UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
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Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
COMMISSION FILE NUMBER 1-13397
CORN PRODUCTS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
22-3514823
(I.R.S. Employer Identification Number)
5 WESTBROOK CORPORATE CENTER,
WESTCHESTER, ILLINOIS 60154
(Address of principal executive offices) (Zip Code)
(708) 551-2600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- --------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 30, 2003
Common Stock, $.01 par value 36,009,823 shares
Explanatory Note
Corn Products International, Inc. (the "Registrant" or the "Company")
is filing this Amendment No. 1 on Form 10-Q/A ("Amendment No. 1) to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, which was
originally filed on May 13, 2003 (the "Original Form 10-Q Filing"), to amend and
restate certain information contained or in Item I and Item II of Part I. This
change reflects the Registrant's restatement of its condensed consolidated
balance sheets as of March 31, 2003 and December 31, 2002, and condensed
consolidated statement of stockholders equity for the three month period ended
March 31, 2003, to reclassify redeemable common stock issued in connection with
the purchase of the minority interest of the Registrant's now wholly-owned
subsidiary in Mexico from permanent stockholder's equity to temporary
(redeemable) equity.
This reclassification does not affect the Company's previously reported
operating results or cash flows for any period.
The Registrant's management determined that it was necessary to
reclassify the redeemable common stock from permanent stockholder's equity
(additional paid-in-capital) to temporary (redeemable) equity because under the
terms of the related purchase and sale agreement, the Company granted the holder
of the Company's shares of common stock issued in connection with this
transaction the right to require the Company to repurchase those shares from the
holder for cash. As of March 31, 2003 there were 1,913,500 shares of the
Company's common stock subject to repurchase under the terms of this agreement.
Refer to Notes 2 and 8 of Notes to Condensed Consolidated Financial Statements
for additional information. The Registrant's management recently determined that
existing accounting literature requires that shares of common stock subject to
repurchase for cash under the terms of an embedded put option should be
displayed as temporary equity at an amount equal to that which the Company would
be required to pay to redeem the shares at the reporting date.
This Amendment No. 1 amends in its entirety the Original Form 10-Q
Filing. This Amendment No. 1 continues to speak as of the date of the Original
Form 10-Q Filing, and the Registrant has not updated the disclosure contained
herein to reflect any events that occurred at a later date.
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
---------------------
2003 2002
---------------------
Net sales before shipping and handling costs $518.0 $457.7
Less: shipping and handling costs 38.6 25.8
---------------------
Net sales 479.4 431.9
Cost of sales 410.6 373.1
---------------------
Gross profit 68.8 58.8
Operating expenses 34.6 36.9
Earnings from non-consolidated affiliates and other
income 1.3 9.6
---------------------
Operating income 35.5 31.5
Financing costs 9.2 9.6
---------------------
Income before income taxes and minority interest 26.3 21.9
Provision for income taxes 9.5 7.9
---------------------
16.8 14.0
Minority interest in earnings 3.2 2.8
---------------------
Net income $13.6 $11.2
=====================
Weighted average common shares outstanding:
Basic 35.7 35.5
Diluted 35.9 35.6
Earnings per common share:
Basic $0.38 $0.31
Diluted $0.38 $0.31
See Notes To Condensed Consolidated Financial Statements
1
PART I FINANCIAL INFORMATION
ITEM I
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) MARCH 31, DECEMBER 31,
2003* 2002
-------- ------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 39 $ 36
Accounts receivable -- net 262 244
Inventories 204 194
Prepaid expenses 12 11
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TOTAL CURRENT ASSETS 517 485
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Property, plant and equipment -- net 1,149 1,154
Goodwill and other intangible assets 310 280
Deferred tax assets 33 33
Investments 27 26
Other assets 37 37
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TOTAL ASSETS $ 2,073 $ 2,015
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt $ 84 $ 84
Accounts payable and accrued liabilities 241 263
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TOTAL CURRENT LIABILITIES 325 347
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Non-current liabilities 71 68
Long-term debt 580 516
Deferred income taxes 168 163
Minority interest in subsidiaries 72 93
Redeemable common stock (1,913,500 shares
issued and outstanding at March 31, 2003 and
December 31, 2002) stated at redemption price 55 58
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 -- 35,746,387 shares issued
at March 31, 2003 and December 31, 2002 1 1
Additional paid in capital 1,018 1,015
Less: Treasury stock (common stock; 1,660,664 and 1,956,113 shares at
March 31, 2003 and December 31, 2002, respectively) at cost (39) (48)
Deferred compensation -- restricted stock (4) (4)
Accumulated other comprehensive loss (408) (418)
Retained earnings 234 224
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TOTAL STOCKHOLDERS' EQUITY 802 770
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,073 $ 2,015
================================================================================================================
* As restated
See Notes To Condensed Consolidated Financial Statements
2
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN MILLIONS) THREE MONTHS ENDED
MARCH 31,
--------------------
2003 2002
------ ------
Net income $ 14 $ 11
Comprehensive income/loss:
Gain (loss) on cash flow hedges:
Amount of losses on cash flow hedges
reclassified to earnings, net of income
tax effect of $3 million -- 7
Unrealized gains (losses) on cash flow
hedges, net of income tax effect of $1
million and $1 million, respectively 2 (3)
Currency translation adjustment 8 (61)
------ -------
Comprehensive income (loss) $ 24 $(46)
====== =======
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND REDEEMABLE EQUITY
(UNAUDITED)
STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN TREASURY DEFERRED COMPREHENSIVE RETAINED REDEEMABLE
(IN MILLIONS) STOCK CAPITAL STOCK COMPENSATION INCOME (LOSS) EARNINGS COMMON STOCK
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 $1 $ 1,015 $ (48) $ (4) $ (418) $ 224 $ 58
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Net income for the period 14
Dividends declared (4)
Unrealized gains (losses) on cash
flow hedges, net of income tax
effect of $1 2
Issuance of common stock in
connection with acquisition 8
Issuance of common stock on
exercise of stock options 1
Change in fair value of redeemable
common stock 3 (3)
Currency translation adjustment 8
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2003, as restated $1 $ 1,018 $ (39) $ (4) $ (408) $ 234 $ 55
-----------------------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
3
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS) THREE MONTHS ENDED
MARCH 31,
2003 2002
------ ------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $14 $11
Non-cash charges (credits) to net income:
Depreciation and amortization 25 26
Minority interest in earnings 3 3
Income from non-consolidated affiliates -- (1)
Gain on sale of business -- (8)
Changes in working capital, net of effect of disposal:
Accounts receivable and prepaid items (14) 8
Inventories (8) 1
Accounts payable and accrued liabilities (25) (15)
Other 2 2
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Cash provided by (used for) operating activities (3) 27
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CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Capital expenditures, net of proceeds on disposal (7) (13)
Proceeds from sale of business -- 35
Payments for acquisitions (48) (42)
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Cash used for investing activities (55) (20)
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CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from borrowings 80 27
Payments on debt (16) (52)
Dividends paid (4) (4)
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Cash provided by (used for) financing activities 60 (29)
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Effect of foreign exchange rate changes on cash 1 (2)
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Increase (decrease) in cash and cash equivalents 3 (24)
Cash and cash equivalents, beginning of period 36 65
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Cash and cash equivalents, end of period $39 $41
========================================================================================
See Notes To Condensed Consolidated Financial Statements
4
CORN PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
References to the "Company" are to Corn Products International, Inc.
and its consolidated subsidiaries. These statements should be read in
conjunction with the consolidated financial statements and the related notes to
those statements contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.
The unaudited condensed consolidated interim financial statements
included herein were prepared by management and reflect all adjustments
(consisting solely of normal recurring items) which are, in the opinion of
management, necessary to present a fair statement of results of operations and
cash flows for the interim periods ended March 31, 2003 and 2002, and the
financial position of the Company as of March 31, 2003. The results for the
interim periods are not necessarily indicative of the results expected for the
full years.
2. RESTATEMENT
The Company has restated its Condensed Consolidated Balance Sheets as
of March 31, 2003 and December 31, 2002, and its Condensed Consolidated
Statement of Stockholders' Equity for the 3-month period ended March 31, 2003 to
reclassify redeemable common stock issued in connection with the purchases of
the minority interest in the Company's now wholly-owned subsidiary in Mexico
from additional paid-in capital within permanent stockholders' equity to
temporary (redeemable) equity. Refer to Note 8 of Notes to Condensed
Consolidated Financial Statements for additional information.
The following table sets forth balances as originally reported in the
Condensed Consolidated Balance Sheets and as restated (dollars in millions):
March 31, 2003 December 31, 2002
--------------------------- ---------------------------
As Reported As Restated As Reported As Restated
----------- ----------- ----------- -----------
Redeemable common stock $ -- $ 55 $ -- $ 58
Additional paid-in capital $1,073 $1,018 $1,073 $1,015
3. ACQUISITIONS
On March 27, 2003, the Company increased its ownership in its Southern
Cone of South America businesses to 100 percent by purchasing an additional
27.76 percent ownership interest from the minority interest shareholders. The
Company paid $53 million to acquire the additional ownership interest,
consisting of $45 million in cash and the issuance of 271 thousand shares of
common stock valued at $8 million. Goodwill of approximately $37 million was
recorded.
5
4. STOCK-BASED COMPENSATION
As allowed by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company accounts for
stock-based compensation using the intrinsic value method.
The following table illustrates the effect on net income and earnings
per share if the fair-value-based recognition provisions of SFAS 123 had been
applied to all outstanding and unvested stock awards for each period presented.
Three Months Ended
March 31,
------------------
(in millions, except per share amounts) 2003 2002
------- -------
Net income, as reported .......................... $13.6 $11.2
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects ......................... (0.3) (0.6)
------- -------
Pro forma net income ............................. $13.3 $10.6
======= =======
Earnings per share:
Basic -- as reported ............................. $0.38 $0.31
Basic -- pro forma ............................... $0.37 $0.30
Diluted -- as reported ........................... $0.38 $0.31
Diluted -- pro forma ............................. $0.37 $0.30
For purposes of making the pro forma disclosure, the estimated fair
value of stock option awards is amortized to expense over the applicable vesting
period. The fair value of the stock option awards was estimated at the grant
dates using the Black-Scholes option pricing model with the following weighted
average assumptions for the periods presented:
Three Months Ended
March 31,
---------------------------
2003 2002
---------- ----------
Risk-free interest rate...................................... 3.68% 5.81%
Volatility factor............................................ 1.07% 2.03%
Expected life of awards...................................... 7.71 years 7.47 years
Dividend yield............................................... 1.32% 1.32%
The Black-Scholes model requires the input of highly subjective
assumptions and does not necessarily provide a reliable measure of fair value.
6
Listed below is a summary of stock option and restricted stock
transactions for the periods presented:
Weighted Shares of
Stock Option Stock Option Average Restricted
Shares Price Range Exercise Price Stock
------------ ------------ -------------- ----------
(shares in thousands)
Outstanding at December 31, 2002.. 3,150 $13.90 to $33.13 $28.35 218
Exercised/vested.................. (32) 13.90 to 29.04 24.26 (11)
Cancelled......................... (10) 22.75 to 32.31 31.19 (11)
------------ ----------
Outstanding at March 31, 2003..... 3,108 196
============ ==========
Outstanding at December 31, 2001.. 2,904 $13.90 to $32.31 $28.05 170
Exercised/vested.................. (57) 20.48 to 32.31 25.00 (10)
Cancelled......................... (42) 14.97 to 32.31 29.43 --
------------ ----------
Outstanding at March 31, 2002..... 2,805 160
============ ==========
The following table summarizes information about stock options
outstanding at March 31, 2003:
Weighted Average Weighted
Average Remaining Average
Options Exercise Contractual Options Exercise
Range of Exercise Prices Outstanding Price Life (Years) Exercisable Price
------------------------ ----------- ---------- ------------ ----------- -----
(shares in thousands)
$13.90 to 16.5650 57 $ 15.57 1.7 57 $ 15.57
16.5651 to 23.1910 370 22.15 5.9 370 22.15
23.1911 to 26.5040 107 24.03 3.8 107 24.03
26.5041 to 29.8170 1,598 28.16 7.9 896 27.68
29.8171 to 33.1300 976 32.33 4.8 958 32.31
--------------------------------------------------------------------------------
3,108 $ 28.38 6.5 2,388 $ 28.23
================================================================================
5. ADOPTION OF NEW ACCOUNTING STANDARDS
On January 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement Obligations"
("SFAS 143"), which addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible long-lived assets and the
related asset retirement costs. The adoption of SFAS 143 did not have a
significant effect on the Company's consolidated financial statements.
On January 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" ("SFAS 146"), which addresses financial accounting and
reporting for costs associated with exit or disposal activities. SFAS 146
replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs
7
Incurred in a Restructuring)". The adoption of SFAS 146 did not have a
significant effect on the Company's consolidated financial statements.
Also on January 1, 2003, the Company adopted the recognition and
measurement provisions of Financial Accounting Standards Board ("FASB")
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
which addresses financial accounting and reporting for obligations under certain
guarantees. FIN 45 requires, among other things, that a guarantor recognize a
liability for the fair value of an obligation undertaken in issuing a guarantee,
under certain circumstances. The recognition and measurement provisions of FIN
45 are required to be applied prospectively to guarantees issued or modified
after December 31, 2002. The adoption of FIN 45 did not have a significant
effect on the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB
Statement No. 123" ("SFAS 148"). SFAS 148 amends SFAS 123 to provide alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements under SFAS 123 to require prominent disclosures in
both annual and interim financial statements. The interim period disclosures
required by SFAS 148 are provided in Note 4.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"),
which addresses the consolidation of variable interest entities as defined in
the Interpretation. The application of FIN 46 did not have a material effect on
the Company's consolidated financial statements.
6. INVENTORIES
Inventories are summarized as follows: At At
(in millions) March 31, December 31,
2003 2002
--------- -----------
Finished and in process...................... $104 $89
Raw materials................................ 69 76
Manufacturing supplies and other............. 31 29
--------- -----------
Total inventories............................ $204 $194
========= ===========
8
7. SEGMENT INFORMATION
The Company operates in one business segment, corn refining, and is
managed on a geographic regional basis. Its North America operations include
corn-refining businesses in the United States, Canada and Mexico and, prior to
the December 2002 dissolution of CornProductsMCP Sweeteners LLC, its
non-consolidated equity interest in that entity. This region also included
Enzyme Bio-Systems Ltd. until it was sold in February 2002. The Company's South
America operations include corn-refining businesses in Brazil, Colombia, Ecuador
and the Southern Cone of South America, which includes Argentina, Chile and
Uruguay. The Company's Asia/Africa operations include corn-refining businesses
in Korea, Pakistan, Malaysia, Thailand and Kenya.
Three Months Ended
March 31,
-------------------------
(in millions) 2003 2002
-------------------------
Net Sales
North America................ $307.3 $275.8
South America................ 105.4 98.2
Asia/Africa.................. 66.7 57.9
-------------------------
Total......................... $479.4 $431.9
=========================
Operating Income
North America................ $ 11.9 $ 6.7
South America................ 16.3 13.7
Asia/Africa.................. 13.5 11.9
Corporate.................... (6.2) (5.4)
Non-recurring income, net.... -- 4.6
-------------------------
Total........................ $ 35.5 $ 31.5
=========================
At At
(in millions) March 31, 2003 December 31, 2002
-------------- -----------------
Total Assets
North America................ $1,335 $1,316
South America................ 405 360
Asia/Africa.................. 333 339
-------------- -----------------
Total........................ $2,073 $2,015
============== =================
8. REDEEMABLE COMMON STOCK
The Company has an agreement with certain common stockholders
(collectively the "holder"), a representative of which serves on the Company's
Board of Directors, relating to 1,913,500 common shares at March 31, 2003 and
December 31, 2002 that provides the holder with the right to require the Company
to repurchase the underlying common shares for cash at a price equal to the
average of the closing per share market price of the Company's common stock for
the 20 trading days immediately preceding the date that the holder exercises the
put option. The put option is exercisable at any time until January 2010 when it
expires. The holder can also elect to sell the common shares on the open market,
subject to certain restrictions.
The 1,913,500 common shares subject to the put option are classified as
redeemable common stock in the Company's Condensed Consolidated Balance Sheets.
The carrying value of the redeemable common stock was $55 million at March 31,
2003 and $58 million at December 31, 2002, based on the average of the closing
per share market prices of the Company's common stock for the 20 trading days
immediately preceding the respective balance sheet dates ($28.62 per share and
$30.05 per share at March 31, 2003 and December 31, 2002, respectively).
Adjustments to mark the redeemable common stock to redemption value are recorded
directly against additional paid-in capital in the stockholders' equity section
of the Company's Condensed Consolidated Balance Sheets.
The Company has the right, but not the obligation, to extend the put
option for an additional three years. The holder of the put option may not
require the Company to repurchase less than 250 thousand shares on any single
exercise of the put option, and the put option may not be exercised more than
once in any six-month period. In the event the holder exercises the put option
requiring the Company to repurchase the shares, the Company would be required to
pay for the shares within 90 calendar days from the exercise date if the holder
is selling the minimum number of shares (250,000), within a prorated time period
of between 90 and 360 calendar days if the holder is selling more than the
minimum number of shares but less than 1,764,706 shares, and within a prorated
time period of between 360 and 720 calendar days for any incremental shares sold
in excess of 1,764,706 up to the maximum number of shares (1,913,500). For
intermediate share amounts, a pro-rata payment period would be calculated
(prorated based on the number of shares put). Any amount due would accrue
interest at the Company's revolving credit facility rate from the date of
exercise until the payment date.
9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
WITH COMPARATIVES FOR THE THREE MONTHS ENDED MARCH 31, 2002
NET INCOME. Net income for the quarter ended March 31, 2003 increased
to $13.6 million, or $0.38 per diluted share, from $11.2 million, or $0.31 per
diluted share, in the first quarter of 2002. The prior period results include
$4.6 million ($3.0 million after-tax, or $0.08 per diluted share) of net
non-recurring earnings consisting primarily of a gain from the sale of Enzyme
Bio-Systems Ltd. ("EBS"), net of restructuring charges. The increase in earnings
principally reflects higher sales volumes and improved price/product mix.
NET SALES. First quarter net sales totaled $479 million, up 11 percent
from first quarter 2002 net sales of $432 million. This increase reflects a 17
percent price/product mix improvement and a 6 percent volume increase, which
more than offset a 12 percent reduction attributable to weaker foreign
currencies.
North American net sales for first quarter 2003 were up 11 percent from
the same period last year primarily due to significantly higher sales in the
United States. A 9 percent price/product mix improvement and 6 percent higher
volume more than offset the effect of a weaker Mexican peso in the North
American region. In South America, net sales increased 7 percent from first
quarter 2002 as price/product mix improvements of 49 percent have more than
offset a 45 percent reduction attributable to weaker foreign currencies.
Additionally, higher volume contributed 3 percent to the regional sales
increase. In Asia/Africa, net sales increased 15 percent from the year-ago
period, as volume growth of 11 percent and stronger Asian currencies more than
offset a 3 percent price/product mix reduction.
COST OF SALES AND OPERATING EXPENSES. Cost of sales for first quarter
2003 was up 10 percent from first quarter 2002 mainly due to increased volume
and higher corn costs. Gross margin was 14.3 percent, up from 13.6 percent last
year, primarily reflecting improved product selling prices.
First quarter 2003 operating expenses decreased to $34.6 million from
$36.9 million last year, which included $3.4 million of net restructuring
charges. First quarter 2003 operating expenses, as a percentage of net sales,
declined to 7.2 percent from 8.5 percent a year ago, as we continue to focus on
cost control while growing our business.
EARNINGS FROM NON-CONSOLIDATED AFFILIATES AND OTHER INCOME. The $8.3
million decline from the year-ago period mainly reflects last year's $8 million
pretax gain from the sale of EBS, which was classified as other income in the
first quarter 2002 Condensed Consolidated Statement of Income.
OPERATING INCOME. First quarter 2003 operating income increased 13
percent to $35.5 million from $31.5 million a year ago, reflecting earnings
growth in each of our regions. North America operating income of $11.9 million
increased 78 percent from $6.7 million in the first
10
quarter of 2002, primarily due to higher sales volume and improved pricing in
the United States. South America operating income of $16.3 million for first
quarter 2003 increased 19 percent from $13.7 million in the prior year period,
principally attributable to earnings growth in the Southern Cone of South
America. Asia/Africa operating income increased 13 percent to $13.5 million from
$11.9 million a year ago, reflecting higher volume and favorable currency
translation attributable to stronger Asian currencies.
FINANCING COSTS. Financing costs for first quarter 2003 were $9.2
million, down from $9.6 million in the comparable period last year. Foreign
currency transaction gains and reduced average indebtedness more than offset
higher interest rates and lower interest income.
PROVISION FOR INCOME TAXES. The effective income tax rate for first
quarter 2003 was 36 percent, unchanged from the prior year period.
MINORITY INTEREST IN EARNINGS. The increase in minority interest for
first quarter 2003 reflects higher earnings in the Southern Cone of South
America, Korea and Pakistan, partially offset by a reduction attributable to our
March 2002 purchase of the minority interest in our Mexican business, which is
now a wholly-owned subsidiary.
COMPREHENSIVE INCOME (LOSS). The Company recorded comprehensive income
of $24 million for the first quarter of 2003 as compared with a comprehensive
loss of $46 million for the same period last year. The increase principally
reflects a $69 million favorable variance in the currency translation adjustment
mainly due to stronger local currencies in South America, particularly in
Argentina.
MEXICAN TAX ON BEVERAGES SWEETENED WITH HFCS/RECOVERABILITY OF MEXICAN ASSETS
On January 1, 2002, a discriminatory tax on soft drinks sweetened
with high fructose corn syrup (HFCS) approved by the Mexican Congress late in
2001, became effective. This tax was temporarily suspended on March 5, 2002. In
response to the enactment of the tax, which at the time effectively ended the
use of HFCS for soft drinks in Mexico, we ceased production of HFCS 55 at our
San Juan del Rio plant, one of our four plants in Mexico. Effective with the
March 5, 2002 suspension of the tax, we resumed the production and sale of HFCS
in Mexico, although at levels below historical volumes. On July 12, 2002, the
Mexican Supreme Court annulled the temporary suspension of the tax, thereby
resuming the tax, and we curtailed the production of HFCS 55 at our San Juan del
Rio plant. On December 10, 2002, the Mexican Congress declined to repeal the
controversial tax on soft drinks sweetened with HFCS.
We are disappointed with the Mexican Congress' decision to retain the
imposition of the tax and continue to explore all options for resolving the
situation and minimizing any potential long-term negative financial impact that
might occur. We have engaged in discussions regarding the matter with both U.S.
and Mexican government trade officials, and have received informal assurances
from both sides that repeal of the tax is a condition precedent to resolving
certain trade issues between the countries. These same officials have also
implied that a resolution of these matters is expected in the near term.
However, we cannot predict with any certainty whether these trade matters will
ultimately be resolved, or the likelihood or timing of repeal of the tax on soft
drinks sweetened with HFCS. In the meantime, we are attempting to mitigate the
negative effects of the tax on HFCS demand in Mexico by exploring other markets
for our HFCS production capability in and around Mexico. We are also continuing
the restructuring of our Mexican operations in an effort to improve efficiency
and reduce operating
11
costs. We also initiated formal action to seek compensation for damage to our
Mexican operations under the provisions of the North American Free Trade
Agreement (NAFTA).
On January 28, 2003, we notified the Government of Mexico of our
intention to submit to arbitration a claim for compensation under the investment
provisions of the NAFTA. We believe that the Government of Mexico has violated
certain of its obligations with respect to foreign investors under the NAFTA,
including those regarding non-discriminatory treatment and expropriations. The
claim, which approximates $250 million, seeks compensation for past and
potential lost profits and other costs related to our operations in Mexico, as
well as our costs in pursuing resolution of this matter. The filing of the
notice of intent is the first step in pursuing the resolution of an investment
dispute. The NAFTA requires the Company to serve written notice of its intention
to make a claim at least three months prior to submitting the claim to
arbitration. The Company's notice included an expropriation claim. Under NAFTA,
this claim can only be included in the claim submitted to arbitration if it is
either approved by a designated U.S. or Mexican authority or not rejected by
both within six months following the filing of the notice of intent. Under
NAFTA, the Company and the Government of Mexico must attempt to resolve the
situation through consultation or negotiation prior to the submission of the
claim.
Until there is a favorable resolution of the Mexican tax on soft
drinks sweetened with HFCS, we expect that we will be unable to make any
significant sales of HFCS to the soft drink industry in Mexico. Management
continues to seek a permanent repeal of the tax and currently believes that the
matter will ultimately be resolved through negotiations between the governments
of the United States and Mexico. Until that occurs, however, our operating
results and cash flows will continue to be adversely affected by the Mexican tax
on soft drinks sweetened with HFCS.
Our ability to fully recover the carrying value of our long-term
investment in Mexico, which consists primarily of goodwill and property, plant
and equipment associated with our Mexican operations, is dependent upon the
generation of sufficient cash flows from the use or other disposition of these
assets. The Company's ability to generate these cash flows will be significantly
affected by a variety of factors, including the timing and permanence of any
repeal of the tax on soft drinks sweetened with HFCS, the timing and extent of
any recovery in the demand for HFCS by the Mexican soft drink industry, the
extent to which alternative markets for HFCS develop in and around Mexico, the
success of the Company's restructuring activities in Mexico, and the amount of
the proceeds received from the resolution of the Company's NAFTA claim against
the Government of Mexico, if any, as well as by management's ability to develop
and implement a successful alternative long-term business strategy in Mexico.
Based on our long-term forecasts of operating results, we believe that the
Company will generate sufficient cash flows from the use or other disposition of
these long-term assets to fully recover their carrying values. In developing our
estimates of the cash flows that will be generated from the Company's Mexican
operations, we have assumed that the tax on soft drinks sweetened with HFCS will
be permanently repealed in the near future, and that sales of HFCS to the
Mexican soft drink industry will return to the levels realized prior to the
imposition of the tax by the end of 2003. Under these assumptions about future
HFCS sales in Mexico, the estimated fair value of the Company's Mexican business
exceeds its carrying amount by approximately $90 million. In the event actual
results differ from those assumed, the Company could be required to recognize an
impairment of goodwill and property, plant and equipment, and the amount of such
impairment could be material.
12
It is reasonably possible that we could have used different assumptions
in making our estimates of future operating results and cash flows in making our
impairment calculations related to our Mexican business. For example, if we
assumed that the tax on soft drinks sweetened with HFCS would not be repealed,
our projections of future cash flows in Mexico would be different. While we
believe that the tax will ultimately be repealed, we have nevertheless begun to
develop an alternative business strategy with respect to our Mexican operations
in the less likely event the tax is not rescinded. This strategy includes, among
other things, the following: (i) developing new uses and new customers for HFCS;
(ii) increasing sales of our current product portfolio, as well as developing
new products for the region; (iii) investing capital to increase production
output for current and new products; (iv) the potential transfer of certain HFCS
equipment to plants outside of Mexico; and (v) continuing our cost reduction
program. Based on our projections of operating results and cash flows that would
be generated under this alternative business model for our Mexican operations,
we may be required to record an impairment charge to write-down the carrying
value of goodwill in the event the tax is not repealed. These assumptions are
subject to change based on business conditions and the results of the impairment
calculations could be significantly different if performed at a later date.
In concluding that an impairment of our Mexican goodwill may arise if
the tax on soft drinks sweetened with HFCS is not repealed, we assumed that no
proceeds will be received from our claim for compensation under NAFTA against
the Mexican Government. Any recovery we receive from the resolution of this
claim would reduce or offset, in whole or in part, the amount of any impairment
to be recognized. However, no assurance can be made that we will be successful
in either asserting our claim or in recovering damages.
Since the time the assumptions supporting the cash flow estimate
referred to above were made, there have been no significant positive
developments toward the repeal of the tax on soft drinks sweetened with HFCS.
The Company is continuing its efforts to gain repeal of the tax and, at the same
time, pursuing the implementation of the alternative business strategies
outlined above. We will assess the extent of our progress in each of these areas
and reconsider the assumptions underlying our assessment of the carrying value
of the Mexican long-lived assets on a quarterly basis, and whenever significant
developments occur.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company's total assets increased to $2,073
million from $2,015 million at December 31, 2002. The increase in total assets
mainly reflects the recording of $37 million of goodwill related to our purchase
of the minority interest in our Southern Cone of South America businesses.
Increased working capital and stronger local currencies in South America and
Canada also contributed to the increase in total assets.
Cash used for operating activities was $3 million for first quarter
2003, compared to $27 million of cash provided by operating activities in first
quarter 2002. The decline in operating cash flow was principally due to a larger
year over year increase in working capital activity, primarily reflecting higher
corn costs, increased product pricing and the timing of certain payments. We had
a much smaller working capital increase in the prior year period as a result of
the initial implementation of improved working capital management processes.
Cash used for investing activities totaled $55 million for the first three
months of 2003, reflecting acquisition-related payments and capital
expenditures. Capital expenditures of $7 million for the first three months of
2003 are in line with the Company's capital spending plan for the year,
13
which is currently expected to approximate $80 million for full year 2003. Our
first quarter 2003 investing activities were funded principally with proceeds
from borrowings.
The Company has a $125 million 3-year revolving credit facility in the
United States due October 2005. In addition, the Company has a number of
short-term credit facilities consisting of operating lines of credit. At March
31, 2003, the Company had total debt outstanding of $664 million compared to
$600 million at December 31, 2002. The increase mainly reflects borrowings made
during the quarter to fund the previously mentioned acquisition of the minority
interest in our Southern Cone of South America businesses. The debt outstanding
includes: $65 million outstanding under the U.S. revolving credit facility at a
weighted average interest rate of approximately 2.7 percent for the three months
ended March 31, 2003; $255 million (face amount) of 8.25 percent senior notes
due 2007; $200 million (face amount) of 8.45 percent senior notes due 2009; and
various affiliate indebtedness totaling $148 million which includes borrowings
outstanding under local country operating credit lines. Approximately $84
million of the affiliate debt represents short-term borrowings. The weighted
average interest rate on affiliate debt was approximately 6.8 percent for the
first three months of 2003. The Company has interest rate swap agreements that
effectively convert the interest rate associated with the Company's 8.45 percent
senior notes to a variable interest rate. The fair value of these interest rate
swap agreements ($26 million at March 31, 2003 and $27 million at December 31,
2002) is reflected in the Condensed Consolidated Balance Sheets as an offset to
the increase in the fair value of the hedged debt obligation.
On March 26, 2003, the Company's board of directors declared a
quarterly cash dividend of $0.10 per share of common stock. The cash dividend
was paid on April 25, 2003 to stockholders of record at the close of business on
April 2, 2003.
The Company expects that its operating cash flows and borrowing
availability under its credit facilities will be more than sufficient to fund
its anticipated capital expenditures, dividends and other investing and/or
financing strategies for the foreseeable future.
MINORITY INTEREST IN SUBSIDIARIES. Minority interest in subsidiaries
decreased to $72 million at March 31, 2003 from $93 million at December 31,
2002. The decrease is mainly attributable to our purchase of the minority
interest in our Southern Cone of South America businesses. Effective with the
purchase, the Southern Cone businesses are now wholly-owned subsidiaries of the
Company.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains or may contain forward-looking statements
concerning the Company's financial position, business and future earnings and
prospects, in addition to other statements using words such as "anticipate,"
"believe," "plan," "estimate," "expect," "intend" and other similar expressions.
These statements contain certain inherent risks and uncertainties. Although we
believe our expectations reflected in these forward-looking statements are based
on reasonable assumptions, stockholders are cautioned that no assurance can be
given that our expectations will prove correct. Actual results and developments
may differ materially from the expectations conveyed in these statements, based
on factors such as the following: fluctuations in worldwide commodities markets
and the associated risks of hedging against such fluctuations; fluctuations in
aggregate industry supply and market demand; general political, economic,
business, market and weather conditions in the various geographic regions and
countries in which we manufacture and sell our products, including fluctuations
in the value
14
of local currencies, energy costs and availability and changes in regulatory
controls regarding quotas, tariffs, taxes and biotechnology issues; and
increased competitive and/or customer pressure in the corn-refining industry;
the outbreak or continuation of hostilities; and stock market fluctuation and
volatility. Our forward-looking statements speak only as of the date on which
they are made and we do not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the date of
the statement. If we do update or correct one or more of these statements,
investors and others should not conclude that we will make additional updates or
corrections. For a further description of risk factors, see the Company's most
recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q
or 8-K.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is set forth in the Company's Annual Report on Form
10-K for the year ended December 31, 2002, and is incorporated herein by
reference. There have been no material changes to the Company's market risk
during the three months ended March 31, 2003.
ITEM 4
CONTROLS AND PROCEDURES
The Chief Executive Officer and the Chief Financial Officer performed
an evaluation of the effectiveness of the Company's disclosure controls and
procedures as of March 31, 2003. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls and
procedures are effective in ensuring that all material information required to
be filed in this quarterly report has been made known to them in a timely
fashion. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the Company's
internal controls subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.
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PART II OTHER INFORMATION
ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 27, 2003, the Company issued Treasury Stock in the aggregate
of 270,792 shares of the Company's Common Stock as partial consideration related
to the acquisition of the entire minority shareholders' interests (27.76%) in
the Company's Southern Cone of South America businesses. The recipients were
Agri Products Corporation and Tybrisa Development Corporation and they received
237,029 shares and 33,763 shares, respectively, of the Company's Common Stock.
The issuance of the shares was exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof. All of the shares were acquired by each of the two recipient
corporations for its own account for investment, and not with a view to
distribution. The offer and sale were made without any public solicitation, and
the stock certificates bear restrictive legends.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index hereto.
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 2003.
All other items hereunder are omitted because either such item is inapplicable
or the response is negative.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORN PRODUCTS INTERNATIONAL, INC.
DATE: March 11, 2004 By /s/ Cheryl K. Beebe
-----------------------------------------
Cheryl K. Beebe
Vice President and Chief Financial Officer
DATE: March 11, 2004 By /s/ Robin A. Kornmeyer
-----------------------------------------
Robin A. Kornmeyer
Vice President and Controller
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EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
11 Statement re: computation of earnings per share
31.1 CEO Section 302 Certification Pursuant to the Sarbanes-Oxley
Act of 2002
31.2 CFO Section 302 Certification Pursuant to the Sarbanes-Oxley
Act of 2002
32.1 CEO Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code as created by the
Sarbanes-Oxley Act of 2002
32.2 CFO Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code as created by the
Sarbanes-Oxley Act of 2002
18