<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, 1999 COMMISSION FILE NUMBER 1-4199
BESTFOODS
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2385545
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
</TABLE>
<TABLE>
<S> <C>
700 SYLVAN AVENUE
INTERNATIONAL PLAZA
ENGLEWOOD CLIFFS, NEW JERSEY 07632-9976
(Address of principal executive office) (Zip Code)
</TABLE>
(Registrant's telephone number, including area code) 201-894-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<S> <C>
Title of each class Name of each exchange where registered
Common Stock par value New York, London
$.25 per share
</TABLE>
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 [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
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<S> <C> <C>
Aggregate market value
Outstanding at held by non-affiliates at
Class January 31, 2000 January 31, 2000
Common stock, par value $.25 276,869,892 $12,043,840,302
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's Annual Report to Stockholders for the year ended
December 31, 1999 are incorporated into Part I and Part II hereof.
2. Portions of the registrant's Proxy Statement dated March 16, 2000 are
incorporated into Part III hereof.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
Bestfoods, including its consolidated subsidiaries, (the "Company") is
a worldwide business, principally engaged in one industry segment, consumer
foods. The development of the Company's business since the beginning of 1999 and
financial information on geographical areas are described in the 1999 Annual
Report to Stockholders (the "Annual Report"), the following portions of which
are incorporated herein by reference:
- Text on pages 12 through 21 under the heading "Bestfoods' 1999
Worldwide Business Results and Market Positions," excluding the Market
Positions table on pages 12 and 13.
- Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 22 through 26.
- Financial Statements and Notes to Consolidated Financial Statements on
pages 27 through 42.
The Company employs approximately 44,000 people of whom approximately
28,000 are located outside the United States. Total employee costs amounted to
$1.8 billion in 1999 compared with $1.7 billion and $1.8 billion in 1998 and
1997, respectively.
The Company's products are manufactured from various agricultural raw
materials including soybean and other vegetable oils, peanuts, 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 12.9%
percent, 12.6 percent and 13 percent of consolidated net sales in 1999, 1998
and 1997, respectively.
The Company has approximately 2,670 trademarks, some of which are of
significant importance to the Company. The Company also has over 710 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. The Company also
conducts market research to assist in determining consumer preferences. The
amount spent on these activities was $996 million in 1999, $976 million in 1998
and $978 million in 1997.
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.
1
<PAGE> 3
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 1999, 1998, and 1997 was $70 million, $67 million and $66
million, respectively. Approximately 815 full-time professional employees were
engaged in such activities during 1999.
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 is considered
to be a material lease.
The Company has a total of 132 operating plants, of which 34 are in the
United States, 2 in Canada, 39 in Europe, 20 in Africa and the Middle East, 19
in Latin America, and 18 in Asia. 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 in the aggregate fully utilized.
Included below is a complete listing of all plants owned and operated
by the Company and its subsidiaries as of December 31, 1999. 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.
UNITED STATES: ARKANSAS-Little Rock; CALIFORNIA-Corona, Montebello, Placentia,
San Francisco, Santa Ana; COLORADO-Denver; CONNECTICUT-Greenwich; FLORIDA-Miami,
Riviera Beach; ILLINOIS-Argo, Chicago, Franklin Park, Northlake;
INDIANA-Indianapolis; KANSAS-Wichita; MARYLAND-Frederick; NORTH
CAROLINA-Asheboro, Gastonia; NEW JERSEY-Bayonne; NEW YORK- Albany, Bay Shore,
Hudson, Plattsburg; OHIO-Bryan; OREGON-Beaverton; PENNSYLVANIA-Hazleton;
TEXAS-Dallas, Irving; VERMONT-Burlington; WISCONSIN-Germantown, Milwaukee,
Oconomowoc; PUERTO RICO-Arecibo
CANADA: QUEBEC-Baie d'Urfe, Pointe Claire
EUROPE:AUSTRIA-Wels; CZECH REPUBLIC-Zabreh; DENMARK- Levring, Vadum;
FRANCE-Duppigheim (2), Faverolles, Grande Synthe, Ludres (Nancy), Verneuil;
GERMANY-Auerbach, Bremen, Cloppenburg, Heilbronn, Krefeld, Reinbek, Stavenhagen,
Wittingen; GREECE-Schimatari; HUNGARY-Roszke; IRELAND-Dublin; ITALY-Sanguinetto;
NETHERLANDS-Baarn, Loosdrecht; POLAND-Poznan; PORTUGAL-Carregado; RUSSIA-Tula;
ROMANIA-Bucharest; SLOVAK REPUBLIC-Topolcany; SPAIN-Montmelo; SWEDEN-Simrishamn;
SWITZERLAND-Steinhausen, Thayngen; UNITED KINGDOM-Burton-on-Trent, Crumlin,
Erith, Lifton, Paisley, Redditch.
LATIN AMERICA: ARGENTINA-Barracas, Florida, Mendoza, Pilar, Tucuman;
BRAZIL-Campina Grande, Garanhuns, Mogi-Guacu, Pouso Alegre; CHILE-Llay-Llay;
COLOMBIA-Barranquilla (2), Cali; COSTA RICA-Alajuela; DOMINICAN REPUBLIC-Santo
Domingo; MEXICO-Aguascalientes, Aguida, Lerma; VENEZUELA-Maracay
AFRICA & MIDDLE EAST: ISRAEL-Arad, Arara, Barkan, Hadera, Haifa, Zefat;
JORDAN-Dleil; KENYA-Nairobi; MOROCCO-Had Soualem; SAUDI ARABIA-Yanbu; SOUTH
AFRICA-Durban (4), Johannesburg (2), Kimberley, Tzaneen; TUNISIA-Grombalia;
TURKEY-Cayirova
2
<PAGE> 4
ASIA: CHINA-Beijing, Conghua, Fengcheng, Weifang; HONG KONG-Tai Po;
INDIA-Grandhidham, Thane; INDONESIA-Purwakarta; MALAYSIA-Kuala Lumpur;
PAKISTAN-Pernawan; PHILIPPINES-Cavite, Las Pinas, Paranaque; SRI Lanka-Katana;
TAIWAN-Hsin Chu Hsien; THAILAND-Bangpoo, Gateway City; VIET NAM-Bien Hoa.
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, (CERCLA) in a 1991 decision by the U.S. District
Court for the Western District of Michigan; 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; that following such reversal, the Court of
Appeals directed an en banc rehearing of this decision, which reaffirmed the
Sixth Circuit's reversal; and that the U.S. government and the State of Michigan
successfully petitioned the U.S. Supreme Court for certiorari. In a unanimous
decision rendered on June 8, 1998 the Supreme court held that a parent
corporation is not liable under CERCLA for its subsidiary's liabilities except
in circumstances in which the common law would allow piercing of the corporate
veil. The Supreme Court also held that a parent corporation may be directly, as
opposed to derivatively, liable in situations where an employee of the parent
corporation - who held no position in the subsidiary - directly managed a
subsidiary's operations which created the pollution problem. The court remanded
the case to the District Court to decide whether the Company could be held
directly liable as an "operator" of the Ott facility. The liability case against
the Company is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
3
<PAGE> 5
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of all elected officers of the
Registrant, as of December 31, 1999, 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 60 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 57 Executive Vice President since July 1995; Senior Vice President
November 1991 - July 1995; Vice President 1980 - November 1991
and Director since October 1988.
Richard P. Bergeman 61 Senior Vice President since March 1997; Vice President
1982-March 1997.
Bernard H. Kastory 54 Senior Vice President since March 1997; Vice President
1992-March 1997.
Axel C.A. Krauss 55 Senior Vice President since March 1997; Vice President
1992-March 1997.
Ian M. Ramsay 60 Senior Vice President since August 1999; Vice President
September 1998 - July 1999; President European Operations since
September 1998; Senior Vice President, Finance and Human
Resources Bestfoods Europe from 1997 to September 1998; General
Manager United Kingdom 1992 - 1997.
Neil Beckerman 44 Vice President since May 1999; President Best Foods Grocery
Division since May 1999; Executive Vice President and Group
General Manager Bestfoods Baking Company October 1995 - April
1999.
Diego Bevilacqua* 46 Vice President as of March 1, 2000; President of Best Foods
Asia as of March 1, 2000; Vice President of Best Foods Asia
1996-March 2000; General Manager of Thailand 1992-1996.
Michael J. Bevilacqua 60 Vice President since 1992.
Merrill E. Eastman 53 Vice President since May 1999; President and Chief Executive
Officer Bestfoods Baking Company since May 1999; Executive Vice
President and Group General Manager Bestfoods Baking Company
January 1996 - April 1999; President and Chief Operating Officer
of the President Baking Company prior to January 1996.
Robert S. Gluck 49 Vice President and Treasurer since May 1997; Vice President,
Finance Corn Products Division 1995 -
</TABLE>
4
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April 1997; Vice President, Business Development,
Best Foods Division 1992 - 1995.
Gale L. Griffin 56 Vice President since December 1995; Director, Corporate
Communications December 1991 - November 1995.
Nina Henderson 49 Vice President since September 1997; President Best Foods
Grocery Division September 1997 - June 1999; Vice President,
Best Foods Division 1986 - August 1997.
Oscar Imbellone 55 Vice President since March 1999; President of Bestfoods Latin
America since March 1999; President Bestfoods Latin American
Southern Region 1997 - February 1999; General Manager Argentine
affiliate 1986 - 1997.
Rainer H. Mimberg 57 Vice President since March 1997; Comptroller June 1997 - June
1998; Senior Vice President, Finance and Human Resources
Bestfoods Europe 1995 - February 1997; Vice President, Finance
Bestfoods Latin America 1990 - 1995.
Eduardo B. Sanchez** 48 General Counsel as of February 1, 2000; Vice President since
September 1999; Deputy General Counsel- August 1999-February 2000;
General Counsel Bestfoods Europe 1992-August 2000.
Diani Santucci 48 Vice President since March 1998; Director Quality Assurance 1995
- March 1998; Manager Operations Development Bestfoods North
America 1990 - 1995.
Luis Schuchinski 62 Vice President since December 1995; Director, Taxes and
Insurance 1987 - November 1995.
Anthony J. Simon 54 Vice President since February 1997; Senior Vice President,
Business Development and Planning and Operations, Bestfoods
Europe from 1992 - 1997.
Philip V. Terenzio 52 Vice President and Controller since June 1998. (Partner KPMG LLP
1980-June 1998.)
Mohammed Wahby 64 Vice President since December 1995; President Bestfoods
Africa/Middle East Division since March 1995; Vice President,
Bestfoods Europe 1993 - February 1995.
Marjory A. Appel 42 Corporate Secretary since November 1999; Senior Group Counsel
since April 1998; Group Counsel 1992 - March 1998.
</TABLE>
*Elected Vice President March 1, 2000, replacing Heribert H. Grunert.
**Elected General Counsel February 1, 2000, replacing Hanes A. Heller.
All officers serve at the pleasure of the Board of Directors.
5
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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 44 and 45
of the Annual Report and is incorporated herein by reference.
The approximate number of registered equity stockholders as of December
31, 1999 was 22,500.
The history of the Company's dividends declared for the last two years
on pages 44 and 45 of the Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data for the ten years ended December 31, 1999 for
the Company, as set forth on pages 44 and 45 of the Annual Report 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, 1999, is set
forth on pages 22 through 26 of the Annual Report and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative disclosure about market risk is set forth on page 36 of
the Annual Report under the caption "Financial Instruments" and is incorporated
herein by reference.
Qualitative disclosure about market risk is set forth on page 33 of the
Annual Report under the caption " Financial Instruments" and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements comprising the consolidated balance sheets at
December 31, 1999 and 1998 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, 1999 are set forth on
pages 27 through 42 of the Annual Report and are incorporated herein by
reference.
Selected quarterly financial data for the years ended December 31, 1999
and 1998, set forth on pages 44 and 45 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 16, 2000 (the "2000 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 2 through 7 of the 2000 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 20
through 24 of the 2000 Proxy Statement under the caption "Executive
Compensation" and is incorporated herein by reference.
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 13 and 14 of the 2000 Proxy Statement under
the caption "Stock Ownership Table" and is incorporated herein by reference.
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 filed on Form 8-K during
the fourth quarter of 1999.
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.
7
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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.
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<CAPTION>
Annual Report
Page
<S> <C>
a) Consolidated statements of income for the years ended December 31,
1999, 1998 and 1997 27
b) Consolidated balance sheets for the years ended December 31, 1999
and 1998 28 - 29
c) Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997 30
d) Consolidated statements of stockholders' equity for the years ended
December 31, 1999, 1998 and 1997 31
e) Notes to consolidated financial statements 32 - 42
f) Independent auditors' report. 43
</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 27th
day of March, 2000.
BESTFOODS
----------------------------------------------------
By /S/ Charles R. Shoemate
----------------------------------------------------
Charles R. Shoemate, Chairman,
President, Chief Executive
Officer and Director
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 27th day of March, 2000.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/S/ Charles R. Shoemate Chairman, President, Chief Executive Officer and Director
- ------------------------------------
(Charles R. Shoemate)
/S/ Robert J. Gillespie Executive Vice President, Strategic Business Development
- ------------------------------------
(Robert J. Gillespie) and Finance, and Director
/S/ Philip V. Terenzio Vice President and Controller
- ------------------------------------
(Philip V. Terenzio)
/S/ Clateo Castellini * Director
- ------------------------------------
(Clateo Castellini)
/S/ Alfred C. DeCrane, Jr. * Director
- ------------------------------------
(Alfred C. DeCrane, Jr.)
/S/ William C. Ferguson * Director
- ------------------------------------
(William C. Ferguson)
/S/ Bruce R. Gordon * Director
- ------------------------------------
(Bruce R. Gordon)
</TABLE>
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<TABLE>
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/S/ Ellen R. Gordon * Director
- ------------------------------------
(Ellen R. Gordon)
/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/ Harold McGraw III * Director
- ------------------------------------
(Harold McGraw III)
/S/ Henrique de Campos Meirelles * Director
- ------------------------------------
(Henrique de Campos Meirelles)
/S/ William S. Norman * Director
- ------------------------------------
(William S. Norman)
*/S/ Marjory A. Appel
- -----------------------------------------------
(Marjory A. Appel)
Attorney-in-fact
</TABLE>
10
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<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NO.
- ------------------
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3 (a) The Certificate of Incorporation as restated January
4, 1999 is incorporated by reference to Exhibit 3 (a) of
Form 10-K for the year ended December 31, 1998.
3 (b) The By-Laws amended as of April 28, 2000 is filed
herewith.
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 as of January 4, 1999 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, 1998.
10 (a) Amendment No. 6 to the 1984 Stock and Performance Plan
is filed herewith. 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) Amendments Nos. 6 and 7 to the 1993 Stock and
Performance Plan are filed herewith. The 1993 Stock and
Performance Plan is incorporated by reference to
Post-Effective Amendment No. 1 to the Registration
Statement filed on Form S-8, File No. 33-49847.
10 (c) Deferred Compensation Plan for Outside Directors is
incorporated by reference to Exhibit 10 (c) of Form 10-K
for the year ended December 31, 1996.
10 (d) Standard form of severance agreement for executive
officers of the Company is 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
incorporated by reference to Exhibit 10 (e) of Form 10-K
for the year ended December 31, 1996.
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.
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.
</TABLE>
11
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<TABLE>
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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 1999 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 List of subsidiaries of the Registrant is filed herewith.
23 Consent of Independent Auditors is filed herewith.
24 Powers of Attorney are filed under separate cover with
the Commission.
27 Financial Data Schedule for the year ended DEcember 31,
1999 is filed herewith.
27(a) Restated Financial Data Schedule for the years ended
December 31, 1998 and 1997 is filed herewith.
</TABLE>
12
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BY-LAWS
OF
BESTFOODS
--------------
ARTICLE I
Offices
SECTION 1. The registered office of the Company in the State of Delaware
shall be in the City of Wilmington, County of New Castle, and the name of the
registered agent of the Company in said State is The Corporation Trust
Company. The Company may also have an office or offices other than said
registered office at such place or places either within or without the State
of Delaware as the Board of Directors may from time to time designate or as
the business of the Company may require.
ARTICLE II
Seal
SECTION 1. The seal of the Company shall be circular in form and shall
have the name of the Company and the words and numerals 'Corporate Seal 1959
Delaware.'
ARTICLE III
Meetings of Stockholders
SECTION 1. The annual meeting of stockholders of the Company shall be held
in each year on the fourth Thursday in April, or on such other date as the
Board of Directors may designate, and at such time and place as the Board of
Directors may designate, for the election of directors and for the transaction
of such other business as may properly come before the meeting.
SECTION 2. Special meetings of the stockholders may be called on the order
of the Chairman of the Board or the Board of Directors and shall be held at
such date, time and place as may be specified by such order.
SECTION 3. Written notice of all meetings of the stockholders shall be
mailed or delivered to each stockholder not less than twenty nor more than
sixty days before the meeting. The notice or an accompanying document shall
identify the business to be transacted at the meeting and, if directors are to
be elected, the candidates therefor, as determined by the Board of Directors.
Other business may be transacted and other candidates may be nominated at the
annual meeting, but only if the Secretary of the Company has received from the
sponsoring stockholder (a) not less than sixty nor more than ninety days
before the fourth Thursday in April (or, if the Board of Directors has
designated another date for the annual meeting pursuant to Section 1 of this
Article III, not less than sixty nor more than ninety days before such other
date or, if such other date has not been publicly disclosed at least
seventy-five days in advance, then not less than fifteen days after such
public disclosure) a written notice identifying such business or candidates,
and (b) not more than ten days after receipt by the sponsoring stockholder of
a written request from the Secretary, such additional information as the
Secretary may reasonably require.
SECTION 4. The holders of a majority of the issued and outstanding shares
of the capital stock of the Company entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum for the transaction
of business at all meetings of the stockholders except as may otherwise be
provided by law, by the Certificate of Incorporation or by these By-laws; but,
if there be less than a quorum, the holders of a majority of the stock so
present or represented may adjourn the meeting from time to time.
SECTION 5. Each stockholder shall, subject to the provisions of the
Certificate of Incorporation, at each meeting of the stockholders be entitled
to one vote in person or by proxy for each share of the
stock of the Company which has voting power on the matter in question and
which shall have been held by him and registered in his name on the books of
the Company:
(a) on the date fixed pursuant to the provisions of Section 6 of
Article VIII of these By-laws as the record date for the determination of
stockholders who shall be entitled to notice of and to vote at such
meeting, or
(b) if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice of the
meeting shall be given.
At all meetings of the stockholders all matters, except as otherwise provided
in the Certificate of Incorporation, in these By-laws, or by law, shall be
decided by the vote of the holders of a majority of the shares entitled to
vote thereat present in person or by proxy, a quorum being present. The vote
at any meeting of the stockholders on any question need not be by ballot,
unless so directed by the chairman of the meeting. The Board of Directors, or,
if the Board shall not have made the appointment, the chairman presiding at
any meeting of stockholders, shall have the power to appoint two or more
persons to act as inspectors, to receive, canvass and report the votes cast by
the stockholders at such meeting; but no candidate for the office of director
shall be appointed as an inspector at any meeting for the election of
directors.
SECTION 6. The Chairman of the Board or, in his absence, a director or
officer designated by the Board of Directors or the Chairman of the Board,
shall preside at all meetings of the stockholders.
SECTION 7. The Secretary of the Company shall act as secretary of all
meetings of the stockholders; and, in his absence, the chairman of the meeting
may appoint any person to act as secretary of the meeting.
<PAGE> 2
ARTICLE IV
Board of Directors
SECTION 1. Regular meetings of the Board of Directors shall be held at
such time and at such place as may from time to time be fixed by resolution of
the Board of Directors. Unless otherwise provided by law or by these By-laws,
notice of regular meetings of the Board need not be given.
SECTION 2. Special meetings of the Board of Directors may be called by the
number of directors which would constitute a quorum of the Board of Directors
or by order of the Chairman of the Board. The Secretary shall give notice to
each director of the time, place and purpose or purposes of each special
meeting by mailing the same at least two days before the meeting, or by
delivering the same personally or by telephone or other electronic means not
later than the day before the day of the meeting.
SECTION 3. At meetings of the Board of Directors the Chairman of the Board
or, in his absence, a director designated by the Board of Directors, shall
preside.
SECTION 4. At meetings of the Board of Directors, a quorum for the
transaction of business shall be a majority of the total number of directors
determined from time to time by the Board of Directors pursuant to Article
EIGHTH of the Certificate of Incorporation. If less than a quorum shall be
present, a majority of those present may adjourn any meeting until a quorum
shall be present, whereupon the meeting may be held, as adjourned, without
further notice.
SECTION 5. The directors may participate in a meeting of the Board of
Directors by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other, and such participation shall constitute presence in person at such
meeting.
SECTION 6. Any action required or permitted to be taken at any meeting of
the Board of Directors may be taken without a meeting if all the directors
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors.
SECTION 7. The directors shall receive such compensation for their
services as may be prescribed by the Board of Directors and shall be
reimbursed by the Company for ordinary and reasonable expenses incurred in the
performance of their duties.
2
<PAGE> 3
ARTICLE V
Committees
SECTION 1. The Board of Directors may appoint from among its members such
committees as the Board may determine, which shall consist of such number of
directors and have such powers and authority as shall from time to time be
prescribed by the Board and permitted by subsection (2) of Section 141(c) of
the Delaware General Corporation Law.
SECTION 2. Regular meetings of committees shall be held at such time and
at such place as may from time to time be fixed by resolution of the Board of
Directors. Unless otherwise provided by law or by these By-laws, notice of
regular meetings of committees need not be given.
SECTION 3. Special meetings of committees may be called by order of the
chairman of the committee or the Chairman of the Board. The Secretary shall
give notice to each member of the time, place and purpose or purposes of each
special meeting by mailing the same at least two days before the meeting, or
by delivering the same personally or by telephone or other electronic means
not later than the day before the day of the meeting.
SECTION 4. At meetings of committees the chairman of the committee, or, in
his absence, a director designated by the members of the committee, shall
preside.
SECTION 5. A majority of the members of any committee shall constitute a
quorum for the transaction of business; provided, however, that in the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
SECTION 6. The members of any committee may participate in a meeting of
the committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 7. Any action required or permitted to be taken at a meeting of
any committee may be taken without a meeting if all the members consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.
ARTICLE VI
Officers
SECTION 1. The Board of Directors shall elect the officers of the Company,
which may include a Chairman of the Board, a President, one or more Vice
Presidents, a Comptroller, a Treasurer, a Secretary and a General Counsel. Any
Vice President may be given an additional designation of rank or function.
Each officer shall have such powers and duties as may be prescribed by these
By-laws and as may be assigned by the Board of Directors or the Chairman of
the Board.
SECTION 2. The Chairman of the Board shall be the chief executive officer
of the Company, and shall have such powers and duties as customarily pertain
to that office. He shall have general supervision over the property, business
and affairs of the Company and over its other officers. He may appoint and
remove assistant officers and other employees and agents. He may execute and
deliver in the name of the Company all powers of attorney, contracts and other
obligations and instruments.
SECTION 3. In case of the absence or disability of the Chairman of the
Board, an officer or officers designated by the Chairman of the Board or, in
the absence of such designation, by the Board of Directors, shall have the
powers and duties of the Chairman of the Board.
SECTION 4. The officers other than the Chairman of the Board may execute
and deliver in the name of the Company powers of attorney, contracts, and
other obligations and instruments pertaining to the regular course of their
respective duties.
SECTION 5. An officer or officers designated by the Board of Directors
shall be responsible to the Board of Directors for financial control and
internal audit of the Company and its subsidiaries.
SECTION 6. The Treasurer shall have general supervision over the funding
and currency management affairs of the Company.
3
<PAGE> 4
SECTION 7. The Secretary shall keep the minutes of all meetings of the
stockholders, of the Board of Directors, and of all committees appointed by
the Board.
SECTION 8. The General Counsel shall have general supervision over the
legal affairs of the Company.
SECTION 9. In case any office shall become vacant, the Board of Directors
shall have power to fill such vacancy. In case of the absence or disability of
any officer, the Board of Directors or the Chairman of the Board may assign
the powers and duties of such office to any other officer or officers. Any
officer shall be subject to removal at any time by vote of a majority of the
whole Board.
SECTION 10. The Chairman of the Board, or a Vice President thereunto duly
authorized by the Chairman of the Board, shall have full power and authority
on behalf of the Company to attend and to vote at any meeting of stockholders
of any corporation in which the Company may hold stock, and may exercise on
behalf of the Company any and all of the rights and powers incident to the
ownership of such stock at any such meeting, and shall have power and
authority to execute and deliver proxies and consents on behalf of the Company
in connection with the exercise by the Company of the rights and powers
incident to the ownership of such stock. The Board of Directors may confer
like powers upon any other person or persons.
ARTICLE VII
Indemnification
SECTION 1. Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a 'proceeding'),
by reason of the fact that he, or a person for whom he is the legal
representative, is or was a director, officer or employee of the Company or is
or was serving at the request of the Company as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified by the Company to the fullest extent permitted by the Delaware
General Corporation Law, as the same exists or may hereafter be amended,
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes, penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection with
such service; provided, however, that the Company shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by
him only if such proceeding was authorized by the Board of Directors, either
generally or in the specific instance. The right to indemnification shall
include the advancement of expenses incurred in defending any such proceeding
in advance of its final disposition in accordance with procedures established
from time to time by the Board of Directors; provided, however, that, if the
Delaware General Corporation Law so requires, the director, officer or
employee shall deliver to the Company an undertaking to repay all amounts so
advanced if it shall ultimately be determined that he is not entitled to be
indemnified under this Article or otherwise.
SECTION 2. The rights of indemnification provided in this Article shall be
in addition to any rights to which any person may otherwise be entitled by law
or under any By-law, agreement, vote of stockholders or disinterested
directors, or otherwise. Such rights shall continue as to any person who has
ceased to be a director, officer or employee and shall inure to the benefit of
his heirs, executors and administrators, and shall be applicable to
proceedings commenced after the adoption hereof, whether arising from acts or
omissions occurring before or after the adoption hereof.
SECTION 3. The Company may purchase and maintain insurance to protect any
person against any liability or expense asserted against or incurred by such
person in connection with any proceeding, whether or not the Company would
have the power to indemnify such person against such liability or expense by
law or under this Article or otherwise. The Company may create a trust fund,
grant a security interest or use other means (including, without limitation, a
letter of credit) to insure the payment of such sums as may become necessary
to effect indemnification as provided herein.
4
<PAGE> 5
ARTICLE VIII
Capital Stock
SECTION 1. The Board of Directors may authorize the issuance of stock
either in certificated or in uncertificated form. If shares are issued in
uncertificated form, each stockholder shall be entitled upon written request
to a stock certificate or certificates, representing and certifying the number
and kind of full shares held, signed by the Chairman of the Board or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, which signatures may be facsimile.
SECTION 2. The Board of Directors shall have power to appoint one or more
Transfer Agents and Registrars for the transfer and registration of
certificates of stock of any class, and may require that stock certificates be
countersigned and registered by one or more of such Transfer Agents and
Registrars.
SECTION 3. Shares of capital stock of the Company shall be transferable on
the books of the Company only by the holder of record thereof in person or by
duly authorized attorney, upon surrender and cancellation of certificates for
a like number of shares.
SECTION 4. In case any certificate for the capital stock of the Company
shall be lost, stolen or destroyed, the Company may require such proof of the
fact and such indemnity to be given to it and to its Transfer Agent and
Registrar, if any, as shall be deemed necessary or advisable by it.
SECTION 5. The Company shall be entitled to treat the holder of record of
any share or shares of stock as the holder thereof in fact, and shall not be
bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
SECTION 6. In order that the Company may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or other allotment of any rights, or entitled to exercise any
rights in respect of any other change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. If in any case involving the determination of stockholders for
any purpose (other than notice of or voting at a meeting of stockholders) the
Board of Directors shall not fix such a record date, the record date for
determining stockholders for such purpose shall be the close of business on
the day on which the Board of Directors shall adopt the resolution relating
thereto. A determination of stockholders entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
ARTICLE IX
Miscellaneous
SECTION 1. The Board of Directors shall have power to fix, and from time
to time change, the fiscal year of the Company. Unless otherwise fixed by the
Board, the calendar year shall be the fiscal year.
SECTION 2. Whenever notice is required to be given by these By-laws or by
the Certificate of Incorporation or by law, a written waiver thereof, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent to notice.
5
<PAGE> 6
ARTICLE X
Amendment
SECTION 1. The Board of Directors shall have power, at any meeting of the
Board, to add any provision to or to amend or repeal any provision of these
By-laws by the vote of a majority of the total number of directors determined
from time to time by the Board of Directors pursuant to Article EIGHTH of the
Certificate of Incorporation, provided that a statement of the proposed action
shall have been included in a notice or waiver of notice of such meeting of
the Board. The stockholders may add any provision to or amend or repeal any
provision of these By-laws by the vote of a majority of the stockholders
present or represented at any meeting, provided that a statement of the
proposed action shall have been included in the notice of such meeting of
stockholders.
Revised 01/20/98
6
<PAGE> 1
EXHIBIT 10 (a)
BESTFOODS
1984 STOCK AND PERFORMANCE PLAN
AMENDMENT NO. 6
THIS INSTRUMENT made this 21st day of July, 1998 by Bestfoods (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the Bestfoods 1984 Stock and Performance
Plan, effective as of April 26, 1984, and as subsequently amended (the "Plan");
and
WHEREAS, the Board of Directors is authorized to amend the Plan
pursuant to Section 1.9(a) thereof; and
WHEREAS, the Company desires to amend the Plan to revise the period for
exercise of options following a Participant's termination of employment;
NOW, THEREFORE, the Plan is amended as follows:
FIRST: Section 2.3(e) is revised to read as follows:
"(d) In the event a Participant ceases to be an Employee by reason of (i)
his death, (ii) his retirement on an Early Retirement Date, (iii) his
retirement on or after his Normal Retirement Date, or (iv) the occurrence
of his Disability Date, each of his Options shall remain exercisable for
the remainder of the period set forth in each Option, but only to the
extent that such Options were exercisable at the date of such termination
of employment."
<PAGE> 2
SECOND: A new Section 2.3(f) is added (and existing Sections 2.3(f) and
(g) are relettered as Sections 2.3(g) and (h)) to read as follows:
"(f) If a Participant ceases to be an Employee for any reason other than
those specified in Section 2.3(e), each of his Options shall remain
exercisable for a period of ninety days following his termination of
employment (which shall be the last day for which he is paid as an
Employee by the Company, a Subsidiary or an Affiliate by which he was
employed), but only to the extent that such Options were exercisable at
the date of such termination of employment and in no event beyond the
expiration date of the respective Options; provided, however, that the
Company in its sole discretion may determine that such ninety day
extension of the exercise period shall not apply in the case of the
termination of a Participant's employment for misconduct, in which event
the Participant's rights under all Options shall terminate immediately
upon the termination of his employment for misconduct. The Committee may
determine that all or any portion of a Participant's Options, to the
extent that such Options were exercisable at the date of the Participant's
termination of employment, shall remain exercisable for a longer period
following his termination of employment, designated by the Committee in
its sole discretion, but not beyond three years or, if earlier, the
expiration date of the respective Options."
THIRD: This Amendment is effective as of July 21, 1998, including the
effect on existing Options held by Participants who are Employees on such date.
IN WITNESS WHEREOF, Bestfoods has caused this Amendment to be executed by
its duly authorized officer and its corporate seal to be affixed hereto on the
date set forth above.
Bestfoods
By_________________________
ATTEST:
________________
(Corporate Seal)
<PAGE> 1
EXHIBIT 10 (b)
BESTFOODS
1993 STOCK AND PERFORMANCE PLAN
AMENDMENT NO. 6
THIS INSTRUMENT made this 21st day of July, 1998 by Bestfoods (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the Bestfoods 1993 Stock and Performance
Plan, effective as of April 22, 1993, and as subsequently amended (the "Plan");
and
WHEREAS, the Board of Directors is authorized to amend the Plan
pursuant to Section 1.9(a) thereof; and
WHEREAS, the Company desires to amend the Plan to reflect certain
administrative changes and to revise the period for exercise of options
following a Participant's termination of employment;
NOW, THEREFORE, the Plan is amended as follows:
FIRST: The third to last sentence of Section 2.1(a) is revised to read as
follows: "If a Replacement Option is granted pursuant to the second preceding
sentence and any shares acquired upon exercise of the original Option are
disposed of
<PAGE> 2
2
before the expiration of the holding period (if any) imposed by the Committee
for shares received upon exercise of the original Option, such Replacement
Option shall be reduced by the lesser of (i) the number of shares so disposed of
or (ii) the number of shares otherwise remaining available for exercise under
the Replacement Option."
SECOND: Section 2.3(d) is revised to read as follows:
"(d) In the event a Participant ceases to be an Employee by reason of (i)
his death, (ii) his retirement on an Early Retirement Date, (iii) his
retirement on or after his Normal Retirement Date, or (iv) the occurrence
of his Disability Date, each of his Options shall remain exercisable for
the remainder of the period set forth in each Option, but only to the
extent that such Options were exercisable at the date of such termination
of employment."
THIRD: A new Section 2.3(e) is added (and existing Sections 2.3(e) and (f)
are relettered as Sections 2.3(f) and (g)) to read as follows:
"(e) If a Participant ceases to be an Employee for any reason other than
those specified in Section 2.3(d), each of his Options shall remain
exercisable for a period of ninety days following his termination of
employment (which shall be the last day for which he is paid as an
Employee by the Company, a Subsidiary or an Affiliate by which he was
employed), but only to the extent that such Options were exercisable at
the date of such termination of employment and in no event beyond the
expiration date of the respective Options; provided, however, that the
Company in its sole discretion may determine that such ninety day
extension of the exercise period shall not apply in the case of the
termination of a Participant's employment for misconduct, in which event
the Participant's rights under all Options shall terminate immediately
upon the termination of his employment for misconduct. The Committee may
determine that all or any portion of a Participant's Options, to the
extent that such Options were exercisable at the date of the Participant's
termination of employment, shall remain exercisable for a longer period
following his termination of employment, designated by the Committee in
its sole discretion (either at the time of grant or on or about the date
of termination of employment), but not beyond three years or, if earlier,
the expiration date of the respective Options."
FOURTH: The first sentence of Section 2.3(f) (as relettered pursuant to
paragraph THIRD above) is replaced by the following sentences: "Each Option
shall
<PAGE> 3
3
be confirmed by an award letter. The Committee may in its sole discretion
determine that an Option agreement shall be executed by the Company and the
Participant."
FIFTH: Section 3.2(d) is revised to read as follows: "Each award shall be
confirmed by an award letter. The Committee may in its sole discretion determine
that a Restricted Stock agreement shall be executed by the Company and the
Participant."
SIXTH: This Amendment is effective as of July 21, 1998, including the
effect of Paragraphs SECOND and THIRD on existing Options held by Participants
who are Employees on such date.
IN WITNESS WHEREOF, Bestfoods has caused this Amendment to be executed by
its duly authorized officer and its corporate seal to be affixed hereto on the
date set forth above.
Bestfoods
By_________________________
ATTEST:
________________
(Corporate Seal)
<PAGE> 4
EXHIBIT 10 (b)
BESTFOODS
1993 STOCK AND PERFORMANCE PLAN
AMENDMENT NO. 7
THIS INSTRUMENT made this 16th day of November, 1999 by Bestfoods (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the Bestfoods 1993 Stock and Performance
Plan, effective as of April 22, 1993, and as subsequently amended (the "Plan");
and
WHEREAS, the Board of Directors is authorized to amend the Plan
pursuant to Section 1.9(a) thereof; and
WHEREAS, the Company desires to amend the Plan to reflect a change in the
rules governing the exercisability of stock options following cessation of
employment by reason of death, disability or retirement;
NOW, THEREFORE, the Plan is amended as follows:
FIRST: Section 2.3(d) is revised to read as follows:
"(d) In the event a Participant ceases to be an Employee by reason of (i)
his death, (ii) his retirement on an Early Retirement Date, (iii) his
retirement on or after his Normal Retirement Date, or (iv) the occurrence
of his Disability Date, each of his Options shall, except as otherwise
provided in Section 2.3(a),
<PAGE> 5
2
become exercisable at the time or times specified in the applicable award
letter and remain exercisable until the expiration date set forth in the
applicable award letter."
SECOND: This Amendment is effective as of November 16, 1999, with respect
to Options awarded on and after such date.
IN WITNESS WHEREOF, Bestfoods has caused this Amendment to be executed by
its duly authorized officer and its corporate seal to be affixed hereto on the
date set forth above.
Bestfoods
By_________________________
ATTEST:
________________
(Corporate Seal)
<PAGE> 1
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
BASIC
<S> <C> <C> <C>
Income from continuing operations $ 717.4 $ 640.1 $ 428.8
Preferred stock dividends, net of taxes (9.9) (10.1) (11.3)
------- ------- -------
Income from continuing operations available to
common stockholders 707.5 630.0 417.5
Net income from discontinued operations -- -- 11.1
Loss on disposal of discontinued operations -- .7 (82.6)
Cumulative effect of changes in accounting principles -- (17.3) (13.2)
------- ------- -------
Net income available to common stockholders $ 707.5 $ 613.4 $ 332.8
======= ======= =======
Weighted average shares outstanding 279.3 286.5 287.3
------- ------- -------
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 2.53 $ 2.20 $ 1.45
Income from discontinued operations -- -- 0.04
Loss on disposal of discontinued operations -- -- (0.28)
Cumulative effect of changes in accounting principles -- (0.06) (0.05)
======= ======= =======
Net income $ 2.53 $ 2.14 $ 1.16
======= ======= =======
DILUTED
Income from continuing operations $ 717.4 $ 640.1 $ 428.8
Adjustments to net income:
Assumed additional cost if ESOP shares are fully
converted net of certain tax benefits (3.2) (2.0) (2.4)
------- ------- -------
Diluted income from continuing operations 714.2 638.1 426.4
Net income from discontinued operations -- -- 11.1
Loss on disposal of discontinued operations -- .7 (82.6)
Cumulative effect of changes in accounting principles -- (17.3) (13.2)
======= ======= =======
Diluted net income $ 714.2 $ 621.5 $ 341.7
======= ======= =======
Weighted average shares outstanding 279.3 286.5 287.3
Add incremental shares representing:
Shares issuable upon exercise of stock options 1.8 2.4 2.8
Performance incentive shares issuable .2 .3 .3
Shares issuable upon conversion of ESOP shares 7.1 8.0 8.1
======= ======= =======
Weighted average number of shares as adjusted 288.4 297.2 298.5
======= ======= =======
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 2.48 $ 2.15 $ 1.43
Income from discontinued operations -- -- 0.04
Loss on disposal of discontinued operations -- -- (0.28)
Cumulative effect of changes in accounting principles -- (0.06) (0.04)
======= ======= =======
Net income $ 2.48 $ 2.09 $ 1.15
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES:
$1,147.1 $1,021.1 $704.2 $880.2 $654.9
------------- ------------- -------------- ------------- --------------
Add (subtract):
Portion of rents representative of
interest 35.0 33.3 32.2 33.4 25.6
Interest on bonds, mortgages &
similar debt 131.6 125.5 100.9 68.4 52.6
Other Interest 66.2 60.7 72.8 100.0 55.7
Interest expense included in cost of
plant construction (6.9) (3.5) (3.4) (4.8) (3.7)
============= ============= ============== ============= ==============
Income as adjusted $1,373.0 $1,237.1 $906.7 $1,077.2 $785.1
============= ============= ============== ============= ==============
FIXED CHARGES:
Portion of rents representative of
interest $35.0 $33.3 $32.2 $33.4 $25.6
Interest on bonds, mortgages &
similar debt 131.6 125.5 100.9 68.4 52.6
Other Interest 66.2 60.7 72.8 100.0 55.7
------------- ------------- -------------- ------------- --------------
$232.8 $219.5 $205.9 $201.8 $133.9
============= ============= ============== ============= ==============
RATIO OF EARNINGS TO FIXED CHARGES 5.9 5.6 4.4 5.3 5.9
============= ============= ============== ============= ==============
</TABLE>
<PAGE> 1
[LOGO]
BESTFOODS
1999 Annual Report
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Satisfying a Global Appetite
<PAGE> 2
[GRAPHIC OMITTED]
NORTH AMERICA, CARIBBEAN
Canada, 1919
Dominican Republic, 1991
United States, 1906
Connecting ...
with our consumers
with our customers
with new markets
within our organization
...for Growth
LATIN AMERICA
Argentina, 1928
Bolivia, 1987
Brazil, 1929
Chile, 1961
Colombia, 1933
Costa Rica, 1991
Ecuador, 1970
El Salvador, 1998
Guatemala, 1964
Honduras, 1973
Mexico, 1930
Panama, 1983
Paraguay, 1992
Peru, 1961
Uruguay, 1958
Venezuela, 1960
The years shown after the country names indicate year operations were founded.
[LOGO]
BESTFOODS
<PAGE> 3
[GRAPHIC OMITTED]
EUROPE
Austria, 1960
Belgium, 1908
Bulgaria, 1995
Czech Republic, 1992
Denmark, 1914
Finland, 1968
France, 1920
Germany, 1906
Greece, 1968
Hungary, 1991
Ireland, 1932
Italy, 1926
Netherlands, 1912
Norway, 1968
Poland, 1992
Portugal, 1964
Romania, 1995
Russia, 1993
Slovak Republic, 1993
Slovenia, 2000
Spain, 1954
Sweden, 1960
Switzerland, 1923
United Kingdom, 1906
AFRICA / MIDDLE EAST
Egypt, 2000
Israel, 1992
Jordan, 1995
Kenya, 1971
Morocco, 1970
Saudi Arabia, 1989
South Africa, 1994
Tunisia, 1984
Turkey, 1985
<PAGE> 4
[GRAPHIC OMITTED]
ASIA
China, 1993
Hong Kong, 1957
India, 1931
Indonesia, 1991
Japan, 1963
Malaysia, 1957
Pakistan, 1962
Philippines, 1955
Singapore, 1966
Sri Lanka, 1993
Taiwan, 1970
Thailand, 1966
Vietnam, 1993
<PAGE> 5
To our shareholders and employees
[PHOTO OMITTED]
1999 was another year of strong and steady progress for Bestfoods. Earnings per
share rose 11.7%, following an almost 14% gain in 1998, excluding special items.
All five divisions contributed to this outstanding growth, with Europe, Baking,
and Asia recording double-digit advances in operating income. Bestfoods North
America ended the year in excellent shape, posting solid profit growth. And
despite continuing recessions in Latin America, Bestfoods Latin America posted a
modest earnings increase, with seven of our nine affiliates surpassing their
1998 earnings levels. Details on the strategies and activities that produced and
will continue to produce fast and profitable growth for your company are
included in the discussion that follows this letter.
Within our peer group of 15 food companies, we reached our objective of
top-quartile performance in terms of growth in shareholder return, improving our
standing from fourth in the group in 1998 to third in 1999. For the five-year
period 1994 to 1999, we're in second place, with a compound annual growth rate
of 18.7%. Unfortunately, however, stock market performance for the food industry
as a whole has languished compared to other sectors, and the satisfactions of
outperforming underperforming peers are limited.
Our goal must be - and is - to help investors move beyond the current
perception of where growth can be found. Bestfoods, with its strong operations
in the world's fastest-growing economies, nearly a century of operating
experience around the globe, an impressive track record of continuing geographic
expansion and acquisition, and a powerful portfolio of leading global and
regional brands, is unique among U.S.- based food companies. In fact, it has a
relatively small group of peers, in these respects, in all industries.
Year after year we have demonstrated the power of these advantages. For
the 10-year period from 1989 through 1999, Bestfoods' sales increased at a
compound annual
<PAGE> 6
<TABLE>
================================================================================
Results in Brief
$ Millions except per share amounts 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $8,637 $8,413
Operating income 1,330 1,187 (a)
Income from continuing operations 717 640 (b)
Income from continuing operations
per diluted common share 2.48 2.15 (c)
Stockholders' equity per common share 3.37 3.48
Dividends declared per common share 1.02 .94
Depreciation and amortization 260 255
Capital expenditures 278 304
================================================================================
</TABLE>
(a) Includes restructuring charge of $33 million.
(b) Includes restructuring charge of $22 million after taxes or $.07 per
diluted common share.
growth rate of 7.8%. The company's operating income and E.P.S., excluding
special items, increased at the rate of 10.5% and 12.1%, respectively, over the
10-year period.
Twelve months from now, I expect to report on another strong year. Plans
are in place, and free cash is available, for increased marketing support behind
our great brands around the world. We will continue to expand geographically and
to rapidly develop our promising new businesses in emerging markets. And we will
continue to seek strategic acquisitions that will produce fast and profitable
growth. The Arisco investment in Brazil, announced in February 2000, is an ideal
example.
I thank you for your continuing support and for your belief in Bestfoods
as a company capable of and committed to continued strong earnings growth and
superior returns to its shareholders. I also want to recognize and thank our
44,000 employees and our Board of Directors for their outstanding contributions
and unequaled support in 1999.
/s/ C. R. Shoemate
C. R. Shoemate
Chairman and
Chief Executive Officer
February 15, 2000
4
<PAGE> 7
A Discussion with C. R. Shoemate
The following discussion with Dick Shoemate covers some of the issues we believe
to be of greatest interest to our shareholders.
How will Bestfoods achieve superior growth going forward?
I described Bestfoods' excellent track record over the past 10 years in my
letter to shareholders. The strengths and strategies that have produced this
excellent growth will continue to drive our progress going forward.
We are a global company with successful businesses and well-honed skills,
not only in established economies around the world, but also in emerging
markets, where growth opportunities are best and Bestfoods' long experience
gives us important advantages. We have consistently extended our operations
geographically throughout our 95-year history, and we will continue to do so.
We have three sharply-focused global businesses - savory products, chiefly
under the Knorr brand; dressings, chiefly under Hellmann's; and foodservice, or
catering as we call it outside the United States - each of which is growing well
and has significant growth potential. Within these core businesses, and also in
our small group of regional cores, virtually all our brands are market leaders -
number one or two in their categories.
And, we are very successful at acquiring and integrating businesses that
contribute profits quickly and have superior growth potential. We expect to
continue adding to this track record.
I would add that we have made, and will continue to make, substantial
progress in efficiency and cost-savings. During the last two years, we have
formally adopted the Economic Value Added (EVA) management approach as another
tool for enhancing growth and shareholder returns. Positive results are already
clearly evident. The sharpened focus imposed by EVA helps account for a $58
million decline in trade working capital in 1999. This contributed, along with
higher net income and reductions in capital expenditures, to a dramatic increase
in free cash flow to $526 million from $252 million. The more robust our free
cash flow, the more aggressive we can be - and will be in 2000 and beyond - in
investing behind our brands, acquiring new businesses, and expanding
geographically.
"Virtually all our brands are market leaders."
[PHOTO OMITTED]
"We have three sharply-focused global businesses ... each of which is growing
well and has significant growth potential."
5
<PAGE> 8
[PHOTO OMITTED]
" ... heightened focus on global strategies and cross-border initiatives ..."
What new opportunities and initiatives will contribute to growth in Bestfoods'
core businesses?
Historically, we have strongly emphasized local management of our brands and
businesses, and this has served us very well. Today, in a world of merging
markets and converging consumer habits, we are maximizing this local expertise
under a strengthened strategic umbrella to increase sharing and innovation,
speed new product introductions, and more firmly establish the global identities
of our key brands.
This heightened focus on global strategies and cross-border initiatives
pertains as well to our foodservice business, where we are aggressively pursuing
coordinated global initiatives in the areas of product and packaging innovation,
business systems, and acquisitions.
Developing markets are a special foodservice priority. Our foodservice/
catering business is already well established in Western Europe and North
America. But it is really in its infancy in Central and Eastern Europe, Latin
America, and Asia, where economies are improving, populations are large, and
eating away from home is culturally ingrained. These regions, and Africa as
well, offer huge opportunities not only to build foodservice businesses per se
but also to introduce eating habits that eventually result in new retail sales
opportunities. The challenge is to apply Bestfoods' learnings and skills from
our more developed markets to seize competitive advantage.
Recently-acquired technologies are also opening new opportunities. The
Thomas Morel business, which we acquired in the U.K., gives us new capability in
frozen prepared meals for foodservice that we can extend to other markets. And
the Case-Swayne custom food ingredient business, purchased in 1999, adds
important expertise in tailor-made product systems for chain restaurant
customers.
What opportunities does Bestfoods have for faster growth in the mature North
American market?
I'll begin my response to this question by challenging the word "mature" as
applied to the entire North American market. Certainly some categories,
including several in which we participate, could be described this way. But even
if a category isn't growing, our volumes and market share can, and do, grow.
There is still a lot of potential in strong execution and innovation in
6
<PAGE> 9
our dressings, oil, peanut butter, and Knorr businesses. For example, we
established a pourable dressings business over the last several years, extending
our Hellmann's and Best Foods brand umbrella. The January 2000 introduction of
Hellmann's and Best Foods Citrus Splash salad dressings continues the aggressive
development of that business. And I encourage everyone to try our new Skippy
Doubly Delicious! to discover the innovative spirit of our peanut butter
business.
Baking, a $1.7 billion business for us, is an excellent growth vehicle
that continues to show good momentum and potential. In the premium bread
segment, all of our brands increased in both volume and share in 1999. Our
Thomas' brand franchise grew well; both English muffins and bagels gained share
and increased volume, with bagel volume up 15%. Bagels are a wonderful
illustration, by the way, of how you can take strong brands - in this case
Thomas' and Oroweat - innovate, and create an entirely new avenue for growth.
We've gone from a small bagel business in 1994 to nearly $100 million in sales
today.
We also look for strong growth in our North American foodservice business.
With the addition of Case-Swayne, North American foodservice will account for
about $600 million in annual sales, or 15% of Bestfoods' total sales in North
America. Prior to the Case-Swayne acquisition, North American foodservice sales
had been growing over the past several years at a rate of about 7% compounded
annually. Case-Swayne itself, with about $150 million in annual sales, grew 25%
annually during the same period. We expect that the combination of these
businesses, especially considering Case-Swayne's powerful roster of
international chain restaurant customers, will produce a significant step-up in
growth. Additionally, we foresee opportunities to use Bestfoods' worldwide
infrastructure to meet our customers' needs as they expand internationally.
How are you dealing with consolidation of the retail trade in North America, and
is Bestfoods' relatively small size in this region a problem as retailers grow
ever larger?
The short answer to this question is: Big doesn't make you good. Good makes you
big where it counts - in market share and profit growth.
But let me lay the groundwork for this discussion with a reminder about
Europe. The retail trade there has been consolidating for the past 20 years.
[PHOTO OMITTED]
"Baking ... is an excellent growth vehicle that continues to show good momentum
and potential."
7
<PAGE> 10
"Big doesn't make you good. Good makes you big where it counts - in market share
and profit growth."
[PHOTO OMITTED]
"Acquisitions are our first choice for use of free cash."
In each of four major markets - Germany, France, the U.K., and Switzerland - the
top five retailers control from 67% of total trade, in France, to 95%, in
Switzerland. In spite of this, Bestfoods has continued to post strong growth in
sales, volumes, and profits. In fact, when we studied 15 highly-concentrated
trade markets around the world, we found no correlation between trade
consolidation and either Bestfoods' revenue growth or its profitability.
The critical success factors are strong brands, cost effectiveness and
competitive pricing, innovation, strong direct marketing, and category
management relationships. These are all tools we have employed effectively in
Europe for years and are finding just as effective in North America.
Returning to the question about retailers' increasing size: I firmly
believe - and experience shows this to be true - that the bigger and better
retailers tend to recognize and reap the benefits of partnership. Their increase
in efficiency enables us to become more efficient. They also know that our
innovation and marketing bring their customers through the door.
What role do acquisitions play in your growth plans, and would you consider a
merger?
About one-half of Bestfoods' growth has traditionally come from acquisitions,
and we expect to maintain that percentage over time. Acquisitions are our first
choice for use of free cash, as we continue to illustrate. Since the beginning
of 1999, we have made six strategic acquisitions, and in February we announced
the investment in the $440 million Arisco business in Brazil (described on Page
10 of this report).
Of course, even with strong financial capacity, we cannot promise an equal
level of acquisition activity every year. We are very disciplined in our
approach to acquisitions: they must be in or close to our cores and provide a
strong and rapid payback. In some years, we have more opportunities than in
others.
I'm often asked why we don't make more acquisitions in Asia, to build our
relatively small Asian business more quickly. We would certainly like to. But
again, we're very disciplined. Investment opportunities in Asia generally
involve partnership with established entities. If we enter into a partnership
anywhere in the world - and we already have many joint ventures - we want
8
<PAGE> 11
to be in a position to operate the business in the best interests of Bestfoods'
shareholders and in accordance with the best international practices. This means
that we generally want to manage the business, which is not always acceptable to
potential partners, especially in Asia, and therefore limits the number of
opportunities there that we pursue.
Having said that, I'll add that we do have four growing joint ventures in
China and are also pleased with the two Asian acquisitions we made in 1999: the
Captain Cook branded salt business in India and the Glaxose-D energy drink
business in Pakistan. Both are in countries with huge populations and improving
economies, and both contribute scale and distribution capabilities that will be
critical in the development of the large local businesses we are committed to
building.
As to the possibility of a merger, I like the hand we're playing.
Bestfoods has all the advantages of great brands, geographic presence, and
worldwide experience. We are growing at a top-quartile rate in the food industry
and in fact at a good rate for almost any industry. However, if we were to
identify a partner with whom we could truly create even stronger profit growth
and enhanced value for our shareholders, we would certainly be open to the
opportunity.
Bestfoods now has operations in more than 60 countries, including many in
emerging markets. What other countries will you be entering?
Over the past decade, Bestfoods has started businesses in 19 new countries,
which together with our already established affiliates give us presence in all
of the most populous countries of the world. Because of its huge population,
China will be the most important of our new markets over the next five years or
so, along with India and Pakistan where we have older but still underdeveloped
businesses. Meanwhile, we are establishing our brands through imports and
distribution agreements and evaluating opportunities in about 10 additional
emerging economies. When the time is right in each case, we will set up
on-the-ground operations, as we have done successfully time and time again.
"I like the hand we're playing."
[PHOTO OMITTED]
"China will be the most important of our new markets over the next five years or
so."
9
<PAGE> 12
NEWSFLASH 2000
ARISCO IN BRAZIL
On February 8, 2000, Bestfoods announced that it now owns the $440 million
Arisco business in Brazil. Arisco includes a large portfolio of value-priced
soups, seasonings, bouillons, ketchup, salad dressings, mayonnaise, tomato
products, desserts, and other products, primarily under the Arisco brand. Arisco
is the fifth-largest food brand in Brazil. Below are some of Dick Shoemate's
comments from that announcement.
[GRAPHIC OMITTED]
Arisco is a true gem.
The investment will contribute to cash flow and have a neutral impact on
earnings per share in the first year. We expect a positive earnings contribution
in year two.
When we look at Brazil and our 70 years of experience there, we see "GROWTH" in
capital letters.
I believe that Bestfoods has shown time and again that it knows how to pick
growth-producing businesses and can integrate them quickly and effectively.
Arisco should add to that long record of success.
The fit of Arisco's brands and products with Bestfoods' existing worldwide core
businesses is ideal.
There are excellent synergies between our existing business and Arisco's.
C. R. Shoemate, February 2000
[GRAPHIC OMITTED]
A selection of Arisco products.
10
<PAGE> 13
Ten Years of Growth
Compound
Annual Growth
Net Sales 7.8%
[BAR GRAPH OMITTED]
Compound
Annual Growth
Operating Income 10.5%*
[BAR GRAPH OMITTED]
Compound
Annual Growth
E.P.S.Diluted 12.1%*
[BAR GRAPH OMITTED]
*excluding special items
1999 Highlights
Quarterly dividend raised 8.2%; represents Bestfoods' 14th consecutive annual
dividend increase.
New products, a small selection among hundreds worldwide:
* Hellmann's and Best Foods Citrus Splash salad dressings introduction
announced in U.S. First dressing to carry Florida Citrus Growers'
endorsement.
* Knorr ramen noodle products successfully introduced in Central and Eastern
Europe and countries of Latin American and Asia.
* Alsa Maman Gateau shelf-stable, ready-to-bake cake batter in France
becomes the best-selling cake batter there after only four months.
* Entenmann's Little Bites successfully introduced in U.S.
* Knorr aseptically-packaged soups extended into Southern Europe.
* AdeS soy beverage business extended throughout Latin America.
Acquisitions / Investments / Geographic Extension:
* U.K.: Thomas Morel foodservice business.
* India: Captain Cook packaged salt business.
* Pakistan: Glaxose-D energy drink business; ownership of Bestfoods'
affiliate increased to 74% from 51%.
* Hungary: Globus brand of dressings, condiments, and liquid sauces.
* United States: Case-Swayne foodservice business, with $150 million in
annual sales.
* Argentina: Molinos de la Plata brand mayonnaise, ketchup, and mustard.
* Egypt: Letter of understanding signed for El Rashidi El Mizan brand
business, marketing sesame-based products (Jan. 2000).
* Slovenia: Bestfoods affiliate established (Jan. 2000).
* Brazil: Arisco, with $440 million in sales (Feb. 2000).
Operations:
* Supply chain and information systems projects executed in all divisions;
U.S. operations successfully completed project encompassing 10
manufacturing facilities and 30 distribution centers.
* New presidents appointed: Bestfoods Europe, Bestfoods Baking, Bestfoods
North America Grocery, Bestfoods Latin America, and (March 2000) Bestfoods
Asia.
* Began exporting peanut butter to all Asian affiliates (except Philippines)
from operation in Shandong, China.
* Diversity Councils established in all divisions.
11
<PAGE> 14
[GRAPHIC OMITTED]
SALES
BY
OPERATING
DIVISION
Bestfoods'
1999 Worldwide
Business Results
and Market Positions
Sales $8.6 billion, +2.7%
Volumes +4.1%
Operating Income $1.3 billion, +9.0%*
*excludes special items in 1998
Business Results
o EUROPE $3.6 billion, +3.6%
Operations in 33 countries of Europe, Africa, and the Middle East. 59
manufacturing plants.
o NORTH AMERICA $1.9 billion, +4.9%
Operations in the United States, Canada, and the Caribbean. 18 manufacturing
plants.
o BAKING $1.7 billion, +2.3%
Operations in the United States. 18 Bakeries.
o LATIN AMERICA $1.1 billion, -6.8%
Operations in 16 countries. 19 manufacturing plants.
o ASIA $374 million, +16%
Operations in 12 countries, including joint ventures in seven countries.
Licensing agreement in Japan. 18 manufacturing plants.
Market Positions
<TABLE>
<CAPTION>
1 Leader in Market Share Pasta /
2 Second in Market Share Potato Pasta Pourable Corn
o Present in the Market Soups* Sauces* Bouillons Meal Kits* Products Dishes Mayonnaise Dressings Oil Foodservice**
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA, CARIBBEAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Canada 2 2 1 1 1 o
Dominican Republic 2 2 o o o
United States o o 2 o o o 1 o 1 o
- ------------------------------------------------------------------------------------------------------------------------------------
EUROPE, AFRICA/MIDDLE EAST
- ------------------------------------------------------------------------------------------------------------------------------------
Austria 1 1 1 1 1 1 o
Belgium 1 1 1 1 o
Bulgaria o o o o o
Czech Republic 2 2 2 2 o 1 1 o
Denmark 1 1 1 1 2 2 1 o
Finland 1 1 1 2 1 o
France 1 2 2 2 2 o
Germany 2 2 2 2 1 o 1 o
Greece 1 1 1 2 1 1 1 o
Hungary 1 1 1 2 1 2 o
Ireland 1 1 1 1 1 o 1 2 o o
Italy 1 o 2 1 o o o
Netherlands 2 1 2 2 o o o
Norway o 2 o o o
Poland 1 1 1 1 1 2 o
Portugal 1 o 1 2 1 2 o
Romania 1 1 o
Russia 2 1 2 1 o o o
Slovak Republic 2 o o o o 1 o
Slovenia+
Spain 2 o 2 o o o o o
Sweden 1 2 1 1 o 1 o
Switzerland 1 1 1 1 1 o o o
United Kingdom o o 2 o o 1 2 1 o
- ------------------------------------------------------------------------------------------------------------------------------------
Egypt+
Israel 1 2 2 1 o o 1 1 o
Jordan 2 2 o
Kenya 1 2 o o
Morocco 1 o 1 o
Saudi Arabia 2 2 o
South Africa 1 2 1 1 o 1 o
Tunisia 1 o 1 o o
Turkey 1 2 o o
<CAPTION>
1 Leader in Market Share
2 Second in Market Share Peanut Desserts Premium
o Present in the Market Butter Starches (Ambient) Baking
- ------------------------------------------------------------------
NORTH AMERICA, CARIBBEAN
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canada 2 1
Dominican Republic 1
United States 2 1 o 1
- ------------------------------------------------------------------
EUROPE, AFRICA/MIDDLE EAST
- ------------------------------------------------------------------
Austria 1
Belgium 1
Bulgaria
Czech Republic
Denmark 1 o
Finland 2
France 1 1
Germany 1 o
Greece 2 2
Hungary o
Ireland 2 1
Italy 1
Netherlands 2
Norway 1
Poland o
Portugal 1 2
Romania o
Russia o
Slovak Republic
Slovenia+
Spain 1 2
Sweden 1 1
Switzerland 1 o
United Kingdom 1 1
- ------------------------------------------------------------------
Egypt+
Israel 1 2
Jordan
Kenya 2 1
Morocco 1 1
Saudi Arabia o o
South Africa o 1 o
Tunisia 2 o
Turkey 1 o
</TABLE>
+Affiliate established in Jan. 2000
<PAGE> 15
[GRAPHIC OMITTED]
SALES
BY
PRODUCT
GROUP
($ Millions)
Business Results
o KNORR soups, sauces, bouillons, and related products
<TABLE>
<CAPTION>
Sales Change Volumes
----- ------ -------
<S> <C> <C> <C>
Total $3,088 + 4.1% + 6.8%
Europe $2,091 + 4.2% + 9.8%
North America $470 + 10.3% + 10.3%
Latin America $342 - 9.0% - 7.6%
Asia $185 + 17 % + 25 %
</TABLE>
o DRESSINGS
<TABLE>
<CAPTION>
Sales Change Volumes
----- ------ -------
<S> <C> <C> <C>
Total $2,004 + 2.2% + 5.4%
Europe $464 + 2.7% + 7.9%
North America $1,001 + 4.8% + 5.4%
Latin America $443 - 5.7% + 1.7%
Asia $96 + 14 % + 10.2%
</TABLE>
o BAKING
Sales $1,697 million, +2.3%;
Volumes +1.0%
o STARCHES (Basic Nutritious Foods)
Sales $569 million, +2.9%;
Volumes +4.4%
o BREAD SPREADS
Sales $406 million, +1.9%;
Volumes +0.3%
o DESSERTS
Sales $280 million, +0.7%;
Volumes +4.2%
o ALL OTHER SALES $593 million
FOODSERVICE (Caterplan)
Business sales in 1999 were approximately $1.4 billion, 8.4%higher than in 1998,
and are included in the appropriate product groups.
<TABLE>
<CAPTION>
1 Leader in Market Share
2 Second in Market Share Pasta /
o Present in the Market Potato Pasta Pourable Corn
# Licensing Agreement Soups* Sauces* Bouillons Meal Kits* Products Dishes Mayonnaise Dressings Oil Foodservice**
- ------------------------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Argentina 1 1 1 1 1 1 2 o
Bolivia o o 2 o
Brazil 2 1 2 1 1 1 o
Chile o o 2 1 1 1 o
Colombia o 2 2 2 o 1 o o o
Costa Rica 2 1 o o 1 1 1 o
Ecuador 2 o o 2 o 1
El Salvador o o o o o 1
Guatemala o o o o o 1 1 o
Honduras o o 1
Mexico 1 o 1 1 1 2 o 2 o
Panama o o o o o o o
Paraguay 2 2 2 o 1 2 o
Peru 2 o 2 2 2 1 2 1 o
Uruguay 1 1 1 o 1 2 o
Venezuela 2 o 2 1 o o o
- ------------------------------------------------------------------------------------------------------------------------------------
ASIA
- ------------------------------------------------------------------------------------------------------------------------------------
China o o o o o
Hong Kong o o 1 o 2 o o
India 1 1
Indonesia 1 o o 2 2 1 o
Japan # 1 o 1 o 2 2 1 o
Malaysia 1 o 2 1 1 1 o
Pakistan 1 o 1 o 2 1 o
Philippines 1 o 1 1 1 o o o
Singapore 1 1 2 2 o o
Sri Lanka 2 1 2 2 o
Taiwan 1 1 2 o o o
Thailand 1 1 1 2 1 1 1 o
Vietnam 2 1 o o
<CAPTION>
1 Leader in Market Share
2 Second in Market Share
o Present in the Market Peanut Desserts Premium
# Licensing Agreement Butter Starches (Ambient) Baking
- --------------------------------------------------------------------
LATIN AMERICA
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina 1
Bolivia 1
Brazil 1
Chile 1 o
Colombia 1 1
Costa Rica o 1 o
Ecuador o
El Salvador o 1
Guatemala o 1
Honduras 2
Mexico 1 o
Panama 1
Paraguay 1
Peru 1
Uruguay 1
Venezuela 1
- --------------------------------------------------------------------
ASIA
- --------------------------------------------------------------------
China o o o
Hong Kong 1 1 1
India 1 1
Indonesia 1
Japan # o
Malaysia 1 1 2
Pakistan 1 1
Philippines 1 o 1
Singapore 1 1 1
Sri Lanka
Taiwan 1
Thailand 1 o o
Vietnam
</TABLE>
* Dehydrated products only.
** Bestfoods foodservice (catering) products hold leading share positions in
many of the categories in which they compete.
<PAGE> 16
Knorr TasteBreaks cup soups on track in Europe o Entenmann's Little Bites
snack cakes are worth sharing o Citrus Splash salad
[GRAPHIC OMITTED]
Connecting with
In more than 60 countries around the world, Bestfoods managers focus on a key
set of questions: Who are our consumers? How do they prefer to live, to eat, to
manage their work days and leisure time? How much are they willing to pay for
food products and what packaging do they prefer?
What about the Brazilian consumer as compared to the consumer in Poland,
and how do their needs compare to those of consumers in China or in the U.S.?
What "taste versus health" trade-offs do consumers make? Do they purchase their
groceries in retail stores, club stores, from mass merchandisers, or via the
Internet? In short, how do we connect with consumers, today and tomorrow, to
build our business?
We've learned that consumers around the world are looking for food
products that offer convenience, great taste, healthfulness, and affordability.
To a significant degree, consumers in Brazil, Poland, and China - to name just a
few of our markets - share this set of preferences, although the relative
importance of each preference in each country varies with culture and economic
development.
This convergence of tastes and habits means that opportunities to achieve
major synergies through regional and even worldwide initiatives are increasing
quickly. At the same time, local differences remain. And our skill in
identifying and responding to these differences is critically important, as it
has always been.
Careful analysis and anticipation of consumers' preferences drive
everything Bestfoods
[GRAPHIC OMITTED]
14
<PAGE> 17
dressings - Vitamin C never tasted so good o "Soup is Life. Knorr is Soup."
is the good-for-you message in Latin America and Europe
[GRAPHIC OMITTED]
our Consumers
managers do, from product development, through manufacturing and marketing, to
selling and distribution. For instance:
Our understanding of consumer preferences drives the convenience that goes
into recent products, such as Entenmann's Little Bites in the U.S.; TasteBreaks
pasta and soup cup products across Europe; Knorr to Go cup snacks in Israel;
Knorr ramen noodles in Brazil; Knorr liquid sauces across Asia; the Big Squeeze
Hellmann's package in Canada and the U.S.; the mini-portion packages of
Hellmann's spoonable salad dressings in the U.K.; and Alsa Maman Gateau
shelf-stable, ready-to-bake cake batter in France.
It inspires us to provide the great taste in Entenmann's Frosted Devil's
Food Popems, Thomas' Cinnamon Swirl bagels, and Skippy Doubly Delicious! peanut
butter in the U.S.; Hellmann's homestyle mayonnaise in Russia; and Knorr Gourmet
Sauces for foodservice in Belgium.
Consumer preferences underlie the innovation in "good for you" products,
such as new Hellmann's Citrus Splash pourable dressings and Arnold and Oroweat
whole grain breads in the U.S.; Knorr hearty soups around the world; and AdeS
soy beverages throughout Latin America.
They sharpen our focus on affordability, especially in developing
countries, where Knorr bouillons formulated to suit local tastes and cuisines
are a major growth vehicle.
Knowing the preferences of our consumers, wherever they may be in the
world, is our key to satisfying a global appetite.
[GRAPHIC OMITTED]
15
<PAGE> 18
Knorr bouillons in a shop in Malaysia o Chef Jose Edgar Urrea Duque in
Colombia has the right recipe for our foodservice customers o
[GRAPHIC OMITTED]
Connecting with
Bestfoods is the most global food company based in the U.S., but connecting with
our customers in the retail trade remains a very local proposition. How we
satisfy our customers is as varied as the markets in which we do business and
the customers that we call upon. Consider these examples.
In many countries, most people still buy their groceries in "Mom and Pop"
stores. This is particularly true in Latin America and Asia, where small
independent shops can be found near modern supermarkets and giant hypermarkets.
In Colombia, for example, more than 125,000 independent shops dot the cities and
countryside. In 1999, we created a special network of wholesalers to call on
some 70,000 of these shops, providing merchandising displays, market
information, and other support. And to better identify shop owners' needs,
Bestfoods uses questionnaires and organizes focus groups. Sales in the channel
were up 11% for the year.
In Malaysia, to appeal to the vendors selling products in crowded street
stalls and small shops, Bestfoods now sells Knorr bouillon via pasteboard
merchandising displays designed to hang on shop walls. Vendors like the
pasteboards because they free up limited shelf space and keep the product clean
and sanitary. Bouillon sales in Malaysia increased 75% in 1999.
[GRAPHIC OMITTED]
16
<PAGE> 19
Bestfoods is Taco Bell's 'top dog' ingredient supplier o Computers help
Bestfoods Baking deliver
[GRAPHIC OMITTED]
our Customers
While independent shops remain important, big chain stores continue to
spread around the world, offering additional opportunities for Bestfoods to make
connections. In many of the giant hypermarkets of Portugal, for example,
Bestfoods serves as category manager for soups, bouillons, and dressings. We've
been chosen to use our market data and consumer knowledge to advise on how
product selection, display, and other factors will best drive sales and profits
for the retailer. Bestfoods' position as category manager has also helped us to
introduce new products, like ketchup and aseptically-packaged soups.
In the U.S., category management efforts are part of a broader "solution
selling" approach that combines Bestfoods experts from a variety of disciplines
into one customer team. Solutions can range from a new type of product display
to a new product. In 1999, a customer management team working with one of our
largest accounts increased Bestfoods' sales by more than 30%, which, of course,
also benefited our customer. By the end of 2000, we expect to have teams working
with customers that account for 60% of our North America Grocery volumes.
Being local gives Bestfoods an edge in connecting with customers in a
globalizing world. As some retailers accelerate their moves into new countries
and regions, we're very well positioned to support global expansion of customers
by sharing our knowledge of local markets.
[GRAPHIC OMITTED]
17
<PAGE> 20
New launch in a new market: Hellmann's ketchup in Poland o Products of
Bestfoods' new joint
[GRAPHIC OMITTED]
Connecting with
Throughout its long history, Bestfoods has expanded internationally ahead of the
crowd. We get into emerging economies early; connect quickly with consumers,
customers, and suppliers; and dig in for the long haul. Our objective is to grow
faster, maximizing the skills and experience we have acquired over many years of
international operations, while recognizing that some situations require extra
patience and persistence.
We are never dogmatic or formulaic in our means of entry. We may connect
through acquisition or via a joint venture, through exports, or by way of
distribution arrangements. The route we take depends on local conditions and
marketplace opportunities, as well as our own capabilities relative to them.
Ultimately we aim to establish, in each case, a fast-growing business with
on-the-ground, local manufacturing, marketing, and distribution.
We can offer examples from dozens of countries, each with its own story.
In Poland, we acquired an existing company in 1992, quickly adding our own
premium brands to its value-priced portfolio to build a company that today has
sales of $145 million. In China, we've established four joint ventures since
1993, each now producing one or more of our core products for sale across the
country. In South Africa, we again took the joint venture route, combining
businesses with a South African food company whose experience and infrastructure
provide us needed expertise and an expanded portfolio of products for fast
growth in Africa.
[GRAPHIC OMITTED]
18
<PAGE> 21
venture business in Africa o In China, Hellmann's and Knorr sales are two
feathers in our cap
[GRAPHIC OMITTED]
New Markets
In Russia, to quickly establish the Hellmann's brand, we imported product
from the U.K. and then from the Czech Republic while establishing a sales force
and also selling through our own small cash-and-carry operation. Later we built
a plant to produce mayonnaise locally.
Just a few weeks ago, we signed a letter of understanding, agreeing to
acquire a fast-growing company in Egypt that makes sesame-based products. The
project will provide a solid platform from which to launch our Knorr and Mazola
products in Egypt. And in Slovenia, we established in January a new affiliate to
cover the territory of the former Yugoslavia.
Once we have decided when and how to enter a new country, we exercise the
discipline of the "Three A's": adaptability, affordability, and availability.
Products must meet local tastes and habits, which can mean adapting existing
products or creating new varieties altogether. They must be priced at levels
that large parts of the population can afford. And they must be distributed in
ways that reach consumers, wherever they are and however they shop ... which
might even be by salespeople wearing hiking boots and carrying back packs, our
way of promoting the launch of Knorr bouillons in Northeast China several years
ago.
Connecting to new markets and their people has been the Bestfoods way of
life for nearly a century. The strategy continues as we enter the new
millennium.
[GRAPHIC OMITTED]
19
<PAGE> 22
Computer data bases, video conferences, and an intranet are just some of the
means through which
[GRAPHIC OMITTED]
Connecting within our
There is a world of differences among the people of Bestfoods and a host of ways
in which they connect.
By and large, local men and women manage our businesses around the world,
providing the market expertise and experience that are Bestfoods' hallmarks.
Mexicans manage our business in Mexico; Pakistanis manage in Pakistan.
But in today's connected world, our local people have the added benefits
of global perspective and coordination, which help to maximize our core business
strategies, build our product and packaging expertise, increase our purchasing
efficiency, and improve our management development and technological
capabilities.
A common set of values, described in a booklet we publish in 24 languages,
provides the foundation. In its introduction, Dick Shoemate, chairman and chief
executive officer, wrote: "This booklet comprises the beliefs, goals, practices,
and measurements that define the kind of company we want to be. It connects us
to Bestfoods' proud traditions, which have evolved over nearly a century. And it
leads us into the future."
To better align our actions behind common business goals, we've made
changes in our traditional organization. Today, Strategic Business Teams
comprising key senior executives from around the world set priorities for our
three worldwide core businesses. And we've created new support networks to
facilitate sharing in
[GRAPHIC OMITTED]
20
<PAGE> 23
Bestfoods and its people make connections to share the best and maximize
performance
[GRAPHIC OMITTED]
Worldwide Organization
areas such as soup, packaging, and nutrition. That's how TasteBreaks cup soups -
the package, the brand, or the complete product - have extended from the U.K. to
Ireland, Benelux, the Nordic region, South Africa, and the U.S.
We also rely on internationally mobile managers to connect our
organization as they move from assignment to assignment. In 1999, we launched a
recruiting and development program to increase the number of Bestfoods managers
dedicated to international careers.
Workshops, taskforce assignments, and training and development programs
are another way in which Bestfoods people connect. For example, in 1999 the
company held two of its annual global management development programs - a
one-week workshop for 24 early-career managers and a two-week program for 30
senior executives. In both sessions, expertise was shared, friendships sprang
up, and our business network strengthened. When a U.S.-based company announced
its plan to acquire a major U.K. retailer, the new relationship between sales
executives from the U.S. and the U.K., formed at the senior management program,
resulted in the addition of a manager from the U.K. to the North American
customer team and the participation of an American in U.K. sales efforts.
Finally, technology allows us to make new connections. For example,
videoconferences link people from around the world, and a company-wide intranet
is accelerating the pace of sharing in many areas, including new products and
consumer behavior.
[GRAPHIC OMITTED]
21
<PAGE> 24
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Bestfoods and Subsidiaries
Overview of 1999
1999 was another year of solid financial performance and progress toward our
vision of being the best international food company in the world. Diluted
earnings per share increased by 11.7% and operating income grew by 9%, excluding
special items in 1998. This solid performance was accomplished despite the
impact of unfavorable foreign exchange rates, especially in Brazil, where a
January 1999 devaluation reduced the currency value by approximately 40%. Solid
volume growth and continued attention to maximizing cost efficiencies, both at
the plant and administrative levels, increased operating margins and contributed
to gains in operating income.
Our 1999 earnings benefited from a 1% reduction in the effective tax rate.
This makes the second consecutive year of reduced tax rates through continuing
tax planning initiatives.
Our international results showed solid growth especially in Asia and
Europe; Latin America had positive growth that was significantly impeded by
economic difficulties and very unfavorable exchange comparisons. We saw a
significant improvement in our North American business, which returned to high
single-digit profit growth after a slowdown in 1998. The Baking business
recorded double-digit growth for the second consecutive year.
The Company's strategy is to pursue volume, sales, and profit growth in
its three worldwide core businesses: savory products (chiefly under the Knorr
brand); dressings (chiefly under the Hellmann's brand); and foodservice (known
as Caterplan in most markets outside the U.S.). In addition, Bestfoods will
develop new growth opportunities for its regional businesses, including baking.
In line with this strategy, the Company introduced many new products
throughout the world, reconfigured production capabilities to optimize
efficiency, and made several acquisitions around the world including a
significant acquisition in the very important North American foodservice
business, as well as several smaller brand name acquisitions in our
international operations.
Our earnings expectations in 2000
Our earnings expectations in 2000 are based on the assumption that conditions
relating to consumption, costs, currency values, competition, and political and
social environments in the economies in which Bestfoods 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, including more specifically:
o In North America, it is expected that economic growth will remain at
about the 1999 level. The competitive environment will continue to limit pricing
gains, but more aggressive new product development, continued efficiency gains,
and more aggressive marketing programs by Bestfoods should favorably benefit
2000 results.
o In Europe, the economies are expected to grow modestly. Most major
currencies should, over the course of the year, strengthen from their year-end
lows, resulting in yearly currency comparisons that are neutral to financial
results.
o In Latin America, the economic environments in our major markets should
return to more normal conditions. In particular, we believe that the Brazilian
economy will continue to improve, resulting in a very favorable year over year
comparison. We are also cautiously optimistic that a major devaluation will not
occur in this region and believe that development of our businesses in this area
will remain a significant growth opportunity for us, as evidenced by our recent
investment in Arisco Produtos Alimenticios S.A. in Brazil, which will double our
sales in this very important market.
o In Asia, the Company sees continued strong growth in the area, helped by
improving local economies as well as positive currency comparisons in the early
part of the year. Bestfoods continues to see Asia as an important area for
growth.
The last three years' financial results are discussed below. A general
description of Bestfoods' business appears on pages one through 21 of this
report.
22
<PAGE> 25
Results of operations
Net sales in 1999 increased 2.7% to $8.6 billion, as improved volumes and better
prices were significantly offset by the impact of weaker currencies. Overall
volumes were up 4.1% with approximately three-quarters attributable to existing
businesses and the balance from businesses acquired since last year.
In 1998, net sales were essentially unchanged compared to 1997's at $8.4
billion, as improved volumes, helped by acquisitions and better prices, were
offset by weaker worldwide currencies. Volumes overall were up 2.5%, including
.8% from the impact of newly-acquired and disposed businesses.
An analysis of net sales by division is as follows:
<TABLE>
<CAPTION>
% Change
$ Millions 1999 1998 1997 99/98 98/97
================================================================================
<S> <C> <C> <C> <C> <C>
North America $1,897 $1,809 $1,824 4.9 (0.9)
Europe 3,598 3,474 3,519 3.6 (1.3)
Latin America 1,071 1,149 1,105 (6.8) 4.0
Asia 374 322 382 16.0 (15.6)
Baking 1,697 1,659 1,608 2.3 3.2
- -------------------------------------------------------------------------------
Total $8,637 $8,413 $8,438 2.7 (0.3)
================================================================================
</TABLE>
In 1999, North American sales increased 4.9%, as improved volumes were
slightly offset by lower prices and the negative impact of the Canadian exchange
rate. Volumes were up 5.5% overall, with 1.8% of this increase from the
Case-Swayne foodservice business acquired in October 1999. In Europe, sales
increased 3.6%, as better volumes and prices were partially offset by weaker
currency values. Latin American sales decreased 6.8% from the 1998 level despite
improved volumes and better prices as weaker currency values reduced reported
results by 17%. Sales in Asia improved significantly, due to a 13% improvement
in volumes as economic conditions improved in the region. Acquisitions
contributed 3.8% of this growth. Sales for the Baking division improved 2.3%,
attributable to improved volumes and better prices.
In 1998, North American sales decreased nearly 1%, as improved prices were
offset by lower volumes and the negative impact of Canadian exchange rates.
Sales in Europe declined 1.3% due to a 5.6% decline in currency values. Better
volumes in Europe, up 3.1% (partially from acquisitions), and improved prices
offset some of this decline. In Latin America, sales increased 4%, despite an
8.6% currency decline, as volumes improved 6.9% and prices increased. Asian
sales were 16% below the previous year due entirely to weaker currency values,
which reduced reported results by 26%. Sales for the Baking division advanced
3.2%, largely attributable to better volumes.
Cost of sales and operating expenses. Cost of sales as a percentage of net sales
was 52.6% in 1999, resulting in a gross profit margin of 47.4%, which was higher
than the 45.8% in 1998 and the 44.4% in 1997. Gains from improved pricing and
cost efficiencies achieved as a result of the prior years' restructuring
programs contributed to the increase. Marketing expenses remained the same as
last year at 11.5% of net sales. Selling, general, and administrative expenses
increased slightly as a percentage of sales from 19.7% in 1998 to 20.4% in 1999.
Restructuring charges. In the fourth quarter of 1998, the Company recorded a
pre-tax charge of $33 million in order to finalize its restructuring program,
which began in 1997 when it recorded a pre-tax charge of $242 million for the
restructuring of its worldwide businesses following the announcement of the
spin-off of its corn refining operations. The majority of the activities
included pertained to the European and North American operations and encompassed
the sale of non-core businesses, plant closings, and the reorganization of
administrative functions. The Baking division's restructuring included continued
consolidation and reconfiguration of manufacturing and distribution systems and
processes to improve overall business efficiency and effectiveness. At December
31, 1999, these restructuring reserves were substantially utilized.
Operating income in 1999 increased 9%, excluding the 1998 restructuring charge
mentioned above. This increase was derived from improved volumes in all
divisions and higher margins overall, which more than compensated for lower
currency values. The margin improvements were generated from better prices and
efficiency gains, partly as a result of the prior year's restructuring programs.
Operating income in 1998 increased 10.1%, excluding both the 1998 and 1997
23
<PAGE> 26
restructuring charges mentioned above. This increase was derived mostly from
improved volumes in all divisions except North America, and improved margins
resulting from better prices and efficiency gains generated in part by
restructuring programs. Lower currency values partially offset some of these
improvements.
Financing costs of $183 million increased by 10.2% from 1998's levels, while
1998 financing costs of $166 million increased 2.4% over 1997. The increase in
both periods was due to slightly higher borrowings, mainly due to acquisitions
and the Company's share repurchase program. The increase in costs in 1998 also
benefited from the recovery of interest expenses in association with the
favorable settlement of an environmental case.
Provision for income taxes. The effective tax rate in 1999 was 33.5%, compared
to 34.5% in 1998 and 35.5% in 1997. The lower rates in 1999 and 1998 resulted
from a decrease in the effective tax rate in various foreign jurisdictions as
well as continuing tax planning initiatives. The effective tax rate for 2000 is
expected to remain at 33.5%.
Income and diluted earnings per common share from continuing operations. For
1999, excluding the effect of the 1998 restructuring charge, income from
continuing operations rose 8.4% to $717 million and diluted earnings per common
share increased 11.7% to $2.48. These increases resulted from higher operating
income and a slightly lower effective tax rate, partially offset by higher
financing costs and minority interest. Minority interest increased significantly
in 1999 due to the inclusion of a full year of minority interests of the
Company's newly-formed Africa/Middle East joint venture. Fewer shares
outstanding in 1999 also benefited earnings per common share. For 1998,
excluding the effect of the 1998 and 1997 restructuring charges, income from
continuing operations rose 13% to $662 million and diluted earnings per common
share increased 13.8% to $2.22. These increases resulted from higher operating
income and a lower effective tax rate, which more than offset higher financing
costs and minority interest. Fewer shares outstanding in 1998 compared to 1997
also benefited earnings per common share.
Gain (loss) on disposal of discontinued operations. In 1998, the Company
reported a gain of $.7 million ($1.1 million before taxes), resulting from the
favorable settlement of an environmental insurance case, mostly offset by an
additional accrual for costs related to the corn refining disposal. In 1997, the
Company recorded a loss on disposal of $83 million, after taxes, resulting from
a decision to spin off the corn refining business.
Cumulative effect of a change in accounting principle. The Company took a charge
in the fourth quarter of 1998 of $17 million after taxes ($.06 per diluted
share) to comply with an accounting pronouncement issued by the AICPA in 1998
(SOP 98-5 Reporting on the Costs of Start-up Activities) that required the
immediate write-off of any deferred start-up costs. In the fourth quarter of
1997, the Company took a charge of $13 million, after-taxes, or $.04 per diluted
share, to expense previously capitalized business process re-engineering costs
as required by a pronouncement put forth by the Emerging Issues Task Force
(EITF).
Key balance sheet items
Total assets in 1999 decreased $203 million to $6.2 billion from year-end 1998,
largely due to weaker worldwide currency values, which reduced asset values by
approximately $390 million, partially offset by capital expenditures and
additional assets of businesses acquired. Total debt decreased by $191 million
to $2.5 billion mainly due to improved cash flows.
Total assets in 1998 increased $335 million to $6.4 billion from year-end
1997, largely due to the increase in cash and cash equivalents from a low
position in 1997 following the spin-off of the corn refining business and also
due to higher intangible assets from acquisitions.
Net cash flows
Strong cash flows from continuing operations continued to fund the Company's
working capital, capital expenditures, and dividends. In addition, the quarterly
dividend rate was increased 8.2% to $0.265 per share.
In 1999, cash flows from operating activities were $1,110 million, a 36%
improvement from 1998. The higher cash flows were attributable to higher net
income and a significant improvement in trade working capital. For 1998,
24
<PAGE> 27
cash flows from continuing operations were $819 million, 5.3% above 1997,
attributable to higher net income from continuing operations.
Investing activities in 1999 were higher than in 1998 due to an increase
in acquisitions and a decrease in the proceeds from businesses sold compared to
last year. Capital expenditures were slightly below those of 1998 at $278
million. In 1998, investing activities were lower overall than in 1997 due to a
decrease in acquisitions, partially offset by an increase in proceeds from the
disposal of plants and properties and businesses sold. Capital expenditures were
5.3% below those of 1997.
The Company has access to various sources of funds at attractive rates
based on its strong financial condition. Bestfoods' long-term debt rating
remained at A+ with Standard & Poor's and Duff & Phelps, and A2 with Moody's.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued FAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
the recognition of all derivatives as assets or liabilities in the statement of
financial position and measurement of those instruments at fair value. Changes
in the fair value of derivatives are recorded in earnings or other comprehensive
income depending upon the intended use of the derivative and the resulting
designation. The effective date of this pronouncement was delayed due to its
complexity until fiscal years beginning after June 15, 2000. The Company is in
the process of assessing the impact of adoption of this statement on its
financial position and results of operations, but it is not expected to be
significant.
Risks and uncertainties
The Company operates 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 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 suppliers or customers, whose
failure or non-performance would materially affect the Company's results.
Also, because of its broad operational reach, the Company is subject to
risks due to changes in foreign currencies that could affect earnings. As a
practical matter, it is not feasible to cover these fluctuations with currency
hedges. However, the Company believes that over time most currencies of major
countries in which it operates will equalize against the U.S. dollar.
The Company does maintain a policy of hedging its exposure to foreign
currency cash flows to cover planned dividends, fees and royalties, intercompany
loans, and other similar transactions. The Company also hedges certain net
investments with borrowings denominated in the particular currency. As a matter
of policy, the Company does not speculate in foreign currencies.
For certain of its North American raw material purchases, the Company
hedges its exposure to commodity price fluctuations with commodity futures
contracts. The Company's products are manufactured from a number of raw
materials, including soybean and other edible oils, peanuts, and wheat, all of
which are, and are expected to be, in adequate supply. Such raw materials may or
may not be hedged at any given time based on management's decisions as to the
need to fix the costs of raw materials to protect the Company's profitability.
The value of raw materials subject to commodity hedging represents a small
percentage of the total worldwide cost of sales. The historical price volatility
of raw materials, combined with the relatively low percentage of raw materials
to cost of sales, has never yielded a material adverse effect on gross margins
and is not expected to in the future. In addition, any significant change in
commodity prices can generally be recovered in higher selling prices, thereby
further minimizing the impact on the Company's margins.
25
<PAGE> 28
Year 2000 transition
Through the date of this report the Company did not experience any difficulties
with its worldwide computer systems as a result of the transition from 1999 to
2000. Y2K had no impact on the financial condition of the Company in 1999, nor
is it expected to have any effect in 2000.
As previously noted, significant efforts had been undertaken by the
Company prior to the end of 1999 to assure that all critical systems were Y2K
compliant. Furthermore, the Company had instituted backup contingency plans in
case any disruption were to occur. These plans remain in place.
The cost of Y2K remediation did not exceed $15 million.
Euro conversion
On January 1, 1999, 11 of the 15 member states of the European Union
("Participating Countries") established fixed conversion rates from their
existing currencies ("Legacy Currencies") to the Euro and adopted the Euro as
their common legal currency. During the Transition Period from January 1, 1999,
until January 1, 2002, the Legacy Currencies will remain legal tender and
parties will have the option to pay in Euros or Legacy Currencies of
Participating Countries. Participating Countries are expected to issue Euro
currency on January 1, 2002, and to withdraw all bills and coinage of Legacy
Currencies by July 1, 2002.
Conversion to the Euro necessitated some modification to the Company's
information systems to produce dual currency invoices and accounts during the
Transition Period. Modifications will also be required to enable use of the Euro
as a base currency for the year 2002 and thereafter.
Euro conversion has had little impact on prices and competition due to the
fact that the Company's product offerings vary greatly among the Participating
Countries. Given the differences in products sold throughout the Participating
Countries, conversion to a single currency has not resulted in pressure to
harmonize prices. The Company has realized some cost savings due to the fact
that, as of May 1998, it ceased hedging activity among the participating
currencies. The Company's Euro task force continues to monitor the impact of
Euro conversion. The conversion to the Euro is also not expected to impact
significant contracts of the Company. The Company's overall costs of conversion
to the Euro are not expected to exceed $5 million.
Subsequent events
On February 8, 2000, the Company became the 100% owner of Arisco Produtos
Alimenticios S.A. (Arisco), a privately-held food company in Brazil. Bestfoods
paid $490 million for 100% of the shares in Arisco. Included on the Arisco
balance sheet is approximately $262 million of net debt. Arisco had annual sales
of approximately $440 million. This transaction will be accounted for as a
purchase. The Company expects to finance this investment through existing credit
facilities. Also, following the announcement of the transaction, Standard &
Poor's, Moody's, and Duff & Phelps reaffirmed the Company's credit rating with a
stable outlook.
Forward-looking statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Annual Report, including the Chairman's
Letter and the discussion with C. R. Shoemate, contain forward-looking
statements that are based on current assumptions, expectations, estimates, and
projections about the countries and businesses in which Bestfoods operates.
Statements including such words as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," and other similar expressions are intended to identify
such forward-looking statements. Because of the risks and uncertainties that
always exist in any operating environment or business, we cannot make assurances
that these expectations will prove correct. Actual results and developments may
differ materially, depending upon currency values, competitive pricing,
consumption levels, costs, and political and social conditions in the economies
and environments where Bestfoods operates.
26
<PAGE> 29
Consolidated Statements of Income
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31
$ Millions except per share amounts 1999 1998 1997
====================================================================================================================================
<S> <C> <C> <C>
Net sales $ 8,637 $ 8,413 $ 8,438
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of sales 4,546 4,562 4,693
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 4,091 3,851 3,745
- ------------------------------------------------------------------------------------------------------------------------------------
Marketing 996 976 978
Selling, general, and administrative 1,765 1,655 1,659
Restructuring charges -- 33 242
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses and other income-- net 2,761 2,664 2,879
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 1,330 1,187 866
- ------------------------------------------------------------------------------------------------------------------------------------
Financing costs 183 166 162
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 1,147 1,021 704
Provision for income taxes 384 352 250
Minority stockholders' interest 46 29 25
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 717 640 429
- ------------------------------------------------------------------------------------------------------------------------------------
Income from discontinued operations,
net of income taxes of $7 in 1997 -- -- 11
Gain (loss) on disposal of discontinued operations,
net of income tax benefit of $26 in 1997 -- 1 (83)
Cumulative effect of changes in accounting principles,
net of income tax benefits of $9 in 1998; $7 in 1997 -- (17) (13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 717 $ 624 $ 344
====================================================================================================================================
Earnings (loss) per common share
Basic:
Continuing operations $ 2.53 $ 2.20 $ 1.45
Discontinued operations -- -- .04
Loss on disposal of discontinued operations -- -- (.28)
Cumulative effect of changes in accounting principles -- (.06) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2.53 $ 2.14 $ 1.16
====================================================================================================================================
Diluted:
Continuing operations $ 2.48 $ 2.15 $ 1.43
Discontinued operations -- -- .04
Loss on disposal of discontinued operations -- -- (.28)
Cumulative effect of changes in accounting principles -- (.06) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2.48 $ 2.09 $ 1.15
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 30
Consolidated Balance Sheets
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
December 31
$ Millions 1999 1998
================================================================================
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 68 $ 142
Notes and accounts receivable-- net 1,234 1,281
Inventories 792 827
Prepaid expenses 78 75
Deferred tax assets 32 80
- --------------------------------------------------------------------------------
Total current assets 2,204 2,405
- --------------------------------------------------------------------------------
Investments in unconsolidated affiliates 22 12
- --------------------------------------------------------------------------------
Plants and properties
Land 109 110
Buildings 767 768
Machinery and equipment 2,609 2,584
- --------------------------------------------------------------------------------
3,485 3,462
Less accumulated depreciation 1,521 1,497
- --------------------------------------------------------------------------------
Total plants and properties 1,964 1,965
- --------------------------------------------------------------------------------
Intangibles
Excess cost over net assets of businesses acquired 1,800 1,813
Other intangibles 385 370
- --------------------------------------------------------------------------------
2,185 2,183
Less accumulated amortization 374 329
- --------------------------------------------------------------------------------
Total intangibles 1,811 1,854
- --------------------------------------------------------------------------------
Other assets 231 199
- --------------------------------------------------------------------------------
Total assets $6,232 $6,435
================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 31
<TABLE>
<CAPTION>
$ Millions 1999 1998
================================================================================
<S> <C> <C>
LIABILITIES
Current liabilities
Notes payable $ 542 $ 541
Current portion of long-term debt 82 63
Accounts payable 691 675
Accrued expenses 882 871
Income taxes payable 171 162
- --------------------------------------------------------------------------------
Total current liabilities 2,368 2,312
- --------------------------------------------------------------------------------
Noncurrent liabilities 929 928
- --------------------------------------------------------------------------------
Long-term debt 1,842 2,053
- --------------------------------------------------------------------------------
Deferred taxes on income 7 5
- --------------------------------------------------------------------------------
Minority stockholders' interest 148 156
- --------------------------------------------------------------------------------
EQUITY
Stockholders' equity
Preferred stock - authorized 25 million shares
$1 par value -- --
Designations:
Series B ESOP Convertible
3 million shares designated 151 157
Series A Junior Participating
2 million shares designated -- --
Common stock - authorized 900 million shares
$.25 par value - issued 391 million shares 98 98
Capital in excess of par value 174 171
Unearned ESOP compensation (65) (80)
Accumulated other comprehensive income (643) (413)
Treasury stock, at cost (2,145) (1,900)
Retained earnings 3,368 2,948
- --------------------------------------------------------------------------------
Total stockholders' equity 938 981
- --------------------------------------------------------------------------------
Total liabilities and equity $ 6,232 $ 6,435
================================================================================
</TABLE>
29
<PAGE> 32
Consolidated Statements of Cash Flows
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31
$ Millions 1999 1998 1997
========================================================================================
<S> <C> <C> <C>
Cash flows from operating activities
Net income from continuing operations $ 717 $ 623 $ 416
Non-cash charges (credits) to net income
Depreciation and amortization 260 255 264
Deferred taxes 62 50 (49)
Cumulative effect of changes in accounting principles -- 17 13
Restructuring charges -- 33 242
Other-- net 13 (23) 25
Changes in trade working capital
Notes and accounts receivable and prepaid expenses (8) (86) (20)
Inventories 24 (7) 40
Accounts payable and accrued expenses 42 (43) (153)
Net cash flows from discontinued operations -- -- 137
- ----------------------------------------------------------------------------------------
Net cash flows from operating activities 1,110 819 915
- ----------------------------------------------------------------------------------------
Cash flows used for investing activities
Capital expenditures (278) (304) (321)
Proceeds from disposal of plants and properties 26 69 17
Proceeds from businesses sold -- 92 --
Businesses acquired (225) (121) (298)
Net investing activities of discontinued operations -- -- (130)
- ----------------------------------------------------------------------------------------
Net cash flows used for investing activities (477) (264) (732)
- ----------------------------------------------------------------------------------------
Net cash flows after investments 633 555 183
- ----------------------------------------------------------------------------------------
Cash flows used for financing activities
Purchase of treasury stock (265) (294) (45)
New long-term debt 18 349 339
Repayment of long-term debt (153) (94) (99)
Net change in short-term debt 15 (101) (387)
Dividends paid on common stock (283) (264) (241)
Dividends paid on preferred stock (12) (13) (15)
Common stock issued 20 32 27
Net financing activities of discontinued operations -- -- 110
Other (deposits) liabilities (37) (55) 44
- ----------------------------------------------------------------------------------------
Net cash flows used for financing activities (697) (440) (267)
- ----------------------------------------------------------------------------------------
Effects of exchange rate changes on cash (10) (12) (8)
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (74) 103 (92)
Cash and cash equivalents, beginning of year 142 39 131
- ----------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 68 $ 142 $ 39
========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 33
Consolidated Statements of Stockholders' Equity
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
$ Millions 1999 1998 1997
================================================================================================================
<S> <C> <C> <C>
Comprehensive income:
Net income $ 717 $ 624 $ 344
Foreign currency translation adjustment
(pre-tax $305 - 1999; $41 - 1998; $197 - 1997) (203) (27) (127)
Minimum pension liability adjustment (pre-tax $47 - 1999) (27) -- --
- ----------------------------------------------------------------------------------------------------------------
Comprehensive income 487 597 217
- ----------------------------------------------------------------------------------------------------------------
Preferred stock:
Balance beginning of year 157 180 187
ESOP shares redeemed (6) (23) (7)
- ----------------------------------------------------------------------------------------------------------------
Balance end of year 151 157 180
- ----------------------------------------------------------------------------------------------------------------
Common stock:
Balance beginning of year 98 49 49
Two-for-one stock split -- 49 --
- ----------------------------------------------------------------------------------------------------------------
Balance end of year 98 98 49
- ----------------------------------------------------------------------------------------------------------------
Capital in excess of par value:
Balance beginning of year 171 207 187
Two-for-one stock split -- (49) --
Shares issued for stock options 11 12 15
Shares issued for deferred compensation -- 5 10
ESOP shares redeemed (8) (4) (5)
- ----------------------------------------------------------------------------------------------------------------
Balance end of year 174 171 207
- ----------------------------------------------------------------------------------------------------------------
Unearned ESOP compensation:
Balance beginning of year (80) (96) (111)
ESOP compensation earned 15 16 15
- ----------------------------------------------------------------------------------------------------------------
Balance end of year (65) (80) (96)
- ----------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income:
Balance beginning of year (413) (386) (259)
Foreign currency translation (203) (27) (127)
Minimum pension liability adjustment (27) -- --
- ----------------------------------------------------------------------------------------------------------------
Balance end of year (643) (413) (386)
- ----------------------------------------------------------------------------------------------------------------
Treasury stock:
Balance beginning of year (1,900) (1,517) (1,499)
Shares issued for stock options 14 13 18
Shares issued for deferred compensation 5 6 8
Treasury stock acquired (265) (294) (45)
ESOP shares redeemed 1 13 1
Shares held in rabbi trust -- (121) --
- ----------------------------------------------------------------------------------------------------------------
Balance end of year (2,145) (1,900) (1,517)
- ----------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance beginning of year 2,948 2,605 3,530
Net income 717 624 344
Cash dividends declared ($1.02 - 1999; $.94 - 1998; $.86 - 1997) (287) (271) (247)
Series B ESOP preferred stock dividend, net of taxes (10) (10) (11)
Spin-off of Corn Products International -- -- (1,021)
Net income from change in Corn Products International
reporting period -- -- 10
- ----------------------------------------------------------------------------------------------------------------
Balance end of year $ 3,368 $ 2,948 $ 2,605
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 34
Notes to Consolidated Financial Statements
Bestfoods 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, 1999, and 1998, the Company
had cash equivalents of $1 million and $23 million, respectively.
Inventories -- are stated at the lower of cost or market. U.S. inventories are
valued at cost on the first-in, first-out method. Outside the U.S., inventories
generally are valued at average cost.
Plants and properties -- are stated at cost. Depreciation is generally computed
on the straight-line method over the estimated useful lives of depreciable
assets 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. Long-lived assets are reviewed for impairment using an undiscounted
future cash flows approach whenever the facts and circumstances indicate that
the carrying amount may not be recoverable.
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 estimated
useful lives ranging from 3 to 40 years. Intangible assets are reviewed at least
annually for impairment by comparing the Company's best estimate of undiscounted
future cash flows with the carrying amount of goodwill.
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 -- Statement of Financial Accounting Standards (FAS)
No. 128, "Earnings per Share," requires a dual presentation of earnings per
share - basic and diluted - for companies with complex capital structures. A
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation is as follows:
<TABLE>
<CAPTION>
Millions (except per share amounts) 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Basic EPS Numerator:
Income from continuing operations $ 717 $ 640 $ 429
Less:Preferred stock dividends (10) (10) (11)
- --------------------------------------------------------------------------------
Income available to common
shareholders $ 707 $ 630 $ 418
- --------------------------------------------------------------------------------
Basic EPS Denominator:
Weighted average common
shares outstanding 279 286 288
- --------------------------------------------------------------------------------
Basic Earnings Per Share $2.53 $2.20 $1.45
- --------------------------------------------------------------------------------
Diluted EPS Numerator:
Income available to common
shareholders $ 707 $ 630 $ 418
Convertible preferred stock 10 10 11
Additional ESOP cash contribution (3) (2) (2)
- --------------------------------------------------------------------------------
Income available to common share-
holders plus assumed conversions $ 714 $ 638 $ 427
- --------------------------------------------------------------------------------
Diluted EPS Denominator:
Weighted average common
shares outstanding 279 286 288
Convertible preferred stock 7 8 8
Stock options and
performance incentive shares 2 3 2
- --------------------------------------------------------------------------------
Weighted average shares outstanding 288 297 298
- --------------------------------------------------------------------------------
Diluted Earnings Per Share $2.48 $2.15 $1.43
================================================================================
</TABLE>
32
<PAGE> 35
Financial instruments -- The Company hedges 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
transactions such as cross-border sourcing of raw materials, packaging supplies,
and machinery and equipment with foreign exchange contracts. In addition, the
Company hedges certain net investments 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 cash flows,
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.
The Company also hedges its exposure to commodity fluctuations with
commodity futures contracts for certain of its North American raw material
purchases. The Company's products are manufactured from a number of raw
materials, including soybean and other edible oils, peanuts, and wheat. These
raw materials are expected to continue to be in adequate supply. Such raw
materials may or may not be hedged at any given time based on management's
decisions as to the need to fix the cost of such raw materials to protect the
Company's profitability. Realized gains and losses arising from such hedging
transactions are considered an integral part of the cost of these commodities
and are included in the cost when purchased. At December 31, 1999, and 1998, the
outstanding commodity contracts were not significant to the Company's financial
position or results of operations.
The Company utilizes interest rate swap agreements from time to time as
deemed appropriate by management to balance its fixed and floating rate debt
positions. These agreements involve exchanging fixed and floating interest rate
payments without the exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.
Risks and uncertainties -- The Company operates 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 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.
Also because of its broad operational reach, the Company is subject to
risks due to changes in foreign currencies that could affect earnings. As a
practical matter, it is not feasible to cover these fluctuations with currency
hedges. Additionally, the Company believes that over time most currencies of
major developed countries in which it operates will equalize against the U.S.
dollar.
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 amounts reported in the Consolidated Financial
Statements and the related Notes to Consolidated Financial Statements. Actual
amounts could differ from these estimates.
Segment information -- The Company is in one business segment, the consumer
foods business.
Reclassifications -- Certain prior year amounts have been reclassified to
conform to the 1999 presentation.
================================================================================
New accounting pronouncements
During 1999, the Financial Accounting Standards Board (FASB) postponed the
effective date of FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," due to its complexity. This statement requires the recognition of
all derivatives as assets or liabilities in the statement of financial position
and that those instruments are measured at fair value. Changes in the fair value
of derivatives are recorded in earnings or other comprehensive income depending
upon the intended use of the derivative and the resulting designation. This
standard is effective for fiscal years beginning after June 15, 2000. The
Company is in the process of assessing the impact of adoption of this statement
on its financial position and results of operations, but it is not expected to
be significant.
33
<PAGE> 36
================================================================================
Acquisitions and disposals
In 1999, the Company acquired Case-Swayne Co., Inc., a leading developer and
processor of custom sauces and seasonings for the foodservice industry.
Case-Swayne has approximately $150 million in annual sales and was combined with
Milwaukee Seasonings, the food ingredient unit of the North American foodservice
business. Also, the Company acquired the dressings business of Molinos de la
Plata, based in Argentina; the Globus dressings business in Hungary; the Captain
Cook packaged salt business in India; an energy drink business in Pakistan; and
Thomas Morel Foods Ltd. in the United Kingdom, which produces chilled and frozen
foods mainly for the catering market. The aggregate purchase price of the
businesses acquired in 1999 was $225 million. In addition, during the fourth
quarter the Company dissolved International Dessert Partners, a joint venture
with General Mills in Latin America.
During 1998, the Company purchased additional ownership interests in two
affiliates where it did not own 100%, for approximately $41 million. It
purchased the Oswald business in Switzerland for approximately $67 million and
formed a joint venture in South Africa, which combined the Company's businesses
in South Africa and Israel as well as other businesses in Africa with Robertsons
Foods (Pty) Limited, the consumer foods business of Robertsons Holdings (Pty)
Limited. In addition, during 1998 the Company sold a small non-core tea business
in Spain.
All of the acquisitions in 1999 and 1998 were accounted for under the
purchase method, and operating results were included in the consolidated
financial results of the Company from the dates of acquisition.
================================================================================
Discontinued operations
In 1998, the Company recorded a gain of $.7 million after taxes ($1.1 million
before taxes) on the disposal of discontinued operations. This gain resulted
from the finalization of amounts related to the spin-off of the Company's corn
refining operations in 1997 offset by the recovery of expenses related to the
favorable settlement of an environmental case.
In 1997, the Company recorded a pre-tax charge of $109 million ($83
million after taxes or $.28 per basic and diluted common share) related to the
spin-off/restructuring of its corn refining operations.
================================================================================
Restructuring charges
In the fourth quarter of 1998, the Company recorded an additional $33 million
pre-tax charge related to the 1997 restructuring program. This charge was for
the finalization of amounts estimated for termination benefits and costs
associated with 1997 plant closings and continued rationalization of operations.
In 1997, the Company recorded a restructuring charge in the second quarter
of $242 million. The majority of this charge pertained to North American and
European divisions and included the sale of non-core businesses, plant closings,
and the reorganization of administrative functions. The Baking division's
restructuring charge included continued consolidation and reconfiguration of the
manufacturing and distribution systems to improve overall business efficiency
and effectiveness.
At December 31,1999, these restructuring reserves were substantially
utilized.
================================================================================
Changes in accounting principles
In April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP requires costs related to opening a new facility,
conducting business in a new territory, introducing a new product, or initiating
a new process in an existing facility be expensed as incurred and is effective
for fiscal years beginning after December 15, 1998. The Company adopted the
34
<PAGE> 37
provisions of this SOP in fiscal year 1998 and recorded a cumulative effect of
change in accounting principle of $26 million before taxes, $17 million after
taxes or $.06 per basic and diluted common share, in the accompanying
Consolidated Statements of Income.
In November 1997, the Emerging Issues Task Force (EITF) issued Issue No.
97-13, "Accounting for Business Process Reengineering Costs," which requires
that certain costs related to reengineering business processes either done
separately or in conjunction with an information technology project be expensed
rather than capitalized. This requirement was effective in the fourth quarter of
1997 and required that any unamortized balance of previously capitalized costs
be expensed and treated as a change in accounting principle. Accordingly, the
Company recorded a cumulative effect of a change in accounting principle in 1997
of $20 million before taxes, $13 million after taxes, or $.04 per diluted common
share. Approximately $3 million after tax pertained to the Company's
discontinued corn refining operations with the remaining $10 million after tax
relating to the consumer foods business.
================================================================================
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 1999 and 1998 were $96 million and $102 million, respectively, with maximum
borrowings in 1999 and 1998 of $182 million and $304 million, respectively, and
a weighted average interest rate in 1999 and 1998 of 5.2% and 5.5%,
respectively.
For the international operations, the maximum quarter-end balance of bank
borrowings during 1999 and 1998 was $471 million and $381 million, respectively.
Average quarterly bank borrowings were $380 million for 1999 and $312 million
for 1998. The weighted average interest rate for bank borrowings in 1999 and
1998 was 14%.
The Company had unused lines of credit totaling $1.2 billion and $1.3
billion at December 31, 1999, and 1998, respectively.
Long-term -- A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
$ Millions 1999 1998
================================================================================
<S> <C> <C>
Payable in U.S. dollars
7.71% ESOP guaranteed notes due December 2004 $ 94 $ 113
Medium-term notes due 2000-2005 at various rates 175 175
5.6% notes due 2097 (effective rate 7.3%) 100 100
7.0% notes due 2017 150 150
6.15% notes due 2006 300 300
7.25% notes due 2026 300 300
6.625% notes due 2028 250 250
5.625%-6.75% pollution control revenue bonds
due 2007-2016 15 15
Other notes and loans at various rates and due dates 34 34
- --------------------------------------------------------------------------------
Total 1,418 1,437
- --------------------------------------------------------------------------------
Payable in other currencies
5% Swiss franc debentures, due March 2045,
10-year variable interest rates 133 144
6.75% German mark bearer bonds due January 2001 109 120
2.3% Japanese yen term loan 17 21
Bank and other loans at prevailing interest rates with
various due dates 247 394
- --------------------------------------------------------------------------------
Total 506 679
- --------------------------------------------------------------------------------
1,924 2,116
- --------------------------------------------------------------------------------
Less current maturities 82 63
- --------------------------------------------------------------------------------
Total long-term debt $1,842 $2,053
================================================================================
</TABLE>
The Company is required to apply toward retirement of the principal of the
indebtedness not less than the following amounts in the period 2000 through
2004: 2000 (included in current liabilities), $82 million; 2001, $173 million;
2002, $93 million; 2003, $227 million; and 2004, $33 million. At December 31,
1999, buildings, equipment, and certain other assets located outside the U.S.
totaling approximately $56.3 mil-lion have been pledged as collateral for the
secured loans.
The Company maintains an $800 million revolving credit agreement
established in 1997, which continues in effect and matures in 2002. This
revolving credit agreement is with a group of U.S. and international banks and
provides back-up liquidity to the Company's commercial paper program. During
1999, the Company amended the financial covenant section of this agreement. The
ratio of total debt to total capitalization was replaced with a ratio of
consolidated borrowed debt to consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA"). This new covenant requires the Company
to maintain this ratio at 2.5 or less. The agree-
35
<PAGE> 38
ment also requires the Company to maintain a ratio of EBITDA to interest expense
at no less than 6.0. The ratio of consolidated borrowed debt to EBITDA was 1.6
at December 31, 1999. The ratio of EBITDA to interest expense was 8.4 and 8.5 at
December 31, 1999, and 1998, respectively.
In September 1998, the Company filed a shelf registration with the
Securities and Exchange Commission for borrowings up to $500 million. No amounts
have been borrowed under this shelf registration.
================================================================================
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, 1999, and 1998, was
based on quotes obtained from brokers and is set forth below:
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
$ Millions Amount Value Amount Value
================================================================================
<S> <C> <C> <C> <C>
Long-term debt
Fixed-rate debt $1,643 $1,534 $1,922 $2,022
Weighted average
interest rate 6.6% 6.7%
- --------------------------------------------------------------------------------
Floating rate debt $ 281 $ 281 $ 194 $ 194
Weighted average
interest rate 11.5% 11.3%
================================================================================
</TABLE>
Included in the above are $133 million Swiss franc and $109 million German
mark borrowings, which are designated as hedges of the Company's investments in
those foreign countries. Accordingly, the gains and losses from translating
those amounts are included in the cumulative translation adjustment accounts
along with the corresponding, offsetting movement in the investments.
Foreign exchange contracts -- At December 31, 1999, the Company had foreign
exchange contracts to deliver $29 million in foreign currencies comprising $18
million in Canadian dollars and $11 million in Euros. The Company also had
contracts to purchase $66 million in foreign currencies consisting of $51
million in Euros, $7 million in German marks, $5 million in Swiss francs, and $3
million in various other currencies.
At December 31, 1998, the Company had forward exchange contracts to
deliver $150 million in foreign currencies comprising $58 million in French
francs, $28 million in German marks, $20 million in Italian lira, $12 million in
Irish punts, and $32 million in various other currencies. The Company also had
contracts to purchase $134 million in foreign currencies consisting of $49
million in French francs, $29 million in Dutch guilders, $24 million in Italian
lira, $13 million in Spanish pesetas, and $19 million in various other
currencies.
As discussed in the Summary of accounting policies (Financial instruments)
note on page 33, the Company does not, as a matter of policy, speculate in
foreign currencies. Accordingly, any unrealized gains or losses on foreign
exchange contracts are matched by a corresponding offsetting amount on the
underlying item being hedged, thereby eliminating any cash flow risk caused by
currency movement.
Interest rate swaps -- The Company enters into interest rate swaps to balance
fixed and floating-rate debt positions. The Company's risk related to swap
agreements is limited to replacing such agreements at current market prices. The
Company continually monitors its position and the credit ratings of its
counterparties and management believes that the risk of incurring a material
loss due to nonperformance by the counterparties, is remote.
At December 31, 1999, and 1998, the Company had interest rate swap
agreements outstanding with notional amounts of $200 million. A portion of the
Company's fixed-rate debt position was hedged with these agreements with a
floating weighted-average pay rate of 6.1% and 5.2%, respectively, and a fixed
weighted-average receive rate of 5.3% for both years. These swap agreements
terminate on various dates through 2003.
36
<PAGE> 39
================================================================================
Pension and other postretirement benefits
The Company sponsors several qualified and non-qualified pension plans and other
postretirement benefit plans for its domestic and international employees. A
reconciliation of changes in the plans' benefit obligations, fair value of
assets, and statement of funded status for the years ended December 31, 1999,
and 1998, are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
$ Millions 1999 1998 1999 1998
================================================================================
<S> <C> <C> <C> <C>
Reconciliation of
benefit obligation:
Obligation at January 1, $ 1,436 $ 1,315 $ 263 $ 263
Service cost 37 33 6 5
Interest cost 85 86 17 19
Plan amendments -- 11 -- --
Actuarial (gain) loss (8) 43 11 (7)
Benefit payments (84) (90) (19) (17)
Plan participants contributions 2 -- 1 --
Settlements (1) -- -- --
Foreign currency
exchange rates (59) 38 -- --
- --------------------------------------------------------------------------------
Obligation at December 31, 1,408 1,436 279 263
- --------------------------------------------------------------------------------
Reconciliation of fair
value of plan assets:
Fair value of plan assets
at January 1, 1,368 1,461 -- --
Actual return on plan assets 144 55 -- --
Employer contributions 12 15 18 17
Benefit payments (71) (74) (19) (17)
Plan participants contributions 4 3 1 --
Settlements (6) -- -- --
Foreign currency
exchange rates (31) 23 -- --
Rabbi trust -- (115) -- --
- --------------------------------------------------------------------------------
Fair value of plan assets
at December 31, 1,420 1,368 -- --
- --------------------------------------------------------------------------------
Funded status:
Funded status at December 31, 12 (68) (279) (263)
Unrecognized transition
obligation 5 5 -- --
Unrecognized prior
service cost 33 38 (2) (3)
Unrecognized (gain)loss (236) (194) (46) (59)
- --------------------------------------------------------------------------------
Net amount recognized $ (186) $ (219) $ (327) $ (325)
================================================================================
</TABLE>
The amounts recognized in the accompanying Consolidated Balance Sheets at
December 31, 1999, and 1998, are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
$ Millions 1999 1998 1999 1998
================================================================================
<S> <C> <C> <C> <C>
Accrued benefit liability $(302) $(249) $(327) $(325)
Prepaid benefit cost 66 30 -- --
Intangible asset 3 -- -- --
Accumulated other
comprehensive income 47 -- -- --
- --------------------------------------------------------------------------------
Net amount recognized $(186) $(219) $(327) $(325)
================================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with an accumulated benefit obligation in
excess of plan assets were $442 million, $415 million, and $149 million,
respectively, as of December 31, 1999, and $360 million, $339 million, and $108
million, respectively, as of December 31, 1998. There are no plan assets in
nonqualified plans. All of the Company's plans for postretirement benefits other
than pensions also have no plan assets.
Components of the net periodic benefit cost for the plans are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
$ Millions 1999 1998 1997 1999 1998 1997
====================================================================================
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 37 $ 33 $ 39 $ 6 $ 5 $ 7
Interest cost 85 86 82 17 19 20
Expected return on
plan assets (107) (103) (270) -- -- --
Amortization of net
(gain) loss (6) 4 190 (2) (3) (3)
- ------------------------------------------------------------------------------------
Net periodic benefit cost 9 20 41 21 21 24
Curtailment (gain) loss -- -- (2) -- -- (5)
Special termination benefits -- -- -- -- -- 1
- ------------------------------------------------------------------------------------
Net periodic benefit cost after
curtailments and settlements $ 9 $ 20 $ 39 $ 21 $ 21 $ 20
====================================================================================
</TABLE>
The prior service costs are amortized on the straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and the market-related
value of assets are amortized over the average remaining service period of
active participants.
37
<PAGE> 40
The weighted average assumptions used in accounting for the Company's
domestic and international plans at December 31 are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.6% 6.6% 7.5% 7.8% 7.0% 7.5%
Expected return
on plan assets 9.1% 8.2% 9.4% -- -- --
Rate of compensation
increase 3.7% 3.2% 4.2% -- -- --
================================================================================
</TABLE>
Effective January 1, 2000, the Company changed its domestic salaried
pension plan from a final average pay plan to a cash balance plan. All salaried
domestic employees as of December 31, 1999, will receive the better of the two
benefit formulas for a period of five years and all salaried domestic employees
as of December 31, 1999, over age 40 will receive the better of the two benefit
formulas indefinitely.
The Company has multiple non-pension postretirement benefit plans. The
health care and life insurance plans are contributory, with participants'
contributions adjusted annually. The accounting for the health care plans
anticipates future cost-sharing changes to the written plan that are consistent
with the Company's expressed intent that retirees share a fixed percentage of
the overall cost of benefits each year.
For measurement purposes, a 5.75% pre-65 and a 5.25% post-65 annual rate
of increase in the per capita costs of covered health care benefits was assumed
for 2000. The rate was assumed to decrease 1% per year to an ultimate level of
5.25% for 2006 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A 1% change in assumed health care
cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% 1%
$ Millions Increase Decrease
================================================================================
<S> <C> <C>
Effect on total of service and interest cost
components of net periodic post-
retirement health care benefit cost $ 3.4 $ (2.8)
- --------------------------------------------------------------------------------
Effect on health care cost component
of the accumulated postretirement
benefit obligation $ 31.4 $ (26.6)
================================================================================
</TABLE>
================================================================================
Stockholders' equity
Common stock -- On March 17, 1998, the Company's Board of Directors declared a
two-for-one stock split of the outstanding common stock on March 31, 1998, which
was effected in the form of a 100% stock dividend payable on April 24, 1998.
This stock split resulted in the issuance of 195.3 million shares. The number of
common shares outstanding and earnings per common share in the accompanying
consolidated financial statements have been restated to reflect this stock
split.
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 2 million shares of Series A Junior Participating shares were designated for
the shareholder rights plan. At December 31, 1999, 1998, and 1997, there were
1.7 million, 1.8 million, and 2.0 million Series B 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
substantially all U.S. salaried employees. 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 B
ESOP convertible preferred stock. Since the notes were guaranteed by the
Company, they are reflected in the Consolidated Balance Sheets 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 7.4 million shares of the Company's common stock.
38
<PAGE> 41
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 6.7% and 6.9% in 1999 and
1998, 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 1999 and 1998,
175,123 shares and 173,782 shares of preferred stock valued at $15.6 million and
$15.5 million, respectively, were allocated to participants. The ESOP had
960,098 shares allocated to participants and 730,196 suspense shares at December
31, 1999.
Compensation cost included in the Consolidated Statements of Income was
$11 million, $12 million, and $11 million in 1999, 1998, and 1997, respectively.
Shareholder rights plan -- In the fourth quarter of 1998, the Company's Board of
Directors approved the redemption of the outstanding stock purchase rights under
the 1991 Shareholder Rights Plan and established a new plan, effective January
1999. Under the new shareholder rights plan, each share of the Company's common
stock carries with it the right to purchase one two-hundredths of a share of the
Company's Series A Junior Participating Preferred Stock at a price of $200. The
rights will become exercisable if a person or group acquires 15% or more of the
Company's outstanding common stock without prior approval of the Board of
Directors. In this case, each holder would be entitled to purchase common stock
of the Company with a market value equal to two times the exercise price of the
right. If the Company is acquired 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. The Company may redeem the rights for one one-hundredth of a cent
each at any time before an acquisition of 15% or more of its outstanding common
stock and for at least 10 business days thereafter. In addition, the Company may
exchange all or a portion of the rights at any time after a person acquires 15%
or more of the Company's outstanding common stock at an exchange ratio of one
share of common stock per right. Unless redeemed earlier, the rights will expire
on January 4, 2009.
Accumulated other comprehensive income -- The accumulated balances related to
each component of other comprehensive income were as follows at December 31,
1999, and 1998:
<TABLE>
<CAPTION>
$ Millions 1999 1998
================================================================================
<S> <C> <C>
Cumulative translation adjustment $(616) $(413)
Minimum pension liability adjustment (27) --
- --------------------------------------------------------------------------------
Accumulated other comprehensive income $(643) $(413)
================================================================================
</TABLE>
Treasury stock -- The Company had common stock in treasury at the end of 1999,
1998, and 1997 totaling 112.7 million, 108.6 million, and 102.6 million shares,
respectively. On May 19, 1998, the Company's Board of Directors approved a
15-million share repurchase program. This program began immediately upon
announcement and the shares will be repurchased over a three-year period at
times determined by management. At December 31, 1999, 8.8 million shares were
purchased under this program at a total cost of $449.1 million. This program
replaced the 10-million share repurchase program that began in January 1995 and
concluded in May 1998.
39
<PAGE> 42
================================================================================
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 non-employee members of the Board of Directors administers the 1993
Plan. In 1998, the 1993 Plan was amended to increase the number of shares
reserved for issuance to 29 million. 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. Effective November 16,
1999, the Company amended the 1993 Plan to change the vesting period for stock
options. All options granted on or after November 16, 1999, will fully vest
three years from date of grant. Options granted prior to this amendment will
retain their original terms and fully vest one year from the date of grant.
The following table summarizes the activity of the Company's stock and
performance plan:
<TABLE>
<CAPTION>
1999 1998 1997
================================================================================
<S> <C> <C> <C>
Number of options
Outstanding beginning of year 9,392,309 7,689,354 5,927,536
Granted 2,621,550 2,827,039 2,880,600
Exercised (808,390) (815,877) (700,856)
Canceled (803,782) (308,207) (417,926)
- --------------------------------------------------------------------------------
Outstanding end of year 10,401,687 9,392,309 7,689,354
- --------------------------------------------------------------------------------
Exercisable at year-end 6,861,517 5,905,059 3,757,024
- --------------------------------------------------------------------------------
Available for future
grants of options 14,420,634 16,238,402 4,757,234
Weighted average fair
value of options granted $ 9.63 $ 8.68 $ 6.75
Weighted average exercise price:
Outstanding beginning of year $40.32 $35.73 $29.73
Granted 47.84 55.21 45.47
Exercised 31.04 30.40 27.20
Canceled 41.57 34.70 31.77
Outstanding end of year $42.86 $40.32 $35.73
================================================================================
</TABLE>
The following table summarizes information about stock and performance
awards outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
=======================================================================================
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
=======================================================================================
<S> <C> <C> <C> <C> <C>
$16.18-$32.63 1,633,937 3.9 $25.00 1,633,937 $25.00
$32.66-$36.22 1,618,582 5.1 33.79 1,479,066 33.79
$37.15-$47.49 2,336,089 7.3 43.95 2,002,560 44.64
$47.56-$48.19 2,533,450 9.3 47.82 -- --
$49.25-$59.44 2,279,629 8.3 55.49 1,745,954 57.07
- ---------------------------------------------------------------------------------------
$16.18-$59.44 10,401,687 7.1 $42.86 6,861,517 $40.79
=======================================================================================
</TABLE>
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by APB 25. If the fair value method of
accounting for stock-based compensation under the provisions of FAS 123 had been
used, the pro forma net income and earnings per share would be as follows:
<TABLE>
<CAPTION>
$Millions except per share amounts 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Pro forma income from continuing operations $707 $629 $419
Pro forma income from discontinued operations -- -- 10
- --------------------------------------------------------------------------------
Pro forma net income 707 629 429
- --------------------------------------------------------------------------------
Pro forma basic earnings per share:
Income from continuing operations 2.49 2.16 1.42
Income from discontinued operations -- -- .04
- --------------------------------------------------------------------------------
Net income 2.49 2.16 1.46
- --------------------------------------------------------------------------------
Pro forma diluted earnings per share:
Income from continuing operations 2.44 2.11 1.40
Income from discontinued operations -- -- .03
- --------------------------------------------------------------------------------
Net income $2.44 $2.11 $1.43
================================================================================
</TABLE>
For purposes of the above pro forma disclosure, the estimated fair value
of the awards is amortized to expense over the awards' vesting period.
40
<PAGE> 43
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:
<TABLE>
<CAPTION>
1999 1998 1997
================================================================================
<S> <C> <C> <C>
Risk free interest rate 5.3% 5.5% 6.3%
Dividend yield 1.9% 1.9% 2.1%
Volatility factors 29.1% 17.7% 16.6%
Weighted average expected life 5 years 5 years 5 years
================================================================================
</TABLE>
The Black-Scholes model requires the input of highly subjective
assumptions and does not necessarily provide a reliable measure of fair value.
In addition to stock options, 136,650 shares were awarded to employees in
1999 under the restricted stock award provisions of the 1993 plan. The cost of
these awards is being amortized over the restriction period.
================================================================================
Income taxes
Income from continuing operations before income taxes and the components of the
provision for income taxes are shown below:
<TABLE>
<CAPTION>
$ Millions 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Income from continuing operations before income taxes:
United States $ 347 $ 298 $ 169
Outside the United States 800 723 535
- --------------------------------------------------------------------------------
Total $1,147 $1,021 $ 704
- --------------------------------------------------------------------------------
Provision for income taxes:
Current tax expense
U.S. Federal $ 93 $ 75 $ 99
State and local 9 10 12
Foreign 220 217 188
- --------------------------------------------------------------------------------
Total current 322 302 299
- --------------------------------------------------------------------------------
Deferred tax expense (benefit)
U.S. Federal 54 33 (33)
State and local 7 8 (8)
Foreign 1 9 (8)
- --------------------------------------------------------------------------------
Total deferred 62 50 (49)
- --------------------------------------------------------------------------------
Total provision $ 384 $ 352 $ 250
================================================================================
</TABLE>
The tax effects of significant temporary differences, which comprise the
deferred tax liabilities and assets at December 31, 1999, and 1998, are as
follows:
<TABLE>
<CAPTION>
$ Millions 1999 1998
================================================================================
<S> <C> <C>
Plants and properties $187 $174
Inventory 14 14
Pensions 17 45
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 218 233
- --------------------------------------------------------------------------------
Restructuring reserves 15 32
Environmental reserves 37 40
Employee benefit reserves 148 146
Unrealized exchange losses 29 38
Other 13 51
- --------------------------------------------------------------------------------
Gross deferred tax assets 242 307
- --------------------------------------------------------------------------------
Valuation allowance 1 1
- --------------------------------------------------------------------------------
Total deferred tax assets $ 25 $ 75
================================================================================
</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 follows:
<TABLE>
<CAPTION>
1999 1998 1997
================================================================================
<S> <C> <C> <C>
Provision for tax at
U.S. statutory rate 35.0% 35.0% 35.0%
Taxes related to foreign income (2.0) (2.7) 0.6
State and local taxes -- net 0.9 1.1 0.4
Other items -- net (0.4) 1.1 (0.5)
- --------------------------------------------------------------------------------
Provision at effective tax rate 33.5% 34.5% 35.5%
================================================================================
</TABLE>
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, 1999,
approximately $599 million of retained earnings of foreign subsidiaries, which
are indefinitely retained by the subsidiaries for capital and operating
requirements.
41
<PAGE> 44
================================================================================
Supplementary balance sheet and income statement information
Supplementary balance sheet and income statement information is set forth below:
<TABLE>
<CAPTION>
$ Millions 1999 1998
================================================================================
<S> <C> <C>
Notes and accounts receivable -- net
Notes and accounts receivable -- trade $ 1,172 $ 1,234
Notes and accounts receivable -- other 116 105
Allowance for doubtful accounts (54) (58)
- --------------------------------------------------------------------------------
Total notes and accounts receivable -- net 1,234 1,281
- --------------------------------------------------------------------------------
Inventories
Finished and in process 501 533
Raw materials 181 186
Manufacturing supplies 110 108
- --------------------------------------------------------------------------------
Total inventories 792 827
- --------------------------------------------------------------------------------
Accrued expenses
Marketing expenses 93 83
Compensation expenses 191 184
Restructuring provision / integration 8 36
Taxes payable other than taxes on income 30 34
Dividends payable 74 70
Other 486 464
- --------------------------------------------------------------------------------
Total accrued expenses 882 871
- --------------------------------------------------------------------------------
Noncurrent liabilities
Employees' pension, indemnity,
retirement, and related provisions 673 663
Environmental liabilities 89 96
Other noncurrent liabilities 167 169
- --------------------------------------------------------------------------------
Total noncurrent liabilities $ 929 $ 928
================================================================================
</TABLE>
<TABLE>
<CAPTION>
$ Millions 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Depreciation expense $ 198 $ 201 $ 209
Amortization expense 62 54 55
Research and development cost 70 67 66
- --------------------------------------------------------------------------------
Financing costs
Interest expense 198 186 175
Interest expense capitalized (7) (3) (3)
Interest income (12) (21) (11)
Exchange losses 4 4 1
- --------------------------------------------------------------------------------
Financing costs $ 183 $ 166 $ 162
================================================================================
</TABLE>
================================================================================
Supplementary cash flow information
Supplementary information for the Consolidated Statements of Cash Flows is set
forth below:
<TABLE>
<CAPTION>
$ Millions 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Cash paid during the year for:
Interest $188 $162 $173
Income taxes 287 274 242
- --------------------------------------------------------------------------------
Details of businesses acquired as follows:
Fair value of assets acquired $286 $167 $371
Liabilities assumed 61 46 73
- --------------------------------------------------------------------------------
Cash paid for acquisitions $225 $121 $298
================================================================================
</TABLE>
================================================================================
Operations by geographic area
<TABLE>
<CAPTION>
$ Millions 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Sales to unaffiliated customers
North America $3,594 $3,452 $3,412
Europe (1) 3,598 3,490 3,539
Latin America 1,071 1,149 1,105
Asia 374 322 382
- --------------------------------------------------------------------------------
8,637 8,413 8,438
================================================================================
Long-lived
assets at December 31
North America 1,682 1,507 1,547
Europe (2) 1,568 1,809 1,637
Latin America 277 284 291
Asia 124 99 107
Corporate 124 120 101
- --------------------------------------------------------------------------------
$3,775 $3,819 $3,683
================================================================================
</TABLE>
(1) Includes sales of $833, $830, and $906 for Germany in 1999, 1998, and
1997, respectively.
(2) Includes long-lived assets of $402, $557, and $484 for Germany in 1999,
1998, and 1997, respectively.
================================================================================
Subsequent events (Unaudited)
On February 8, 2000, the Company became the 100% owner of Arisco Produtos
Alimenticios S.A. (Arisco), a privately-held food company in Brazil. Bestfoods
paid $490 million for 100% of the shares in Arisco. Included on the Arisco
balance sheet is approximately $262 million of net debt. Arisco had annual sales
of approximately $440 million. This transaction will be accounted for as a
purchase. The Company expects to finance this investment through existing credit
facilities. Also, following the announcement of the transaction, Standard &
Poor's, Moody's, and Duff & Phelps reaffirmed the Company's credit rating with a
stable outlook.
42
<PAGE> 45
Report of Management
The management of Bestfoods 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, and the independent auditors are ultimately accountable to
the Audit Committee.
/s/ Robert J. Gillespie
Robert J. Gillespie
Executive Vice President, Strategic Business
Development and Finance
February 1, 2000
Independent Auditors' Report
KPMG [LOGO]
The Board of Directors and Stockholders
Bestfoods:
We have audited the accompanying consolidated balance sheets of Bestfoods and
Subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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 Bestfoods
and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, in
1998 the Company changed its method of accounting for start-up activities and in
1997 its method of accounting for business process reengineering costs.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 1, 2000
43
<PAGE> 46
Ten-Year Financial Highlights
Bestfoods and Subsidiaries
<TABLE>
<CAPTION>
$ Millions except per share amounts 1999 1998 1997 1996
=================================================================================================================================
<S> <C> <C> <C> <C>
Summary of Operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 8,637 $ 8,413 $ 8,438 $ 8,518
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 717 640 (1) 429 (2) 557
- ---------------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share 2.53 2.20 (1) 1.45 (2) 1.89
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share 2.48 2.15 (1) 1.43 (2) 1.85
- ---------------------------------------------------------------------------------------------------------------------------------
Average number of basic common shares outstanding 279 286 288 290
- ---------------------------------------------------------------------------------------------------------------------------------
Average number of diluted common shares outstanding 288 297 298 300
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends declared per common share 1.02 .94 .86 .79
=================================================================================================================================
Balance Sheet Data
- ---------------------------------------------------------------------------------------------------------------------------------
Working capital $ (164) $ 93 $ (159) $ (188)
- ---------------------------------------------------------------------------------------------------------------------------------
Plants and properties -- net 1,964 1,965 1,941 2,023
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 6,232 6,435 6,100 7,251
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,842 2,053 1,818 1,681
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term debt 624 604 668 869
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt 2,466 2,657 2,486 2,550
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment (616) (413) (386) (259)
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 938 981 1,042 2,084
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity per share 3.37 3.48 3.62 7.25
- ---------------------------------------------------------------------------------------------------------------------------------
Shares outstanding, year-end 278 282 288 288
=================================================================================================================================
Statistical Data
- ---------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 278 $ 304 $ 321 $ 346
- ---------------------------------------------------------------------------------------------------------------------------------
Maintenance and repairs 197 204 232 227
- ---------------------------------------------------------------------------------------------------------------------------------
Advertising expense 661 672 647 666
- ---------------------------------------------------------------------------------------------------------------------------------
Rental expense for operating leases 102 99 96 100
- ---------------------------------------------------------------------------------------------------------------------------------
Total employee costs 1,801 1,739 1,809 1,858
=================================================================================================================================
</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>
1999
Market price range of common stock
High $ 54 7/8 $ 55 13/16 $ 53 1/8 $ 59 11/16
Low 45 7/8 45 15/16 47 1/8 48 3/8
Close 47 49 1/2 48 9/16 52 9/16
- -------------------------------------------------------------------------------------------------------
Dividends declared per common share $ .245 $ .245 $ .265 $ .265
- -------------------------------------------------------------------------------------------------------
Quarterly results
Net sales $2,195 $2,155 $2,064 $2,223
Gross profit 1,018 1,024 983 1,066
Income from continuing operations 144 176 184 213
Basic earnings per common share $ .50 $ .62 $ .65 $ .76
Diluted earnings per common share $ .49 $ .61 $ .64 $ .74
=======================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
(1) Includes restructuring charge of $22 million after taxes or $.08 per basic
and $.07 per diluted common share recorded in the fourth quarter.
(2) Includes restructuring charge of $156 million after taxes or $.54 per
basic and $.52 per diluted common share recorded in the second quarter.
(3) Includes a fourth quarter integration charge of $34 million after taxes or
$.12 per basic and $.11 per diluted common share; and other charges-net
of $24 million after taxes or $.09 per basic and $.08 per diluted common
share recorded in the third quarter.
44
<PAGE> 47
<TABLE>
<CAPTION>
$ Millions except per share amounts 1995 1994 1993 1992 1991 1990
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 7,236 $ 6,239 $ 5,671 $ 5,537 $ 5,152 $ 4,728
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 377 (3) 245 (4) 355 130 (5,6) 289 (7) 277
- -----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share 1.26 (3) .79 (4) 1.15 .40 (5,6) .92 (7) .89
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share 1.24 (3) .79 (4) 1.14 .40 (5,6) .91 (7) .88
- -----------------------------------------------------------------------------------------------------------------------------------
Average number of basic common shares outstanding 292 296 300 302 302 302
- -----------------------------------------------------------------------------------------------------------------------------------
Average number of diluted common shares outstanding 302 306 314 312 314 312
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends declared per common share .74 .69 .64 .60 .55 .50
===================================================================================================================================
Balance Sheet Data
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital $ (520) $ 2 $ 355 $ 314 $ 369 $ 169
- -----------------------------------------------------------------------------------------------------------------------------------
Plants and properties -- net 1,978 1,470 1,329 1,366 1,115 1,107
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 6,848 5,023 4,450 4,582 3,971 3,911
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,071 609 674 934 993 961
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term debt 1,298 640 328 440 332 482
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt 2,369 1,249 1,002 1,374 1,325 1,443
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment (163) (181) (173) (56) (80) (42)
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,987 1,749 1,769 1,662 1,631 1,453
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity per share 6.83 5.96 5.91 5.52 5.39 4.82
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding, year-end 292 294 300 302 302 302
===================================================================================================================================
Statistical Data
- -----------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 287 $ 248 $ 248 $ 240 $ 211 $ 182
- -----------------------------------------------------------------------------------------------------------------------------------
Maintenance and repairs 182 154 139 136 117 102
- -----------------------------------------------------------------------------------------------------------------------------------
Advertising expense 563 500 463 483 453 418
- -----------------------------------------------------------------------------------------------------------------------------------
Rental expense for operating leases 77 73 60 61 57 44
- -----------------------------------------------------------------------------------------------------------------------------------
Total employee costs 1,452 1,240 1,103 1,059 967 877
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================
(Unaudited)
$ Millions except per share amounts 1st Q 2nd Q 3rd Q 4th Q
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Market price range of common stock
High $ 58 23/32 $ 60 $ 59 11/16 $ 58 11/16
Low 48 3/4 52 3/4 44 7/16 48 3/16
Close 58 7/16 58 1/16 48 7/16 53 1/4
- ----------------------------------------------------------------------------------------------------
Dividends declared per common share $ .225 $ .225 $ .245 $ .245
- ----------------------------------------------------------------------------------------------------
Quarterly results
Net sales $ 2,130 $ 2,125 $ 1,992 $ 2,166
Gross profit 961 959 918 1,013
Income from continuing operations 133 173 167 167
Basic earnings per common share $ .45 $ .59 $ .58 $ .58
Diluted earnings per common share $ .44 $ .58 $ .56 $ .57
====================================================================================================
</TABLE>
(4) Includes restructuring charge of $126 million after taxes or $.43 per
basic and $.41 per diluted common share recorded in the second quarter.
(5) Includes the cumulative effect to January 1, 1992, of changes in
accounting principles of $160 million after taxes or $.53 per basic and
$.51 per diluted common share, and the effects of these changes in 1992 of
$10 million, $6 million after taxes or $.03 per basic and $.02 per diluted
common share.
(6) Includes an environmental charge related to discontinued operations of $47
million after taxes or $.16 per basic and $.15 per diluted common share.
(7) Includes an environmental charge related to discontinued operations of $32
million after taxes or $.11 per basic and $.10 per diluted common share.
45
<PAGE> 48
[GRAPHIC OMITTED]
Board of Directors
Clateo Castellini 1,3*,4
Chairman, Becton Dickinson and
Company
Alfred C. DeCrane, Jr. 2*,3,4
Former Chairman and
Chief Executive Officer,
Texaco Inc.
William C. Ferguson 1,4,5*
Former Chairman and Chief
Executive Officer,
NYNEX Corporation
Robert J. Gillespie 3
Executive Vice President, Strategic
Business Development and Finance,
Bestfoods
Bruce S. Gordon 1,3,4
Group President, Enterprise Business
Group, Bell Atlantic Corporation
Ellen R. Gordon 2,3,4
President and Chief
Operating Officer,
Tootsie Roll Industries, Inc.
Leo I. Higdon, Jr. 2,4,5
President, Babson College
Richard G. Holder 2,4*,5
Former Chairman and
Chief Executive Officer,
Reynolds Metals Company
Eileen S. Kraus 2,4,5
Chairman, Fleet National Bank
(Connecticut)
Harold McGraw III 1,4,5
Chairman, President, and Chief
Executive Officer, The McGraw-Hill
Companies, Inc.
Henrique de Campos 1*,4,5
Meirelles
President, Global Banking and
Financial Services, FleetBoston
Financial Corp.
William S. Norman 1,3,4
President and Chief Executive
Officer, Travel Industry
Association of America
C. R. Shoemate
Chairman, President, and
Chief Executive Officer,
Bestfoods
1. Audit Committee
2. Compensation and
Nominating Committee
3. Corporate Affairs
Committee
4. Corporate Governance Committee
5. Finance Committee
*denotes chairman
- ---------------------------------
Retired:
Theodore H. Black, 4/22/99
George V. Grune, 5/18/99
Alain Labergere, 11/1/99
James W. McKee, Jr.
Honorary Chairman
of the Board
Corporate Officers
C. R. Shoemate
Chairman, President, and
Chief Executive Officer
Robert J. Gillespie
Executive Vice President,
Strategic Business Development
and Finance
Richard P. Bergeman
Senior Vice President,
Human Resources
Bernard H. Kastory
Senior Vice President, Asia, Baking,
and Latin America Operations
Axel C. A. Krauss
Senior Vice President and
President, Bestfoods
North America
Ian M. Ramsay
Senior Vice President and
President, Bestfoods Europe
Vice Presidents
Neil Beckerman
President, Bestfoods Grocery
Diego Bevilacqua
President, Bestfoods Asia
Michael J. Bevilacqua
President, Bestfoods
Foodservice
Merrill E. Eastman
President, Bestfoods Baking
Company
Robert S. Gluck
Treasurer
Gale L. Griffin
Corporate Communications
Nina Henderson
Core Business Development
Oscar Imbellone
President, Bestfoods Latin America
Rainer H. Mimberg
Investor Relations
Eduardo B. Sanchez
General Counsel
Diani Santucci
Health, Safety, Quality Assurance,
and Global Sourcing
Luis Schuchinski
Taxes
Anthony J. Simon
Strategy and Core Businesses
Philip V. Terenzio
Controller
Mohammed Wahby
President, Bestfoods
Africa/Middle East
Secretary
Marjory A. Appel
Retired:
John J. Langdon, 5/31/99
Alain Labergere, 11/1/99
Hanes A. Heller, 1/31/00
Heribert H. Grunert, 3/1/00
Investor Information
Corporate Headquarters
Bestfoods
700 Sylvan Avenue
International Plaza
Englewood Cliffs, NJ 07632-9976
Annual Meeting
Thursday, April 27, 2000
9:00 A.M. local time
Radisson Hotel Englewood
401 South Van Brunt Street
Englewood, NJ 07631
Annual Report, Form 10-K,
and Proxy Statement
Copies are available via
the Company's Internet
site at www.bestfoods.com; by
writing Corporate
Communications,
Bestfoods; or by calling
(201) 894-2825
Investor Inquiries
Security analysts and
investors seeking
information about
Bestfoods may contact
Mr. Rainer H. Mimberg,
Vice President, Investor
Relations, at the
Bestfoods address shown
or call (201) 894-2837
Stockholder Records,
Dividend Reinvestment
Inquiries relating to
stockholder records,
stock transfer, change
of address, and
Bestfoods Dividend
Reinvestment Plan should
be directed to
registrar, transfer, and
dividend disbursing
agent:
EquiServe
First Chicago Trust Division
P.O. Box 2500
Jersey City, NJ 07303-2500
(201) 324-0498
(800) 519-3111
or via the Internet at
www.equiserve.com
Independent Auditors
KPMG LLP
345 Park Avenue
New York, NY 10154
(212) 758-9700
Stock Exchange Listings
New York, London
Ticker Symbol [LOGO]
The New York Stock BFO
Exchange ticker symbol Listed
for the Company is BFO. NYSE
Bestfoods Internet Site
www.bestfoods.com
46
<PAGE> 49
[GRAPHIC OMITTED]
Bestfoods' businesses are operated and administered with a high degree of
autonomy under the Company's decentralized organization. References in this
Annual Report to Bestfoods 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
Bestfoods and its affiliates.
Design:Leonard Wolfe Design/Wilton, CT
Chihuahua photo, page 17, courtesy Taco Bell Corp.
<PAGE> 50
[LOGO]
BESTFOODS
700 Sylvan Avenue
International Plaza
Englewood Cliffs, NJ 07632-9976
www.bestfoods.com
[GRAPHIC OMITTED]
[GRAPHIC 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
-----------------------
BESTFOODS
<S> <C> <C>
(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
Bestfoods Europe (Group) Ltd. -Delaware 100.00
Entenmann's Inc. (Owned by Bestfoods
Baking Co. Inc., a holding company of Bestfoods) -Delaware 100.00
Henri's Food Products Co. Inc. -Wisconsin 100.00
Canada
Bestfoods Holdings Inc. 100.00
Europe (1)
C.H. Knorr Nahrungsmittelfabrik Ges.mbH -Austria 100.00
Bestfoods Belgium N.V./S.A. -Belgium 99.91
Bestfoods CZ, a.s. -Czech Republic 99.30
Bestfoods Nordic AS -Denmark 100.00
Nordic Best Food Oy -Finland 100.00
Bestfoods France -France 99.94
Bestfoods Deutschland GmbH & Co. OHG -Germany 100.00
Knorr Bestfoods Hellas A.B.E.E. -Greece 100.00
Bestfoods Benelux B.V. -Holland 100.00
Bestfoods Hungary Ltd. -Hungary 100.00
Knorr Bestfoods Ltd. -Ireland 100.00
Bestfoods Italia s.p.a -Italy 100.00
Bestfoods Nordic AS -Norway 100.00
Bestfoods Polska Sp. zo.o. -Poland 99.98
Knorr Bestfoods PortugualProdutos Alimentares S.A. -Portugal 100.00
Bestfoods Espana, S.A. -Spain 100.00
Bestfoods Nordic AB -Sweden 100.00
Bestfoods Knorr Holdings AG -Switzerland 100.00
Bestfoods UK Ltd -United Kingdom 100.00
Africa and Middle East (1)(2)
Israel Edible Products Ltd. "TAMI" -Israel 50.00
CPC Kenya Ltd. -Kenya 50.00
Knorr Bestfoods Morocco -Morocco 50.00
Robertsons Foodservice (Pty) Ltd. -South Africa 50.00
</TABLE>
<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
DISA S.A. -Colombia 100.00
Productos Agroindustriales del Caribe 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
Bestfoods Guangzhou Ltd. (Owned by
Bestfoods Asia Investments Ltd.; a holding
company of Bestfoods) -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)
Rafhan Bestfoods Limited -Pakistan 73.96
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 three (43) domestic subsidiaries and one hundred
thirty-four (134) international subsidiaries have been omitted since these
unnamed subsidiaries considered in the aggregate as a single entity do not
constitute a significant subsidiary.
(b) International subsidiaries not consolidated: Six (6) international
subsidiaries of which all or a majority of the share capital is owned by
the Registrant.
(c) Domestic 50% owned companies: One (1) joint venture in which the
Registrant owns 50% interest with 50% being owned by Single other
interests.
(1) Owned by Bestfoods Europe (Group) Ltd., or its wholly owned
subsidiaries.
(2) Owned fractionally more than 50% and fully consolidated for accounting
purposes.
If the companies included in (b) and (c) 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.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Bestfoods:
We consent to incorporation by reference in the Registration Statements on Forms
S-8 (No. 2-92248 and 33-49847) and on Form S-3 (No. 333-64301) of Bestfoods of
our report dated February 1, 2000, relating to the consolidated balance sheets
of Bestfoods and Subsidiaries as of December 31, 1999 and 1998, 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, 1999 which report
appears in the December 31, 1999 annual report on Form 10-K of BESTFOODS.
/S/ KPMG LLP
- -------------------
(KPMG LLP)
New York, New York
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 68
<SECURITIES> 0
<RECEIVABLES> 1,288
<ALLOWANCES> 54
<INVENTORY> 792
<CURRENT-ASSETS> 2,204
<PP&E> 3,485
<DEPRECIATION> 1,521
<TOTAL-ASSETS> 6,232
<CURRENT-LIABILITIES> 2,368
<BONDS> 1,842
0
151
<COMMON> 98
<OTHER-SE> 689
<TOTAL-LIABILITY-AND-EQUITY> 6,232
<SALES> 8,637
<TOTAL-REVENUES> 0
<CGS> 4,546
<TOTAL-COSTS> 7,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> 1,147
<INCOME-TAX> 384
<INCOME-CONTINUING> 717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 717
<EPS-BASIC> 2.53
<EPS-DILUTED> 2.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 142 39
<SECURITIES> 0 0
<RECEIVABLES> 1,339 1,223
<ALLOWANCES> 58 47
<INVENTORY> 827 818
<CURRENT-ASSETS> 2,405 2,188
<PP&E> 3,462 3,440
<DEPRECIATION> 1,497 1,499
<TOTAL-ASSETS> 6,435 6,100
<CURRENT-LIABILITIES> 2,312 2,347
<BONDS> 2,053 1,818
0 0
157 180
<COMMON> 98 49
<OTHER-SE> 726 813
<TOTAL-LIABILITY-AND-EQUITY> 6,435 6,100
<SALES> 8,413 8,438
<TOTAL-REVENUES> 0 0
<CGS> 4,562 4,693
<TOTAL-COSTS> 7,226 7,572
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 166 162
<INCOME-PRETAX> 1,021 704
<INCOME-TAX> 352 250
<INCOME-CONTINUING> 640 429
<DISCONTINUED> 0 11
<EXTRAORDINARY> 0 0
<CHANGES> (17) (13)
<NET-INCOME> 624 344
<EPS-BASIC> 2.14 1.16
<EPS-DILUTED> 2.09 1.15
</TABLE>
