an equity basis. Its
Other businesses include primarily 100% owned Corn Refining operations in South
America, and joint ventures and alliances in Asia, Africa and other areas. Also
included in this group is its North American enzyme business.
- ---------------------------------------------------------------------------------------
$ MILLIONS 1997 1996 1995
- ---------------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS:
North America . . . . . . . . . . . $871 $1,030 $906
Other . . . . . . . . . . . . . . . 547 494 481
- ---------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . $1,418 $1,524 $1,387
=======================================================================================
OPERATING INCOME:
North America . . . . . . . . . . . $(30) $14 $152
Other . . . . . . . . . . . . . . . 78 51 62
Restructuring and spin-off costs(1) (109) 0 37
- ---------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . $(61) $65 $251
=======================================================================================
TOTAL ASSETS:
North America . . . . . . . . . . . $1,089 $1,037 $780
Other . . . . . . . . . . . . . . . 577 611 514
- ---------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . $1,666 $1,648 $1,294
=======================================================================================
DEPRECIATION AND AMORTIZATION:
North America . . . . . . . . . . . $63 $60 $56
Other . . . . . . . . . . . . . . . 32 28 26
- ---------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . $95 $88 $82
=======================================================================================
CAPITAL EXPENDITURES:
North America . . . . . . . . . . . $53 $77 $86
Other . . . . . . . . . . . . . . . 47 115 102
- ---------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . $100 $192 $188
=======================================================================================
1) 1997 includes a $30 million charge from CPC for consumer and corporate
restructuring; $30 million for North American corn refining; $49 million for
restructuring Other.1995 North America $(52) million and Other $15 million.
31
34
SUPPLEMENTAL
FINANCIAL INFORMATION CORN PRODUCTS INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows:
- ------------------------------------------------------------------------------------------------------------------------------
$ MILLIONS 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ------------------------------------------------------------------------------------------------------------------------------
1997
Net sales. . . . . . . . . . . . . . . . . . . . . 337 $358 $360 $363
Gross profit . . . . . . . . . . . . . . . . . . . 21 33 42 42
Restructuring and spin-off charges - net . . . . . -- 65 18 --
Net income (loss). . . . . . . . . . . . . . . . . (9) (64) (10) 11
- ------------------------------------------------------------------------------------------------------------------------------
1996
Net sales . . . . . . . . . . . . . . . . . . . . $348 $395 $400 $380
Gross profit . . . . . . . . . . . . . . . . . . . 57 48 37 1
Net income (loss). . . . . . . . . . . . . . . . . 15 14 8 (14)
- ------------------------------------------------------------------------------------------------------------------------------
FIVE-YEAR FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
$ MILLIONS EXCEPT PER SHARE AMOUNTS 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales . . . . . . . . . . . . . . . . . . . . $1,418 $1,524 $1,387 $1,385 $1,243
Restructuring and spin-off charges - net . . . . . 83 -- (23) 12 --
Net income (loss) . . . . . . . . . . . . . . . . (72) 23 135 100 99
Basic earnings per common share . . . . . . . . . $(2.10) $0.64 $3.79 -- --
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital . . . . . . . . . . . . . . . . . $(72) $147 $31 $106 $33
Plants and properties - net . . . . . . . . . . . 1,057 1,057 920 830 792
Total assets . . . . . . . . . . . . . . . . . . 1,666 1,663 1,306 1,207 1,110
Total debt . . . . . . . . . . . . . . . . . . . 350 350 363 294 209
Stockholders' equity. . . . . . . . . . . . . . . 936 1,025 600 550 484
Shares outstanding, year-end in millions . . . . 35.6
- ------------------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA (1)
Depreciation and amortization . . . . . . . . . . $95 $88 $82 $80 $78
Capital expenditures. . . . . . . . . . . . . . . 100 192 188 145 122
Maintenance and repairs . . . . . . . . . . . . . 69 61 65 65 57
Total employee costs. . . . . . . . . . . . . . . 142 170 164 149 177
- ------------------------------------------------------------------------------------------------------------------------------
1) All data is based on a 12 month fiscal year.
32
35
BOARD OF DIRECTORS
IGNACIO ARANGUREN-CASTIELLO
Chairman and Chief Executive
Officer, Arancia-CPC S.A.
de C.V.
ALFRED C. DECRANE, JR.
Former Chairman and Chief
Executive Officer, Texaco, Inc.
WILLIAM C. FERGUSON
Former Chairman and Chief
Executive Officer, NYNEX
Corporation
RICHARD G. HOLDER
Former Chairman and Chief
Executive Officer, Reynolds
Metals Company
BERNARD H. KASTORY
Senior Vice President,
Finance and Administration,
Bestfoods
WILLIAM S. NORMAN
President and Chief Executive
Officer, Travel Industry
Association of America
KONRAD SCHLATTER
Chairman and Chief Executive
Officer, Corn Products
International, Inc.
SAMUEL C. SCOTT
President and Chief Operating
Officer, Corn Products
International, Inc.
CLIFFORD B. STORMS
Attorney
CORPORATE OFFICERS
KONRAD SCHLATTER
Chairman and
Chief Executive Officer
SAMUEL C. SCOTT
President and
Chief Operating Officer
VICE PRESIDENTS
MARCIA E. DOANE
General Counsel and
Corporate Secretary
JAMES J. HIRCHAK
Human Resources
FRANK J. KOCUN
President, Cooperative
Management Group
EUGENE J. NORTHACKER
President,
Latin American Division
MICHAEL R. PYATT
Executive Vice President,
North American Division
JAMES W. RIPLEY
Chief Financial Officer
RICHARD M. VANDERVOORT
Business Development and
Procurement
TREASURER
CHERYL K. BEEBE
COMPTROLLER
JACK C. FORTNUM
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
Corn Products International, Inc.
6500 South Archer Road
Bedford Park, Illinois 60501-1933
708.563.2400
ANNUAL REPORT, FORM 10K
Copies are available by writing to
Corn Products International, Inc.,
or by calling 708.563.6800.
INSTITUTIONAL INVESTOR INQUIRIES
Security analysts and investors
seeking information about
Corn Products International, Inc.
may contact John W. Scott by
writing to the Corn Products
address above, or by calling
201.894.0052.
STOCKHOLDER RECORDS
Inquiries relating to stockholder
records, stock transfer, and change
of address should be directed
to the transfer agent:
First Chicago Trust Company
of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
201.324.0498 or 800.446.2617
or via the Internet at www.ftc.com
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
303 East Wacker Drive
Chicago, Illinois 60601
312.938.1000
STOCK EXCHANGE LISTING
New York Stock Exchange
TICKER SYMBOL
The ticker symbol for the
Company is CPO.
36
[CORN PRODUCTS INTERNATIONAL LOGO]
Corn Products International, Inc.
6500 South Archer Road
Bedford Park, Illinois 60501-1933 CPAR100028