<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus dated August 11, 1999)
$200,000,000
CORNPRODUCTS INTL LOGO
8.45% SENIOR NOTES DUE 2009
-------------------------
We will pay interest on the notes each February 15 and August 15 beginning
on February 15, 2000. We may redeem all or any portion of the notes at any time
at the redemption price described in this prospectus supplement. There is no
sinking fund for the notes. The notes are unsecured and rank equally with all of
our other unsecured, senior indebtedness.
The notes will be represented by one or more global securities registered
in the name of The Depository Trust Company. Except as described in this
prospectus supplement, notes in definitive form will not be issued. Payment for
the notes will be made in immediately available funds.
The notes will be delivered through The Depository Trust Company on or
about August 23, 1999.
<TABLE>
<CAPTION>
Per
Note Total
-------- ------------
<S> <C> <C>
Public Offering Price....................................... 99.844% $199,688,000
Underwriting Discount....................................... 0.650% $ 1,300,000
------ ------------
Proceeds to Corn Products (before expenses)................. 99.194% $198,388,000
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
<TABLE>
<CAPTION>
Joint Lead Manager
Sole Book-Running Manager
<S> <C>
LEHMAN BROTHERS SALOMON SMITH BARNEY
</TABLE>
August 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
--------------------- ----
<S> <C>
Prospectus Supplement Summary...... S-3
Use of Proceeds.................... S-7
Capitalization..................... S-7
Recent Developments................ S-8
Business........................... S-8
Management's Discussion and
Analysis of Results of Operations
and Financial Condition.......... S-17
Management......................... S-25
Description of the Notes........... S-27
Underwriting....................... S-29
Legal Matters...................... S-30
Index to Financial Statements...... F-1
</TABLE>
<TABLE>
<CAPTION>
PROSPECTUS PAGE
---------- ----
<S> <C>
About this Prospectus.............. 2
Where You Can Find More
Information...................... 2
Corn Products International,
Inc.............................. 3
Use of Proceeds.................... 4
Ratio of Earnings to Fixed
Charges.......................... 4
Description of Debt Securities..... 5
Plan of Distribution............... 12
Legal Matters...................... 13
Experts............................ 13
</TABLE>
-------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL INFORMATION OR INFORMATION
THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL
THESE SECURITIES. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF THE DATE
ON THE FRONT COVER OF THIS PROSPECTUS SUPPLEMENT AND THE DATE OF THE PROSPECTUS
ONLY.
-------------------------
This prospectus supplement and the prospectus contain certain
forward-looking statements concerning our 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. These statements contain certain inherent risks and uncertainties.
Although we believe our expectations reflected in such forward-looking
statements are based on reasonable assumptions, you 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 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 we
manufacture and sell our products, including fluctuations in the value of local
currencies; increased competitive and/or customer pressure in the corn refining
industry; and Year 2000 preparedness. Forward-looking statements speak only as
of the date on which they are made and we do not undertake any obligation to
update any forward-looking statement to reflect events or circumstances after
the date of this prospectus supplement. If we do update or correct one or more
forward-looking statements, you should not conclude that we will make additional
updates or corrections.
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PROSPECTUS SUPPLEMENT SUMMARY
The following is a summary and does not contain all of the information that
may be important to you. You should read the entire prospectus and this
prospectus supplement, as well as the documents incorporated by reference in the
prospectus and the prospectus supplement, before deciding to purchase any notes.
Unless the context indicates otherwise, references to "us", "we" or "Corn
Products" refer to the corn refining and related businesses of Bestfoods,
formerly CPC International, Inc., for periods prior to January 1, 1998 and to
Corn Products International, Inc. and its subsidiaries for the periods on or
after such date.
THE COMPANY
Corn Products International, Inc., together with its subsidiaries, produces
a large variety of food ingredients and industrial products derived from the wet
milling of corn and other starch-based materials (such as tapioca and yucca). We
are one of the largest corn refiners in the world and the leading corn refiner
in South America. We are also the world's leading producer of dextrose and have
a strong regional leadership in corn starch. Our consolidated operations are
located in 14 countries with 26 plants and we had consolidated net sales of
approximately $1.45 billion in 1998. We also hold interests through equity
participation and technical licenses in unconsolidated joint ventures and allied
operations in 8 other countries, which operate an additional 15 plants. Over 60%
of our 1998 revenues were generated in North America, which includes our
operations in the United States, Canada and Mexico, with the remainder coming
from South America, Asia and Africa.
In December 1997, Bestfoods, formerly CPC International Inc., transferred
the assets and liabilities of its corn refining and related businesses to Corn
Products, which at the time was a wholly-owned subsidiary of Bestfoods. On
December 31, 1997, Bestfoods distributed all of the common stock of Corn
Products to holders of common stock of Bestfoods. Since that time, we have
operated as an independent company whose common stock is traded on the New York
Stock Exchange.
S-3
<PAGE> 4
THE OFFERING
Issue........................... $200,000,000 aggregate principal amount of
8.45% Senior Notes due 2009.
Maturity Date................... August 15, 2009.
Interest Rate................... 8.45% per annum, accruing from August 23,
1999.
Interest Payment Dates.......... February 15 and August 15 of each year,
commencing February 15, 2000.
Optional Redemption............. We may redeem the notes at any time at our
option, in whole or in part, at a redemption
price equal to the greater of: (i) 100% of
the principal amount of the notes being
redeemed; and (ii) the sum of the present
values of the remaining scheduled payments
of principal and interest on the notes being
redeemed from the redemption date to the
maturity date discounted to the date of
redemption on a semi-annual basis (assuming
a 360-day year consisting of twelve 30-day
months) at a discount rate equal to the
Treasury Rate plus 25 basis points.
Ranking......................... The notes are unsecured obligations and will
rank equally with our other unsecured,
senior debt. At June 30, 1999, we had
approximately:
- $496 million of indebtedness outstanding
on a consolidated basis;
- $271 million of which would be
structurally senior to the notes,
including $264 million of foreign
affiliate indebtedness.
Restrictive Covenants........... The indenture governing the notes restricts
us from creating or incurring secured debt,
subject to certain exceptions, or effecting
certain sales and leaseback transactions,
but in either case, only to the extent that
the related debt would exceed 10% of
consolidated net tangible assets.
Use of Proceeds................. We expect to use the net proceeds of the
offering, estimated to be approximately
$198.4 million, to repay short term
indebtedness.
S-4
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SUMMARY HISTORICAL FINANCIAL INFORMATION
You should read the following selected historical financial data of Corn
Products in conjunction with the historical financial statements and notes
thereto included elsewhere in this prospectus supplement. The historical
financial statements may not reflect the results of operations or financial
positions that we would have obtained had we been a separate, independent
company prior to our separation from Bestfoods.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------------
1999 1998 1998 1997 PF 1996 PF 1995 PF 1994 PF
------ ------ ------ ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNING DATA:
Net sales................... $ 838 $ 706 $1,448 $1,418 $1,524 $1,387 $1,385
Cost of sales............... 697 627 1,277 1,280 1,381 1,083 1,087
------ ------ ------ ------ ------ ------ ------
Gross profit................ 141 79 171 138 143 304 298
Selling, general and
administrative............ 64 47 101 95 88 102 99
Restructuring and other
charges, net.............. -- -- -- 109 -- (37) 19
Equity in (earnings) of
unconsolidated
affiliates................ (2) (7) (14) (5) (10) (12) (8)
------ ------ ------ ------ ------ ------ ------
Operating income (loss)..... 79 38 84 (61) 65 251 188
Financing costs............. 16 7 13 28 28 28 19
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes..................... 64 31 71 (89) 37 223 169
Provision (benefit) for
income taxes.............. 22 11 25 (19) 12 86 67
Minority interest........... 4 1 3 2 2 2 2
------ ------ ------ ------ ------ ------ ------
Net income (loss) before
change in accounting
principle................. 38 19 43 (72) 23 135 100
------ ------ ------ ------ ------ ------ ------
Cumulative effect of change
in accounting principle... -- -- -- 3 -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)........... $ 38 $ 19 $ 43 $ (75) $ 23 $ 135 $ 100
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA:
Working capital(a).......... $ (8) $ 31 $ 60 $ (73) $ 147 $ 31 $ 106
Current ratio............... 1.0 1.1 1.1 0.9 1.5 1.1 1.5
Plants and properties,
net....................... $1,273 $1,022 $1,298 $1,057 $1,057 $ 920 $ 830
Total assets................ $1,997 $1,562 $1,946 $1,666 $1,663 $1,306 $1,207
Total debt.................. $ 496 $ 244 $ 404 $ 350 $ 350 $ 363 $ 294
Deferred income taxes(b).... $ 182 $ 128 $ 180 $ 108 $ 85 $ 102 $ 100
Minority equity............. $ 90 $ 9 $ 91 $ 6 $ 9 $ 9 $ 8
Stockholders' equity........ $ 998 $ 994 $1,053 $ 986 $1,025 $ 600 $ 550
OTHER FINANCIAL DATA:
EBITDA(c)................... $ 130 $ 85 $ 179 $ 151 $ 153 $ 297 $ 287
Net cash flows from
operations................ $ 78 $ 28 $ 90 $ 215 $ (105) $ 174 $ 148
Net cash flows from (used
for) investing
activities................ $ (137) $ 34 $ (60) $ (133) $ (251) $ (132) $ (145)
Net cash flowing from (used
for) financing
activities................ $ 77 $ (106) $ (79) $ (29) $ 357 $ (45) $ (1)
CREDIT RATIOS:
EBIT/interest(c)............ 4.9x 5.4x 6.5x 1.7x 2.3x 7.6x 10.9x
EBITDA/interest(c).......... 8.1x 12.1x 13.8x 5.4x 5.5x 10.6x 15.1x
Total debt/EBITDA(c)........ 3.8x 2.9x 2.3x 2.3x 2.3x 1.2x 1.0x
Total debt/total
capitalization(d)......... 28.1% 17.7% 23.4% 24.1% 23.8% 33.8% 30.9%
</TABLE>
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Note: PF represents the combined financial position of Corn Products assuming
stand-alone operations from Bestfoods.
(a) Includes short term debt.
(b) For the years ended December 31, 1994, 1995, 1996 and 1997, deferred income
taxes are net of deferred tax assets.
(c) EBITDA represents operating income plus depreciation and amortization. We
present EBITDA here to provide additional information about our ability to
meet our future debt service, capital expenditure and working capital
requirements. EBITDA is not a measure of financial performance under
generally accepted accounting principles and you should not consider it as
an alternative either to net income as an indicator of our operating
performance or to cash flow as a measure of our liquidity.
(d) Total capitalization includes total debt, stockholders' equity, deferred
taxes and minority equity.
S-6
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of the notes to repay short
term borrowings under our revolving credit facility. The revolving credit
facility bears interest at a rate of 5.39% per annum and matures on December
2002. Approximately $60 million of the indebtedness to be repaid under the
revolving credit facility was utilized to finance our acquisitions of Bang IL
Industrial Co., Ltd. and additional shares of capital stock of CPC Rafhan, Ltd.,
with the remainder having been used for general corporate purposes.
CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999 and as
adjusted to give effect to the sale of the notes and the repayment of
indebtedness with the estimated proceeds of the offering without giving effect
to fees and expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Cash and cash equivalents................................. $ 51.0 $ 51.0
======== ========
Short term borrowings and current portion of long-term
debt.................................................... $ 347.0 $ 147.0
Long-term debt:
8.45% Senior Notes due 2009............................. -- 200.0
Other long-term debt.................................... 149.0 149.0
-------- --------
Total long-term debt................................. 149.0 349.0
-------- --------
Total debt................................................ 496.0 496.0
Deferred taxes on income.................................. 182.0 182.0
Minority stockholders' equity............................. 90.0 90.0
Total stockholders' equity................................ 998.0 998.0
-------- --------
Total Capitalization.................................... $1,766.0 $1,766.0
======== ========
</TABLE>
S-7
<PAGE> 8
RECENT DEVELOPMENTS
During the first quarter of 1995, we entered into a joint venture with
Arancia, S.A. de C.V., a corn refining business located in Mexico. In October
1998, we entered into agreements to acquire the remaining interest in the joint
venture in three transactions over the next several years. The closing of the
initial transaction occurred on December 1, 1998, in which we obtained effective
control of the joint venture through the issuance of common stock and the
payment of cash. We have the option to acquire all of the remaining interest in
the joint venture in two additional transactions using cash or a combination of
cash and stock. The fair value of the net assets of the joint venture at
December 1, 1998 was $136 million. In addition we recorded goodwill of $127
million.
On January 14, 1999, we acquired the assets of Bang IL Industrial, a Korean
corn refiner. The assets that we purchased included the net working capital,
plant, property and equipment of the corn wet milling business of Bang IL
Industrial. On June 24, 1999, we increased our ownership of CPC Rafhan, our
Pakistan affiliate, through the purchase of shares of CPC Rafhan. The
transaction increased our ownership interest in CPC Rafhan to approximately 70%.
Cash consideration for the Korean and Pakistani acquisitions totaled $75
million, which we funded primarily from a combination of debt borrowed in the
United States and from local banking sources.
BUSINESS
OVERVIEW
Our corn refining business dates back to the original formation of
Bestfoods' 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, our business commenced South American operations in Brazil,
followed quickly by expansions into Argentina and Mexico.
Corn refining is a capital-intensive two-step process that involves the wet
milling and processing of corn. During the front end, 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 sweeteners and other starch-based products designed to
serve the particular needs of various industries. Our sweetener products include
high fructose corn syrups, glucose corn syrups, high maltose corn syrups,
dextrose, maltodextrins and glucose and corn syrup solids. We also produce
industrial and food grade starches.
We supply a broad range of customers in over 60 industries. Our 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 worldwide.
BUSINESS STRATEGY
Our vision is to be "your local resource, worldwide" to users of corn
refined products. We plan on working toward achieving our vision by continuously
focusing on our customers and by providing an environment that attracts and
retains competent and
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<PAGE> 9
committed employees and by seeking to implement the following closely linked
strategies, pursuing our "Strategize globally -- Execute locally" approach:
- Drive for leadership in delivered cost efficiency in the markets we
serve. Since our business is cost-driven, we intend to continue
implementing productivity improvements and cost-reduction efforts at our
factories. We expect to improve facility reliability with ongoing
preventative maintenance, and to continue to reduce logistics, raw
material and supply costs through a combination of local and corporate
strategic procurement. In the sales, general and administrative areas,
we plan on continuing to benchmark and analyze costs and processes to
further assure cost competitiveness.
- Maintain our leadership positions, globally in dextrose and regionally
in starch. We plan to continue to leverage our worldwide market-leading
dextrose business. We believe that recently completed expansions and
product-quality investments position us for sales growth over the next
several years. We intend to invest to satisfy future customer demand and
to maintain our share leadership. In starch, we plan to support our
regional leadership position through product line extensions and
capacity investment as appropriate.
- In North America, concentrate on continuing to restore acceptable
profitability in the United States, and invest to strengthen this large
regional business. We plan to continue to focus our North American
organization to regain the profitability we sustained in the early
1990's. At the same time, we intend to seek investment, acquisition and
alliance opportunities that have a good strategic fit with our plant
processes, products and technical skills to improve profitable
"top-line" growth.
- Outside of North America, continue to improve our solid South American
business through organic and external growth investments adapted to the
macro-economic environment. Elsewhere, we intend to selectively enter
new countries through acquisitions and alliances to enhance geographic
business positions. This overarching long-term strategy is adapted in
the short term as needed to periodic swings in economic growth and
currency values. We expect that our skilled local management team,
developed over decades of operating within South America, will seek to
optimize our existing business base and adapt investments in the short
term to the changing environment. Throughout Asia and Africa, we intend
to continue growing our existing base while seeking additional
profitable growth through acquisitions and strategic alliances.
- Evaluate growth opportunities. When vital to our prospects, we plan to
make significant investments we believe will provide our stockholders
reliable profitable returns and provide us with strong geographic or
product-based business positions.
PRODUCTS
Sweetener products account for approximately 50% of our net sales, starch
products account for approximately 25% of net sales, and co-products account for
approximately 25% of net sales.
Sweetener Products. Sweetener products accounted for 50%, or $731 million,
54%, or $761 million, and 55%, or $842 million, of our net sales in 1998, 1997
and 1996, respectively.
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<PAGE> 10
High Fructose Corn Syrup. We produce three types of high fructose corn
syrup: (i) HFCS-55, which is primarily used as a sweetener in soft drinks
made in the United States, Canada, Mexico and Japan, (ii) HFCS-42, which is
used as a sweetener in various consumer products such as fruit-flavored
beverages, yeast-raised breads, rolls, dough, ready-to-eat cakes, yogurt
and ice cream, and (iii) HFCS-90, which is used in specialty and low
calorie foods.
Glucose Corn Syrups. Corn syrups are fundamental ingredients in many
industrial products and are widely used in food products such as baked
goods, snack foods, beverages, canned fruits, condiments, candy and other
sweets, dairy products, ice cream, jams and jellies, prepared mixes and
table syrups. We offer corn syrups that are manufactured through an ion
exchange process, a method that creates the highest quality, purest corn
syrups.
High Maltose Corn Syrup. This special type of glucose syrup has a
unique carbohydrate profile, making it ideal for use as a source of
fermentable sugars in brewing beers. High maltose syrups are also used in
the production of confections, canning and some other food processing
applications.
Dextrose. We currently produce dextrose products that are grouped in
three different categories -- monohydrate, anhydrous and specialty.
Monohydrate dextrose is used across the food industry in many of the same
products as glucose corn syrups, especially in confectionery applications.
Anhydrous dextrose is used to make solutions for intravenous injection and
other pharmaceutical applications, as well as some specialty food
applications. Specialty dextrose products are used in a wide range of
applications, from confectionery tableting to dry mixes to carriers for
high intensity sweeteners. Dextrose also has a wide range of industrial
applications, including use in wall board and production of surface agents
and moisture agents, and as the base for fermentation products including
vitamins, organic acids, amino acids and alcohol.
Maltodextrins and Glucose and Corn Syrup Solids. These products have a
multitude of food applications, including formulations where liquid corn
syrups cannot be used. Maltodextrins are resistant to browning, provide
excellent solubility, do not retain moisture, and are ideal for their
carrier/bulking properties and are used in applications related to the
production of spice blends and flavoring agents. Corn syrup solids have a
bland flavor, remain clear in solution, and are easy to handle and also
provide bluing properties. These are used in beverage and ice cream
applications.
Starch Products. Starch products accounted for 25%, or $357 million, 23%,
or $328 million, and 22%, or $336 million, of our net sales in 1998, 1997 and
1996, respectively. Starches are an important component in a wide range of
processed foods, used particularly as a thickener and binder. Corn starch is
also sold to corn starch packers for sale to consumers. Starches are also used
in paper production to produce a smooth surface for printed communications and
to improve strength in today's recycled papers. In the corrugating industry,
starches are used to produce high quality adhesives for the production of
shipping containers, display board and other corrugated applications. The
textile industry has successfully used starches for over a century to provide
size and finishes for manufactured products. Industrial starches are used in the
production of construction materials, adhesives, pharmaceuticals and cosmetics,
as well as in mining, water filtration and oil and gas drilling.
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<PAGE> 11
Enzymes. Enzymes are produced and marketed for a variety of food and
industrial applications.
Co-Products. Co-products are produced during the wet milling process and
accounted for 25%, or $360 million, 23%, or $329 million, and 23%, or $346
million, of our net sales in 1998, 1997 and 1996, respectively. Refined corn oil
is sold to packers of cooking oil and to producers of margarine, salad
dressings, shortening, mayonnaise and other foods. Corn gluten feed is sold as
animal feed. Corn gluten meal and steepwater are sold as additives for animal
feed.
OPERATIONS
Our North American operations, which include the U.S., Canada and Mexico,
operate 11 plants producing regular and modified starches, dextrose, high
fructose and high maltose corn syrups and corn syrup solids, dextrins and
maltodextrins, caramel color and sorbitol. Our plant in Bedford Park, Illinois
is a major supplier of starch and dextrose products for our U.S. and export
customers. Our other U.S. plants in Winston-Salem, North Carolina and Stockton,
California enjoy strong market shares in their local areas, as do our Canadian
plants in Cardinal, London and Port Colborne, Ontario. We are the largest corn
refiner in Mexico and were first to locally produce HFCS-55 for sale to the
Mexican soft drink bottling industry, having completed a high fructose corn
syrup channel at the San Juan Del Rio plant in 1997. Sixty-three percent of our
net sales in 1998 were generated in North America.
We are the largest corn refiner in South America, with leading market
shares in Chile, Brazil and Colombia and a strong position in Argentina. Our
South American consolidated operations have 11 plants that produce regular,
modified, waxy and tapioca starches, high maltose and corn syrups, dextrins and
maltodextrins, dextrose, caramel color, sorbitol and vegetable adhesives. In
1998, we completed a significant grind and finished product expansion at our
Baradero, Argentina plant. In addition, we acquired a small manioc starch plant
in Brazil and a small sorbitol producer in Ecuador. Thirty-seven percent of our
net sales in 1998 were generated outside of North America.
We have additional subsidiaries in Kenya, South Korea, Malaysia and
Pakistan, which operate four additional plants. These operations produce
modified, regular, waxy and tapioca starches, dextrins, glucose, dextrose and
caramel color.
In addition to the operations in which we engage directly, we have numerous
strategic alliances through technical license agreements with companies in
Australia, India, Japan, New Zealand, Thailand, South Africa, Zimbabwe, Serbia
and Venezuela. As a group, our strategic alliance partners operate 14 plants and
produce high fructose, glucose and high maltose syrups (both corn and tapioca),
regular, modified, waxy and tapioca starches, dextrose and dextrins,
maltodextrins and caramel color. These products have leading market positions in
many of their target markets.
COMPETITION
The corn refining industry is highly competitive. Most of our products
compete with virtually identical products and derivatives manufactured by other
companies in the industry. The U.S. is the most competitive market with
participation by eleven corn refiners. Competitors include ADM Corn Processing
Division, a division of Archer Daniels Midland Company, Cargill, A.E. Staley
Manufacturing Co., a subsidiary of Tate & Lyle,
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<PAGE> 12
PLC, and National Starch and Chemical Company, a subsidiary of Imperial
Chemicals Industries plc. In South 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 South America. Competition within markets is
largely based on price, quality and product availability.
Several of our 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, our products.
CUSTOMERS
We supply a broad range of customers in over 60 industries. Historically,
Bestfoods' worldwide branded foods business has been one of our largest
customers, accounting for approximately 11% of total sales in 1998. In addition,
approximately 15% of our 1998 worldwide sales were of high fructose corn syrup
to international, regional and local companies engaged in the soft drink
industry, primarily in North America. No other customer accounted for more than
10% of our 1998 sales.
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 our 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. Our 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 our needs. Corn prices
for our 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 beet, end product prices may not necessarily fluctuate in relation to
raw material costs of corn.
Over 55% of our starch and refinery products are sold at prices established
in supply contracts lasting for periods of up to one year. The remainder of our
starch and refinery products is 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.
We follow a policy of hedging our exposure to commodity fluctuations with
commodities futures contracts for certain of our North American corn purchases.
All firm
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priced business is hedged when contracted. Other business may or may not be
hedged at any given time based on management's judgment as to the need to fix
the costs of raw materials to protect our profitability. Realized gains and
losses arising from such hedging transactions are considered an integral part of
the cost of those commodities and are included in cost of sales when purchased.
See "Management Discussion and Analysis of Results of Operations and Financial
Conditions -- Risk and Uncertainties -- Commodity Costs."
RESEARCH AND DEVELOPMENT
Our product development activity is focused on developing product
applications for identified customer and market needs. Through this approach, we
have developed value-added products for use in the corrugated paper, food,
textile, baking and confectionery industries. We usually collaborate with
customers to develop the desired product application either in the customers'
facilities, in our technical service laboratories or on a contract basis. Our
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
Salaried sales personnel, who are generally dedicated to customers in a
geographic region, sell our products directly to manufacturers and distributors.
In addition, we have a staff that provides technical support to the sales
personnel on an industry basis. We generally utilize contract truckers to
deliver bulk products to customer destinations but also have some of our own
trucks for product delivery. In North America, the trucks generally ship to
nearby customers. For those customers located considerable distances from our
plants, a combination of rail cars and trucks is used to deliver product. Rail
cars are generally leased for terms of five to fifteen years.
PATENTS, TRADEMARKS AND TECHNICAL LICENSE AGREEMENTS
We own a number of patents, which relate to a variety of products and
processes and a number of established trademarks under which we market such
products. We also have the right to use certain other patents and trademarks
pursuant to patent and trademark licenses. We do not believe that any individual
patent or trademark is material. There is not currently any pending challenge to
the use or registration of any of our significant patents or trademarks that
would have a material adverse impact on us or our results of operations.
We are a party to nine technical license agreements with third parties in
other countries under which we provide technical, management and business advice
on the operations of corn refining businesses and receives royalties in return.
These arrangements provide us with product penetration in the various countries
in which they exist, as well as experience and relationships that could
facilitate future expansion. The duration of the agreements ranges from one to
ten years or longer, and many of these relationships have been in place for many
years. These agreements in the aggregate provide approximately $5 million of
annual revenue.
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EMPLOYEES
As of June 30, 1999, we had approximately 5,700 employees, of which
approximately 1,000 were located in the U.S. Approximately 30% of U.S. and 28%
of non-U.S. employees are unionized. We believe our union and non-union employee
relations are good.
PROPERTIES
We operate 26 facilities, 25 of which are owned and one of which is leased
in Jundiai, Brazil. In addition, we own our corporate headquarters in Bedford
Park, Illinois. While we have achieved high capacity utilization, we believe our
facilities are sufficient to meet our production needs for the foreseeable
future. We have preventive maintenance and de-bottleneck programs to further
improve grind capacity and facility reliability. The following list details the
location of our manufacturing facilities:
U.S.
Stockton, California
Bedford Park, Illinois
Winston-Salem, North Carolina
Beloit, Wisconsin
CANADA
Cardinal, Ontario
London, Ontario
Port Colborne, Ontario
MEXICO
San Juan del Rio
Guadalajara (2 plants)
Mexico City
SOUTH AMERICA
Baradero, Argentina
Balsa Nova, Brazil
Cabo, Brazil
Conchal, Brazil
Jundiai, Brazil
Mogi-Guacu, Brazil
Llay-Llay, Chile
Barranquilla, Colombia
Cali, Colombia
Medellin, Colombia
Guayaquil, Ecuador
AFRICA
Eldoret, Kenya
ASIA
Petaling Jaya, Malaysia
Faisalabad, Pakistan
Inchon, South Korea
In addition to the foregoing, we have interests in 15 plants through
unconsolidated joint ventures and allied operations.
We have electricity co-generation facilities at all of our U.S. and
Canadian plants, as well as our plants in San Juan del Rio, Mexico, Baradero,
Argentina and Faisalabad, Pakistan, that provide electricity at a lower cost
than is available from third parties. We generally own and operate such
co-generation facilities ourselves, but we have two large facilities in
Stockton, California and Cardinal, Ontario that are owned by, and operated
pursuant to co-generation agreements with, third parties.
We believe we have competitive, up-to-date and cost-effective facilities.
In recent years, significant capital expenditures have been made to update,
expand and improve our facilities, averaging in excess of $140 million per year
for the last five years. Capital investments have included the rebuilding of
plants in Cali, Columbia and Baradero, Argentina; an expansion of both grind
capacity and dextrose production capacity at the
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Argo facility in Bedford Park, Illinois; entry into the high maltose corn syrup
business in Brazil, Columbia and Argentina; the installation of energy
co-generation facilities in Canada; and a major expansion of the San Juan del
Rio plant to produce high fructose corn syrup. We believe these capital
expenditures will allow us to operate highly efficient facilities for the
foreseeable future and with further annual capital expenditures that are in line
with historical averages.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
As a manufacturer and maker of food items and items for use in the
pharmaceutical industry, our operations and the use of many of our 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. We may also be required to
comply with U.S., state, foreign and local laws regulating food handling and
storage. We believe these laws and regulations have not negatively affected our
competitive position.
Our operations 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. We believe we are in material
compliance with all such applicable laws and regulations. Based upon current
laws and regulations and the interpretations thereof, we do not expect that the
costs of future environmental compliance will be a material expense. However,
there can be no assurance that we will remain in compliance or that the costs of
remaining in compliance will not have a material adverse effect on our financial
condition and results of operations.
We currently anticipate spending approximately $7 million in fiscal 1999
for environmental control equipment to be incorporated into existing facilities
and in planned construction projects. This equipment is intended to enable us to
continue our policy of compliance with existing known environmental laws and
regulations. Under the U.S. Clean Air Act Amendments of 1990, air toxin
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, our U.S. facilities may require
additional pollution control devices to meet these standards. Currently, we can
not accurately estimate the ultimate financial impact of the standards.
RELATIONSHIP WITH BESTFOODS
In connection with the spin-off of Corn Products from Bestfoods at the end
of 1997, we entered into various agreements with Bestfoods for the purpose of
governing certain of the ongoing relationships with Bestfoods.
We also entered into a tax indemnification agreement that requires us to
indemnify Bestfoods against tax liabilities arising from the loss of the
tax-free reorganization status of the spin-off. This agreement could restrict
us, until December 31, 1999, from entering into certain transactions, including
limitations on the liquidation, merger or consolidation with
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another company, certain issuance and redemption of common stock and the
distributions or sale of certain assets.
We further entered into a master supply agreement to supply Bestfoods and
its affiliates with certain corn refining products at prices based generally on
prevailing market conditions for a minimum two-year term, ending December 31,
1999. Pursuant to the master supply agreement, Bestfoods purchases certain
products exclusively from us and we are restricted from engaging in certain
activities that are competitive with Bestfoods involving the sale, manufacture
or packaging of corn starch, corn oil, corn syrup and dextrose which are branded
and packaged for sale to the retail trade, club stores, mass merchandisers and
food services sector. These are activities in which we have not engaged in the
past. The master supply agreement is renewable for successive one year terms, in
whole or in part, upon mutual agreement of the parties. At this time, neither
party has expressed an intention not to renew the master supply agreement upon
its expiration and we are currently negotiating the terms of a renewal with
Bestfoods.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Corn Products became an independent and public company as of December 31,
1997 after being spun off from Bestfoods. This discussion and the comparative
financial statements included in this prospectus supplement were prepared by
attributing the historical data for Bestfoods' corn refining business to Corn
Products. The results for the periods prior to December 31, 1997 were extracted
from the consolidated results of Bestfoods, of which we were an integral part
until spun off as a separate operation. This may not necessarily be indicative
of the result of operations or the financial position that we would have
obtained during the periods shown had we been independent.
During our first year as an independent public company, we made
considerable progress in improving profitability by focusing all our operations
on pricing, volume, costs and efficiencies, and enhancing the quality of
products and customer services. Our primary goal is to return to a satisfactory
level of profitability. Our objective is to provide continuously increasing
returns to our shareholders. Our strategy is to drive for delivered cost
leadership in the markets we serve and maintain our market positions -- in
particular, our product leadership positions globally in dextrose and regionally
in starch.
Our business grew solidly in 1998 as our North American business returned
to profitability, although still below the profit levels we saw only a few years
ago. The over-supply situation in the U.S. sweeteners' marketplace which
developed in 1996 for high fructose corn syrup, led to significant price
declines in 1997. The supply/demand balance improved in 1997 and continued to
show improvement in 1998, but is still below historical levels. Profitability
has not returned to the levels experienced in 1994 and 1995.
In 1999, the supply/demand balance has continued to improve and we have
experienced better margins. We intend to concentrate on restoring the United
States to higher profitability, and plan to make investments that we expect to
strengthen our largest regional business. This will include taking advantage of
our positions throughout Canada, Mexico and the United States to maximize our
regional strength.
In December 1998, we completed a transaction to acquire the majority
control of Arancia-CPC, our joint venture in Mexico. Based on 1998 results, we
expect this acquisition to add approximately $350 million in annual net sales
and to place us solidly as the No. 3 producer in NAFTA. Outside of North America
in 1998, we experienced continued volume growth, although at a slower pace than
experienced in prior years. In many countries where we do business, the rate of
economic progress of recent years slowed as the financial market turmoil, which
began in Asia, spread to South America. The resulting reduced growth of some of
our customers negatively impacted our profits returns in 1998 as demand weakened
and limited our ability to adjust prices. In 1999, we anticipate improvement in
some areas, but see difficulties in areas such as Brazil after the devaluation
of its currency in January of 1999. Our 70-year presence in South America has
given us experience in how to successfully manage through turbulent economic
times. We plan to further improve our solid South American business through
timely growth investments. Elsewhere, we plan to selectively enhance our other
geographic positions. At the start of 1999, we acquired the corn refining
business of Bang IL in South Korea, which we expect, based on 1998 results, will
add $65 million in annual net sales in 1999.
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RESULTS OF OPERATIONS -- THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 1998
Net sales. Second quarter 1999 net sales totaled $441 million, up 20% over
comparable 1998 sales of $367 million. Volumes were up 27% with the addition of
sales from the acquired companies in Mexico and Korea. Sales from these
acquisitions contributed 29%. Lower currency exchange rates throughout the world
resulted in a 9% reduction in revenues while lower prices resulted in a 3%
reduction. For the six months, Net Sales grew 19% to $838 million from $705
million in 1998, on 25% higher volumes partially offset by lower exchange rates.
North American net sales were up 33% in the three months ended June 30,
1999, from the same quarter last year with increased volumes contributing 40%.
Excluding the addition from the full consolidation of the Mexican business, 1999
second quarter net sales were 5% lower than the comparable period last year.
This reflected the effect of 7% lower prices following lower corn costs,
partially offset by a 2% increase from higher volumes. Year to date, North
American sales grew 35% over last year, reflecting the addition of the Mexican
acquisition. Excluding the Mexican acquisition, net sales were 5% lower than
last year, reflecting 4% lower prices following lower corn costs and a 1%
reduction due to currency devaluation.
Outside of North America, second quarter 1999 net sales were down 2% from
the second quarter of 1998 with a 24% decline from lower exchange rates, mostly
related to the devaluation of the Brazilian Real but also including the
devaluation of the Colombian Peso and Pakistani Rupee. Overall, higher volumes
contributed 17% to net sales while local currency price/mix added 5%. Excluding
Korea, increased volumes added 4% to net sales, reflecting the rebound of the
Brazilian business following the first quarter contraction resulting from the
Real devaluation, and strong gains made by Pakistan. For the six months ended
June 30, 1999, net sales were 7% lower than last year, due primarily to effects
of currency devaluation, principally Brazil, which reduced sales by 26%.
Excluding the Korean acquisition, higher volumes added 1% while local currency
price increases added 7%.
Cost of sales and operating expenses. Costs of sales for the second quarter
of 1999 were up 11% over the comparable quarter last year, well below the 27%
increase in volumes, as gross corn costs declined and we continued to achieve
improved operating efficiencies. Gross profits for the quarter increased 92%
from the second quarter 1998 to $77 million, reflecting an improvement in the
gross profit margin to 17% of net sales from 11% in 1998. Lower net corn costs
in North America contributed to improved margins. Year to date, cost of sales
were up 11% over 1998 on a 25% increase in volumes. Gross profit improved 78% to
$141 million from $79 million in 1998 as the gross profit margin increased to
17% of net sales from 11%. The improvement in the gross profit margin is
attributable to North America and reflects lower corn costs and manufacturing
expense.
Operating expenses for the quarter ended June 30, 1999, totaled $33
million, a 41% increase over the comparable period in 1998, reflecting the
inclusion of the Mexican and Korean acquisitions. Operating expenses have
remained approximately 7% of net sales. Second quarter fees and income from
unconsolidated subsidiaries decreased to $0.5 million, from $3.5 million in
1998. The decline is attributable to the former Mexican joint venture now being
consolidated, other fees and income have remained fairly constant compared to
the prior year. For the six months, operating expense totaled $64 million, a 34%
increase over 1998, and remained at approximately 7% of sales.
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Operating income. Second quarter operating income was up 120% over 1998 to
$45 million from $20 million. North America advanced strongly with operating
income of $26 million, up from $4 million in the second quarter of 1998. The
improvement came from higher profit margins in the U.S. and Canada and the
inclusion of full earnings from the Mexican acquisition. Outside of North
America, operating income in the second quarter also advanced 24% over 1998 to
$23 million from $18 million, reflecting the strong performance of the Korean
acquisition and despite the economic crisis created in South America by the
Brazilian devaluation. Brazil recovered as operating income grew 11% over the
same quarter last year, partially offsetting continued weakness in Argentina and
Chile. Year to date, operating income grew 107% to $79 million from $38 million
in 1998. North America operating income increased more than 9 times to $46
million from $5 million in 1998, reflecting the improved margins as well as the
Mexican acquisition.
Financing costs. Financing costs for the second quarter 1999 were $8.3
million, up from $2.5 million in the comparable period last year, reflecting the
debt taken on with the Mexican and Korean transactions. Year to date financing
costs rose to $15.6 million from $7.5 million in 1998.
Provision for income taxes. The effective tax rate remained at 35% in the
second quarter and year to date 1999, unchanged from the rate at June 30, 1998.
The tax rate is estimated based on the expected mix of domestic and foreign
earnings for the year.
Net income. Net income for the quarter ended June 30, 1999, grew 103% to
$22 million, or $0.58 per diluted share, from $10.7 million, or $0.30 per
diluted share, in the second quarter of 1998. The improvement is attributable to
the improvement in the North America operations and the accretive acquisitions
in Mexico and Korea. For the six months ended June 30, 1999, net income doubled
to $37.5 million, or $1.00 per diluted share, from $18.7 million, or $0.52 per
diluted share, in 1998. As with the quarter, the improvement is attributable to
North America operations and the accretive acquisitions in Mexico and Korea.
Comprehensive income. Comprehensive income for the second quarter 1999 was
higher than the second quarter 1998 and resulted from improved net income and no
net change in currency translation, as negative adjustments, principally from
the Brazilian Real to the U.S. dollar, were offset by translation gains in
Canada and Korea. This compared to a $7 million negative adjustment for the
comparable quarter in 1998. Year to date, the decline in comprehensive income
resulted from the translation of net assets and liabilities denoted in local
currencies into U.S. dollars at lower translation rates. The $76 million
currency translation adjustment for the six months ended June 30, 1999, compared
to an $11 million adjustment for the comparable period in 1998 and is related
primarily to the translation of fixed assets in Brazil from the Real to the U.S.
dollar after the Brazilian devaluation.
RESULTS OF OPERATIONS -- 1998 COMPARED TO 1997, 1997 COMPARED TO 1996
Net sales. 1998 net sales grew 2% to $1,448 million from $1,418 million in
1997, with 4% higher volume. 1998 pricing was lower in some areas than in 1997,
reflecting the passthrough of lower corn costs and lower exchange rates.
However, in North America, net sales grew by 5%, including one month of
additional sales from our Mexican operations, resulting from our increased
investment. Pricing in the U.S. business rebounded from a disappointing 1997
with a 4% increase in net sales on 1% higher volume. The down cycle in high
fructose corn syrup, which hit a pricing low in 1997, improved somewhat in 1998,
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but still remains low versus historical levels. In Canada, lower pricing and
lower exchange rates offset volume gains resulting in a 9% reduction in net
sales. Outside of North America, net sales declined 2% as lower exchange rates
and prices more than offset volume gains of 7%.
1997 net sales were down 7% from $1,524 million in 1996. The 1997 net sales
decline came, despite 5% volume growth, as lower corn costs combined with excess
supply in the high fructose corn syrup business resulting in significantly lower
prices. Excess supply was caused by significant new capacity coming on stream
and a lower than expected increase in demand from Mexico.
Cost of sales and operating expenses. Cost of sales for 1998 was marginally
lower than 1997, despite the 4% increase in volume. Lower cost of sales resulted
from lower corn costs and operating efficiencies. Consequently, 1998 gross
profit margins improved to 12% of sales, from 10% in 1997 and 9% in 1996. The
North American business showed a significant turnaround in 1998; however,
further improvement is still necessary to achieve an acceptable level of return.
Operations outside of North America continue to achieve good profit, although
somewhat moderated, as the emerging markets work through the effects of the
financial market turmoil. Cost of sales in 1997 was 7% below 1996. The high
costs of corn experienced in 1996 declined during 1997. In 1996, cost of sales
included a $40 million write down for certain liquidated corn futures positions,
when corn prices fell sharply toward the end of the year.
Operating expense increased 6% to $101 million in 1998 from $95 million in
1997 and $88 million in 1996. The increase in 1998 operating expense was largely
due to corporate costs associated with being a stand-alone entity. Excluding the
increased corporate cost, 1998 operating expense declined 2% from the prior
year.
Equity in earnings of unconsolidated affiliates improved in 1998, compared
to 1997, primarily due to improved results in the Mexican joint venture.
Restructuring charge. In 1997, we recorded a $94 million pre-tax ($71
million after tax) restructuring charge. The charge was primarily for severance
and severance related costs for more than 200 employees, principally in our
international operations. We have used the majority of the restructuring
provision.
Spin-off costs. In 1997, we also recorded a $15 million pre-tax ($12
million after tax) charge for costs related to the spin-off of the corn refining
business from Bestfoods.
Operating income. Operating income for 1998 was $84 million, up from $48
million in 1997, excluding special charges for spin-off and restructuring. In
North America, 1998 operating income improved $50 million from 1997 reflecting
improved margins in high fructose corn syrup and glucose, and solid results in
Mexico. Outside of North America, operating income was down 7% to $76 million
dollars from the $82 million achieved in 1997.
Excluding the restructuring charge and spin-off costs described above, 1997
operating income declined 26% from 1996 to $48 million, primarily attributable
to the unfavorable high fructose pricing situation in North America.
Financing costs. 1998 financing costs decreased approximately 50% to $13
million from $28 million in 1997, as we significantly reduced our borrowings
through most of the year. Lower borrowings resulted from better operating
performance and the consequent improved cash flow.
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1997 financing costs were in-line with 1996 as debt allocated by Bestfoods
(the then parent company) and interest rates both remained relatively stable.
Provision for income taxes. Our effective tax rate for 1998 was 35%. This
represents the favorable effect of foreign source income in countries where tax
rates are generally lower than in the United States. In 1997, we reported a
pre-tax loss arising from restructuring and spin-off charges. The tax benefit
rate attributed to these special items was 24%. The tax rate attributed to 1997
operating profits was 35%. This resulted in a net effective rate of 21% for
1997. The effective rate in 1996 of 33.6% was an assumed rate for Bestfoods.
Cumulative effect of a change in accounting principle. In 1997, we recorded
a $3 million after-tax charge because of a change in accounting principal. The
change in accounting principal resulted from a pronouncement by the Emerging
Issues Task Force requiring companies to expense certain previously capitalized
re-engineering costs.
Net income. Net income for 1998 totaled $43 million compared to $11 million
in 1997, excluding the after tax effect of special charges in 1997. The
improvement in net income largely reflects the improvement in the North American
business, as well as the lower financing costs. The 1997 net loss was $75
million, including the special charges for restructuring, spin-off and the
cumulative effect of change in accounting principal. 1996 net income was $23
million, reflecting adverse corn prices and the write-down of corn futures.
Earnings per share increased to $1.19 per fully diluted share, up from the
$0.30 per share before the restructuring and spin-off costs and change in
accounting principle, or a loss of $2.10 after these charges.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, our total assets increased to $1,997 million from $1,946
million at December 31, 1998. The increase in total assets reflects the
acquisition of the Korean business adding to our asset base, partially offset by
the effects of lower exchange rates, principally in Brazil, used to translate
our foreign asset values. Total assets increased to $1,946 million at December
31, 1998 from $1,666 million at December 31, 1997. This increase was the result
of the consolidation of our Mexican operations, which added $400 million in
assets. Excluding this transaction, total assets declined $120 million,
reflecting the repayment of a $60 million loan made to the Mexican venture prior
to the consolidation. The proceeds from the loan, along with cash, were used to
repay $114 million in revolving debt in the United States and Canada. The effect
of weaker currencies also reduced total assets.
In the past five years, we have invested over $700 million in capital
projects and modernized or expanded most of our plants in line with projected
market demand. We plan to continue investing to meet customer demand and drive
for delivered cost leadership.
Net cash flows. Second quarter 1999 net cash flows were used to fund our
capital investment program, the acquisition of minority interest in our Pakistan
affiliate, the quarterly dividend payment, and the previously announced common
stock repurchase program. In addition there was the normal seasonal increase in
North American working capital. In the six-month period of 1999, net cash flows
were also used to help fund the acquisition of our new South Korean affiliate.
For the six months ending June 30, 1999,
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net cash flows from operating activities were $78 million, compared to $28
million in the first half of 1998, reflecting the higher net income and lower
working capital change. Cash flows in 1998 continued to fund our working
capital, capital expenditure program and a modest dividend payment. Net cash
flows from 1998 operations were $90 million, down from $215 million in 1997. The
1997 cash flows included the results of the additional quarter of operations
outside of North America due to the change in the year-end reporting period.
1997 cash flow from operations was exceptionally high, despite the net loss for
the year, and resulted from reductions in trade working capital combined with
the adjustment for the restructuring charge and spin-off costs described above.
In 1996, lower net income, together with higher working capital, resulted in a
negative cash flow from operations.
Cash used for investing activities totaled $137 million for the first six
months of 1999, reflecting the acquisitions in Korea and Pakistan, and $62
million in net capital investments. For the comparable period in 1998, cash from
investing activities totaled $34 million, reflecting the receipt of the
repayment of a $60 million loan made by the company to Arancia-CPC and net
capital expenditures of $26 million. First half 1999 capital expenditures are in
line with planned expenditures. The spending is primarily carry-over projects
from the prior year, approximately 70% of which is outside the U.S., and
reflects the Company's plan to continue investing, based on business opportunity
and cash flow availability, to meet customer demand and drive for delivered cost
leadership. Capital expenditure in the U.S. was primarily carry-over of the
previously announced dextrose expansion project. Cash used for investing
activities in 1998 was $60 million, compared to $133 million in 1997. This
resulted from lower capital expenditures of $91 million, compared to $116
million in 1997, the receipt of the repayment of the $60 million loan noted
above and the initial payment for the consolidation of the Mexican operations.
In 1996, we expended $251 million for investing activities. This amount included
$191 million for net capital expenditures and the $60 million loan to our
Mexican joint venture to fund capital projects, which was repaid in 1998.
We have a $340 million 5-year revolving credit facility in the United
States due December 2002. In addition, we have a number of short term credit
facilities consisting of operating lines of credit. At June 30, 1999, we had
total debt outstanding of $496 million compared to $404 million December 31,
1998. The increase in debt is attributable to the Korean acquisition, the
increased investment in Pakistan, and higher working capital. The debt
outstanding consisted of $225 million drawn from the unsecured revolving credit
facility in the United States at a rate of 5.39%. The balance represents
affiliate long-term debt of $149 million, mostly assumed in the Arancia
transaction, and $122 million in short term borrowings of foreign affiliates
under local country operating lines in various currencies. The weighted average
interest rate of affiliate debt was 8.55%.
RISK AND UNCERTAINTIES
We operate in one business segment and in 22 countries. In each country,
the business and assets are subject to varying degrees of risk and uncertainty.
We insure our business and assets in each country against insurable risk in a
manner that we deem appropriate. We believe 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 our results. We also
have policies to handle other financial risks discussed below.
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Commodity Costs. Our finished products are made primarily from corn.
Purchased corn accounts for 40% to 65% of finished product costs. In North
America, we sell a large portion of finished product at firm prices established
in supply contracts lasting for periods of up to one year. In order to minimize
the effect of volatility in the cost of corn related to these firm-priced supply
contracts, we enter into corn futures contracts, or take hedging positions in
the corn futures market. From time to time, we may also enter into anticipatory
hedges. These contracts typically mature within one year. At expiration, we
settle the derivative contracts at a net amount equal to the difference between
the then-current price of corn and the fixed contract price. While these hedging
instruments are subject to fluctuations in value, changes in the value of the
underlying exposures the Company is hedging generally offset such fluctuations.
While the corn futures contracts or hedging positions are intended to minimize
the volatility of corn costs on operating profits, occasionally the hedging
activity can result in losses, some of which may be material. Outside of North
America, sales of finished product under long-term firm-priced supply contracts
are not material.
Based on our overall commodity hedge exposure at December 31, 1998, a
hypothetical 10% change in market rates applied to the fair value of the
instruments would have no material impact on our earnings, cash flows, financial
position, or fair value of commodity price risk sensitive instruments over a
one-year period.
International Operations and Foreign Exchange. We operate a multinational
business subject to the risks inherent in operating in foreign countries and
with foreign currencies. Our US dollar denominated results are subject to
foreign exchange fluctuations, and our non-US operations are subject to
political, economic and other risks.
We primarily sell world commodities and, therefore, believe that local
prices will adjust relatively quickly to offset the effect of a local
devaluation. We generally do not enter into foreign currency hedging
transactions. Our policy is to hedge only commercial transactions denominated in
a currency other than the currency of the country in which the operating unit
responsible for the transaction is located.
Interest Rate Exposure. As of June 30, 1999, approximately 70% of our
borrowings were short term credit facilities with floating interest rates. The
remaining 30% of our debt is long term with variable interest rates primarily
tied to LIBOR. From time to time we may incur additional short term or long term
borrowings for working capital and other purposes.
Readiness for the Year 2000. The Year 2000 (Y2K) issue is the result of
certain computer programs using two digits rather than four to define the
applicable year. During 1997, we developed a plan to address the Y2K issue and
began converting our computer systems to be Y2K-compliant. We established a team
with appropriate senior management support to identify and correct Y2K issues.
We implemented a program to fix or replace internal software where necessary.
This included software in all of our manufacturing plants, building facilities
and business systems. If not corrected, affected computer applications could
fail or create erroneous results.
The Y2K plan involved assessment, prioritization, remediation and testing.
During 1998, we substantially completed the assessment and prioritization phases
of the Y2K plan and began remediation and testing. As of June 30, 1999,
remediation and testing of plant equipment and business process were
substantially completed and considerable progress had been made in remediation
and testing of information technology infrastructure. Major
S-23
<PAGE> 24
Y2K projects in process but not completed at June 30, 1999, related to the
conversion of our financial software packages in the U.S. and Canada, and the
deployment of new or upgraded Y2K compliant personal computers (PC) and PC
software. We completed the deployment of Y2K compliant PCs and PC software in
July 1999, and expect to complete the implementation of financial software
packages for the U.S. and Canada by the end of August 1999.
Y2K compliance depends not only on our internal manufacturing and
administrative processes, but also on the ability of the different participants
in the supply chain to interchange products, services, and information without
interruption. We continue to communicate with high and medium risk vendors, and
carry out a site assessment of the critical suppliers and service providers, to
ascertain whether the equipment and services provided by them will be
Y2K-compliant. In addition, through the use of third party consultants, we
continue an ongoing process of evaluating vendor statements and publicly-
available information about the Y2K compliance of various systems in operation
at our sites.
We are exploring alternative solutions and developing contingency plans for
handling mission critical areas in the event that remediation is unsuccessful.
Contingency plans may include the stockpiling of necessary supplies, the
build-up of inventory, creation of computerized or manual back-up systems,
replacement of vendors, and addition of new vendors. We expect to complete the
Y2K plan, including establishment of contingency plans, by the end of August
1999.
We currently estimate the total costs of the Y2K plan to achieve Y2K
readiness at $10 million of expense. Planned capital expenditures indirectly
related to Y2K, could add an additional $11 million to the cost of the Y2K plan.
As of June 1999, the direct costs incurred by the Y2K plan to remediate Y2K
issues were $9 million and committed capital expenditures indirectly related to
Y2K were an additional $8 million.
Our Y2K plan is subject to a variety of risks and uncertainties. Some of
the risks and uncertainties are beyond our control, such as the Y2K preparedness
of third party vendors and service providers and unidentified issues with
hardware, software and embedded systems. We cannot assure that we will
successfully complete the Y2K plan on a timely basis, achieving Y2K readiness
prior to January 1, 2000, or a prior critical failure date. Our failure to
successfully complete the Y2K project could have a material adverse impact on
our ability to manufacture and/or deliver our products.
S-24
<PAGE> 25
MANAGEMENT
Our directors and executive officers are:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Konrad Schlatter............................. Chairman and Chief Executive Officer and
Director
Samuel C. Scott.............................. President and Chief Operating Officer and
Director
Ignacio Aranguren-Castiello.................. Director
Alfred C. DeCrane, Jr........................ Director
William C. Ferguson.......................... Director
Guenther E. Greiner.......................... Director
Ronald M. Gross.............................. Director
Richard G. Holder............................ Director
Bernard H. Kastory........................... Director
William S. Norman............................ Director
Clifford B. Storms........................... Director
Cheryl K. Beebe.............................. Vice President and Treasurer
Marcia E. Doane.............................. Vice President, General Counsel and
Corporate Secretary
Jorge L. Fiamenghi........................... Vice President, President Corn Products
Brazil
Jack C. Fortnum.............................. Vice President and Comptroller
James I. Hirchak............................. Vice President -Human Resources
Frank J. Kocun............................... Vice President and President Cooperative
Management Group
Eugene J. Northacker......................... Vice President and President Latin
American Division
Michael R. Pyatt............................. Vice President and Executive Vice
President, North American Division
James W. Ripley.............................. Vice President -Finance and Chief
Financial Officer
Richard M. Vandervoort....................... Vice President -Business Development and
Procurement, North American Division
</TABLE>
The following are brief biographies of our Directors:
Konrad Schlatter (Class II), age 63, is Chairman and Chief Executive
Officer. Mr. Schlatter served as Senior Vice President of Bestfoods from 1990 to
1997 and Chief Financial Officer of Bestfoods from 1993 to February 1997.
Samuel C. Scott (Class I), age 54, is President and Chief Operating
Officer. Mr. Scott was President of Bestfoods' worldwide Corn Refining Business
from 1995 until 1997 and served as President of Bestfoods' North American Corn
Refining Business from 1989 until 1997. He was elected a Vice President of
Bestfoods in 1991. Mr. Scott is a director of Motorola, Inc. and Reynolds Metals
Company.
Ignacio Aranguren-Castiello (Class III), age 67, is President and Chief
Executive Officer of Arancia-Corn Products, S.A. de C.V. Mr. Aranguren-Castiello
was the 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 of Bestfoods with Arancia Industrial
S.A. de C.V., a Mexican company
S-25
<PAGE> 26
controlled by Mr. Aranguren-Castiello and his family. He has been President of
Arancia Industrial S.A. de C.V. and its subsidiaries since the late 1970's. Mr.
Aranguren-Castiello is also a director of Bancomer S.A., a Mexican bank entity.
Alfred C. DeCrane, Jr. (Class II), age 67, retired as Chairman and Chief
Executive Officer of Texaco Inc. in 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 Bestfoods, Birmingham Steel Corporation, CIGNA
Corporation, Harris Corporation, U.S. Global Leaders Growth Fund, Ltd. and
Co-Chairman of the United States-Saudi Arabian Business Council.
William C. Ferguson (Class I), age 68, 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 Bestfoods and serves on the Advisory Board of Greenwich
Street Capital.
Guenther E. Greiner (Class II), age 60, formed International Corporate
Consultancy LLC, a global finance consulting firm, upon his retirement from
Citicorp/Citibank, N.A. in April 1998. He joined Citibank Germany in 1965 and
was appointed a vice president in 1974. After successive assignments in Europe,
North America, Africa and the Middle East, he became an executive vice president
of the World Corporate Group in 1989 and senior group executive and executive
vice president of Citibank's Global Relationship Bank in 1995. He is also a
director of Ermenegildo Zegna, Electric Lightwave and IFIL-Finanziaria di
Participazione.
Ronald M. Gross (Class III), age 65, is Chairman Emeritus, former Chairman
and Chief Executive Officer of Rayonier Inc., a global supplier of specialty
pulps, timber and wood products. He had been Chairman and Chief Executive
Officer from 1994, when Rayonier was spun off from ITT Corporation, until
December 31, 1998. Previously, he served as President, Chief Operating Officer,
and a director of ITT Rayonier Inc. from 1978 to 1981. He became Chief Executive
Officer in 1981 and Chairman in 1984. He is a director of Rayonier Inc., the
Pittston Company and Fundacion Chile.
Richard G. Holder (Class II), age 67, 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 Bestfoods and Universal Corp.
Bernard H. Kastory (Class I), age 53, is Senior Vice President -Asia,
Baking and Latin America Operations, of Bestfoods. Mr. Kastory served as Senior
Vice President, Finance and Administration from February 1997 to March 1999 and
as Chairman and Chief Executive Officer of Bestfoods' 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 Bestfoods since 1992. Mr.
Kastory has held various technical, financial and general management positions
in Bestfoods, which he joined in 1967.
William S. Norman (Class III), age 60, 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 Bestfoods and the Travel Industry Association of America.
S-26
<PAGE> 27
Clifford B. Storms (Class III), age 66, is an attorney in private practice.
Mr. Storms was Senior Vice President (since 1988) and General Counsel (since
1975) of Bestfoods until his retirement from Bestfoods in June 1997.
The Board of Directors is divided into three approximately equal classes
with each class serving a three-year term. Class I directors serve until the
2001 annual meeting of stockholders. Class II and Class III directors will serve
until the annual meetings of stockholders in 2002 and 2000, respectively. The
Board has a director tenure policy that provides that outside directors will
retire from the Board at the annual meeting of stockholders coincident with or
immediately following their 70th birthday. Employee directors are required to
retire from the Board upon retirement as an employee or other termination of
active employment, whether or not their terms have expired. However, outside
directors who were members of the Board on November 19, 1997, and the current
Chief Executive Officer, may continue to serve as directors until the annual
meeting of stockholders coincident with or next following their 72nd birthday.
DESCRIPTION OF THE NOTES
The notes will be issued under an indenture dated as of August 18, 1999
with The Bank of New York, as Trustee. The following description of the
particular terms of the notes supplements the description of the general terms
and provisions set forth in the prospectus.
GENERAL
The notes will be limited to $200,000,000 aggregate principal amount. Each
note will bear interest at the rate of 8.45% per annum, payable semiannually on
February 15 and August 15 of each year, commencing February 15, 2000. Interest
will be paid to the person in whose name the note is registered, subject to
certain exceptions as provided in the indenture, at the close of business on
February 1 or August 1, as the case may be, immediately preceding the interest
payment dates. The notes will mature in August 2009.
The indenture does not contain any covenants or other provisions applicable
to the notes which might afford beneficial owners of notes protection in the
event of a highly leveraged transaction, change in credit rating of the notes or
other similar occurrence. Although there can be no assurances that such
transactions will not take place, management has no current plans to engage in
any such transactions.
The notes will be obligations of Corn Products exclusively. We conduct many
of our operations through our subsidiaries. Because of these operations, our
right to participate in any distribution of the assets of a subsidiary when it
winds up its business is subject to the prior claims of the creditors of the
subsidiary. This means that your right as a holder of our notes will also be
subject to the prior claims of these creditors if a subsidiary liquidates or
reorganizes or otherwise winds up its business. Unless Corn Products is
considered a creditor of the subsidiary, then your claims will not be recognized
ahead of these creditors.
OPTIONAL REDEMPTION
We will not be required to make mandatory redemption or sinking fund
payments prior to the maturity of the notes.
S-27
<PAGE> 28
The notes are redeemable, in whole or in part, at any time at the option of
Corn Products, at a redemption price equal to the greater of:
- 100% of the principal amount of the notes being redeemed; and
- as determined by an Independent Investment Banker (as defined below), the
sum of the present values of the remaining scheduled payments of
principal and interest on the notes being redeemed from the redemption
date to the maturity date discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at a discount rate equal to the Treasury Rate (as defined below)
plus 25 basis points.
We will also pay the accrued and unpaid interest on the notes to the
redemption date. Notice of any redemption will be mailed at least 30 days but
not more than 60 days before the redemption date to each holder of the notes to
be redeemed.
In the case of any partial redemption, the trustee will select the
particular notes for redemption on a pro rata basis, by lot or by such other
method as the trustee in its sole discretion deems to be fair and appropriate,
although no note of $1,000 in principal amount at maturity or less will be
redeemed in part. If any note is to be redeemed in part only, the notice of
redemption relating to the note will state the portion of the principal amount
of the note to be redeemed. A new note in principal amount at maturity equal to
the unredeemed portion of the note will be issued in the name of the holder of
the note upon cancellation of the original note.
As used herein:
"Treasury Rate" means, with respect to any redemption date, (i) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the applicable maturity date, yields for the two published maturities
most closely corresponding to the Comparable Treasury Issue will be determined
and the Treasury Rate will be interpolated or extrapolated from the yields on a
straight line basis, rounding to the nearest month) or (ii) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount ) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate will be calculated on the third business
day preceding the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the of notes to be redeemed that would be used, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the notes to be redeemed.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the trustee after consultation with us.
S-28
<PAGE> 29
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the arithmetic average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third business day before such redemption date, as published in the daily
statistical release (or any successor release) by the Federal Reserve Bank of
New York and designated "Composite 3:30 p.m. Quotations for U.S. Government
Securities" or (ii) if such release (or any successor release) is not available
or does not contain such prices on such business day, the arithmetic average of
the Reference Treasury Dealer Quotations for such redemption date.
"Reference Treasury Dealer" means each of Lehman Brothers Inc. and Salomon
Smith Barney Inc. and their respective successors. If any of the Reference
Treasury Dealers ceases to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), we may substitute another Primary
Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. (New York
City time) on the third business day before such redemption date.
BOOK-ENTRY SYSTEM
The notes will be in the form of one or more global securities registered
in the name of a nominee of The Depository Trust Company, as depositary. The
provisions set forth in the accompanying prospectus under "Description of Debt
Securities -- Form and Exchange of Debt Securities" will be applicable to the
notes.
UNDERWRITING
Lehman Brothers Inc. and Salomon Smith Barney Inc. each have agreed to
purchase from us the principal amount of notes set forth opposite its name.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
Lehman Brothers Inc.............................. $100,000,000
Salomon Smith Barney Inc......................... 100,000,000
------------
Total....................................... $200,000,000
============
</TABLE>
The underwriters will purchase the notes under an underwriting agreement
with Corn Products. The underwriters will pay us the offering price less the
underwriting discount specified on the cover page of the final prospectus
supplement. We estimate that our expenses for this offering will be
approximately $767,000. There are conditions contained in the underwriting
agreement that must be satisfied before the underwriters are required to
purchase the notes. The underwriters will either purchase all of the notes or
none of them.
The underwriters have advised us that they will offer the notes directly to
the public initially at the offering price set forth on the cover page and to
certain dealers at the offering price less a selling concession not to exceed
0.40% of the principal amount of the notes. The underwriters may allow, and
these dealers may reallow, a concession not to
S-29
<PAGE> 30
exceed 0.20% of the principal amount of the notes to other dealers. After the
initial offering of the notes, the underwriters may change the offering price,
the concessions to selected dealers and the reallowance to other dealers.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
We do not intend to apply for listing of the notes on any national
securities exchange, but we have been advised by the underwriters that they
presently intend to make a market in the notes, as permitted by applicable laws
and regulations. The underwriters are not obligated, however, to make a market
in the notes and they may discontinue such market-making at any time in their
sole discretion. Accordingly, there may not be adequate liquidity or adequate
trading markets for the notes.
From time to time the underwriters and certain of their affiliates have
engaged, and may in the future engage, in transactions with, and perform
services for, us and our affiliates in the ordinary course of business.
In order to facilitate the offering of the notes, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the notes. In addition, to stabilize the price of the notes, the underwriters
may bid for, and purchase, the notes in the open market. Any of these activities
may stabilize or maintain the market price for the notes above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the notes will be passed upon for us by Sidley & Austin,
Chicago, Illinois, and certain legal matters will be passed upon for the
underwriters by Winston & Strawn, Chicago, Illinois.
S-30
<PAGE> 31
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Statements of Income for the three
months and six months ended June 30, 1999 and June 30,
1998...................................................... F-2
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998..................................... F-3
Condensed Consolidated Statements of Comprehensive Income
for the three months and six months ended June 30, 1999
and June 30, 1998......................................... F-4
Condensed Consolidated Statements of Stockholders' Equity as
of June 30, 1999.......................................... F-4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and June 30, 1998.............. F-5
Notes to Condensed Consolidated Financial Statements........ F-6
Report of Independent Auditors.............................. F-8
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.......................... F-9
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-10
Consolidated Statements of Comprehensive Income for the
years ended December 31, 1998, 1997 and 1996.............. F-11
Consolidated Statements of Stockholders' Equity as of
December 31, 1998, 1997 and 1996.......................... F-11
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-12
Notes to Consolidated Financial Statements.................. F-13
</TABLE>
F-1
<PAGE> 32
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
(IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales...................................... $441.3 $366.8 $837.9 $705.8
Cost of sales.................................. 364.3 326.8 697.3 626.9
------ ------ ------ ------
Gross profit................................... 77.0 40.0 140.6 78.9
Selling, general and administrative costs...... 32.6 23.1 63.6 47.4
Equity in (earnings) of unconsolidated
affiliates................................... (0.5) (3.5) (2.3) (6.9)
------ ------ ------ ------
Operating income............................... 44.9 20.4 79.3 38.4
Financing costs................................ 8.3 2.5 15.6 7.5
------ ------ ------ ------
Income before taxes............................ 36.6 17.9 63.7 30.9
Provision for income taxes..................... 12.8 6.5 22.3 10.8
------ ------ ------ ------
23.8 11.4 41.4 20.1
Minority stockholder interest.................. 2.1 0.7 3.9 1.4
------ ------ ------ ------
Net income..................................... $ 21.7 $ 10.7 $ 37.5 $ 18.7
====== ====== ====== ======
Average common shares outstanding:
Basic.......................................... 37.3 35.7 37.3 35.7
Diluted........................................ 37.4 36.0 37.4 36.0
Net income per common share
Basic.......................................... $ 0.58 $ 0.30 $ 1.00 $ 0.52
Diluted........................................ $ 0.58 $ 0.30 $ 1.00 $ 0.52
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE> 33
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF:
---------------------------
JUNE 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- ------------
(IN MILLIONS EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................... $ 51 $ 36
Accounts receivable -- net.......................... 236 224
Inventories......................................... 188 175
Prepaid expenses.................................... 9 6
Deferred tax asset.................................. 24 24
------ ------
TOTAL CURRENT ASSETS........................... 508 465
------ ------
Plants and properties -- net........................ 1,273 1,298
Goodwill, net of accumulated amortization........... 159 129
Investments in joint ventures....................... 28 28
Other assets........................................ 29 26
------ ------
TOTAL ASSETS................................... $1,997 $1,946
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term borrowings and current portion of
long-term debt................................... $ 347 $ 250
Accounts payable.................................... 94 96
Accrued liabilities................................. 75 59
------ ------
TOTAL CURRENT LIABILITIES...................... 516 405
------ ------
Non-current liabilities............................. 62 63
Long-term debt...................................... 149 154
Deferred taxes on income............................ 182 180
Minority stockholders' interest..................... 90 91
STOCKHOLDERS' EQUITY
Preferred stock -- authorized 25,000,000
shares -- $0.01 par value none issued............ -- --
Common stock -- authorized 200,000,000
shares -- $0.01 par value -- 37,618,737 and
37,611,396 issued and outstanding on June 30,
1999 and December 31, 1998, respectively......... 1 1
Additional paid in capital.......................... 1,066 1,066
Less: Treasury stock (common stock; 411,504 and
51,374 shares on June 30, 1999 and December 31,
1998, respectively) at cost...................... (11) (1)
Deferred compensation -- restricted stock........... (2) (2)
Accumulated comprehensive loss...................... (124) (48)
Retained earnings................................... 68 37
------ ------
TOTAL STOCKHOLDERS' EQUITY..................... 998 1,053
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $1,997 $1,946
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE> 34
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ---------------------
1999 1998 1999 1998
----- ----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net Income...................... $21.7 $11.0 $ 37.5 $ 19.0
Comprehensive loss:
Currency translation
adjustment................. -- (7.0) (76.0) (11.0)
----- ----- ------ ------
Comprehensive loss.............. $21.7 $ 4.0 $(38.5) $ 8.0
===== ===== ====== ======
</TABLE>
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED
COMMON PAID-IN TREASURY COMPREHENSIVE RETAINED
STOCK CAPITAL STOCK LOSS EARNINGS
------ ---------- -------- ------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998... $1 $1,066 $ (1) $ (48) $37
Net income for the
period.................. 37
Dividends declared......... (6)
Purchase of treasury
stock................... (10)
Translation adjustment..... (76)
-- ------ ---- ----- ---
Balance, June 30, 1999....... $1 $1,066 $(11) $(124) $68
== ====== ==== ===== ===
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE> 35
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
-------------
1999 1998
---- -----
(IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net income.................................................. $ 37 $ 19
Non-cash charges (credits) to net income:
Depreciation and amortization............................. 51 47
Deferred taxes............................................ 7 10
Changes in trade working capital:
Accounts receivable, prepaid items, and other assets... (20) (29)
Inventories............................................ (15) (10)
Accounts payable and accrued liabilities............... 18 (9)
---- -----
Net cash flows from operating activities.................... 78 28
---- -----
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Capital expenditures paid, net of proceeds on disposal.... (62) (26)
Cash consideration paid for acquired business............. (75) --
Investments in and loans to unconsolidated affiliates..... 60
---- -----
Net cash flows from (used for) investing activities......... (137) 34
---- -----
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Proceeds from short term borrowings, net of payments...... 89 (106)
Dividends paid............................................ (6) --
Cost of common stock repurchased.......................... (10) --
Other non-current liabilities............................. 4 --
---- -----
Net cash flows from (used for) financing activities......... 77 (106)
---- -----
Increase (decrease) in cash and cash equivalents.......... 18 (44)
Effect of exchange rates on cash.......................... (3) --
Cash and cash equivalents, beginning of period............ 36 85
---- -----
Cash and cash equivalents, end of period.................. $ 51 $ 41
==== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE> 36
CORN PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated interim financial statements included
herein were prepared by management and reflect all adjustments (consisting
solely of normal recurring items) which are, in the opinion of management,
necessary to present a fair statement of results of operations for the interim
periods ended June 30, 1999 and 1998 and the financial position as of June 30,
1999 and December 31, 1998. The results for the three months ended June 30, 1999
are not necessarily indicative of the results expected for the year.
References to "the Company" are to Corn Products International, Inc. and
its consolidated subsidiaries. These statements should be read in conjunction
with the consolidated financial statements and the related footnotes to these
statements contained in the Company's Annual Report to Stockholders that were
incorporated by reference in Form 10-K for the fiscal year ended December 31,
1998.
2. INVENTORIES ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Finished and in process.......................... 95 110
Raw materials.................................... 67 43
Manufacturing supplies........................... 28 22
--- ---
Total Inventories........................... 188 175
=== ===
</TABLE>
3. FINANCIAL INSTRUMENTS
Commodities
Following the Company's policy of hedging its margin exposure to firm
priced business, it had open corn futures contracts of $123 million for delivery
of corn beyond June 30, 1999. Of the total commitment, $2 million is due in July
1999, $25 million is due in September 1999, and $96 million is due December 1999
through March 2000. At June 30, 1999, the price of corn under these contracts
was $9 million above market quotations of the same date.
4. SUPPLEMENTAL GEOGRAPHIC INFORMATION
The Company operates in one business segment -- Corn Refining -- and is
managed on a geographic regional basis. Its North America Operations include its
wholly owned Corn Refining businesses in the United States and Canada and
majority ownership in Mexico. Its Rest of World businesses include primarily 100
percent owned Corn Refining operations in South America and Asia, and joint
ventures and alliances in Asia, Africa and other areas. Also included in this
group is its North American enzyme business.
F-6
<PAGE> 37
CORN PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TABLE OF GEOGRAPHIC INFORMATION OF NET SALES AND OPERATING INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
NET SALES
North America................................ $312.7 $235.0 $585.9 $435.8
Rest of the World............................ 128.6 131.8 252.0 270.0
------ ------ ------ ------
Total........................................ $441.3 $366.8 $837.9 $705.8
====== ====== ====== ======
OPERATING INCOME
North America................................ $ 25.6 $ 4.4 $ 45.7 $ 4.8
Rest of the World............................ 22.8 18.4 40.2 38.5
Corporate.................................... (3.5) (2.4) (6.6) (4.9)
------ ------ ------ ------
Total........................................ $ 44.9 $ 20.4 $ 79.3 $ 38.4
====== ====== ====== ======
</TABLE>
5. ACQUISITIONS
On January 14th, 1999, the Company acquired the assets of Bang IL
Industrial Co., Ltd., a Korean corn refiner. The assets purchased included the
net working capital, plant, property and equipment of the corn wet milling
business. On June 24th, 1999, the company increased its ownership of CPC Rafhan
Ltd., its Pakistan affiliate, through the purchase of shares. The transaction
increased the Company's ownership interest in CPC Rafhan Ltd. to approximately
70 percent. Cash consideration for the Korean and Pakistani acquisitions totaled
$75 million, and were funded primarily from a combination of debt both in the
United States and from local banking sources.
F-7
<PAGE> 38
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CORN PRODUCTS INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of Corn
Products International, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Corn
Products International, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the Consolidated Financial Statements, the
Company changed its method of accounting for business process reengineering
costs in 1997.
KPMG LLP
Chicago, Illinois
January 29, 1999
F-8
<PAGE> 39
CORN PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales.............................................. $1,448 $1,418 $1,524
Cost of sales.......................................... 1,277 1,280 1,381
------ ------ ------
GROSS PROFIT........................................... 171 138 143
------ ------ ------
Selling, general and administrative costs.............. 101 95 88
Restructuring and spin-off costs -- net................ -- 109 --
Equity in (earnings) of unconsolidated affiliates...... (14) (5) (10)
------ ------ ------
87 199 78
------ ------ ------
OPERATING INCOME (LOSS)................................ 84 (61) 65
Financing costs........................................ 13 28 28
------ ------ ------
Income (loss) before income taxes and minority
interest............................................. 71 (89) 37
(Provision) benefit for income taxes................... (25) 19 (12)
Minority stockholder interest.......................... (3) (2) (2)
------ ------ ------
NET INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING
PRINCIPLE............................................ 43 (72) 23
Cumulative effect of change in accounting principle net
of income tax benefits of $2 million................. -- 3 --
------ ------ ------
NET INCOME (LOSS)...................................... $ 43 $ (75) $ 23
====== ====== ======
Weighted average common shares outstanding:
Basic................................................ 36.0 35.6 35.6
Diluted.............................................. 36.1 35.6 35.6
Earnings (loss) per common share*
Basic and diluted:
Net income before change in accounting principle..... $ 1.19 $(2.02) $ 0.64
Cumulative effect of change in accounting
principle......................................... -- $(0.08) --
Net income (loss) per common share..................... $ 1.19 $(2.10) $ 0.64
</TABLE>
- -------------------------
* 1997 and 1996 per share amounts are pro forma.
See Notes to the Consolidated Financial Statements.
F-9
<PAGE> 40
CORN PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 36 $ 85
Accounts receivable -- net............................. 224 182
Inventories............................................ 175 123
Prepaid expenses....................................... 6 13
Deferred tax asset..................................... 24 20
------- -------
TOTAL CURRENT ASSETS...................................... 465 423
------- -------
Property, plant and equipment
Land................................................... 54 52
Buildings.............................................. 668 496
Machinery and equipment................................ 1,931 1,650
------- -------
Total property, plant and equipment, at cost.............. 2,653 2,198
Less accumulated depreciation.......................... (1,355) (1,141)
------- -------
1,298 1,057
Investments in and loans to unconsolidated subsidiaries... 28 168
Goodwill, net of accumulated amortization................. 129 --
Other assets.............................................. 26 18
------- -------
TOTAL ASSETS.............................................. $ 1,946 $ 1,666
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short term borrowings and current portion of long term
debt................................................. $ 250 $ 337
Accounts payable....................................... 96 90
Accrued liabilities.................................... 59 69
------- -------
TOTAL CURRENT LIABILITIES................................. 405 496
------- -------
Non-current liabilities................................... 63 37
Long-term debt............................................ 154 13
Deferred taxes on income.................................. 180 128
Minority stockholders' interest........................... 91 6
STOCKHOLDERS' EQUITY
Preferred stock -- authorized 25,000,000
shares -- $0.01 par value, none issued............... -- --
Common stock -- authorized 200,000,000 shares -- $0.01
par value -- 37,611,396 and 35,594,360 issued and
outstanding on December 31, 1998 and December 31,
1997, respectively................................... 1 1
Additional paid in capital............................. 1,066 1,008
Less: Treasury stock (common stock; 51,374 shares in
1998) at cost........................................ (1) --
Deferred compensation -- restricted stock.............. (2) --
Accumulated comprehensive income (loss)................ (48) (23)
Retained earnings...................................... 37 --
------- -------
TOTAL STOCKHOLDERS' EQUITY................................ 1,053 986
------- -------
Total liabilities and stockholders' equity.................. $ 1,946 $ 1,666
======= =======
</TABLE>
See Notes to the Consolidated Financial Statements.
F-10
<PAGE> 41
CORN PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
NET INCOME (LOSS)........................................... $43 $(75) $23
Other comprehensive income/loss
Currency translation adjustment........................... (25) (11) (2)
COMPREHENSIVE INCOME........................................ $18 $(86) $21
</TABLE>
See notes to the Consolidated Financial Statements.
CORN PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL COMPREHENSIVE NET
COMMON PAID-IN TREASURY DEFERRED INCOME RETAINED STOCKHOLDER
STOCK CAPITAL STOCK COMPENSATION (LOSS) EARNINGS INVESTMENT
------ ---------- -------- ------------ ------------- -------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995...................... $0 $ 0 $ 0 $ 0 $(10) $ 0 $ 610
-- ------ --- --- ---- --- ------
Net income.................. 23
Transfer from CPC, net...... 404
Currency translation
adjustment................ (2)
-- ------ --- --- ---- --- ------
BALANCE, DECEMBER 31,
1996...................... $0 $ 0 $ 0 $ 0 $(12) $ 0 $1,037
-- ------ --- --- ---- --- ------
Net income.................. (75)
Net income for the change in
reporting period.......... 10
Transfer from CPC, net...... 1,008 (972)
Currency translation
adjustment................ (11)
Stock issued in connection
with spin-off............. 1
-- ------ --- --- ---- --- ------
BALANCE, DECEMBER 31,
1997...................... $1 $1,008 $ 0 $ 0 $(23) $ 0 $ 0
-- ------ --- --- ---- --- ------
Net income.................. 43
Dividends declared.......... (6)
Issuance of common stock in
connection with
acquisition............... 51
Issuance of common stock as
compensation.............. 6
Deferred compensation --
restricted stock.......... (2)
Stock options exercised..... 1
Purchase of treasury
stock..................... (1)
Translation adjustment...... (25)
-- ------ --- --- ---- --- ------
BALANCE, DECEMBER 31,
1998...................... $1 $1,066 $(1) $(2) $(48) $37 $ 0
== ====== === === ==== === ======
</TABLE>
See Notes to the Consolidated Financial Statements.
F-11
<PAGE> 42
CORN PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net income (loss)...................................... $ 43 $ (75) $ 23
Net income for the change in reporting period.......... -- 10 --
Non-cash charges (credits) to net income:
Depreciation and amortization....................... 95 103 88
Restructuring and spin-off charges.................. -- 109 --
Cumulative effect of change in accounting
principle -- net.................................. -- 3 --
Deferred taxes...................................... 10 10 (17)
Other -- net........................................ -- 1 (23)
Equity in earnings of unconsolidated affiliates..... -- -- (1)
Changes in trade working capital:
Accounts receivable and prepaid items............. (5) 34 (95)
Inventories....................................... (32) 34 (50)
Income taxes...................................... 3 -- --
Other assets...................................... (5) -- --
Accounts payable and accrued liabilities.......... (19) (14) (30)
---- ----- -----
Net cash flows from (used for) operating activities.... 90 215 (105)
---- ----- -----
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Capital expenditures................................... (91) (116) (192)
Proceeds from disposal of plants and properties........ 2 4 1
Payment for acquisition, net of cash of $15 million
acquired............................................ (31) -- --
Investments in and loans to unconsolidated
affiliates.......................................... 60 (21) (60)
---- ----- -----
Net cash flows used for investing activities........... (60) (133) (251)
---- ----- -----
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Payments on short term borrowings, net of proceeds..... (86) -- (12)
Payments on long term debt, net of proceeds............ (10) (23) (35)
Other non-current liabilities.......................... 21 -- --
Dividends paid......................................... (3) -- --
Cost of common stock repurchased....................... (1) -- --
Increase (decrease) in transfer from CPC
International, Inc., net............................... -- (6) 404
---- ----- -----
Net cash flows from (used for) financing activities.... (79) (29) 357
---- ----- -----
Increase (decrease) in cash and cash equivalents....... (49) 53 1
Cash and cash equivalents, beginning of period......... 85 32 31
==== ===== =====
Cash and cash equivalents, end of period............... $ 36 $ 85 $ 32
==== ===== =====
Supplemental cash flow information:
Interest paid.......................................... $ 11 $ 19 $ 19
Income taxes paid...................................... $ 12 $ 10 $ 11
</TABLE>
See Notes to the Consolidated Financial Statements.
F-12
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
On February 26, 1997, the Board of Directors of CPC International Inc.
approved the spin-off of CPC's corn refining and related business (the "Corn
Refining Business") to its stockholders. As a result of the spin-off on December
31, 1997, CPC distributed 100 percent of the Company's common stock (the "Corn
Products Common Stock") through a special dividend to its stockholders. The
financial statements at December 31, 1997 reflect the effects of the spin-off.
The Company carries its assets and liabilities at historical cost. The
historical actions of CPC's Corn Refining Business, including CPC'S accounting
policies, are attributable to the Company. The financial results for the years
ended December 31, 1996 and 1997 included 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 that time.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its majority owned subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
CHANGES IN REPORTING PERIOD -- Prior to the 1998 financial year, the
accounts of subsidiaries outside of North America were based on fiscal years
ending September 30; however, as of December 31, 1997 the Company changed the
fiscal year end for its subsidiaries located outside North America to that of
its North American operation, which is the calendar year. The results of the
three-month stub period for 1997 were included as an adjustment of shareholders'
equity.
FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of foreign
subsidiaries other than those in highly inflationary economies are translated at
current exchange rates with the related translation adjustments reported as a
separate component of stockholders' equity. Income statements 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 United
States, corn is valued at cost on the last-in, first-out method. Had the
first-in, first-out method been used for US inventories, the carrying value of
these inventories would have increased by $7.8 million and $10.5 million in 1998
and 1997, respectively. Outside the United States, inventories generally are
valued at average cost.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment 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
F-13
<PAGE> 44
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
used for tax purposes. Long-lived assets are reviewed for impairment whenever
the facts and circumstances indicate that the carrying amount may not be
recoverable.
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.
GOODWILL -- Goodwill represents the excess of cost over fair value of net
assets acquired and is being amortized over a period of 40 years using the
straight-line method. The carrying value of goodwill is reviewed if the facts
and circumstances suggest that it may be impaired. Negative operating results,
negative cash flows from operations, among other factors, could be indicative of
the impairment of goodwill. If this review indicates that goodwill will not be
recoverable, the Company's carrying value of the goodwill would be reduced.
INCOME TAXES -- Deferred income taxes reflect the difference 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 US and foreign income taxes,
less available tax credits and deductions, that may be incurred on the
remittance by the Company's subsidiaries of undistributed earnings, except those
deemed to be indefinitely reinvested.
COMMODITIES -- The Company follows a policy of hedging its exposure to
commodity fluctuations with commodities futures contracts for its North American
corn purchases. All firm priced business is hedged, other business may or may
not be hedged at any given time based on management's decisions as to the need
to fix the cost of such raw materials to protect the Company's profitability.
Realized gains and losses arising from such hedging transactions are considered
an integral part of the cost of these commodities and are included in the cost
when purchased.
EARNING PER COMMON SHARE -- Basic earnings per common share have been
computed by dividing net income (loss) by the weighted average shares
outstanding, 36.0 million at December 31, 1998, and 35.6 million at December 31,
1997, the distribution date. For the purpose of this calculation and the diluted
earnings per share, the shares outstanding at December 31, 1997, were assumed to
be outstanding for all prior periods. Diluted earnings per share has been
computed by dividing net income (loss) by the weighted average shares
outstanding at December 31, 1998 and 1997, including the dilutive effects of
stock options outstanding for a total of 36.1 million and 35.6 million,
respectively. 1997 and 1996 EPS have been presented on a pro forma basis,
assuming 35.6 million shares were outstanding.
RISK AND UNCERTAINTIES -- The Company operates in one business segment and
in more than 20 countries. In each country, the business is subject to varying
degrees of risk and uncertainty. It insures its business and assets in each
country against insurable risks in a manner that it deems appropriate. Because
of its diversity, the Company believes that the risk of loss from non-insurable
events in any one country would not have a material adverse effect on the
Company's operations as a whole. Additionally, the Company believes there is no
concentration of risk with any single customer or supplier, or small group of
customers or suppliers, whose failure or non-performance would materially affect
the Company's results.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and
F-14
<PAGE> 45
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CHANGE IN ACCOUNTING PRINCIPLE -- In November 1997 Emerging Issues Task
Force (EITF) issued No. 97-13 "Accounting for Business Process Reengineering
Costs," which requires that certain costs related to reengineering business
processes either done separately or in conjunction with an information
technology project be expensed rather than capitalized. This requirement was
effective in the fourth quarter of 1997 and required that any unamortized
balance of previously capitalized costs be expensed and treated as a change in
accounting principle. Accordingly, for the year ended December 31, 1997, the
Company recorded a cumulative effect of a change in accounting principle of $5
million before taxes, $3 million after taxes, or $0.08 per common share.
REPORTING COMPREHENSIVE INCOME -- Comprehensive income is a more inclusive
financial reporting methodology, which includes disclosure of certain financial
information that has not historically been recognized in the calculation of net
income. Other comprehensive income refers to revenues, expenses, gains and
losses, which, under generally accepted accounting principles, have previously
been reported as separate components of equity such as currency translation. The
Company has adopted this reporting for the current year.
SEGMENTAL INFORMATION -- The Company is in one business segment -- corn
refining -- and produces a wide variety of products.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT BENEFITS
(SFAS 132) -- SFAS 132 supercedes the disclosure requirements in SFAS 87,
Employers' Accounting for Pensions, and SFAS 106, Employers' Accounting for
Post-retirement Benefits Other Than Pensions. The overall objective of SFAS 132
is to improve and standardize disclosures about pensions and other
post-retirement benefits and to make the required information more
understandable. The Company has adopted SFAS 132 for the current year. There was
no effect on the results of operations or financial position.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1998, the
Financial Accounting Standards Board ("FASB") issued SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. The Statement will require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The derivative's change in fair value, which is not directly offset by
hedging, will be immediately recognized in earnings.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation. These
reclassifications had no effect on previously recorded net income or
shareholders' equity.
F-15
<PAGE> 46
NOTE 3 -- MEXICAN TRANSACTION
During the first quarter of 1995, the Company entered into a joint venture
with Arancia, S.A. de C.V. (the "Joint Venture"), a corn refining business
located in Mexico. This investment had been accounted for under the equity
method. In October 1998, the Company entered into certain agreements to acquire
the remaining interest in its joint venture in three transactions over the next
several years. The closing of the initial transaction occurred on December 1,
1998, whereby the Company obtained effective control of the Joint Venture
through the issuance of common stock and the payment of cash. The Company has
the option to acquire all of the remaining interest in the Joint Venture in two
additional transactions. The acquisition has been accounted for under the
purchase method of accounting. The fair value of the net assets of the joint
venture at December 1, 1998 was $136 million, in addition the Company recorded
goodwill of $127 million. The Company has reflected the series of transactions
as if they were completed on December 1, 1998. The future installment payments
are reflected as minority stockholder's interest and will accrue interest at the
same rate as the Company's short term US credit facility, which at December 31,
1998, was 5.45%.
The acquired assets and assumed liabilities as of December 1, 1998 were
composed of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Working capital...................................... $ 51
Fixed assets......................................... 266
Other assets......................................... 3
Long term debt....................................... 152
Other liabilities.................................... 32
</TABLE>
Had the acquisition been made at the beginning of 1997, the Company's pro
forma unaudited results would have been:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------------
1998 1997
------- -------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales...................................... $1,784 $1,744
Net earnings (loss)............................ 46 (84)
Earnings (loss) per share...................... 1.22 (2.30)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
results that would have been attained had the acquisition occurred at the
beginning of 1998 or of results that may be expected in the future.
NOTE 4 -- SPIN-OFF AND RESTRUCTURING
SPIN-OFF FROM AND TRANSACTIONS WITH CPC, NOW BESTFOODS
On December 31, 1997, CPC distributed 100 percent of the Corn Products
common stock through a special dividend to its shareholders. After the spin-off,
CPC had no direct ownership of the Company. In connection with the spin-off, the
Company entered into various agreements for the purpose of governing certain of
the ongoing relationships between CPC and the Company after the distribution.
F-16
<PAGE> 47
NOTE 4 -- SPIN-OFF AND RESTRUCTURING (CONTINUED)
The Company has entered into a tax indemnification agreement that requires
the Company to indemnify CPC against tax liabilities arising from the loss of
the tax-free reorganization status of the spin-off. This agreement could
restrict the Company, for a two-year period ending December 31, 1999, from
entering into certain transactions, including limitations on the liquidation,
merger or consolidation with another company, certain issuance and redemption of
our common stock and the distribution or sale of certain assets.
A master supply agreement was negotiated to supply CPC and its affiliates
with certain corn refining products at prices based generally on prevailing
market conditions for a minimum two-year term, ending December 31, 1999, which
can be renewed upon the agreement of both parties. The Company had sales to CPC
for the year ended December 31, 1998, of $161 million. Prior to the spin-off,
intercompany sales with CPC for the years ended December 31, 1997, and 1996,
amounted to $177 million, and $157 million, respectively.
RESTRUCTURING CHARGES -- NET AND SPIN-OFF COSTS
In 1997, the Company recorded a $94 million pretax restructuring charge and
a $15 million pre-tax spin-off charge from CPC. The restructuring charge, $76
million of which was utilized in 1997, and $9 million of which was utilized in
1998, includes the costs of the separation of facilities that were used by CPC
to produce both consumer foods and corn-derived products, employee costs, and
other charges. The spin-off charge utilized entirely during 1997 encompassed the
direct costs of the spin-off, including legal, tax and investment banking fees.
The remaining $9 million will be utilized in 1999.
NOTE 5 -- FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, accounts
payable and debt approximate fair values.
COMMODITIES
At December 31, 1998 and 1997, the Company had open corn commodity futures
contracts of $295 million and $154 million, respectively. Contracts open for
delivery beyond March 31, 1999, amounted to $224 million, of which $61 million
is due in May 1999, $56 million is due in July 1999, $41 million is due in
September 1999, $55 million is due in December 1999, and $11 million is due in
March 2000. At December 31, 1998, the price of corn under these contracts was
$12 million above market quotations of the same date.
NOTE 6 -- FINANCING ARRANGEMENTS
The Company had total debt outstanding of $404 million and $350 million on
December 31, 1998 and 1997, respectively. Short-term borrowings in the United
States and Canada consist primarily of unsecured credit lines, which provide for
a maximum of $340 million and $49 million, respectively in borrowings. In
addition the Company has various local country lines of credit for operations.
F-17
<PAGE> 48
NOTE 6 -- FINANCING ARRANGEMENTS (CONTINUED)
At December 31, short-term borrowings consist of the following:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
US revolving credit facility (5.45%)........................ $152 $190
Canadian line of credit (5.40% - 6.75% interest)............ 24 100
Other borrowings in various currencies (6.30% - 46%
interest)................................................. 67 44
Current portion of long-term debt........................... 7 3
---- ----
Total.................................................. $250 $337
==== ====
</TABLE>
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Mexican Export Credit, due 2000 at LIBOR + 1.49%............ $ 24 $--
Mexican Import Credit Facility, due 2001 at LIBOR + 1.75%... 40 --
Mexican Import Credit Facility, due 2007 at LIBOR + 3.30%... 60 --
Other, due in varying amounts through 2007, fixed and
floating interest rates ranging from 5.9% - 18%........... 39 16
---- ---
Total.................................................. $161 $16
---- ---
Less current maturities..................................... 7 3
---- ---
Long-term debt......................................... $154 $13
==== ===
</TABLE>
Maturities of long-term debt are $31 million in 2000, $47 million in 2001,
$4 million in 2002, $72 million in 2003 and thereafter. The LIBOR rate at
December 31, 1998 was 5.06%.
NOTE 7 -- LEASES
The Company leases rail cars and certain machinery and equipment under
various operating leases. Rental expense under operating leases was $18.7
million, $18.3 million, and $12.2 million in 1998, 1997 and 1996, respectively.
Minimum lease payments existing at December 31, 1998 are shown below:
<TABLE>
<CAPTION>
YEAR MINIMUM LEASE PAYMENT
---- ---------------------
(IN MILLIONS)
<S> <C>
1999....................................... $16.9
2000....................................... 15.1
2001....................................... 10.1
2002....................................... 7.3
Balance thereafter......................... 34.3
</TABLE>
F-18
<PAGE> 49
NOTE 8 -- INCOME TAXES
Income before income taxes and the components of the provision for income
taxes are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- ----
(IN MILLIONS)
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES:
United States............................................ $ 8 $(128) $(20)
Outside the United States................................ 63 39 57
--- ----- ----
Total................................................. $71 $ (89) $ 37
--- ----- ----
PROVISION FOR INCOME TAXES:
Current tax expense
US federal............................................... 1 (31) 27
State and local.......................................... 1 (4) (2)
Foreign.................................................. 13 6 4
--- ----- ----
Total current......................................... $15 $ (29) $ 29
--- ----- ----
DEFERRED TAX EXPENSE (BENEFIT)
US federal............................................... 5 7 (22)
State and local.......................................... -- 2 1
Foreign.................................................. 5 1 4
Total deferred........................................ 10 10 (17)
--- ----- ----
Total provision (benefit).................................. $25 $ (19) $ 12
=== ===== ====
</TABLE>
The tax effects of significant temporary differences, which comprise the
deferred tax liabilities and assets at December 31, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Plants and properties....................................... $210 $134
Pensions.................................................... -- 13
---- ----
Gross deferred tax liabilities.............................. 210 147
---- ----
Restructuring reserves...................................... 2 11
Employee benefit reserves................................... 11 14
Pensions.................................................... 4 --
Other....................................................... 35 14
---- ----
Gross deferred tax assets................................... 52 39
---- ----
Valuation allowance......................................... 2 --
---- ----
Total deferred tax liabilities.............................. $156 $108
==== ====
</TABLE>
Total net deferred tax liabilities and assets shown above included current
and non-current elements. CPC is responsible for substantially all income taxes
prior to December 31, 1997, under the terms of the distribution; accordingly the
valuation allowance was reduced to zero at December 31, 1997. The Company
recorded a valuation allowance in the amount of $2 million at December 31, 1998,
to reflect the estimated amount of deferred tax assets which, more likely than
not, will not be realized.
F-19
<PAGE> 50
NOTE 8 -- INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- ----
<S> <C> <C> <C>
Provision for tax at U.S. statutory rate............. 35.0% (35.0)% 35.0%
Taxes related to foreign income...................... (2.3) (7.5) (0.6)
State and local taxes -- net......................... 0.5 (1.5) (0.5)
Restructuring and spin-off charges................... -- 14.0 --
Other items -- net................................... 1.8 8.7 (0.3)
---- ----- ----
Provision at effective tax rate...................... 35.0% (21.3)% 33.6%
==== ===== ====
</TABLE>
The effective tax rate in 1998 was 35 percent. This reflects foreign tax
rates in countries where statutory rates are lower than the US statutory rate.
The effective rate in 1997 on the tax benefit of 21.3 percent derived from
a lower benefit associated with the restructuring and spin-off charges, lower
tax on average from foreign jurisdictions and an assumed rate for CPC
International Inc. Taxes that would result from dividend distributions by
foreign subsidiaries to the United States are provided to the extent dividends
are anticipated. As of December 31, 1998, approximately $214 million of retained
earnings of foreign subsidiaries are retained indefinitely by the subsidiaries
for capital and operating requirements.
NOTE 9 -- PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company and its subsidiaries have a number of non-contributory defined
benefit pension plans covering substantially all employees in the US and Canada,
including certain employees in other foreign countries. Plans for most salaried
employees provide pay-related benefits based on years of service. Plans for
hourly employees generally provide benefits based on flat dollar amounts and
years of services. The Company's general funding policy is to provide
contributions within the limits of deductibility under current tax regulations.
Certain foreign countries allow income tax deductions without regard to
contribution levels, and the Company's policy in those countries is to make the
contribution required by the terms of the plan. Domestic plan assets consist
primarily of common stock, real estate, corporate debt securities and short-term
investment funds.
Effective January 1, 1998, the plan for domestic salaried employees was
amended to a defined benefit "cash balance" pension plan, which provides
benefits based on service and company credits to the employee's accounts of
between 3 percent and 10 percent of base salary, bonus and overtime.
The Company also provides health care and life insurance benefits for
retired employees in the United States and Canada. Effective January 1, 1998,
the Company amended its U.S. post-retirement medical plans for salaried
employees to provide Retirement Health Care Spending Accounts. The Company
provides access to retiree medical insurance post-retirement. U.S. salaried
employees accrue an account during employment, which can be used after
employment to purchase post-retirement medical insurance from the Company and
Medigap or Medicare HMO policies after age 65. The accounts are credited with a
flat dollar amount, indexed for inflation annually during employment. The
accounts accrue interest credits using a rate equal to a specified amount above
the yield on 5-year Treasury notes. These employees become eligible for benefits
F-20
<PAGE> 51
NOTE 9 -- PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)
when they meet minimum age and service requirements. The Company accrues a flat
dollar amount on an annual basis for each domestic salaried employee. These
amounts, plus credited interest, can be used to purchase post-retirement medical
insurance. The Company has the right to modify or terminate these benefits.
A reconciliation of the changes in the plans' benefit obligations, fair
value of assets, and the plans' funded status reconciled to the amounts
recognized on the balance sheet on December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
PENSION OTHER
BENEFITS BENEFITS
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFITS OBLIGATION
Benefit obligation at beginning of year.............. $ 97 147 $ 15 13
Service cost......................................... 3 4 1 1
Interest cost........................................ 7 7 1 1
Benefit obligation transferred....................... -- (60) -- --
Benefits paid........................................ (3) (1) -- --
---- ---- ---- ----
Benefit obligation at end of year.................... $104 97 $ 17 15
==== ==== ==== ====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year....... $105 141 -- --
Actual return on plan assets......................... 7 25 -- --
Plan assets transferred.............................. -- (60) -- --
Benefits paid........................................ (3) (1) -- --
---- ---- ---- ----
Fair value of plan assets at end of year............. $109 105 -- --
==== ==== ==== ====
Funded status........................................ $ 5 $ 8 $(17) $(15)
Unrecognized net actuarial loss (gain)............... (19) (24) -- (1)
Unrecognized prior service cost...................... 5 5 (5) (4)
Unrecognized transition obligation................... -- (1) -- --
---- ---- ---- ----
Prepaid (accrued) benefit cost....................... $ (9) $(12) $(22) $(20)
==== ==== ==== ====
</TABLE>
For pension plans with an accumulated benefit obligation ("ABO") in excess
of plan assets, both the projected benefit obligation ("PBO") and ABO exceeded
the fair value of the plan assets by $5 million as of December 31, 1998. The PBO
and ABO exceed the fair value of the plan assets by $5 and $6 million,
respectively as of December 1997. The plans are unfunded.
F-21
<PAGE> 52
NOTE 9 -- PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)
The following table provides the components of net periodic benefit costs
for the plans for the years ended December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............................... $ 3 $ 4 $ 4 $ 1 $ 1 $ 1
Interest cost.............................. 7 7 10 1 1 4
Actual return on plan assets............... (7) (25) (18) -- -- --
Net amortization and deferral.............. (2) 17 8 (1) -- (1)
--- ---- ---- --- --- ---
Net periodic benefit cost.................. $ 1 $ 3 $ 4 $ 1 $ 2 $ 4
=== ==== ==== === === ===
</TABLE>
The weighted average assumptions used in accounting for the Company's
benefits at December 31 are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- ---------------------
1998 1997 1996 1998 1997 1996
----- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rates..................... 6.75% 7.0% 7.5% 6.75% 7.5% 7.0%
Rate of compensation increase...... 3.75% 5.0% 5.5% -- -- --
Expected return on plan assets..... 8.25% 10.0% 8.6% -- -- --
</TABLE>
Annual increases in per capita cost of health care benefits of 9.5 percent
pre-age-65 and 7.5 percent post-age-65 were assumed for 1998 to 1999. Rates were
assumed to decrease by 1 percent thereafter until reaching 4.5 percent.
Increasing the assumed health care cost trend rate by 1 percent increases the
APBO at December 31, 1998 by $1.5 million, with a corresponding effect on the
service and interest cost components of the net periodic post-retirement benefit
cost for the year then ended of $0.2 million.
In addition to the defined benefit plans, 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 1998, 1997 and 1996 was $4.6 million, $3.6
million and $2.9 million, respectively.
F-22
<PAGE> 53
NOTE 10 -- SUPPLEMENTARY BALANCE SHEET INFORMATION
Supplementary Balance Sheet Information is set forth below:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
ACCOUNTS RECEIVABLE -- NET
Accounts receivable -- trade.............................. $193 $146
Accounts receivable -- other.............................. 36 40
Allowance for doubtful accounts........................... (5) (4)
---- ----
Total accounts receivable -- net....................... 224 182
==== ====
INVENTORIES
Finished and in process................................... 110 51
Raw materials............................................. 43 43
Manufacturing supplies.................................... 22 29
---- ----
Total inventories...................................... 175 123
==== ====
ACCRUED LIABILITIES
Compensation expenses..................................... 2 2
Dividends payable......................................... 3 --
Accrued interest.......................................... 3 --
Restructuring reserves.................................... 9 18
Taxes payable other than taxes on income.................. 12 10
Other..................................................... 30 39
---- ----
Total accrued liabilities.............................. 59 69
==== ====
NONCURRENT LIABILITIES
Employee's pension, indemnity, retirement, and related
provisions............................................. 35 35
Other noncurrent liabilities.............................. 28 2
---- ----
Total noncurrent liabilities........................... 63 37
==== ====
</TABLE>
NOTE 11 -- STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 200 million shares of $0.01 par value common
stock. On December 31, 1997, 35.6 million shares were distributed to the
shareholders of CPC.
During 1998, the Company issued 1,764,706 common shares in connection with
the purchase of the controlling interest of Arancia-CPC, S.A. In addition, the
Company substituted 143,018 restricted common shares upon the spin-off, and
issued 36,600 additional restricted shares and 72,712 common shares upon the
exercise of stock options under the stock option plan.
PREFERRED STOCK AND STOCKHOLDER'S RIGHTS PLAN
The Company has authorized 25 million shares of $0.01 par value preferred
stock of which one million shares were designated as Series A Junior
Participating Preferred Stock for the stockholder's rights plan. Under this
plan, each share of the Corn Products Common Stock issued in the distribution
carries with it the right to purchase one one-hundredth of a share of preferred
stock. The rights will at no time have voting power or
F-23
<PAGE> 54
NOTE 11 -- STOCKHOLDERS' EQUITY (CONTINUED)
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 percent or more of the Corn Products Common Stock or
after December 31, 1999 would result in the acquisition of 15 percent 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 percent or more stockholder on or before
December 31, 1999 or a 15 percent 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 percent stockholder (as applicable) engages in certain self-dealing
transactions or acquires the Company in such a manner that the Corn Products
International and its common stock survive, or if any person acquires 10 or 15
percent 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 percent 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 percent
or more of its voting securities (as applicable). Unless redeemed earlier, the
rights will expire on December 31, 2007.
TREASURY STOCK
The Company purchased on the open market 33,000 shares of its common stock
at an aggregate purchase price of $28.70 per share, during the year ended
December 31, 1998. Also, the Company, acquired 18,454 shares of its common stock
through conversion from cancelled restricted shares and repurchase from
employees under the stock option plan at an aggregate purchase price of $30.76
per share, or fair value at the date of purchase. All of the acquired shares are
held as common stock in treasury, less shares issued to employees under the
stock option plan.
STOCK OPTION PLAN
The Company has established stock option plan for certain key employees. In
addition, all existing CPC stock options of Company employees were converted to
stock options to acquire Corn Products Common Stock. These stock options retain
their vesting schedules and existing expiration dates.
During January through November 1998, the Company granted additional
options to purchase 1,097,200 shares of common stock. These options are
exercisable upon vesting, and vest at one and two-year anniversary dates from
the date of grant. As of December 31, 1998, certain of these non-qualified
options have been forfeited due to the termination of employees.
In addition to stock options, 143,018 shares were converted under the
restricted stock award provisions of the plan at December 31, 1997. During 1998,
the Company granted an additional 36,600 of these awards. The cost of these
awards is being amortized over the restriction period.
F-24
<PAGE> 55
NOTE 11 -- STOCKHOLDERS' EQUITY (CONTINUED)
Under the provisions of FAS 123, the Company accounts for stock-based
compensation using the intrinsic value method prescribed by APB 25. On a pro
forma basis, net income would have been $38 million or $1.05 per share in 1998
and a loss of $76 million or $2.13 per share in 1997. For purposes of this pro
forma disclosure under SFAS 123, the estimated fair value of the awards is
amortized to expense over the awards' vesting period.
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 1998, 1997, and 1996 respectively: risk-free interest rates of
5.67, 6.57 and 6.54 percent; volatility factor of 35 percent; and a weighted
average 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.
A summary of stock option and restricted stock transactions for the year
ended December 31, 1998 follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES: STOCK RESTRICTED
----------------- ------------ ----------
<S> <C> <C>
Outstanding at beginning of year........................ 477,371 143,018
Granted................................................. 1,097,200 36,600
Exercised/vested........................................ (72,712) (44,598)
Canceled................................................ (23,353) (12,644)
Outstanding at end of year.............................. 1,478,506 122,376
============ ========
Exercisable at end of year.............................. 393,806 --
============ ========
Price range at end of year.............................. $13.06-32.31 --
============ ========
Weighted average exercise price......................... $ 29.24 --
============ ========
Weighted average fair value of options granted during
the current year...................................... $ 11.38
============
</TABLE>
F-25
<PAGE> 56
NOTE 12 -- GEOGRAPHIC INFORMATION
The Company operates in one business segment -- Corn Refining -- and is
managed on a geographic regional basis. Its North American Operations include
its wholly-owned Corn Refining businesses in the United States and Canada and
majority ownership in Mexico. Its Rest of World businesses include primarily 100
percent owned Corn Refining operations in South America, and joint ventures and
alliances in Asia, Africa and other areas. Also included in this group is its
North American enzyme business.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS:
North America........................................ $ 916 $ 871 $1,030
Rest of the World.................................... 532 547 494
------ ------ ------
TOTAL................................................ $1,448 $1,418 $1,524
====== ====== ======
OPERATING INCOME:
North America........................................ $ 18 $ (32) $ 14
Rest of the World.................................... 76 82 51
Corporate............................................ (10) (2)
Restructuring and spin-off costs..................... -- (109)* --
------ ------ ------
TOTAL................................................ $ 84 $ (61) $ 65
====== ====== ======
TOTAL ASSETS:
North America........................................ $1,316 $1,089 $1,037
Rest of the World.................................... 630 577 611
------ ------ ------
TOTAL................................................ $1,946 $1,666 $1,648
====== ====== ======
DEPRECIATION AND AMORTIZATION:
North America........................................ $ 63 $ 63 $ 60
Rest of the World.................................... 32 32 28
------ ------ ------
TOTAL................................................ $ 95 $ 95 $ 88
====== ====== ======
CAPITAL EXPENDITURES:
North America........................................ $ 40 $ 53 $ 77
Rest of the World.................................... 51 47 115
------ ------ ------
TOTAL................................................ $ 91 $ 100 $ 192
====== ====== ======
</TABLE>
- -------------------------
All data for Rest of World is based on a 12-month fiscal year.
* 1977 includes a $30 million charge from CPC for consumer and corporate
restructuring; $30 million for North American corn refining; $49 million for
restructuring other.
NOTE 13 -- SUBSEQUENT EVENTS
On January 14, 1999, the Company acquired the corn wet milling business of
Bang IL Industrial Co., Ltd., a Korean corporation through an asset purchase for
$65 million. The assets purchased included the net working capital, plant,
property and equipment of the corn wet milling business. The acquisition was
funded primarily from a combination of debt both in the United States and from
local banking sources.
F-26
<PAGE> 57
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows:
<TABLE>
<CAPTION>
1(ST) QTR 2(ND) QTR 3(RD) QTR 4(TH) QTR
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
Net sales............................. $ 339 $ 367 $ 359 $ 383
Gross profit.......................... 39 40 44 48
Net income............................ 8 11 13 11
Basic earnings per common share....... $ 0.22 $ 0.30 $ 0.35 $ 0.32
Diluted earnings per common share..... $ 0.22 $ 0.30 $ 0.35 $ 0.32
1997
Net sales............................. $ 337 $ 358 $ 360 $ 363
Gross profit.......................... 21 33 42 42
Restructuring and spin-off
charges -- net...................... -- 65 18 --
Net income (loss)..................... (9) (64) (10) 8
Basic earnings per common share....... $(0.25) $(1.79) $(0.28) $ 0.30
Diluted earnings per common share..... $(0.25) $(1.79) $(0.28) $ 0.30
</TABLE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is listed and traded on the New York Stock
Exchange. The following table sets forth, for the periods indicated, the high,
low, and closing market prices of the common stock and common stock cash
dividends.
<TABLE>
<CAPTION>
1(ST) QTR 2(ND) QTR 3(RD) QTR 4(TH) QTR
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998
Market price range of common stock
High.................................. $35.87 $38.31 $33.82 $30.37
Low................................... 27.00 31.50 23.25 23.00
Close................................. 35.87 33.87 25.25 30.37
Dividends declared per common share... -- -- $ 0.08 $ 0.08
</TABLE>
The number of shareholders of the Company's stock at December 31, 1998 was
approximately 21,000.
F-27
<PAGE> 58
SIX-YEAR FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales....................... $1,448 $1,418 $1,524 $1,387 $1,385 $1,243
Restructuring and spin-off
charges -- net................ -- 83 -- (23) 12 --
Net income (loss)............... 43 (75) 23 135 100 99
Basic earnings per common
share......................... $ 1.19 $(2.10) $ 0.64 $ 3.79 $ 2.81 $ 2.78
Cash dividend declared per
common share.................. $ 0.16 -- -- -- -- --
BALANCE SHEET DATA
Working capital................. $ 60 $ (73) $ 147 $ 31 $ 106 $ 33
Plants and properties -- net.... 1,298 1,057 1,057 920 830 792
Total assets.................... 1,946 1,666 1,663 1,306 1,207 1,110
Total debt...................... 404 350 350 363 294 209
Stockholders' equity............ 1,053 986 1,025 600 550 484
Shares outstanding, year-end in
millions...................... 37.6 35.6 -- -- -- --
STATISTICAL DATA (1)
Depreciation and amortization... $ 95 $ 95 $ 88 $ 82 $ 80 $ 78
Capital expenditures............ 91 100 192 188 145 122
Maintenance and repairs......... 67 69 61 65 65 57
Total employee costs............ 131 142 170 164 149 177
</TABLE>
- -------------------------
(1) All data is based on a 12 month fiscal year.
F-28
<PAGE> 59
PROSPECTUS
$600,000,000
CORNPRODUCTS INTL LOGO
DEBT SECURITIES
-------------------------
Corn Products International, Inc. intends to offer, at one or more times,
debt securities with a total offering price not exceeding $600,000,000. We will
describe the specific terms of these securities in supplements to this
prospectus. You should read the prospectus and the supplements carefully before
you invest.
We may sell debt securities directly to purchasers or through agents
designated from time to time or through underwriters or a group of underwriters
which may be managed by one or more underwriters. If any agents, dealers or
underwriters are involved in the sale of these debt securities, the names of the
agents, dealers or underwriters and any commission or discount will be set forth
in the prospectus supplement.
Our principal executive offices are located at 6500 South Archer Road,
Bedford Park, Illinois 60501-1933. Our telephone number is (708) 563-2400.
-------------------------
THIS PROSPECTUS MAY BE USED TO OFFER AND SELL DEBT SECURITIES ONLY IF
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT FOR THOSE DEBT SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE DEBT SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The date of this Prospectus is August 11, 1999.
<PAGE> 60
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About this Prospectus............... 2
Where You Can Find More
Information....................... 2
Corn Products International, Inc.... 3
Use of Proceeds..................... 4
Ratio of Earnings to Fixed
Charges........................... 4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Debt Securities...... 5
Plan of Distribution................ 12
Legal Matters....................... 13
Experts............................. 13
</TABLE>
-------------------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf process, we may, from
time to time, sell the debt securities described in this prospectus in one or
more offerings with a total offering price not exceeding $600,000,000. This
prospectus provides you with a general description of the debt securities. Each
time we sell debt securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information in this prospectus. Please
carefully read both this prospectus and any prospectus supplement together with
additional information described under the heading "Where You Can Find More
Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission. You may read and copy any document we
file at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operations of the public reference room. Our SEC filings are also available to
the public over the Internet on the SEC's web site at http://www.sec.gov. In
addition, you may inspect SEC filings at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. You may find additional
information about us at our web site at http://www.cornproducts.com.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the following documents we filed with the SEC (file
number 1-13397) and any future filings that we make with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until we or
any underwriters sell all of the debt securities:
- Our Annual Report on Form 10-K for our fiscal year ended December 31,
1998;
- Our Quarterly Reports on Form 10-Q for the periods ended March 31, 1999
and June 30, 1999; and
2
<PAGE> 61
- Our Current Report on Form 8-K filed on February 2, 1999 and our Current
Report on Form 8-K/A filed on February 16, 1999 amending our Current
Report on Form 8-K filed December 16, 1998.
You may request a copy of these filings at no cost, by writing or calling
us at the following address:
Corn Products International, Inc.
P.O. Box 345
6500 South Archer Road
Bedford Park, Illinois 60501-1933
Attention: Corporate Communications
Telephone: (708)563-6582
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THE DEBT SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE OF THE FRONT OF THOSE DOCUMENTS.
CORN PRODUCTS INTERNATIONAL, INC.
Corn Products, together with its subsidiaries, produces a large variety of
food ingredients and industrial products derived from the wet milling of corn
and other starch-based materials (such as tapioca and yucca). We are one of the
largest corn refiners in the world and the leading corn refiner in Latin
America. In addition, we are the world's leading producer of dextrose and have
strong regional leadership in corn starch. Our consolidated operations are
located in 14 countries with 26 plants and, in 1998, we had consolidated net
sales of approximately $1.45 billion. Our net sales in the first quarter of 1999
were $396.6 million. We also hold interests in 8 other countries through
unconsolidated joint ventures and allied operations, which operate an additional
15 plants. Approximately 60% of our consolidated net sales were from North
American operations with the balance coming from the rest of the world.
We were incorporated in 1997 as a Delaware corporation. In December 1997,
Bestfoods, Inc., formerly CPC International Inc., transferred to us its corn
refining related businesses. At that time we were a wholly-owned subsidiary of
Bestfoods. Effective at midnight on December 31, 1997, Bestfoods distributed all
of our common stock that it owned to the holders of its common stock. Since that
time, we have operated as an independent company and our common stock is traded
on the New York Stock Exchange. Unless the context indicates otherwise, when we
speak about our operations prior to January 1, 1998, we are referring to the
corn refining business of Bestfoods.
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USE OF PROCEEDS
Unless we state otherwise in the applicable prospectus supplement, we
expect to use the net proceeds from the sale of any debt securities for general
corporate purposes, including repayment of indebtedness, capital expenditure and
investments in business opportunities as they may arise. Pending such use, the
net proceeds may be temporarily invested in short-term instruments.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of our earnings to our fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges(1)... 3.5x 3.1x 3.8x 1.5x(2)(3) 1.8x(2) 6.3x(2)(3) 8.0x(2)(3)
</TABLE>
- -------------------------
(1) The ratio of earnings to fixed charges consists of income before
extraordinary charges and income taxes and minority interest plus fixed
charges minus capitalized interest. Fixed charges consist of interest on
debt, amortization of discount on debt, and the interest portion of rental
expense on operating leases.
(2) For the purposes of calculating the ratio of earnings to fixed charges for
the years 1994, 1995, 1996 and 1997, "income" represents pro forma earnings
before extraordinary charges and income taxes plus fixed charges minus
capitalized interest. "Fixed charges" consist of pro forma interest on all
indebtedness and estimated interest on rentals.
(3) For the years 1994, 1995 and 1997, income excludes restructuring and spin
off costs.
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DESCRIPTION OF DEBT SECURITIES
We will issue the debt securities under an indenture to be entered into
between Corn Products and The Bank of New York, as trustee. We have summarized
selected provisions of the indenture below. This is a summary and is not
complete. If you would like more information on the provisions of the indenture,
you should review the form of indenture which is filed as an exhibit to the
registration statement which includes this prospectus.
In the summary we have included references to article and section numbers
of the indenture so that you can easily locate these provisions.
GENERAL
The debt securities will be unsecured and will rank equally with all our
unsecured and unsubordinated indebtedness. The indenture does not limit the
amount of debt securities that we may issue, but the total offering price of the
debt securities that may be issued under this prospectus is limited to
$600,000,000.
The indenture permits us to issue debt securities in one or more series.
Each series of debt securities may have different terms. The terms of any series
of debt securities will be set forth in (or determined in accordance with) a
resolution of our Board of Directors or in a supplement to the indenture
relating to that series. (Section 2.02)
A supplement to this prospectus will describe specific terms relating to
the series of debt securities being offered. These terms will include some or
all of the following:
- the title of the series of debt securities;
- the total principal amount;
- the interest rate or rates, if any (which may be fixed or variable), and
interest payment dates;
- the date or dates of maturity;
- whether the series can be redeemed by us or the holder;
- whether there will be a sinking fund;
- the portion of the series of debt securities due upon acceleration of
maturity in the event of a default;
- the denominations in which the debt securities will be issuable if other
than denominations of $1,000 and any integral multiple of $1,000;
- the form used to evidence ownership of the debt securities;
- whether the debt securities are convertible;
- the manner of payment of principal and interest;
- additional offices or agencies for registration of transfer and exchange
and for payment of the principal, premium (if any), and interest;
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- whether the debt securities will be registered or unregistered, and the
circumstances upon which such debt securities may be exchanged for debt
securities issued in a different form (if any);
- if denominated in a currency other than United States dollars, the
currency or composite currency in which the debt securities are to be
denominated, or in which payments of the principal, premium (if any), and
interest will be made and the circumstances when the currency of payment
may be changed (if any);
- if we or a holder can choose to have the payments of the principal,
premium (if any), or interest made in a currency or composite currency
other than that in which the debt securities are denominated or payable,
how such a choice will be made and how the exchange rate between the two
currencies will be determined;
- if the payments of principal, premium (if any), or interest may be
determined with reference to one or more securities issued by us, or
another company, or any index how those amounts will be determined;
- whether defeasance and discharge provisions will apply; and
- any other terms consistent with the indenture.
Each series of debt securities will be a new issue with no established
trading market. There can be no assurance that there will be a liquid trading
market for the debt securities.
We may purchase debt securities at any time in the open market or
otherwise. Debt securities we purchase may, in our discretion, be held or
resold, canceled or used by us to satisfy any sinking fund or redemption
requirements.
Debt securities bearing no interest or interest at a rate which, at the
time of issuance, is below the prevailing market rate may be sold at a
substantial discount below their stated principal amount. Special United States
federal income tax considerations applicable to any of these discounted debt
securities (or to certain other debt securities issued at par which are treated
as having been issued at a discount for United States federal income tax
purposes) will be described in a prospectus supplement.
FORM AND EXCHANGE OF DEBT SECURITIES
All of the debt securities will be issued in fully registered form without
coupons or in unregistered form with or without coupons. The debt securities may
also be issued in the form of one or more temporary or definitive global
securities. Registered debt securities which are book-entry securities will be
issued as registered global securities.
Unless otherwise indicated in a prospectus supplement, principal, premium
(if any), and interest will be payable, and the debt securities may be
registered for transfer or exchange, at the principal corporate trust office of
the trustee in New York, New York. At our option, payment of interest on
registered debt securities may be made by check or by wire transfer. No service
charge will be made for any exchange or registration of transfer of the debt
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge. (Sections 2.06, 4.02 and 4.03)
Unless another depository is identified in a prospectus supplement, debt
securities issued in global form will be deposited with the Depository Trust
Company, New York,
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New York or its nominee. This means that we will not issue certificates to each
holder. Each global security will be issued to DTC who will keep a computerized
record of its participants (for example, your broker) whose clients have
purchased debt securities. The participant will then keep a record of its
clients who purchased the debt securities. Unless it is exchanged in whole or in
part for a certificate, a global security may not be transferred except that
DTC, its nominees, and their successors may transfer a global security as a
whole to one another.
Beneficial interests in global securities will be shown on, and transfers
of global securities will be made only through, records maintained by DTC and
its participants. If you are not a participant in DTC, you may beneficially own
debt securities held by DTC only through a participant.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer beneficial interests in a global security.
DTC has provided us the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law. It is a "banking
organization" within the meaning of the New York Banking Law, a member of the
United States Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds securities that its participants deposit with it. DTC also
records the settlement among participants of securities transactions, such as
transfers and pledges, in deposited securities through computerized records for
participants' accounts. This eliminates the need to exchange certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
participant. The rules that apply to DTC and its participants are on file with
the SEC.
DTC is owned by a number of its participants and by the New York Stock
Exchange, the American Stock Exchange and the National Association of Securities
Dealers.
Principal and interest payments will be wired to DTC's nominee. We and the
trustee will treat DTC's nominee as the owner of the global securities for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global securities to
owners of beneficial interests in the global securities.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit participants' accounts on the payment date according to
their respective holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consent or voting rights to participants whose accounts are credited with debt
securities on a record date, by using an omnibus proxy. Payments by participants
to owners of beneficial interests in the global securities, and voting by
participants, will be governed by the customary practices between the
participants and owners of beneficial interests. An example of this is the
holding of securities in "street name". However, payments will be the
responsibility of the participants and not of DTC, the trustee or us.
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<PAGE> 66
So long as DTC or its nominee is the registered owner of a global security,
DTC or that nominee will be considered the sole owner or holder of the debt
securities represented by that global security for all purposes under the
indenture. Except as set forth in the next paragraph, owners of beneficial
interests in a global security:
- will not be entitled to have the debt securities represented by that
global security registered in their names;
- will not receive or be entitled to receive physical delivery of the debt
securities in definitive form; and
- will not be considered the owners or holders of the debt securities under
the indenture.
We will issue debt securities of any series then represented by global
securities in definitive form in exchange for those global securities if:
- DTC notifies us that it is unwilling or unable to continue as depositary;
- DTC ceases to be a clearing agency registered under applicable law and a
successor depositary is not appointed by us within 90 days; or
- we decide not to require all of the debt securities of a series to be
represented by a global security.
If we issue debt securities in definitive form in exchange for a global
security, an owner of a beneficial interest in the global security will be
entitled to have the same amount in debt securities registered in its name and
to physical delivery of those debt securities in definitive form. Debt
securities issued in definitive form will, except as set forth in the applicable
prospectus supplement, be issued in denominations of $1,000 and multiples of
$1,000 and will be issued in registered form only, without coupons.
CERTAIN RESTRICTIONS
The restrictions summarized in this section apply to all debt securities
unless a prospectus supplement indicates that they do not. Certain terms used in
the following description of these restrictions are defined under the caption
"Certain Definitions" at the end of this section.
Limitations on Secured Debt. >The debt securities will not be secured. If
we or our Tax Consolidated Subsidiaries incur debt secured by an interest on
Principal Property (including Capital Stock or indebtedness of any Subsidiary),
we are required to secure the then outstanding debt securities equally and
ratably with (or prior to) our secured debt.
The indenture permits us to create certain liens ("Permitted Encumbrances")
without securing the debt securities. Among the Permitted Encumbrances are:
- liens existing at the time of acquisition of the affected property or
purchase money liens incurred within 270 days after acquisition of the
property;
- liens affecting property of a corporation existing at the time it becomes
a Subsidiary or at the time it is merged into or consolidated with or
purchased by us or a Tax Consolidated Subsidiary;
- liens existing on the date of the indenture;
- certain liens in connection with legal proceedings and government
contracts and certain deposits or liens made to comply with government
contracts or statutes;
- certain statutory liens or similar liens arising in the ordinary course
of business;
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<PAGE> 67
- liens for certain judgments and awards; and
- certain extensions, renewals or replacements of any liens referred to
above.
Limitations on Sale and Lease-Back Transactions. We and our Tax
Consolidated Subsidiaries may not sell or transfer any Principal Property with
the intention of entering into a lease of such facility (except for temporary
leases of a term, including renewals, not exceeding five years) unless any one
of the following is true:
- the transaction is to finance the purchase price of property acquired or
constructed;
- the transaction involves the property of someone who is merging with us
or one of our Tax Consolidated Subsidiaries who is selling substantially
all of its assets to us or one of our Tax Consolidated Subsidiaries;
- the transaction is with a governmental entity;
- the transaction is an extension, renewal or replacement of one of the
items listed above; or
- within 120 days after the effective date of such transaction, we or our
Tax Consolidated Subsidiaries repay our Funded Debt or purchase other
property in an amount equal to the greater of (1) the net proceeds of the
sale of the property leased in such transaction or (2) the fair value, in
the opinion of our board of directors, of the leased property at the time
of such transaction. (Section 4.07)
Exempted Indebtedness. Notwithstanding the limitations on secured debt and
sale and lease-back transactions, we and our Tax Consolidated Subsidiaries may
issue, assume, or guarantee indebtedness secured by a lien or other encumbrance
without securing the debt securities, or may enter into sale and lease-back
transactions without retiring Funded Debt, or enter into a combination of such
transactions, if the sum of the principal amount of all such indebtedness and
the aggregate value of all such sale and lease-back transactions does not at any
such time exceed 10% of our Consolidated Net Tangible Assets. (Sections 4.06 and
4.07)
Merger, Consolidation and Sale of Assets. We may not consolidate or merge
with or into any other corporation, or sell, lease or transfer all or
substantially all of our assets to any other entity, unless:
- we survive the merger or consolidation or the surviving or successor
corporation is a United States, United Kingdom, Italian, French, German,
Japanese or Canadian corporation which assumes all of our obligations
under the debt securities and under the indenture; and
- after giving effect to the merger, consolidation, sale, lease or
transfer, no event of default under the indenture or no event which,
after notice or lapse of time or both, would become an event of default
under the indenture shall have occurred and be continuing. (Section
11.01)
If we sell or transfer substantially all our assets and the purchaser
assumes our obligations under the indenture, we will be discharged from all
obligations under the indenture and the debt securities. (Section 11.02)
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CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms as used in the
indenture. See Article One of the indenture for the full definition of all such
terms.
"Capital Stock" means and includes any and all shares, interests,
participations or other equivalents (however designated) of ownership in a
corporation or other Person.
"Consolidated Net Tangible Assets" means the aggregate amount of all assets
(less depreciation, valuation and other reserves and items deductible therefrom
under generally accepted accounting principles) after deducting (a) all
goodwill, patents, trademarks and other like intangibles and (b) all current
liabilities (excluding any current liabilities that are extendible or renewable
at our option for a time more than twelve months from the time of the
calculation) as shown on our most recent consolidated quarterly balance sheet.
"Funded Debt" means any Indebtedness maturing by its terms more than one
year from its date of issuance (notwithstanding that any portion of such
Indebtedness is included in current liabilities).
"Indebtedness" means with respect to any person (i) any liability of such
person (a) for borrowed money, or (b) evidenced by a bond, note, debenture or
similar instrument (including purchase money obligations but excluding trade
payables), or (c) for the payment of money relating to a lease that is required
to be classified as a capitalized lease obligation in accordance with generally
accepted accounting principles; (ii) any liability of others described in the
preceding clause (i) that such person has guaranteed, that is recourse to such
person or that is otherwise its legal liability; and (iii) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) and (ii) above.
"Principal Property" means any manufacturing plant or warehouse owned or
leased by us or one of our Tax Consolidated Subsidiaries located within the
United States, the gross book value of which exceeds one percent of Consolidated
Net Tangible Assets, other than manufacturing plants and warehouses that are
financed by a governmental entity or that, in the opinion of our board of
directors, is not of material importance to the business conducted by us and our
Tax Consolidated Subsidiaries, taken as a whole.
"Subsidiary" means any corporation of which we control at least a majority
of the outstanding stock capable of electing a majority of the directors of such
corporation. In this context, control means that we or our Subsidiaries own the
stock, or that we or our subsidiaries have the power to direct the voting of the
stock, or any combination of these items so long as we have the ability to elect
a majority of the directors.
"Tax Consolidated Subsidiary" means a Subsidiary with which we would be
entitled to file a consolidated federal income tax return.
EVENTS OF DEFAULT
Under the indenture, "Event of Default" means, with respect to any series
of debt securities (Section 6.01):
- failure to pay interest that continues for 30 days after payment is due;
- failure to make any principal or premium payment when due;
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- default in the deposit of any sinking fund payment in respect of the debt
securities of such series;
- failure to comply with any of our other agreements contained in the
indenture or in the debt securities for 90 days after the trustee
notifies us of such failure (or the holders of at least 25% in principal
amount of the outstanding debt securities affected by such failure notify
us and the trustee);
- failure to pay any principal, premium or interest on any of our
Indebtedness which is outstanding in a principal amount of at least $25
million in the aggregate (excluding Indebtedness evidenced by the debt
securities or otherwise arising under the indenture), and the
continuation of such failure after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness,
or
- the occurrence or existence of any other event or condition under any
agreement or instrument relating to any such Indebtedness that continues
after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
Indebtedness, or
- the declaration that any such Indebtedness is due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or the requirement that an
offer to prepay, redeem, purchase or defease such Indebtedness be made,
in each case prior to the stated maturity thereof;
- certain events of bankruptcy, insolvency or reorganization involving us;
or
- any other event of default described in the prospectus supplement.
In general, the trustee must give both us and you notice of a default for
the securities you hold. The trustee may withhold notice to you (except defaults
as to payment of principal, premium or interest) if it determines that the
withholding of such notice is in the best interest of the holders affected by
the default. (Section 7.02)
If a default is caused because we fail to comply with any of our agreements
contained in the indenture or in the debt securities, either the trustee or the
holders of at least 25% principal amount of the debt securities affected by the
default may require us to immediately repay the principal and accrued interest
on the affected series. (Section 6.02)
The trustee may refuse to exercise any of its rights or powers under the
indenture unless it first receives satisfactory security or indemnity. (Sections
7.01 and 7.03) Subject to certain limitations specified in the indenture, the
holders of a majority in principal amount of the then outstanding debt
securities of an affected series will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
under the indenture or exercising any trust or power conferred on the trustee
with respect to the debt securities of the affected series. (Section 6.12)
MODIFICATION OF THE INDENTURE
With the consent of the holders of at least a majority of the principal
amount of a series of the debt securities outstanding, we may change the
indenture or enter into a
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supplemental indenture that will then be binding upon that series. However, no
changes may be made in this way to any of the following terms (Section 10.02):
- maturity;
- payment of principal or interest;
- the currency of the debt;
- the premium (if any) payable upon redemption;
- the amount to be paid upon acceleration of maturity; or
- reducing the percentage required for changes to the indenture.
In addition, we may modify the indenture without the consent of the holders
to, among other things:
- add covenants;
- change or eliminate provisions of the indenture so long as such changes
do not adversely affect current holders; and
- cure any ambiguity or correct defective provisions.
DISCHARGE OF THE INDENTURE
We will be discharged from certain of our obligations relating to the
outstanding debt securities of a series if we deposit with the trustee money or
government obligations sufficient for payment of all principal and interest on
those debt securities, when due. However, our obligation to pay the principal of
and interest on those debt securities will continue.
We may discharge obligations as described in the preceding paragraph only
if, among other things, we have received an opinion of counsel stating that
holders of debt securities of the relevant series will not recognize income,
gain or loss for federal income tax purposes as a result of the deposit and
discharge which will be any different than if the deposit and discharge had not
occurred.
REGARDING THE TRUSTEE
The Bank of New York is one of a number of banks with which we maintain
ordinary banking relationships and from which we have obtained credit facilities
and lines of credit.
PLAN OF DISTRIBUTION
Corn Products may sell the debt securities through underwriters, dealers,
agents or directly to other purchasers. Debt securities also may be sold by
underwriters directly to other purchasers or through other dealers, who may
receive compensation from the underwriters in the form of discounts, concessions
or commissions.
If underwriters are used in the sale, the debt securities will be sold to
the underwriters for their own account. The underwriters may resell the debt
securities in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying
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<PAGE> 71
prices determined at the time of sale. The obligations of the underwriters to
purchase the debt securities will be subject to certain conditions. Any initial
public offering price and any discounts or concessions allowed or repaid to
dealers may be changed from time to time.
We also may designate dealers, acting as our agents, to offer and sell debt
securities upon certain terms and conditions. We may also sell debt securities
directly to purchasers, without the use of underwriters, dealers or agents.
Underwriters, dealers and agents that participate in the distribution of
the debt securities may be underwriters as defined in the Securities Act of
1933, and any discounts or commissions received by them from us and any profit
on the resale if the offered debt securities may be treated as underwriting
discounts and commissions under the Securities Act. We will identify any
underwriters or agents and describe their compensation from us in a supplement
to the prospectus.
There can be no guarantee that the debt securities will be listed on a
national securities exchange or that, if listed, the listing will continue until
the maturity of the debt securities. Also, certain broker-dealers may make a
market in the debt securities, but they will not be obligated to do so and may
discontinue any market making at any time and without any notice to you.
Further, no assurances can be given that any broker-dealer will make a market in
the debt securities or that any market for the debt securities will be
reasonably liquid or broad. If we know that the debt securities will be listed
on an exchange or that a broker-dealer will make a market in the debt
securities, we will include that information in the prospectus supplement.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act. We also may contribute to payments that the underwriters,
dealers or agents may be required to make. Underwriters, dealers and agents may
engage in transactions with, or perform services for, us or our subsidiaries in
the ordinary course of business.
LEGAL MATTERS
Unless otherwise indicated in a prospectus supplement, the validity of the
debt securities is being passed upon for us by Marcia E. Doane, Esq., our Vice
President, General Counsel and Corporate Secretary and by Sidley & Austin, One
First National Plaza, Chicago, Illinois 60603. Ms. Doane is a full-time employee
of Corn Products and, as of June 30, 1999, owned 1,094 shares of common stock,
held 7,100 shares of restricted common stock and held options to acquire an
additional 51,000 shares of common stock.
EXPERTS
Our consolidated financial statements in our Annual Report on Form 10-K for
the year ended December 31, 1998 have been audited by KPMG LLP, independent
certified public accountants, as set forth in their report in that Annual
Report. We are incorporating those consolidated financial statements into this
prospectus by reference in reliance on the authority of KPMG LLP as experts in
accounting and auditing.
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$200,000,000
[CORNPRODUCTS INTERNATIONAL LOGO]
8.45% SENIOR NOTES DUE 2009
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PROSPECTUS SUPPLEMENT
AUGUST 18, 1999
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Sole Book-Running Manager
LEHMAN BROTHERS
Joint Lead Manager
SALOMON SMITH BARNEY
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