<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-4199
CPC INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2385545
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
INTERNATIONAL PLAZA, P.O. BOX 8000
ENGLEWOOD CLIFFS, NEW JERSEY 07632-9976
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) 201-894-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange where registered
--------------------- ----------------------------------------
Common Stock par value New York, Chicago, Pacific, Basle, Frankfurt,
$.25 per share Geneva, London, Paris, Zurich
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to its Form 10-K [X]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Aggregate market value
Outstanding at held by non-affiliates at
Class January 31, 1997 January 31, 1997
----- ---------------- -------------------------
<S> <C> <C>
Common stock, par value $.25 143,562,026 $11,036,330,749
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's Annual Report to Stockholders for the year
ended December 31, 1996 are incorporated into Part I and Part II
hereof.
2. Portions of the registrant's Proxy Statement dated March 13, 1997 are
incorporated into Part III hereof.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
CPC International Inc. and its consolidated subsidiaries (the
"Company") is a worldwide group of businesses, principally engaged in three
major industry segments: consumer foods, baking and corn refining (see second
paragraph under Item 7 regarding the spin-off of the corn refining business).
The development of the Company's business since the beginning of 1996 and
financial information on business segments and geographical divisions are
described in the 1996 Annual Report to Stockholders (the "Annual Report"), the
following portions of which are incorporated herein by reference:
- Business Review on pages 6 and 7.
- Text on pages 8 through 13 under the heading "Consumer Foods".
- Text on pages 14 through 17 under the heading "Baking
Business".
- Text on pages 18 through 21 under the heading "Corn Refining".
- Management's Discussion and Analysis of Financial Condition
and Results of Operations on pages 24 through 27.
- Financial Statements and Notes to Consolidated Financial
Statements on pages 29 through 45.
The Company employs approximately 55,300 people of whom approximately
35,200 are located outside the United States. Total employee costs amounted to
$2.0 billion in 1996 compared with $1.6 billion and $1.4 billion in 1995 and
1994, respectively.
The Company's products are manufactured from various agricultural raw
materials including soybean and other vegetable oils, peanuts, corn and wheat,
all of which are expected to continue to be, in adequate supply. As prices of
these raw materials depend on a number of unpredictable factors, such as, farm
plantings and weather, which cannot always be fully protected through hedging,
fluctuations in raw material prices may have an effect on the Company's
earnings.
The Company's products are manufactured and sold primarily by the sales
organizations of its various operating units and subsidiaries. Exports represent
a small portion of total net sales. Mayonnaise sales accounted for 11.2 percent,
11.5 percent and 11.3 percent of consolidated net sales in 1996, 1995 and 1994,
respectively.
The Company has approximately 2,470 trademarks, some of which are of
significant importance to the Company, particularly in the consumer foods and
baking businesses. The Company also has over 1,200 patents of various durations,
some of which are licensed to affiliates and joint ventures in which the Company
or an affiliate participates. No individual patent has a material effect on the
earnings of the Company.
The Company's products, both within the United States and abroad,
generally face strong competition, and as a result, the Company engages in
extensive marketing, advertising and promotional activities, particularly with
respect to its consumer products. The Company also conducts market research to
assist in determining consumer preferences. The amount spent on these activities
was $936 million in 1996, $833 million in 1995 and $712 million in 1994.
In addition, the Company conducts product and process research and
development activities. Research related to food and food technology is
conducted at facilities in Somerset, New Jersey; Bay Shore, New York; Heilbronn,
Germany; and Thayngen, Switzerland, and the corn refining research and product
support activities are provided from the facilities at Argo, Illinois and
Beloit, Wisconsin.
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Research has resulted in the development of new and improved products
based on studies in nutrition, food technology, vegetable oils, enzymes,
carbohydrates, and carbohydrate-derived products, as well as developments and
improvements in process technology. The amount spent for research and
development in 1996, 1995, and 1994 was $73 million, $70 million and $58
million, respectively. Approximately 770 full-time professional employees were
engaged in such activities during 1996.
The Company operates in 62 countries, and accordingly, operations are
subject to varying degrees of political risk and uncertainty. Loss of earnings
from any one country other than the United States and Germany would not have a
material adverse effect on the Company as a whole. Also, because of its
diversity, the Company is subject to fluctuations in foreign currencies which
could affect earnings. As a practical matter it is not feasible to cover these
fluctuations with currency hedges. However, the Company does maintain a policy
to hedge its exposure to foreign currency cash flows.
ITEM 2. PROPERTIES.
The Company's headquarters buildings in Englewood Cliffs, New Jersey
are held under a lease which, including all renewal terms, expires in May 2019.
The Company owns or leases other property appropriate to its business, including
distribution centers and warehouses. None of the leases involved are considered
to be a material lease.
The Company has a total of 161 operating plants, of which 42 are in the
United States, 7 in Canada, 41 in Europe, 24 in Africa and the Middle East, 29
in Latin America, and 18 in Asia. In addition the Company has interests in joint
ventures in Latin America which operate 4 plants (corn refining products).
Of the Company's 161 plants, 118 are engaged solely in the manufacture
of consumer foods products, 25 are engaged solely in the manufacture of baking
products, 17 are engaged solely in the manufacture of corn refining products, 6
of which also produce consumer foods products; and 1 plant is engaged in the
manufacture of other products. In general, it is the Company's belief that its
plants are suitable and adequate for its needs, and, subject to fluctuations in
market demand, are fully utilized.
Included below is a complete listing of all plants owned and operated
by the Company and its subsidiaries as of December 31, 1996. Based on past loss
experience, the Company believes it is adequately insured in respect of those
assets, and for liabilities which are likely to arise from its operations.
THE CONSUMER FOODS FACILITIES ARE AS FOLLOWS:
UNITED STATES: ARKANSAS-Little Rock; ILLINOIS-Argo, Chicago, Franklin Park;
INDIANA-Indianapolis; NORTH CAROLINA-Asheboro; NEW JERSEY-Bayonne, Jersey City;
NEW YORK-Bronx; TEXAS-Irving; WISCONSIN-Germantown, Milwaukee (2); PUERTO
RICO-Arecibo
CANADA: ONTARIO-Cardinal; QUEBEC-Baie d'Urfe, Pointe Claire (2)
EUROPE:AUSTRIA-Wels; CZECH REPUBLIC-Zabreh; DENMARK-Frederiksberg, Levring,
Vadum; FRANCE-Duppigheim (2), Faverolles, Grande Synthe, Ludres (Nancy),
Verneuil; GERMANY-Auerbach, Bremen, Cloppenburg, Heilbronn, Krefeld, Krumbach,
Reinbek, Stavenhagen, Wittingen; GREECE-Schimatari; HUNGARY-Roszke;
IRELAND-Dublin; ITALY-Sanguinetto; NETHERLANDS-Baarn, Loosdrecht; POLAND-Poznan
(2), Torun; PORTUGAL-Carregado; SPAIN-Martorell; SWEDEN-Simrishamn;
SWITZERLAND-Carouge, Thayngen; UNITED KINGDOM-Burton-on-Trent, Crumlin, Erith,
Lifton, Paisley, Redditch
2
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LATIN AMERICA: ARGENTINA-Barracas, Florida, Mendoza, Pilar, Tucuman;
BRAZIL-Campina Grande, Garanhuns, Itatiaia, Pouso Alegre; COLOMBIA-Barranquilla
(2), Cali; COSTA RICA-Alajuela; DOMINICAN REPUBLIC-Santo Domingo;
MEXICO-Aguascalientes, Aguida, Lerma; PERU-Callao; URUGUAY-San Carlos;
VENEZUELA-Maracay, Valencia
AFRICA & MIDDLE EAST: ISRAEL-Arad, Arara, Barkan, Hadera, Haifa, Zefat;
JORDAN-Wadi Dleil; KENYA-Nairobi; MOROCCO-Casablanca; SAUDI ARABIA-Yanbu; SOUTH
AFRICA-Cape Town, Durban (3), East London, Escort, Johannesburg, Kimberley,
Klerksdrop (2), Vryheid; TURKEY-Cayirova, Kartal
ASIA: CHINA-Beijing, Conghua; HONG KONG-Tai Po; INDIA-Dharwar, Thane;
INDONESIA-Purwakarta; MALAYSIA-Kuala Lumpur; PAKISTAN-Pernawan;
PHILIPPINES-Cavite, Las Pinas, Paranaque; SRI LANKA-Kothalawala, Ratmalana;
TAIWAN-Hsin Chu Hsien; THAILAND-Bangpoo, Gateway City
THE BAKING BUSINESS FACILITIES ARE AS FOLLOWS: UNITED STATES:
CALIFORNIA-Montebello, Placentia, San Francisco, Tulare; COLORADO-Denver;
CONNECTICUT-Greenwich; FLORIDA-Miami, Riviera Beach; ILLINOIS-Northlake;
MARYLAND-Frederick; NORTH CAROLINA-Gastonia; NEW JERSEY-Totowa; NEW YORK-Albany
(2), Bay Shore (2), Hudson, Plattsburg; OREGON-Beaverton; PENNSYLVANIA-Hazleton;
TEXAS-Dallas; VERMONT-Burlington; WASHINGTON-Seattle; WISCONSIN-Oconomowoc
EUROPE:UNITED KINGDOM-Bristol
THE CORN REFINING FACILITIES ARE AS FOLLOWS:
UNITED STATES: CALIFORNIA-Stockton; ILLINOIS-Argo; NORTH CAROLINA-Winston-Salem
CANADA: ONTARIO-Cardinal, London, Port Colborne
LATIN AMERICA: ARGENTINA-Baradero*; BRAZIL-Balsa Nova, Cabo*, Mogi-Guacu*;
CHILE-Llay-Llay*; COLOMBIA-Barranquilla, Cali*, Medellin
ASIA: MALAYSIA-Petaling Jaya; PAKISTAN-Faisalabad*
AFRICA: KENYA-Eldoret
The OTHER PRODUCTS facility which produces enzymes is located in Beloit,
Wisconsin.
- --------------
* Indicates corn refining plant that also produces consumer food products.
3
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ITEM 3. LEGAL PROCEEDINGS.
In previous reports concerning the site of a former subsidiary, Ott
Chemical Company, located in Muskegon, Michigan, the Company reported that it
had been held liable under the Comprehensive Environmental Response,
Compensation and Liability Act, in a 1991 decision by the U.S. District Court
for the Western District of Michigan. The Company also previously reported that
on July 14, 1995, the U.S. Court of Appeals for the Sixth Circuit reversed the
District Court's finding of liability against the Company and that following
such reversal, the Court of Appeals directed an en banc rehearing of this
decision. The rehearing was held on December 6, 1995 and the Company is
currently awaiting the decision.
As previously reported by the Company, in July, 1995 the Company
received a Federal grand jury subpoena in connection with the Justice Department
antitrust investigation of U.S. corn refiners in the marketing of high fructose
corn syrup and other "food additives" (the investigation of the Company relates
only to high fructose corn syrup). The Company complied with the grand jury
subpoena. The Company, as a high fructose corn syrup producer, was also named
as one of the defendants in a number of private treble damage class actions, by
direct and indirect customers, alleging violations of federal and state
antitrust laws. Following the certification of a federal class action on behalf
of direct purchasers of high fructose corn syrup, the Company entered into a
settlement of this action in which it paid plaintiffs $7 million. The Company
remains a defendant in one opt-out individual case in federal court as well as
in the state law indirect purchaser class actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of all elected officers of the
Registrant, as of December 31, 1996, indicating their positions and offices with
the Registrant and the period of time during which each has served as such:
<TABLE>
<CAPTION>
Name Age All positions and offices with the Registrant
---- --- ---------------------------------------------
<S> <C> <C>
Charles R. Shoemate 57 Chairman of the Board since September 1990; Chief Executive
Officer since August 1990; President since October
1988; Vice President, 1984 - October 1988 and Director
since October 1988.
Robert J. Gillespie 54 Executive Vice President since July 1995; Senior Vice President
November 1991 - July 1995; Vice President 1981 - November 1991
and Director since October 1988.
Alain Labergere 62 Executive Vice President since July 1995; Senior Vice President
November 1991 - July 1995; Vice President January 1991 -
November 1991 and Director since December 1992.
Konrad Schlatter 61 Chief Financial Officer since July 1993; Senior Vice President
since April 1990; Vice President since 1987; Comptroller
1981-1987
Clifford B. Storms 64 Senior Vice President since October 1988; Vice President 1973 -
October 1988; and General Counsel since 1975.
</TABLE>
4
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<TABLE>
<S> <C> <C>
Angelo S. Abdela 54 Vice President since 1990; Treasurer 1981-1995.
Richard P. Bergeman 58 Vice President since 1982.
Michael J. Bevilacqua 57 Vice President since 1992.
Charles Feldberg 63 Vice President since 1984.
Gordon F. Granger 59 Vice President since 1990.
Gale L. Griffin 53 Vice President since 1995.
Heribert H. Grunert 52 Vice President since 1995.
Lawrence K. Hathaway 52 Vice President since 1990.
James E. Healey 55 Vice President and Treasurer since 1995; Comptroller 1987-1995.
Hanes A. Heller 56 Vice President since 1995.
Bernard H. Kastory 51 Vice President since 1992.
Axel C.A. Krauss 52 Vice President since 1992.
Eugene J. Northacker 55 Vice President since 1992.
Luis Schuchinski 59 Vice President since 1995.
John W. Scott 61 Vice President since 1985.
Samuel C. Scott 52 Vice President since 1991.
Anthony J.B. Simon 51 Vice President effective March 1997.*
Mohammed Wahby 61 Vice President since 1995.
James W. Ripley 53 Comptroller since 1995.
John B. Meagher 60 Secretary since 1981.
</TABLE>
* Mr. Simon has been employed by CPC International Inc. for the past five years
most recently as Senior Vice President Business Development, Planning and
Operations, Europe Division.
All officers serve at the pleasure of the Board of Directors.
5
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information regarding the Company's common stock and market prices for
each quarterly period during the past two years is set forth on pages 46 and 47
of the Annual Report and is incorporated herein by reference.
The approximate number of equity stockholders as of December 31, 1996
was 28,250.
The history of the Company's dividends declared for the last two years
on pages 46 and 47 of the Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data for the eleven years ended December 31, 1996
for the Company, as set forth on pages 46 and 47 is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results
of operations of the Company for the three years ended December 31, 1996, is set
forth on pages 24 through 27 of the Annual Report and is incorporated herein by
reference.
On February 26, 1997, the Company announced that it intends to spin off
its corn refining business to shareholders as a new independent publicly-owned
company. The objective of this action is to give both CPC and the new corn
refining company the focus, flexibility and resources needed for faster growth
of sales, volumes and profits. The new company, with businesses in 18 countries,
will comprise CPC's corn refining operations in the United States, Canada, Latin
America, Asia, and Africa as well as joint venture operations and technical and
licensing agreements. The transaction is expected to be completed by the end of
1997 and is expected to be tax-free to CPC and its shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements comprising the consolidated balance sheets at
December 31, 1996 and 1995, and the consolidated statements of income,
stockholders' equity and cash flows, and notes to financial statements for each
of the years in the three year period ended December 31, 1996 are set forth on
pages 29 through 45 of the Annual Report and is incorporated herein by
reference.
Selected quarterly financial data for the years ended December 31, 1996
and 1995, set forth on pages 46 and 47 of the Annual Report is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
6
<PAGE> 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's Proxy Statement dated March 13, 1997 (the "1997 Proxy
Statement) has been filed pursuant to Regulation 14A and is incorporated herein
by reference. Information regarding directors of the Registrant is set forth on
pages 19 through 25 of the 1997 Proxy Statement under the caption "Election of
Directors". Information regarding executive officers of the Registrant is set
forth on pages 4 and 5 of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is set forth on pages 14
through 17 of the 1997 Proxy Statement under the caption "Executive Compensation
and Stock Ownership Tables".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners
and management is set forth on pages 17 and 18 of the 1997 Proxy Statement under
the caption "Stock Ownership Table".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) Financial Statements - See index on page 8.
b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the fourth quarter of 1996.
c) Exhibits - Exhibits to this report are filed as part of this
report as set forth in the Index to Exhibits on pages 11 and
12 hereof.
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INDEX TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The consolidated financial statements and reports of the
independent auditors are included in Part II of this report through
incorporation by reference from the Annual Report which is filed as
Exhibit 13. The documents referred to above can be found on the
following pages of the Annual Report.
<TABLE>
<CAPTION>
Annual Report Page
--------------------
<S> <C>
a) Independent auditors' report. 28
b) Consolidated statements of income for the years ended
December 31, 1996, 1995 and 1994 29
c) Consolidated balance sheets as of December 31, 1996 and 1995. 30-31
d) Consolidated statements of cash flows for the years ended
December 31, 1996, 1995 and 1994 32
e) Consolidated statements of stockholders' equity for the years ended
December 31, 1996, 1995 and 1994 33
f) Notes to financial statements 34 - 45
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted either
because the information is not required or is otherwise included in the
financial statements and notes thereto.
8
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 18th
day of March, 1997.
CPC INTERNATIONAL INC.
------------------------------------------
By /S/ Charles R. Shoemate
------------------------------------------
Charles R. Shoemate,
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on the behalf of the
Registrant and in the capacities indicated, on the 18th day of March, 1997.
<TABLE>
<CAPTION>
Signature Title
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<S> <C>
/S/ Charles R. Shoemate Chairman, President, and Chief Executive Officer
- -----------------------------------
(Charles R. Shoemate)
/S/ Konrad Schlatter Senior Vice President and Chief Financial Officer
- -----------------------------------
(Konrad Schlatter)
/S/ James W. Ripley Comptroller and Chief Accounting Officer
- -----------------------------------
(James W. Ripley)
/S/ Theodore H. Black * Director
- -----------------------------------
(Theodore H. Black)
/S/ Alfred C. DeCrane, Jr. * Director
- -----------------------------------
(Alfred C. DeCrane, Jr.)
/S/ William C. Ferguson * Director
- -----------------------------------
(William C. Ferguson)
/S/ Robert J. Gillespie * Director
- -----------------------------------
(Robert J. Gillespie)
</TABLE>
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/S/ Ellen R. Gordon * Director
- -----------------------------------
(Ellen R. Gordon)
/S/ George V. Grune * Director
- -----------------------------------
(George V. Grune)
/S/ Leo I. Higdon, Jr. * Director
- -----------------------------------
(Leo I. Higdon, Jr.)
/S/ Richard G. Holder * Director
- -----------------------------------
(Richard G. Holder)
/S/ Eileen S. Kraus * Director
- -----------------------------------
(Eileen S. Kraus)
/S/ Alain Labergere * Director
- -----------------------------------
(Alain Labergere)
/S/ William S. Norman * Director
- -----------------------------------
(William S. Norman)
*/S/ John B. Meagher
- -----------------------------------
(John B. Meagher)
Attorney-in-fact
10
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INDEX TO EXHIBITS
EXHIBIT NO.
- ---------------------
3(a) The Certificate of Incorporation as restated April 22, 1993 is
incorporated by reference to Exhibit 3 (a) of From 10-K for
the year ended December 31, 1993.
3(b) The By-Laws as amended on September 21, 1993 are incorporated
by reference to Exhibit 3 (b) of From 10-K for the year ended
December 31, 1993.
4(a) No instruments defining rights of holders of debt securities
are included as exhibits because each authorized issue of debt
securities is less than 10% of total assets. The Company
agrees to furnish a copy of any such instrument upon request.
4(b) Rights Agreement dated March 19, 1991 between the Company and
First Chicago Trust Company of New York is incorporated by
reference to Exhibit 4 (b) of Form 10-K for the year ended
December 31, 1991.
10(a) The 1984 Stock and Performance Plan is incorporated by
reference from Exhibit A to the Prospectus contained in
Post-Effective Amendment No. 1 to the Registration Statement
on Form S-8, File No. 2-92248.
10(b) The 1993 Stock and Performance Plan is incorporated by
reference to the Registration Statement filed on Form S-8,
File No. 33-49847.
10(c) Deferred Compensation Plan for Outside Directors and
Retirement Income Plan for Outside Directors:
i) The Deferred Compensation Plan for Outside
Directors is filed herewith.
ii) The Retirement Income Plan for Outside Directors
as amended September 21, 1993, is incorporated by reference to
Exhibit 10 (c) ii of Form 10-K for the year ended December 31,
1995. This Plan was terminated by the Board of Directors on
May 1, 1996.
10(d) Severance agreements dated March 18, 1996 for the five most
highly compensated executive officers, Messrs. C. R.
Shoemate, R. J. Gillespie, A. Labergere, C. B. Storms, and
K. Schlatter are incorporated by reference to Exhibit 10 of
Form 10-Q for the quarter ended June 30, 1996.
10(e) Indemnification agreements for all directors and the five most
highly compensated executive officers are filed herewith.
10(f) Deferred Compensation Plan for senior executives, dated
November 10, 1988 is incorporated by reference to Exhibit 10
(e) of Form 10-K for the year ended December 31, 1988.
11
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10(g) Special Severance Program for Salaried Employees, dated
January 17, 1989 is incorporated by reference to Exhibit 10
(f) of Form 10-K for the year ended December 31, 1988. An
amendment dated March 19, 1991 to the Special Severance
Program for Salaried Employees is incorporated by reference to
Exhibit 10 (f) of Form 10-K for the year ended December 31,
1991.
10(h) Deferred Stock Unit Plan for senior executives, dated December
20, 1994, is incorporated by reference to Exhibit 10 (h) of
Form 10-K for the year ended December 31, 1994.
10(i) Executive Life Insurance Plan and Amendment No. 1 related
thereto are incorporated by reference to Exhibit 10 (i) of
Form 10-K for the year ended December 31, 1994.
11 Schedule of computation of earnings per share is filed
herewith.
12 Statement regarding the computation of ratios of earnings to
fixed charges is filed herewith.
13 1996 Annual Report to Stockholders is filed herewith. Except
for such parts thereof as are expressly incorporated by
reference in this Form 10-K, this exhibit is furnished for the
information of the Securities and Exchange Commission and is
not deemed filed as a part hereof. Graphic material contained
in the Annual Report is not included in the electronic filing
of this report.
21 Subsidiaries of the Registrant is filed herewith.
23 Consent of Independent Accountants is filed herewith.
24 Powers of Attorney are filed under separate cover with the
Commission.
27 Financial Data Schedule is filed herewith.
12
<PAGE> 1
EXHIBIT 10(c)(i)
CPC INTERNATIONAL INC.
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
As Amended Effective November 1, 1996
1. PURPOSE AND ELIGIBILITY
The purpose of the Plan is to: (i) provide outside directors
with an opportunity to defer receipt of all or a portion of their cash
compensation as members of the Board, (ii) establish terms for such
deferral and (iii) provide for compensation in the form of mandatorily
deferred shares of Common Stock of the Company. All directors who are
not, and have never been, employees of the Company shall be eligible to
participate in the Plan.
2. ADMINISTRATION
The Plan shall be administered by the Compensation and
Nominating Committee (the "Committee") of the Board of Directors. The
members of the Committee shall be appointed by the Board. The Committee
shall have full power and authority to interpret the terms of the Plan,
to determine all questions arising in the administration of the Plan,
and to adopt such rules and procedures as it may deem advisable for the
administration of the Plan.
3. STOCK COMPENSATION
(a) Fifty percent (50%) of the annual retainer of the directors will
be paid in the form of mandatorily deferred shares of Common
Stock, which shall be credited to each director's Stock Account
as provided in Section 5 and paid after resignation or
retirement from the Board as provided in Section 7.
(b) Amounts transferred from the Company's Retirement Income Plan
for Outside Directors (the "Retirement Plan") with respect to
directors in service on May 1, 1996, in the form of deferred
shares of Common Stock, will be credited to each director's
Transferred Stock Account as provided in Section 5 and paid
after resignation or retirement from the Board as provided in
Section 7.
4. ELECTION TO DEFER CASH COMPENSATION
On or before December 31 of any year, a director may deliver
to the Committee a written election to defer all or any part of his
cash compensation for the succeeding calendar year. Such election shall
be irrevocable and shall specify whether
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<PAGE> 2
and to what extent such compensation shall be deferred in the form of
Common Stock and credited to the director's Stock Account. The balance,
if any, shall be deferred in cash and credited to the director's
Interest-Bearing Account as provided in Section 5. A director who first
assumes office after January 1 of any year may elect, prior to the
first day of the next full calendar quarter, to defer all or any part
of such compensation for the succeeding calendar year.
5. DEFERRED COMPENSATION ACCOUNTS
The Committee shall establish and maintain three deferred
compensation accounts for each director: (i) a Stock Account, to which
there shall be credited stock compensation and the portion of cash
compensation which the director has elected to defer in the form of
Common Stock, (ii) a Transferred Stock Account, to which there shall be
credited stock equivalents transferred from the Retirement Plan, and
(iii) an Interest-Bearing Account, to which all other deferred cash
compensation shall be credited.
At the end of each calendar quarter, there shall be credited
to the respective Accounts the deferred compensation accrued during
such quarter. If a director has elected to defer cash compensation in
the form of Common Stock, the number of full shares to be credited to
the Stock Account for each quarter shall be determined on the basis of
the closing price of the Common Stock on the last trading day of the
quarter as reported for New York Stock Exchange-Composite Transactions,
and any amount which would represent a fractional share shall be
credited to the director's Interest-Bearing Account.
Amounts credited to a director's Interest-Bearing Account
shall earn interest equivalents at such rate (which may be a floating
rate) as shall be determined from time to time by the Committee.
Dividend equivalents on shares credited to a director's Stock
Account shall, if the director so elects, be credited at the end of
each quarter to his or her Stock Account in the form of full shares of
common Stock, with any amount which would represent a fractional share
being credited to his or her Interest-Bearing Account. In the absence
of such election, all dividend equivalents shall be credited to the
director's Interest-Bearing Account. Dividend equivalents on shares
credited to a director's Transferred Stock Account shall be credited at
the end of each quarter to his or her Transferred Stock Account in the
form of full shares of Common Stock, with any amount which would
represent a fractional share being credited to his or her
Interest-Bearing Account.
6. ANNUAL LIMITATION ON DEFERRALS IN COMMON STOCK
The maximum number of shares of Common Stock which may be
credited under the Plan to all the director's Stock Accounts and
Transferred Stock Accounts in any year shall not exceed 10,000. Any
deferrals which would cause such number to exceed 10,000 shares in any
year shall be credited to the Interest-Bearing Accounts.
-2-
<PAGE> 3
7. PAYMENT
Payment of a director's Accounts shall be made at such dates
as may be determined by the Committee, but in no event earlier than six
months after resignation or retirement as a director nor later than ten
years thereafter. Payment of a director's Stock Account may be made in
cash or shares of Common Stock, or any combination thereof, as the
director shall request subject to the approval of the Committee.
Payment of a director's Transferred Stock Account and Interest-Bearing
Account shall be in cash.
In the event of a director's death prior to receiving all
payments due under the Plan, the remaining amount shall be paid in a
lump sum to the beneficiary or beneficiaries designated by the director
in a writing filed with the Committee or, in the absence of an
effective designation, to the director's estate.
8. GRANTOR TRUST
The Company may establish an irrevocable grantor trust with an
independent trustee, which shall be a bank or trust company selected by
the Company, and transfer to the trustee of that trust shares of Common
Stock and cash or other assets in order to assist the Company in
fulfilling its payment obligations hereunder. The governing trust
instrument must require that the trustee shall establish a separate
account in the trust fund for each director, based on the contributions
made by or for such director, that all assets held in the trust shall
remain available to satisfy the claims of general creditors of the
Company in case of insolvency or bankruptcy and that the Company shall
give timely written notice to the trustee of the insolvency or
bankruptcy of the Company.
9. NON-ASSIGNABILITY
The rights and interests of a director hereunder may not be
assigned, pledged or otherwise transferred except by will or the laws
of descent and distribution.
10. AMENDMENTS AND TERMINATION
The Board may at any time amend or terminate the Plan. No
amendment or termination shall alter or impair existing rights in
respect of a director's Accounts.
If the outstanding shares of Common Stock are changed by
reason of any stock dividend or split, recapitalization, merger,
consolidation, combination, exchange of shares, or other corporate
change, the Committee shall make such substitutions or adjustments to
the Stock Accounts and the Transferred Stock Accounts and the annual
limitation on deferrals in Common Stock as it deems to be equitable and
consistent with the provisions contained herein.
-3-
<PAGE> 4
11. GENERAL MATTERS
Cash and Common Stock credited to Accounts under the Plan will
be paid at the dates and in the manner provided for in Section 7 from
the assets of the grantor trust established under Section 8 and, to the
extent the assets therein are not sufficient or such a trust has not
been established, from the general assets of the Company. Prior to such
payment, a director will have no interest under the Plan in any
specific asset of the Company or any security interest in the assets of
a grantor trust established under Section 8. Until the establishment of
such a trust, no certificates shall be issued for shares credited to a
director's Stock Account or Transferred Stock Account.
All expenses incurred in administering the Plan and a grantor
trust established under Section 8 will be paid by the Company.
Adopted: April 22, 1969
Amended: March 20, 1984
January 19, 1988
March 15, 1988
September 21, 1993
May 1, 1994
May 1, 1996
November 1, 1996
-4-
<PAGE> 1
EXHIBIT 10(e)
INDEMNIFICATION AGREEMENT
AGREEMENT, dated as of [DATE] between CPC INTERNATIONAL INC., a
Delaware corporation (the "Company"), and [NAME] ("Indemnitee").
W I T N E S S E T H :
WHEREAS, it is essential to the Company to retain and attract
as directors and officers the most capable persons available; and
WHEREAS, Indemnitee is A DIRECTOR/AN OFFICER of the Company;
and
WHEREAS, both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
and officers of public companies; and
WHEREAS, the By-laws of the Company require the Company to
indemnify and advance expenses to its directors and officers, and Indemnitee has
been serving and continues to serve as A DIRECTOR/AN OFFICER of the Company in
part in reliance on the By-laws; and
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to maintain Indemnitee's
continued service to the Company, and Indemnitee's reliance on the By-laws, and
in part to provide Indemnitee with specific contractual assurance that the
protection of the By-laws will be available to him (regardless of, among other
things, any amendment to or revocation of the By-laws or any change in the
composition of the Company's Board of Directors or any acquisition transaction
relating to the Company), the Company wishes to provide in this Agreement for
the indemnification of, and the advancing of expenses to, Indemnitee to the
fullest extent (whether partial or complete) permitted by law and as set forth
in this Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of
Indemnitee continuing to serve the Company directly or, at its request, another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
Section 1. Certain definitions
(a) Change in Control: The occurrence of any of the following
events shall constitute a "Change in Control":
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities and Exchange Act of 1934, as amended, but excluding the
Company, a subsidiary of the Company, or a trustee or other fiduciary holding
securities under any employee benefit plan or employee stock plan of the Company
or a subsidiary of the Company) becomes, directly or indirectly, the "beneficial
owner" (as defined in Rule 13d-3 under said Act) of 15% or more of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors ("Voting Securities") of the Company;
provided, however, that there shall be excluded, for this purpose, any
acquisition of Voting Securities either from the Company or pursuant to a Stock
Combination (as defined hereinafter); or
(ii) any person, as defined in (i) above, commences a tender
offer or exchange offer which, if successful, would result in such person
becoming the beneficial owner, as defined in (i) above, of at least 15% of the
outstanding Voting Securities of the Company; provided, however, that the Board
of Directors of the Company shall have the right to delay the date on which a
Change in Control shall be deemed to occur pursuant to this clause (ii), but in
no event beyond the earlier of (A) the date of the public announcement that the
Board of Directors has determined to recommend, or remain neutral toward, such
offer, or (B) the earliest date on which there is a purchase of any Voting
Securities of the Company pursuant to such offer; or
(iii) during any period of two consecutive years individuals
who at the beginning of such period constitute the Board of Directors of the
Company (including for this purpose any new director whose election by the Board
of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (such individuals and such
new directors being "Continuing Directors")) cease for any reason to constitute
a majority thereof; or
(iv) the stockholders of the Company approve a merger,
consolidation, reorganization or sale of substantially all of the assets of the
Company ("Combination") with any other corporation, other than a Combination
which (A) is approved by a majority of the directors of the Company who are
Continuing Directors at the time of such approval, and (B) would result in the
Common Stock of the Company outstanding immediately prior thereto remaining
outstanding or being converted into voting common stock, or its equivalent, of
either the surviving entity or the person owning directly or indirectly all the
common stock, or its equivalent, of the surviving entity, which voting common
stock, or its equivalent, is listed on a registered United States national
securities exchange or is approved for quotation and trading on the National
Association of Securities Dealers Automated Quotation National Market System
("Stock Combination"); or
<PAGE> 3
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(b) Claim: any threatened, pending or completed action, suit
or proceeding, or any inquiry or investigation (whether conducted by the Company
or any other party), that Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise.
(c) Expenses: include attorneys' fees and all other costs,
expenses and obligations including judgments, fines, ERISA excise taxes and
penalties paid or incurred in connection with investigating, preparing for and
defending or participating in the defense of (including on appeal) or settling
any Claim relating to any Indemnifiable Event and any and all interest,
assessments and other charges paid or payable with or in respect of such
Expenses.
(d) Indemnifiable Event: any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, or by reason of anything done or not done by Indemnitee in any such
capacity.
(e) Independent Counsel: an individual lawyer who is a member
of the Bar of the State of Delaware or a law firm which maintains an office in
the State of Delaware and, in either case, (i) is generally reputed to be
experienced in corporate law; (ii) has not otherwise been retained to represent
the Company or Indemnitee in any material matter within the past 5 years (other
than, in the case of the Company, with respect to matters concerning the rights
of Indemnitee (or of other indemnitees under similar indemnity agreements) to
indemnity payments and Expense Advances); and (iii) has been selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld).
Section 2. (a) In the event Indemnitee was, is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Claim by reason of (or arising in part
out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the
fullest extent permitted by the Delaware General Corporation Law, as the same
exists or may hereafter be amended, against any and all Expenses of such Claim;
provided, however, that except as provided in Section 4 hereof, the Company
shall not be obligated to indemnify Indemnitee in connection with any action,
suit or proceeding initiated by Indemnitee unless such action, suit or
proceeding was authorized by the Board of Directors, either generally or in the
specific instance. To the extent that Indemnitee has been successful, on the
merits or otherwise, in defense of any Claim relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal with or without prejudice, Indemnitee shall be indemnified against
Expenses incurred in connection therewith without further determination. In all
other cases, the determination of whether and the extent to which Indemnitee
would be permitted to be indemnified under applicable law shall be made in
writing by the Reviewing Party (as defined in Section 2(c) hereof) as soon as
practicable but in any event not later than 60 days after written demand
therefor is presented to the Company.
(b) If so requested by Indemnitee, the Company shall advance
(within 5 business days of such request) any and all Expenses to Indemnitee (an
"Expense Advance"). The
<PAGE> 4
Indemnitee hereby agrees to reimburse the Company for all Expense Advances to
the extent it shall be ultimately determined that Indemnitee is not entitled to
be indemnified hereunder. If Indemnitee has commenced legal proceedings in a
court of competent jurisdiction pursuant to Section 2(e) hereof to secure a
determination that Indemnitee should be indemnified under applicable law,
Indemnitee shall not be required to so reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto as to
which all rights of appeal therefrom have been exhausted or lapsed.
(c) If there has not been a Change in Control, the Reviewing
Party shall be any appropriate person or body consisting of a member or members
of the Company's Board of Directors, or any other person or body appointed by
the Board, who is not a party to the particular Claim for which Indemnitee is
seeking indemnification. If there has been a Change in Control, the Reviewing
Party shall be Independent Counsel. The Company agrees to pay the reasonable
fees of Independent Counsel and to indemnify fully Independent Counsel against
any and all expenses (including attorneys' fees), claims, liabilities and
damages arising out of or relating to this Agreement or the engagement of
Independent Counsel pursuant hereto.
(d) The Reviewing Party (and the court in any legal proceeding
seeking a determination of whether or not Indemnitee is entitled to Expense
Advances or reimbursement hereunder) shall presume that Indemnitee is entitled
to indemnification pursuant to Section 2(a) hereof, and the Company shall have
the burden of proof in the making of any determination contrary to such
presumption. If no determination pursuant to Section 2(a) hereof is made within
60 days of the Company's receipt of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made, and Indemnitee shall be absolutely entitled to such indemnification,
absent (i) a misstatement of a material fact in the request for indemnification
or an omission of a material fact necessary to make the statements in such
request not materially misleading with respect to the information necessary for
the determination of entitlement to indemnification or (ii) a prohibition of
such indemnification under applicable law.
(e) If the Reviewing Party determines that Indemnitee would
not be permitted to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right within 90 days to commence litigation in any
court having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, and the Company
hereby consents to service of process and to appear in any such proceeding.
Section 3. In the event of a Change in Control, the Company
shall, upon written request by Indemnitee, create a trust for the benefit of
Indemnitee (the "Trust") and from time to time upon written request of
Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, ERISA excise taxes,
penalties and settlement amounts of any and all Claims relating to an
Indemnifiable Event from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by
Independent Counsel. The terms of the Trust shall provide that (i) the Trust
shall not be revoked, or the principal thereof invaded, without the written
consent of Indemnitee, (ii) the Trustee shall
<PAGE> 5
advance, within 5 business days of a request by Indemnitee, any and all Expenses
to Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the
circumstances under which Indemnitee would be required to reimburse the Company
under Section 2(b) of this Agreement), (iii) the Trust shall continue to be
funded by the Company in accordance with the funding obligation set forth above,
(iv) the Trustee shall promptly pay to Indemnitee all amounts for which
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in the Trust shall revert to the Company
upon a final determination by Independent Counsel or a court of competent
jurisdiction, as the case may be, that Indemnitee has been fully indemnified
under the terms of this Agreement. The Trustee shall be chosen by Independent
Counsel and reasonably satisfactory to Indemnitee. Nothing in this Section 3
shall relieve the Company of any of its obligations under this Agreement.
Section 4. The Company shall indemnify Indemnitee against any
and all expenses (including attorneys' fees) and, if requested by Indemnitee,
shall (within 5 business days of such request) advance such expenses to him
which are incurred by him in connection with any claim asserted against or
action brought by him for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Company By-law now or
hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
Section 5. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, ERISA excise taxes, penalties and amounts paid in
settlement of a Claim but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
Section 6. The termination of any claim, action, suit or
proceeding, by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
Section 7. The rights of Indemnitee hereunder shall be in
addition to any other rights he may have under the Company's By-laws or the
Delaware General Corporation Law or otherwise. To the extent that a change in
the Delaware General Corporation Law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's By-laws and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
Section 8. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any
DIRECTOR/OFFICER of the Company.
<PAGE> 6
Section 9. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
Section 10. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
Section 11. The Company shall not be liable under this Agreement
to make any payment in connection with any claim made against Indemnitee to the
extent Indemnitee has otherwise actually received payment (under any insurance
policy, By-law or otherwise) of the amounts otherwise indemnifiable hereunder.
Section 12. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as A DIRECTOR/AN OFFICER of the Company or of any
other enterprise at the Company's request.
Section 13. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Section 14. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
Executed in Englewood Cliffs, New Jersey, as of the day and year
first above written.
CPC INTERNATIONAL INC.
BY __________________________
__________________________
Indemnitee
<PAGE> 1
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
PRIMARY
<S> <C> <C> <C>
Net income $ 580,047 $ 512,055 $ 345,086
Preferred stock dividends, net of taxes 11,279 11,125 10,921
--------- --------- ---------
Net income available to common stockholders $ 568,768 $ 500,930 $ 334,165
========= ========= =========
Weighted average shares outstanding 144,697 146,057 148,371
--------- --------- ---------
PRIMARY EARNINGS PER SHARE (*) $ 3.93 $ 3.43 $ 2.25
========= ========= =========
FULLY DILUTED
Net income $ 580,047 $ 512,055 $ 345,086
Adjustments to net income:
Assumed additional cost if ESOP shares are fully converted
net of certain tax benefits (2,697) (3,178) (3,386)
--------- --------- ---------
Fully diluted net income $ 577,350 $ 508,877 $ 341,700
========= ========= =========
Weighted average shares outstanding 144,697 146,057 148,371
Add incremental shares representing:
Shares issuable upon exercise of stock options based
on year-end market price 796 791 426
Performance incentive shares issuable based on
year-end market price 123 164 88
Shares issuable upon conversion of ESOP shares 4,187 4,267 4,342
--------- --------- ---------
Weighted average number of shares as adjusted 149,803 151,279 153,227
========= ========= =========
FULLY DILUTED EARNINGS PER SHARE $ 3.85 $ 3.36 $ 2.23
========= ========= =========
Dilutive effect of incremental shares -2.0% -1.9% -1.0%
========= ========= =========
</TABLE>
(*) Incremental shares have not been considered in the computation of primary
earnings per share in accordance with generally accepted accounting principles
which requires the inclusion only when the dilutive effect is greater than three
percent.
13
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME BEFORE TAXES $ 917.1 $ 877.0 $ 614.7 $ 790.3 $ 744.5
- -------------------------------------- -------- -------- -------- -------- --------
Add (subtract):
Portion of rents representative of
interest 34.3 26.3 25.3 20.9 21.7
Interest on bonds, mortgages &
similar debt 74.2 55.2 51.9 56.1 64.7
Other Interest 131.8 86.5 54.6 53.7 51.0
Interest expense included in cost of
plant construction (12.9) (6.6) (6.2) (6.7) (6.4)
Income of unconsolidated venture -- -- 3.9 -- 5.4
-------- -------- -------- -------- --------
Income as adjusted $1,144.5 $1,038.4 $ 744.2 $ 914.3 $ 880.9
======== ======== ======== ======== ========
FIXED CHARGES:
Portion of rents representative of
interest $ 34.3 $ 26.3 $ 25.3 $ 20.9 $ 21.7
Interest on bonds, mortgages &
similar debt 74.2 55.2 51.9 56.1 64.7
Other Interest 131.8 86.5 54.6 53.7 51.0
-------- -------- -------- -------- --------
$ 240.3 $ 168.0 $ 131.8 $ 130.7 $ 137.4
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 4.8 6.2 5.6 7.0 6.4
======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 1
[BACKGROUND GRAPHIC -- MAP OF
EASTERN
HEMISPHERE]
1996 ANNUAL REPORT
CPC
INTERNATIONAL
SATISFYING A GLOBAL APPETITE . . .
<PAGE> 2
[BACKGROUND GRAPHIC -- PACKAGED FOODS]
WITH LEADING BRANDS
<PAGE> 3
[BACKGROUND GRAPHIC -- PACKAGED FOODS]
AROUND THE WORLD
<PAGE> 4
TO OUR STOCKHOLDERS
AND EMPLOYEES
[PHOTO] C.R. SHOWMATE
1996 was a good year for CPC International in many respects, reflected in a gain
in earnings per share of 7.1%. This was certainly a respectable financial
achievement, but it falls short of our ambitious targets for still higher
growth. Severe difficulties in our corn refining business, related to
all-time-high corn costs, held us back from what would otherwise have been an
outstanding year.
In our two largest businesses -- consumer foods and baking -- we made
excellent progress, with new products, geographic expansion, recent
acquisitions, and more efficient operations all contributing importantly. We
enter 1997 with strong momentum in these businesses and high expectations for
their continuing record of strong growth.
Our expectations and plans for 1997 also include a major structural change.
We announced on February 26, 1997, that we intend to spin off our corn refining
business to CPC shareholders as an independent publicly-owned company, subject
to approval by the Board of Directors of a definitive plan. We firmly believe
that this move will strongly benefit both of the resulting companies: CPC
International, a global packaged food company comprising our existing grocery
products, baking, and foodservice operations; and the new corn refining company.
As independent companies, each will have increased focus and flexibility and
will be better positioned to use its resources effectively and pursue
opportunities aggressively in its own industry for the benefit of its
shareholders.
We expect that the separation of the companies will be accomplished by the
end of 1997. Until the spin-off is completed, we expect the industry-related
problems of the corn refining business to have a dampening effect on our total
company performance. The extraordinarily volatile commodities market of 1996
and its extremely high corn costs are behind us. However, the recovery of this
business from last year's severely depressed profit levels is likely to be
gradual, as overcapacity in the high fructose corn syrup sector of the industry
puts strong competitive pressure on HFCS pricing. We also expect that the
strength and momentum of our packaged food business will carry CPC International
through to a good year overall.
OUR VISION FOR CPC
Our vision for CPC, to be the best international food company in the world,
continues to guide us going forward. It is based on our long-established global
presence and expertise, unique among U.S. food companies and rivaled by only a
handful of other food companies worldwide. We aspire to be the best by
consistently outperforming our food industry peers, with top-quartile earnings
growth resulting in top-quartile total return to shareholders year after year.
Our strategy is to seek rapid growth through intensive development of a few
worldwide and regional businesses, leveraging the advantages of our combination
of corporate leadership and resources and strong locally-managed operations.
1996 ACHIEVEMENTS
CPC made progress in 1996 by several important financial measures.
- - Earnings per share rose 7.1% to $3.93 for the year. Net income was up 5.9% to
$580 million, on strongly growing sales and volumes. The consumer foods and
baking businesses, which accounted for more than 90% of the company's earnings
in 1996, increased their net income, on an estimated pro forma basis, by more
than 20%. This more than offset the decline of more than 80% in the company's
corn refining earnings, calculated on the same basis.
- - The company increased the dividend 7.9% in September.
- - Total return to shareholders
2
<PAGE> 5
Results in Brief
<TABLE>
<CAPTION>
$ Millions except per share amounts 1996 1995*
- -----------------------------------------------------------------
<S> <C> <C>
Net sales $ 9,844 $ 8,432
Operating income $ 1,092 $ 1,007
Net income $ 580 $ 512
Per common share
Net income $ 3.93 $ 3.43
Dividends declared $ 1.58 $ 1.48
Stockholders' equity $ 14.50 $ 13.65
Depreciation and amortization $ 376 $ 322
Capital expenditures $ 538 $ 470
</TABLE>
*Includes special items.
(dividends plus appreciation in the price of the stock) was 15.4%. Over the last
five years, cumulative return to CPC shareholders is 95%, compared to 55% on
average for our food company peer group as well as the S&P Foods Index.
CONSUMER FOODS AND BAKING
CPC's 1996 list of accomplishments in consumer foods and baking clearly reflects
our tight strategic focus, as well as faster, more decisive action and greater
acceptance of risk where our proven abilities give us a clear advantage.
ACQUISITIONS
Strategic acquisitions are a key element of our strategy for growth. All three
of the important acquisitions we made during 1995 are meeting our expectations.
In fact, the Pot Noodle hot snacks business, acquired in the United Kingdom, has
outstripped our most optimistic projections for volume and profit growth. In
baking, we successfully merged the acquired business and our existing baking
operations, achieved the synergies and added earnings we projected, and
introduced more than 100 new products to drive volume and profit growth. And in
France we have made significant progress in revitalizing the Lesieur dressings
business, acquired during 1995.
INNOVATION
Among our top strategic priorities is a vigorous step-up in our new product
innovation rate throughout the company. CPC Germany, our most powerful new
product generator, forecasts that more than 20% of its 1997 sales of retail
products will come from products new in the last three years.
New product innovation was highly evident in our dressings business in 1996.
Already the leading mayonnaise producer worldwide, we are now determined to grow
our business aggressively in the much larger dressings category, comprising both
mayonnaise and other dressings and condiment products.
In 1996, we made a major move toward this goal with the launch of new
Hellmann's and Best Foods pourable salad dressings in the United States --
quickly followed by a launch of the same products in Latin America. In the first
months of 1997, we extended our presence in the category, adding a line of fat
free pourable dressings under the same brands in the U.S.
We continued support of the launch of Hellmann's mayonnaise into the
competitive German market, where we had not been present.
In the Knorr product family, innovation went beyond unique new products to
the way in which we launch them: more rapidly than ever before and often
simultaneously in multiple countries, thus maximizing the power of our resources
and speeding the addition of new profits. Without abandoning our traditional
commitment to appropriate adaptation for local tastes, we recognize the
confluence across borders of many consumer preferences, as well as the
imperative to maximize efficiency. Knorr Spaghetteria pasta dishes and Knorr
culinary cubes have been quickly and successfully introduced across Europe over
the last two years. In Latin America, our joint venture with General Mills,
International Dessert Partners, launched a line of dessert products under the
combined Betty Crocker and Maizena brands simultaneously in five Latin American
countries.
GEOGRAPHIC EXPANSION
While many U.S. food companies are just beginning to venture into international
markets, CPC has operated internationally for 90 years. Our established presence
and experience on five continents gives us a critical edge, positioning us to
establish our brands quickly and powerfully.
Geographic expansion is paying off handsomely in Central Europe, where our
earnings increased 50% in 1996. In Asia, our rapid expansion in China continues,
with the opening of a plant in Beijing and the establishment of a third joint
3
<PAGE> 6
venture, in Shanghai.
As we expand geographically, we are continuing to build our foodservice
business aggressively. Based on our market-leading core products, our
foodservice business is very profitable for CPC and has enormous potential in
opening markets.
RESTRUCTURING BENEFITS
Throughout CPC we are realizing the benefits of the restructuring programs we
have executed over the last several years. Over the last two years alone, we
have shut down 13 plants worldwide and consolidated production in more efficient
and strategically-located facilities. We have dramatically reduced the number of
product ingredients and packaging elements we use; and implemented a new program
of global and regional purchasing.
The savings we achieve through restructuring and an unrelenting search for
cost-saving opportunities are enabling us to increase substantially our
marketing investments to drive volume growth. For example, we are heavily
supporting the pourable dressings launch in the U.S.
CORN REFINING
As I said, corn refining had a strongly detrimental effect on our progress in
1996, impeding what would otherwise have been stellar corporate performance. The
unprecedented rise and then rapid fall of corn costs plagued our corn refining
division, causing serious margin erosion. Further, some of our corn positions to
protect 1997 margins became uneconomic when corn prices fell sharply toward the
end of 1996. We liquidated those positions at a substantial cost. Corn refining
volumes were up 7.2% in 1996, and we expect continued strong volume growth and
improving profitability in 1997.
<TABLE>
<CAPTION>
WORLDWIDE SALES EARNINGS PER COMMON SHARE
($ Millions) (Dollars)
<S> <C> <C>
1996 9,844 3.93
1995 8,432 3.67*
1994 7,425 3.17*
</TABLE>
*Excludes special items.
CPC'S VALUES AND PEOPLE
CPC's progress comes most of all from the performance and dedication of our
people. We call ourselves the CPC WorldTeam, because we hail from around the
world and because we are committed to working as a team across geographic
borders, businesses, and disciplines to build value for our shareholders.
Diversity is a part of our heritage as an international company. But it is also
an asset that we must whole-heartedly embrace and actively foster if we are to
achieve the outstanding growth we seek.
In 1996 we have made excellent progress in defining a global strategy and
objectives for enhancing diversity in our workforce. Our efforts in this respect
will intensify in 1997 to ensure that CPC benefits fully from the contributions
and creativity of the broadest range of men and women, representing different
cultures, religions, ages, abilities, ethnic backgrounds, and points of view.
I thank and honor our CPC WorldTeam for their dedicated service in 1996. In
addition, I want to thank our customers and suppliers for their support, and our
stockholders for their confidence in the CPC enterprise and in its drive to
become the best international food company in the world.
/s/C.R. Shoemate
- -----------------------
C.R. Shoemate
Chairman and
Chief Executive Officer
February 28, 1997
4
<PAGE> 7
SATISFYING A
GLOBAL
APPETITE
For 90 years CPC International has been "satisfying a global appetite." From the
beginning, we have satisfied our consumers' and customers' appetite for
high-quality, good-tasting, and convenient foods.
And from the beginning we have satisfied our own and our shareholders'
appetite for profitable global expansion. In 1906, when we first incorporated,
the company had operations in the United States, England, and Germany. Today,
our global marketplace includes 62 countries on five continents.
This 1996 annual report documents our progress as a marketer of great branded
foods and corn refining products and as an experienced, highly advantaged, and
aggressive international competitor.
[GRAGHIC]
5
<PAGE> 8
CPC INTERNATIONAL WORLDWIDE BUSINESS
Sales $9.8 billion, +17%; Volumes +17%
Operating Income $1.1 billion, +2.6%
OPERATING INCOME BY BUSINESS
SEGMENT
($ Millions)
[PIE CHART]
- Consumer Foods $970
- Baking $89
- Corn Refining $65
SALES
BY BUSINESS
SEGMENT
($ Millions)
[PIE CHART]
- Consumer Foods $6,910
- Baking $1,567
- Corn Refining $1,367
SALES
BY GEOGRAPHIC
AREA
($ Millions)
[PIE CHART]
- North America $4,225
- Europe $3,720
- Latin America $1,436
- Asia $463
OPERATING INCOME
BY GEOGRAPHIC
AREA
($ Millions)
[PIE CHART]
- Europe $418
- North America $390
- Latin America $256
- Asia $60
CONSUMER FOODS BUSINESS SALES $6.9 BILLION, +5.9%
Operating Income $970 million, +16%
Volumes +6.7%
[PIE CHART]
SALES BY GEOGRAPHIC AREA
REGIONS
- - EUROPE Sales $3.7 billion, +7.4% Operations in 31 countries of Europe,
Africa, and the Middle East.
58 manufacturing plants.
- - NORTH AMERICA Sales $1.7 billion, +2.7% Operations in the United
States, Canada, and the Caribbean.
19 manufacturing plants.
- - LATIN AMERICA Sales $1.1 billion, +5.2% Operations in 15 countries.
26 manufacturing plants.
- - ASIA Sales $398 million, +9.3%
Operations in 12 countries, including joint ventures in seven
countries. Licensing agreement in Japan. 18 manufacturing plants.
[PIE CHART]
SALES BY
PRODUCT GROUP
PRODUCT GROUPS
- - KNORR soups, sauces, bouillons, and related products
Sales $3.1 billion, +7.9%; Volumes +6.3%
EUROPE Sales $2.2 billion, +9.6%; Volumes +6.3%
NORTH AMERICA Sales $421 million, +2%; Volumes +4.2%
LATIN AMERICA Sales $349 million, +4.3%; Volumes +5.8%
ASIA Sales $161 million, +10.6%; Volumes +10.8%
- - DRESSINGS Sales $1.9 billion, +6.4%; Volumes +6.8%
EUROPE Sales $434 million, +4.2%; Volumes +1%
NORTH AMERICA Sales $896 million, +2.7%; Volumes +2.9%
LATIN AMERICA Sales $420 million, +14%; Volumes +17%
ASIA Sales $140 million, +18%; Volumes +27%
- - STARCHES (Basic Nutritious Foods)
Sales $601 million, +7.9%; Volumes +11.6%
- - BREAD SPREADS Sales $366 million, +3.5%; Volumes -0.2%
- - DESSERTS Sales $309 million, +1.2%; Volumes +0.8%
- - ALL OTHER Sales $648 million
FOODSERVICE (Caterplan) business sales in 1996 were approximately $1.3
billion, about 5.4% higher than in 1995, and are included in the
appropriate product categories.
6
<PAGE> 9
WITH LEADING
BRANDS AROUND THE WORLD
[GRAPHIC]
BAKING BUSINESS SALES $1.6 BILLION
Operating Income $89.3 million
Operations in North America and Europe (U.K.). 23 bakeries in the U.S.; one
bakery in the U.K.
[PIE CHART]
SALES BY PRODUCT GROUP
PRODUCT GROUP
- - BREADS Sales $599 million
- - SWEET BAKED GOODS Sales $591 million
- - SPECIALTY BREADS AND OTHER Sales $377 million
88% of CPC Baking Volumes Come from No. 1 Brands
ENTENMANN'S OROWEAT
THOMAS' FREIHOFER'S 88%
BOBOLI SAHARA
CORN REFINING SALES $1.4 BILLION, +10.9%
Operating Income $64.9 million, -70%
Volumes +7.2%
[PIE CHART]
SALES BY
GEOGRAPHIC AREA
REGIONS
- - NORTH AMERICA Sales $942 million, +15%
Operations in the United States and Canada.
Seven manufacturing plants.
- - LATIN AMERICA Sales $360 million, +0.6%
Operations in five countries. 13 manufacturing plants.
- - COOPERATIVE MANAGEMENT GROUP
Sales $65 million, +10.8%
Company-owned operations in Kenya, Malaysia, and Pakistan; and joint ventures
and technical and licensing agreements in eight additional countries, chiefly in
Asia and Africa.
Three manufacturing plants.
[PIE CHART]
SALES BY
PRODUCT GROUP
PRODUCT GROUPS
- - SWEETENERS Sales $812 million, +7.8%; Volumes +18%
- - STARCHES Sales $234 million, +9.9%; Volumes +14%
- - CO-PRODUCTS Sales $214 million,+16%; Volumes +6.3%
- - OTHER Sales $107 million, +31%; Volumes +80%
7
<PAGE> 10
[GRAPHIC]
CONSUMER FOODS
CPC's consumer foods business, accounting for 70% of the company's worldwide
sales, consists of three worldwide businesses - Knorr soups, sauces, bouillons,
and related products; Dressings; and Foodservice - and several regional
businesses.
Consumer foods grew well in 1996 on the strength of the company's
market-leading brands and broad global reach. Sales increased 5.9% to $6.9
billion and operating income rose 16% to $970 million. Worldwide volumes,
including acquisitions, increased 6.7%.
KNORR AND RELATED PRODUCTS
Worldwide sales of Knorr soups, sauces, bouillons, and related products were
$3.1 billion, 7.9% higher than in 1995. Volumes increased 6.3%.
Knorr and other related savory products are marketed by CPC in 59 countries.
This broad and innovative product portfolio - which ranges from dehydrated
bouillon cubes to fast-cook meal dishes - builds on creative chefmanship and an
understanding of local tastes and cooking styles to deliver high quality,
convenient products.
European sales of Knorr and related products, which include sales from CPC's
businesses in Africa and the Middle East, were $2.2 billion in 1996. Strong
sales and volume gains were due chiefly to innovative new products and the
extension of successful products into new countries.
New in 10 European countries are high-quality, fast-cooking Knorr pasta and
rice dishes. These products are part of a major new product success for CPC in
Europe that began with the Knorr Spaghetteria pasta line launched in Germany and
Austria in 1995.
The bouillon cube, a longtime mainstay, has been "reinvented" by CPC over the
last two years. Volumes of bouillons in Western Europe, which slid in 1995, grew
by 8% in 1996 with the success of a new generation of Knorr culinary cubes now
marketed in a dozen countries. These products include a successful line of cubes
that squeeze fresh herbs into a convenient cube format to suit today's cooking
styles.
[GRAPHIC]
Other innovative Knorr products launched during 1996 included single-serve
snacks and a fat free granulated bouillon in Switzerland; pasta soups in Sweden;
pasta and rice sauces in Belgium and Ireland; instant soups in Portugal; and
salad dressing mixes in Poland and Holland. In Israel, CPC introduced a line of
snacks in cups, based on pasta, rice, or potatoes, under the Telma brand.
Also contributing to the strong European results was the Pot Noodle hot
snacks business, acquired by CPC in the U.K. late in 1995. Pot products are
pasta- or rice-based snacks packed in single-serve plastic cups and prepared
with hot water. CPC added microwaveable versions in 1996. The products, backed
by comic, irreverent advertising, are widely popular with young people in the
U.K. and Ireland, and sales and profits grew strongly in 1996.
In Latin America, market-leading Knorr bouillons provide a strong foundation
for growth. CPC continued to broaden its Knorr brand business beyond bouillons
with other convenient products that suit local eating habits. New in 1996 were
mole sauces in Mexico; Home Style soups in Colombia; diet bouillon, a
saffron-flavored cube, and gnocchi mix in Argentina; a stir-fry cube in Uruguay;
and fast-cooking rice dishes in Chile.
In North America, CPC adapted the Spaghetteria product concept from Europe to
launch fast-cooking Knorr pasta with sauce. CPC also added two new varieties to
its successful line of dehydrated pasta sauces and, in Canada, six new Knorr Cup
products. The Mueller's brand group launched Italian Style pasta and, in early
1997, Mueller's Pasta Quick products, an innovative line of cuts that cook in
two minutes.
In Asia, Knorr bouillons are CPC's No. 1 product priority, and sales
increased 17% during the year.
In China, the company's businesses in Guangzhou, Beijing, and Shanghai all
market Knorr bouillons. Sales of Knorr bouillons to foodservice customers are
growing strongly, and retail sales are also growing well. In Guangzhou, consumer
research shows Knorr brand awareness of 97% among 1.5 million target households,
with 84% of this group
8
<PAGE> 11
[GRAPHIC]
9
<PAGE> 12
(1989)
------
U.S. Spoonables
Category
[GRAPHIC] $1.2 billion
[GRAPHIC] (1992)
------
(1996)
------
U.S. Dressings
Category
(GRAPHIC) $3.2 billion
EXTENDING OUR UMBRELLA
Once, the Hellmann's and Best Foods brands meant mayonnaise only. Today our
extended brand umbrella covers a family of new dressings products, broadening
our growth opportunities.
CATERING TO THE WORLD'S TASTES
In 57 countries chefs and foodservice operators choose CPC's great brands for
taste, convenience, and value. CPC's foodservice sales rose to $1.3 billion in
1996.
[BAR GRAPH]
1996 $ 1.3 billion
1995 $ 1.2 billion
1994 $ 1.0 billion
1993 $ 0.9 billion
1992 $ 0.9 billion
[GRAPHIC]
POUR ON THE BEST
New in 1997: Hellmann's and Best Foods fat free pourable dressings.
10
<PAGE> 13
POT TO PLATE IN FIVE MINUTES
Knorr Spaghetteria fast-cook pasta dishes have been a hit across Europe.
[GRAPHIC]
85% of our sales of dressings products in 1996 came from No. 1 and No. 2 market
share positions.
PLANTING THE FLAG
Across Central and Eastern Europe and Asia, we're planting the Knorr flag.
"Knorr countries" new since 1993 contributed $209 million to 1996 sales of
Knorr and related products.
82% of our retail sales of Knorr and related products in 1996 came from No. 1
and No. 2 market share positions.
[FLAG GRAPHIC]
96 $3.1 Billion
95
94
93 $2.2 Billion
92
11
<PAGE> 14
purchasing a Knorr product within the past six months.
DRESSINGS
Worldwide sales of mayonnaise, other dressings, and corn oil were $1.9 billion
in 1996, up 6.4%. Worldwide volumes were 6.8% higher.
CPC's dressings business comprises mayonnaise and other ready-to-use
dressings that enhance and add flavor to foods. Marketed by CPC in 45 countries,
chiefly under the Hellmann's brand, this range of value-added products is based
upon superior dressings-related technologies and consumer-driven innovation.
In North America, where CPC is the longtime market leader in mayonnaise, the
big news in 1996 was pourable salad dressings. CPC successfully launched
pourable dressings early in the year under the Hellmann's brand in the
Northeastern U.S. and the Best Foods name on the West Coast, significantly
broadening its dressings business.
These new products made a strong debut. The company launched entries in the
Ranch, Italian, and other top-selling flavor segments; together these account
for about 80% of all sales of regular pourable dressings. In their first year,
CPC's entries achieved a No. 3 market share position in their introductory
markets in these segments.
CPC is now rolling out its pourable dressings nationwide. And it is adding a
line of fat free products. Like the regular varieties, the fat free dressings
are preferred over all major competitors in consumer testing.
The company leveraged its pourable dressings by quickly transplanting them to
Latin America. CPC's Latin business imported Hellmann's dressings into four
countries, with additional country launches planned. Pourable dressings
represent a significant opportunity in Latin America: salad consumption is high
and growing in the region, and nearly all the dressings used are homemade.
[GRAPHIC]
Mayonnaise remains the keystone of CPC's dressings business. In the U.S.,
Hellmann's and Best Foods mayonnaise improved its market share and profitability
in a category that declined modestly. In Germany, CPC introduced Hellmann's
mayonnaise. In France, the Lesieur dressings business, acquired in 1995,
contributed to dressings gains in Europe. Key products were relaunched and a new
advertising campaign was introduced, stimulating the business.
Elsewhere, new mayonnaise products introduced in 1996 include mayonnaise with
olive oil in Portugal and the U.K. In Poland, CPC tripled the size of its
mayonnaise business by adding a traditional-style product, Hellmann's Babuni
(Granny) mayonnaise.
In Asia, CPC began producing Hellmann's mayonnaise and spoonable Thousand
Island salad dressing at its Beijing manufacturing plant for retail and
foodservice customers.
Worldwide sales of corn oil and other oils were unchanged in 1996, on
slightly lower volumes. CPC's Mazola corn oil is the market leader in the U.S. ,
where volumes grew on the strength of sales to Hispanic consumers and improved
performance of Mazola RightBlend canola and corn oil blend. Mazola corn oil is
also the market leader in Latin America. Here as well CPC has leveraged the
Mazola name into faster growing oil categories. In 1996 the company introduced
Mazola olive oil in Argentina.
FOODSERVICE (CATERPLAN)
CPC's foodservice business (known as Caterplan in most markets outside the U.S.)
supports the operators of restaurants, cafeterias, and other places where food
is served. In 57 countries, CPC foodservice businesses leverage the company's
major products, brands, and its distinctive know-how in the growing global
market for food prepared away from home.
Sales of products sold through CPC's foodservice operations are included in
the appropriate categories in this report. In 1996, sales totaled approximately
$1.3 billion, about 5.4% higher than in 1995.
CPC's largest foodservice operation is in Europe. It is increasingly focused
on faster leveraging of pan-European products, such as the Knorr ready-to-use
liquid gourmet sauces introduced in 1996 in eight countries. The company has
successfully transferred its foodservice success formula to Central and Eastern
Europe, where CPC was among the first to establish foodservice businesses. Sales
from these new businesses grew 37% in 1996.
[GRAPHIC]
CPC's foodservice business in North America introduced 13 varieties of
pourable salad dressings, Hellmann's and Best Foods Deli Blend spoonable
dressing, and a line of Knorr instant gravies. It also added Knorr Primerba
herbs in oil, a product developed by CPC in Europe.
12
<PAGE> 15
CPC's fastest growing foodservice businesses are in the developing markets of
Latin America and Asia. In Latin America, increased focus on foodservice
resulted in a 45% increase in the company's customer base in its five largest
affiliates. In Asia, foodservice growth was fueled by sales in CPC's new
businesses in China and continuing growth in sales to chain accounts, as well as
by new products.
[GRAPHIC]
STARCHES (BASIC NUTRITIOUS FOODS)
Sales of starches (Basic Nutritious Foods) and syrups were $601 million, 7.9%
higher, on volumes that increased 11.6%.
In Latin America, CPC has extended this business from corn starch, where its
Maizena brand is the market leader, to vitamin-fortified, flavored cereal mixes
that include corn and rice flours and oats. In 1996 the company added new
blended cereal mixes under the Maizena name in Colombia and the Polly brand in
Venezuela.
AdeS soy-based beverages are a fast-growing part of CPC's consumer foods
business in Latin America. A success in its home market of Argentina, this line
of aseptically-packed, flavored beverages has been extended by CPC into several
other markets.
CPC is also developing starch businesses in South Africa and Kenya. In South
Africa, a quick-cooking, vitamin-fortified maize meal under the Mazola brand is
adding value to traditional maize meal products. In Kenya, the company
introduced Ndume beverage mix, used for making a corn starch-based drink popular
in eastern Africa.
CPC also markets Argo corn starch and other starch products for cooking and
baking applications in North America, Europe, and Asia. It sells Karo corn
syrup and other syrups in North America, Latin America, and Asia.
DESSERTS
Desserts and baking aids sales increased 1.2% to $309 million in 1996, on
slightly higher volumes.
CPC's largest desserts business is in Europe, where the company markets
ready-to-eat desserts, dessert mixes, and baking aids. In 1996 sales of
single-portion packs of Ambrosia rice and custard in the U.K. grew well. Other
ready-to-eat successes included Alsa Bate e Pronto chocolate mousse in Portugal
and Alsa fruit topping in a squeezable plastic bottle in Greece. New dessert mix
products included an improved Alsa no-cook flan and a Maizena mix for preparing
tarts in France, and Alsa Gelly-ja instant gelatin mixes in Portugal.
In Latin America, CPC's International Dessert Partners (IDP) joint venture
launched ready-to-use frostings, and mixes for cakes, brownies, and creamy
chilled desserts in 1996, creating excitement in what had been a quiet product
category. The products were rolled out in Argentina, Brazil, Colombia, Mexico,
and Uruguay.
IDP is a joint venture with General Mills. Results are treated on an equity
basis and not included in CPC's desserts category results. IDP combines General
Mills' Betty Crocker desserts brand and product expertise with CPC's Maizena
brand, knowledge of the markets, and sales and distribution capability. Most of
the products are unique in their markets. Local launches are being backed by
in-store product sampling and television advertising.
BREAD SPREADS
Sales of peanut butter and other bread spreads increased 3.5% to $366 million.
Volumes were unchanged.
CPC's biggest bread spread business is in North America, where the company
markets Skippy peanut butter. After several difficult years, the peanut butter
category grew during 1996, fueled by lower prices and increased sales of reduced
fat products. The Skippy brand is No. 2 in the market. Volumes were higher and
its profitability improved strongly in 1996. An improved Skippy Creamy peanut
butter, which in taste tests among consumers scored as high as the market
leader, was introduced during the year, along with new package graphics.
CPC has a strong peanut butter business in Asia, where peanuts are popular in
local cooking. And it successfully introduced the Skippy brand in South Africa,
producing peanut butter at a manufacturing facility rebuilt with the help of CPC
experts from Canada.
CPC's bread spreads group also includes the following brands of jams: Best
Foods, Regal, and Lady's Choice in Asia, Fruco in Colombia and Ecuador, Santa
Rosa in Italy, Mateus in Portugal, 778 in Israel, and Frank Cooper's in the U.K.
Marmite savory spread, a British favorite, is also exported to Canada and Asia.
[GRAPHIC]
13
<PAGE> 16
[GRAPHIC]
BAKING BUSINESS
In its first full year of operations, the CPC Baking Business delivered sales of
$1.6 billion and operating income of $89.3 million.
CPC created its baking division in October 1995 when it acquired Entenmann's
sweet baked goods, Freihofer's sweet baked goods and breads, Oroweat breads, and
Boboli pizza crusts and combined them with its existing Thomas' English muffins
and bagels, Arnold and Brownberry breads, and Sahara pita bread businesses.
The acquisition added $.03 per share to 1996 earnings, as was originally
projected by CPC. And it provided an array of market-leading brands that make
CPC the No. 1 fresh premium baker in the U.S. with one of the strongest
direct-to-store delivery networks in the baking industry.
During the year CPC merged the two businesses and quickly captured
significant synergies in distribution, production, and other areas. And it made
progress in each of its product segments, launching more than 100 new products.
1996 SEGMENT PERFORMANCE
Each of CPC's regional bread and roll brands is among the leaders in its primary
markets, and the company increased sales and volumes of these products in 1996.
The improved performance was led by Freihofer's in the Northeast and Oroweat in
the West. Among new Freihofer's products were Classic sandwich rolls varieties
borrowed from the Oroweat business. Oroweat, the No. 1 bread brand on the West
Coast, had continued success with its super-premium Master's Best products.
Specialty bread sales and volumes, led by Thomas' brand products, grew
strongly. Riding the bagel boom, CPC extended Thomas' bagels into new markets
and added Brownberry bagels in the Midwest. Thomas' English muffins grew well,
supported by new flavors and extension of regular and Sandwich Size muffins into
new geographic markets.
Sales and volumes of sweet baked goods were lower in 1996 due to a sharp
decline in sales of reduced fat and fat free products. The company is
introducing an improved line of Entenmann's Light baked goods in 1997. In its
regular sweet baked product lines, CPC reversed a decline through new-product
successes, such as Softee donuts and Orchard Delight cakes, and extension of
Popems donut holes and other products into new markets.
The biggest new product success was Entenmann's Multi-Grain cereal bars.
Delivered direct to stores with CPC's fresh-baked products, Entenmann's cereal
bars take the brand into a large and growing category with a product that
consumer testing shows tastes better than the leading brand. Launched initially
in the Eastern U.S., the products will be rolled out nationally in 1997.
In the U.K., where CPC has established a baking beachhead, Entenmann's cakes
and pastries were introduced to a growing roster of retailers. The products are
unique in the U.K. and are being marketed as "a slice of America."
NEW EFFICIENCIES
During 1996 CPC began restructuring and consolidating its network of more than
300 sales depots and 4,500 delivery routes. For example, two overlapping systems
in California were combined into a single network, eliminating the need for 90
routes. Route restructurings were also completed in the Albany, Atlanta, and
Chicago markets.
Realignment of production will allow the company to close three of its
bakeries in 1997, as announced during 1996. CPC also developed unique and
highly-efficient ovens for Thomas' English muffins that bake in the same
distinctive "nooks and crannies" that made the brand famous.
CPC also fine tuned its specifications for key ingredients. For example,
eight different standards for flour were whittled down to two. And the business
integrated its purchasing functions - tapping the buying power of CPC's consumer
foods businesses where possible - to improve leverage with suppliers. Savings
helped offset sharp increases in 1996 in the cost of wheat and other
ingredients. Lower ingredient costs and additional benefits from the purchasing
program are expected in 1997.
14
<PAGE> 17
[GRAPHIC]
15
<PAGE> 18
[GRAPHIC]
Market-leading brands make CPC the No. 1 fresh premium baking company in the
U.S.
[GRAPHIC]
MEET MULTI-GRAIN Introduced at midyear, Entenmann's Multi- Grain cereal bars
quickly became the No. 3 cereal bar brand in the Northeast. They're now rolling
out nationally.
BAGELMANIA
Thomas' bagels, in both regular and (bigger) "New York Style" sizes, will be
extended into new markets in 1997.
[GRAPHIC]
SALES IN HAND
Sales of convenient, "hand-held" Entenmann's products have jumped 28% since
1994, fueled by new products like Softee donuts.
[GRAPHIC]
16
<PAGE> 19
[GRAPHIC]
A BITE OUT OF EXPENSES
The CPC Baking Business, quickly capturing acquisition synergies, cut
distribution, selling, and other costs by $15 million in 1996.
[GRAPHIC]
[GRAPHIC]
ON THE RISE
Oroweat bread is No. 1 in the Western U.S. Volumes of the brand's super-premium
Master's Best products nearly doubled in 1996.
[GRAPHIC]
INTO EVERY NOOK AND CRANNY
Thomas' English Muffin Expansion
[MAP]
[GRAPHIC]
17
<PAGE> 20
[GRAPHIC]
CORN REFINING
In February 1997, CPC announced that it intends to spin off its corn refining
business, with the goal of enhancing the growth prospects of both the corn
refining and packaged food businesses. The transaction is expected to be
completed by the end of 1997.
In 1996 worldwide sales of CPC's Corn Refining Business increased 10.9% to
$1.4 billion, but operating income fell 70% to $64.9 million. The operating
income decline reflected sharply lower margins as the cost of corn during the
year rose to unprecedented levels. A loss from corn futures positions,
liquidated in the fourth quarter, also contributed to the decline.
The cost to CPC of corn in 1996 was about 75% higher than recent averages due
to a poor corn crop and forecasts of tight supplies, as well as unusually high
delivery costs that could not be hedged economically. An important part of this
cost increase could not be recouped through pricing because of competitive
pressures.
Corn prices not only reached record highs, they were also extraordinarily
volatile. Expecting a further run-up in corn prices, the company late in the
year purchased futures contracts to protect anticipated firm-price business.
When corn prices instead fell sharply and the business as anticipated did not
materialize, the company liquidated the futures contracts and recognized a $40
million loss.
NEW EFFICIENCIES IN 1996
Although the financial results were disappointing, CPC's corn refining
operations increased efficiency in 1996. Fifteen of the company's corn refining
plants set records for corn grind during the year.
The company also made progress in leveraging its corn refining assets, taking
a more global view of its business. CPC has wholly-owned operations in North
America, Latin America, Asia, and Africa; interest in a joint venture in Mexico;
and other joint venture interests, as well as licensing and technical
agreements, chiefly in Asia and Africa. It is maximizing this strength by
extending capabilities into new markets, moving products across borders, and
forming strategic relationships with partners. Examples of these activities
during 1996 included the following:
- - Production of high fructose corn syrup (HFCS) began in Mexico, where CPC
formed a joint venture in 1994 with that country's largest corn refiner. In
December, the new business, Arancia-CPC, aided by CPC experts from the U.S.,
began producing HFCS 42, an all-purpose sweetener, and HFCS 55, the
sweetener-of-choice of the bottling industry.
Arancia-CPC is the first company to produce HFCS 55 in Mexico, as Mexican
bottlers increasingly switch from sugar to HFCS.
- - CPC established an export business group in 1996 to match customers anywhere
in the world with the right CPC products and producers. By developing this new
business, the group is helping the Corn Refining Business to maximize use of its
production capacity.
Operating during the second half of the year, the export group assisted CPC
businesses in the sale of product to customers in 37 countries. Much of this new
business was in dextrose, utilizing CPC's newly expanded production capacity in
the U.S. and capitalizing on the company's global dextrose leadership.
- - CPC regionalized the management of its businesses in Argentina, Chile, and
Brazil, where the elimination of trade barriers allows the Corn Refining
Business to move product efficiently across borders. By viewing these Southern
Cone countries as a single market and consolidating three country organizations
under a single management team, costs are lowered, future capital investment
needs are reduced, and the company becomes more competitive.
- - Production of high maltose corn syrup began at CPC's newly rebuilt Cali,
Colombia, corn refining facility to meet fast-growing demand from brewers in the
region. CPC also expanded production capacity for the product in Brazil.
Having served the brewing industry in Canada for many years, the company
began developing this business in Latin America in 1994. Today high maltose
accounts for a significant part of CPC's corn refining volume in the region.
- - Through its Cooperative Management Group, CPC established a technical support
agreement in Thailand to assist the world's largest tapioca starch producer with
its glucose syrup refinery. CPC also has a license to market the glucose
worldwide.
18
<PAGE> 21
[GRAPHIC]
19
<PAGE> 22
[GRAPHIC]
CAPITALIZING ON GLOBAL OPPORTUNITIES
Major plant expansions in Brazil, Colombia, Kenya, and Pakistan position CPC's
Corn Refining Business to excel in fast-growing regions of the world.
SWEET SUCCESS
[GRAPHIC]
CPC and its partner were first in Mexico to produce HFCS 55, the
sweetener-of-choice of the bottling industry.
[GRAPHIC]
CPC is the market leader in dextrose, including the super pure product used by
pharmaceutical Companies for intravenous solutions.
20
<PAGE> 23
[GRAPHIC]
CPC's Corn Refining Business has customers in more than 65 industries
EXPORT INCOME
A new export business group is boosting the income stream from corn refining. In
1996 the group matched company affiliates with customers in 37 countries.
21
<PAGE> 24
CPC's Values
CPC International is an international company comprising locally-managed
operations in 62 countries. Each business has significant freedom to make
decisions and act independently to further local and corporate business
objectives.
All of our local businesses are also integral to a corporate organization
that provides strategic guidance and oversight, as well as constant
reinforcement of CPC's shared values. These values call for the highest
standards of moral and ethical behavior in all business dealings regardless of
situation or geographic location. They express commitment to CPC's people and
their career and personal development; to providing high-quality products that
deliver value to our consumers and customers; to being good citizens in our
communities; to ensuring safe workplaces and a clean environment; and to
encouraging and rewarding qualities in our people that help achieve our business
objectives, such as courage, candor, and conviction.
CPC's values have long been promoted, communicated, and enforced throughout
the company. We recently published a new booklet containing an expanded
statement of CPC's values that in 1996 was translated into 24 languages and
distributed worldwide. This booklet includes specific CPC corporate policies
governing the full range of business relationships and activities as well as
clarification of the essential linkage between our values and our business
success.
In 1997 CPC created a Values and Policies Office as an additional means of
encouraging the understanding of, and adherence to, CPC's values and policies.
Examples of CPC's values in action are to be found in many areas.
[GRAPHIC]
Health, Safety, and the Environment:
CPC's policy on protection of the environment states that CPC will strive for
continuous improvement in our operations as they relate to employee health and
safety and the environment. For example:
- - Since 1989 the Best Foods Division has increasingly reduced packaging
materials, to achieve a current annual savings of 8,000 tons.
- - In 1996 CPC's corn refining plant in Cardinal, Ontario, was recognized by the
Ontario Ministry of Environment and Energy with a "Certificate of Pollution
Prevention Achievement" for its reduction in actual and potential emissions of
sulfur dioxide.
- - And CPC's Gateway City consumer foods plant in Thailand earned the highest
marks for good manufacturing practices of all Thai plants audited by the
country's Ministry of Industry.
Community Relations:
As good corporate citizens, CPC and its people participate in a variety of
projects and groups in CPC's local and national communities. Financial support
is provided to many institutions and activities that enhance the quality of
community life. In 1996 CPC made contributions valued at approximately $16
million in cash and food products, mainly to educational institutions; health,
welfare, and community service organizations; and other cultural and charitable
groups. A significant part of CPC's contributions is donated through the
company's Matching Gifts Program in the U.S., which matches $2 for every $1
employees contribute.
Employee Development and Opportunity:
CPC is committed to the principles of equal employment opportunity and fair
employment practices and values the diversity of its employee family. As stated
in the company's newly adopted diversity vision statement: "We will value,
leverage, and increase variety and differences in our workforce so that our
diversity is the perpetual stimulant of innovation, creativity, and effective
problem-solving, providing us with a sustainable competitive advantage that
helps us reach the highest levels of quality, productivity, and achievement in
achieving CPC's vision to become the best international food company in the
world."
22
<PAGE> 25
Market Positions Worldwide
<TABLE>
<CAPTION>
1 Leader in Market Share Potato Pourable
2 Second in Market Share Soups* Sauces* Bouillons Mealmakers* Products Pasta Mayonnaise Dressings Corn Oil
3 Present in the Market ==========================================================================================
+ Technical or Licensing Agreement WORLDWIDE BUSINESSES
================================================================================================================================
NORTH AMERICA, CARIBBEAN
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Canada 2 2 1 1 1
United States 3 3 2 3 3 3 1 3 1
Dominican Republic 2 2 3 3
================================================================================================================================
EUROPE, AFRICA/MIDDLE EAST
================================================================================================================================
Austria 1 2 1 1 1 3 1
Belgium 1 1 1 1
Bulgaria 3 3 3 3 3
Czech Republic 3 3 3 3 3 1
Denmark 1 1 1 1 2 2
Finland 1 1 1 2
France 1 2 2 2 2
Germany 2 2 2 2 1 3 1
Greece 1 1 1 2 1 1
Hungary 1 1 1 1 3 2
Ireland 1 1 1 1 1 3 1 2 3
Italy 1 3 2 3 1 3 3
Netherlands 2 1 3 2 3 3
Norway 2 2 3 2
Poland 1 1 2 1 1 2
Portugal 1 3 1 2 1 2
Romania 3 3 3 3
Russia 1 1 2 1 3 3
Slovak Republic 3 3 3 3 3 1
Spain 2 3 3 3 3 3
Sweden 1 2 1 1 3 1
Switzerland 1 1 1 1 3 3
United Kingdom 1 1 2 3 3 1 3 1
================================================================================================================================
Israel 1 2 3 3 1 1
Jordan 3 3 3
Kenya 1 1 3
Morocco 1 3 1
Saudi Arabia 2 2
South Africa 3 3
Tunisia 1 1
Turkey 1 2
================================================================================================================================
LATIN AMERICA
================================================================================================================================
Argentina 1 1 1 1 3 1
Bolivia 1 3 3 3 3 3 3
Brazil 2 2 1 2 3 1 3 2
Chile 3 3 3 3 3 1 3 1
Colombia 2 2 2 2 3 1 3 1
Costa Rica 2 2 1 3
Ecuador 2 2 2 2 3 1
Guatemala 3 3
Honduras 3 3
Mexico 1 1 1 2 2
Panama 3 3 3
Paraguay 1 1 1 1 1 1 1
Peru 2 2 2 2 2 3 1 3 3
Uruguay 1 1 1 2 1 3 2
Venezuela 2 2 1 3
================================================================================================================================
ASIA
================================================================================================================================
China 3 1 3
Hong Kong 1 1 2 3
India 2
Indonesia 1 3 3 3 3 3
Japan + 1 1 1 2 2 1
Malaysia 1 2 1 2 1
Pakistan 1 1 1 3 2 1
Philippines 1 3 1 2 1
Singapore 1 1 1 3 3
Sri Lanka 2 1 2
Taiwan 1 1 2 3
Thailand 1 1 1 2 1 1 1
Vietnam 3 1 1
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1 Leader in Market Share Peanut Desserts Premium Corn
2 Second in Market Share Foodservice** Butter Starches (Ambient) Baking Refining
3 Present in the Market ====================================================================
+ Technical or Licensing Agreement KEY BUSINESSES
=================================================================================================================
NORTH AMERICA, CARIBBEAN
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Canada 3 2 1 1
United States 3 2 1 3 1 3
Dominican Republic 3 3
=================================================================================================================
EUROPE, AFRICA/MIDDLE EAST
=================================================================================================================
Austria 3 1
Belgium 3 1
Bulgaria
Czech Republic 3
Denmark 3 1 3
Finland 3 2
France 3 1 1
Germany 3 1 3
Greece 3 2 2
Hungary 3 3
Ireland 3 2 3
Italy 3 1
Netherlands 3 1
Norway 3 1
Poland 3 3
Portugal 3 1 2
Romania 3
Russia 3 3
Slovak Republic 3
Spain 3 1 2
Sweden 3 3 1
Switzerland 3 1
United Kingdom 3 1 1 3
=================================================================================================================
Israel 3 1 2
Jordan
Kenya 3 1 1
Morocco 3 1 1
Saudi Arabia 3 3 1
South Africa 3 3 3 +
Tunisia 3 3
Turkey 3 1 3
=================================================================================================================
LATIN AMERICA
=================================================================================================================
Argentina 3 1 3 1
Bolivia 3 1
Brazil 3 1 3 1
Chile 3 3 1
Colombia 3 1 1 3 1
Costa Rica 3 3 1
Ecuador 3
Guatemala 3 3 2
Honduras 3 1
Mexico 3 2 1 3 1
Panama 1
Paraguay 3 1
Peru 3 3 2
Uruguay 3 1 3
Venezuela 3 +
=================================================================================================================
ASIA
=================================================================================================================
China 3 3 3
Hong Kong 3 1 1 1
India 1 1 +
Indonesia 3 3
Japan + 3 +
Malaysia 3 1 2 1
Pakistan 3 1 1 1
Philippines 3 1 1
Singapore 3 1 1 1
Sri Lanka 3
Taiwan 3 1
Thailand 3 1 +
Vietnam 3
=================================================================================================================
</TABLE>
* Dehydrated products only.
** CPC foodservice (catering) products hold leading share positions in many of
the categories in which they compete.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CPC INTERNATIONAL INC. AND SUBSIDIARIES
In February 1997, CPC announced that it intends to spin off its corn refining
business, with the goal of enhancing the growth prospects of both the corn
refining and packaged food businesses. The transaction is expected to be
completed by the end of 1997 and is subject to approval by the Board of
Directors and a ruling by the Internal Revenue Service that the transaction will
be tax free to CPC and its shareholders. Following the spin-off, CPC will
consist of its existing operations in branded grocery products, baking, and
foodservice.
OVERVIEW OF 1996 AND OUTLOOK FOR 1997
For 1997, CPC's primary objective is to improve returns through focused
development of its currently existing three businesses: consumer foods, baking,
and corn refining. The Company's strategy for its consumer foods business is to
pursue worldwide sales, volume, and profit growth in its core products: Knorr
soups, sauces, bouillons, and related products; dressings; and foodservice. For
the baking business, the Company's strategy is to capture operating efficiencies
and develop new growth opportunities for its market-leading brands. The
Company's strategy for its corn refining business is to maximize its return by
improving profitability, investing selectively for growth; and leveraging this
business's strength through strategic relationships.
In line with these strategies, during 1996 the Company focused on volume
growth; introduced many new products in all three of its businesses and
throughout the world; combined its own baking business successfully with a large
baking business it acquired at the end of 1995 and also integrated several
smaller acquisitions in the consumer foods businesses in Europe and Asia with
existing operations in those regions; expanded and built production facilities;
and essentially completed its restructuring actions announced in 1994 and 1995.
The earnings growth resulting from these activities was very positive in the
consumer foods and baking businesses. However, the results for the Company
overall were held back by a major drop in corn refining earnings due to very
unfavorable corn prices and corn delivery costs and the cost of liquidating in
the last quarter of the year important futures positions of high-priced corn
after prices had fallen sharply. In addition, margins in this business were
pressured by new capacity for high fructose corn syrup. Earnings were also
affected by the following events: European currency values in 1996, compared to
the prior year, were weaker; in North America's consumer foods and baking
businesses, continued consumer concerns about fat consumption held back demand
in several important product categories, while high commodity costs restrained
margins; and in the Latin American region, Argentina's and Brazil's economic
environments remained stable, while economic recovery continued to be slow in
Mexico, Colombia, and Venezuela, also impacting CPC's operations.
Our earnings expectations for 1997 are based on the assumption that
conditions relating to consumption, costs, currency values, competition, and
political and social environments in the economies and industries in which CPC
operates will not change significantly overall. Our expectations are also based
on the assumption that economies in most areas of the world will continue to
progress at current, generally modest, rates of growth. More specifically:
- In the U.S., it is expected that economic growth will remain at a level
similar to 1996. It is likely that this will benefit the Company, as will
offerings of reformulated reduced fat and fat free baked products and other new
products. Easing agricultural commodity prices may benefit 1997 earnings growth,
although in the corn refining business it is anticipated that the recovery from
the severely depressed profit level of last year will be slow and modest due to
continued strong competitive pressure on prices related to overcapacity in the
high fructose corn syrup sector of this industry.
- Also in the U.S., the continued integration of the acquired baking
operations over the next 24 months should result in further synergies during
1997 and beyond and is expected to contribute to profits.
- In Europe, the economies are expected to continue their generally modest
growth with some weakness in Germany. Currency values on average in 1997 are
likely to be notably lower than their 1996 levels. Competition will continue
strong as the European Union's food manufacturers and retail trade continue to
seek efficiencies. These factors will continue to have a moderating effect on
the division's volumes, sales, and profit growth. However, CPC's leading brands,
wide geographic presence, and its new products and businesses are expected to
provide the needed strength to counteract these forces.
24
<PAGE> 27
- In Latin America, the stability during 1996 throughout the region, as well
as the expected slow recovery in Mexico, Colombia, and Venezuela, should result
in an improving economic climate in 1997. This should encourage a higher level
of business investment than during 1995 and 1996. Together with freer markets
and open borders, increased regional business activities should benefit income
and consumption levels. CPC, with its strong market positions throughout the
area, is expected to show continued progress in 1997.
- In Asia, economic growth overall in 1997 is expected to remain at recent
rates. Because the Company's products have relatively low market penetration in
most countries in that area, CPC continues to see important opportunities for
growth in its businesses there.
Should some of these factors prove to be materially different from our
expectations, earnings could be correspondingly affected.
The last three years' financial results are discussed below. A general
description of operations appears on pages 2 through 23 of this report.
RESULTS OF OPERATIONS: 1996 COMPARED TO 1995
NET SALES in 1996 increased 17% over the previous year to $9.8 billion with all
divisions contributing to the increase. The baking business accounted for 64% of
the increase, mainly as a result of inclusion of a full year's sales from the
baking business acquired October 2, 1995. The consumer foods business accounted
for 27% of the increase in sales, and corn refining accounted for 9%. Volumes,
which were up 17% including acquisitions, accounted for the entire sales
increase as small price gains were offset by currency declines. Businesses
acquired in 1995 generated 11.4% of the sales gain.
Consumer foods sales rose 5.9% to $6.9 billion on volume gains of 6.7%,
including the effects of acquisitions, and on improved prices offset by weaker
currency values. In North America, sales increased 2.7% on volume gains and
pricing improvements. In Europe, a 7.4% increase in sales was the result of a
7.8% volume gain, due in part to acquisitions, and of better prices offset by
weaker currency values. In Latin America, sales rose 5.2% on strong volume
gains, overcoming weaker prices. Asian sales increased 9.3% as volumes and
prices improved, but were partially offset by weaker exchange rates. Baking
business sales, which included a full year for the new baking business versus
only a quarter last year, increased to $1.6 billion in 1996. Volumes for the
original baking business increased 1.8% while prices improved. Corn refining
sales increased 10.9% with all divisions reporting volume gains.
COST OF SALES AND OPERATING EXPENSES. Cost of sales as a percentage of net
sales was 61.4% in 1996, resulting in a gross profit margin of 38.6%, which was
lower than the nearly 40% in 1995. Higher raw material costs, particularly for
corn, which reached an all-time high, more than offset gains from improved
pricing and new efficiencies achieved as a result of the restructuring programs
initiated in prior years. Additionally, a $40 million loss, taken for certain
liquidated corn futures positions following a steep decline in the market price
of corn, also reduced gross profit margins. Marketing expenses increased $103
million but declined as a percentage of sales versus 1995 from 9.9% to 9.5%.
Conversely, selling, general, and administrative expenses increased slightly as
a percentage of sales. These changes were chiefly due to the acquisition of the
baking business, which has operating costs more heavily weighted to selling
expenses due to its direct-to-store delivery system.
OPERATING INCOME increased 2.6%, excluding 1995 special items (see
Restructuring, integration and other charges -- net on page 26). Strong volume
gains in all divisions were largely offset by much lower corn refining margins.
Weaker currency values also adversely affected results. Consumer foods results
improved by 16% on strong volume gains in all geographic areas and improved
margins partially offset by weaker currency values. Operating income increased
by 7.1% in North America, 20% in Europe, 23% in Latin America, and 4.1% in Asia.
Baking business operating income increased substantially compared to 1995,
mainly due to the inclusion of a full year's results for the acquired business.
Excluding the acquisition, this division achieved a small volume gain. Margins
were lower due to higher raw material costs. Operating income for corn refining
decreased nearly 70% due to effects of high corn prices and the commodity
futures losses mentioned above. However, volumes increased in all geographic
areas.
FINANCING COSTS of $175 million increased by 35% mainly due to interest
expense related to the full year's debt for businesses acquired during 1995. In
addition, average
25
<PAGE> 28
WORLDWIDE
OPERATING INCOME
($ Millions)
[GRAPH]
<TABLE>
<S> <C>
1994 939*
1995 1,065*
1996 1,092
</TABLE>
*Excludes special items
MARKETING
EXPENDITURES
($ Millions)
[GRAPH]
<TABLE>
<S> <C>
1994 712
1995 833
1996 936
</TABLE>
borrowings outstanding and interest rates increased marginally. Higher financing
costs were partially offset by lower foreign currency exchange losses.
PROVISION FOR INCOME TAXES. The effective tax rate in 1996 was 33.6%,
compared to 38.5% in 1995. This 4.9% decline was chiefly due to a decrease in
the tax rate in certain foreign jurisdictions and an increase in the proportion
of Company income earned overseas. This foreign income, on average, was taxed at
a lower rate than domestic income in 1996. Also contributing to the lower
effective tax rate was the resolution of several tax issues in 1996 in various
jurisdictions. It is expected that the effective tax rate in 1997 will be
approximately 36%.
NET INCOME AND EARNINGS PER COMMON SHARE of $580 million and $3.93 increased
5.9% and 7.1%, respectively, excluding the special items in last year's results.
These increases resulted from slightly higher operating income and the benefit
of a lower effective tax rate, which more than compensated for higher financing
costs. Fewer shares outstanding in 1996 compared to 1995 also benefited earnings
per common share.
RESULTS OF OPERATIONS: 1995 COMPARED TO 1994
NET SALES in 1995 increased 14% over 1994 to $8.4 billion with consumer foods
accounting for 74% of the overall increase and the baking business making up the
balance. Volumes, including acquisitions, were 9.1% higher, contributing
strongly to the sales gain. Acquisitions increased sales by $390 million or
5.3%. Consumer foods sales rose 13% to $6.5 billion on volume gains of 6.2%,
favorable exchange rates, and better prices. In North America, volumes were off
2% but better prices resulted in a sales gain of 2%. Sales in Europe increased
17% on stronger currency values and volume gains, with acquisitions contributing
importantly. In Latin America, sales advanced 11% on higher volumes. Asian sales
rose more than 30%, chiefly due to the new businesses in the region and the
consolidation of a Korean joint venture, which had previously been accounted for
on an equity basis. Baking business sales advanced 60% to $675 million,
including $272 million of additional sales from the acquired baking business.
Corn refining sales remained flat at $1.2 billion as volume gains were offset by
the elimination of sales of a Mexican business, which was converted into a joint
venture early in 1995. Lower selling prices also reduced sales.
COST OF SALES AND OPERATING EXPENSES. Cost of sales as a percentage of net
sales was approximately 60% in 1995, resulting in a gross profit margin of
nearly 40%, slightly better than the 39.5% in 1994. The improvement reflects the
benefits of restructuring existing businesses and better prices, which more than
offset higher raw material costs. Marketing expenses as a percentage of net
sales increased slightly compared to 1994. The ratio of selling, general, and
administrative expenses to sales also increased marginally, reflecting mostly
the increase in amortization of goodwill from recent acquisitions.
RESTRUCTURING, INTEGRATION, AND OTHER CHARGES -- NET. In 1995, the Company
recorded a net pre-tax charge of $58 million comprising a $55 million charge for
the integration of its acquired baking business with its existing baking
business, a $75 million charge for further restructuring of its worldwide
businesses ($60 million for consumer foods and $15 million for corn refining),
and a $72 million gain from the sale of two businesses ($52 million in corn
refining and $20 million in consumer foods). Operating income, net income, and
earnings per common
26
<PAGE> 29
share, excluding the effects of these items, were $1,065 million, $548 million,
and $3.67, respectively. In 1994, the Company also recorded a pre-tax charge of
$227 million for the cost of a worldwide restructuring program ($175 million for
consumer foods, $33 million for baking, and $19 million for corn refining).
Operating income, net income, and earnings per common share, excluding the
effects of this charge, were $939 million, $482 million, and $3.17,
respectively.
OPERATING INCOME, excluding the special items mentioned above, increased 14%
derived primarily from higher volumes in all segments. Consumer foods, excluding
its portion of special items, advanced 14% on good volume gains in all
geographic areas, except North America, and stronger exchange rates. Margin
improvements in North America and Europe offset declines in other areas. Baking
business results, excluding its share of special items, increased more than 70%
due to the acquisition in the fourth quarter and improvement in margins. Corn
refining operating income, excluding its share of special items, was 3.3% higher
than 1994.
FINANCING COSTS of $130 million were $33 million higher than 1994 due to
higher interest expense resulting from acquisitions and higher exchange losses.
PROVISION FOR INCOME TAXES. The effective tax rate in 1995 was 38.5%,
compared with 39.5% in 1994. The lower tax rate in 1995 was attributable to the
effects of declines in worldwide tax rates. The Company's effective tax rate was
higher than the U.S. statutory rate of 35% because it included state income
taxes and foreign income taxed at effective rates higher than the U.S. statutory
rate.
NET INCOME AND EARNINGS PER COMMON SHARE, excluding special items mentioned
above, increased 14% and 16%, respectively, resulting from higher operating
income and the lower effective tax rate partially offset by higher financing
costs. Fewer shares outstanding also improved earnings per common share.
KEY BALANCE SHEET ITEMS
At year-end 1996, assets increased $331 million to $7.9 billion from the prior
year mainly due to capital expenditures and increased trade working capital,
partially offset by weaker European currency values. Total debt increased $168
million to $2.9 billion.
Total assets in 1995 increased $1.9 billion to $7.5 billion from year-end
1994 largely due to acquisitions, which added more than $1.4 billion. Stronger
European currency values and capital expenditures also increased total assets.
Total debt increased by nearly $1.2 billion, reflecting mostly the cost of
acquisitions.
NET CASH FLOWS
Strong cash flows from operations continued to fund the Company's working
capital and capital expenditure programs, as well as the quarterly dividend,
which was increased 7.9% to $0.41 per share. Cash flows from operations in 1996
of $791 million were 12% below 1995 and 7.5% above 1994. In 1996, cash flows
were lower than 1995 as the increase in trade working capital was not fully
offset by higher net income and depreciation and amortization.
In 1995, the cash flows from operations were higher than 1994 due to higher
net income and higher depreciation and amortization, partially offset by
increased trade working capital.
Investing activities were lower than in 1995 mainly due to a decrease in
acquisitions in 1996. Capital expenditures were 14% higher in 1996 as the
Company continued to invest in new facilities and plant upgrades, chiefly in its
consumer foods business. Increasing amounts are also being spent on new computer
systems to enhance productivity. Investing activities in 1995 were higher than
in 1994 mostly because of acquisitions and a 25% increase in capital
expenditures. In addition, the Company in 1996 loaned $60 million to its Mexican
joint venture for the construction of a new plant. The Company expects the level
of capital expenditures in 1997 to be lower.
During the year, the Company also purchased three million shares of its
common stock, which reduced the number of shares outstanding and increased
earnings per share by $.05. The cost of these purchases added approximately $209
million to the Company's financing requirements.
The Company has access to various sources of funds at attractive rates based
on its strong financial condition. CPC's long-term debt rating remained at A+
with Standard & Poor's and Duff & Phelps, and A2 with Moody's.
27
<PAGE> 30
REPORT OF MANAGEMENT
The management of CPC International Inc. is responsible for the financial and
operating information contained in the Annual Report including the financial
statements covered by the independent auditors' report. These statements were
prepared in conformity with United States generally accepted accounting
principles and include, where necessary, informed estimates and judgments.
The Company maintains systems of accounting and internal control designed to
provide reasonable assurance that assets are safeguarded against loss, and that
transactions are executed and recorded properly so as to ensure that the
financial records are reliable for preparing financial statements.
Elements of these control systems are the establishment and communication of
accounting and administrative policies and procedures, the selection and
training of qualified personnel, and continuous programs of internal audits.
The Company's financial statements are reviewed by its Audit Committee, which
is composed entirely of outside Directors. This Committee meets periodically
with the independent auditors, management, and the corporate general auditor to
review the scope and results of the annual audit, interim reviews, internal
controls, internal auditing, and financial reporting matters. The independent
auditors and the corporate general auditor have direct access to the Audit
Committee.
/s/Konrad Schlatter
- -------------------
Konrad Schlatter
Senior Vice President and Chief Financial Officer
February 5, 1997
INDEPENDENT AUDITORS' REPORT
[KPMG Peat Marwick LLP LOGO]
The Board of Directors and Stockholders
CPC International Inc.:
We have audited the accompanying consolidated balance sheets of CPC
International Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. 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 CPC
International Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/KPMG Peat Marwick LLP
- ------------------------
KPMG Peat Marwick LLP
New York, New York
February 5, 1997
28
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
CPC International Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31
$ Millions except per share amounts 1996 1995 1994
=================================================================================================
<S> <C> <C> <C>
Net sales $ 9,844 $ 8,432 $ 7,425
- -------------------------------------------------------------------------------------------------
Cost of sales 6,049 5,064 4,496
- -------------------------------------------------------------------------------------------------
Gross profit 3,795 3,368 2,929
- -------------------------------------------------------------------------------------------------
Marketing 936 833 712
Selling, general, and administrative 1,780 1,487 1,289
Restructuring, integration, and other charges -- net -- 58 227
Equity in earnings of unconsolidated affiliates (13) (17) (11)
- -------------------------------------------------------------------------------------------------
Expenses and other income -- net 2,703 2,361 2,217
- -------------------------------------------------------------------------------------------------
Operating income 1,092 1,007 712
- -------------------------------------------------------------------------------------------------
Financing costs
Exchange losses 3 7 5
Interest expense -- net 172 123 92
- -------------------------------------------------------------------------------------------------
Total financing costs 175 130 97
- -------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 917 877 615
Provision for income taxes 308 338 243
Minority stockholders' interest 29 27 27
- -------------------------------------------------------------------------------------------------
Net income $ 580 $ 512 $ 345
- -------------------------------------------------------------------------------------------------
Earnings per common share $ 3.93 $ 3.43 $ 2.25
=================================================================================================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
CAPITAL EXPENDITURES
($ Millions)
[GRAPH]
CONSOLIDATED BALANCE SHEETS
CPC International Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31
$ Millions 1996 1995
=================================================================================
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 163 $ 203
Accounts receivable -- net 1,386 1,293
Inventories 1,052 1,011
Prepaid expenses 94 70
Deferred tax asset 56 42
- ---------------------------------------------------------------------------------
Total current assets 2,751 2,619
- ---------------------------------------------------------------------------------
Investments in and loans to unconsolidated affiliates 172 93
- ---------------------------------------------------------------------------------
Plants and properties
Land 127 99
Buildings 1,260 1,254
Machinery and equipment 4,252 4,055
- ---------------------------------------------------------------------------------
5,639 5,408
Less accumulated depreciation 2,559 2,510
- ---------------------------------------------------------------------------------
Total plants and properties 3,080 2,898
- ---------------------------------------------------------------------------------
Intangibles
Excess cost over net assets of businesses acquired 1,504 1,506
Other intangibles 401 488
- ---------------------------------------------------------------------------------
1,905 1,994
Less accumulated amortization 245 214
- ---------------------------------------------------------------------------------
Total intangibles 1,660 1,780
- ---------------------------------------------------------------------------------
Other assets 212 154
- ---------------------------------------------------------------------------------
Total assets $7,875 $7,544
=================================================================================
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 33
<TABLE>
<CAPTION>
$ Millions 1996 1995
=================================================================================
<S> <C> <C>
LIABILITIES
Current liabilities
Notes payable $ 979 $ 1,290
Current portion of long-term debt 52 109
Accounts payable 773 747
Accrued liabilities 913 915
Income taxes payable 75 47
- ---------------------------------------------------------------------------------
Total current liabilities 2,792 3,108
- ---------------------------------------------------------------------------------
Noncurrent liabilities 827 907
- ---------------------------------------------------------------------------------
Long-term debt 1,869 1,333
- ---------------------------------------------------------------------------------
Deferred taxes on income 137 45
- ---------------------------------------------------------------------------------
Minority stockholders' interest 166 164
- ---------------------------------------------------------------------------------
EQUITY
Stockholders' equity
Preferred stock - authorized 25 million shares
$1 par value -- --
Designations
Series A ESOP Convertible
3 million shares designated 187 190
Series A Junior Participating
600,000 shares designated -- --
Common stock - authorized 900 million shares
$.25 par value - issued 195,271,444 shares 49 49
Capital in excess of par value stock 187 167
Unearned ESOP compensation (111) (128)
Cumulative translation adjustment (259) (163)
Treasury stock, at cost (1,499) (1,317)
Retained earnings 3,530 3,189
- ---------------------------------------------------------------------------------
Total stockholders' equity 2,084 1,987
- ---------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 7,875 $ 7,544
=================================================================================
</TABLE>
TOTAL CAPITAL EMPLOYED
($ Millions)
[GRAPH]
31
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS
CPC International Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31
$ Millions 1996 1995 1994
=====================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES
Net income $ 580 $ 512 $ 345
Non-cash charges (credits) to net income
Depreciation and amortization 376 322 288
Restructuring, integration, and other charges -- net -- 58 227
Deferred taxes 65 60 (54)
Other -- net (3) 10 28
Changes in trade working capital
Accounts receivable and prepaid expenses (139) (109) (117)
Inventories (70) (65) (18)
Accounts payable and accrued liabilities (18) 110 37
- -----------------------------------------------------------------------------------------------------
Net cash flows from operating activities 791 898 736
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Capital expenditures paid (540) (481) (401)
Proceeds from disposal of plants and properties 5 3 9
Proceeds from businesses sold -- 76 --
Investment in and loans to unconsolidated affiliates (60) (13) --
Businesses acquired (12) (1,222) (185)
- -----------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (607) (1,637) (577)
- -----------------------------------------------------------------------------------------------------
Net cash flows after investments 184 (739) 159
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
Purchase of treasury stock (209) (99) (165)
New long-term debt 961 117 82
Repayment of long-term debt (76) (32) (89)
Net change in short-term debt (681) 1,045 182
Dividends paid on common stock (225) (213) (199)
Dividends paid on preferred stock (15) (15) (16)
Common stock issued 27 13 7
Other liabilities (deposits) (3) 1 (4)
- -----------------------------------------------------------------------------------------------------
Net cash flows from (used for) financing activities (221) 817 (202)
- -----------------------------------------------------------------------------------------------------
Effects of exchange rate changes on cash (3) -- 2
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40) 78 (41)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 203 125 166
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 163 $ 203 $ 125
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 35
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CPC International Inc. and Subsidiaries
<TABLE>
<CAPTION>
CAPITAL IN UNEARNED CUMULATIVE TREASURY
PREFERRED COMMON EXCESS OF ESOP TRANSLATION COMMON RETAINED
$ Millions STOCK STOCK PAR VALUE COMPENSATION ADJUSTMENT STOCK EARNINGS
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 196 $49 $ 151 $(155) $(173) $(1,073) $ 2,774
- -------------------------------------------------------------------------------------------------------------------------------
Net income 345
Cash dividends declared
($1.38 per share) (204)
Stock issued in connection with:
Stock options 2
Deferred compensation 4 5
Translation adjustment including the
effects of hedging, net of taxes (8)
Series A ESOP preferred stock
dividend, net of taxes (11)
ESOP compensation earned 14
ESOP shares redeemed (2)
Treasury stock acquired (165)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 194 49 155 (141) (181) (1,231) 2,904
- -------------------------------------------------------------------------------------------------------------------------------
Net income 512
Cash dividends declared
($1.48 per share) (216)
Stock issued in connection with:
Stock options 3 6
Deferred compensation 9 7
Translation adjustment including the
effects of hedging, net of taxes 18
Series A ESOP preferred stock
dividend, net of taxes (11)
ESOP compensation earned 13
ESOP shares redeemed (4)
Treasury stock acquired (99)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 190 49 167 (128) (163) (1,317) 3,189
- -------------------------------------------------------------------------------------------------------------------------------
Net income 580
Cash dividends declared
($1.58 per share) (228)
Stock issued in connection with:
Stock options 9 17
Deferred compensation 12 10
Translation adjustment including the
effects of hedging, net of taxes (96)
Series A ESOP preferred stock
dividend, net of taxes (11)
ESOP compensation earned 17
ESOP shares redeemed (3) (1)
Treasury stock acquired (209)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 187 $49 $ 187 $(111) $(259) $(1,499) $ 3,530
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CPC International Inc. and Subsidiaries
SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - Consolidated financial statements include the
accounts of the Company and its subsidiaries. The accounts of subsidiaries
outside of the U.S., except for those in Canada, are based on fiscal years
ending September 30.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign subsidiaries
other than those in highly inflationary economies are translated at current
exchange rates with the related translation adjustments reported as a separate
component of stockholders' equity. Income statement accounts are translated at
the average exchange rate during the period. In highly inflationary economies
where the U.S. dollar is considered the functional currency, monetary assets and
liabilities are translated at current exchange rates with the related adjustment
included in net income. Non-monetary assets and liabilities are translated at
historical exchange rates.
CASH AND CASH EQUIVALENTS - Cash equivalents consist of all investments
purchased with an original maturity of three months or less, and which have
virtually no risk of loss in value. At December 31, 1996, and 1995, the Company
had cash equivalents of $6 million and $43 million, respectively.
INVENTORIES - are stated at the lower of cost or market. In the U.S., vegetable
oils and corn are valued at cost on the last-in, first-out method. Other U.S.
inventories are valued at cost on the first-in, first-out method. Had the
first-in, first-out method been used for all U.S. inventories, the carrying
value of these inventories would have increased by $20 million and $21 million
in 1996 and 1995, respectively. Outside the U.S., inventories generally are
valued at average cost.
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. Consolidated retained earnings at December 31, 1996, included $16
million of undistributed earnings of unconsolidated affiliates, primarily
representing companies of which the Company owns 50% or less.
PLANTS AND PROPERTIES are stated at cost. Depreciation is generally computed on
the straight-line method over the estimated useful lives of depreciable assets
at rates ranging from 2% to 10% for buildings and 5% to 20% for all other
assets. Where permitted by law, accelerated depreciation methods are used for
tax purposes.
INTANGIBLES - The Company amortizes, on a straight-line basis, the excess cost
of net assets over periods not exceeding 40 years. Other intangible assets,
including trademarks, licenses, and patents, are amortized over their economic
lives. The recoverability of the carrying values of intangibles is evaluated
regularly using current and forecasted profitability of the related acquired
businesses.
FINANCING COSTS - In line with the functional currency concept under which the
Company uses the U.S. dollar for highly inflationary economies, the
principal-preservation element inherent in local interest charges has been
recorded in cost of sales, rather than under financing costs, consistent with
the classification of translation gains resulting from holding local currency
debt. In 1996, 1995, and 1994, $2 million, $6 million, and $21 million,
respectively, were included in cost of sales.
INCOME TAXES - Deferred income taxes reflect the differences between the assets
and liabilities recognized for financial reporting purposes and amounts
recognized for tax purposes. Deferred taxes are based on tax laws as currently
enacted. The Company makes provisions for estimated U.S. and foreign income
taxes, less available tax credits and deductions, that may be incurred on the
remittance by the Company's subsidiaries of undistributed earnings, except those
deemed to be indefinitely reinvested.
EARNINGS PER COMMON SHARE has been computed by dividing net income, less
preferred stock dividends net of taxes of $11 million in 1996, 1995, and 1994,
by the weighted average number of common shares outstanding of 145 million in
1996, 146 million in 1995, and 148 million in 1994.
LONG-LIVED ASSETS - In 1996, the Company adopted FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which did not have a material impact on the Company's financial position or
results of operations.
ENVIRONMENTAL CONTINGENCIES - The Company accounts for environmental
contingencies in accordance with FAS 5, "Accounting for Contingencies," which
requires expense
34 CPC INTERNATIONAL INC.
<PAGE> 37
recognition when it is both "probable" that an obligation exists and that the
obligation can be "reasonably estimated." In assessing probability, as well as
in estimating costs, the Company uses the coordinated efforts of environmental
professionals and consultants as well as in-house and outside counsel and
accountants, taking into account possible methods of remediation acceptable to
all parties. The Company believes it can recover, fully or partially, such
liabilities from other potential responsible parties or from its insurers.
Wherever this is the case such recovery is aggressively pursued. Nevertheless,
until final agreement has been reached for such claims from these parties, in
accordance with FAS 5, such expected recoveries are not considered in
establishing estimated costs. In addition, estimated costs are based on expected
future costs, which have not been discounted.
RISKS AND UNCERTAINTIES - The Company operates in three business segments and in
more than 60 countries, and 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 business or country would not have a material adverse affect
on the Company's operations as a whole. Additionally, the Company believes there
is no concentration of risk with any single customer or supplier, or small group
of customers or suppliers, whose failure or non-performance would materially
affect the Company's results.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform
to the 1996 presentation.
ACQUISITIONS AND UNCONSOLIDATED JOINT VENTURE
The Company, during 1996, acquired the assets of a number of small businesses
and accounted for these transactions under the purchase method. The impact of
the acquisitions on the Company's financial position and results of operations
was not significant. During 1996, the Company loaned its Mexican corn refining
joint venture $60 million for construction of a new plant.
During 1995, the Company acquired the nationwide baking business of Kraft
Foods, Inc., which includes four major market-leading brands: Entenmann's sweet
baked products, Freihofer's and Oroweat breads, and Boboli Italian pizza crusts
for approximately $865 million. Also in 1995, the Company acquired two consumer
foods businesses - the Pot Noodle instant hot snacks business located in the
United Kingdom and the Lesieur mayonnaise and salad dressings business located
in France - for a total cost of approximately $330 million. All of these
acquisitions were accounted for under the purchase method. In addition, the
Company's corn refining business entered into a joint venture with Arancia, S.A.
de C.V. , a corn refining business located in Mexico. This joint venture is
accounted for under the equity method.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplementary information for the consolidated statements of cash flows is set
forth below:
<TABLE>
<CAPTION>
$ Millions 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Cash paid during the year for:
Interest $220 $ 123 $102
Income taxes 179 340 283
- --------------------------------------------------------------------------------
Details of businesses acquired as follows:
Fair value of assets acquired $ 12 $1,420 $452
Liabilities assumed -- 198 267
- --------------------------------------------------------------------------------
Cash paid for acquisitions $ 12 $1,222 $185
================================================================================
</TABLE>
FINANCING ARRANGEMENTS -
SHORT-TERM
The Company uses the commercial paper market in the U.S. to supplement long-term
borrowings. Average quarterly commercial paper borrowings in 1996 and 1995 were
1996 ANNUAL REPORT 35
<PAGE> 38
$1.1 billion and $594 million, respectively, with maximum borrowings both in
1996 and 1995 of $1.3 billion, and a weighted average interest rate in 1996 and
1995 of 5.4% and 6.0%, respectively.
For the international operations, the maximum quarter-end balance of bank
borrowings during 1996 and 1995 was $689 million and $527 million, respectively.
Average quarterly bank borrowings were $617 million for 1996 and $383 million
for 1995. The weighted-average interest rate for bank borrowings in 1996 and
1995 was 11% and 12%, respectively.
The Company had unused lines of credit totaling $2.3 billion at December 31,
1996, and 1995.
LONG-TERM
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
$ Millions 1996 1995
================================================================================
<S> <C> <C>
PAYABLE IN U.S. DOLLARS
7.71% ESOP guaranteed notes due
December 2004 $ 147 $ 161
Medium-term notes due 1998-2005
at various rates 200 150
6.15% notes due 2006 300 --
7.25% notes due 2026 300 --
8.5% sinking fund debentures due April 2016 -- 100
5.625% - 6.75% pollution control revenue
bonds due 2007 - 2016 15 15
Commercial paper supported by revolving
credit agreements at a weighted interest
rate of 5.4% in 1996 and 6.0% in 1995 150 500
Other notes and loans at various rates
and due dates 48 50
- --------------------------------------------------------------------------------
Total 1,160 976
- --------------------------------------------------------------------------------
PAYABLE IN OTHER CURRENCIES
5% Swiss franc debentures, due March 2045,
10-year variable interest rates 159 174
6.75% German mark bearer bonds due
January 2001 131 141
Bank and other loans at prevailing interest
rates with various due dates:
- Secured 37 25
- Unsecured 434 126
- --------------------------------------------------------------------------------
Total 761 466
- --------------------------------------------------------------------------------
1,921 1,442
- --------------------------------------------------------------------------------
Less current maturities 52 109
- --------------------------------------------------------------------------------
Total long-term debt $1,869 $1,333
================================================================================
</TABLE>
The Company is required to apply toward retirement of the principal of the
indebtedness not less than the following amounts in the period 1997 through
2001: 1997 (included in current liabilities), $52 million; 1998, $89 million;
1999, $91 million; 2000, $106 million; and 2001, $192 million. At December 31,
1996, buildings, equipment, and certain other assets located outside the U.S.
totaling approximately $151 million have been pledged as collateral for the
secured loans.
During 1996, the Company renewed a revolving credit agreement for $350
million, which now matures in 1997. In addition, the Company maintains a
revolving credit facility of $1.25 billion, which was established in 1995 and
which matures in 2000. These revolving credit agreements, totaling $1.6 billion,
are with a group of U.S. and international banks and permit the Company to
borrow on an unsecured basis at variable interest rates. Covenants in these
agreements require the Company to maintain total debt at no more than 60% and
65% of total capitalization at December 31, 1996, and 1995, respectively. The
debt to capitalization ratio was 55% and 56% at December 31, 1996, and 1995,
respectively. There were no borrowings outstanding under these facilities.
In December 1995, the Company filed a shelf registration with the Securities
and Exchange Commission for borrowings of up to $700 million. In January 1996,
under this shelf registration, the Company also established a $200 million
medium-term note program. Under the shelf filing, the Company issued $300
million of 6.15% notes in January 1996, maturing in 2006; $100 million of 6.875%
medium-term notes in October 1996, maturing in 2003; and $300 million of 7.25%
notes in December 1996, maturing in 2026. The notes issued during 1996 completed
the authorization under the shelf registration and the medium-term note program.
The remaining designated medium-term notes of $100 million were redesignated as
part of the 7.25% notes due 2026.
On April 15, 1996, the Company redeemed the 8.5% sinking fund debentures, due
2016. During 1995, the Company issued $100 million of medium-term notes with
maturities of three to seven years.
36 CPC INTERNATIONAL INC.
<PAGE> 39
FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of cash equivalents,
accounts receivable, accounts payable, and short-term debt approximate fair
values. The fair value of long-term debt at December 31, 1996, and 1995, was
$1.9 billion and $1.4 billion, respectively. The fair value of long-term debt
was based on quotes obtained from brokers.
FOREIGN EXCHANGE CONTRACTS - The Company's policy is to hedge its exposure in
foreign currency cash flows resulting from planned dividends, fees and
royalties, intercompany loans, and other similar transactions. The Company also
hedges certain net investments in foreign operations with foreign exchange
contracts or with borrowings denominated in the particular foreign currency. As
a matter of policy, the Company does not speculate on foreign currencies. Gains
and losses, both realized and unrealized, on financial instruments that hedge
operating activities and related cashflows, flow through income in the same
period as the items being hedged. Gains and losses, both realized and
unrealized, on financial instruments that hedge the Company's investments in
foreign operations are recognized as part of the cumulative translation
adjustment in stockholders' equity.
At December 31, 1996, the Company had forward exchange contracts to deliver
$323 million in foreign currencies comprising $128 million in French francs, $57
million in Dutch guilders, $44 million in Italian lira, $25 million in German
marks, $25 million in Swiss francs, and $44 million in various other currencies.
The Company also had contracts to purchase $94 million in foreign currencies
consisting of $45 million in French francs and the remaining balance in various
other currencies.
COMMODITIES - The Company's products are manufactured from a number of raw
materials, including soybean and other edible oils, peanuts, corn and wheat, all
of which are, and are expected to continue to be, in adequate supply. The
Company follows a policy of hedging its exposure to commodities fluctuations
with commodities futures and option contracts for certain of its key raw
material purchases. Such raw materials may or may not be hedged at any given
time based on management's judgment as to the need to fix the 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 those commodities and are included in the cost when purchased.
During the fourth quarter of 1996, the Company recognized a loss of $40
million for certain liquidated corn futures. These futures had been designed to
protect anticipated firm-priced business against an expected run-up in corn
prices. When corn prices instead fell sharply and the business as anticipated
did not materialize, the Company liquidated the futures contracts.
At December 31, 1996, the Company had open corn commodity futures contracts
of $202 million to cover its requirements. Contracts open for delivery beyond
March 31, 1997, amounted to $115 million, of which $87 million is due in May
1997 and $28 million is due in July 1997. At December 31, 1996, the price of
corn under these contracts was $33.4 million in excess of market quotations of
the same date.
1996 ANNUAL REPORT 37
<PAGE> 40
RESTRUCTURING, INTEGRATION, AND OTHER CHARGES -- NET
In 1995 the Company recorded a $75 million charge to close a consumer foods
plant in the U.S. and realign production at several consumer foods and corn
refining facilities worldwide. This was in addition to the $227 million
restructuring charge announced in June 1994. Both charges were utilized by
December 31, 1996. Also in 1995, the Company recorded a gain of $72 million
from the sale of two businesses: a 50% interest in an ethanol business in the
U.S. and a small insecticide business in Brazil. This gain, combined with the
1995 charge mentioned above, resulted in a net charge in 1995 of $3 million, $2
million after taxes or $.01 per share. The Company in 1995 recorded an
integration charge of $55 million, $34 million after taxes or $.23 per share
for the cost of combining its baking business with an acquired baking business.
For the 1994 restructuring charge, the net impact on results was $137 million
or $.92 per share.
PENSION PLANS
The Company and its subsidiaries have a number of defined-benefit pension plans
covering substantially all U.S. employees and certain groups of employees in
foreign countries. Plans covering salaried employees generally provide benefits
based on the employee's final salary level or on the average salary level for a
specified period. Plans covering hourly employees generally provide benefits of
stated amounts for each year of service. The Company's general funding policy is
to contribute annually the maximum amount that can be deducted for income tax
purposes. Certain foreign countries allow income tax deductions without regard
to contribution levels, and the Company's policy in those countries is to make
the contribution required by the terms of the plan. Domestic plan assets consist
primarily of common stock, real estate, corporate debt securities, and
short-term investment funds. Approximately $72 million (10%) of the domestic
qualified plan assets are invested in the Company's common stock.
The components of net periodic pensions cost are as follows:
U.S. PLANS
<TABLE>
<CAPTION>
================================================================================
$ Millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during
the period) $ 23 $ 17 $ 17
Interest cost on projected
benefit obligation 43 43 39
Actual return on plan assets (110) (123) (38)
Net amortization and deferral 61 78 (10)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 17 $ 15 $ 8
================================================================================
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL PLANS
================================================================================
$ Millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during
the period) $ 19 $ 17 $ 16
Interest cost on projected
benefit obligation 45 43 38
Actual return on plan assets (28) (30) (19)
Net amortization and deferral 4 9 (2)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 40 $ 39 $ 33
================================================================================
</TABLE>
The funded status for the Company's major pension plans, based on valuations
as of September 30, is as follows:
U.S. PLANS
<TABLE>
<CAPTION>
================================================================================
Assets exceed Accumulated benefits
accumulated benefits exceed assets
$Millions 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested $(527) $(524) $(20) $(30)
Nonvested (20) (17) -- (1)
- --------------------------------------------------------------------------------
Accumulated benefit
obligation (547) (541) (20) (31)
Effect of projected future
compensation levels (90) (81) (12) (13)
- --------------------------------------------------------------------------------
Projected benefit obligation (637) (622) (32) (44)
Plan assets at fair value 755 657 5 18
- --------------------------------------------------------------------------------
Plan assets in excess
of (less than) projected
benefit obligation 118 35 (27) (26)
Unrecognized net loss (gain) (68) 19 -- (1)
Unrecognized prior
service cost 19 13 11 15
Unrecognized net
transition obligation 9 11 -- --
Post September 30
contributions 1 1 -- --
Additional minimum liability -- -- -- (4)
- --------------------------------------------------------------------------------
(Accrued) prepaid pension
cost at December 31 $ 79 $ 79 $(16) $(16)
================================================================================
</TABLE>
38 CPC INTERNATIONAL INC.
<PAGE> 41
INTERNATIONAL PLANS
<TABLE>
<CAPTION>
===================================================================================
Assets exceed Accumulated benefits
accumulated benefits exceed assets
$Millions 1996 1995 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested $(207) $(186) $(358) $(371)
Nonvested (11) (11) (16) (15)
- -----------------------------------------------------------------------------------
Accumulated benefit obligation (218) (197) (374) (386)
Effect of projected future
compensation levels (30) (23) (36) (39)
- -----------------------------------------------------------------------------------
Projected benefit obligation (248) (220) (410) (425)
Plan assets at fair value 298 264 119 126
- -----------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected benefit
obligation 50 44 (291) (299)
Unrecognized net loss (gain) (46) (37) 51 55
Unrecognized prior service
cost 9 10 4 8
Unrecognized net transition
obligation (asset) (2) (7) 12 15
Additional minimum liability -- -- (36) (42)
- -----------------------------------------------------------------------------------
(Accrued) prepaid pension
cost at December 31 $ 11 $ 10 $(260) $(263)
===================================================================================
</TABLE>
Assumptions (reflecting averages across all plans):
U.S. PLANS
<TABLE>
<CAPTION>
==============================================================================
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rates 7.0% 6.6% 7.7%
Rate of increase in compensation levels 5.5% 5.3% 6.3%
Long-term rate of return on plan assets 8.6% 9.7% 8.6%
==============================================================================
</TABLE>
INTERNATIONAL PLANS
<TABLE>
<CAPTION>
==============================================================================
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rates 7.5% 7.4% 7.5%
Rate of increase in compensation levels 4.9% 4.8% 4.9%
Long-term rate of return on plan assets 8.0% 7.9% 8.0%
==============================================================================
</TABLE>
In addition, the Company sponsors defined-contribution pension plans covering
certain domestic and foreign employees. Contributions are determined by matching
a percentage of employee contributions. Expense recognized in 1996, 1995, and
1994 was $27 million, $23 million, and $19 million, respectively.
The Company also contributes to union-sponsored, defined-benefit,
multi-employer pension plans. Expense recognized in 1996, 1995, and 1994 was $24
million, $10 million, and $4 million, respectively.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In addition to pension benefits, the Company provides certain health care and
life insurance benefits for its domestic and certain foreign retired employees.
Substantially all of the Company's domestic employees become eligible for these
benefits when they meet minimum age and service requirements. The Company has
the right to modify or terminate these benefits.
The following is a summary of the status of the Company's major
postretirement benefit plans based on valuations as of September 30, 1996, and
1995:
<TABLE>
<CAPTION>
$ Millions 1996 1995
=======================================================================
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 176 $ 194
Fully eligible active plan participants 44 38
Other active plan participants 67 60
- -----------------------------------------------------------------------
Total 287 292
- -----------------------------------------------------------------------
Unrecognized prior service cost 10 9
Unrecognized net gain 48 36
Post September 30 claims (5) (4)
- -----------------------------------------------------------------------
Accrued postretirement benefit cost at
December 31 $ 340 $ 333
=======================================================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
$ Millions 1996 1995 1994
=======================================================================
<S> <C> <C> <C>
Service cost (benefits earned during
the year) $ 8 $ 5 $ 4
Interest cost on the accumulated
postretirement benefit obligation 19 21 18
Net amortization and deferral (2) (1) (1)
- -----------------------------------------------------------------------
Net periodic postretirement benefit $ 25 $ 25 $ 21
=======================================================================
</TABLE>
Annual increases in per capita cost of health care benefits of 9.5%
pre-age-65 and 7.5% post-age-65 were assumed for 1997 to 1998. Rates were
assumed to decrease by 1%
1996 ANNUAL REPORT 39
<PAGE> 42
thereafter until reaching 4.5%. Increasing the assumed health care cost trend
rate by 1% increases the APBO by $35 million, with a corresponding effect on the
service and interest cost components of the net periodic postretirement benefit
cost of $3 million. The discount rate used to determine the APBO for 1996 and
1995 is 7.0% and 6.5%, respectively.
STOCKHOLDERS' EQUITY -
PREFERRED STOCK
The Company has authorized 25 million shares of $1 par value preferred stock of
which 3 million shares were designated for the Company's ESOP and 600,000 shares
of Series A Junior Participating shares were designated for the shareholder
rights plan. At December 31, 1996, 1995, and 1994, there were 2.1 million, 2.1
million, and 2.2 million Series A ESOP shares outstanding, respectively. No
Series A Junior Participating shares were issued.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - The Company has an Employee Stock
Ownership Plan (ESOP) as part of its Savings/Retirement Plan covering U.S.
salaried employees. (Coverage for salaried employees who joined the Company with
the baking acquisition began January 1, 1997.) The ESOP is designed to provide
employees with increased ownership of the Company's stock and to satisfy the
Company's obligation to match employees' contributions to the Savings/Retirement
Plan on a $1 for $1 basis.
In 1989, the ESOP borrowed $200 million in a public offering and used the
proceeds to purchase approximately 2.2 million shares of the Company's Series A
ESOP convertible preferred stock. Since the notes were guaranteed by the
Company, they are reflected in the consolidated balance sheet as short-term and
long-term debt with an offsetting amount included in stockholders' equity as
unearned ESOP compensation. The preferred stock is convertible into
approximately 4.4 million shares of the Company's common stock. The preferred
stock pays a dividend of $7.14 per share which is used by the ESOP, together
with Company contributions, to make debt service payments on the ESOP notes. The
notes have a 15-year maturity and an original fixed interest rate of 7.78%,
which was reduced to 7.71% in 1993, in accordance with the agreement. Also
beginning in 1993, a portion of the notes was refinanced on each payment date.
The weighted average interest rate was 7.20% and 7.41% in 1996 and 1995,
respectively.
The number of shares allocated to participants is based on the semi-annual
payments of principal and interest due on the ESOP notes. In 1996 and 1995,
170,115 shares and 163,038 shares of preferred stock valued at $15.2 million and
$14.5 million, respectively, were allocated to participants. The ESOP had
842,543 shares allocated to participants and 1,251,161 suspense shares at
December 31, 1996.
Compensation cost included in the consolidated statement of income was $11.7
million, $12.1 million, and $12.4 million in 1996, 1995, and 1994, respectively.
SHAREHOLDER RIGHTS PLAN - Under the Company's shareholder rights plan, each
share of the Company's common stock carries with it one-half of a preferred
stock purchase right. The rights will at no time have voting power or pay
dividends. The rights will become exercisable if a person or group acquires 15%
or more of the Company's common stock, or announces a tender or exchange offer
that could result in the acquisition of 15% or more thereof. When exercisable,
each full right entitles a holder to buy one two-hundredths of a share of Series
A Junior Participating Preferred Stock at a price of $325. If the Company is
involved in a merger or other business combination with a 15% or more
stockholder, each full right will entitle a holder to buy a number of the
acquiring company's shares having a value of twice the exercise price of the
right. Alternatively, if a 15% stockholder engages in
40 CPC INTERNATIONAL INC.
<PAGE> 43
certain self-dealing transactions or acquires the Company in such a manner that
the Company and its common stock survive, or if any person acquires 15% or more
of the common stock, except pursuant to an offer for all shares at a fair price,
each full right not owned by a 15% or more stockholder may be exercised for
common stock of the Company (or, in certain circumstances, other consideration)
having a market value of twice the exercise price of the right. The Company may
redeem the rights for one cent each at any time before an acquisition of 15% or
more of its voting securities and for at least 10 business days thereafter.
Unless redeemed earlier, the rights will expire on March 19, 2001.
TREASURY STOCK
The Company had common stock in treasury at the end of 1996, 1995, and 1994
totaling 51.6 million, 49.7 million, and 48.5 million shares, respectively.
On January 17, 1995, the Board of Directors approved a five-million-share
buyback program, which was continued throughout 1996 and will be completed in
early 1997. At December 31, 1996, the Company has 1.3 million shares left to be
repurchased under this program.
STOCK AND PERFORMANCE PLAN
The Company has a stock and performance plan (the 1993 Plan) that provides for
grants of stock options, restricted stock awards, and performance units. A
committee of nonemployee members of the Board of Directors administers the 1993
Plan. Seven and one-half million shares were reserved for issuance under this
Plan, including those shares remaining under prior plans. Under the 1993 Plan,
stock options are granted at 100% of market value at the date of grant, fully
vest after one year and expire not more than 10 years from the date of grant.
Under the provisions of FAS 123, the Company accounts for stock-based
compensation using the intrinsic value method prescribed by APB 25. The pro
forma information required by FAS 123 is set forth below. For purposes of this
pro forma disclosure, the estimated fair value of the awards is amortized to
expense over the awards' vesting period.
<TABLE>
<CAPTION>
$Millions except per share amounts 1996 1995
===========================================================================
<S> <C> <C>
Pro forma net income $ 570 $ 509
Pro forma earnings per share $3.86 $3.41
===========================================================================
</TABLE>
The fair value of the awards was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.2 %
and 5.5%; dividend yields of 2.3% and 2.4%; volatility factors of 16.8% and
17.2%; and a weighted average expected life of the awards of five years.
The Black-Scholes model requires the input of highly subjective assumptions
and does not necessarily provide a reliable measure of fair value.
1996 ANNUAL REPORT 41
<PAGE> 44
The following table summarizes the activity of the Company's stock and
performance plan:
<TABLE>
<CAPTION>
1996 1995 1994
=====================================================================================
<S> <C> <C> <C>
NUMBER OF OPTIONS
Outstanding beginning of year 2,682,452 2,424,011 2,006,848
Granted 1,507,656 800,609 749,950
Exercised (641,219) (231,599) (82,843)
Canceled (144,182) (310,569) (249,944)
- -------------------------------------------------------------------------------------
Outstanding end of year 3,404,707 2,682,452 2,424,011
- -------------------------------------------------------------------------------------
Exercisable at year-end 1,398,663 1,524,562 1,249,617
- -------------------------------------------------------------------------------------
Available for future
grants of options 3,975,529 5,608,411 6,501,750
Weighted average fair
value of options granted $ 14.40 $ 12.03 --
WEIGHTED AVERAGE EXERCISE PRICE:
Outstanding beginning of year $ 48.46 $ 43.90 --
Granted 70.49 58.31 --
Exercised 41.58 38.65 --
Canceled 51.55 45.62 --
Outstanding end of year $ 59.38 $ 48.46 --
=====================================================================================
</TABLE>
The following table summarizes information about stock and performance plan
awards outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
====================================================================================================
Weighted Weighted Weighted
Range of Exercise Number Average Average Number Average
Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$23.72 - $48.82 947,622 5.6 $ 44.66 708,122 $ 43.56
$49.06 - $56.00 720,569 7.1 53.04 455,881 52.63
$65.94 - $69.94 684,989 8.2 68.09 190,950 65.99
$70.00 - $77.06 1,051,527 7.2 71.31 43,710 72.24
- ----------------------------------------------------------------------------------------------------
$23.72 - $77.06 3,404,707 6.9 $ 59.38 1,398,663 $ 50.48
====================================================================================================
</TABLE>
In addition to stock options, 149,000 shares were awarded to employees in
1996 under the restricted stock award provisions of the 1993 plan. The cost of
these awards is being amortized over the restriction period.
SUPPLEMENTARY BALANCE SHEET AND INCOME STATEMENT INFORMATION
Supplementary Balance Sheet and Income Statement information is set forth below:
<TABLE>
<CAPTION>
$ Millions 1996 1995
=========================================================================
<S> <C> <C>
ACCOUNTS RECEIVABLE -- NET
Accounts receivable -- trade $ 1,238 $ 1,234
Accounts receivable -- other 192 103
Allowance for doubtful accounts (44) (44)
- -------------------------------------------------------------------------
Total accounts receivable -- net 1,386 1,293
- -------------------------------------------------------------------------
INVENTORIES
Finished and in process 628 602
Raw materials 271 248
Manufacturing supplies 153 161
- -------------------------------------------------------------------------
Total inventories 1,052 1,011
- -------------------------------------------------------------------------
ACCRUED LIABILITIES
Marketing expenses 89 103
Compensation expenses 187 128
Restructuring provision / integration 26 84
Taxes payable other than taxes on income 54 61
Dividends payable 59 55
Other 498 484
- -------------------------------------------------------------------------
Total accrued liabilities 913 915
- -------------------------------------------------------------------------
NONCURRENT LIABILITIES
Employees' pension, indemnity,
retirement, and related provisions 218 554
Environmental liabilities 104 111
Other noncurrent liabilities 505 242
- -------------------------------------------------------------------------
Total noncurrent liabilities $ 827 $ 907
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
$ Millions 1996 1995 1994
================================================================================
<S> <C> <C> <C>
DEPRECIATION EXPENSE $ 325 $ 285 $ 259
AMORTIZATION EXPENSE 51 37 29
RESEARCH AND DEVELOPMENT COST 73 70 58
- --------------------------------------------------------------------------------
INTEREST EXPENSE -- NET
Interest expense 206 143 107
Interest expense capitalized (13) (7) (6)
Interest income (21) (13) (9)
- --------------------------------------------------------------------------------
Interest expense -- net $ 172 $ 123 $ 92
================================================================================
</TABLE>
42 CPC INTERNATIONAL INC.
<PAGE> 45
OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
Information concerning operations by business segment and geographic area
appears on pages 44 and 45.
INCOME TAXES
Income before income taxes and the components of the provision for income taxes
are shown below:
<TABLE>
<CAPTION>
$ Millions 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Income before income taxes:
United States $ 274 $ 349 $ 285
Outside the United States 643 528 330
- --------------------------------------------------------------------------------
Total $ 917 $ 877 $ 615
- --------------------------------------------------------------------------------
Provision for income taxes:
Current tax expense
U.S. Federal $ 19 $ 141 $ 126
State and local 12 27 26
Foreign 212 110 145
- --------------------------------------------------------------------------------
Total current 243 278 297
- --------------------------------------------------------------------------------
Deferred tax expense (benefit)
U.S. Federal 58 (11) (20)
State and local 8 (2) (5)
Foreign (1) 73 (29)
- --------------------------------------------------------------------------------
Total deferred 65 60 (54)
- --------------------------------------------------------------------------------
Total provision $ 308 $ 338 $ 243
================================================================================
</TABLE>
The tax effects of significant temporary differences, which comprise the
deferred tax liabilities and assets at December 31, 1996, and 1995, are as
follows:
<TABLE>
<CAPTION>
$ Millions 1996 1995
================================================================================
<S> <C> <C>
Plants and properties $ 269 $ 250
Inventory 15 20
Pensions 47 43
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 331 313
- --------------------------------------------------------------------------------
Restructuring reserves -- 11
Environmental reserves 43 44
Employee benefit reserves 137 136
Unrealized exchange losses 49 61
Other 30 66
- --------------------------------------------------------------------------------
Gross deferred tax assets 259 318
- --------------------------------------------------------------------------------
Valuation allowance (9) (8)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 81 $ 3
================================================================================
</TABLE>
Total net deferred tax liabilities and assets shown above includes current and
noncurrent elements.
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
================================================================================
<S> <C> <C> <C>
Provision for tax at
U.S. statutory rate 35.0% 35.0% 35.0%
Taxes related to foreign
income (1.5) 2.1 1.6
State and local taxes -- net 1.4 1.8 2.3
Other items -- net (1.3) (0.4) 0.6
- --------------------------------------------------------------------------------
Provision at effective tax rate 33.6% 38.5% 39.5%
================================================================================
</TABLE>
The effective tax rate in 1996 was lower due to a decrease in the tax rate in
certain foreign jurisdictions and an increase in the proportion of Company
income earned overseas. This foreign income, on average, was taxed at a lower
rate than domestic income in 1996. Also contributing was the resolution of
several tax issues in various jurisdictions.
Taxes that would result from dividend distributions by foreign subsidiaries
to the U.S. are provided to the extent dividends are anticipated. Retained
earnings of the Company included, as of December 31, 1996, approximately $870
million of retained earnings of foreign subsidiaries, which are indefinitely
retained by the subsidiaries for capital and operating requirements.
1996 ANNUAL REPORT 43
<PAGE> 46
BUSINESS SEGMENT FINANCIAL INFORMATION
CPC International Inc. and Subsidiaries
OPERATING INCOME BY BUSINESS SEGMENT
($ Millions)
<TABLE>
<CAPTION>
1996
-----
<S> <C>
Corn Refining $ 65
Baking 89
Consumer Foods 970
-----
$ 1,124
=====
</TABLE>
SALES BY
BUSINESS SEGMENT
($ Millions)
<TABLE>
<CAPTION>
1996
------
<S> <C>
Corn Refining $1,367
Baking 1,567
Consumer Foods 6,910
------
$9,844
======
</TABLE>
<TABLE>
<CAPTION>
$ Millions 1996 1995 1994
================================================================================
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
Consumer foods $ 6,910 $ 6,524 $ 5,782
Baking 1,567 675 421
Corn refining 1,367 1,233 1,222
- --------------------------------------------------------------------------------
9,844 8,432 7,425
================================================================================
SALES INTERSEGMENT
Consumer foods -- 1 1
Baking 11 13 13
Corn refining 157 157 163
- --------------------------------------------------------------------------------
168 171 177
================================================================================
OPERATING INCOME
Consumer foods 970 800(1) 562(3)
Baking 89 (14)(2) (10)(3)
Corn refining 65 251(1) 188(3)
Corporate expenses (32) (30) (28)
- --------------------------------------------------------------------------------
1,092 1,007 712
================================================================================
ASSETS AT DECEMBER 31
Consumer foods 4,889 4,885 4,224
Baking 1,241 1,190 175
Corn refining 1,502 1,215 1,121
Corporate 243 254 148
- --------------------------------------------------------------------------------
7,875 7,544 5,668
================================================================================
DEPRECIATION AND AMORTIZATION
Consumer foods 229 213 187
Baking 55 23 18
Corn refining 88 83 80
Corporate 4 3 3
- --------------------------------------------------------------------------------
376 322 288
================================================================================
CAPITAL EXPENDITURES
Consumer foods 278 253 233
Baking 68 34 15
Corn refining 192 183 129
Corporate -- -- --
- --------------------------------------------------------------------------------
538 470 377
================================================================================
</TABLE>
Intersegment sales are priced with reference to prevailing market prices.
(1) Includes restructuring charge of $60 million for consumer foods and $15
million for corn refining and the gain from sale of businesses of $52
million in corn refining and $20 million in consumer foods.
(2) Includes integration charge of $55 million.
(3) Includes restructuring charge of $175 million for consumer foods, $33
million for baking business, and $19 million for corn refining.
44 CPC INTERNATIONAL INC.
<PAGE> 47
GEOGRAPHIC FINANCIAL INFORMATION
CPC International Inc. and Subsidiaries
<TABLE>
<CAPTION>
$ Millions 1996 1995 1994
================================================================================
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
United States $ 3,882 $ 2,885 $ 2,645
Canada 343 305 262
- --------------------------------------------------------------------------------
North America 4,225 3,190 2,907
Europe 3,720 3,438 2,933
Latin America 1,436 1,381 1,273
Asia 463 423 312
- --------------------------------------------------------------------------------
9,844 8,432 7,425
================================================================================
SALES INTERAREA
United States 94 63 47
Canada 78 52 71
- --------------------------------------------------------------------------------
North America 172 115 118
Europe 7 9 6
Latin America 9 12 8
Asia 1 1 2
- --------------------------------------------------------------------------------
189 137 134
================================================================================
OPERATING INCOME
United States 364 378(1)(2) 321(3)
Canada 26 54 23(3)
- --------------------------------------------------------------------------------
North America 390 432 344
Europe 418 327(1) 181(3)
Latin America 256 221(1) 166(3)
Asia 60 57 49(3)
Corporate expenses (32) (30) (28)
- --------------------------------------------------------------------------------
1,092 1,007 712
================================================================================
ASSETS AT DECEMBER 31
United States 2,853 2,682 1,666
Canada 282 255 243
- --------------------------------------------------------------------------------
North America 3,135 2,937 1,909
Europe 3,009 3,097 2,508
Latin America 1,126 942 859
Asia 362 314 244
Corporate 243 254 148
- --------------------------------------------------------------------------------
7,875 7,544 5,668
================================================================================
</TABLE>
Interarea sales are priced with reference to prevailing market prices.
(1) Includes restructuring charges of $18 million for U.S., $29 million for
Europe, and $28 million for Latin America, which was offset by gains of
$52 million for U.S. and $20 million for Latin America.
(2) Includes an integration charge of $55 million.
(3) Includes restructuring charge of $65 million for U.S.; $10 million for
Canada; $120 million for Europe; $25 million for Latin America; and $7
million for Asia.
SALES BY
GEOGRAPHIC AREA
($ Millions)
<TABLE>
<CAPTION>
1996
------
<S> <C>
North America 4,225
Europe 3,720
Latin America 1,436
Asia 463
</TABLE>
OPERATING INCOME
BY GEOGRAPHIC AREA
($ Millions)
<TABLE>
<CAPTION>
1996
----
<S> <C>
Europe 418
North America 390
Latin America 256
Asia 60
</TABLE>
1996 ANNUAL REPORT 45
<PAGE> 48
ELEVEN-YEAR FINANCIAL HIGHLIGHTS
CPC International Inc. and Subsidiaries
<TABLE>
<CAPTION>
$ Millions except per share amounts 1996 1995 1994 1993
==================================================================================================================
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
Net sales $ 9,844 $ 8,432 $ 7,425 $ 6,738
- ------------------------------------------------------------------------------------------------------------------
Earnings for the year 580 512(1) 345(2) 454
- ------------------------------------------------------------------------------------------------------------------
Earnings per common share 3.93 3.43(1) 2.25(2) 2.95
- ------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding 145 146 148 150
- ------------------------------------------------------------------------------------------------------------------
Dividends declared per common share 1.58 1.48 1.38 1.28
==================================================================================================================
BALANCE SHEET DATA
- ------------------------------------------------------------------------------------------------------------------
Working capital $ (41) $ (489) $ 108 $ 389
- ------------------------------------------------------------------------------------------------------------------
Plants and properties -- net 3,080 2,898 2,300 2,121
- ------------------------------------------------------------------------------------------------------------------
Total assets 7,875 7,544 5,668 5,061
- ------------------------------------------------------------------------------------------------------------------
Long-term debt 1,869 1,333 879 898
- ------------------------------------------------------------------------------------------------------------------
Short-term debt 1,031 1,399 664 374
- ------------------------------------------------------------------------------------------------------------------
Total debt 2,900 2,732 1,543 1,272
- ------------------------------------------------------------------------------------------------------------------
Translation adjustment included in stockholders' equity (259) (163) (181) (173)
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity 2,084 1,987 1,749 1,769
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity per share 14.50 13.65 11.92 11.81
- ------------------------------------------------------------------------------------------------------------------
Shares outstanding, year-end 144 146 147 150
==================================================================================================================
STATISTICAL DATA
- ------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 538 $ 470 $ 377 $ 386
- ------------------------------------------------------------------------------------------------------------------
Maintenance and repairs 287 247 219 196
- ------------------------------------------------------------------------------------------------------------------
Advertising expenses 699 564 500 463
- ------------------------------------------------------------------------------------------------------------------
Rental expense for operating leases 103 79 76 63
- ------------------------------------------------------------------------------------------------------------------
Total employee costs 2,028 1,616 1,389 1,280
==================================================================================================================
</TABLE>
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
========================================================================================
(Unaudited)
$Millions except per share amounts 1st Q 2nd Q 3rd Q 4th Q
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Market price range of common stock
High $75 1/2 $72 1/8 $75 3/4 $84 1/4
Low 67 5/8 65 5/8 64 7/8 74 3/8
Close 69 3/8 72 74 7/8 77 1/2
- ----------------------------------------------------------------------------------------
Dividends declared per common share $ .38 $ .38 $ .41 $ .41
- ----------------------------------------------------------------------------------------
Quarterly results
Net sales $ 2,409 $ 2,514 $ 2,392 $ 2,529
Gross profit 950 972 919 954
Net income 122 154 148 156
Earnings per common share $ .82 $ 1.04 $ 1.00 $ 1.07
========================================================================================
</TABLE>
See notes to consolidated financial statements.
1 Includes a fourth-quarter integration charge of $34 million after taxes or
$.23 per common share; and other charges -- net of $2 million after taxes
or $.01 per common share recorded in the third quarter.
2 Includes restructuring charge of $137 million after taxes or $.92 per
common share recorded in the second quarter.
3 Includes the cumulative effect to January 1, 1992, of changes in
accounting principles of $160 million after taxes or $1.06 per common
share, and the effects of these changes in 1992 of $13 million, $8 million
after taxes or $.05 per common share.
46 CPC INTERNATIONAL INC.
<PAGE> 49
ELEVEN-YEAR FINANCIAL HIGHLIGHTS
CPC International Inc. and Subsidiaries
<TABLE>
<CAPTION>
$ Millions except per share amounts 1992 1991 1990 1989 1988 1987 1986
====================================================================================================================================
SUMMARY OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 6,599 $ 6,189 $ 5,781 $ 5,103 $ 4,700 $ 4,903 $ 4,549
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings for the year 224(3)(4) 373(5) 374 328 289 355(6) 219
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per common share 1.41(3)(4) 2.40(5) 2.41 2.11 1.84 2.17(6) 1.15
- ------------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding 151 151 151 155 157 163 191
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends declared per common share 1.20 1.10 1.00 .87 .76 .64 .56
====================================================================================================================================
BALANCE SHEET DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $ 347 $ 432 $ 160 $ 231 $ 98 $ 346 $ (186)
- ------------------------------------------------------------------------------------------------------------------------------------
Plants and properties -- net 2,111 1,881 1,898 1,739 1,688 1,638 1,992
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 5,171 4,510 4,490 3,705 3,342 3,261 3,651
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 953 1,016 990 845 589 776 807
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term debt 497 366 595 355 375 166 736
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt 1,450 1,382 1,585 1,200 964 942 1,543
- ------------------------------------------------------------------------------------------------------------------------------------
Translation adjustment included in stockholders' equity (56) (80) (42) (69) (80) (90) (84)
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,662 1,631 1,453 1,218 1,195 1,087 956
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity per share 11.03 10.78 9.63 8.05 7.63 6.81 5.79
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding, year-end 151 151 151 151 157 160 165
====================================================================================================================================
STATISTICAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 311 $ 277 $ 262 $ 215 $ 226 $ 258 $ 361
- ------------------------------------------------------------------------------------------------------------------------------------
Maintenance and repairs 203 176 169 156 152 198 174
- ------------------------------------------------------------------------------------------------------------------------------------
Advertising expenses 483 454 418 367 316 293 230
- ------------------------------------------------------------------------------------------------------------------------------------
Rental expense for operating leases 65 61 48 42 41 48 39
- ------------------------------------------------------------------------------------------------------------------------------------
Total employee costs 1,203 1,096 1,005 871 836 923 807
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=====================================================================================
(Unaudited)
$Millions except per share amounts 1st Q 2nd Q 3rd Q 4th Q
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Market price range of common stock
High $57 1/8 $62 5/8 $68 1/8 $74 1/2
Low 51 5/8 54 1/8 58 64 1/2
Close 54 1/8 61 3/4 66 68 5/8
- -------------------------------------------------------------------------------------
Dividends declared per common share $ .36 $ .36 $ .38 $ .38
- -------------------------------------------------------------------------------------
Quarterly results
Net sales $ 1,955 $ 2,040 $2,046 $ 2,391
Gross profit 782 817 803 966
Net income 111 142 142(1) 117(1)
Earnings per common share $ .73 $ .96 $ .95(1) $ .79(1)
=====================================================================================
</TABLE>
4 Includes an environmental charge related to discontinued operations of $47
million after taxes or $.31 per common share.
5 Includes an environmental charge related to discontinued operations of $32
million after taxes or $.21 per common share.
6 Includes special gain from sale of businesses of $126 million after taxes
or $.77 per common share.
1996 ANNUAL REPORT 47
<PAGE> 50
BOARD OF DIRECTORS
THEODORE H. BLACK (1,3)
Former Chairman and Chief Executive Officer, Ingersoll-Rand Company
ALFRED C. DECRANE, JR. (2,4)
Former Chairman and Chief Executive Officer, Texaco Inc.
WILLIAM C. FERGUSON (2,4)
Former Chairman and Chief Executive Officer, NYNEX Corporation
ROBERT J. GILLESPIE (3)
Executive Vice President, CPC International Inc.
ELLEN R. GORDON (2,4)
President and Chief Operating Officer, Tootsie Roll Industries, Inc.
GEORGE V. GRUNE (2,4*)
Chairman of the DeWitt Wallace - Reader's Digest Fund and the Lila Wallace -
Reader's Digest Fund
LEO I. HIGDON, JR. (1*,3)
Dean, Colgate Darden Graduate School of Business Administration, University of
Virginia
RICHARD G. HOLDER (1,3*)
Former Chairman and Chief Executive Officer, Reynolds Metals Company
EILEEN S. KRAUS (1,3)
Chairman, Fleet National Bank (Connecticut)
ALAIN LABERGERE (4)
Executive Vice President, CPC International Inc., President, CPC Europe Division
WILLIAM S. NORMAN (2*,3)
President and Chief Executive Officer, Travel Industry Association of America
CHARLES R. SHOEMATE
Chairman, President, and Chief Executive Officer, CPC International Inc.
COMMITTEES OF THE BOARD
(1) Audit
(2) Compensation and Nominating
(3) Corporate Affairs
(4) Finance
*denotes chairman
JAMES W. MCKEE, JR.
Honorary Chairman of the Board
CORPORATE OFFICERS
CHARLES R. SHOEMATE
Chairman, President, and Chief Executive Officer
ROBERT J. GILLESPIE
Executive Vice President, Strategic Planning and Business Development
ALAIN LABERGERE
Executive Vice President and President, CPC Europe Division
KONRAD SCHLATTER
Senior Vice President and Chief Financial Officer
CLIFFORD B. STORMS
Senior Vice President and General Counsel
VICE PRESIDENTS
ANGELO S. ABDELA
Strategic and Capital Investments
RICHARD P. BERGEMAN
Human Resources
MICHAEL J. BEVILACQUA
President, CPC Foodservice Group, Best Foods Division
CHARLES FELDBERG
Health, Safety, and Quality Assurance
GORDON F. GRANGER
President, CPC Latin America Consumer Foods Division
GALE L. GRIFFIN
Corporate Communications
HERIBERT H. GRUNERT
President, CPC Asia Consumer Foods Division
LAWRENCE K. HATHAWAY
President, Best Foods Grocery Products Group, Best Foods Division
JAMES E. HEALEY
Treasurer
HANES A. HELLER
Legal Affairs
BERNARD H. KASTORY
Chairman and Chief Executive Officer, CPC Baking Business
AXEL C.A. KRAUSS
President, Best Foods Division
EUGENE J. NORTHACKER
President, Latin America Corn Refining Division, Corn Refining Business
LUIS SCHUCHINSKI
Taxes
JOHN W. SCOTT
Investor Relations
SAMUEL C. SCOTT
President, Corn Refining Business, and President, Corn Products
ANTHONY J. B. SIMON
Consumer Core Businesses
MOHAMMED WAHBY
President, Africa/Middle East Division, CPC Europe
COMPTROLLER
JAMES W. RIPLEY
SECRETARY
JOHN B. MEAGHER
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
CPC International Inc.
International Plaza,
P.O. Box 8000
Englewood Cliffs, NJ
07632-9976
ANNUAL MEETING
Thursday, April 24, 1997
Tamcrest Country Club
Route 9W, Montammy Drive
Alpine, New Jersey
ANNUAL REPORT, FORM 10-K
Copies are available via the Company's Internet site @www.cpcinternational.com;
by writing Corporate Communications, CPC International Inc.; or by calling (201)
894-2825
INVESTOR INQUIRIES
Security analysts and investors seeking information about CPC may contact Mr.
John W. Scott, Vice President, Investor Relations, at the CPC address shown or
by calling (201) 894-2837
STOCKHOLDER RECORDS, DIVIDEND REINVESTMENT
Inquiries relating to stockholder records, stock transfer, change of address,
and CPC's Dividend Reinvestment Plan should be directed to registrar, transfer,
and dividend disbursing agent:
First Chicago Trust Company
of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(201) 324-0498
or via the Internet
@www.fctc.com
For additional assistance, contact Mrs. Ann Brundage, Administrator of
Stockholder Services, CPC International Inc., at the headquarters address shown
above or call 1 (800) 272-6360.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
(212) 758-9700
STOCK EXCHANGE LISTINGS
New York, Chicago, Pacific, Basle, Frankfurt, Geneva, London, Paris, Zurich
TICKER SYMBOL
The New York Stock Exchange ticker symbol for the Company is CPC.
CPC INTERNET SITE
www.cpcinternational.com
48 CPC INTERNATIONAL INC.
<PAGE> 51
[GRAPHIC - MAP - OMITTED]
CPC's businesses are operated and administered with a high degree of autonomy
under the Company's decentralized organization. References in this Annual Report
to CPC or "the Company" refer to the U.S. parent and its consolidated
subsidiaries, except where the context indicates otherwise.
The brand names shown in distinctive type in this report are trademarks of CPC
International Inc. and its affiliates.
Design: Tom Ridinger / Leonard Wolfe Design Associates, Westport, CT
Major Photography: Dan Lenore World Map: (C) American Map Corporation, NY Lic.
# 19631
<PAGE> 52
[GRAPHIC - MAP OMITTED]
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Following is a list of the Registrant's subsidiaries and their
subsidiaries showing the percentage of voting securities owned, or other bases
of control, by the immediate parent of each.
<TABLE>
<CAPTION>
Percentage of voting
securities owned by
its immediate parent
----------------------
<S> <C> <C>
CPC INTERNATIONAL INC.
(a) Subsidiaries included in the Company's
consolidated financial statements
United States
Arnold Foods Company, Inc. -Delaware 100.00
Best Foods - Caribbean, Inc. -Delaware 100.00
CPC Europe (Group) Ltd. -Delaware 100.00
Entenmann's Inc. (Owned by CPC Baking
Co., Inc., a holding company of CPC) -Delaware 100.00
Henri's Food Products Co. Inc. -Wisconsin 100.00
S.B. Thomas, Inc. -New York 100.00
Canada
Canada Starch Company Inc. 100.00
Europe (1)
C.H. Knorr Nahrungsmittelfabrik Ges.mbH -Austria 100.00
CPC Monda N.V./S.A. -Belgium 99.90
CPC Foods A.S. -Czech Republic 95.40
CPC Foods A/S -Denmark 100.00
CPC Foods OY -Finland 100.00
CPC France S.A. -France 99.85
CPC Maizena GmbH -Germany 100.00
CPC (Hellas) A.B.E.E. -Greece 100.00
CPC Benelux B.V. -Holland 100.00
CPC Hungary RT -Hungary 100.00
CPC Foods (Ireland) Ltd. -Ireland 100.00
CPC Italia S.P.A. -Italy 99.98
CPC Foods A/S -Norway 100.00
CPC Amino S.A. -Poland 99.98
Knorr Portuguesa-Produtos Alimentares S.A. -Portugal 100.00
CPC Espana, S.A. -Spain 100.00
CPC Foods AB -Sweden 100.00
CPC Knorr Holdings AG -Switzerland 100.00
CPC (United Kingdom) Ltd. -United Kingdom 100.00
Africa and Middle East (1)
Israel Edible Products Ltd. "TAMI" -Israel 51.00
CPC Kenya Ltd. -Kenya 100.00
CPC Maghreb, S.A. -Morocco 100.00
CPC Tongaat Foods (Pty) Ltd. -South Africa 50.00 (2)
</TABLE>
15
<PAGE> 2
<TABLE>
<S> <C> <C>
Latin America
Refinerias de Maiz S.A.I.C. -Argentina 100.00
Refinacoes de Milho, Brasil Ltda. -Brazil 100.00
Industrias de Maiz y Alimentos S.A. -Chile 100.00
Industrias del Maiz S.A. -Colombia 100.00
Maizena de Costa Rica S.A. -Costa Rica 100.00
Productos de Maiz y Alimentos S.A. -Guatemala 100.00
Productos de Maiz, S.A. de C.V. -Mexico 100.00
Alimentos y Productos de Maiz, S.A. -Peru 99.90
Industrializadora de Maiz, S.A. -Uruguay 100.00
Aliven S.A. -Venezuela 100.00
Asia
CPC (Guangzhou) Foods Ltd. (Owned by
CPC Asia Investments Ltd. a holding
company of CPC) -China 80.00
CPC/AJI (Hong Kong) Ltd. -Hong Kong 50.00 (2)
P.T. Knorr Indonesia -Indonesia 100.00
CPC/AJI (Malaysia) Sdn. Berhad -Malaysia 50.00 (2)
CPC Rafham Limited. -Pakistan 51.00 (1)
California Manufacturing Co., Inc. -Philippines 50.00 (2)
CPC/AJI (Singapore) Pte. Ltd. -Singapore 50.00 (2)
CPC/AJI (Taiwan) Ltd. -Taiwan 50.00 (2)
CPC/AJI (Thailand) Ltd. -Thailand 50.00 (2)
</TABLE>
The names of forty-five (45) domestic subsidiaries and one hundred thirty-nine
(139) international subsidiaries have been omitted since these unnamed
subsidiaries considered in the aggregate as a single entity do not constitute a
significant subsidiary.
(b) Domestic subsidiary not consolidated:
One (1) wholly owned subsidiary which has minor real estate holdings.
(c) International subsidiaries not consolidated:
Five (5) international subsidiaries of which all or a majority of the
share capital is owned by the Registrant
(d) Domestic 50% owned company
Two (2) joint ventures in which the Registrant owns 50% interest with
50% being owned by single other interests.
(e) International subsidiaries 50% and less not consolidated:
One (1) company in which the Registrant owns 49% of the
voting securities with 51% of such securities being held by single
other interests.
- --------------------
(1) Owned by CPC Europe (Group) Ltd., or its wholly owned subsidiaries.
(2) Owned fractionally more than 50% and fully consolidated for accounting
purposes.
16
<PAGE> 3
If the companies included in (b), (c), (d) and (e) were considered in the
aggregate as a single entity, they would not constitute a significant subsidiary
since: (1) the assets of the subsidiaries, or the investments in and advances to
the subsidiaries by its parent and the parent's other subsidiaries, if any, did
not exceed 10 percent of the assets of the parent and its subsidiaries on a
consolidated basis, and (2) the sales and operating revenues of the parent and
its subsidiaries on a consolidated basis, and the Company's equity in their
income before income taxes and extraordinary items did not exceed 10% of the
income of the parent and its subsidiaries on a consolidated basis.
17
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CPC International Inc.:
We consent to incorporation by reference in the Registration Statements on Forms
S-8 (No. 2-48849, 2-92248 and 33-49847) and on Forms S-3 (No. 33-30813,
33-28989, 33-40759, 33-52213 and 33-65171) of CPC International Inc. of our
report dated February 5, 1997, relating to the consolidated balance sheets of
CPC International Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three year period ended December 31, 1996
which report appears in the December 31, 1996 annual report on Form 10-K of CPC
International Inc.
/S/ KPMG Peat Marwick LLP
-------------------------
(KPMG Peat Marwick LLP)
New York, New York
March 18, 1997
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 163
<SECURITIES> 0
<RECEIVABLES> 1,430
<ALLOWANCES> 44
<INVENTORY> 1,052
<CURRENT-ASSETS> 2,751
<PP&E> 5,639
<DEPRECIATION> 2,559
<TOTAL-ASSETS> 7,875
<CURRENT-LIABILITIES> 2,792
<BONDS> 1,869
0
187
<COMMON> 49
<OTHER-SE> 1,848
<TOTAL-LIABILITY-AND-EQUITY> 7,875
<SALES> 9,844
<TOTAL-REVENUES> 0
<CGS> 6,049
<TOTAL-COSTS> 8,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175
<INCOME-PRETAX> 917
<INCOME-TAX> 308
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 580
<EPS-PRIMARY> 3.93
<EPS-DILUTED> 0
</TABLE>
