<PAGE>
No. 1-13397
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10/A
(Amendment No. 3)
---------------------
GENERAL FORM FOR REGISTRATION
OF SECURITIES
Pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
---------------------
Corn Products International, Inc.
<TABLE>
<CAPTION>
<S> <C>
Delaware 22-3514823
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
Corn Products International, Inc. 60501-1933
P.O. Box 345 (Zip Code)
6500 South Archer Road
Bedford Park, IL
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code:
708-563-2400
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Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class to be registered Name of each exchange on which each class is to be registered
- ------------------------------------ -------------------------------------------------------------
<S> <C>
Common Stock, $.01 par value, New York Stock Exchange, Inc.
including attached Preferred Stock
Purchase Right
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
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<PAGE>
EXPLANATORY NOTE
This Registration Statement has been prepared on a prospective basis on
the assumption that, among other things, the Distribution (as defined in the
Information Statement which is a part of this Registration Statement) and the
related transactions contemplated to occur prior to or contemporaneously with
the Distribution will be consummated as contemplated by the Information
Statement. There can be no assurance, however, that any or all of such
transactions will occur or will occur as so contemplated. Any significant
modifications or variations in the transactions contemplated will be reflected
in an amendment or supplement to this Registration Statement.
<PAGE>
CROSS REFERENCE
CORN PRODUCTS INTERNATIONAL, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED
IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
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<CAPTION>
Item
No. Item Caption Location in Information Statement
- ---------- ------------ ---------------------------------
<S> <C> <C>
1. Business ....................................... "SUMMARY;" "INTRODUCTION;" "BUSINESS;"
"RISK FACTORS;" "THE DISTRIBUTION -- Rea-
sons for the Distribution" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
2. Financial Information ........................... "CORN PRODUCTS INTERNATIONAL, INC.
SUMMARY HISTORICAL FINANCIAL DATA;"
"CORN PRODUCTS INTERNATIONAL, INC.
SUMMARY PRO FORMA FINANCIAL DATA;"
"BUSINESS -- Management of Corn Cost Versus
Selling Price;" "FINANCING;" "SELECTED HIS-
TORICAL FINANCIAL DATA;" "PRO FORMA
FINANCIAL DATA" and "MANAGEMENT'S DIS-
CUSSION AND ANALYSIS OF FINANCIAL CON-
DITION AND RESULTS OF OPERATIONS."
3. Properties .................................... "BUSINESS -- Properties."
4. Security Ownership of Certain
Beneficial Owners and Management ............... "SECURITY OWNERSHIP OF CERTAIN BENEFI-
CIAL OWNERS."
5. Directors and Executive Officers ............... "MANAGEMENT."
6. Executive Compensation ........................ "EXECUTIVE COMPENSATION; PENSION AND
BENEFIT PLANS."
7. Certain Relationships and Related
Transactions .................................... "SUMMARY;" "THE DISTRIBUTION;" "RELA-
TIONSHIP BETWEEN THE COMPANY AND CPC
AFTER THE DISTRIBUTION" and "CERTAIN
RELATIONSHIPS AND TRANSACTIONS."
8. Legal Proceedings .............................. "BUSINESS -- Legal Proceedings."
9. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters ..................... "SUMMARY;" "INTRODUCTION;" "THE DIS-
TRIBUTION -- Listing and Trading of Corn Prod-
ucts Common Stock" and "DIVIDEND POLICY."
11. Description of Registrant's Securities
to be Registered .............................. "DESCRIPTION OF CAPITAL STOCK."
12. Indemnification of Directors and Officers ...... "LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS."
13. Financial Statements and
Supplementary Data .............................. "SUMMARY;" "SELECTED HISTORICAL FINANCIAL
DATA;" "PRO FORMA FINANCIAL DATA" and Corn
Products Combined Financial Statements
beginning on page F-1.
15. Financial Statements and Exhibits.
(a) List of Financial Statements .................. "INDEX TO CORN PRODUCTS COMBINED
FINANCIAL STATEMENTS."
</TABLE>
<PAGE>
Subject to completion or amendment, dated December 4, 1997
INFORMATION STATEMENT
[GRAPHIC OMITTED]
CORN PRODUCTS INTERNATIONAL, INC.
Common Stock
(Par Value $0.01 Per Share)
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by CPC International Inc. ("CPC") to holders
of record of CPC common stock at the close of business on December 15, 1997
(the "Record Date") of one share of common stock, par value $0.01 per share,
including the associated preferred stock purchase rights (the "Corn Products
Common Stock"), of its wholly owned subsidiary, Corn Products International,
Inc. (the "Company" or "Corn Products"), for every four shares of CPC common
stock owned on the Record Date. Corn Products was formed in March 1997 for the
purpose of effecting the Distribution and assuming the operations of the corn
refining business of CPC and has no previous operating history. The
Distribution will result in 100% of the outstanding shares of Corn Products
Common Stock being distributed to holders of CPC common stock. It is expected
that the Distribution will be effective at 11:59:59 p.m. on December 31, 1997
(the "Effective Date"). It is expected that certificates representing shares
of Corn Products Common Stock will be mailed to holders of CPC common stock on
or about January 2, 1998.
No consideration will be paid by CPC's stockholders for the shares of
Corn Products Common Stock. There is no current public trading market for the
shares of Corn Products Common Stock, although it is expected that a
"when-issued" trading market will develop on or about the Record Date. The
Corn Products Common Stock has been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange, Inc. (the "NYSE") under
the symbol "CPO" and "regular way" trading on the NYSE is expected to begin on
January 2, 1998.
In reviewing this Information Statement, you should carefully consider
the matters described under the caption "RISK FACTORS" beginning at page 17.
---------------------
NO STOCKHOLDER APPROVAL IS REQUIRED OR SOUGHT IN CONNECTION WITH THE
DISTRIBUTION. EACH STOCKHOLDER WILL AUTOMATICALLY RECEIVE A CERTIFICATE
REPRESENTING CORN PRODUCTS COMMON STOCK RECEIVED IN THE DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO TAKE ANY ACTION WITH
RESPECT TO YOUR SHARES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
---------------------
The date of this Information Statement is December __, 1997.
<PAGE>
THIS INFORMATION STATEMENT IS BEING FURNISHED SOLELY TO PROVIDE
INFORMATION TO STOCKHOLDERS OF CPC WHO WILL RECEIVE SHARES OF CORN PRODUCTS
COMMON STOCK IN THE DISTRIBUTION. IT IS NOT, AND IS NOT INTENDED TO BE
CONSTRUED AS, AN INDUCEMENT OR ENCOURAGEMENT TO BUY OR SELL ANY SECURITIES OF
THE COMPANY OR CPC. THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS
BELIEVED TO BE ACCURATE AS OF DECEMBER __, 1997. CHANGES MAY OCCUR AFTER THAT
DATE, AND NEITHER THE COMPANY NOR CPC WILL UPDATE THE INFORMATION CONTAINED
HEREIN EXCEPT IN THE NORMAL COURSE OF THEIR RESPECTIVE PUBLIC DISCLOSURES.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form 10 (the "Registration Statement")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
with respect to the shares of Corn Products Common Stock to be received by the
holders of CPC common stock in the Distribution. This Information Statement
does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information, reference is made
to the Registration Statement and the exhibits thereto. Statements made in
this Information Statement as to the contents of any contract, agreement or
other document referred to herein are qualified in their entirety by reference
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement, all of which are hereby incorporated herein by
reference. The Registration Statement and the exhibits thereto may be
inspected and copied at the SEC's public reference room located at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
public reference facilities in the SEC's regional offices at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material may be obtained at prescribed rates by writing to the SEC, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, copies of the Registration Statement and related documents may be
obtained through the SEC Internet address at http://www.sec.gov.
The Company will be required to comply with the reporting requirements of
the Exchange Act and, in accordance therewith, to file reports, proxy
statements and other information with the SEC. Additionally, the Company will
be required to provide annual reports containing audited financial statements
to its stockholders in connection with its annual meetings of stockholders.
After the Distribution, such reports, proxy statements and other information
will be available to be inspected and copied at the public reference
facilities of the SEC or obtained by mail or over the Internet from the SEC,
as described above. Application has been made to list the shares of Corn
Products Common Stock on the NYSE and, if and when such shares of Corn
Products Common Stock commence trading on the NYSE, such reports, proxy
statements and other information will be available for inspection at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
ii
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FORWARD-LOOKING STATEMENTS
This Information Statement includes or may include certain
forward-looking statements that involve risks and uncertainties. This
Information Statement contains certain forward-looking statements concerning
the Company's financial position, business strategy, budgets, projected costs
and plans and objectives of management for future operations as well as other
statements including words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," and other similar expressions. Although the
Company believes its expectations reflected in such forward-looking statements
are based on reasonable assumptions, stockholders are cautioned that no
assurance can be given that such expectations will prove correct and that
actual results and developments may differ materially from those conveyed in
such forward-looking statements. Important factors that could cause actual
results to differ materially from the expectations reflected in the
forward-looking statements herein 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; costs or
difficulties related to the establishment of the Company as an independent
entity; and increased competitive and/or customer pressure in the corn
refining industry. Such forward-looking statements speak only as of the date
on which they are made and the Company does not undertake any obligation to
update any forward-looking statement to reflect events or circumstances after
the date of this Information Statement. If the Company does update or correct
one or more forward-looking statements, investors and others should not
conclude that the Company will make additional updates or corrections with
respect thereto or with respect to other forward-looking statements. See "RISK
FACTORS" at page 17.
---------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR CPC.
iii
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TABLE OF CONTENTS
ADDITIONAL INFORMATION ........................... ii
FORWARD-LOOKING STATEMENTS ........................ iii
SUMMARY .......................................... 1
CORN PRODUCTS INTERNATIONAL,
INC. SUMMARY HISTORICAL
FINANCIAL DATA ................................. 6
RECENT DEVELOPMENTS .............................. 7
CORN PRODUCTS INTERNATIONAL,
INC. SUMMARY PRO FORMA
FINANCIAL DATA ................................. 8
INTRODUCTION .................................... 9
BUSINESS .......................................... 10
Overview ....................................... 10
Business Strategy .............................. 10
Products ....................................... 11
Competition .................................... 12
Customers .................................... 13
Raw Materials ................................. 13
Management of Corn Cost versus Selling
Price ....................................... 13
Geographic Scope .............................. 14
Research and Development ..................... 14
Sales and Distribution ........................ 14
Patents and Trademarks ........................ 14
Employees and Management ..................... 14
Properties .................................... 15
Government Regulation and Environmental
Matters .................................... 16
Legal Proceedings .............................. 16
RISK FACTORS .................................... 17
Uncertain Ability to Reverse Recent
Disappointing Financial Performance ...... 17
Uncertain Ability to Contain Costs or to
Fund Capital Expenditures .................. 17
Competition; Expanding Industry Capacity ........ 18
Price Volatility and Uncertain Availability of
Corn ....................................... 18
Potential Losses from Commodities Hedging
Activities ................................. 18
Unavailability of CPC's Financial and Other
Resources ................................. 19
Absence of Prior Trading Market for Corn
Products Common Stock ..................... 19
Uncertainty of Dividends ..................... 19
Foreign Operations Risks ..................... 19
Certain Anti-Takeover Effects .................. 19
Indebtedness ................................. 20
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Limited Relevance of Historical Financial
Information .............................. 21
Possibility of Substantial Redistribution of
Corn Products Common Stock ............... 21
Reliance on Major Customers .................. 21
THE DISTRIBUTION ................................. 22
Reasons for the Distribution .................. 22
Manner of Effecting the Distribution ......... 22
Certain U.S. Federal Income Tax
Consequences of the Distribution ......... 23
Listing and Trading of Corn Products Com-
mon Stock 24
Expenses of the Distribution .................. 25
Treatment of Employee Options, Restricted
Stock and Rabbi Trusts in the Distribution 25
RELATIONSHIP BETWEEN THE
COMPANY AND CPC AFTER THE
DISTRIBUTION ................................. 26
Distribution Agreement ........................ 27
Tax Sharing Agreement ........................ 27
Tax Indemnification Agreement .................. 27
Debt Agreement ................................. 28
Transition Services Agreement .................. 29
Employee Benefits Agreement .................. 29
Other Agreements and Arrangements ............ 30
FINANCING ....................................... 31
PRO FORMA CAPITALIZATION ........................ 32
SELECTED HISTORICAL FINANCIAL
DATA .......................................... 33
PRO FORMA FINANCIAL DATA ........................ 34
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS .................................... 38
Introduction ................................. 38
Overview and Outlook ........................... 38
Results of Operations: First Nine Months of
1997 Compared With First Nine Months
of 1996 .................................... 39
Results of Operations: 1996 Compared With
1995 ....................................... 40
Results of Operations: 1995 Compared With
1994 ....................................... 40
Liquidity and Capital Resources ............... 41
MANAGEMENT ....................................... 42
Directors of the Company ..................... 42
Directors' Meetings, Fees and Committees ...... 43
iv
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Audit Committee .............................. 44
Compensation and Nominating Committee ......... 44
Executive Officers of the Company ............ 44
EXECUTIVE COMPENSATION;
PENSION AND BENEFIT PLANS .................. 46
Historical Compensation ..................... 46
Base Salaries .............................. 49
Annual Bonuses .............................. 49
Severance Agreements ........................ 49
Stock Incentive Plan ........................ 49
Pension Plans .............................. 50
Defined Contribution Plan .................. 50
Other Benefit Plans ........................ 51
CERTAIN RELATIONSHIPS AND
TRANSACTIONS .............................. 51
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS ........................ 52
DESCRIPTION OF CAPITAL STOCK .................. 53
Authorized Stock ........................... 53
No Preemptive Rights ........................ 54
Transfer Agent and Registrar ............... 54
Rights Plan ................................. 55
ANTI-TAKEOVER EFFECTS OF
CERTAIN PROVISIONS OF THE
CHARTER, THE BY-LAWS, THE
RIGHTS PLAN AND DELAWARE
LAW ....................................... 57
Classified Board of Directors; Removal of
Directors .............................. 57
Filling Vacancies on the Board ............ 58
Written Consents and Special Meetings ...... 58
Advance Notice Provisions for Stockholder
Nominations and Proposals ............... 58
Restrictions on Amendment .................. 59
Preferred Stock ........................... 59
Other Considerations ........................ 60
Certain Effects of the Rights Plan ......... 60
Delaware Business Combination Statute ...... 60
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS ..................... 60
INDEPENDENT ACCOUNTANTS ........................ 61
DIVIDEND POLICY .............................. 61
TABLE OF DEFINED TERMS ........................ 62
INDEX TO CORN PRODUCTS
COMBINED FINANCIAL
STATEMENTS ................................. F-1
v
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information and financial
statements set forth in this Information Statement, which should be read in
its entirety.
Corn Products International, Inc.
CPC International Inc., a Delaware corporation ("CPC"), is a successor to
Corn Products Refining Company, which was originally incorporated in 1906.
Corn Products Refining Company was initially an amalgamation of virtually all
of the corn syrup and starch companies in the United States. CPC remained the
leading corn refiner in the United States into the early 1970's. Over the
years, CPC grew and diversified and placed an increasing emphasis on a branded
foods business. The management and the Board of Directors of CPC have
concluded that it is in the best interests of CPC and its stockholders for CPC
to focus exclusively on its worldwide branded foods businesses, and to create
a separate, independent company to focus solely on the corn refining and
related businesses (the "Corn Refining Business").
Corn Products International, Inc., a Delaware corporation and a wholly
owned subsidiary of CPC (the "Company" or "Corn Products"), was formed in
March 1997 to assume the operations of the Corn Refining Business. As
described herein, effective at 11:59:59 p.m. on December 31, 1997, CPC will
distribute all of the stock of the Company to holders of CPC common stock (the
"Distribution"). CPC will transfer the assets and related liabilities of the
Corn Refining Business to the Company prior to the Distribution. Following the
Distribution, CPC will no longer own any stock of the Company and the Company
will operate the Corn Refining Business as an independent, publicly traded
company. The Company's principal executive offices are located at 6500 South
Archer Road, Bedford Park, IL 60501-1933 and its telephone number is (708)
563-2400. See "THE DISTRIBUTION" at page 22 and "RELATIONSHIP BETWEEN THE
COMPANY AND CPC AFTER THE DISTRIBUTION" at page 26.
Business
The Company produces a large variety of food ingredients and industrial
products derived from the wet milling of corn and other farinaceous materials
for use in more than 60 industries. The Company is one of the largest corn
refiners in the world, and believes it is the fourth largest corn refiner in
the United States and the leading corn refiner in both Latin America and
Canada based on annual grind. The Company engages in business in over 20
countries, operating directly and through affiliates in nine countries with 19
plants and indirectly through joint ventures and technical licensing
agreements elsewhere in Latin America, Asia, Africa, Australia and New
Zealand. In 1996, the Corn Refining Business produced net sales worldwide of
approximately $1.5 billion of which intercompany sales accounted for
approximately $157 million. Sweeteners, such as high fructose corn syrup (a
sweetener used in soft drinks and other products), accounted for $842 million
(55%) of 1996 net sales, while starches (used for both food and non-food
purposes) accounted for $336 million (22%) of 1996 net sales. See "BUSINESS"
at page 10, "RISK FACTORS" at page 17, "SELECTED HISTORICAL FINANCIAL DATA" at
page 33, "PRO FORMA FINANCIAL DATA" at page 34, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" beginning at page
38 and the Company's Combined Financial Statements beginning at page F-1.
Business Strategy
The Company is committed to optimizing its productive capacities,
enhancing its market positions and increasing profitability by employing the
following key strategies:
o Leverage Leading Market Positions and Geographic Diversity.
o Expand into New Markets through New and Existing Strategic
Relationships.
1
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o Seize Trade Opportunities Based on Regional Presence.
o Improve and Introduce Value-Added Products.
o Maximize Operating Efficiencies.
o Emphasize Close Customer Relationships in Delivering Quality Products
and Service.
o Improve Management Effectiveness and Focus Employee Incentives.
See "BUSINESS -- Business Strategy" at page 10.
The Distribution
Primary Purposes of the
Distribution............ CPC and the Company believe that the Distribution
will enhance the ability of each of CPC and the
Company to maximize the profitability of its
respective operations by enabling each company to
focus its managerial and financial resources on
the growth and development of its core businesses
without regard to the corporate objectives,
policies and investment standards of the other. In
addition, the Distribution will enable the Company
to establish equity-based incentive compensation
arrangements which will more effectively attract,
retain and motivate employees by offering benefits
that are more directly associated with the
employees' efforts to improve the performance of
the Company. CPC also believes that the
Distribution will enable CPC to implement
significant cost savings that would not have been
possible without the decision to proceed with the
Distribution. See "THE DISTRIBUTION -- Reasons for
the Distribution" at page 22.
Distribution Ratio ...... Each holder of CPC common stock, par value $0.25
per share ("CPC Common Stock"), will receive one
share of common stock, par value $0.01 per share,
including the associated preferred stock purchase
rights ("Corn Products Common Stock"), of the
Company for every four shares of CPC Common Stock
held on the Record Date (as defined below). See "THE
DISTRIBUTION -- Manner of Effecting the
Distribution" at page 22.
Tax Consequences to CPC
Stockholders ......... CPC has received a private letter ruling (the
"Ruling") from the Internal Revenue Service (the
"IRS") that the receipt of shares of Corn Products
Common Stock will be tax-free for U.S. federal
income tax purposes to the holders of CPC Common
Stock. The Ruling does not address the treatment
of cash received for fractional share interests of
Corn Products Common Stock. Cash, if any, received
in lieu of fractional shares will not be tax-free
to holders of CPC Common Stock. See "THE
DISTRIBUTION -- Manner of Effecting the
Distribution" at page 22 and "-- Certain U.S.
Federal Income Tax Consequences of the
Distribution" at page 23.
Shares to be
Distributed ......... Approximately 35.5 million shares of Corn Products
Common Stock will be distributed pursuant to the
Distribution based on the approximately 142 million
shares of CPC Common Stock outstanding on September
30, 1997 and eligible to receive the Distribution.
In addition, as of September 30, 1997,
approximately 55,000
2
<PAGE>
restricted shares of CPC Common Stock and options
with respect to approximately 250,000 shares of
CPC Common Stock were held by CPC employees who
will become employees of the Company. As provided
in the Employee Benefits Agreement, the Company
will issue restricted shares of Corn Products
Common Stock and options with respect to Corn
Products Common Stock to adjust and substitute for
such CPC restricted stock and options. The Company
has reserved an additional 3.5 million shares of
Corn Products Common Stock for issuance from time
to time under stock-based compensation plans. See
"THE DISTRIBUTION -- Manner of Effecting the
Distribution" at page 22, "-- Treatment of
Employee Options, Restricted Stock and Rabbi
Trusts in the Distribution" at page 25 and
"EXECUTIVE COMPENSATION; PENSION AND BENEFIT
PLANS" at page 46.
No Fractional Shares ... No fractional shares of Corn Products Common Stock
will be distributed. All fractional share interests
will be aggregated and sold by the Distribution
Agent (as defined below) and the cash proceeds will
be distributed to those stockholders otherwise
entitled to a fractional interest. See "THE
DISTRIBUTION -- Manner of Effecting the
Distribution" at page 22.
Listing and Trading
Market ............... The Corn Products Common Stock has been approved for
listing, subject to official notice of issuance, on
the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "CPO." See "THE DISTRIBUTION --
Listing and Trading of Corn Products Common Stock"
at page 24.
Record Date ............ Close of business on December 15, 1997 (the
"Record Date").
Effective Date ......... 11:59:59 p.m. on December 31, 1997 (the "Effective
Date").
Mailing Date ......... Certificates representing shares of Corn Products
Common Stock are expected to be mailed to holders of
CPC Common Stock on or about January 2, 1998.
Distribution Agent ... First Chicago Trust Company of New York (the
"Distribution Agent"). CPC stockholders with
questions concerning procedural issues related to
the Distribution or the trading of Corn Products
Common Stock or CPC Common Stock for the period
generally between the Record Date and the Effective
Date may call the Distribution Agent at (201)
324-0498 or (800) 446-2617.
Dividend Policy ...... The Company's dividend policy will be set by the
Company's Board of Directors (the "Corn Products
Board") after the Distribution. The Company
currently anticipates that it will pay modest
quarterly cash dividends, although the declaration
and payment of dividends is at the discretion of the
Corn Products Board and will be subject to the
Company's financial results and the availability of
surplus funds to pay dividends. The Delaware General
Corporation Law (the "DGCL") prohibits the Company
from paying dividends or otherwise distributing
funds to its stockholders, except out of legally
available funds. The declaration of dividends and
the amount thereof will depend on a number of
factors, including the Company's financial
condition, capital
3
<PAGE>
requirements, funds from operations, future
business prospects and such other factors as the
Corn Products Board may deem relevant. No
assurance can be given that the Company will pay
any dividends. See "RISK FACTORS -- Uncertainty of
Dividends" at page 19, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" beginning at page 38 and "DIVIDEND
POLICY" at page 61.
Relationship with CPC After the
Distribution ......... The Company will have ongoing relationships with
CPC following the Distribution. CPC and the Company
intend to enter into the Master Supply Agreement and
a number of other agreements in connection with the
Distribution, including the Distribution Agreement,
the Tax Sharing Agreement, the Tax Indemnification
Agreement, the Debt Agreement, the Transition
Services Agreement, the Employee Benefits Agreement,
the Access Agreement and the Master License
Agreement. Under the Master Supply Agreement, CPC
will generally agree, among other things, to
purchase certain products exclusively from the
Company for a period of two years from the Effective
Date. In addition, the Company and CPC initially
will have four common members on their respective
Boards of Directors and one CPC employee will
initially serve as a director of the Company. See
"RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE
DISTRIBUTION" at page 26 and "MANAGEMENT" at
page 42.
Risk Factors ......... Stockholders should be aware that there are
certain risks inherent in an investment in Corn
Products Common Stock and should carefully consider
those risks, which include the uncertain ability of
the Company to reverse its recent disappointing
financial performance and to fund its anticipated
capital expenditures; the competitiveness of the
corn refining industry and its recent overcapacity;
the price volatility of corn; the potential losses
that may result from the Company's commodities
hedging activities; and the impact of the Company's
anticipated indebtedness on its operations. For a
full description of these and other risks associated
with such an investment, see "RISK FACTORS"
beginning at page 17.
4
<PAGE>
STOCKHOLDER INQUIRIES
Stockholders of CPC with questions relating to the Distribution and
delivery of stock certificates, or the trading of Corn Products Common Stock
or CPC Common Stock for the period generally between the Record Date and the
Effective Date, should contact the Distribution Agent:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2506
(201) 324-0498
or
(800) 446-2617 (Anywhere in the U.S.)
---------------------
For other questions addressed to CPC, please contact:
Shareholder Communications Corporation
17 State Street
New York, NY 10004
(800) 451-0155
After the Effective Date, stockholders of the Company with inquiries
relating to the Distribution or their investment in the Company should contact
Corn Products International, Inc., 6500 South Archer Road, Bedford Park, IL
60501-1933, Attention: Investor Relations.
5
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth a summary of selected financial data for
the Company. The historical financial information below 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 or of the Company's future performance as an independent
company. The financial data set forth below should be read in conjunction with
the Company's financial statements and the notes thereto found elsewhere in
this Information Statement. Interim results may not necessarily be indicative
of the Company's results of operations or financial position for a full year.
See "SELECTED HISTORICAL FINANCIAL DATA" at page 33, "PRO FORMA FINANCIAL
DATA" at page 34, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" beginning at page 38 and the Company's Combined
Financial Statements beginning at page F-1. Earnings per share data are
presented elsewhere in this Information Statement and on a pro forma basis
only. See "PRO FORMA FINANCIAL DATA" at page 34.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
(in millions, except -------------------------- -------------------------------------------------------------
current ratio)
1997 1996 1996 1995 1994 1993 1992
--------------- -------- -------- ------------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Net sales (1) ......... $ 1,055 $1,144 $1,524 $ 1,387 $ 1,385 $1,243 $1,250
Gross profit ............ 96 142 143 304 298 254 258
Restructuring
charges (gains) --
net .................. 94 -- -- (37) 19 -- --
Spin-off costs ......... 15 -- -- -- -- -- --
Operating income
(loss) ............... (84) 81 65 251 188 182 180
Income (loss) before
income taxes ......... (106) 60 37 223 169 166 162
Income tax expense
(benefit) ............ (25) 22 12 86 67 66 65
Minority
stockholders'
interest ............ 1 2 2 2 2 1 1
-------- ------- ------- -------- -------- ------- -------
Net income (loss) ...... $ (82)(2) $ 36 $ 23 $ 135(2) $ 100(2) $ 99 $ 96
======== ======= ======= ======== ======== ======= =======
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ...... $ 88 $ 176 $ 147 $ 31 $ 106 $ 33 $ 33
Current ratio ......... 1.3 1.6 1.5 1.1 1.5 1.2 1.2
Plant and properties,
net ............... $1,051 $1,042 $1,057 $ 920 $ 830 $ 792 $ 745
Total debt ............ $ 350 $ 340 $ 350 $ 363 $ 294 $ 269 $ 263
Deferred income
taxes, net ......... $ 73 $ 107 $ 85 $ 102 $ 100 $ 114 $ 118
CPC equity
investment ......... $ 941 $1,007 $1,025 $ 600 $ 550 $ 484 $ 444
Total assets ......... $1,642 $1,656 $1,663 $ 1,306 $1,207 $1,110 $1,053
</TABLE>
- ------------
(1) Includes sales to CPC as follows: $123; $124; $157; $154; $163; $140; and
$153 for the nine months ended September 30, 1997 and 1996 and the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
(2) Includes provisions for restructuring. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" beginning at
page 38.
RECENT DEVELOPMENTS
The Company does not as a matter of course make public projections as to
future performance or earnings. The following information has been included in
this Information Statement for the limited purpose of giving all Corn Products
stockholders access to certain financial projections made available to
investment analysts in connection with the Distribution. As of the date of
this Information Statement, the Company expects that its operating profits
before restructuring charges and spin-off costs will be in the range of $45
million to $50 million, and that its operating cash flows should reach $170
million, for the year ending December 31, 1997. These results include
estimated North American operating losses in the range of $25 million to $30
million and estimated operating profits for other international operations of
approximately $80 million to $85 million for 1997. See "FORWARD-LOOKING
STATEMENTS" at page iii and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" at page 38.
7
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
SUMMARY PRO FORMA FINANCIAL DATA
The following summary pro forma financial data make adjustments to the
Company's historical statement of income as if the Distribution had occurred
on December 31, 1995 for purposes of the pro forma statement of earnings, and
make adjustments to the Company's historical balance sheet as if the
Distribution had occurred on September 30, 1997 for purposes of the September
30, 1997 pro forma balance sheet and on December 31, 1996 for purposes of the
December 31, 1996 pro forma balance sheet. See "PRO FORMA FINANCIAL DATA" at
page 34 for a discussion of the principal adjustments involved in the
preparation of the pro forma financial information. The pro forma financial
statements of the Company may not reflect the future results of operations or
financial position of the Company or what the results of operations would have
been if the Company had been a separate, independent company during such
periods. See "PRO FORMA FINANCIAL DATA" at page 34.
Nine Months Year
Ended Ended
September 30, December 31,
--------------- -------------
1997 1996
(in millions, except per share data) --------------- -------------
Statement of Earnings Data:
Net sales .............................. $ 1,055 $ 1,524
Restructuring charges -- net ............ 94 --
Spin-off costs ........................ 15 --
Operating income (loss) ............... (81) 69
Income (loss) before income taxes ...... (103) 41
Net income (loss) ..................... (80) 26
Earnings (loss) per share(1) ............ $ (2.24) $ 0.73
Balance Sheet Data:
Current assets ........................ $ 416 $ 434
Working capital ........................ 236 309
Plant and properties, net ............... 1,051 1,057
Total assets ........................... 1,642 1,663
Current liabilities ..................... 180 125
Long-term debt ........................ 350 350
Stockholders' equity .................. $ 952 $ 1,037
- ------------
(1) The number of shares used to compute earnings (loss) per share is based on
the number of shares of CPC Common Stock outstanding at September 30, 1997
and December 31, 1996 (excluding shares held by the Rabbi Trusts and
taking into account an estimated number of shares of restricted Corn
Products Common Stock to be issued to Corn Products Employees in
substitution for shares of restricted CPC Common Stock as provided in the
Employee Benefits Agreement), adjusted for an assumed distribution ratio
of one share of Corn Products Common Stock for every four shares of CPC
Common Stock held on the Record Date.
8
<PAGE>
INTRODUCTION
On November 18, 1997, the Board of Directors of CPC declared the
Distribution payable to the holders of record of CPC Common Stock at the close
of business on the Record Date of one share of Corn Products Common Stock,
including the associated preferred stock purchase rights ("Rights"), for every
four shares of CPC Common Stock outstanding on the Record Date. (Unless the
context otherwise requires, all references to Corn Products Common Stock in
this Information Statement shall include the associated Rights.) The
Distribution will occur at the Effective Date. As a result of the
Distribution, 100% of the outstanding shares of Corn Products Common Stock
will be distributed to holders of CPC Common Stock, and CPC will no longer own
any shares of Corn Products Common Stock. It is expected that certificates
representing shares of Corn Products Common Stock will be mailed to holders of
CPC Common Stock on or about January 2, 1998. See "THE DISTRIBUTION -- Manner
of Effecting the Distribution" at page 22.
CPC formed the Company in March 1997 to assume the operations of the Corn
Refining Business and to effect the Distribution. In connection with the
Distribution, CPC will transfer to the Company all of the assets and related
liabilities of the Corn Refining Business, including the stock of certain of
CPC's foreign and domestic subsidiaries engaged in the Corn Refining Business.
Following the Distribution, the Company will focus on the Corn Refining
Business and CPC will focus on its worldwide branded foods business. See
"BUSINESS" at page 10 and "RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE
DISTRIBUTION -- Distribution Agreement" at page 27. Unless the context
indicates otherwise, all references herein to the business, operations,
activities, customers, assets and other attributes of the Company prior to the
Distribution Date relate to the Corn Refining Business conducted by CPC and
its subsidiaries prior to the Distribution and are described herein as those
of the Company for ease of presentation and all references herein to the
Company or Corn Products include Corn Products International, Inc. and its
subsidiaries.
Stockholders of CPC with questions concerning procedural issues related
to the Distribution or the trading of Corn Products Common Stock or CPC Common
Stock for the period generally between the Record Date and the Effective Date
may call the Distribution Agent, First Chicago Trust Company of New York, at
(201) 324-0498 or (800) 446-2617. Other inquiries addressed to CPC should be
directed to Shareholder Communications Corporation at 17 State Street, New
York, NY 10004, or by telephone at (800) 451-0155. After the Effective Date,
stockholders of the Company with inquiries relating to the Distribution or
their investment in the Company should contact Corn Products International,
Inc., 6500 South Archer Road, Bedford Park, IL 60501-1933, Attention: Investor
Relations. The Company's telephone number is (708) 563-2400.
9
<PAGE>
BUSINESS
Overview
The Corn Refining Business dates back to the original formation of CPC's
predecessor over 90 years ago. In 1906, Corn Products Refining Company was
formed through an amalgamation of virtually all the corn syrup and starch
companies in the United States. International expansion followed soon
thereafter. In 1928, the Corn Refining Business commenced Latin American
operations in Brazil, followed quickly by expansions into Argentina and
Mexico. The Company engages in business in over 20 countries, operating
directly and through affiliates in nine countries with 19 plants and
indirectly through joint ventures and technical licensing agreements elsewhere
in Latin America, Asia, Africa, Australia and New Zealand. The largest of
these joint ventures is in Mexico, where the operations of the Corn Refining
Business have been combined into a joint venture with the corn refining
operations of Arancia Industrial S.A. de C.V. This joint venture was, in 1996,
the first producer in Mexico of HFCS-55, the primary form of high fructose
corn syrup used in the soft drink industry. The Company is one of the largest
corn refiners in the world, and believes it is the fourth largest corn refiner
in the United States and the leading corn refiner both in Latin America
(including its Mexican joint venture which is the largest corn refiner in
Mexico) and in Canada, based on annual grind. Approximately 68% of the
Company's net sales are generated in North America, 27% in Latin America and
5% in other geographic regions through product sales and technology license
fees.
As a result of the multinational nature of the Company's operations, the
Company has developed a management structure that is able to provide strategic
direction on a global basis and also can implement ideas and service customers
locally. The Company has developed both formal and informal networks to
facilitate the sharing of business experiences and problem solving. The
Company believes this flexible structure enables it to take advantage of the
relaxation of international trade barriers to increase exports between
countries and allows for more effective management and higher utilization of
resources.
The Corn Refining Business supplies customers in more than 60 industries
with value-added products processed from starch and commodity products. The
Company's most important customers are in the food and beverage,
pharmaceuticals, paper products, corrugated and laminated paper, textiles and
brewing industries and in the animal feed markets.
Corn refining is a capital-intensive two-step process that involves the
wet milling and processing of corn. During the front end grind, corn is
steeped in water and separated into starch and co-products such as animal feed
and germ. The starch is then either dried for sale or further modified or
refined through various processes to make products designed to serve the
particular needs of various industries. The germ is refined to produce corn
oil. See "-- Products" at page 11.
The Company believes it has competitive, up-to-date and cost-effective
facilities. In recent years, significant capital expenditures have been made
to update, expand and improve the Company's facilities, averaging in excess of
$135 million per year for the last five years. Capital investments have
included the rebuilding of the Company's plant in Cali, Colombia; an expansion
of both grind capacity and dextrose production capacity at the Company's Argo
facility in Bedford Park, Illinois; entry into the high maltose corn syrup
business in Brazil, Colombia and Argentina; and the installation of energy
co-generation facilities in Canada. The Company believes these capital
expenditures will allow the Company to operate highly efficient facilities for
the foreseeable future with further annual capital expenditures that are
significantly below historical averages. In recent years, steps have also been
taken to reduce costs by closing facilities which could not economically be
made efficient, including plants in Argentina and Honduras.
Business Strategy
The Company is committed to generating growth by optimizing its
productive capacities, enhancing its market positions and increasing its
profitability, employing the following key strategies:
Leverage Leading Market Positions and Geographic Diversity. The Company
intends to increase sales and develop new markets by leveraging its position
as a market leader for specific products and in specific geographic regions.
For dextrose, in which the Company has a leading position on a worldwide
basis, the Company's investment strategy favors the timely provision of
additional production capacity to meet rising demand.
10
<PAGE>
For glucose, corn syrup and starch, in which the Company generally has a
strong position and a leading position in Latin America, the Company follows a
similar investment strategy. For example, in 1994, the Company introduced high
maltose corn syrup for use by the brewing industry in Latin America, where the
Company was already a leader in the corn refining industry. The Company also
plans to use its local operations, licensing and technical relationships and
joint ventures, which are located in over 20 countries around the world, to
expand in markets where demand for corn refining products is expected to grow
at a faster rate than demand in North America and other more established
markets. In light of its existing market positions for sweeteners and starches
in the faster-growing areas of Latin America, Asia and Africa, the Company
believes it is well-positioned to expand its presence in these emerging
markets.
Expand into New Markets through New and Existing Strategic Relationships.
The Company plans to seek additional strategic alliances with local starch
producers as a cost effective method of expanding into emerging markets. The
Company believes it can leverage its advanced technology, global business
experience, management and product application skills and existing customer
relationships by forming alliances with local market participants who have
unique knowledge of regional customers, markets and other political and
business conditions. For example, by combining operations in a joint venture
with Mexico's largest corn refiner in November 1994, the Company and its
partner solidified their leading market positions and enabled themselves to
tap into that nation's developing market for high fructose corn syrup.
Seize Trade Opportunities Based on Regional Presence. The Company
believes it is well-positioned to take advantage of the relaxation of
international trade barriers to increase exports between countries by using
facilities and distribution systems currently in place. Moreover, the Company
is focused on employing its local operations around the world as a base for
expansion into newly-accessible markets.
Improve and Introduce Value-Added Products. While non-differentiated
commodity products have accounted, and are expected to continue to account,
for most of the Company's sales volume, the Company intends to continue to
invest in the introduction of products geared to the specific needs of its
customers as well as to attempt to anticipate their future needs in
ever-changing international markets.
Maximize Operating Efficiencies. Competitiveness in the corn refining
industry depends on the ability to continually improve operating and cost
efficiencies. The Company has implemented, and intends to continue to focus
on, cost-saving and productivity programs. For example, the Company has
installed energy co-generation facilities in a number of plants to reduce
utility costs and has recently coordinated global purchasing to optimize its
worldwide purchasing power. The Company plans to continue to emphasize
continued improvement in preventive maintenance programs that have resulted in
improved facility reliability over the past several years and have enabled the
Company to achieve record annual corn grind in fifteen plants in 1996.
Emphasize Close Customer Relationships in Delivering Quality Products and
Service. The Company believes it has established a reputation for delivering
high quality products and providing superior customer service. The Company
intends to continue to improve its service levels and focus on customer needs
through its sales networks and customer surveys. The Company believes that its
localized operations enable it to reach a broad customer base and that close
relations with customers increase its overall profitability.
Improve Management Effectiveness and Focus Employee Incentives. The
Company intends to continue to give strategic direction on a global basis
while encouraging strong local management implementation. Moreover, the
Company will seek to increase sales and efficiency by tying compensation more
closely to the performance of the Corn Refining Business and expanding
performance-based compensation further into the organizational structure than
was possible before the Distribution.
Products
The Company serves many industries, including the food and beverage,
pharmaceuticals, paper products, corrugated and laminated paper, textiles and
brewing industries and the animal feed markets in North America and
internationally.
Sweetener Products. Sweeteners accounted for 55%, or $842 million, of the
net sales of the Corn Refining Business in 1996; 57%, or $786 million, and 50%,
or $688 million, of net sales in 1995 and 1994, respectively. The Company's
Sweeteners Products include:
11
<PAGE>
High Fructose Corn Syrup: The Company produces two types of high
fructose corn syrup: (1) HFCS-55, which is primarily used as a sweetener in
soft drinks and (2) HFCS-42, which is used as a sweetener in various
consumer products such as fruit-flavored beverages, yeast-raised breads,
rolls, doughs, ready-to-eat cakes, yogurt and ice cream.
Glucose Corn Syrups: Glucose corn syrups are widely used in the food
industry, including in baked goods, snack foods, alcoholic and
non-alcoholic beverages, canned fruits, condiments, candy and other sweets,
dairy products, ice cream, jams and jellies and as table syrups.
High Maltose Corn Syrup: This special type of glucose syrup has a
unique carbohydrate profile, which makes it ideal for use in brewing as a
source of fermentable sugars to produce quality beers. High maltose syrups
are also used in the production of confections, canning and some other food
processing applications.
Maltodextrin: Maltodextrin, which comes in several grades, has a wide
variety of uses, contributing bulking benefits and complex carbohydrates to
many applications including dry mixes, sports drinks, baked products and
confections.
Dextrose: The Company produces two types of dry dextrose - monohydrate
and anhydrous. Monohydrate dextrose is used in a broad variety of
applications by the food industry where a dry product is needed, including
confections, baking, dry mixes and sugar substitutes. Anhydrous dextrose is
used for making dextrose solutions for intravenous injection and other
pharmaceutical applications. Dextrose also has a wide range of industrial
applications, including production of biodegradable surfactants, wall board
and as a base for many fermentation products including organic acids,
vitamins, amino acids and alcohols.
Starch Products. Starch products accounted for 22%, or $336 million, of
the net sales of the Corn Refining Business in 1996; 22%, or $308 million, and
24%, or $334 million, of net sales in 1995 and 1994, respectively.
Corn Starch: Corn starch is a component in the production of paper,
corrugated containers, construction materials and textiles. It is also used
in numerous food applications as a thickener and binder in a range of
products. Other examples of starch applications include dusting powders,
pharmaceutical tablets, cosmetics, mining and the production of plastics
and resins.
Co-Products. Co-products accounted for 23%, or $346 million, of the net
sales of the Corn Refining Business in 1996; 21%, or $293 million, and 26%, or
$363 million, of net sales in 1995 and 1994, respectively. The Company's
Co-products include:
Corn Oil: Corn oil is used as cooking oil and in the production of
margarine, salad dressings, shortening, mayonnaise and other foods.
Corn Gluten Feed and Corn Gluten Meal: Corn gluten feed is sold as
animal feed and corn gluten meal is sold as a feed protein, primarily to
the poultry industry.
Competition
The corn refining industry is highly competitive. Most of the Company's
products compete with virtually identical products and derivatives
manufactured by other companies in the industry. The U.S. market is the most
competitive, with participation by eleven corn refiners, including ADM Corn
Processing Division ("ADM") (a division of Archer Daniels Midland Company),
Cargill, A.E. Staley Manufacturing Co. ("Staley") (a subsidiary of Tate &
Lyle, PLC) and National Starch and Chemical Company ("National Starch") (a
subsidiary of Imperial Chemicals Industries plc). In Latin America, Cargill
has corn refining operations in Brazil, National Starch has operations in
Brazil and Mexico, and ALMEX, a joint venture between ADM and Staley, has
operations in Mexico. Several local corn refiners also operate in Latin
America. Competition within markets is largely based on price, quality and
product availability.
Several of the Company's products also compete with products made from
raw materials other than corn. High fructose corn syrup and monohydrate
dextrose compete principally with cane and beet sugar products. Co-products
such as corn oil and gluten meal compete with products of the corn dry milling
industry and with soybean oil and soybean meal. Fluctuations in prices of
these competing products may affect prices of, and profits derived from, the
Company's products.
12
<PAGE>
Customers
The Company supplies a broad range of customers in over 60 industries.
Historically, CPC's worldwide branded foods business has been one of the Corn
Refining Business' largest customers, accounting for approximately 10% of
total sales in 1996. The Company and CPC will enter into a two-year Master
Supply Agreement, which sets forth the terms under which the Company will sell
its products to CPC following the Distribution. See "RELATIONSHIP BETWEEN THE
COMPANY AND CPC AFTER THE DISTRIBUTION -- Other Agreements and Arrangements"
at page 30. In addition, approximately 15% of the worldwide sales of the Corn
Refining Business in 1996 represented sales of high fructose corn syrup to
international, regional and local companies engaged in the soft drink
industry, primarily in North America. See "RISK FACTORS -- Reliance on Major
Customers" at page 21. The Company believes its customers value its local
approach to service.
Raw Materials
The basic raw material of the corn refining industry is yellow dent corn.
In the United States, the corn refining industry processes about 10% to 15% of
the annual U.S. corn crop. The supply of corn in the United States has been,
and is anticipated to continue to be, adequate for the Company's domestic
needs. The price of corn, which is determined by reference to prices on the
Chicago Board of Trade, fluctuates as a result of three primary supply factors
- -- farmer planting decisions, climate and government policies -- and three
major market demand factors -- livestock feeding, shortages or surpluses of
world grain supplies and domestic and foreign government policies and trade
agreements.
Corn is also grown in other areas of the world, including Canada, South
Africa, Argentina, Brazil, China and Australia. The Company's affiliates
outside the United States utilize both local supplies of corn and corn
imported from other geographic areas, including the United States. The supply
of corn for these affiliates is also generally expected to be adequate for the
Company's needs. Corn prices for the Company's non-U.S. affiliates generally
fluctuate as a result of the same factors that affect U.S. corn prices.
Due to the competitive nature of the corn refining industry and the
availability of substitute products not produced from corn, such as sugar from
cane or beets, end product prices may not necessarily fluctuate in relation to
raw material costs of corn. See "RISK FACTORS -- Price Volatility and
Uncertain Availability of Corn" at page 18 and "-- Potential Losses from
Commodities Hedging Activities" at page 18.
Management of Corn Cost versus Selling Price
Approximately 50% of the Company's starch and refinery products are sold
at prices established in supply contracts lasting for periods of up to one
year. The remainder of the Company's starch and refinery products are not sold
under firm pricing arrangements and actual pricing for those products is
affected by the cost of corn at the time of production and sale.
The Company generally hedges its exposure to corn price fluctuations to
attempt to mitigate their impact on operating profits. However, such hedging
activities cannot eliminate all risk exposure, and at times the Company will
realize gains or losses in its raw material positions.
In North America, the Company follows guidelines (the "Corn Purchasing
Policy") to coordinate final product prices with corn costs and reduce the
risks associated with corn purchasing and/or hedging activities. The Corn
Purchasing Policy operates according to two basic principles. First, the
Company purchases or prices corn for all contracted firm price product sales.
Second, the Company purchases or prices a limited amount of corn on an
anticipatory basis, based upon continuous evaluation of market conditions and
expectations with respect to the sale of starch and refinery products not
covered by firm price contracts. The Company has similar purchasing and
pricing policies for its non-U.S. affiliates.
Notwithstanding these programs, losses can and have occurred. See "RISK
FACTORS -- Price Volatility and Uncertain Availability of Corn" at page 18,
"-- Potential Losses from Commodities Hedging Activities" at page 18 and the
Company's Combined Financial Statements beginning at page F-1.
13
<PAGE>
Geographic Scope
The Company engages in business in over 20 countries, operating directly
and through affiliates in nine countries with 19 plants and indirectly through
joint ventures and technical licensing agreements elsewhere in Latin America,
Asia, Africa, Australia and New Zealand. The Company has wholly owned
operations in North America, Latin America and Africa, as well as a 49%
interest in a joint venture in Mexico and other joint venture interests (as
well as licensing and technical agreements) in Latin America, Asia and Africa.
In 1996, approximately 68% ($1,046 million) of the Company's net sales was
derived from its operations in North America, 27% ($406 million) was derived
from Latin American operations (excluding the Company's Mexican joint venture)
and 5% ($72 million) was derived from the Company's Cooperative Management
Group in other regions. See "RISK FACTORS -- Foreign Operations Risks" at page
19 and Note 15 to the Company's Combined Financial Statements at page F-19.
Research and Development
The Company's product development activity is focused on developing
product applications for identified customer and market needs. Through this
approach, the Company has developed value-added products for use in the
corrugated paper, food, textile, baking and confectionery industries. The
Company usually collaborates with customers to develop the desired product
application either in the customers' facilities, the Company's technical
service laboratories or on a contract basis. The Company's marketing, product
technology and technology support staffs devote a substantial portion of their
time to these efforts. Product development is enhanced through technology
transfers pursuant to existing licensing arrangements.
Sales and Distribution
The Company's products are sold directly to manufacturers and
distributors by salaried sales personnel, who are generally dedicated to
customers in a geographic region. In addition, the Company has a staff that
provides technical support to the sales personnel on an industry basis. The
Company generally utilizes contract truckers to deliver bulk products to
customer destinations but also has some of its own trucks for product
delivery. In North America, the trucks generally ship to nearby customers. For
those customers located considerable distances from Company plants, a
combination of railcars and trucks is used to deliver product. Railcars are
generally leased for terms of five to fifteen years.
Patents and Trademarks
Following the Distribution, the Company will own a number of patents
which relate to a variety of products and processes and a number of
established trademarks under which the Company markets such products. The
Company will also have the right to use certain other patents and trademarks
pursuant to patent and trademark licenses, including the Master License
Agreement with CPC. See "RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE
DISTRIBUTION" at page 26. The Company does not believe that any individual
patent or trademark is material to the Corn Refining Business. There is not
currently any pending challenge to the use or registration of any of the
Company's significant patents or trademarks that would have a material adverse
impact on the Company or its results of operations.
Employees and Management
As of September 30, 1997, the Corn Refining Business had approximately
4,300 employees, of which approximately 950 were located in the U.S.
Approximately 30% and 52% of these employees are unionized in the U.S. and
worldwide, respectively. The Company believes its union and non-union employee
relations are good.
The Company has a new Chief Executive Officer and a new Chief Financial
Officer, both of whom have substantial experience in the Corn Refining
Business. Otherwise, the Company will have substantially the same operating
management as currently operates the Corn Refining Business. See "MANAGEMENT
- -- Executive Officers of the Company" at page 44. While it is anticipated that
the Company will operate the Corn Refining
14
<PAGE>
Business in substantially the same manner in which it has operated in the
past, the Distribution will enable the Company's management team to focus on
developing the Corn Refining Business without regard to how such developments
will impact CPC's worldwide branded foods business. See "THE DISTRIBUTION --
Reasons for the Distribution" at page 22.
Properties
In the U.S., the Company owns and operates four manufacturing facilities.
The Company's international subsidiaries operate an additional fifteen
facilities, fourteen of which are owned and one of which is leased (Jundiai,
Brazil). While the Company has achieved high capacity utilization, the Company
believes its facilities are sufficient to meet its current production needs.
In addition, the Company owns its corporate headquarters in Bedford Park,
Illinois. The following list details the location of the Company's
manufacturing plants/facilities:
U.S.
Stockton, California
Bedford Park, Illinois
Winston-Salem, North Carolina
Beloit, Wisconsin
Canada
Cardinal, Ontario
London, Ontario
Port Colborne, Ontario
Latin America
Baradero, Argentina
Balsa Nova, Brazil
Cabo, Brazil
Jundiai, Brazil
Mogi-Guacu, Brazil
Llay-Llay, Chile
Barranquilla, Colombia
Cali, Colombia
Medellin, Colombia
Asia
Petaling Jaya, Malaysia
Faisalabad, Pakistan
Africa
Eldoret, Kenya
The Company is continually implementing preventive maintenance and
de-bottlenecking programs in order to further improve grind capacity and
facility reliability. The Company believes its facilities are well maintained
and suitable and adequate for its immediate needs and that additional space is
available if needed to accommodate expansion.
The Company has electricity co-generation facilities at all of its U.S.
and Canadian plants, as well as its plants in Argentina and Pakistan, that
provide electricity at a lower cost than is available from third parties. The
Company generally owns and operates such co-generation facilities itself, but
has two large facilities at its Stockton, California and Cardinal, Ontario
locations that are owned by, and operated pursuant to co-generation agreements
with, third parties.
The Company has agreed to provide utilities and other services to CPC at
certain facilities where CPC will maintain facilities or conduct operations
next to or on the Company's property. See "RELATIONSHIP BETWEEN THE COMPANY
AND CPC AFTER THE DISTRIBUTION -- Other Agreements and Arrangements" at page
30.
CPC is currently the obligor under certain tax-exempt bonds issued by the
Illinois Development Finance Authority and its predecessor (the "Authority")
to finance the construction and installation of boiler emission
15
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control equipment on property located at the Argo facility in Bedford Park,
Illinois and used by the Corn Refining Business. Until certain of the bonds
are repaid in full, CPC leases this property and equipment from the Authority,
a state agency formed to create and increase job opportunities in labor
surplus areas in the State of Illinois. In connection with the Distribution,
CPC will transfer all of its interests in this property and equipment to the
Company. The Company will not have any obligation to make payments pursuant to
the underlying bonds and CPC will retain the obligation to make all such
payments. The Company, however, will agree to continue to use the property and
equipment for air or water pollution control within the meaning of applicable
sections of the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations thereunder, and as required by the Authority and to provide 90
days' prior notice to CPC of certain occurrences or circumstances. Once these
bonds have been paid in full, title to the property and equipment will be
transferred to the Company.
Government Regulation and Environmental Matters
As a manufacturer and maker of food items and items for use in the
pharmaceutical industry, the Company's operations and the use of many Company
products are subject to various U.S., state, foreign and local statutes and
regulations, including the Federal Food, Drug and Cosmetic Act and the
Occupational Safety and Health Act, and to regulation by various government
agencies, including the United States Food and Drug Administration, which
prescribe requirements and establish standards for product quality, purity and
labeling. The finding of a failure to comply with one or more regulatory
requirements can result in a variety of sanctions, including monetary fines.
The Company may also be required to comply with U.S., state, foreign and local
laws regulating food handling and storage. The Company believes its
competitive position has not been negatively affected by these laws and
regulations.
The operations of the Company are also subject to various U.S., state,
foreign and local laws and regulations with respect to environmental matters,
including air and water quality and underground fuel storage tanks, and other
regulations intended to protect public health and the environment. Compliance
by the Company with such laws and regulations has not had a material adverse
effect upon the Company, and the Company believes it is in material compliance
with all such applicable laws and regulations. Based upon current laws and
regulations and the interpretations thereof, the Company has no reason to
believe that the costs of future environmental compliance would be likely to
materially adversely impact its business, results of operations, cash flows or
financial position.
The Company currently anticipates that it will spend approximately $4.9
million in fiscal 1998 for environmental control equipment to be incorporated
into existing facilities and in planned construction projects. This equipment
is intended to enable the Company to continue its policy of compliance with
existing known environmental laws and regulations. Under the U.S. Clean Air
Act Amendments of 1990, air toxics regulations will be promulgated for a
number of industry source categories. The U.S. Environmental Protection
Agency's regulatory timetable specifies the promulgation of standards for
vegetable oil production and for industrial boilers by the year 2000. At that
time, additional pollution control devices may be required at the Company's
U.S. facilities to meet these standards. The ultimate financial impact of the
standards cannot be accurately estimated at this time.
Legal Proceedings
On July 6, 1995, CPC announced that it had received a federal grand jury
subpoena to provide documents relating to an investigation by the Antitrust
Division of the U.S. Department of Justice of U.S. corn refiners regarding the
marketing of high fructose corn syrup and other "food additives" (the
investigation of CPC relates only to high fructose corn syrup). CPC has
complied with the grand jury subpoena. CPC, as a high fructose corn syrup
producer, was also named as one of the defendants in a number of private
treble damage class action lawsuits, by direct and indirect customers,
alleging violations of federal and state antitrust laws. Following the
certification of a federal class action on behalf of direct purchasers of high
fructose corn syrup in June, 1996, CPC entered into a settlement of this
action in which it paid the class plaintiffs $7 million. CPC remains a
defendant in one opt-out individual case (Gray and Company v. Archer Daniels
Midland, Civ. No. 97-69-AS) in the United States District Court for the
District of Oregon (subsequently transferred to the United States District
Court for the Central District of Illinois, Peoria Division for consolidation
in MDL, Docket No. 1087 and Master File No. 95-1477). CPC is also a defendant
in related state law indirect purchaser class actions in Alabama, California,
the District of Columbia, West Virginia, Kansas and Michigan, each of which
was filed in 1995 or 1996.
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Pursuant to the terms of the Distribution Agreement, the Company has
agreed to indemnify CPC for certain liabilities relating to the operation of
the Corn Refining Business prior to the Distribution, including liabilities
relating to the federal antitrust investigation, the Gray case and the state
law indirect purchaser class actions. See "RELATIONSHIP BETWEEN THE COMPANY
AND CPC AFTER THE DISTRIBUTION -- Distribution Agreement" at page 27.
Although it is impossible to predict the outcome of any legal proceeding
and the Company cannot predict the range of the ultimate liability, if any,
relating to these proceedings, the Company believes that CPC has meritorious
defenses to the claims pending against it in such proceedings and that the
outcome of such proceedings should not, individually or in the aggregate, have
a material adverse effect on the business, results of operations or financial
condition of the Company.
The Company is currently, and is from time to time, subject to claims and
suits arising in the ordinary course of business, including under
environmental laws. The Company does not believe that the results of such
legal proceedings, even if unfavorable to the Company, will have a materially
adverse impact on its financial condition or the results of operations.
RISK FACTORS
Uncertain Ability to Reverse Recent Disappointing Financial Performance
The Company's ability to generate operating income and to increase
profitability depends to a large extent upon its ability to price finished
products at a level that will cover manufacturing and raw material costs and
provide a profit margin. The Company's ability to maintain appropriate price
levels is determined by a number of factors largely beyond the Company's
control, such as aggregate industry supply and market demand, which may vary
from time to time and by the geographic region of the Company's operations.
For example, in 1996, although the Corn Refining Business produced
worldwide sales of $1.5 billion (a 9.9% increase over 1995 sales of
approximately $1.4 billion), operating income fell approximately 70% to $64.9
million from $214 million in 1995 (excluding restructuring and other charges).
This decline in operating income reflected sharply lower profit margins
resulting from unprecedentedly high costs for corn in 1996 and increased
industry capacity in North America, particularly for production of high
fructose corn syrup. Combined with extreme volatility in the corn futures
markets and competitive prices in alternative feed ingredient markets
worldwide, these factors prevented the Company from raising its price levels
to cover higher raw material costs in the North American market and exerted
pressure on the Company's profit margins in other world markets. See
"BUSINESS" at page 10, "-- Competition; Expanding Industry Capacity" at page
18, "-- Price Volatility and Uncertain Availability of Corn" at page 18, "--
Potential Losses from Commodities Hedging Activities" at page 18 and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" beginning at page 38.
Other factors also affect the Company's profitability, including the
economic conditions in various geographic regions and countries in which the
Company manufactures and sells its finished products. See "-- Foreign
Operations Risks" at page 19.
Accordingly, there can be no assurance that the Company will successfully
restart profit growth in 1998.
Uncertain Ability to Contain Costs or to Fund Capital Expenditures
The Company's future profitability and growth also depends on the
Company's ability to reduce operating costs and per-unit product costs, to
maintain and/or implement effective cost control programs and to develop
successful value-added products and new product applications, while at the
same time maintaining competitive pricing and superior quality products,
customer service and support. The Company's ability to maintain a competitive
cost structure depends on continued containment of manufacturing, delivery and
administrative costs as well as the implementation of cost-effective
purchasing programs for raw materials, energy and related manufacturing
requirements. The Company expects to spend approximately $70 to $100 million
per year for worldwide capital expenditures from 1998 through 2000, primarily
to implement productivity improvements and, if supported by customer demand,
expand the production capacity of its facilities. Additional funds may be
needed
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for working capital as the Company grows and expands its operations. To the
extent possible, these capital expenditures and other expenses are expected to
be funded from operations. If the Company's cash flow is insufficient to fund
such expenses, the Company may either reduce its capital expenditures or
utilize certain general credit facilities. To the extent permitted by the Tax
Indemnification Agreement (as hereinafter defined) and the Credit Facility (as
hereinafter defined), the Company may also seek to generate additional
liquidity through the sale of debt or equity securities in private or public
markets or through the sale of non-productive assets. The Company cannot
provide any assurance that cash flow from operations will be sufficient to
fund anticipated capital expenditures and working capital requirements or that
additional funds can be obtained from the financial markets or the sale of
assets at terms favorable to the Company. If the Company is unable to generate
sufficient cash flows or raise sufficient additional funds to fund capital
expenditures, it may not be able to achieve its desired operating efficiencies
and expansion plans, which may adversely impact the Company's competitiveness
and, therefore, its results of operations. See "-- Indebtedness" at page 20,
"RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE DISTRIBUTION -- Tax
Indemnification Agreement" at page 27 and "FINANCING" at page 31.
Competition; Expanding Industry Capacity
The Company operates in a highly competitive environment. Almost all of
the Company's products compete with virtually identical or similar products
manufactured by other companies in the corn refining industry. In the United
States, there are ten other corn refiners, several of which are divisions of
larger enterprises and some of which, unlike the Company, have vertically
integrated their corn refining and other operations. Currently, the supply of
products produced by the Company and its competitors exceeds the current U.S.
demand for these products, particularly high fructose corn syrup. Many of the
Company's products also compete with products made from raw materials other
than corn. Fluctuation in prices of these competing products may affect prices
of, and profits derived from, the Company's products. Competition within
markets is largely based on price, quality and product availability and the
Company experiences price pressures in certain of its markets as a result of
competitors' pricing practices. See "BUSINESS -- Competition" at page 12.
Price Volatility and Uncertain Availability of Corn
Corn purchasing costs, which include the price of the corn plus delivery
cost, vary between 40% and 65% of the Company's product costs. The price and
availability of corn are influenced by economic and industry conditions,
including supply and demand factors such as crop disease and severe weather
conditions such as drought, floods or frost, that are difficult to anticipate
and cannot be controlled by the Company. In 1996, profitability was adversely
impacted by an exceptional increase in corn costs which the Company was not
able to offset with an increase in the price of its products. In addition, the
price of corn sweeteners, especially high fructose corn syrup, is indirectly
impacted by government programs supporting sugar prices. There can be no
assurance that the Company will be able to purchase corn at prices that can be
adequately passed on to customers or in quantities sufficient to sustain or
increase its profitability. See "BUSINESS -- Raw Materials" and "-- Management
of Corn Cost versus Selling Price" at page 13 and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" beginning at page
38.
Potential Losses from Commodities Hedging Activities
The Company enters into corn futures contracts, or takes hedging
positions in the corn futures markets, in an attempt to minimize the effects
of the volatility of corn costs on operating profits. The effectiveness of
such hedging activities is dependent upon, among other things, the cost of
corn and the ability of the Company to sell sufficient products to utilize all
of the corn with respect to which it has futures contracts. Occasionally, such
hedging activities can themselves result in losses, some of which may be
material. During the fourth quarter of 1996, the Company recognized a loss of
$40 million in connection with the liquidation of certain corn futures
contracts. No assurance can be given that such hedging-related losses will not
recur. See "BUSINESS -- Raw Materials" and "-- Management of Corn Cost versus
Selling Price" at page 13 and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" beginning at page 38.
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Unavailability of CPC's Financial and Other Resources
Prior to the consummation of the Distribution, the business conducted by
the Company has been operated as an unincorporated division of CPC. Thus, the
Company does not have an operating history as a separate company. Following
consummation of the Distribution, the Company will not be able to rely on CPC
for financial support or benefit from its relationships with CPC to obtain
credit or receive favorable terms for the purchase or sale of certain goods
and services. In addition, following consummation of the Distribution, the
Company will be responsible for obtaining its own sources of financing and,
except as provided in the Transition Services Agreement, for its own corporate
administrative services such as tax, treasury, risk management and insurance,
accounting, legal, information systems and human resources. See "RELATIONSHIP
BETWEEN THE COMPANY AND CPC AFTER THE DISTRIBUTION" at page 26.
Absence of Prior Trading Market for Corn Products Common Stock
There has not been any established public trading for Corn Products
Common Stock. The Corn Products Common Stock has been approved for listing,
subject to official notice of issuance, on the NYSE under the symbol "CPO,"
and trading is expected to commence on a "when-issued" basis prior to the
Distribution. See "THE DISTRIBUTION -- Listing and Trading of Corn Products
Common Stock" at page 24.
There can be no assurance as to the prices at which Corn Products Common
Stock will trade before or after the Effective Date. Until the Corn Products
Common Stock is fully distributed and an orderly market develops, the prices
at which such shares trade may fluctuate significantly and may be lower or
higher than the price that would be expected for a fully distributed issue.
Prices for shares of Corn Products Common Stock will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for the shares, investor perception of the Company,
changes in economic conditions in the corn refining industry and general
economic and market conditions. In addition, the stock market often
experiences significant price fluctuations that are unrelated to the operating
performance of the specific companies whose stock is traded. Market
fluctuations, as well as economic conditions, could have a materially adverse
impact on the market price of the shares of Corn Products Common Stock.
Uncertainty of Dividends
The payment of dividends is at the discretion of the Corn Products Board
and will be subject to the Company's financial results and the availability of
surplus funds to pay dividends. No assurance can be given that the Company
will pay any dividends. See "DIVIDEND POLICY" at page 61.
Foreign Operations Risks
The Company operates a multinational business and, accordingly, is
subject to risks that are inherent in operating in foreign countries.
Approximately 46% of the Corn Refining Business' 1996 revenues were generated
by non-U.S. operations and approximately 52% of revenues in the first nine
months of 1997 were generated by non-U.S. operations. Due to the significant
amount of non-U.S. revenues, fluctuations in the value of foreign currencies
relative to the U.S. dollar could increase the volatility of the Company's
U.S. dollar-denominated operating results. The Company's non-U.S. operations
are also subject to political, economic and other risks inherent in operating
in countries outside the United States, including possible nationalization,
expropriation, adverse government regulation, imposition of import and export
duties and quotas, currency restrictions, price controls, potentially
burdensome taxation and/or other restrictive government actions. See "BUSINESS
- -- Geographic Scope" at page 14.
Certain Anti-Takeover Effects
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Corn Products Charter") and the Company's By-Laws (the
"Corn Products By-Laws") and of the Delaware General Corporation Law (the
"DGCL") may have the effect of delaying, deterring or preventing a change in
control of the
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Company not approved by the Corn Products Board. These provisions include (i)
a classified Board of Directors, (ii) a requirement of the unanimous consent
of all stockholders for action to be taken without a meeting, (iii) a
requirement that special meetings of stockholders be called only by the
Chairman of the Board or the Board of Directors, (iv) advance notice
requirements for stockholder proposals and nominations, (v) limitations on the
ability of stockholders to amend, alter or repeal the Corn Products By-Laws
and certain provisions of the Corn Products Charter, (vi) authorization for
the Corn Products Board to issue without stockholder approval preferred stock
with such terms as the Board of Directors may determine and (vii)
authorization for the Corn Products Board to consider the interests of
creditors, customers, employees and other constituencies of the Corporation
and its subsidiaries and the effect upon communities in which the Corporation
and its subsidiaries do business, in evaluating proposed corporate
transactions. With certain exceptions, Section 203 of the DGCL ("Section 203")
imposes certain restrictions on mergers and other business combinations
between the Company and any holder of 15% or more of the Corn Products Common
Stock. In addition, the Company has adopted a stockholder rights plan (the
"Rights Plan"). The Rights Plan is designed to protect stockholders in the
event of an unsolicited offer and other takeover tactics which, in the opinion
of the Corn Products Board, could impair the Company's ability to represent
stockholder interests. The provisions of the Rights Plan may render an
unsolicited takeover of the Company more difficult or less likely to occur or
might prevent such a takeover. See "DESCRIPTION OF CAPITAL STOCK" at page 53
and "ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS,
THE RIGHTS PLAN AND DELAWARE LAW" at page 57.
These provisions of the Corn Products Charter and Corn Products By-Laws,
the DGCL and the Rights Plan could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company, although such
proposals, if made, might be considered desirable by a majority of the
Company's stockholders. Such provisions could also make it more difficult for
third parties to remove and replace the members of the Corn Products Board.
Moreover, these provisions could diminish the opportunities for a stockholder
to participate in certain tender offers, including tender offers at prices
above the then-current market value of Corn Products Common Stock, and may
also inhibit increases in the market price of Corn Products Common Stock that
could result from takeover attempts or speculation.
In connection with the Distribution, the Company has agreed to indemnify
CPC for certain taxes resulting from the failure of the Distribution (or
certain related transactions) to qualify as tax-free transactions if such
failure is attributable to certain actions by, or relating to, the Company,
including certain change in control transactions involving the Company and
certain dispositions of the Company's businesses occurring prior to the second
anniversary of the Effective Date. Such agreements may have the effect of
discouraging or preventing an acquisition of the Company or a disposition of
the Company's businesses, which may in turn depress the market price for the
shares of Corn Products Common Stock. See "RELATIONSHIP BETWEEN THE COMPANY
AND CPC AFTER THE DISTRIBUTION -- Tax Indemnification Agreement" at page 27.
Indebtedness
After the Distribution and, in part, as a result of the incurrence of
debt under a credit facility to be negotiated with one or more major financial
institutions (the "Credit Facility"), the Company will have approximately $350
million of total debt, all of which will have been assumed by the Company or
incurred pursuant to the terms of the Debt Agreement. In addition, the Company
may incur additional indebtedness from time to time to meet working capital
requirements and for capital expenditures. In addition to creating debt
service obligations for the Company, the terms of the Credit Facility will
contain customary affirmative and negative covenants that will, among other
things, require the Company to satisfy certain financial tests and maintain
certain financial ratios. See "FINANCING" at page 31.
The Company's ability to service this anticipated indebtedness will
depend on future operating performance, which will be affected by prevailing
economic conditions and financial and other factors, certain of which are
beyond the Company's control. If the Company were unable to service its
indebtedness, it would be forced to pursue one or more alternative strategies
such as reducing its capital expenditures, selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital (which may
substantially dilute the ownership interest of existing holders of Corn
Products Common Stock). There can be no assurance that any of these
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strategies could be effected on satisfactory terms, if at all. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" beginning at page 38, "RELATIONSHIP BETWEEN THE COMPANY AND CPC
AFTER THE DISTRIBUTION -- Debt Agreement" at page 28 and "FINANCING" at page
31.
Limited Relevance of Historical Financial Information
The historical financial information included in this Information
Statement may not necessarily reflect the results of operations, financial
position and cash flows of the Company in the future or the results of
operations, financial position and cash flows had the Company operated as a
separate stand-alone entity during the periods presented. The financial
information included herein does not reflect any changes that may occur in the
funding and operations of the Company as a result of the Distribution. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" beginning at page 38 and the Company's Combined Financial
Statements beginning at page F-1.
Possibility of Substantial Redistribution of Corn Products Common Stock
The Distribution will involve the distribution to holders of CPC Common
Stock of an aggregate of approximately 35.5 million shares of Corn Products
Common Stock, representing all of the outstanding shares of Corn Products
Common Stock. It is expected that substantially all of these shares will be
eligible for immediate resale in the public market. The Company is not able to
predict whether substantial amounts of Corn Products Common Stock will be
redistributed in the open market following the Distribution. Sales of
substantial amounts of Corn Products Common Stock in the public markets, or
the perception that such sales might occur, could materially adversely affect
the market price of the Corn Products Common Stock. See "THE DISTRIBUTION --
Listing and Trading of Corn Products Common Stock" at page 24.
Reliance on Major Customers
Historically, CPC's worldwide branded foods business has been one of the
Corn Refining Business' largest customers, accounting for approximately 10% of
total sales in 1996. The Company and CPC will enter into a two-year Master
Supply Agreement, which sets forth the terms under which the Company will sell
its products to CPC following the Distribution. See "RELATIONSHIP BETWEEN THE
COMPANY AND CPC AFTER THE DISTRIBUTION -- Other Agreements and Arrangements"
at page 30. In addition, approximately 15% of the worldwide sales of the Corn
Refining Business in 1996 represented sales of high fructose corn syrup to
international, regional and local companies engaged in the soft drink
industry, primarily in North America. If CPC were not to continue to purchase
products from the Company or the Company's soft drink customers were to
substantially decrease their purchases, the business of the Company might be
materially adversely affected.
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THE DISTRIBUTION
Reasons for the Distribution
CPC continually reviews its businesses for means by which it can improve
its focus and performance, as well as enhance the long-term interests of
stockholders. As it became increasingly clear that the Corn Refining Business
and CPC's branded foods business were becoming more dissimilar, CPC undertook
a review of the strategic alternatives available for maximizing the potential
of each business. In February 1997, following a lengthy period of review of
other available strategic alternatives, including the spin-off of the Corn
Refining Business, a recapitalization in which CPC would issue a "lettered
stock" security that tracked the Corn Refining Business, a sale of the Corn
Refining Business or a spin-off of the branded foods business followed by an
acquisition by a third party of the remaining Corn Refining Business, the CPC
Board of Directors determined that the strategic alternative that was most
likely to be successfully completed and that best furthered the interests of
CPC's stockholders, and the respective businesses, was to separate the Corn
Refining Business from CPC's core worldwide branded foods business by means of
the Distribution.
The Distribution is designed to separate two different businesses with
distinct financial, investment and operating characteristics so that each
company can pursue objectives appropriate to its specific businesses. In this
regard, CPC's worldwide branded foods business is a marketing-oriented
business in which investment in advertising and in product differentiation and
innovation is critical. In the Corn Refining Business, however, the focus is
on capital expenditures for manufacturing facilities to cut costs and improve
efficiency because capacity utilization is a key determinant of price and
profit. CPC and the Company believe that the Distribution will enable the
management of each company to focus its managerial and financial resources on
the growth and development of its core business operations without regard to
the corporate objectives, policies and investment standards of the other, and
to develop appropriate operational, marketing and financial strategies.
Furthermore, each company's management will have greater flexibility to
respond more quickly to the competitive requirements of its own industry.
In addition, by separating the Corn Refining Business into an independent
publicly traded company, the Company will be able to establish incentive
compensation arrangements (including the Stock Incentive Plan (as defined
herein) and other equity-based benefits described herein) which will enable
the Company to more effectively attract, retain and motivate employees by
offering benefits which are more directly associated with the employees'
efforts to improve the performance of the Company. See "EXECUTIVE
COMPENSATION; PENSION AND BENEFIT PLANS" at page 46.
CPC also believes that the Distribution will enable CPC to implement
significant cost savings that would not have been possible without the
decision to proceed with the Distribution.
Manner of Effecting the Distribution
The general terms and conditions relating to the Distribution will be set
forth in a Distribution Agreement (the "Distribution Agreement") between CPC
and the Company.
CPC will effect the Distribution on the Effective Date by providing for
the delivery of shares of Corn Products Common Stock to the Distribution Agent
for Distribution to the holders of record of CPC Common Stock on the Record
Date. The Distribution will be made on the basis of one share of Corn Products
Common Stock for every four shares of CPC Common Stock outstanding on the
Record Date. Pursuant to adjustments made in accordance with CPC's 1984 and
1993 Stock and Performance Plans (the "CPC Stock Plans"), employee holders of
restricted shares of CPC Common Stock who remain with CPC after the
Distribution will receive additional restricted shares of CPC Common Stock in
lieu of shares of Corn Products Common Stock. Employees who become employees
of the Company will receive restricted shares of Corn Products Common Stock in
substitution for their restricted shares of CPC Common Stock. In addition,
certain special grantor trusts established to protect beneficiaries under
certain CPC benefit plans (the "Rabbi Trusts"), which hold shares of CPC
Common Stock are expected to waive their right to receive shares of Corn
Products Common Stock in the Distribution and no distribution of Corn Products
Common Stock will be made with respect to shares of CPC Common
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Stock held by the Rabbi Trusts. In lieu of the Distribution, the Rabbi Trusts
will receive additional shares of CPC Common Stock. As of September 30, 1997,
the Rabbi Trusts held, in the aggregate, approximately 1.258 million shares of
CPC Common Stock. See "-- Treatment of Employee Options, Restricted Stock and
Rabbi Trusts in the Distribution" at page 25.
The actual number of shares of Corn Products Common Stock to be
distributed will depend on the number of shares of CPC Common Stock
outstanding on the Record Date. Based upon the approximately 142 million
shares of CPC Common Stock outstanding on September 30, 1997 (excluding
restricted shares and shares held by the Rabbi Trusts), the Company estimates
that approximately 35.5 million shares of Corn Products Common Stock will be
distributed to holders of CPC Common Stock. In addition, as of September 30,
1997, approximately 55,000 restricted shares of CPC Common Stock were held by
CPC employees who will become employees of the Company. As provided in the
Employee Benefits Agreement, the Company will issue restricted shares of Corn
Products Common Stock to adjust and substitute for such CPC restricted stock.
See "-- Treatment of Employee Options, Restricted Stock and Rabbi Trusts in
the Distribution" at page 25.
The Board of Directors of the Company has adopted the Rights Plan. Each
share of Corn Products Common Stock issued in the Distribution will be
accompanied by a Right issued under the Rights Plan. See "DESCRIPTION OF
CAPITAL STOCK -- Rights Plan" at page 55.
On November 18, 1997, the Board of Directors of CPC declared the
Distribution payable on December 31, 1997. At the time of the Distribution,
shares of Corn Products Common Stock will be delivered to the Distribution
Agent for transfer to CPC's stockholders. It is expected that certificates
representing shares of Corn Products Common Stock will be mailed to holders of
CPC Common Stock on or about January 2, 1998. All such shares of Corn Products
Common Stock will be fully paid, nonassessable and free of preemptive rights.
See "DESCRIPTION OF CAPITAL STOCK" at page 53.
No certificates or scrip representing fractional shares of Corn Products
Common Stock will be issued to holders of CPC Common Stock as part of the
Distribution. The Distribution Agent will aggregate fractional shares into
whole shares and sell them in the open market at then prevailing prices on
behalf of holders who otherwise would be entitled to receive fractional share
interests, and such persons will receive instead a cash payment in the amount
of their pro rata share of the total sale proceeds. Proceeds from sales of
fractional shares will be paid by the Distribution Agent based upon the
average gross selling price per share of Corn Products Common Stock of all
such sales. See "-- Certain U.S. Federal Income Tax Consequences of the
Distribution" below. CPC will bear the cost of commissions incurred in
connection with such sales. Such sales are expected to be made as soon as
practicable after the Record Date. None of CPC, the Company or the
Distribution Agent will guarantee any minimum sale price for the shares of
Corn Products Common Stock, and no interest will be paid on the proceeds.
No holders of CPC Common Stock will be required to pay any cash or other
consideration for the shares of Corn Products Common Stock to be received in
the Distribution or to surrender or exchange shares of CPC Common Stock or to
take any other action in order to receive Corn Products Common Stock. Except
as described in "-- Treatment of Employee Options, Restricted Stock and Rabbi
Trusts in the Distribution" at page 25, the Distribution will not affect the
number of outstanding shares of CPC Common Stock.
Certain U.S. Federal Income Tax Consequences of the Distribution
CPC has received the Ruling from the IRS to the effect that, among other
things, the Distribution will qualify as a tax-free spin-off to CPC and its
stockholders under Sections 355 and 368(a)(1)(D) of the Code. Accordingly, the
Distribution qualifies under Sections 355 and 368(a)(1)(D) of the Code, and
the material United States federal income tax consequences to holders of CPC
Common Stock as a result of the Distribution will be as follows:
(i) no income, gain or loss will be recognized by or be includible in the
income of a holder of CPC Common Stock solely as a result of the receipt of
Corn Products Common Stock upon the Distribution, except as described below in
connection with cash received in lieu of fractional shares of Corn Products
Common Stock;
(ii) assuming that a holder of CPC Common Stock holds his or her CPC
Common Stock as a capital asset, such stockholder's holding period for the
Corn Products Common Stock received in the Distribution will include the
period during which the stockholder held CPC Common Stock;
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(iii) the tax basis of CPC Common Stock held by a holder of CPC Common
Stock immediately prior to the Distribution will be apportioned (based upon
relative fair market values at the time of the Distribution) between such CPC
Common Stock and the Corn Products Common Stock received (including any
fractional shares of Corn Products Common Stock deemed received) by such
stockholders in the Distribution; and
(iv) a holder of CPC Common Stock who receives cash in lieu of a
fractional share of Corn Products Common Stock as a result of the sale of such
shares by the Distribution Agent will be treated as if such fractional share
had been received by the stockholder as part of the Distribution and then
redeemed from the stockholder by the Company. Such stockholder will recognize
gain or loss equal to the difference between the cash so received and the
portion of the tax basis in the Corn Products Common Stock that is allocable
to such fractional shares. Such gain or loss will be capital gain or loss,
provided that such fractional share was held by the stockholder as a capital
asset at the time of the Distribution.
Treasury regulations require each holder of CPC Common Stock who receives
Corn Products Common Stock pursuant to the Distribution to attach to his or
her federal income tax return for the year in which the Distribution occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Code to the Distribution. Holders
of record of CPC Common Stock as of the Record Date will receive a statement
conveying the information necessary to comply with this requirement and
information with respect to allocation of tax basis between Corn Products
Common Stock and CPC Common Stock described in clause (iii) above.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW. IT DOES NOT PURPORT TO
COVER ALL INCOME TAX CONSEQUENCES AND MAY NOT APPLY TO SHAREHOLDERS WHO
ACQUIRED THEIR CPC COMMON STOCK IN CONNECTION WITH A GRANT OF SHARES AS
COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES, OR WHO
ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. EACH STOCKHOLDER
SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE
DISTRIBUTION TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL
AND FOREIGN TAX LAWS, AND AS TO POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT
THE TAX CONSEQUENCES DESCRIBED ABOVE.
Listing and Trading of Corn Products Common Stock
The Corn Products Common Stock has been approved for listing, subject to
official notice of issuance, on the NYSE and Corn Products Common Stock is
expected to trade on the NYSE under the symbol "CPO." There is currently no
public trading market for Corn Products Common Stock. The Company cannot
predict prices at which Corn Products Common Stock may trade prior to the
Distribution on a "when-issued" basis or after the Distribution. In
particular, until the Corn Products Common Stock is fully distributed and an
orderly market develops, the prices at which trading in such stock occurs may
fluctuate significantly and may be higher or lower than the price that would
be expected for a fully distributed issue. The prices at which Corn Products
Common Stock trades will be determined by the market and may be influenced by
many factors, including, among others, the depth and liquidity of the market
for Corn Products Common Stock, investor perception of the Company and the
corn refining industry, the Company's dividend policy, and general economic
and market conditions. See "RISK FACTORS -- Absence of Prior Trading Market
for Corn Products Common Stock" at page 19. Such prices may also be affected
by the anti-takeover provisions in the Corn Products Charter and the Corn
Products By-Laws. See "RISK FACTORS -- Certain Anti-Takeover Effects" at page
19, "ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS,
THE RIGHTS PLAN AND DELAWARE LAW" at page 57 and "DIVIDEND POLICY" at page 61.
As a result of the Distribution, the trading price of CPC Common Stock
will likely be lower immediately following the Distribution as compared to the
trading price of CPC Common Stock immediately prior to the Record Date,
although the receipt of shares of Corn Products Common Stock is likely to
offset some or all of such effect. The aggregate market values of CPC Common
Stock and Corn Products Common Stock after the Distribution may be less than,
equal to or greater than the market value of CPC Common Stock prior to the
Distribution.
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The shares of Corn Products Common Stock to be received by holders of CPC
Common Stock in the Distribution will be freely transferable, unless a holder
is deemed to be an "affiliate" of the Company under the Securities Act of
1933, as amended (the "Securities Act"). Persons who may be deemed affiliates
of the Company after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with the
Company and may include certain of the Company's officers and directors.
Persons who are affiliates of the Company will be permitted to sell their
shares of Corn Products Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as exemptions afforded
by Section 4(2) of the Securities Act or Rule 144 thereunder.
The Company estimates that it will initially have approximately 26,980
stockholders of record, based on the number of stockholders of record of CPC
as of September 30, 1997. The Distribution Agent will also serve initially as
the transfer agent and the registrar for the Corn Products Common Stock.
Expenses of the Distribution
All costs and expenses of the Distribution incurred on or prior to the
Effective Date shall be paid by CPC. Except as otherwise provided in the
Distribution Agreement or in any other agreement entered into in connection
with the Distribution, CPC and the Company shall each bear its own costs and
expenses after the Effective Date. See "RELATIONSHIP BETWEEN THE COMPANY AND
CPC AFTER THE DISTRIBUTION" at page 26.
Treatment of Employee Options, Restricted Stock and Rabbi Trusts in the
Distribution
Each employee of the Company or any U.S. subsidiary of the Company on the
day following the Effective Date (a "Corn Products Employee") who at the time
of the Distribution holds an option to purchase CPC Common Stock issued under
the CPC Stock Plans will receive an option to purchase Corn Products Common
Stock from the Company in substitution for such option, with the number of
shares that may be acquired and the exercise price adjusted pursuant to the
following formula: (i) the number of shares of Corn Products Common Stock
covered by the substitute option shall be equal to the pre-Distribution number
of shares of CPC Common Stock covered by the CPC option multiplied by a
fraction, the numerator of which is the pre-Distribution CPC Market Price and
the denominator of which is the post-Distribution Corn Products Market Price
(the "Corn Products Conversion Factor"), and (ii) the exercise price under the
substituted option shall be equal to the pre-Distribution exercise price under
the CPC option multiplied by a fraction, the numerator of which is the post-
Distribution Corn Products Market Price and the denominator of which is the
pre-Distribution CPC Market Price. For this purpose, the "pre-Distribution CPC
Market Price" means the average of the high and low prices of CPC Common Stock
on the NYSE for each of the ten trading days prior to the first day on which
there is trading in CPC Common Stock on a post-Distribution basis, and the
"post-Distribution Corn Products Market Price" means the average of the high
and low prices of Corn Products Common Stock on the NYSE for each of the ten
trading days beginning on the first day on which there is trading in Corn
Products Common Stock, including on a "when issued" basis. As of September 30,
1997, individuals expected to become Corn Products Employees held options with
respect to an aggregate of approximately 250,000 shares of CPC Common Stock.
The Employee Benefits Agreement provides that the holders of these CPC options
shall receive new options to acquire Corn Products Common Stock based upon
market prices as of future dates for the CPC Common Stock and the Corn
Products Common Stock; accordingly, the exact number of shares that may be
acquired pursuant to these new options cannot be calculated at this time. For
illustrative purposes only, assuming a pre-Distribution CPC Market Price of
$100 and a post-Distribution Corn Products Market Price of $20, options to
acquire approximately 1.25 million shares of Corn Products Common Stock would
be issued pursuant to the Employee Benefits Agreement based on the shares and
options outstanding on September 30, 1997. Assuming a pre-Distribution CPC
Market Price of $100 and a post-Distribution Corn Products Market Price of
$40, options to acquire approximately 625,000 shares of Corn Products Common
Stock would be issued pursuant to the Employee Benefits Agreement based on the
shares and options outstanding on September 30, 1997.
In addition, each Corn Products Employee who at the Distribution holds an
outstanding grant of shares of restricted CPC Common Stock issued under the
CPC Stock Plans will receive restricted Corn Products Common
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Stock from the Company in substitution for such restricted CPC Common Stock,
with the number of shares of restricted Corn Products Common Stock determined
by multiplying the number of shares of restricted CPC Common Stock held by
such employee by the Corn Products Conversion Factor. Such restricted Corn
Products Common Stock will be subject to the same terms as the restricted CPC
Common Stock except that Corn Products Employees will be credited with their
past service with CPC and, after the Distribution, service with the Company
will be substituted for service with CPC. As of September 30, 1997,
individuals expected to become Corn Products Employees held approximately
55,000 shares of restricted CPC Common Stock. The Employee Benefits Agreement
provides that the holders of CPC restricted stock shall receive Corn Products
restricted stock based upon market prices as of future dates for the CPC
Common Stock and the Corn Products Common Stock; accordingly, the exact number
of shares of Corn Products restricted stock to be issued cannot be calculated
at this time. For illustrative purposes only, assuming a pre-Distribution CPC
Market Price of $100 and a post-Distribution Corn Products Market Price of
$20, approximately 275,000 restricted shares of Corn Products Common Stock
would be issued pursuant to the Employee Benefits Agreement based on the
number of restricted shares outstanding on September 30, 1997. Assuming a
pre-Distribution CPC Market Price of $100 and a post-Distribution Corn
Products Market Price of $40, approximately 137,500 restricted shares of Corn
Products Common Stock would be issued pursuant to the Employee Benefits
Agreement based on the number of restricted shares outstanding on September
30, 1997.
In the case of each person other than a Corn Products Employee who at the
Distribution holds an option to purchase CPC Common Stock issued under the CPC
Stock Plans, the number of shares of CPC Common Stock that may be acquired and
the exercise price will be adjusted pursuant to the following formula: (i) the
number of shares of CPC Common Stock covered by the adjusted option shall be
equal to the greater of (w) the pre-Distribution number of shares of CPC
Common Stock covered by the option and (x) such number of shares multiplied by
a fraction, the numerator of which is the pre-Distribution CPC Market Price
and the denominator of which is the post-Distribution CPC Market Price (the
"CPC Conversion Factor"), and (ii) the exercise price under the adjusted
option shall be equal to the lesser of (y) the pre-Distribution exercise price
under the option and (z) such exercise price multiplied by a fraction, the
numerator of which is the post-Distribution CPC Market Price and the
denominator of which is the pre-Distribution CPC Market Price. For this
purpose, the pre- Distribution CPC Market Price is as defined above, and the
"post-Distribution CPC Market Price" means the average of the high and low
prices of CPC Common Stock on the NYSE for each of the ten trading days
beginning on the first day on which there is trading in CPC Common Stock on a
post-Distribution basis. In addition, in the case of each person other than a
Corn Products Employee who at the Distribution holds an outstanding grant of
shares of restricted CPC Common Stock issued under the CPC Stock Plans,
additional shares of restricted CPC Common Stock will be issued to such person
such that the aggregate number of shares of restricted CPC Common Stock held
by such person will be equal to the number of restricted shares held by such
person prior to the Distribution, or if greater, such number of restricted
shares multiplied by the CPC Conversion Factor.
Five Rabbi Trusts exist to assist CPC in carrying out its obligations
under certain non-qualified deferred compensation plans. The assets of each of
these Rabbi Trusts are subject to the claims of CPC's creditors in the event
of CPC's insolvency. These Rabbi Trusts currently hold shares of CPC Common
Stock. It is expected that the trustee of each of these Rabbi Trusts will
waive such Rabbi Trust's right to receive shares of Corn Products Common Stock
in the Distribution, so that no distribution of Corn Products Common Stock
will be made with respect to shares of CPC Common Stock held by such trusts.
In consideration for such waiver and in lieu of the Distribution, CPC will
contribute to each Rabbi Trust an additional number of shares, if any, of CPC
Common Stock so that the cumulative number of shares of CPC Common Stock held
by each such Rabbi Trust will be the greater of the number of shares held by
such Rabbi Trust immediately prior to the Distribution and such number of
shares multiplied by the CPC Conversion Factor. As of September 30, 1997, the
Rabbi Trusts held, in the aggregate, approximately 1.258 million shares of CPC
Common Stock.
RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE DISTRIBUTION
For purposes of governing certain of the ongoing relationships between
CPC and the Company after the Distribution and to provide for an orderly
transition on the Effective Date to the status of two separate, independent
companies, CPC and the Company have entered into the various agreements
described below. The discussion below is a summary of certain provisions of
the Distribution Agreement, the Tax Sharing Agreement, the
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Tax Indemnification Agreement, the Debt Agreement, the Transition Services
Agreement, the Employee Benefits Agreement, the Master License Agreement, the
Access Agreement and the Master Supply Agreement. This summary does not
purport to be complete. Reference is made to the complete provisions of, and
such summary is qualified in its entirety by reference to, forms of such
agreements, copies of which are filed as exhibits to the Registration
Statement on Form 10 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the
shares of Corn Products Common Stock to be received by the holders of CPC
Common Stock in the Distribution.
Distribution Agreement
CPC and the Company will enter into the Distribution Agreement which
provides for, among other things, the principal corporate transactions
required to effect the transition to the Company's status as a company
separate and independent from CPC, and the allocation of certain assets and
liabilities of CPC's overall business between CPC and the Company. The
Distribution Agreement provides that all outstanding intercompany payables and
receivables between the Company and its subsidiaries and CPC and its
subsidiaries will be settled prior to the Effective Date, to the extent
practicable, and otherwise thereafter.
Pursuant to the Distribution Agreement, the Company will indemnify CPC
against most liabilities relating to the operation of the Corn Refining
Business, whether such liabilities arise on, prior to, or after the Effective
Date, except for liabilities arising out of events or occurrences prior to the
Effective Date that are covered by CPC's insurance and are not also covered by
the Company's insurance. CPC will indemnify the Company against all other
liabilities relating to the operation of CPC's business, before, on or after
the Effective Date. The Distribution Agreement includes procedures of notice
and payment of such claims and generally provides that the indemnifying party
may assume the defense of a claim or suit brought by a third party. None of
the foregoing indemnities applies to tax or employee benefit claims or
liabilities, which are respectively addressed in the Tax Sharing Agreement,
the Tax Indemnification Agreement and the Employee Benefits Agreement
described below.
Tax Sharing Agreement
CPC and the Company will enter into a tax sharing agreement on or prior
to the Effective Date (the "Tax Sharing Agreement") which, subject to the Tax
Indemnification Agreement, will allocate responsibility for U.S. federal
income and various other taxes ("Taxes") among the companies.
In general, CPC will be liable for the U.S. federal income taxes payable
with respect to the returns of the CPC consolidated group (which prior to the
Effective Date includes the Company) as well as certain other Taxes payable
with respect to returns attributable to the operations of the Corn Refining
Business (i) directly conducted by CPC for periods ending on or prior to the
Effective Date or (ii) directly conducted by a foreign affiliate of CPC that
also conducted the branded foods business. The Company and its U.S.
subsidiaries will be liable for Taxes payable with respect to returns filed
after the Effective Date that are attributable to the operations of the
Company or its U.S. subsidiaries. The Company and its subsidiaries will be
liable for certain other Taxes to be paid after the Effective Date with
respect to (i) returns filed on or after the Effective Date that are
attributable to the operations of the Corn Refining Business conducted by a
U.S. subsidiary of the Company for periods ending on or prior to the Effective
Date and (ii) returns filed by non-U.S. subsidiaries of the Company for all
periods (whether ending before or after the Effective Date). If, in connection
with a Tax audit contest, or the filing of an amended return, a taxing
authority adjusts CPC's consolidated federal income tax return or any other
return described above with respect to which CPC is liable for payment of
Taxes, CPC will be liable for the resulting Tax assessments or will be
entitled to the resulting Tax refund. Similarly, the Company will be
responsible for the Tax assessments and entitled to the Tax refunds, in
connection with the above described returns with respect to which the Company
is liable for payment of Taxes. CPC, in general, will be responsible for Tax
assessments and will be entitled to the Tax refunds in connection with returns
originally filed prior to the Effective Date relating to the Company's U.S.
subsidiaries.
Tax Indemnification Agreement
CPC and the Company will enter into a tax indemnification agreement on or
prior to the Effective Date (the "Tax Indemnification Agreement") pursuant to
which:
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(A) the Company will represent to CPC that (1) it has reviewed the
submissions to the IRS in connection with the request for rulings under
Sections 355 and 368(a)(1)(D) of the Code filed in respect of the Distribution
(and certain related transactions) on behalf of CPC on April 11, 1997 and all
supplements thereto (the "Ruling Request"), and that, to the best of its
knowledge, all statements and representations therein concerning the Company
and its affiliates are complete and accurate in all material respects, (2) the
Company and its affiliates will comply with each representation concerning the
Company and its affiliates made in or in connection with the Ruling Request or
the Ruling, (3) the Company concurs with all representations and statements
made in the submissions and (4) neither the Company nor any of its
subsidiaries in Canada, Brazil and Chile, as described and defined in the
Ruling Request (each a "Foreign Spinoff Company"), or their respective
affiliates has any present intention to (a) cease to engage in an active
business as defined in the Treasury regulations under Section 355 of the Code
(the "Active Business"), (b) undertake, or permit to be undertaken, any action
that would result in a violation of any of the Company's covenants under the
Tax Indemnification Agreement, or (c) in any way undertake, approve, or
facilitate any contract or transaction described in paragraph B(3) below;
(B) the Company and each Foreign Spinoff Company will covenant that
during the two-year period commencing on the Effective Date (the "Restricted
Period") (1) to continue to engage in an Active Business; (2) (a) to continue
to manage and own directly at least 50% of the gross assets which it manages
and owns directly immediately after the Effective Date or the foreign spinoff
date, as applicable, (b) to continue to manage and own (directly and
indirectly through one or more entities) at least 50% of the gross assets
which it manages or owns (directly and indirectly) immediately after the
Effective Date or the foreign spinoff date, as applicable and (c) not to take
any action (including the acquisition or entering into of business other than
extensions of the Active Business) which would cause the fair market value of
its Active Business to be less than five percent (5%) of its total gross
assets; (3) that neither the Company, nor any Foreign Spinoff Company nor any
affiliated entity, person or representative will in any way undertake, approve
or facilitate a contract or transaction with respect to: (a) the issuance of
common stock or other ownership interests (including options and other
instruments convertible into common stock or other ownership interests) that
would exceed twenty percent (20%) of the outstanding shares of common stock or
other ownership interests immediately after the Effective Date; (b) the
issuance of any other instrument that would constitute equity for U.S. federal
income tax purposes ("Disqualified Stock"); (c) the issuance of options and
other instruments convertible into Disqualified Stock; (d) any acquisitions of
more than 20% of capital stock or other equity capital from shareholders, or
any redemptions, purchases or other acquisitions by the Company, any Foreign
Spinoff Company or any of their respective affiliates unless such redemptions,
purchases or other acquisitions satisfy certain requirements; (e) the
dissolution, merger, or complete or partial liquidation of the Company or any
announcement of such action; or (f) the waiver, redemption, amendment,
termination or modification of any provision of the Rights Plan, or the
redemption of the Rights thereunder, in connection with, or in order to permit
or facilitate, any acquisition of Corn Products Common Stock or other equity
interest in the Company; and
(C) the Company will agree to indemnify CPC (i) for Taxes and other
liabilities arising from breaches or violations of paragraphs (A) or (B) above
(provided, however, that the Company will not be required to indemnify CPC for
violations of covenants described in paragraph (B) above if, following the day
which is six months after the Effective Date, and prior to such conduct, the
Company delivers to CPC a ruling from the IRS or an opinion of counsel to the
effect that the proposed action or conduct will not cause the Distribution or
any of the foreign spinoffs to fail to qualify for tax-free treatment) and
(ii) for Taxes arising as a result of (X) an acquisition of 50% or more of the
stock of the Company by a person or group of persons during the Restricted
Period or (Y) the commencement of a tender offer by a third party for 50% or
more of the stock of the Company. If obligations of the Company under this
agreement were breached and as a result thereof the Distribution or any of the
foreign spinoffs did not qualify for tax-free treatment, the Company would be
required to indemnify CPC for Taxes imposed as well as related expenses and
such indemnification obligations could exceed the net asset value of the
Company at such time.
Generally, the Tax Indemnification Agreement also requires the Company to
take such actions as CPC may reasonably request to preserve the tax-free
treatment of the Distribution or the foreign spinoffs.
Debt Agreement
CPC and the Company will enter into a debt agreement prior to the
Effective Date (the "Debt Agreement") which will provide that the Company and
certain of its subsidiaries will assume from CPC, and borrow from
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third parties, an aggregate amount of debt so that, as of the Effective Date,
the Company and its subsidiaries will have approximately $350 million of total
interest-bearing debt. The Company will transfer to CPC the proceeds of any
third party debt that is borrowed by the Company. CPC will use these proceeds
to repay certain of its third party indebtedness. In addition, after the
Effective Date, the Company may borrow under its credit facilities to fund
operations. See "FINANCING" at page 31 and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" at page 38.
Transition Services Agreement
CPC and the Company plan to enter into a Transition Services Agreement
prior to the Effective Date (the "Transition Services Agreement") pursuant to
which, in exchange for the fees specified in the Transition Services
Agreement, CPC will agree to continue to provide certain administrative
services to the Company in certain locations including accounting, payroll
processing and tax filing assistance and the Company will agree to provide
certain administrative services to CPC. In general, these services will be
provided at a fixed percentage above the provider's cost. In this agreement,
the respective service provider will undertake to provide the same degree of
care and diligence as it uses in providing these services to itself and its
subsidiaries. The Transition Services Agreement will expire two years from the
Effective Date. The Company believes that the terms and conditions of the
Transition Services Agreement are as favorable to the Company as those
available from unrelated parties for a comparable arrangement.
Employee Benefits Agreement
CPC and the Company plan to enter into an agreement with regard to their
respective liabilities for employee benefit-related matters for periods before
and after the Effective Date and to provide for certain other employee benefit
matters (the "Employee Benefits Agreement"). The Employee Benefits Agreement
provides that the Company will adopt a defined benefit plan for salaried
employees, a defined benefit plan for certain hourly employees, a defined
contribution savings plan for salaried employees and related trusts effective
as of the day following the Effective Date (the "Coverage Date") each of which
will be designed to meet the requirements for tax qualification and to
recognize service with CPC prior to the Coverage Date for the Corn Products
Employees. The defined benefit plan for certain hourly employees will be
substantially identical to the CPC International Inc. Hourly Employees
Retirement Income Plan, Supplement H (Corn Products OCAW/IAM) (the "CPC Hourly
Plan"). CPC will cause assets and liabilities attributable to the accrued
benefits of Corn Products Employees to be transferred from the CPC
International Inc. Non-Contributory Retirement Income Plan for Salaried
Employees, the CPC Hourly Plan and the CPC International Inc.
Savings/Retirement Plan for Salaried Employees to the corresponding plans of
the Company. In addition, CPC will continue to maintain after the Effective
Date the CPC International Inc. Hourly Employees Retirement Income Plan,
Supplements I (Discontinued) and K (Frozen OCAW/IAM) and the CPC International
Inc. Supplemental Benefits Plan (OCAW, AFGM, IAM Acme Resin). The Company will
adopt, effective as of the Coverage Date, the CPC International Inc. Corn
Products Division Savings/Retirement Plan for Hourly Employees (Corn Products
OCAW/IAM), and CPC will withdraw its sponsorship of such plan. Effective as of
the Coverage Date, the Company will also adopt plans similar to CPC's Excess
Pension Plan and Excess Savings Plan recognizing service of Corn Products
Employees with CPC prior to the Coverage Date, and the liabilities for accrued
benefits of Corn Products Employees will be transferred from such CPC excess
plans to the new Company excess plans. The Employee Benefits Agreement also
provides that, effective as of the Coverage Date, the Company will assume all
of CPC's obligations and liabilities under the collective bargaining
agreements entered into by CPC with the Oil, Chemical and Atomic Workers
Union, Local 7-507, and the International Association of Machinists, District
8.
The Employee Benefits Agreement also provides that the Company will
establish employee welfare benefit plans for salaried employees, effective as
of the Coverage Date, providing medical, long term disability, flexible
spending and life insurance benefits to Corn Products Employees which are
generally comparable to those previously provided by CPC, including health
care coverage for certain retirees and their dependents through a cash balance
account. In addition, the Company will assume sponsorship of certain insured
welfare benefit plans covering hourly Corn Products Employees (subject to any
required consent of the insurer) and the Corn Products (Bedford Park,
Illinois) Cafeteria Plan, and CPC will withdraw as sponsor of such plans,
effective as of the Coverage Date. Effective as of the Effective Date, the
Company will assume all accrued liabilities for vacation pay
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for Corn Products Employees. CPC's long term disability plan for salaried
employees will continue to cover individuals who are totally disabled on the
Distribution Date and who would have become Corn Products Employees if in
active employment on the Coverage Date for so long as such individuals remain
totally disabled. Effective on the Coverage Date, the Company will assume sole
responsibility for all Corn Products Employees who are on medical leave from
CPC. The Company will establish, effective as of the Coverage Date, an
executive life insurance plan substantially similar to CPC's executive life
insurance plan covering Corn Products Employees previously covered by CPC's
plan who consent to the transfer of CPC's rights and obligations under CPC's
plan to the Company.
Pursuant to the Employee Benefits Agreement, the Company will establish a
stock incentive plan effective as of the Coverage Date pursuant to which stock
options on Corn Products Common Stock, restricted Corn Products Common Stock,
and other equity-based rights may be granted. The Employee Benefits Agreement
also provides for the issuance of Corn Products stock options and shares of
restricted Corn Products Common Stock to Corn Products Employees in
substitution for CPC stock options and shares of restricted CPC Common Stock.
See "THE DISTRIBUTION -- Treatment of Employee Options, Restricted Stock and
Rabbi Trusts in the Distribution" at page 25 and "EXECUTIVE COMPENSATION;
PENSION AND BENEFIT PLANS" at page 46. Effective as of the Coverage Date, the
Company will adopt a deferred compensation plan and deferred stock unit plan
which will assume liabilities for Corn Products Employees under CPC's deferred
compensation plan and deferred stock unit plan, respectively. CPC will
transfer to the Company the insurance policies associated with the liabilities
under CPC's deferred compensation plan assumed by the Company. CPC will be
responsible for paying any amounts awarded to Corn Products Employees under
CPC's annual bonus plans by CPC's Board of Directors for 1997.
In general, the Employee Benefits Agreement provides that Corn Products
Employees shall be given credit for all years of service with CPC or any CPC
affiliate performed on or prior to the Effective Date with respect to matters
of employment, including vacation eligibility and participation in employee
benefit plans.
Other Agreements and Arrangements
CPC and the Company plan to enter into a variety of other agreements and
arrangements governing certain activities following the Distribution. Pursuant
to the Master Supply Agreement, the Company and its affiliates will continue
to supply CPC and its affiliates with certain corn refining products at prices
based generally upon prevailing market prices. The Master Supply Agreement
will have a two-year term and is renewable thereafter. Pursuant to the Master
Supply Agreement, CPC will agree to purchase certain products exclusively from
the Company, and the Company will agree to certain limitations with respect to
competing with CPC in the sale of these products. Under the Master License
Agreement, each of CPC and the Company will license to the other certain
intellectual property which will be subject to usage by both parties for a
period of time following the Distribution. The terms and fees for such
licenses vary depending on the intellectual property and are set forth in such
Agreement.
After the Distribution, CPC and the Company will continue to have common
use of certain plants and facilities. Under the Access Agreement, CPC will be
permitted to continue to package branded food products at the Company's Argo
plant in Bedford Park, Illinois for an access fee which will be a fixed
percentage above the cost of CPC's use of utilities and other support
services. In certain other countries, specific agreements and arrangements
will be put in place between the affiliates of CPC and the Company in order to
(i) divide ownership of certain facilities, (ii) permit affiliates of CPC to
utilize facilities owned by the Company or (iii) permit affiliates of the
Company to use facilities owned by CPC.
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FINANCING
The Company intends to enter into an unsecured revolving Credit Facility
of approximately $350 million with one or more major financial institutions in
the U.S. In addition, the Company will have a number of other credit
facilities in its non-U.S. affiliates consisting of committed and uncommitted
bank lines.
The Company expects to borrow under the Credit Facility to fund a portion
of its payments under the Debt Agreement. Subsequent borrowings under the
Credit Facility are expected to be used by the Company for working capital and
other general corporate purposes. The Company expects to be required to repay
in full all borrowings under the Credit Facility on the fifth anniversary of
the date of its initial borrowing under the Credit Facility. Borrowings under
the Credit Facility are expected to generally accrue interest on a variable
basis.
The Credit Facility is expected to include financial covenants requiring
the Company to (i) maintain a ratio of debt to debt plus shareholders' equity
of no more than approximately 45% and (ii) an EBITDA/interest coverage ratio
of greater than or equal to 3.5 times.
The Credit Facility is expected to contain customary events of default,
including failure by the Company to satisfy its obligations under the Credit
Facility, a change of control of the Company, events of bankruptcy, insolvency
and reorganization and other material indebtedness defaults by the Company.
31
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization of
the Company at September 30, 1997. This data should be read in conjunction
with the pro forma balance sheet and the introduction to the pro forma
financial statements appearing elsewhere in this Information Statement. The
pro forma capitalization table has been derived from the historical financial
statements and reflects certain pro forma adjustments as if the Distribution
had been consummated as of September 30, 1997. The pro forma information may
not reflect the capitalization of the Company in the future or as it would
have been had the Company been a separate, independent company at September
30, 1997. See "PRO FORMA FINANCIAL DATA" at page 34.
<TABLE>
<CAPTION>
September 30, 1997
($ Millions) -------------------------------------------
Historical Adjustment Pro Forma
------------ --------------- ----------
<S> <C> <C> <C>
Debt -- third party ........................... $ 227 $ 123 $ 350
Debt -- CPC International Inc. ............... 123 (123) --
Equity:
CPC equity investment (1) ..................... 954 (954)(2) --
Stockholders' equity
Cumulative translation adjustment ............ (13) -- (13)
Common stock, par value $0.01, authorized
200,000,000 shares, 35,700,000 outstanding
shares ...................................... -- 1(3) 1
Additional paid in capital ..................... -- 964(4) 964
------ --------- ------
Total capitalization ........................... $1,291 $ 11 $1,302
====== ========= ======
</TABLE>
- ------------
(1) CPC's equity investment includes the original investment in the Company
and the net intercompany payable from the Company reflecting transactions
described in Note 13 to the Company's Combined Financial Statements
beginning at page F-1.
(2) To reflect the elimination of CPC's equity investment effected by the
distribution of all the outstanding shares of Corn Products Common Stock
to holders of CPC Common Stock described under "THE DISTRIBUTION" at page
22.
(3) To record the par value of the shares of Corn Products Common Stock
distributed to holders of CPC's Common Stock at a distribution ratio of
one share of Corn Products Common Stock for every four shares of CPC's
Common Stock held on the Record Date as described under "THE DISTRIBUTION"
at page 22.
(4) To record the recapitalization of CPC's equity investment. See note 6 to
the Corn Products International, Inc. Pro Forma Balance Sheet at September
30, 1997.
32
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of the Company should be
read in conjunction with the historical financial statements and notes thereto
included elsewhere in this Information Statement. The historical financial
statements of the Company may not necessarily reflect the results of
operations or financial position that would have been obtained had the Company
been a separate, independent company. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" beginning at page
38. Earnings per share data are presented elsewhere in this Information
Statement and on a pro forma basis only. See "PRO FORMA FINANCIAL DATA" at
page 34.
Nine Months Ended
September 30,
($ Millions) -------------------------------
1997 1996
---------------- -------------
(Unaudited)
Statement of Earning Data:
Net sales ........................ $ 1,055 $ 1,144
Cost of sales .................. 959 1,002
--------- --------
Gross profit ..................... 96 142
Selling, general and
administrative .................. 70 67
Restructuring charges (gains)
-- net ........................ 94 --
Spin-off costs .................. 15 --
Equity in earnings of
unconsolidated affiliates ...... 1 (6)
--------- --------
Operating income (loss) ......... (84) 81
Financing costs .................. 22 21
--------- --------
Income (loss) before income
taxes ........................... (106) 60
Provision (benefit) for income
taxes ........................... (25) 22
Minority interest ............... 1 2
--------- --------
Net income (loss) ............... $ (82)(1) $ 36
========= ========
Balance Sheet Data:
Working capital .................. $ 88 $ 176
Current ratio ..................... 1.3 1.6
Plants and properties, net ...... $ 1,051 $ 1,042
Total debt ..................... $ 350 $ 340
Deferred income taxes, net ...... $ 73 $ 107
CPC International Inc. equity
investment ..................... $ 941 $ 1,007
Total assets ..................... $ 1,642 $ 1,656
Other Financial Data:
EBITDA (2) ..................... $ (13) $ 146
Net cash flows from operations $ 114 $ (110)
Net cash used by investing
activities ..................... $ (83) $ (188)
Net cash provided by (used by)
financing activities ............ $ (28) $ 299
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
($ Millions) ------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Earning Data:
Net sales ........................ $ 1,524 $ 1,387 $ 1,385 $ 1,243 $ 1,250
Cost of sales .................. 1,381 1,083 1,087 989 992
------- ------- -------- ------- -------
Gross profit ..................... 143 304 298 254 258
Selling, general and
administrative .................. 88 102 99 84 89
Restructuring charges (gains)
-- net ........................ -- (37) 19 -- --
Spin-off costs .................. -- -- -- -- --
Equity in earnings of
unconsolidated affiliates ...... (10) (12) (8) (12) (11)
------- ------- -------- ------- -------
Operating income (loss) ......... 65 251 188 182 180
Financing costs .................. 28 28 19 16 18
------- ------- -------- ------- -------
Income (loss) before income
taxes ........................... 37 223 169 166 162
Provision (benefit) for income
taxes ........................... 12 86 67 66 65
Minority interest ............... 2 2 2 1 1
------- ------- -------- ------- -------
Net income (loss) ............... $ 23 $ 135 $ 100 $ 99 $ 96
======= ======= ======== ======= =======
Balance Sheet Data:
Working capital .................. $ 147 $ 31 $ 106 $ 33 $ 33
Current ratio ..................... 1.5 1.1 1.5 1.2 1.2
Plants and properties, net ...... $ 1,057 $ 920 $ 830 $ 792 $ 745
Total debt ..................... $ 350 $ 363 $ 294 $ 269 $ 263
Deferred income taxes, net ...... $ 85 $ 102 $ 100 $ 114 $ 118
CPC International Inc. equity
investment ..................... $ 1,025 $ 600 $ 550 $ 484 $ 444
Total assets ..................... $ 1,663 $ 1,306 $ 1,207 $ 1,110 $ 1,053
Other Financial Data:
EBITDA (2) ..................... $ 153 $ 334 $ 268 $ 260 $ 259
Net cash flows from operations $ (105) $ 174 $ 148 $ 151 $ 171
Net cash used by investing
activities ..................... $ (251) $ (132) $ (145) $ (120) $ (64)
Net cash provided by (used by)
financing activities ............ $ 357 $ (45) $ (1) $ (31) $ (110)
</TABLE>
- ------------
(1) Reflects the effect of the $109 million provision for restructuring and
consolidation. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" beginning at page 38.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA should not be considered in isolation or as a
substitute for measures of performance or cash generation prepared in
accordance with generally accepted accounting principles. See Combined
Financial Statements and notes thereto, beginning at page F-1.
33
<PAGE>
PRO FORMA FINANCIAL DATA
The historical combined financial statements of the Company reflect
periods during which the Corn Refining Business was operated as a division of
CPC. The historical financial statements of the Company 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 Corn Refining
Business had been operated as an independent, public company during such
periods.
The unaudited pro forma combined statements of income for the period
ended September 30, 1997 and the fiscal year ended December 31, 1996 present
the combined results of the Company's operations assuming that the
Distribution had occurred on December 31, 1995. Such statements of income have
been prepared by adjusting the historical statement of income to reflect the
costs, expenses and the recapitalization associated with the Distribution as
if it had occurred on December 31, 1995.
The unaudited pro forma combined balance sheets at September 30, 1997 and
December 31, 1996 present the combined financial position of the Company
assuming the Distribution had occurred on September 30, 1997 and December 31,
1996, respectively. Such balance sheets have been prepared by adjusting the
historical balance sheet for the effects of assets, liabilities and the
recapitalization associated with the Distribution as if it had occurred on
September 30, 1997 and December 31, 1996, respectively.
The unaudited pro forma financial statements should be read in
conjunction with the financial data presented elsewhere in this Information
Statement. The pro forma financial data are presented for informational
purposes only and may not reflect the future results of operations or
financial position of the Company or what the results of operations would have
been had the Company been operated as an independent, public company during
such periods.
34
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
PRO FORMA STATEMENTS OF INCOME
(Dollars in millions)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
------------ ------------- ---------
<S> <C> <C> <C>
For the Nine Months Ended September 30, 1997
Net sales ................................................ $ 1,055 $ 1,055
Cost of sales .......................................... 959 959
------- ------ -------
Gross profit ............................................. 96 96
------- ------ -------
Selling, general and administrative ..................... 70 (3)(1) 67
Restructuring charges -- net ........................... 94 94
Spin-off costs .......................................... 15 -- 15
Equity in earnings of unconsolidated affiliates ......... 1 1
------- ------ -------
Expenses and other income -- net ........................ 180 (3) 177
------- ------ -------
Operating income (loss) ................................. (84) 3 (81)
Financing costs .......................................... 22 22
------- ------ -------
Income (loss) before income taxes and minority interest . (106) 3 (103)
Provision (benefit) for income taxes ..................... (25) 1(2) (24)
Minority stockholders' interest ........................ 1 1
------- ------ -------
Net income (loss) ....................................... $ (82) $ 2 $ (80)
======= ====== =======
</TABLE>
- ------------
(1) To record the reduction in pension and other post-employment expenses due
to the retention of the liability and associated expenses for retirees by
CPC and changes in plan design.
(2) To record the net change in the provision for income taxes to reflect the
pro forma adjustments. The effective tax rate utilized was 36%, which
approximates the Company's effective rate before the benefit associated
with the restructuring charge.
35
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
PRO FORMA STATEMENTS OF INCOME
(Dollars in millions)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
------------ ------------- ---------
<S> <C> <C> <C>
For the Year Ended December 31, 1996
Net sales ............................................. $ 1,524 $ 1,524
Cost of sales .......................................... 1,381 1,381
------- ------ -------
Gross profit .......................................... 143 143
------- ------ -------
Selling, general and administrative .................. 88 (4)(1) 84
Restructuring charges -- net ........................... -- --
Equity in earnings of unconsolidated affiliates ...... (10) (10)
------- ------ -------
Expenses and other income -- net ..................... 78 (4) 74
------- ------ -------
Operating income ....................................... 65 4 69
Financing costs ....................................... 28 28
------- ------ -------
Income before income taxes and minority interest ...... 37 4 41
Provision (benefit) for income taxes .................. 12 1(2) 13
Minority stockholders' interest ........................ 2 2
------- ------ -------
Net income ............................................. $ 23 $ 3 $ 26
======= ====== =======
</TABLE>
- ------------
(1) To record the reduction in pension and post-employment expenses due to the
retention of the liability and associated expenses for retirees by CPC and
changes in plan design.
(2) To record the net change in the provision for income taxes to reflect the
pro forma adjustments. The effective tax rate utilized was 33.6%.
36
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
PRO FORMA BALANCE SHEETS
(Dollars in Millions)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
------------ ------------------- ---------
<S> <C> <C> <C>
At September 30, 1997
Assets
Current assets
Cash and cash equivalents ..................... $ 35 $ 35
Accounts receivable -- net ..................... 182 182
Inventories .................................... 147 147
Prepaid expenses .............................. 16 16
Other current assets ........................... 26 26
Due to parent ................................. 10 10
------- ----------- -------
Total current assets ........................ 416 -- 416
Investments in unconsolidated affiliates ...... 164 164
Plants and properties ........................ 1,051 1,051
Other assets ................................. 11 11
------- ----------- -------
Total Assets .................................... $ 1,642 -- $ 1,642
======= =========== =======
Liabilities and Stockholders' Equity
Current liabilities
Notes payable ................................. $ 142 $ (142) (1) $ --
Current portion of long-term debt ............ 6 (6) (1) --
Accounts payable .............................. 102 102
Accrued liabilities ........................... 78 78
------- ----------- -------
Total current liabilities ..................... 328 (148) 180
------- ----------- -------
Noncurrent liabilities ........................ 70 (19) (2) 51
Long-term debt ................................. 202 148 (1) 350
Deferred taxes on income ..................... 92 8 (3) 100
Minority stockholders' interest ............... 9 9
------- ----------- -------
Total noncurrent liabilities .................. 373 137 510
------- ----------- -------
Stockholders' equity
Cumulative translation adjustment ............ (13) (13)
Net stockholders' investment .................. 954 (954) (4) --
Common stock ................................. -- 1 (5) 1
Paid-in capital ................................. -- 964 (6) 964
------- ----------- -------
Total stockholders' equity .................. 941 11 952
------- ----------- -------
Total Liabilities and Stockholders' Equity ...... $ 1,642 -- $ 1,642
======= =========== =======
</TABLE>
- ------------
(1) To record the recapitalization of the Company's debt.
(2) To record an increase in the pension liability of $11 million and a decrease
in the postemployment liability of ($30) million.
(3) To reflect the deferred tax liability associated with the pension and
postemployment liabilities to be retained by CPC.
(4) To reflect the elimination of CPC's equity investment effected by the
distribution of all outstanding shares of Corn Products Common Stock to
holders of CPC Common Stock as described under "THE DISTRIBUTION" at page
22.
(5) To record the par value of shares of Corn Products Common Stock distributed
to holders of CPC Common Stock at a distribution ratio of one share of Corn
Products Common Stock for every four shares of CPC Common Stock held on the
Record Date as described under "THE DISTRIBUTION" at page 22.
(6) To record the transfer of CPC's equity investment of $954 million and the
cumulative effect of (i) an increase in net assets for the assumption by CPC
of the postemployment benefit liability associated with retirees of ($30)
million, (ii) a decrease in net assets for the assumption by CPC of the
pension liability associated with retirees of ($46) million and a reduction
in the pension assets transferred to the Company of $57 million, (iii) a
decrease in net assets for the change in the deferred tax liability
associated with (i) and (ii) above and (iv) par value of $0.01 of the Corn
Products Common Stock attributable to the distribution of all of the
outstanding shares of Corn Products Common Stock to holders of CPC Common
Stock as described under "THE DISTRIBUTION" at page 22.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
This discussion should be read in conjunction with the description of the
Company's business (including the RISK FACTORS) and the Combined Financial
Statements and notes thereto included elsewhere in this Information Statement.
This discussion and the financial statements included in this Information
Statement were prepared by attributing the historical data for the Corn
Refining Business to the Company utilizing accounting policies consistent with
those applied to 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 (see below). The primary reason for the
profit decline in 1997 was a significant expansion of high fructose corn syrup
capacity in North America ahead of industry demand which has been, however,
growing at 5-6% 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, it believes that such
imbalances and the accompanying profit downturns arise periodically,
approximately every 7-10 years. The industry, however, has historically
recovered from such downturns, generally fairly quickly.
To restart profit growth, for 1998, the Company intends to focus in all
its markets and operations on improving prices, volume, profit margins 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
increase export sales by making full use of its worldwide infrastructure.
In Latin America, 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 in
the region, using its existing strong positions and facilities in Argentina,
Brazil, Chile, Columbia and Mexico.
In Asia and Africa and other parts of the world, the Company plans to
continue expanding and improving its facilities to meet growing demand. It
further plans to continue to explore an increased participation in the
region's corn refining industry through joint ventures and technology
transfers.
As of the date of this Information Statement, the Company expects that
its operating profits before restructuring charges and spin-off costs will be
in the range of $45 million to $50 million, and that its operating cash flows
should reach $170 million, for the year ending December 31, 1997. These
results include estimated North American operating losses in the range of $25
million to $30 million and estimated operating profits for other international
operations of approximately $80 million to $85 million for 1997. There can be
no assurance that the Company will successfully restart profit growth in 1998.
The Company's plans and expectations may change at any time for various
reasons. Should any of the factors described above change, the Company's
results of operations would be correspondingly affected. See "FORWARD-LOOKING
STATEMENTS" at page iii.
38
<PAGE>
Results of Operations: First Nine Months of 1997 Compared With First Nine
Months of 1996
Net sales. Despite volume growth of 2.3%, net sales for the first nine
months of l997 decreased 8.7% to $1,055 million compared with net sales of
$1,144 million for the same period in 1996. This decline was due entirely to a
18% 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 by one of the Company's competitors, the entry of a new competitor
into the market and lower than expected demand in Mexico. In Latin America,
sales increased 14% compared with the first nine months of 1996 on both strong
volume gains of 12% and improved prices. Sales in Asia and Africa increased 4%
compared with the first nine months of 1996 on improved volume and prices,
which were partially offset by weaker currency values.
Cost of sales and operating expenses. Cost of sales as a percentage of
net sales in the first nine months of 1997 was 90.9% compared with 87.6% in
the first nine months of 1996, resulting in gross profit margins of 9.1% and
12.4% for each of these periods, respectively. This decline in gross profit
margins reflects extremely low high fructose corn syrup pricing during the
first six months of 1997 as a result of significant excess supply in this
important product category. A decline in corn prices during this period
compared with the same period in 1996 could not make up for this substantial
margin erosion.
The Company follows a policy of hedging its exposure to commodities
fluctuations with commodities futures contracts for certain of its North
American raw material purchases. Such raw materials may or may not be hedged
at any given time based on management's judgment as to the need to fix the
costs 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 costs of those commodities and are included in the cost
when purchased.
At September 30, 1997, the Company had open corn commodities contracts of
$49.5 million, or 19.8 million bushels, to cover its requirements in North
America. These contracts call for delivery between December 1997 and December
1998 and had unrealized gains of $2.4 million. These contracts cover less than
13% of the Company's North American annual grind requirements.
Restructuring charge -- net. The Company recorded a $94 million pre-tax
($71 million after tax) restructuring charge in 1997. This charge included
primarily severance and severance-related costs for more than 200 employees
who were or will be terminated as part of the overall realignment of the new
business. The majority of the restructuring is taking place in the Company's
international operations.
Spin-off costs. The Company also recorded a $15 million charge ($12
million after taxes) charged by CPC to the Company for the direct costs of the
spin-off of the Corn Refining Business including fees in the legal, tax and
investment banking areas.
Operating income. Excluding the 1997 restructuring charge described
above, operating income declined 69% during the first nine months of 1997
compared with the same period in 1996. All of this decline came from North
America, where excess high fructose corn syrup supply severely impacted
pricing and adversely affected results. In Latin America, Asia and Africa,
volumes and margins both improved, but were unable to offset margin declines
in North America.
Financing costs. Financing costs were $22 million for the first nine
months of 1997 compared with $20.8 million in the same period of 1996, due to
an increase in the amount of outstanding borrowings and higher interest rates.
Provision for income taxes. The effective tax rate for the first nine
months of 1997 on the loss was 23.6% compared with an effective tax rate on
income of 37% for the same period of 1996. The lower effective tax rate in
1997 was the result of reduced tax benefits related to the restructuring
charge taxed at a lower effective rate of 24% rather than the regular
effective tax rate on operating results of 36%. This 36% effective tax rate is
not necessarily indicative of the effective tax rate that may be applicable in
future periods and future effective tax rates may vary depending on the
relative proportions of the Company's U.S. and non-U.S. income and changes in
the effective tax rates in each of the jurisdictions where the Company
operates.
39
<PAGE>
Net loss. Excluding the after-tax restructuring charge described above,
the Company reported a net income of $.3 million for the first nine months of
1997, compared with net income of $36.6 million for the same period in 1996,
resulting from much lower operating income and higher financing costs.
Including the restructuring and spin-off charges, the net loss was $82.2
million.
Impact of new accounting pronouncements. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128 (FAS 128), "Earnings Per
Share," which superseded APB 15, "Earnings Per Share." FAS 128 requires a dual
presentation of basic and diluted earnings per share on the income statement
for companies with complex capital structures. FAS 128 is required to be
adopted for year-end 1997 and earlier application is not permitted.
FAS 129, "Disclosure of Information About Capital Structure," was also
issued in February 1997. The Company does not expect its current disclosures
regarding capital structure to be materially different under this new
statement.
FAS 130, "Reporting Comprehensive Income," was issued in June 1997 and is
effective for the Company's 1998 fiscal year. This statement requires the
reporting of comprehensive income as part of a full set of financial
statements. The Company will comply with the requirements of this statement.
Also in June 1997, FAS 131, "Disclosure About Segments of an Enterprise
and Related Information," was issued and requires certain information be
reported about operating segments of an enterprise on an annual and interim
basis. This statement is effective for the Company's 1998 fiscal year. The
Company will comply with the requirements of this statement.
Results of Operations: 1996 Compared With 1995
Net sales. Net sales in 1996 advanced 9.9% to $1.5 billion on increased
volume of 6.4% and also reflecting higher corn costs. All geographic areas
contributed to the increase over the prior year. North America accounted for
the majority of the sales gain as a result of corn cost increases resulting in
higher prices and an 8% increase in volumes. In 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 was 90.6% in 1996, compared with 78.1% in 1995, resulting in gross
profit margins of 9.4% and 21.9% for each of these periods, respectively. The
higher cost of corn in 1996, which reached an all-time high during the year,
and a $40 million fourth-quarter loss for certain liquidated corn futures
positions, significantly impacted results.
Operating income. Operating income decreased 70%, excluding the 1995
special items (see "Results of Operations: 1995 Compared With 1994 --
Restructuring and other charges -- net" below). Strong volume gains in all
areas were more than offset by reduced margins. In North America, which
accounted for most of the overall decrease in operating income, margins
declined significantly as a result of the higher cost of raw materials
described above and the inability to increase prices due to excess supply. In
Latin America, additional profits from volume improvements were more than
offset by reduced margins related to higher corn costs. In Asia and Africa,
higher volumes and prices resulted in increased profits but were partially
offset by the effects of weaker currencies.
Provision for income taxes. 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.
Net income. Net income of $23 million was 79% below 1995, excluding the
1995 special items (see "Results of Operations: 1995 Compared With 1994 --
Restructuring and other charges -- net" below). This decline resulted from a
significant decline in operating income partially offset by the benefit of a
lower effective tax rate.
Results of Operations: 1995 Compared With 1994
Net sales. Net sales in 1995 remained flat at $1.4 billion, primarily as
a result of eliminating sales of the Company's Mexican operations, which were
converted into a joint venture early in the year. Excluding sales for
40
<PAGE>
Mexico in 1994, net sales in 1995 would have increased 3.9% on a volume
advance of 6.9%. Driven by lower corn costs, sales in North America were 1.2%
lower despite volume gains. In Latin America, sales increased slightly as
volumes increased by 6.4%, but were partially offset by declines in selling
prices driven by corn costs. Sales in Asia and Africa increased on a 10%
volume gain and improved prices. Volumes in this area are increasing as the
Company continues to reach new markets in Asia.
Cost of sales and operating expenses. Cost of sales as a percentage of
net sales was 78.1% in 1995, compared with 78.5% in 1994, resulting in gross
profit margins of 21.9% and 21.5% in 1995 and 1994, respectively. The
improvement in gross profit margins came from the Company's continuing
restructuring efforts, which began in 1994. Operating expenses as a percentage
of net sales remained flat compared with the prior year.
Restructuring and other charges -- net. 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. In
1994, the Company incurred a restructuring charge of $19 million. Both of
these restructuring charges were designed to ensure competitiveness.
Operating income. Operating income for 1995, excluding the special items
in both 1995 and 1994 (discussed above), improved 3.3% as profits from volume
gains were partially offset by lower margins. In North America, operating
income increased 7.2% on both improved volumes and margins. Latin American
operating income was up 2.1%. Operating income in Asia and Africa was down,
compared to the prior year, as the Company continued to invest in
infrastructure as it expanded into new markets. Operating income for 1995 also
excluded a full year's earnings from Pekin Energy, the Company's ethanol
business. Adjusting 1994 to exclude ethanol earnings, operating income in 1995
rose 5.7%.
Financing costs. Financing costs of $28 million were significantly higher
than in 1994 as borrowings increased 23%, mostly outside the U.S., where
interest rates were higher.
Provision for income taxes. The effective tax rate in 1995 was 38.5%,
compared with 39.5% in 1994. The lower tax rate in 1995 was attributable to
the effect of declines in worldwide tax rates. This rate was higher than the
U.S. statutory rate of 35% because it included state income taxes and foreign
income taxed at different effective rates.
Net income. Net income of $112 million (excluding special items in 1995)
was slightly higher than net income in 1994 of $111 million (excluding 1994
special items). Higher operating income and a lower effective tax rate in 1995
were mostly offset by increased financing costs.
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 and to pay a modest dividend. The Company also expects to
secure an investment-grade debt rating.
The Company's North American and Latin American 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, a significant reduction
from average capital expenditures of $135 million for each of the last five
years. New capacity expansion (other than projects already in process) will be
limited to products or market areas where the Company anticipates significant
growth or has identified market demand.
The Company is currently negotiating the terms of a $350 million credit
facility in the U.S. to provide funds to satisfy the Company's obligations
under the Debt Agreement and for working capital and other general corporate
purposes. In addition, the Company also has a number of credit facilities in
its foreign operations. The Company expects that these credit facilities,
together with cash flow from operations, will provide it with sufficient
operating funds. See "FINANCING" at page 31. If there is a material change in
economic conditions, however, the Company may be required to reduce capital
expenditures or modify or eliminate dividends, or seek additional credit
facilities.
41
<PAGE>
Net cash flows. Net cash flows from operations of $114 million in the
first nine months of 1997 improved significantly over a $110 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 $31 million versus $298 million deficit in the
first nine months of 1996.
In 1996, lower net income, together with higher working capital and
higher capital expenditures, resulted in a negative cash flow from operations
of $85 million. Capital expenditures during 1996 were mainly for plant
expansions in Latin America and North America, as well as for plant efficiency
projects. A $60 million loan to Arancia-CPC S.A. de C.V., the Company's
Mexican joint venture, financed construction of a high fructose corn syrup
plant to serve the Mexican soft drink industry's conversion to high fructose
corn syrup.
In 1995, net cash flow from operations, which benefited from a decrease
in trade working capital, and the proceeds from the disposal of the Company's
investment in Pekin Energy fully covered all capital expenditures and provided
positive cash flow after investments of $42 million compared with $3 million
in 1994.
Key balance sheet items. Total assets at September 30, 1997 remained
largely the same compared with December 31, 1996 as a reduction in current
assets was matched by an increase in the investment in Arancia-CPC S.A. de
C.V., the Company's Mexican joint venture. Total debt at September 30, 1997
increased $10 million to $350 million from total debt at September 30, 1996.
Total assets in 1996 increased $357 million to $1.6 billion from year-end
1995, mainly due to loans made to the Company's unconsolidated joint venture
in Mexico for the construction of a new plant; higher capital expenditures and
an increase in working capital. Total debt decreased $13 million to $350
million.
Total assets in 1995 increased $109 million to $1.3 billion from year-end
1994, mainly due to higher capital expenditures and the inclusion of the
Company's investment in its Mexican joint venture, partially offset by the
sale of the Company's investment in Pekin Energy and a decrease in trade
working capital. Total debt increased by $67 million to $363 million.
MANAGEMENT
Directors of the Company
Pursuant to the Corn Products Charter and Corn Products By-Laws, the Corn
Products Board will consist of the number of directors duly authorized from
time to time by the Corn Products Board, divided into three approximately
equal classes with each class serving a three-year term; provided, that there
shall not be fewer than seven nor more than seventeen directors. Following the
Distribution, the Corn Products Board will consist initially of the nine
individuals who currently comprise the Corn Products Board. Class I directors
will initially serve until the next annual meeting of stockholders, currently
expected to be held in April 1998 and are expected to stand for reelection at
that time. Class II and Class III directors will serve until the annual
meetings of stockholders in 1999 and 2000, respectively.
Set forth below is certain information as to the individuals who will
serve as directors of the Company following the Distribution, their class
membership and their original terms. The directors' ages are shown as of
December 31, 1997. The Corn Products Board has a director tenure policy that
provides that outside directors will retire from the Corn Products Board at
the annual meeting of stockholders coincident with or immediately following
their 70th birthday, and employee directors will retire from the Corn Products
Board upon retirement or other termination of active employment, whether or
not the term for which such director has been elected has expired. Konrad
Schlatter will serve as the initial Chairman of the Corn Products Board.
Ignacio Aranguren-Castiello (Class III), age 66, is Chairman and Chief
Executive Officer of Arancia-CPC S.A. de C.V., a joint venture formed in
November 1994 by the combination of the Mexican operations of the Corn Refining
Business with Arancia Industrial S.A. de C.V., a Mexican company controlled by
Mr. Aranguren-Castiello and his family. He has been President of Arancia
Industrial S.A. de C.V. since the late 1970's. Mr. Aranguren-Castiello is also
a director of Bancomer S.A.
42
<PAGE>
Alfred C. DeCrane, Jr. (Class II), age 66, retired as Chairman and Chief
Executive Officer of Texaco Inc. in July 1996. Mr. DeCrane was elected
President of Texaco in 1983, Chairman of the Board in 1987 and Chief Executive
Officer in 1993. He is also a director of CPC International Inc., CIGNA
Corporation and Harris Corporation.
William C. Ferguson (Class I), age 67, retired as Chairman of NYNEX
Corporation in April 1995 and as Chief Executive Officer in December 1994.
Prior thereto, Mr. Ferguson served as Vice Chairman of NYNEX from 1987 to 1989.
He is also a director of CPC International Inc. and General Re Corporation.
Richard G. Holder (Class II), age 66, retired as the Chairman and Chief
Executive Officer of Reynolds Metals Company in 1996. Prior thereto, Mr. Holder
served as President and Chief Operating Officer of Reynolds Metals from 1988
until 1992. He is also a director of CPC International Inc. and Universal Corp.
Bernard H. Kastory (Class I), age 52, is Senior Vice President - Finance
and Administration, of CPC. Mr. Kastory served as Chairman and Chief Executive
Officer of CPC's baking business from October 1995 until February 1997 and
prior thereto, served as President of the Corn Refining Business and as a Vice
President of CPC since 1992. Mr. Kastory joined CPC in 1967 and, since then,
has held various technical, financial and general management positions in its
Corn Refining Business.
William S. Norman (Class III), age 59, is President and Chief Executive
Officer of the Travel Industry Association of America, a position he has held
since 1994. Previously, Mr. Norman served as Executive Vice President of the
National Railroad Passenger Corporation (AMTRAK) since 1987. He is also a
director of CPC International Inc.
Konrad Schlatter (Class II), age 62, is Chairman and Chief Executive
Officer of Corn Products. Mr. Schlatter served as Senior Vice President of CPC
from 1990 to 1997 and Chief Financial Officer of CPC from 1993 to February
1997.
Samuel C. Scott (Class I), age 53, is President and Chief Operating
Officer of Corn Products. Mr. Scott has been President of CPC's worldwide Corn
Refining Business since 1995 and has been President of CPC's North American
Corn Refining Business since 1989. He was elected a Vice President of CPC in
1991. Mr. Scott is a director of Motorola, Inc. and Reynolds Metals Company.
Clifford B. Storms (Class III), age 65, is an attorney in private
practice. Mr. Storms was Senior Vice President (since 1988) and General Counsel
(since 1975) of CPC until his retirement from CPC in June 1997. Mr. Storms
joined CPC in 1964 and was appointed Assistant General Counsel in 1968 and Vice
President for Legal Affairs in 1973.
Directors' Meetings, Fees and Committees
The Corn Products Board expects to hold regularly scheduled meetings, and
will hold such special meetings as it deems advisable to review significant
matters affecting the Company and to act upon matters requiring Corn Products
Board approval. Outside directors will receive an annual retainer of $35,000,
plus $1,000 for attending each regular or special Corn Products Board or
committee meeting, including telephone meetings. In addition, outside
directors who are chairmen of the Audit Committee and Compensation and
Nominating Committee will each receive an additional annual retainer of
$3,000.
The Company expects to have a deferred compensation plan for outside
directors under which 50% of a director's annual retainer will be deferred in
phantom stock of the Company plus dividend equivalents thereon, until death or
after termination of service as a director.
Prior to the Distribution, the Corn Products Board is expected to
establish and delegate specific functions to an Audit Committee and a
Compensation and Nominating Committee. The Compensation and Nominating
Committee will be composed entirely of outside directors who are independent
of management and eligible to serve on such committee under the applicable
rules and regulations of the SEC, NYSE and the IRS. The eligibility of each
outside director to serve on each committee will be reviewed annually by the
Audit Committee and reported to the full Corn Products Board.
43
<PAGE>
Audit Committee
The Audit Committee will review the scope and results of the Company's
annual audit, approve the non-audit services rendered by independent auditors
and recommend appointment of independent auditors for the ensuing year. The
Audit Committee will also review the proposed financial statements for the
annual report to stockholders, accounting policies, internal control systems
and internal auditing procedures, and the process by which unaudited quarterly
financial information is compiled and issued. The initial members of the Audit
Committee will be Messrs. Storms, DeCrane and Ferguson.
Compensation and Nominating Committee
The Compensation and Nominating Committee will approve the compensation
of all executive officers and administer executive incentive compensation
plans, review employee benefit plans and recommend proposals for adoption,
amendment or termination of such plans and recommend and administer any
compensation arrangements for outside directors. The Compensation and
Nominating Committee will also develop criteria for Corn Products Board
membership and consider candidates for membership on the Corn Products Board.
Stockholders who may wish to recommend a candidate for consideration for
director may do so by writing to the Secretary of the Company and furnishing a
statement of the candidate's experience and qualifications. See "ANTI-TAKEOVER
EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE RIGHTS PLAN AND
DELAWARE LAW -- Advance Notice Provisions for Stockholder Nominations and
Proposals" at page 58. The initial members of the Compensation and Nominating
Committee will be Messrs. Holder and Norman.
Executive Officers of the Company
The Company has a new Chief Executive Officer and a new Chief Financial
Officer, both of whom have substantial experience in the Corn Refining
Business. Otherwise, the Company's senior management (the "Executive
Officers") will consist primarily of those individuals currently responsible
for the management of the Corn Refining Business as conducted by CPC. See
"BUSINESS -- Employees and Management" at page 14.
Generally, following the Distribution, Executive Officers will be elected
by the Corn Products Board concurrently with the Company's Annual Meeting of
Stockholders, and will serve until the next such meeting or until their
earlier retirement, resignation or removal. The first Annual Meeting of Corn
Products stockholders is expected to be held in April 1998. The Corn Products
Board has adopted an Executive Officer tenure policy that provides that
executive officers will retire at age 65.
In addition to Mr. Schlatter, who will serve as Chairman and Chief
Executive Officer and Mr. Scott, who will serve as President (see "--
Directors of the Company" above), the following persons are expected to serve
as Executive Officers of the Company following the Distribution. Ages given
are as of December 31, 1997.
Marcia E. Doane, age 56, will be elected Vice President, General Counsel
and Corporate Secretary prior to the Effective Date. Ms. Doane has served as
Vice President, Legal and Regulatory Affairs of the Corn Products Division of
CPC since 1996. Prior thereto, she served as Counsel to the Corn Products
Division from 1994 to 1996. Ms. Doane joined CPC's legal department in 1989 as
Operations Attorney for the Corn Products Division.
Frank J. Kocun, age 55, will be elected Vice President and President,
Cooperative Management Group prior to the Effective Date. Mr. Kocun has served
as President of the Cooperative Management Group of the Corn Products Division
of CPC since 1991 and as Vice President of the Cooperative Management Group
since 1985. Mr. Kocun joined CPC in 1968 and has served in various executive
positions in the Corn Products Division and in Penick Corporation, a CPC
subsidiary.
Eugene J. Northacker, age 56, will be elected Vice President and
President, Latin American Division prior to the Effective Date. Mr. Northacker
was appointed President of CPC's Latin America Corn Refining Division and
elected a Vice President of CPC in 1992. Prior to that, he served as Business
Director of CPC's Latin America Corn Refining Division from 1989 to 1992, as
Corn Refining General Manager of CPC's then Mexican subsidiary from 1986 to
1989 and as Vice President of Finance and Administration of such Mexican
subsidiary from 1984 to 1986. Mr. Northacker joined CPC in 1968 in the
financial group of Best Foods, CPC's North American consumer foods division,
and has held executive assignments in several CPC subsidiaries.
44
<PAGE>
Michael R. Pyatt, age 50, will be elected Vice President and Executive
Vice President, North American Division prior to the Effective Date. Mr. Pyatt
has served as Chairman, President and Chief Executive Officer of Canada Starch
Co., Inc., a CPC subsidiary, since 1994 and as President of the Canadian
business of CPC's Corn Products Division, Vice Chairman of Canada Starch and
as a Vice President of the Corn Products Division since 1992. Mr. Pyatt joined
CPC in 1982 and has served in various sales and marketing positions in the
Casco business.
James W. Ripley, age 54, will be elected Vice President -- Finance and
Chief Financial Officer prior to the Effective Date. Mr. Ripley has served as
Comptroller of CPC since 1995. Prior thereto, he served as Vice President of
Finance for CPC's North American Corn Refining Division from 1984 to 1995. Mr.
Ripley joined CPC in 1968 as chief international accountant, and has
subsequently served as CPC's Assistant Corporate Comptroller, Corporate
General Audit Coordinator and Assistant Comptroller for CPC's European
Consumer Foods Division.
Richard M. Vandervoort, age 54, will be elected Vice President --
Business Development and Procurement, North American Division prior to the
Effective Date. Mr. Vandervoort has served as Vice President -- Business
Management and Marketing for CPC's Corn Products Division since 1989. Mr.
Vandervoort joined CPC in 1971 and has served in various executive sales
positions in CPC's Corn Products Division and in Peterson/Puritan Inc., a CPC
subsidiary.
45
<PAGE>
EXECUTIVE COMPENSATION; PENSION AND BENEFIT PLANS
Historical Compensation
Prior to the Distribution, the Corn Refining Business has been operated
as a division of CPC. The following table and narrative describe the
compensation paid by CPC in 1996, 1995 and 1994 to the Company's Chief
Executive Officer and each of the other four individuals initially expected to
be the most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers"). Such amounts do not reflect
the compensation such Named Executive Officers will receive following the
Distribution. The principal positions listed in the table are those which will
be held by the Company's Named Executive Officers following the Distribution
Date.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------- ---------------------------------------------------
Awards Payouts
--------------------------------- ----------------
Securities Long-Term All Other
Name and Salary Bonus Restricted Underlying Incentive Compensation
Principal Position Year ($) ($) Stock Awards ($) Options (#) Payouts ($)(1) ($)(2)
- ---------------------------- ------ --------- --------- ------------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
K. Schlatter ............ 1996 391,250 220,000 0 13,500 750,938 107,006
Chairman and Chief 1995 370,000 205,000 0 28,874 787,102 106,679
Executive Officer (4) 1994 342,500 160,000 0 13,500 465,781 105,319
S.C. Scott ............... 1996 286,667 60,000 0 13,500 500,625 49,293
President and Chief 1995 247,500 140,000 0 10,000 572,438 46,698
Operating Officer (5) 1994 221,250 110,000 0 9,000 307,389 42,311
E.J. Northacker ......... 1996 231,250 50,000 0 8,000 406,737 51,199
Vice President and 1995 217,500 95,000 0 7,500 465,105 50,280
President, 1994 200,000 85,000 0 7,000 102,445 38,758
Latin American Division (6)
J.W. Ripley ............... 1996 183,750 72,000 0 5,000 -- 39,256
Vice President -- 1995 167,500 60,000 123,250(3) -- -- 37,290
Finance and Chief 1994 151,667 43,000 0 -- -- 24,673
Financial Officer (7)
F.J. Kocun ............... 1996 183,250 29,000 0 5,500 281,581 56,699
Vice President and 1995 172,000 74,000 0 5,000 286,219 55,495
President, Cooperative 1994 160,000 65,000 0 4,500 -- 52,522
Management Group (8)
</TABLE>
- ------------
(1) Includes cash and the market value of CPC Common Stock paid in respect of
performance units awarded under CPC's 1984 Stock and Performance Plan at
the end of four-year performance cycles.
(2) Includes the following for 1996:
a. CPC matching contributions to defined contribution plans as follows:
K. Schlatter, $30,976; S. C. Scott, $24,763; E. J. Northacker, $21,666;
J. W. Ripley, $19,022; and F. J. Kocun, $18,994.
b. Value of premiums paid by CPC under its Executive Life Insurance Plan
as follows: K. Schlatter, $76,029; S. C. Scott, $24,089; E. J.
Northacker, $29,016; J. W. Ripley, $20,041; and F. J. Kocun, $37,665.
c. For S. C. Scott, $438; E. J. Northacker, $518; and J. W. Ripley,
$192, of above-market interest at the rate credited to all
participants in the CPC Deferred Compensation Plan, pursuant to which
all or a portion of annual bonus may be deferred and credited to an
interest bearing account, and paid over a fifteen-year period
following retirement.
(3) Represents the value of 2,000 shares of restricted stock on June 20, 1995,
the date of the award. Restrictions lapse on one-fourth of the shares on
each of the four anniversary dates of the award. On December 31, 1996 the
1,500 remaining restricted shares had a value of $116,250. Dividends are
paid on restricted stock at the rate paid to all stockholders. The named
executive officers hold no other shares of restricted stock.
(4) Mr. Schlatter's compensation for 1994, 1995 and 1996 was paid to him as
Senior Vice President and Chief Financial Officer of CPC.
46
<PAGE>
(5) Mr. Scott's compensation for 1994, 1995 and 1996 was paid to him as
President of CPC's North American corn refining business (1994) and its
worldwide Corn Refining Business (1995 -- 1996).
(6) Mr. Northacker's compensation for 1994, 1995 and 1996 was paid to him as
President, Latin America Corn Refining Division of CPC.
(7) Mr. Ripley's compensation for 1994 and 1995 was paid to him as Vice
President -- Finance of CPC's North America Corn Refining Division (1994 --
June 1995) and as Comptroller of CPC (June 1995 -- 1996).
(8) Mr. Kocun's compensation for 1994, 1995 and 1996 was paid to him as
President, Cooperative Management Group of the Corn Refining Business of
CPC.
The following table summarizes grants of stock options made by CPC under
the CPC Stock Plans to the Named Executive Officers during the 1996 fiscal
year. As a result of the Distribution, each CPC option granted to the
Company's Named Executive Officers listed below will be replaced with an
option to purchase Corn Products Common Stock pursuant to adjustments provided
in the Employee Benefits Agreement, and, as a result, their value will depend
on the future value of Corn Products Common Stock. See "THE DISTRIBUTION --
Treatment of Employee Options, Restricted Stock and Rabbi Trusts in the
Distribution" at page 25 and "RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER
THE DISTRIBUTION -- Employee Benefits Agreement" at page 29.
Option Grants in 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(3)
- ------------------------------------------------------------------------------- ------------------------------
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted(#) in 1996 ($/Share) Date 0%($) 5%($) 10%($)
- ------------------------- ------------ ------------ ----------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
K. Schlatter ......... 13,500(1) 0.8957 70.0000 1/15/06 0 594,100 1,505,447
S. C. Scott ............ 13,500(1) 0.8957 70.0000 1/15/06 0 594,100 1,505,447
2,086(2) 0.1384 70.6875 3/14/98 0 16,642 34,257
2,275(2) 0.1509 70.6875 3/20/99 0 27,249 57,520
2,250(2) 0.1493 70.6875 3/19/00 0 36,250 78,481
2,063(2) 0.1369 70.6875 3/18/01 0 42,140 93,612
500(2) 0.0332 70.6875 3/16/02 0 12,478 28,458
500(2) 0.0332 70.6875 1/18/03 0 14,488 33,802
E. J. Northacker ...... 8,000(1) 0.5308 70.0000 1/15/06 0 352,059 892,117
1,000(2) 0.0663 67.8750 3/14/98 0 6,330 12,914
688(2) 0.0456 67.8750 3/18/01 0 12,434 27,360
1,625(2) 0.1078 67.8750 3/16/02 0 36,311 82,013
1,625(2) 0.1078 67.8750 1/18/03 0 42,473 98,119
1,312(2) 0.0870 67.8750 1/17/04 0 40,442 95,998
281(2) 0.0186 67.8750 1/16/05 0 10,045 24,513
J. W. Ripley ......... 5,000(1) 0.3317 70.0000 1/15/06 0 220,037 557,573
1,000(2) 0.0663 68.8440 3/15/98 0 6,309 12,863
1,038(2) 0.0689 68.8440 6/17/01 0 19,987 44,230
F. J. Kocun ............ 5,500(1) 0.3648 70.0000 1/15/06 0 242,041 613,330
1,000(2) 0.0663 68.1875 9/15/97 0 4,752 9,591
2,000(2) 0.1327 68.1875 9/17/00 0 32,544 70,780
2,400(2) 0.1592 68.1875 9/16/01 0 49,159 109,723
1,000(2) 0.0663 68.1875 3/17/02 0 22,667 51,262
281(2) 0.0186 68.1875 1/18/03 0 7,439 17,206
188(2) 0.0125 68.1875 1/17/04 0 5,864 13,938
</TABLE>
- ------------
(1) The CPC options listed were granted at an exercise price equal to the fair
market value of the CPC Common Stock on the date of grant in tandem with
an equivalent number of performance units under the CPC 1993 Stock and
Performance Plan. The CPC performance units were issued for a cycle of
four years' duration, with a goal based on improvement in CPC stockholder
value, determined by the increase in the value of the CPC Common Stock
during each year of the cycle assuming reinvestment of dividends, measured
against
47
<PAGE>
the performance of a peer group of companies. Up to 25% of the units may be
earned in each year of the cycle and are payable at the conclusion of the
cycle. To the extent CPC performance units are earned and payable, a
corresponding number of CPC options are canceled. To the extent CPC options
are exercised, a corresponding number of CPC performance units are canceled.
These CPC options were granted on January 16, 1996 and became exercisable on
January 16, 1997. Under the CPC 1993 Stock and Performance Plan, in the
event of a change in control of CPC, all CPC performance cycles will
terminate and participants will receive the value in cash of the CPC
performance units theretofore earned and 100% of the units that could have
been earned during the remainder of the cycles. The amounts paid to the
Named Executive Officers for the cycles ending in 1996, 1995 and 1994 are
shown as "Long-Term Incentive Payouts" in the Summary Compensation Table on
page 46.
(2) The CPC options listed are replacement CPC options which were granted upon
exercise of previously granted CPC options. They are equivalent to the
number of shares exercised and have an exercise price equal to the fair
market value of the CPC Common Stock on the date of exercise of the
original CPC option. The expiration date of the replacement CPC option is
the same as the expiration date of the original CPC option. The
replacement CPC option becomes exercisable one year from the date the
original CPC option was exercised. The shares acquired on exercise of the
original CPC option must be retained for three years.
(3) The amounts shown under these columns are calculated at 0% and at the 5%
and 10% rates set by the SEC and are not intended to forecast future
appreciation of CPC's stock price. The amounts shown assume that no CPC
performance units will be earned so that all CPC options granted will be
exercisable.
The following table provides information with respect to CPC options
exercised by the Company's Named Executive Officers during the 1996 fiscal
year and the value of unexercised CPC options held by the Company's Named
Executive Officers at fiscal year end. The amounts set forth in the two
columns relating to unexercised CPC options, unlike the amounts set forth in
the column headed "Value Realized," have not been, and might never be,
realized. The underlying CPC options might not be exercised; and actual gains
on exercise, if any, would depend on the value of the CPC Common Stock on the
date of exercise, and there can be no assurance that these values would be
realized. As a result of the Distribution, each CPC option granted to the
Company's Named Executive Officers listed below will be replaced with an
option to purchase Corn Products Common Stock pursuant to adjustments provided
in the Employee Benefits Agreement, and, as a result, their value will depend
on the future value of Corn Products Common Stock. See "THE DISTRIBUTION --
Treatment of Employee Options, Restricted Stock and Rabbi Trusts in the
Distribution" at page 25 and "RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER
THE DISTRIBUTION -- Employee Benefits Agreement" at page 29.
48
<PAGE>
Aggregated Option Exercises in 1996
and Option Values as of December 31, 1996
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1996(#) December 31, 1996($)(2)
----------------------- ------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($)(1) Unexercisable Unexercisable
- ---- ----------------- ---------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
K. Schlatter ......... -- -- 22,724/33,375 324,495/630,281
S. C. Scott ............ 9,674 374,291 5,062/37,174 154,251/537,654
E. J. Northacker ...... 6,531 166,114 --/25,281 0/408,072
J. W. Ripley ......... 2,688 110,578 3,962/ 7,038 119,518/ 55,141
F. J. Kocun ............ 6,869 195,184 4,186/19,494 119,397/294,054
</TABLE>
- ------------
(1) Amounts shown are based on the difference between the market value of CPC
Common Stock on the date of exercise and the exercise price.
(2) Amounts shown are based on the difference between the closing price of CPC
Common Stock on December 31, 1996 ($77.50), as reported on the NYSE
Consolidated Transactions Reporting System, and the exercise price.
Base Salaries
The Compensation and Nominating Committee will establish salaries for
each of the Company's Executive Officers and approve salary changes for such
individuals in accordance with a written salary administration policy to
initially be based upon a long-standing CPC policy. The Company's salary
administration policy will be designed and periodically reviewed in
consultation with external compensation consultants. Salary ranges are
expected to be established for various positions through job evaluation and
comparison with competitive salary data. Within the ranges, adjustments are
expected to be recommended on the basis of individual performance and a
corporate merit salary percentage factor. Consistent with the Company's
overall objectives, these adjustments, combined with bonuses as described
below, will emphasize payment for performance.
Annual Bonuses
Following the Distribution, it is expected that the Company will have an
annual bonus program applicable to the Executive Officers and certain other
management level employees. Award levels under the bonus program are expected
to range from zero to 120 percent of base salary as of the beginning of the
annual performance period, depending on each participant's salary grade and
the attainment of the Company's applicable business division profit targets as
approved by the Compensation and Nominating Committee. The provisions of the
Company's annual bonus program are expected to be substantially similar to
those of CPC's annual bonus program.
Severance Agreements
Each of the Named Executive Officers will enter into severance agreements
with the Company. The following discussion is a summary of the material
provisions of these severance agreements, a form of which is filed as an
exhibit to the Registration Statement of which this Information Statement
forms a part.
Each of the severance agreements provides for a lump sum payment equal to
three times the sum of the annual salary and bonus paid in the prior year, and
for continuation of medical and insurance plans for a three-year period, if
the executive officer's employment is terminated involuntarily other than for
cause (as defined in the severance agreements) or voluntarily for good reason
(as defined in the severance agreements) within two years after a change in
control of the Company. The severance agreements also provide that the amount
of excise tax, if any, under the Code to be paid by any executive officer
shall be reimbursed by the Company. The severance agreements will be presented
for the approval of the outside directors of the Company.
Stock Incentive Plan
The Company intends to adopt, with the approval of CPC in its capacity as
the sole stockholder of the Company, the Corn Products International, Inc.
Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan
will be administered by the Company's Compensation and Nominating Committee.
The Company intends to seek shareholder approval of the Stock Incentive Plan
no later than its 1999 annual meeting of stockholders.
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<PAGE>
The Stock Incentive Plan provides for the grant of incentive stock
options that qualify under Section 422 of the Code, nonqualified stock
options, restricted stock awards and performance awards to employees. The
Company has reserved 3.5 million shares of Corn Products Common Stock for
issuance under the Stock Incentive Plan. The Compensation and Nominating
Committee is expected to grant, subject to the completion of the Distribution,
qualified options to purchase Corn Products Common Stock to the Executive
Officers and certain other persons who will be employees of the Company. Each
such option will have an exercise price equal to 100% of the fair market value
of Corn Products Common Stock on the effective date of grant and will be for a
term of ten years. In addition to the shares reserved pursuant to the Stock
Incentive Plan, the Employee Benefits Agreement provides that employees of the
Company who hold options and restricted stock under the CPC International Inc.
1984 and 1993 Stock and Performance Plans will receive substitute awards of
equivalent value following completion of the Distribution. See "THE
DISTRIBUTION -- Treatment of Employee Options, Restricted Stock and Rabbi
Trusts in the Distribution" at page 25.
Pension Plans
After the Effective Date, the Company will adopt a defined benefit plan
(the "Pension Plan") which is intended to be a tax-qualified plan within the
meaning of Section 401(a) of the Code. All salaried employees of the Company
who work in the United States or are U.S. citizens, including the Named
Executive Officers, will be eligible to participate in the Pension Plan.
It is anticipated that the Pension Plan will be a "cash balance" pension
plan. As soon as practicable after the Effective Date, the accrued benefits of
Corn Products Employees under the CPC Non-Contributory Retirement Income Plan
for Salaried Employees, and assets and liabilities attributable thereto, will
be transferred to the Pension Plan. See "RELATIONSHIP BETWEEN THE COMPANY AND
CPC AFTER THE DISTRIBUTION -- Employee Benefits Agreement" at page 29.
Employee accounts will also include an annual credit of between 3% and 10% of
eligible pay, depending on the employee's years of service as of January 1 of
each year. For this purpose, eligible pay will generally include base salary,
bonus and overtime. Each employee's account will also accrue monthly interest
credits using a rate equal to a specified amount in excess of the interest
rate on short-term Treasury notes. The value of the account at retirement will
be paid out as a straight life or joint and survivor annuity or under an
optional form elected by the employee such as a lump-sum distribution.
After the Effective Date, the Company will adopt a nonqualified defined
benefit plan (the "Excess Pension Plan") in order to provide benefits to
executives whose benefits under the Pension Plan are limited under Sections
401(a)(17) and 415 of the Code. The Excess Pension Plan will assume the
existing liability for Company executives under CPC's excess pension plan. The
Excess Pension Plan will not be tax-qualified under Section 401(a) of the
Code, and participants will have only the rights of general creditors of the
Company with respect to benefits accrued thereunder.
Estimated age 65, annual benefits for each of the Named Executive
Officers under the Company's qualified defined benefit Pension Plan, as well
as the nonqualified Excess Pension Plan, are as follows, assuming that the
1998 and future compensation for each of the Named Executive Officers is equal
to 1997 base pay plus 1996 earned bonus paid in 1997: K. Schlatter, $328,036;
S.C. Scott, $193,401; E.J. Northacker, $178,706; J.W. Ripley, $147,973; and
F.J. Kocun, $119,747.
Vesting and partial payment of the benefits shown will be accelerated if
certain events occur that would result in a "change in control" of the Company
after the Effective Date. For the portions of the benefits payable under the
programs that are not tax-qualified, if an excise tax were imposed on an
employee as to such benefits on account of such a change in control, the
employee's benefits would be increased to the extent required to put the
employee in the same position after payment of taxes as if no excise tax had
been imposed.
Defined Contribution Plan
After the Effective Date, the Company will adopt a defined contribution
plan (the "Corn Products 401(k) Plan") designed to comply with the
requirements of Sections 401(a) and 401(k) of the Code, which govern tax
qualification and cash or deferred arrangements. All salaried employees of the
Company who work in the United States or are U.S. citizens, including the
Named Executive Officers, will be eligible to participate in this plan.
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<PAGE>
An eligible employee may elect to make before-tax and after-tax
contributions to the plan of up to 16% of total compensation. Special rules
imposed by the Code may require lower limitations for the Executive Officers
and other highly compensated employees. The Company will make matching
contributions on the employees' before-tax and after-tax contributions in the
manner determined by the plan's administrative committee from time to time. It
is anticipated that during the first plan year after the Effective Date, the
Company will make matching contributions equal to 100% of an employee's total
combined before-tax and after-tax contributions up to 6% of such employee's
base salary, bonus and overtime.
Amounts contributed to the Corn Products 401(k) Plan will be invested by
the trustee in one or more investment funds. It is contemplated that initially
there will be seven funds offering a variety of investment options, including
a Corn Products stock fund.
All of an employee's before-tax and after-tax contributions will be 100%
vested from the time they are made. All Company contributions will be vested
once an employee has three years of service (including service with CPC). Upon
termination of employment, retirement, disability or death, the employee will
be entitled to distribution of his or her entire plan account.
As soon as practicable after the Effective Date, the individual accounts
of Corn Products Employees held under the CPC Saving/Retirement Plan for
Salaried Employees immediately before the Effective Date will be transferred
to the Corn Products 401(k) Plan. See "RELATIONSHIP BETWEEN THE COMPANY AND
CPC AFTER THE DISTRIBUTION -- Employee Benefits Agreement" at page 29.
The Company will adopt a nonqualified defined contribution plan (the
"Excess Benefits Plan") after the Distribution for the benefit of executives
of the Company whose base salary exceeds the amount that may be taken into
account under the Corn Products 401(k) Plan due to Code limitations. The
Excess Benefits Plan will assume the existing liability for Corn Products
Employees under CPC's excess benefits plan and will provide for future
elective salary deferrals of up to 20% of base salary and bonus for employees
whose pay exceeds the qualified plan limitation, along with matching
contributions up to the 6% level. The current limitation on compensation that
may be taken into account under a qualified plan is $160,000; accordingly, it
is expected that a substantial number of the Executive Officers and other
highly compensated employees will be eligible to participate in the Excess
Benefits Plan after the Distribution. The Excess Benefits Plan will have
"phantom" investments only for bookkeeping purposes. The Excess Benefits Plan
will not be tax-qualified, and participants will have only the rights of
general creditors of the Company with respect to their individual accounts
under the Excess Benefits Plan.
Other Benefit Plans
The Company expects to maintain employee group health, life, long term
disability and other plans in which the Executive Officers will be eligible to
participate on the same terms as other salaried employees. The Company also
expects to maintain a split dollar life insurance plan for those salaried
employees, including the Named Executive Officers, who are currently
participants in CPC's Executive Life Insurance Plan.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Four of the Company's directors are also directors of CPC and one of the
Company's directors is currently an executive officer of CPC. The Company has
in the past engaged in transactions with CPC. Such transactions have included,
among other things, various types of financial support by CPC. Certain of such
transactions have been on terms more or less favorable to the Company than
would otherwise have been obtainable in transactions with unaffiliated third
parties. The Company anticipates that it will have material ongoing
contractual relationships with CPC following the Distribution. CPC and the
Company have entered into a number of agreements in connection with the
Distribution. See "RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE
DISTRIBUTION" at page 26.
Mr. Aranguren-Castiello is Chairman and Chief Executive Officer of
Arancia-CPC S.A. de C.V. ("Arancia"), a joint venture formed in November 1994
by the combination of the Mexican operations of the Corn
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Refining Business with Arancia Industrial S.A. de C.V., a Mexican corn refiner
controlled by Mr. Aranguren-Castiello and his family. Arancia is engaged in the
corn refining business and has in the past engaged in transactions with the
Corn Refining Business. Such transactions are expected to continue after the
Distribution. Arancia, which is headquartered in Guadalajara, Mexico, is a
51%/49% joint venture between Arancia Industrial S.A. de C.V. and the Company.
Arancia produces high fructose corn syrup, other corn syrups, modified and
unmodified starches, maltodextrins and sorbitol.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on information obtained from CPC's records and a review of
statements filed with the SEC pursuant to Section 13 of the Exchange Act with
respect to CPC Common Stock and other information received by CPC prior to
October 31, 1997, no person known to the Company is expected to be the
beneficial owner of more than 5% of the Corn Products Common Stock upon
completion of the Distribution.
The following table shows the shares of Corn Products Common Stock
expected to be owned as of the Distribution by each present director, the
Named Executive Officers and by all present directors and Executive Officers
of the Company, as a group. All directors and Executive Officers as a group
will own beneficially less than one percent of the outstanding common stock.
<TABLE>
<CAPTION>
Amount and Nature of
Name Beneficial Ownership (1) Percentage
- ---- -------------------------- ----------
<S> <C> <C>
Ignacio Aranguren-Castiello .................................... 0 *
Alfred C. DeCrane, Jr. .......................................... 125 *
William C. Ferguson ............................................. 700 *
Richard G. Holder (2) .......................................... 500 *
Bernard H. Kastory (2) .......................................... 8,773 *
William S. Norman ............................................. 250 *
Konrad Schlatter (2)(3) .......................................... 15,286 *
Samuel C. Scott (3) ............................................. 5,058 *
Clifford B. Storms (2) .......................................... 13,053 *
Frank J. Kocun (3) ............................................. 1,609 *
Eugene J. Northacker (3) ....................................... 2,423 *
James W. Ripley (3) ............................................. 1,199 *
All directors and Executive Officers of the Company as a group (15
persons) ...................................................... 49,070 *
</TABLE>
- ------------
(1) Excludes shares receivable with respect to options to purchase shares of
Corn Products Common Stock exercisable at or within 60 days of December
31, 1997 to be granted in substitution for options to purchase CPC Common
Stock and shares of restricted stock to be granted in substitution for
restricted shares of CPC Common Stock. The number of options to purchase
shares of Corn Products Common Stock and the number of restricted shares
of Corn Products Common Stock to be received by the Executive Officers is
dependent upon the market price of the Corn Products Common Stock and the
CPC Common Stock after the Record Date. See "THE DISTRIBUTION -- Treatment
of Employee Options, Restricted Stock and Rabbi Trusts in the
Distribution" at page 25.
(2) Includes shares held jointly with or owned by spouses or minor children or
held in certain fiduciary capacities.
(3) Excludes units of phantom Corn Products Common Stock that may be granted
to replace units of phantom CPC Common Stock to which the Named Executive
Officers are currently entitled as deferred annual bonus under CPC's
Deferred Stock Unit Plan.
* Less than 1%.
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DESCRIPTION OF CAPITAL STOCK
Authorized Stock
The total number of shares of all classes of stock that the Company has
authority to issue under the Corn Products Charter is 225,000,000 shares, of
which 200,000,000 shares are Corn Products Common Stock and 25,000,000 shares
are preferred stock, par value $0.01 per share (the "Preferred Stock"). Based
on the approximately 142 million shares of CPC Common Stock outstanding as of
September 30, 1997 (excluding shares of restricted CPC Common Stock and shares
of CPC Common Stock held by the Rabbi Trusts), and a distribution ratio of one
share of Corn Products Common Stock for every four shares of CPC Common Stock,
approximately 35.5 million shares of Corn Products Common Stock are expected
to be distributed to holders of CPC Common Stock on the Distribution Date. In
addition, as of September 30, 1997, approximately 55,000 restricted shares of
CPC Common Stock and options with respect to approximately 250,000 shares of
CPC Common Stock were held by CPC employees who will become employees of the
Company. As provided in the Employee Benefits Agreement, the Company will
issue restricted shares of Corn Products Common Stock and options with respect
to Corn Products Common Stock to adjust and substitute for such CPC restricted
stock and options. In addition, the Company has reserved 3.5 million shares of
Corn Products Common Stock for issuance pursuant to the Stock Incentive Plan.
See "THE DISTRIBUTION -- Treatment of Employee Options, Restricted Stock and
Rabbi Trusts in the Distribution" at page 25 and "EXECUTIVE COMPENSATION;
PENSION AND BENEFIT PLANS -- Stock Incentive Plan" at page 49. No shares of
Preferred Stock will be issued in connection with the Distribution, although
one million shares of Series A Preferred Stock (defined below) have been
reserved for issuance in connection with the Rights Plan. See "-- Preferred
Stock" below.
Common Stock
The holders of Corn Products Common Stock will be entitled to one vote
for each share on all matters voted on by stockholders, and the holders of
such shares will possess all voting power, except as otherwise required by law
or later provided in any resolution adopted by the Board of Directors of the
Company with respect to any series of Preferred Stock. The Corn Products
Common Stock will not have cumulative voting rights. It is currently expected
that the first annual meeting of stockholders of the Company will be held in
April 1998. Subject to any preferential or other rights of any outstanding
series of Preferred Stock that may be designated by the Board of Directors of
the Company, the holders of Corn Products Common Stock will be entitled to
such dividends, if any, as may be declared from time to time by the Board of
Directors of the Company. See "DIVIDEND POLICY" at page 61. In the event of
the liquidation, dissolution or winding up of the Company, holders of Corn
Products Common Stock are entitled to receive on a pro rata basis any assets
remaining after provision for payment of creditors and after payment of any
liquidation preferences to holders of Preferred Stock. Subject to the
restrictions contained in the Tax Indemnification Agreement, additional shares
of Corn Products Common Stock may be issued without stockholder approval,
other than such approval as may be required by applicable stock exchange
rules. See "RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE DISTRIBUTION --
Tax Indemnification Agreement" at page 27 and "-- Authorized But Unissued
Capital Stock" below.
Preferred Stock
The Board of Directors of the Company is authorized to provide for the
issuance of shares of Preferred Stock, in one or more series, and to fix for
each such series such voting powers, designations, preferences and relative,
participating, optional and other special rights and the qualifications,
limitations and restrictions thereon, as are stated in the resolutions adopted
by the Board of Directors of the Company providing for the issuance of such
series and as are permitted by the DGCL. Subject to the restrictions contained
in the Tax Indemnification Agreement, shares of Preferred Stock may be issued
without stockholder approval, other than such approval as may be required by
applicable stock exchange rules. See "RELATIONSHIP BETWEEN THE COMPANY AND CPC
AFTER THE DISTRIBUTION -- Tax Indemnification Agreement" at page 27, "--
Authorized But Unissued Capital Stock" below and "ANTI-TAKEOVER EFFECTS OF
CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE RIGHTS PLAN AND DELAWARE
LAW -- Preferred Stock" at page 59.
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<PAGE>
Under the Corn Products Charter a series of Preferred Stock designated
Series A Junior Participating Preferred Stock (the "Series A Preferred
Stock"), consisting of one million shares, is authorized in connection with
the Rights Plan. For a description of the Rights Plan and the Series A
Preferred Stock, see "-- Rights Plan" at page 55 and "ANTI-TAKEOVER EFFECTS OF
CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE RIGHTS PLAN AND DELAWARE
LAW" at page 57.
Authorized But Unissued Capital Stock
Based on the calculations set forth above, the Company estimates that,
following the Distribution, it will have approximately 164.5 million shares
(less the number of restricted shares of Corn Products Common Stock to be
issued to Corn Products Employees in substitution for restricted shares of CPC
Common Stock pursuant to the Employee Benefits Agreement) of authorized but
unissued Corn Products Common Stock (including the 3.5 million shares of Corn
Products Common Stock reserved for issuance pursuant to the Stock Incentive
Plan and the shares of Corn Products Common Stock issuable upon the exercise
of stock options to be issued to Corn Products Employees in substitution for
CPC stock options pursuant to the Employee Benefits Agreement) and 25,000,000
shares of authorized but unissued Preferred Stock (including the one million
shares designated as Series A Preferred Stock). The Employee Benefits
Agreement provides that the holders of CPC options and restricted stock shall
receive new options to acquire Corn Products Common Stock and new restricted
shares of Corn Products Common Stock based upon market prices as of future
dates for the CPC Common Stock and the Corn Products Common Stock;
accordingly, the exact number of shares that may be acquired pursuant to these
new options and the exact number of shares of Corn Products restricted stock
to be issued cannot be calculated at this time. See "THE DISTRIBUTION --
Treatment of Employee Options, Restricted Stock and Rabbi Trusts in the
Distribution" at page 25. Delaware law does not require stockholder approval
for the issuance of authorized shares. However, the listing requirements of
the NYSE, which apply so long as the Corn Products Common Stock remains listed
on the NYSE, require prior stockholder approval of certain issuances,
including issuances of shares bearing voting power equal to or exceeding 20%
of the pre-issuance outstanding voting power or pre-issuance outstanding
number of shares of Corn Products Common Stock. These additional shares could
be used for a variety of corporate purposes, including future public offerings
to raise additional capital or to facilitate corporate acquisitions. The
Company currently does not have any plans to issue additional shares of Corn
Products Common Stock or Preferred Stock other than in connection with
employee compensation plans. See "EXECUTIVE COMPENSATION; PENSION AND BENEFIT
PLANS" at page 46. Pursuant to the Tax Indemnification Agreement, the Company
has agreed to certain limitations on the issuance of additional Common Stock
for a two-year period following the Effective Date. See "RELATIONSHIP BETWEEN
THE COMPANY AND CPC AFTER THE DISTRIBUTION -- Tax Indemnification Agreement"
at page 27.
One of the effects of the existence of unissued and unreserved Corn
Products Common Stock and Preferred Stock may be to enable the Board of
Directors of the Company to issue shares to persons friendly to current
management, which issuance could render more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of the
Company's management and possibly deprive the stockholders of the opportunity
to sell their shares of Corn Products Common Stock at prices higher than
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company
pursuant to the operation of the Rights Plan, which is discussed below. See
"ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE
RIGHTS PLAN AND DELAWARE LAW" at page 57. The issuance of Corn Products Common
Stock or Preferred Stock, other than pursuant to the Rights Plan, is subject
to certain limitations under the Tax Indemnification Agreement. See
"RELATIONSHIP BETWEEN THE COMPANY AND CPC AFTER THE DISTRIBUTION -- Tax
Indemnification Agreement" at page 27.
No Preemptive Rights
No holder of any class of stock of the Company authorized at the time of
the Distribution will have any preemptive right to subscribe for or purchase
any kind or class of securities of the Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Corn Products Common Stock is
First Chicago Trust Company of New York.
54
<PAGE>
Rights Plan
In connection with the Distribution, the Company has adopted the Rights
Plan and has entered into a Rights Agreement (the "Rights Agreement"), dated
as of November 19, 1997, between the Company and First Chicago Trust Company
of New York, as Rights Agent (the "Rights Agent"). The Company has distributed
to CPC one Right for each outstanding share of Corn Products Common Stock
owned by CPC and will distribute one associated Right with each share of Corn
Products Common Stock distributed in the Distribution. The terms of the Rights
are set forth in the Rights Agreement. The Rights Agreement is substantially
the same as CPC's rights plan and the Rights will operate in substantially the
same manner as CPC's preferred share purchase rights. The Corn Products
Charter specifically authorizes the Corn Products Board to adopt a stockholder
rights plan such as the Rights Plan.
Each Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Preferred Stock at a purchase price
of $120.00, subject to adjustment (the "Purchase Price"). The Purchase Price
may be paid in cash or, subject to applicable law, in shares of Corn Products
Common Stock having a value at the time of exercise equal to the Purchase
Price.
Each share of Series A Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $5.00 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Corn Products Common Stock. In the event of liquidation, the holders of
shares of Series A Preferred Stock will be entitled to a minimum preferential
liquidation payment of $10.00 per share but will be entitled to an aggregate
payment of 100 times the payment made per share of Corn Products Common Stock.
Each share of Series A Preferred Stock will have 100 votes, voting together
with the Corn Products Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which Corn Products Common Stock is
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of Corn Products Common Stock. These
rights are protected by customary anti-dilution provisions. Because of the
nature of their dividend, liquidation and voting rights, the value of the
interest in the one one-hundredth of a share of Series A Preferred Stock
purchasable upon exercise of each Right should approximate the value of one
share of Corn Products Common Stock.
Until the earlier to occur of (i) the date that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of (x) 10% or more of the
outstanding shares of Corn Products Common Stock, if such date is on or before
December 31, 1999 or (y) 15% or more of the outstanding shares of Corn
Products Common Stock, if such date is after December 31, 1999 (the "Stock
Acquisition Date") and (ii) ten business days (or such later date as the Board
of Directors shall determine prior to such time as any person has become an
Acquiring Person) following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning (x) 10% or
more of the outstanding shares of Corn Products Common Stock, if such offer
would terminate on or before December 31, 1999, or (y) 15% or more of the
outstanding shares of Corn Products Common Stock, if such offer would
terminate after December 31, 1999 (the earlier of such dates being the "Rights
Separation Date"), the Rights will be evidenced by the certificates
representing shares of Corn Products Common Stock and no separate Rights
Certificates (defined below) will be issued and distributed. Except as
otherwise determined by the Board of Directors, only shares of Corn Products
Common Stock issued prior to the Rights Separation Date will be issued with
Rights.
Until the Rights Separation Date (or earlier redemption or expiration of
the Rights), the Rights will be transferred with and only with the Corn
Products Common Stock. Certificates representing shares of Corn Products
Common Stock issued after the Effective Date will contain a notation
incorporating the Rights Agreement by reference. As soon as practicable
following the Rights Separation Date, a separate Certificate evidencing the
Rights (a "Rights Certificate") will be mailed to holders of record of Corn
Products Common Stock as of the close of business on the Rights Separation
Date and such separate Rights Certificate alone will evidence the Rights.
Pursuant to the Rights Agreement, the Company reserves the right to require
prior to the occurrence of a Triggering Event (as defined below) that, upon
any exercise of Rights, a number of Rights be exercised so that only whole
shares of Series A Preferred Stock will be issued.
The Rights are not exercisable until the Rights Separation Date and will
expire at the close of business on December 31, 2007, unless previously
redeemed by the Company as described below.
55
<PAGE>
In the event that (i) the Company is the surviving corporation in a
merger with an Acquiring Person or any affiliate or associate thereof and the
Corn Products Common Stock is not changed or exchanged or (ii) any person
shall become an Acquiring Person (except pursuant to a tender offer or
exchange offer for all outstanding shares of Corn Products Common Stock at a
price and on terms which at least a majority of the outside directors
determine to be fair to the stockholders of the Company and otherwise in the
best interests of the Company and its stockholders), each holder of a Right
will thereafter have the right to receive, upon exercise, Corn Products Common
Stock (or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Right.
Notwithstanding any of the foregoing, following the occurrence of any of the
events set forth in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by
any Acquiring Person and certain related parties will become null and void.
To illustrate the rights described in the preceding paragraph, at an
exercise price of $120.00 per Right, each Right not owned by an Acquiring
Person (or by certain related parties) following an event set forth in the
preceding paragraph would entitle its holder to purchase $240.00 worth of Corn
Products Common Stock (or other consideration, as noted above) for $120.00.
Assuming that the Corn Products Common Stock has a per share value of $20.00
at such time, the holder of each Right would be entitled to purchase twelve
shares of Corn Products Common Stock for $120.00.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the Company is not the surviving corporation, (ii) the Company is the
surviving corporation in a merger with any person and the Corn Products Common
Stock is changed into or exchanged for stock or other securities of any other
person or cash or any other property or (iii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right (except
Rights that previously have been voided as set forth above) shall thereafter
have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the exercise price of the Right. The
events described in this paragraph and in the second preceding paragraph are
referred to as the "Triggering Events."
The Purchase Price payable, and the fraction of a share of Series A
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Stock, (ii) if holders of the
Series A Preferred Stock are granted certain rights or warrants to subscribe
for Series A Preferred Stock or convertible securities at less than the
current market price of the Series A Preferred Stock, or (iii) upon the
distribution to holders of the Series A Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. In addition, to the extent that the Company does not have sufficient
shares of Corn Products Common Stock issuable upon exercise of the Rights
following the occurrence of a Triggering Event, the Company may, under certain
circumstances, reduce the Purchase Price. No fractional shares of Series A
Preferred Stock (other than fractions which are integral multiples of one
one-hundredth) will be issued and, in lieu thereof, an adjustment in cash will
be made based on the market price of the Series A Preferred Stock or the Corn
Products Common Stock on the last trading date prior to the date of exercise.
At any time until the Stock Acquisition Date, the Company may redeem the
Rights in whole, but not in part, at a price of $0.01 per Right (payable in
cash, Corn Products Common Stock or other consideration deemed appropriate by
the Board of Directors). Immediately upon the action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and thereafter
the only right of the holders of Rights will be to receive the $0.01
redemption price. In addition, at any time after the Stock Acquisition Date,
the Company's Board of Directors may elect to exchange each Right (other than
Rights that have become null and void as described above), in whole or in
part, for one share of Corn Products Common Stock. Both the redemption price
and the exchange rate are subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will
56
<PAGE>
not be taxable to stockholders or to the Company, stockholders may, depending
upon the circumstances, recognize taxable income in the event that the Rights
become exercisable for Corn Products Common Stock (or other consideration) or
for common stock of an acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of
the Rights (except with respect to increasing the Purchase Price under certain
circumstances described in the Rights Agreement), any of the provisions of the
Rights Agreement may be amended by the Corn Products Board prior to the Stock
Acquisition Date. After the Stock Acquisition Date, the provisions of the
Rights Agreement may be amended by the Corn Products Board in order to cure
any ambiguity, to correct any defects or inconsistencies, to make changes
which do not adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person), or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time when
the Rights are not redeemable.
As long as the Rights are attached to the Corn Products Common Stock, the
Company will issue one Right for each share of Corn Products Common Stock
issued prior to the Rights Separation Date so that all such shares will have
attached Rights. One million shares of Series A Preferred Stock will initially
be reserved for issuance upon exercise of the Rights.
The Rights have certain anti-takeover effects. See "ANTI-TAKEOVER EFFECTS
OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE RIGHTS PLAN AND
DELAWARE LAW" below.
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the Rights Agreement, which is filed as an exhibit to
the Registration Statement and is incorporated herein by reference.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE
RIGHTS PLAN AND DELAWARE LAW
The Corn Products Charter, the Corn Products By-Laws, the Rights Plan and
the DGCL contain certain provisions that could make more difficult the
acquisition of control of the Company by means of a tender offer, open market
purchases, a proxy contest or otherwise. Set forth below is a description of
such provisions in the Corn Products Charter, the Corn Products By-Laws, the
Rights Plan and the DGCL. These provisions are based in large part upon the
provisions of CPC's Certificate of Incorporation and By-Laws. The following
description is intended as a summary only and is qualified in its entirety by
reference to the Corn Products Charter, the Corn Products By-Laws and the
Rights Agreement, the forms of which are included as exhibits to the
Registration Statement of which this Information Statement forms a part, and
to the DGCL.
Classified Board of Directors; Removal of Directors
The Corn Products Charter provides that the number of directors shall be
not less than seven nor more than seventeen, with the exact number of
directors to be determined from time to time by a majority of the entire Corn
Products Board. The directors shall be divided into three classes, as nearly
equal in number as is possible, serving staggered three-year terms so that
directors' initial terms will expire at the annual meeting of the Company's
stockholders held in 1998, 1999 and 2000, respectively. Starting with the 1998
annual meeting of the Company's stockholders, one class of directors will be
elected each year for a three-year term. See "MANAGEMENT -- Directors of the
Company" at page 42.
The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Corn Products Board and the
Company's business strategies and policies, since a majority of the directors
at any given time will have had prior experience as directors of the Company.
The Company believes that this in turn will permit the Board to represent more
effectively the interests of stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the members of the Board of Directors. As a result, the
classification of the Board of Directors of the Company may discourage proxy
contests for the election of directors, unsolicited tender offers or purchases
of a substantial block of the Corn Products Common Stock because it could
prevent an acquiror from obtaining control of the Corn Products Board in a
relatively short period of time. In addition, pursuant to the DGCL and the
Corn Products Charter, a director may be removed only for
57
<PAGE>
cause and only by the affirmative vote of holders of at least a majority of
the outstanding shares of Corn Products Common Stock entitled to vote thereon.
As a result, a classified Board of Directors delays stockholders who do not
agree with the policies of the Board of Directors from replacing directors,
unless they can demonstrate that the directors should be removed for cause and
obtain the requisite vote. Such a delay may help ensure that the Corn Products
Board, if confronted with a proxy contest or an unsolicited proposal for an
extraordinary corporate transaction, will have sufficient time to review the
proposal and appropriate alternatives to the proposal and to act in what it
believes is the best interest of the Company's stockholders.
Filling Vacancies on the Board
The Corn Products Charter provides that, subject to the rights of holders
of any shares of Preferred Stock, any vacancy in the Board of Directors that
results from an increase in the number of directors may be filled by a
majority of the directors then in office, provided that a quorum is present,
and any other vacancy may be filled by a majority of the directors then in
office, even if less than a quorum, or by the sole remaining director.
Accordingly, these provisions could temporarily prevent any stockholder from
obtaining majority representation on the Board of Directors by enlarging the
Board of Directors and filling the new directorships with its own nominees.
Written Consents and Special Meetings
The Corn Products Charter provides that no action required to be taken or
which may be taken at any annual or special meeting of stockholders may be
taken without a meeting, except by unanimous written consent of all of the
stockholders of the Company entitled to vote thereon. The Corn Products
By-Laws provide that special meetings of stockholders may be called only by
the Chairman of the Board or the Board of Directors. Stockholders are not
permitted to call a special meeting or to require that the Board of Directors
call a special meeting of stockholders. Moreover, the business permitted to be
conducted at any special meeting of stockholders is limited to the purpose or
purposes specified in the written notice of such meeting.
The provisions of the Corn Products Charter governing action by written
consent and the provisions of the Corn Products By-Laws governing the calling
of and matters considered at special meetings may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting. These
provisions would also prevent the holders of a majority of the voting power of
the outstanding shares of stock entitled to vote generally in the election of
directors from using the written consent procedure to take stockholder action
and from taking action by consent without giving all the stockholders entitled
to vote on a proposed action the opportunity to participate in determining
such proposed action.
Advance Notice Provisions for Stockholder Nominations and Proposals
The Corn Products By-Laws establish an advance notice provision with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors, or the bringing before any
annual meeting of any stockholder proposal (the "Nomination and Business
Proposal Provision").
The Nomination and Business Proposal Provision provides that, subject to
any rights of holders of any Preferred Stock, business other than that
proposed by the Board of Directors may be transacted and candidates for
director other than those selected by the Board of Directors may be nominated
at the annual meeting only if the Secretary of the Company has received a
written notice identifying such business or candidates and providing specified
additional information not less than sixty nor more than ninety days before
the first Tuesday in April (or, if the Board of Directors has set a different
date for the annual meeting, not less than sixty nor more than ninety days
before such other date or, if such other date has not been publicly disclosed
at least seventy-five days in advance, then not less than fifteen days after
such public disclosure). In addition, not more than ten days after receipt by
the sponsoring stockholder of the Secretary's written request, the sponsoring
stockholder must provide the Secretary with such additional information as the
Secretary may reasonably require.
By requiring advance notice of nominations by stockholders, the
Nominations and Business Proposal Provision will afford the Board of Directors
a meaningful opportunity to consider the qualifications of the proposed
58
<PAGE>
nominees and, to the extent deemed necessary or desirable by the Board of
Directors, to inform the stockholders about such qualifications. By requiring
advance notice of proposed business, the Nominations and Business Proposal
Provision will provide the Board of Directors with a meaningful opportunity to
inform stockholders, prior to such meeting, of any business proposed to be
conducted at such meeting, together with any recommendation or statement of
the Board of Directors' position as to action to be taken with respect to such
business, so as to enable stockholders better to determine whether they desire
to attend such a meeting or to grant a proxy to the Board of Directors as to
the disposition of any such business. Although the Corn Products By-Laws do
not give the Board of Directors any power to approve or disapprove stockholder
nominations for the election of directors or proposals for action, they may
have the effect of precluding a contest for the election of directors or the
consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
proposal without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to the Company and its stockholders.
Restrictions on Amendment
The Corn Products Charter provides that the approval of holders of at
least two-thirds of the voting power entitled to vote generally in the
election of directors, voting together as a single class, is required to
alter, amend or repeal the provisions of the Corn Products Charter classifying
the Corn Products Board; establishing the minimum and maximum number of
members of the Corn Products Board; limiting the ability of stockholders to
act by written consent; authorizing the Corn Products Board to adopt a
stockholder rights plan; and authorizing the Corn Products Board to consider
the interests of creditors, customers, employees and other constituencies of
the Corporation and its subsidiaries and the effect upon communities in which
the Corporation and its subsidiaries do business, in evaluating proposed
corporate transactions. In addition, the Corn Products Charter provides that
the approval of the Board of Directors or the affirmative vote of the holders
of 80% of the voting power entitled to vote generally in the election of
directors, voting together as a single class, is required to alter, amend or
repeal any of the provisions of the Corn Products By-Laws.
Preferred Stock
The Corn Products Charter authorizes the Board of Directors of the
Company to establish series of Preferred Stock and to determine, with respect
to any series of Preferred Stock, the terms and rights of such series,
including (i) the voting powers, if any, (ii) preferences and relative,
participating, optional and other special rights, and (iii) the
qualifications, limitations and restrictions thereof.
The Company believes that the availability of the Preferred Stock will
provide increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs that might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of Preferred Stock without the expense and delay of a special
stockholders' meeting. However, under the Tax Indemnification Agreement, the
Company generally cannot issue Preferred Stock (other than pursuant to the
Rights Plan) during the two-year period following the Effective Date. The
authorized shares of Preferred Stock, as well as shares of Common Stock, will
be available for issuance without further action by the stockholders, unless
such action is required by applicable law or the rules of any stock exchange
on which the Company's securities may be listed. Although the Board of
Directors has no intention at the present time of doing so, it would have the
power (subject to applicable law) to issue a series of Preferred Stock that
could, depending on the terms of such series, impede the completion of a
merger, tender offer or other takeover attempt. For instance, subject to
applicable law, such series of Preferred Stock might impede a business
combination by including class voting rights that would enable the holder to
block such a transaction. The Board of Directors will make any determination
to issue such shares based on its judgment as to the best interests of the
Company and its stockholders. The Board of Directors, in so acting, could
issue Preferred Stock having terms which could discourage an acquisition
attempt or other transaction that some, or a majority, of the stockholders
might believe to be in their best interest or in which stockholders might
receive a premium for their stock over the then market price of such stock.
See "DESCRIPTION OF CAPITAL STOCK -- Rights Plan" at page 55.
59
<PAGE>
Other Considerations
Article Twelfth of the Corn Products Charter generally provides that, in
determining whether to take or refrain from taking corporate action on any
matter, including proposing any matter to the stockholders of the Company, the
Corn Products Board may take into account the interests of creditors,
customers, employees and other constituencies of the Company and its
subsidiaries and the effect upon communities in which the Company and its
subsidiaries do business.
Certain Effects of the Rights Plan
The Rights Plan is designed to protect stockholders of the Company in the
event of unsolicited offers to acquire the Company and other coercive takeover
tactics which, in the opinion of the Board of Directors, could impair its
ability to represent stockholder interests. The provisions of the Rights
Agreement may render an unsolicited takeover of the Company more difficult or
less likely to occur or might prevent such a takeover, even though such
takeover may offer the Company's stockholders the opportunity to sell their
stock at a price above the then prevailing market rate and may be favored by a
majority of the Company's stockholders. See "DESCRIPTION OF CAPITAL STOCK --
Rights Plan" at page 55. The Corn Products Charter specifically authorizes the
Corn Products Board to adopt a stockholder rights plan.
Delaware Business Combination Statute
The terms of Section 203 of the DGCL apply to the Company. With certain
exceptions, Section 203 generally prohibits an "interested stockholder" from
engaging in a broad range of "business combination" transactions, including
mergers, consolidations and sales of 10% or more of a corporation's assets,
with a Delaware corporation for three years following the date on which such
person became an interested stockholder unless (i) the transaction that
results in the person's becoming an interested stockholder or the business
combination is approved by the board of directors of the corporation before
the person becomes an interested stockholder, (ii) upon consummation of the
transaction which results in the stockholder becoming an interested
stockholder, the interested stockholder owns 85% or more of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding shares owned by persons who are directors and also officers and
shares owned by certain employee stock plans, or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by holders of at least
two-thirds of the corporation's outstanding voting stock, excluding shares
owned by the interested stockholder, at a meeting of stockholders. Under
Section 203, an "interested stockholder" is generally defined as any person,
other than the corporation and any direct or indirect majority-owned
subsidiary, that is (a) the owner of 15% or more of the outstanding voting
stock of the corporation or (b) an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an
interested stockholder. Section 203 does not apply to a corporation that so
provides in an amendment to its certificate of incorporation or by-laws passed
by a majority of its outstanding voting shares, but such stockholder action
does not become effective for 12 months following its adoption and would not
apply to persons who were already interested stockholders at the time of the
amendment. The Corn Products Charter and Corn Products By-Laws do not exclude
the Company from the restrictions imposed under Section 203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors, because the
stockholder approval requirement would be avoided if the Board of Directors
approves either the business combination or the transaction which results in
the stockholder becoming an interested stockholder. Such provisions also may
have the effect of preventing changes in the Board of Directors. It is further
possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the DGCL, the Corn Products Charter and Corn Products
By-Laws contain provisions entitling directors and officers of the Company to
indemnification against certain losses, damages and expenses.
60
<PAGE>
Among other things, the Corn Products Charter provides that a director of the
Company shall not be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for payment of an improper dividend, or for an improper repurchase or
redemption of the stock of the corporation, in violation of Section 174 of the
DGCL, or (iv) for any transaction from which the director derived an improper
personal benefit. The Corn Products By-Laws also set forth certain rights of
the directors and officers of the Company to indemnification. These provisions
are intended to provide directors and officers of the Company with protection
against monetary damages from certain actions taken in their capacity as
officers and directors of the Company, including providing directors with
protection from liability from suits alleging breach of the duty of care.
These provisions do not eliminate such duty.
The indemnification and exculpation rights conferred by the Corn Products
Charter and Corn Products By-Laws are not exclusive of any other right to
which a person seeking indemnification may otherwise be entitled. The Company
intends to provide liability insurance for the directors and officers for
certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers and will enter into
indemnification agreements with each of its directors and officers to provide
the maximum indemnity protection permitted by Delaware law and the Corn
Products By-Laws and to establish procedures by which their right to
protection can be realized.
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has appointed KPMG Peat Marwick LLP
("KPMG") as the firm's independent accountants to audit the Company's
financial statements for the 1997 fiscal year. KPMG has audited the financial
statements that appear in this Information Statement and has served as CPC's
auditors throughout the periods covered by the financial statements included
in this Information Statement.
DIVIDEND POLICY
The Company's dividend policy will be set by the Board of Directors after
the Distribution. The Company currently intends to pay modest quarterly cash
dividends, although the declaration and payment of dividends is at the
discretion of the Company's Board of Directors and will be subject to the
Company's financial results and the availability of surplus funds to pay
dividends. The DGCL prohibits the Company from paying dividends or otherwise
distributing funds to its stockholders, except out of legally available funds.
The declaration of dividends and the amount thereof will depend on a number of
factors, including the Company's financial condition, capital requirements,
funds from operations, future business prospects and such other factors as the
Corn Products Board may deem relevant. No assurance can be given that the
Company will pay any dividends. See "RISK FACTORS -- Uncertainty of Dividends"
at page 19 and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" beginning at page 38.
61
<PAGE>
TABLE OF DEFINED TERMS
Defined Term Page
- ------------ ----
Acquiring Person ................................. 55
Active Business ................................. 28
ADM ............................................. 12
Arancia .......................................... 51
Authority ....................................... 15
Code ............................................. 16
Company .......................................... 1
Corn Products .................................... 1
Corn Products Board .............................. 3
Corn Products By-Laws ........................... 19
Corn Products Charter ........................... 19
Corn Products Common Stock ........................ 2
Corn Products Conversion Factor .................. 25
Corn Products Employee ........................... 25
Corn Products 401(k) Plan ........................ 50
Corn Purchasing Policy ........................... 13
Corn Refining Business ........................... 1
Coverage Date .................................... 29
CPC ............................................. 1
CPC Common Stock ................................. 2
CPC Conversion Factor ........................... 26
CPC Hourly Plan ................................. 29
CPC Stock Plans ................................. 22
Credit Facility ................................. 20
Debt Agreement .................................... 28
DGCL ............................................. 3
Disqualified Stock .............................. 28
Distribution .................................... 1
Distribution Agent .............................. 3
Distribution Agreement ........................... 22
Effective Date .................................... 3
Employee Benefits Agreement ..................... 29
Excess Benefits Plan .............................. 51
Excess Pension Plan .............................. 50
Exchange Act .................................... 27
Executive Officers .............................. 44
Foreign Spinoff Company ........................... 28
<PAGE>
Defined Term Page
- ------------ ----
IRS ............................................. 2
KPMG ............................................. 61
Named Executive Officers ........................ 46
National Starch ................................. 12
Nomination and Business Proposal Provision ...... 58
NYSE ............................................. 3
Pension Plan .................................... 50
post-Distribution Corn Products Market Price . 25
post-Distribution CPC Market Price ............... 26
pre-Distribution CPC Market Price ............... 25
Preferred Stock ................................. 53
Purchase Price .................................... 55
Rabbi Trusts .................................... 22
Record Date ....................................... 3
Registration Statement ........................... 27
Restricted Period ................................. 28
Rights .......................................... 9
Rights Agent .................................... 55
Rights Agreement ................................. 55
Rights Certificate .............................. 55
Rights Plan ....................................... 20
Rights Separation Date ........................... 55
Ruling .......................................... 2
Ruling Request .................................... 28
SEC ............................................. 27
Section 203 ....................................... 20
Securities Act .................................... 25
Series A Preferred Stock ........................ 54
Staley .......................................... 12
Stock Acquisition Date ........................... 55
Stock Incentive Plan .............................. 49
Tax Indemnification Agreement ..................... 27
Tax Sharing Agreement ........................... 27
Taxes ............................................. 27
Transition Services Agreement ..................... 29
Triggering Events ................................. 56
62
<PAGE>
INDEX TO CORN PRODUCTS COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Combined Financial Statements:
Independent Auditors' Report ............................................................ F-2
Combined Balance Sheets as of September 30, 1997, December 31, 1996 and December 31, 1995. F-3
Combined Statements of Income for the Nine Months ended September 30, 1997 and 1996 and
the Fiscal Years 1996, 1995 and 1994 ................................................. F-4
Combined Statements of Cash Flows for the Nine Months ended September 30, 1997 and 1996
and the Fiscal Years 1996, 1995 and 1994 .............................................. F-5
Combined Statement of Stockholders' Equity as of September 30, 1997, December 31, 1996,
December 31, 1995, and December 31, 1994 ................................................ F-6
Notes to Combined Financial Statements ................................................... F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Corn Products International, Inc.:
We have audited the accompanying combined balance sheets of Corn Products
International, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related combined statements of income, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
(signed) KPMG PEAT MARWICK LLP
September 16, 1997
New York, New York
F-2
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
At September 30, At December 31,
($ Millions) ------------------ -----------------------
1997 1996 1995
------------------ --------- -----------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents ................................. $ 35 $ 32 $ 31
Accounts receivable -- net ................................. 182 209 121
Due from CPC International Inc. -- net ..................... 10 8 6
Inventories ................................................ 147 162 113
Prepaid expenses .......................................... 16 8 5
Other current assets ....................................... 7 6 4
Deferred tax asset .......................................... 19 9 7
------- ------- -------
Total current assets ....................................... 416 434 287
Investments in and loans to unconsolidated affiliates ...... 164 149 82
Plants and properties -- net .............................. 1,051 1,057 920
Other assets ................................................ 11 23 17
------- ------- -------
Total Assets ................................................ $ 1,642 $ 1,663 $ 1,306
======= ======= =======
Liabilities and Stockholders' Equity
Current liabilities
Notes payable ............................................. $ 142 $ 156 $ 100
Current portion of long-term debt ........................... 6 6 1
Accounts payable .......................................... 102 83 100
Accrued liabilities ....................................... 78 42 55
------- ------- -------
Total current liabilities ................................. 328 287 256
------- ------- -------
Noncurrent liabilities .................................... 70 60 70
Long-term debt ............................................. 202 188 262
Deferred taxes on income .................................... 92 94 109
Minority stockholders' interest ........................... 9 9 9
Stockholders' equity
Cumulative translation adjustment ........................... (13) (12) (10)
Net stockholders' investment .............................. 954 1,037 610
------- ------- -------
Total stockholders' equity ................................. 941 1,025 600
------- ------- -------
Total Liabilities and Stockholders' Equity .................. $ 1,642 $ 1,663 $ 1,306
======= ======= =======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-3
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
($ Millions) Nine Months Ended
September 30, Years Ended December 31,
------------------------- -------------------------------------
1997 1996 1996 1995 1994
--------- ------------- --------- --------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales ............................................. $1,055 $ 1,144 $1,524 $ 1,387 $ 1,385
Cost of sales ....................................... 959 1,002 1,381 1,083 1,087
------- -------- ------- ------- --------
Gross profit .......................................... 96 142 143 304 298
------- -------- ------- ------- --------
Selling, general and administrative .................. 70 67 88 102 99
Restructuring charges - net ........................... 94 -- -- (37) 19
Spin-off Costs ....................................... 15 -- -- -- --
Equity in (earnings)/loss of unconsolidated affiliates . 1 (6) (10) (12) (8)
------- -------- ------- ------- --------
Expenses and other income - net ..................... 180 61 78 53 110
------- -------- ------- ------- --------
Operating income (loss) .............................. (84) 81 65 251 188
Financing costs ....................................... 22 21 28 28 19
------- -------- ------- ------- --------
Income (loss) before income taxes and minority
interest ............................................. (106) 60 37 223 169
Provision (benefit) for income taxes .................. (25) 22 12 86 67
Minority stockholders' interest ..................... 1 2 2 2 2
------- -------- ------- ------- --------
Net income (loss) .................................... $ (82) $ 36 $ 23 $ 135 $ 100
======= ======== ======= ======= ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-4
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
($ Millions) Nine Months Ended
September 30, Years Ended December 31,
------------------------ -------------------------------------
1997 1996 1996 1995 1994
---------- ----------- ---------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from (used for) operating
activities
Net income (loss) ................................. $ (82) $ 36 $ 23 $ 135 $ 100
Non-cash charges (credits) to net income
Depreciation and amortization ..................... 71 65 88 83 80
Restructuring charges - net ..................... 94 -- -- (37) 19
Spin-off Costs .................................... 15 -- -- -- --
Deferred taxes .................................... (12) 1 (17) (6) (12)
Other - net ....................................... (7) -- (23) 1 --
Equity in earnings of unconsolidated affiliates . 1 (1) (1) (9) 2
Changes in trade working capital
Accounts receivable and prepaid items ............ 25 (119) (95) (7) (38)
Inventories ....................................... 13 (41) (50) 10 (18)
Due (to) from CPC International Inc. ............ (2) (8) (2) 1 (7)
Accounts payable and accrued liabilities ......... (2) (43) (28) 3 22
------- ------- ------- ------- -------
Net cash flows from (used for) operating
activities ....................................... 114 (110) (105) 174 148
------- ------- ------- ------- -------
Cash flows from (used for) investing
activities
Capital expenditures paid ........................ (65) (150) (192) (188) (145)
Proceeds from the disposal of plants and
properties ....................................... 1 1 1 2 2
Proceeds from businesses sold ..................... -- -- -- 67 --
Investment in and loans to unconsolidated
affiliates ....................................... (19) (39) (60) (13) --
Businesses acquired .............................. -- -- -- -- (2)
------- ------- ------- ------- -------
Net cash flows used for investing activities ...... (83) (188) (251) (132) (145)
------- ------- ------- ------- -------
Net cash flows after investments .................. 31 (298) (356) 42 3
------- ------- ------- ------- -------
Cash flows from (used for) financing
activities
Net change in short-term debt ..................... (25) 88 55 73 (21)
New long-term debt ................................. 1 5 72 9 --
Repayment of long-term debt ........................ -- -- -- -- --
Net change in intercompany debt .................. 24 (125) (139) (24) 49
Dividends paid to parent ........................... 5 (21) (32) (106) (97)
Increase in transfers from CPC International -
net ............................................. (42) 393 436 16 67
Other liabilities (deposits) ..................... 9 (41) (35) (13) 1
------- ------- ------- ------- -------
Net cash flows from (used for) financing
activities ....................................... (28) 299 357 (45) (1)
------- ------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents ....................................... 3 1 1 (3) 2
Cash and cash equivalents, beginning of period 32 31 31 34 32
------- ------- ------- ------- -------
Cash and cash equivalents, end of period ......... $ 35 $ 32 $ 32 $ 31 $ 34
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-5
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative Net
translation stockholders'
adjustment investment Total
($ Millions) ------------- -------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1993 ...... $ (11) $ 495 $ 484
Net income ........................ -- 100 100
Dividends paid to parent ......... -- (97) (97)
Transfer from CPC, net ............ -- 67 67
Translation adjustment ............ (4) -- (4)
------- ------- -------
Balance, December 31, 1994 ...... (15) 565 550
------- ------- -------
Net income ........................ -- 135 135
Dividends paid to parent ......... -- (106) (106)
Transfer from CPC, net ............ -- 16 16
Translation adjustment ............ 5 -- 5
------- ------- -------
Balance, December 31, 1995 ...... (10) 610 600
------- ------- -------
Net income ........................ -- 23 23
Dividends paid to parent ......... -- (32) (32)
Transfer from CPC, net ............ -- 436 436
Translation adjustment ............ (2) -- (2)
------- ------- -------
Balance, December 31, 1996 ...... (12) 1,037 1,025
------- ------- -------
Net loss ........................ -- (82) (82)
Dividends paid to parent ......... -- 5 5
Transfer from CPC, net ............ -- (6) (6)
Translation adjustment ............ (1) -- (1)
------- ------- -------
Balance, September 30, 1997 ...... $ (13) $ 954 $ 941
------- ------- -------
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-6
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements
1. Basis of Presentation
On February 26, 1997, the Board of Directors of CPC International Inc.
("CPC") approved in principle 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, CPC
will distribute 100% of the Company's common stock (the "Corn Products Common
Stock") and each holder of CPC common stock will receive a pro rata share of
the Corn Products Common Stock in a special dividend (the "Distribution"). The
Company will become a separately traded, publicly held company.
CPC 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. See unaudited "PRO
FORMA FINANCIAL DATA" found at page 34 in this Information Statement for
discussion of the effect of the Distribution on the Company.
The Combined Balance Sheet at September 30, 1997 and the Combined
Statements of Income and Cash Flows for the nine months ended September 30,
1997 and September 30, 1996 have not been audited, but have been prepared in
conformity with generally accepted accounting principles as applied in the
Company's audited combined financial statements for the year ended December
31, 1996. In the opinion of management, this information includes all material
adjustments, of a normal and recurring nature, for a fair presentation. The
results for the nine month periods are not necessarily indicative of the
results expected for the full year.
2. Summary of Accounting Policies
Principles of combination -- Combined financial statements include the
accounts of the Company and its subsidiaries. The accounts of subsidiaries
outside of the U.S., except for those in Canada, are based on fiscal years
ending September 30.
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 $12.7 million and $10.1 million in 1996
and 1995, respectively. Outside the U.S., inventories generally are valued at
average cost.
Environmental contingencies -- The Company accounts for environmental
contingencies in accordance with 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."
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, 1996, undistributed earnings of
unconsolidated affiliates was $12.5 million, primarily representing companies
of which the Company owns 50% or less.
F-7
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
2. Summary of Accounting Policies -- (Continued)
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.
Revenue recognition -- The Company recognizes revenue when finished
products are shipped to unaffiliated customers with appropriate provisions for
product returns.
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.
Long-lived assets -- In 1996, the Company adopted FAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of," which did not have a material impact on the Company's
financial position or results of operations.
Commodities -- The Company follows a policy of hedging its exposure to
commodities fluctuations with commodities futures contracts for certain of its
key North American raw material purchases. Such raw materials 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.
Impact of new accounting pronouncements -- In February 1997, the
Financial Accounting Standards Board issued Statement No. 128 (FAS 128),
"Earnings Per Share," which superseded APB 15, "Earnings Per Share." FAS 128
requires a dual presentation of basic and diluted earnings per share on the
income statement for companies with complex capital structures. FAS 128 is
required to be adopted for year end 1997 and earlier application is not
permitted.
FAS 129, "Disclosure of Information About Capital Structure," was also
issued in February 1997. The Company does not expect its current disclosures
regarding capital structure to be materially different under this new
statement.
FAS 130, "Reporting Comprehensive Income," was issued in June 1997 and is
effective for the Company's 1998 fiscal year. This statement requires the
reporting of comprehensive income as part of a full set of financial
statements. The Company will comply with the requirements of this statement.
Also in June 1997, FAS 131, "Disclosure About Segments of an Enterprise
and Related Information," was issued and requires certain information be
reported about operating segments of an enterprise on an annual and interim
basis. This statement is effective for the Company's 1998 fiscal year. The
Company will comply with the requirements of this statement.
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.
F-8
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
2. Summary of Accounting Policies -- (Continued)
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.
3. Combined Statements of Cash Flows
Supplementary information for the combined statements of cash flows is
set forth below:
$ in millions 1996 1995 1994
- ------------- ------ ------ -----
Cash paid during the year for:
Interest .................. $ 19 $14 $ 5
Income taxes ............... 11 69 23
4. Financing Arrangements
Short-term
The Company had average quarter-end bank borrowings of $143.5 million and
$94.4 million outstanding in 1996 and 1995, respectively, with a weighted
average interest rate in 1996 and 1995 of 10.2% and 13.1%, respectively. The
maximum amount of these borrowings outstanding was $156.5 million and $100.4
million in 1996 and 1995, respectively. The majority of the short-term bank
borrowings pertained to the Company's international operations.
Long-term
At December 31, 1996 and 1995, long-term debt, including the current
portion of $6 million and $1 million, respectively, amounted to $194 million
and $263 million, respectively. Included in these amounts are amounts payable
by the Company to CPC of $96 million in 1996 and $235 million in 1995.
The balance of debt outstanding in 1996 consists of various borrowings by
the Company's Canadian operations of $62 million, by its Latin American
operations of $27 million and other borrowings of $9 million. In 1995, other
debt outstanding consists of various borrowings by the Company's Canadian
operations of $11 million, by its Latin American operations of $6 million and
other borrowings of $11 million.
At December 31, 1996, the Company was required to apply toward the
retirement of the principal of the third party indebtedness not less than the
following amounts: 1997 (included in current liabilities) $6 million; 1998, $5
million; 1999, $27 million; 2000, $32 million; and 2001, $13 million.
The Company's overall effective interest rate for 1996 was 8%. The
Company did not have any interest rate swaps outstanding at the end of 1996 or
1995.
5. Restructuring Charges -- Net and Spin-off Costs
In the second quarter of 1997, the Company recorded a $72 million pre-tax
restructuring charge and a spin-off charge from CPC of $14 million. 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
spin-off charge includes the direct costs of the spin-off including fees in
the legal, tax and investment banking areas. In the third quarter of 1997, the
Company recorded additional restructuring costs in the amount of $22 million
and $1 million for
F-9
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
5. Restructuring Charges -- Net and Spin-off Costs -- (Continued)
additional spin-off costs. The increase in the third quarter was due to the
finalization of plans regarding the spin-off elements. The majority of the
restructuring will take place in the Company's international operations. The
restructuring charge and the charge for the spin-off costs are summarized
below:
<TABLE>
<CAPTION>
($ in millions)
- --------------- To be Utilized in
1997 Charge Charge Utilized Future Periods
------------- ----------------- ------------------
<S> <C> <C> <C>
Spin-off costs ..................... $15 $ 3 $12
---- ---- ----
Restructuring charge -- net
Employee costs ..................... 54 8 46
Plant and support facilities ...... 23 15 8
Other .............................. 17 7 10
---- ---- ----
Total .............................. $94 $30 $64
==== ==== ====
</TABLE>
In 1995, the Company recorded a $15 million pre-tax charge to realign
production at several corn refining facilities worldwide. This was in addition
to the $19 million pre-tax restructuring charge recorded in June 1994. Both
charges were utilized by December 31, 1996.
Also in 1995, the Company recorded a pre-tax gain of $52 million from the
sale of a 50% interest in an ethanol business in the U.S. This gain, combined
with the 1995 charge mentioned above, resulted in a net gain of $37 million,
$23 million after taxes. For the 1994 restructuring charge, the net impact on
results was $11 million.
6. Pension Plans
The Company and its subsidiaries have a number of defined-benefit pension
plans covering substantially all U.S. employees and certain groups of
employees in foreign countries. Plans covering salaried employees generally
provide benefits based on the employee's final salary level or on the average
salary level for a specified period. Plans covering hourly employees generally
provide benefits of stated amounts for each year of service. The Company's
general funding policy is to contribute annually the maximum amount that can
be deducted for income tax purposes. 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. The components of
net periodic pension cost are as follows:
U.S. Plans
<TABLE>
<CAPTION>
$ in millions 1996 1995 1994
- ------------- ---------- ---------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the period) ...... $ 3 $ 2 $ 2
Interest cost on projected benefit obligation ......... 7 7 4
Actual return on plan assets ........................... (15) (17) (3)
Net amortization and deferral ........................ 8 11 (2)
------ ------ ------
Net periodic pension cost .............................. $ 3 $ 3 $ 1
====== ====== ======
International Plans
$ in millions 1996 1995 1994
- ------------- ------ ------ ------
Service cost (benefits earned during the period) ...... $ 1 $ 1 $ 1
Interest cost on projected benefit obligation ......... 3 2 2
Actual return on plan assets ........................... (3) (2) (2)
------ ------ ------
Net periodic pension cost .............................. $ 1 $ 1 $ 1
====== ====== ======
</TABLE>
F-10
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
6. Pension Plans -- (Continued)
The funded status for the Company's major pension plans based on
valuations as of September 30 is as follows:
<TABLE>
<CAPTION>
Assets exceed Accumulated benefits
accumulated benefits exceed assets
U.S. Plans ----------------------- -------------------------
$ in millions 1996 1995 1996 1995
- ------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested ............................................. $ (75) $ (80) $ (6) $ (5)
Nonvested .......................................... (2) (2) (4) (4)
------- ------- ------- ------
Accumulated benefit obligation ........................ (77) (82) (10) (9)
Effect of projected future compensation levels ...... (29) (14) -- --
------- ------- ------- ------
Projected benefit obligation ........................ (106) (96) (10) (9)
Plan assets at fair value ........................... 110 90 -- --
------- ------- ------- ------
Plan assets in excess of (less than) projected benefit
obligation .......................................... 4 (6) (10) (9)
Unrecognized net loss (gain) ........................ (8) 2 -- --
Unrecognized prior service cost ..................... 5 5 -- --
Unrecognized net transition obligation ............... 1 1 2 2
------- ------- ------- ------
Prepaid pension cost at December 31 .................. $ 2 $ 2 $ (8) $ (7)
======= ======= ======= ======
International Plans
$ in millions 1996 1995
- ------------- ------- -------
Actuarial present value of benefit obligation:
Vested ............................................. $ (25) $ (21)
Nonvested .......................................... (2) (1)
------- -------
Accumulated benefit obligation ........................ (27) (22)
Effect of projected future compensation levels ...... (4) (2)
------- -------
Projected benefit obligation ........................ (31) (24)
Plan assets at fair value ........................... 31 26
------- -------
Plan assets in excess of (less than) projected benefit
obligation .......................................... -- 2
Unrecognized prior service cost ..................... 1 1
Unrecognized net transition obligation ............... 3 ---
------- -------
Prepaid pension cost at December 31 .................. $ 4 $ 3
======= =======
Assumptions (reflecting averages across all plans):
U.S. Plans
1996 1995 1994
------- ------- -------
Weighted average discount rates ..................... 7.0% 6.6% 7.7%
Rate of increase in compensation levels ............... 5.5% 5.3% 6.3%
Long-term rate of return on plan assets ............... 8.6% 9.7% 8.6%
======= ======= =======
International Plans
1996 1995 1994
------- ------- -------
Weighted average discount rates ..................... 8.2% 8.0% 10.0%
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%
======= ======= =======
</TABLE>
F-11
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
6. Pension Plans -- (Continued)
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
1996, 1995 and 1994 was $2.9 million, $2.7 million and $2.6 million,
respectively.
7. Other Postretirement and Postemployment Benefits
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for its domestic and certain foreign retired
employees. Substantially all of the Company's domestic employees become
eligible for these benefits when they meet minimum age and service
requirements. The Company has the right to modify or terminate these benefits.
The following is a summary of the status of the Company's major
postretirement benefit plans based on valuations as of September 30, 1996 and
1995:
<TABLE>
<CAPTION>
$ in millions 1996 1995
- ------------- ---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees ................................................ $ (27) $ (37)
Fully eligible active plan participants ............... (11) (11)
Other active plan participants ........................ (13) (12)
------- -------
Total ................................................... (51) (60)
------- -------
Unrecognized prior service cost ........................ (1) (2)
Unrecognized net gain .................................... -- 1
------- -------
Accrued postretirement benefit cost at December 31 ...... $ (52) $ (61)
======= =======
</TABLE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
$ in millions 1996 1995 1994
- ------------- -------- ------ ------
<S> <C> <C> <C>
Service cost (benefits earned during the year) ........................ $ 1 $ 1 $ 1
Interest cost on the accumulated postretirement benefit obligation ... 4 4 3
Net amortization and deferral ....................................... (1) -- 1
----- ---- ----
Net periodic postretirement benefit ................................. $ 4 $ 5 $ 5
===== ==== ====
</TABLE>
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 by $7 million,
with a corresponding effect on the service and interest cost components of the
net periodic postretirement benefit cost of less than $1 million. The discount
rate used to determine the APBO for 1996 and 1995 is 7.0% and 6.5%,
respectively.
8. Investments in and Advances to Unconsolidated Affiliates
During the first quarter of 1995, the Company's Mexican operations
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 1996, the Company loaned this joint venture
$60 million for the construction of a new plant.
F-12
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
9. Supplementary Balance Sheet and Income Statement Information
Supplementary Balance Sheet and Income Statement information is set forth
below:
<TABLE>
<CAPTION>
$ in millions 1996 1995
- ------------- ------------- -------------
<S> <C> <C>
Accounts receivable -- net
Accounts receivable -- trade .......................................... $ 149 $ 125
Accounts receivable -- other accounts receivable ..................... 63 (1)
Allowance for doubtful accounts ....................................... (3) (3)
--------- ---------
Total accounts receivable -- net .................................... 209 121
--------- ---------
Inventories
Finished and in process ............................................. 69 37
Raw materials ......................................................... 65 34
Manufacturing supplies ................................................ 28 42
--------- ---------
Total inventories ...................................................... 162 113
--------- ---------
Plants and properties
Land .................................................................. 50 49
Buildings ............................................................ 480 471
Machinery and equipment ................................................ 1,587 1,417
Accumulated depreciation ............................................. (1,060) (1,017)
--------- ---------
Plants and properties, net .......................................... 1,057 920
--------- ---------
Accrued liabilities
Compensation expenses ................................................ 3 3
Capital additions ................................................... 8 8
Accrued interest ...................................................... 3 2
Restructuring reserves ................................................ -- 14
Taxes payable other than taxes on income .............................. 11 9
Other ............................................................... 17 19
--------- ---------
Total accrued liabilities ............................................. 42 55
--------- ---------
Noncurrent liabilities
Employees' pension, indemnity, retirement, and related provisions ...... 58 65
Restructuring reserves ................................................ -- 3
Other noncurrent liabilities .......................................... 2 2
--------- ---------
Total noncurrent liabilities .......................................... 60 70
========= =========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$ in millions 1996 1995 1994
- ------------- ---------- ---------- ----------
Depreciation expense .................................................. $ 88 $ 82 $ 79
Amortization expense .................................................. -- 1 1
----- ----- -----
Interest expense ..................................................... 37 34 26
Interest expense capitalized ......................................... (8) (3) (2)
Interest income ..................................................... (1) (3) (5)
----- ----- -----
Interest expense -- net ............................................... $ 28 $ 28 $ 19
===== ===== =====
</TABLE>
F-13
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
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 September 30, 1997, the Company had open corn commodity futures
contracts of $49 million to cover some of its requirements. Contracts open for
delivery beyond December 31, 1997, amounted to $26 million, of which $25
million is due in March 1998, and $1 million in December 1998. At September
30, 1997, the price of corn under these contracts was $2.4 million below
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.
At December 31, 1996, the Company had open corn commodity futures
contracts of $202 million to cover its requirements. Contracts open for
delivery beyond March 31, 1997, amounted to $115 million, of which $87 million
was due in May 1997, and $28 million in July 1997. At December 31, 1996, the
price of corn under these contracts was $33.4 million in excess of market
quotations of the same date.
11. Income Taxes
Income before income taxes and the components of the provision for income
taxes are shown below:
$ in millions 1996 1995 1994
- ------------- ---------- ----------- ---------
Income (loss) before income taxes:
United States .................. $ (20) $ 136 $ 86
Outside the United States ...... 57 87 83
------- ------ ------
Total ........................ $ 37 $ 223 $ 169
------- ------ ------
Provision for income taxes:
Current tax expense
U.S. federal .................. 27 57 29
State and local ............... (2) 12 11
Foreign ........................ 4 23 39
------- ------ ------
Total current ............... $ 29 $ 92 $ 79
------- ------ ------
Deferred tax expense (benefit)
U.S. federal .................. (22) (11) --
State and local ............... 1 (3) (5)
Foreign ........................ 4 8 (7)
------- ------ ------
Total deferred ............... (17) (6) (12)
------- ------ ------
Total provision .................. $ 12 $ 86 $ 67
======= ====== ======
F-14
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
11. Income Taxes -- (Continued)
The tax effects of significant temporary differences which comprise the
deferred tax liabilities and assets at December 31, 1996 and 1995, are as
follows:
$ in millions 1996 1995
- ------------- ----------- -----------
Plants and properties ............... $ 121 $ 130
Pensions ........................... 1 1
------ ------
Gross deferred tax liabilities ...... 122 131
------ ------
Restructuring reserves ............... -- 4
Employee benefit reserves ............ 28 24
Other .............................. 17 4
------ ------
Gross deferred tax assets ............ 45 32
------ ------
Valuation allowance .................. (8) (3)
------ ------
Total deferred tax liabilities ...... $ 85 $ 102
====== ======
Total net deferred tax liabilities and assets shown above included
current and noncurrent elements.
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ---------- ----------
<S> <C> <C> <C>
Provision for tax at U.S. statutory rate ...... 35.0% 35.0% 35.0%
Taxes related to foreign income ............... (0.6) 0.2 0.3
State and local taxes -- net .................. (0.5) 1.4 --
Other items -- net ........................... (0.3) 1.9 4.2
----- ------ ------
Provision at effective tax rate ............... 33.6% 38.5% 39.5%
===== ====== ======
</TABLE>
The effective tax rate in 1996 was lower due to a decrease in the tax
rate in certain foreign jurisdictions and an increase in the proportion of
Company income earned overseas. This foreign income, on average, was taxed at
a lower rate than domestic income in 1996.
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, 1996, approximately $190 million of retained earnings of
foreign subsidiaries are retained indefinitely by the subsidiaries for capital
and operating requirements.
12. Leases
The Company leases rail cars and certain machinery and equipment under
various operating leases. Rental expense for operating leases was $12.2
million, $8.9 million and $7.9 million in 1996, 1995 and 1994, respectively.
Minimum lease payments existing at December 31, 1996 were as follows:
Minimum
Year Lease Payment
-------- -------------
1997 $ 15.1
1998 13.8
1999 12.0
2000 9.6
After 2000 31.2
13. Related Party Transactions
CPC maintains a centralized cash management system to finance its
domestic operations. Cash deposits from the Company are transferred to CPC on
a daily basis and CPC funds the Company's disbursement bank accounts as
required.
F-15
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
13. Related Party Transactions -- (Continued)
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 $9.3 million, $14.3 million and $16.7
million in fiscal years 1996, 1995 and 1994, respectively. These costs could
have been different had the Company operated as an independent public company
during the periods presented.
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.
The Company had intercompany sales with CPC amounting to the following:
for the nine months ended September 30, 1997 and 1996, $123 million and $124
million, respectively, and for the years ended December 31, 1996 and 1995,
$157 million and $154 million, respectively.
14. Stockholders' Equity
Common Stock
The Company has authorized 200,000,000 shares of $0.01 par value common
stock. Based on the 142.0 million and 141.9 million shares of CPC common stock
outstanding as of December 31, 1996 and 1995 (excluding shares held by the
Rabbi Trusts and restricted shares of CPC Common Stock), and a distribution
ratio of one share of Corn Products Common Stock for every four shares of CPC
common stock, approximately 35.5 million and 35.6 million shares would have
been issued if the distribution had occurred on December 31, 1996 and 1995,
respectively.
Preferred Stock and Stockholder's Rights Plan
The Company has authorized 25,000,000 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.
F-16
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
14. Stockholders' Equity -- (Continued)
Employee Stock Ownership Plan (ESOP)
CPC maintained an ESOP as part of its Savings/Retirement Plan covering
U.S. salaried employees. The Company will not offer an ESOP to its employees.
All vested account balances in the CPC ESOP associated with employees of the
Company will be transferred to accounts in the Corn Products 401(k) Plan in
the form of CPC common stock, and in cash for fractional shares.
Stock Option Plan
CPC maintained stock and performance plans for certain key employees. The
Company will establish its own stock option plan at a later date. In addition,
the Employee Benefits Agreement provides that all existing CPC stock options
of Company employees will be converted to stock options to acquire Corn
Products Common Stock. These stock options will retain their vesting schedules
and existing expiration dates. The number of stock options, and the option
price, will be calculated pursuant to the following formula: (i) the number of
shares of Corn Products Common Stock covered by the substitute option shall be
equal to the pre-Distribution number of shares of CPC common stock covered by
the CPC option multiplied by a fraction, the numerator of which is the
pre-Distribution CPC Market Price and the denominator of which is the
post-Distribution Corn Products Market Price (the "Corn Products Conversion
Factor"), and (ii) the exercise price under the substituted option shall be
equal to the pre-Distribution exercise price under the CPC option multiplied
by a fraction, the numerator of which is the post-Distribution Corn Products
Market Price and the denominator of which is the pre-Distribution CPC Market
Price. For this purpose, the "pre-Distribution CPC Market Price" means the
average of the high and low prices of CPC common stock on the New York Stock
Exchange, Inc. (the "NYSE") for each of the ten trading days prior to the
first day on which there is trading in CPC common stock on a post-Distribution
basis, and the "post-Distribution Corn Products Market Price" means the
average of the high and low prices of Corn Products Common Stock on the NYSE
for each of the ten trading days beginning on the first day on which there is
trading in Corn Products Common Stock, including on a "when issued" basis.
Under the provisions of FAS 123, the Company accounts for stock-based
compensation using the intrinsic value method prescribed by APB 25. The pro
forma information required by FAS 123 is set forth below. For purposes of this
pro forma disclosure, the estimated fair value of the awards is amortized to
expense over the awards' vesting period.
$ Millions, except per share 1996 1995
- ----------------------------- ------ ------
Pro forma net income .................... $22 $134
The fair value of the awards was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.2%
and 5.5%; dividend yields of 2.3% and 2.4%; volatility factors of 16.4% and
17.2%; and a weighted averaged expected life of the awards of 5 years.
The Black-Scholes model requires the input of highly subjective
assumptions and does not necessarily provide a reliable measure of fair value.
F-17
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
14. Stockholders' Equity -- (Continued)
The following table summarizes the historical activity of CPC's stock and
performance plan as it relates to the Company's employees, without adjustment
for the four-to-one distribution ratio:
<TABLE>
<CAPTION>
Number of options 1996 1995 1994
- -------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Outstanding beginning of year ...... 362,608 322,885 253,961
Granted ........................... 170,307 111,924 94,850
Exercised ........................... (75,507) (34,626) (5,650)
Canceled ........................... (16,469) (37,575) (20,276)
--------- --------- --------
Outstanding end of year ............ 440,939 362,608 322,885
--------- --------- --------
Exercisable at year-end ............ 215,885 213,354 128,388
--------- --------- --------
Weighted average fair value of
options granted .................. $ 9.33 $ 11.74 --
Weighted average exercise price:
Outstanding beginning of year ...... $ 49.32 $ 44.31 --
Granted ........................... 71.10 59.20 --
Exercised ........................... 42.33 38.47 --
Canceled ........................... 52.50 46.25 --
Outstanding end of year ............ $ 58.86 $ 49.32 --
--------- --------- --------
</TABLE>
The following tables summarize information about stock and performance
plan awards outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------ --------------------------------------------
Range of Average Average Weighted
Exercise Number Remaining Exercise Number Average
Prices Outstanding Life Price Exercisable Exercise Price
- ------------------ ------------- ----------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
25.63-47.81 109,593 4.7 $ 48.83 87,593 $ 43.23
47.88-56.00 125,968 7.0 52.33 93,218 51.98
65.94-69.94 68,633 7.5 68.15 19,700 65.94
70.00-77.06 136,745 7.4 71.82 15,374 70.94
----------- ------- --- -------- ------- -------
25.63-77.06 440,939 6.6 $ 58.72 215,885 $ 51.06
=========== ======= === ======== ======= =======
</TABLE>
In addition to stock options, 7,450 shares were awarded to employees in
1996 under the restricted stock award provisions of the 1993 plan. The cost of
these awards is being amortized over the restriction period.
F-18
<PAGE>
CORN PRODUCTS INTERNATIONAL, INC.
Notes to Combined Financial Statements -- (Continued)
15. Geographic Information
The Company operates in the U.S., Canada, Latin America and Asia.
Information concerning operations by geographic area is as follows:
($ in millions) 1996 1995 1994
- --------------- --------- --------- --------
Sales to Unaffiliated Customers:
United States ............... $ 830 $ 737 $ 788
Canada ........................ 216 184 145
-------- -------- --------
North America ............... 1,046 921 933
Latin America ............... 406 401 399
Asia ........................ 72 65 53
-------- -------- --------
Total ........................ $ 1,524 $ 1,387 $ 1,385
======== ======== ========
Operating Income:
United States ............... $ 1 $ 159 $ 107
Canada ........................ 9 38 26
-------- -------- --------
North America ............... 10 197 133
Latin America ............... 44 44 40
Asia ........................ 11 10 15
-------- -------- --------
Total ........................ $ 65 $ 251 $ 188
======== ======== ========
Assets:
United States ............... $ 788 $ 651 $ 648
Canada ........................ 204 162 157
-------- -------- --------
North America ............... 992 813 805
Latin America ............... 610 442 357
Asia ........................ 61 51 45
-------- -------- --------
Total ........................ $ 1,663 $ 1,306 $ 1,207
======== ======== ========
16. Quarterly Financial Data
Summarized quarterly financial data is as follows:
($ in millions) 1st Q 2nd Q 3rd Q 4th Q
- --------------- ----- ----- ----- -----
1996
Net sales ............... $ 349 $ 395 $ 400 $ 380
Gross profit ............ 57 48 37 1
Net income (loss) ...... 15 14 8 (14)
1995
Net sales ............... $ 341 $ 363 $ 368 $ 315
Gross profit ............ 77 78 78 71
Net income ............ 21 27 57 30
F-19
<PAGE>
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
<TABLE>
<CAPTION>
<S> <C>
Item 10. Recent Sales of Unregistered Securities.
None.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(b) Exhibits The following documents are filed as exhibits hereto:
Exhibit No. Description
- ------------- -----------
<S> <C>
2.1 Form of Distribution Agreement.+
3.1 Amended and Restated Certificate of Incorporation of Corn Products International, Inc.+
3.2 Amended By-Laws of Corn Products International, Inc.+
4.1 Form of Rights Agreement.+
4.2 Certificate of Designation for Registrant's Series A Junior Participating Preferred Stock.+
10.1 Form of Master Supply Agreement.+
10.2 Form of Tax Sharing Agreement.+
10.3 Form of Tax Indemnification Agreement.+
10.4 Form of Debt Agreement.+
10.5 Form of Transition Services Agreement.+
10.6 Form of Master License Agreement.+
10.7 Form of Distribution Agreement (filed as Exhibit 2.1).
10.8 Form of Employee Benefits Agreement.+
10.9 Form of Access Agreement.+
10.10 Form of Stock Incentive Plan.+
10.11 Form of Severance Agreement.+
21.1 List of Subsidiaries.+
</TABLE>
- ------------
+Previously filed.
II-1
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 3 to the
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
CORN PRODUCTS INTERNATIONAL, INC.
By: /s/ Marcia E. Doane
-------------------------
Name: Marcia E. Doane
Title: Vice President, General Counsel and
Corporate Secretary
December 4, 1997
II-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
- -------------
<S> <C>
2.1 Form of Distribution Agreement.+
3.1 Amended and Restated Certificate of Incorporation of Corn Products International, Inc.+
3.2 Amended By-Laws of Corn Products International, Inc.+
4.1 Form of Rights Agreement.+
4.2 Certificate of Designation for Registrant's Series A Junior Participating Preferred Stock.+
10.1 Form of Master Supply Agreement.+
10.2 Form of Tax Sharing Agreement.+
10.3 Form of Tax Indemnification Agreement.+
10.4 Form of Debt Agreement.+
10.5 Form of Transition Services Agreement.+
10.6 Form of Master License Agreement.+
10.7 Form of Distribution Agreement (filed as Exhibit 2.1).
10.8 Form of Employee Benefits Agreement.+
10.9 Form of Access Agreement.+
10.10 Form of Stock Incentive Plan.+
10.11 Form of Severance Agreement.+
21.1 List of Subsidiaries.+
</TABLE>
- ------------
+Previously filed.
