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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBER 1-13397
CORN PRODUCTS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
22-3514823
(I.R.S. Employer Identification Number)
6500 SOUTH ARCHER AVENUE,
BEDFORD PARK, ILLINOIS 60501-1933
(Address of principal executive offices) (Zip Code)
(708) 563-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- -----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 31, 2002
Common Stock, $.01 par value 35,615,480 shares
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2002 2001 2002 2001
------------------- -------------------
Net sales before shipping and handling costs $ 514.7 $ 521.4 $ 972.6 $ 1,020.0
Less: Shipping and handling costs 28.5 39.2 54.4 83.3
------------------- -------------------
Net sales 486.2 482.2 918.2 936.7
Cost of sales 414.7 409.7 787.8 789.2
------------------- -------------------
Gross profit 71.5 72.5 130.4 147.5
Operating expenses 33.0 35.1 69.8 74.9
Income from non-consolidated affiliates and other
income 1.5 4.8 11.0 9.2
------------------- -------------------
Operating income 40.0 42.2 71.6 81.8
Financing costs 6.7 15.0 16.3 30.6
------------------- -------------------
Income before income taxes and minority interest 33.3 27.2 55.3 51.2
Provision for income taxes 12.0 9.5 19.9 17.9
------------------- -------------------
21.3 17.7 35.4 33.3
Minority interest in earnings 2.7 2.4 5.5 5.4
------------------- -------------------
Net income $ 18.6 $ 15.3 $ 29.9 $ 27.9
=================== ===================
Weighted average common shares outstanding:
Basic 35.6 35.3 35.5 35.3
Diluted 35.8 35.4 35.7 35.4
Earnings per common share:
Basic $ 0.52 $ 0.43 $ 0.83 $ 0.79
Diluted $ 0.52 $ 0.43 $ 0.83 $ 0.79
See Notes To Condensed Consolidated Financial Statements
1
PART I FINANCIAL INFORMATION
ITEM I
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) JUNE 30, DECEMBER 31,
2002 2001
-------------------- ---------------------
ASSETS (UNAUDITED)
Current assets
Cash and cash equivalents $51 $65
Accounts receivable - net 245 279
Inventories 192 201
Prepaid expenses 12 10
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 500 555
- -----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment - net 1,186 1,293
Goodwill 273 283
Deferred tax asset 20 20
Investments 42 41
Other assets 38 35
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,059 $2,227
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt 189 444
Accounts payable and accrued liabilities 210 231
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 399 675
- -----------------------------------------------------------------------------------------------------------------------------------
Non-current liabilities 63 50
Long-term debt 491 312
Deferred income taxes 184 186
Minority interest in subsidiaries 97 147
STOCKHOLDERS' EQUITY
Preferred stock - authorized 25,000,000 shares-
$0.01 par value - none issued -- --
Common stock - authorized 200,000,000 shares-
$0.01 par value - 37,659,887 issued
at June 30, 2002 and December 31, 2001 1 1
Additional paid-in capital 1,073 1,073
Less: Treasury stock (common stock; 2,047,824 and 2,253,578 shares at
June 30, 2002 and December 31, 2001, respectively) at cost (51) (56)
Deferred compensation - restricted stock (3) (3)
Accumulated comprehensive loss (392) (333)
Retained earnings 197 175
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 825 857
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,059 $2,227
===================================================================================================================================
See Notes To Condensed Consolidated Financial Statements
2
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------------
2002 2001 2002 2001
-------------- ------------- -------------- --------------
Net income $19 $15 $30 $28
Comprehensive income/loss:
Gain (loss) on cash flow hedges:
Cumulative effect of adoption of SFAS 133,
net of income tax effect of $8 million -- -- -- 14
Amount of (gains) losses on cash flow
hedges reclassified to earnings, net of
income tax effect of $5 million, $3
million, $8 million and $1 million,
respectively 9 5 16 3
Unrealized gains (losses) on cash flow
hedges, net of income tax effect of $3
million, $10 million, $2 million and $23
million, respectively 7 (20) 4 (43)
Currency translation adjustment (18) (4) (79) (35)
-------------- ------------- -------------- -------------
Comprehensive income (loss) $17 ($4) ($29) ($33)
============== ============= ============== =============
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN MILLIONS) ADDITIONAL ACCUMULATED
COMMON PAID-IN TREASURY DEFERRED COMPREHENSIVE RETAINED
STOCK CAPITAL STOCK COMPENSATION INCOME (LOSS) EARNINGS
----------------------------------------------------------------------------------------
Balance, December 31, 2001 $1 $1,073 $(56) $(3) $(333) $175
Net income for the period 30
Dividends declared (8)
Amount of (gains) losses
on cash flow hedges
reclassified to earnings,
net of income tax effect
of $8 million 16
Unrealized gains (losses)
on cash flow hedges, net
of income tax effect of
$2 million 4
Translation adjustment (79)
Other 5
----------------------------------------------------------------------------------------
Balance, June 30, 2002 $1 $1,073 $(51) $(3) $(392) $197
========================================================================================
See Notes To Condensed Consolidated Financial Statements
3
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS) SIX MONTHS ENDED
JUNE 30,
2002 2001
------------- ----------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $30 $28
Non-cash charges (credits) to net income:
Depreciation and amortization 54 66
Minority interest in earnings 5 5
Income from non-consolidated affiliates (2) (8)
Gain on sale of business (8) --
Loss on disposal of fixed assets 1 1
Changes in working capital, net of effect of disposal/acquisition:
Accounts receivable and prepaid items 8 (40)
Inventories (3) 15
Accounts payable and accrued liabilities 20 (46)
Other 4 (3)
- --------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 109 18
- --------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Capital expenditures, net of proceeds on disposal (32) (39)
Proceeds from sale of business 35 --
Payments for acquisitions (42) (77)
- --------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (39) (116)
- --------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from borrowings 9 122
Payments on debt (82) (21)
Dividends paid (11) (15)
Issuance of common stock 3 --
- --------------------------------------------------------------------------------------------------------------------------------
Cash (used for) provided by financing activities (81) 86
- --------------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash (3) (2)
- --------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (14) (14)
Cash and cash equivalents, beginning of period 65 41
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $51 $27
================================================================================================================================
See Notes To Condensed Consolidated Financial Statements
4
CORN PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
References to the "Company" are to Corn Products International, Inc.
and its consolidated subsidiaries. These statements should be read in
conjunction with the consolidated financial statements and the related notes to
those statements contained in the Company's Annual Report to Stockholders that
were incorporated by reference in Form 10-K/A for the year ended December 31,
2001.
The unaudited condensed consolidated interim financial statements
included herein were prepared by management and reflect all adjustments
(consisting solely of normal recurring items) which are, in the opinion of
management, necessary to present a fair statement of results of operations for
the interim periods ended June 30, 2002 and 2001, and the financial position of
the Company as of June 30, 2002. The results for the three months and the six
months ended June 30, 2002 are not necessarily indicative of the results
expected for the year.
Certain prior year amounts in the Condensed Consolidated Financial
Statements have been reclassified to conform with the current year presentation.
2. SALE OF SENIOR NOTES
On June 28, 2002, the Company sold $200 million of 8.25 percent Senior
Notes due July 15, 2007. Interest will be paid semi-annually on January 15 and
July 15, beginning on January 15, 2003. The notes are unsecured obligations of
the Company and rank equally with the Company's other unsecured, senior
indebtedness. The Company may redeem all or any portion of the notes at any
time. The net proceeds from the sale of the notes, which were received by the
Company on July 8, 2002, were used to repay $197 million of borrowings
outstanding under the Company's $340 million U.S. revolving credit facility that
matures in December 2002. Accordingly, $197 million of borrowings outstanding
under the U.S. revolving credit facility at June 30, 2002 have been included in
long-term debt in the accompanying Condensed Consolidated Balance Sheet.
3. MEXICO HFCS TAX
On January 1, 2002, the Mexican Congress passed a value-added tax on
soft drinks sweetened with high fructose corn syrup (HFCS), which on March 5,
2002, was suspended until September 30, 2002. In response to the enactment of
the tax, which at the time effectively ended the use of HFCS for soft drinks in
Mexico, the Company ceased production of HFCS 55 at its San Juan del Rio plant,
one of its four plants in Mexico. Effective with the March 5, 2002 suspension of
the tax, the Company resumed the production and sale of HFCS in Mexico, although
at levels below historical volumes. On July 12, 2002, the Mexican Supreme Court
annulled the temporary suspension of the tax, thereby resuming the tax, and the
Company curtailed the production of HFCS 55 at its San Juan del Rio plant. Until
there is a permanent resolution of the Mexican value-added tax on soft drinks
sweetened with HFCS, the Company expects to make no HFCS sales to the soft drink
industry in Mexico. Management continues to seek a permanent repeal of the tax
and currently believes that the problem will be ultimately resolved by the
governments of the United States and Mexico. Until that occurs, the
5
Company's operating results and cash flows will continue to be adversely
affected by the Mexico HFCS tax issue.
4. DEVALUATION OF THE ARGENTINE PESO
On January 6, 2002, the Argentine government announced a devaluation of
its currency and the establishment of a floating exchange rate. The Company's
financial statements for the year ended December 31, 2001 reflect this event.
For the first half of 2002, the Company recognized an other comprehensive loss
of approximately $68 million relating to the further devaluation of the
Argentine peso in relation to the U.S. dollar. This loss was included in the
accumulated comprehensive loss account within the stockholders' equity section
of the Company's Condensed Consolidated Balance Sheet. However, as a result of
actions taken in both Argentina and throughout the Southern Cone of South
America, the devaluation did not have a material adverse effect on the Company's
second quarter or first half 2002 net income. Continued weakening of the
Argentine peso relative to the U.S. dollar could result in the recognition of
additional foreign currency translation losses in accumulated comprehensive loss
and a reduction in the Company's total stockholders' equity in the future.
Additionally, any further devaluation of the Argentine currency and/or other
economic and policy developments in Argentina could have an adverse impact on
the Company's financial position, results of operations and cash flows in future
periods, and such effects could be significant.
5. NEW ACCOUNTING STANDARDS
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"), which supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition. SFAS 142 also
addresses how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. SFAS 142
stipulates that goodwill should no longer be amortized and should instead be
subject to an annual impairment assessment. The Company completed the
transitional impairment test required by SFAS 142 during the first quarter of
2002. No impairment loss was recognized in connection with the adoption of SFAS
142 as of January 1, 2002.
The following information is disclosed in accordance with SFAS 142:
Goodwill
The carrying amount of goodwill by geographic segment as of June 30, 2002, was
as follows:
At
June 30, 2002
-------------
(in millions)
North America $119
South America 19
Asia/Africa 135
----
Total goodwill $273
----
The adoption of SFAS 142's provisions relating to goodwill amortization
resulted in the Company discontinuing the amortization of goodwill beginning
January 1, 2002. On a pre-tax
6
basis, goodwill amortization recorded in the second quarter of 2001 was $2.9
million, consisting of $0.8 million in North America, $0.5 million in South
America and $1.6 million in Asia/Africa. For the first half of 2001, goodwill
amortization on a pre-tax basis was $5.9 million, consisting of $1.6 million in
North America, $1.0 million in South America and $3.3 million in Asia/Africa. On
an after-tax basis, goodwill amortization recorded for the three months and six
months ended June 30, 2001 was $1.9 million and $3.8 million, respectively. The
following table provides a comparison of the effects of adopting SFAS 142 for
the three months and six months ended June 30, 2002 and 2001:
Three months ended Six months ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-----------------------------------------
(In millions, except per share data)
Net income $ 18.6 $ 15.3 $ 29.9 $ 27.9
Add back: goodwill amortization
(net of income taxes) -- 1.9 -- 3.8
------ ------ ------ ------
Adjusted net income $ 18.6 $ 17.2 $ 29.9 $ 31.7
====== ====== ====== ======
Basic and diluted earnings per
common share:
As reported earnings per share $ 0.52 $ 0.43 $ 0.83 $ 0.79
Add back: goodwill amortization -- 0.05 -- 0.11
------ ------ ------ ------
Adjusted earnings per share $ 0.52 $ 0.48 $ 0.83 $ 0.90
====== ====== ====== ======
Also on January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). While SFAS 144 retains many of the fundamental recognition and
measurement provisions of SFAS 121, it changes the criteria required to be met
to classify an asset as held for sale. SFAS 144 also supersedes the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and,
among other things, broadens reporting for discontinued operations to include a
component of an entity, rather than just a segment of a business. The adoption
of SFAS 144 did not have an effect on the Company's consolidated financial
statements.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which
addresses financial accounting and reporting for legal obligations associated
with the retirement of tangible long-lived assets and the related asset
retirement costs. The Company is required to adopt SFAS 143 on January 1, 2003.
The impact of the adoption of SFAS 143, if any, is not expected to be
significant.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), which addresses
financial accounting and
7
reporting for costs associated with exit or disposal activities. SFAS 146
replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 is required to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company is currently assessing the impact, if any, of the adoption of SFAS
146.
6. SALE OF NON-CORE BUSINESS
On February 5, 2002, the Company sold its interest in Enzyme
Bio-Systems Ltd. of Beloit, Wisconsin for approximately $35 million in cash. The
Company recorded a pretax gain from the sale of approximately $8 million, which
is included in other income in the Condensed Consolidated Statement of Income
for the six months ended June 30, 2002.
7. ACQUISITIONS
On March 4, 2002, the Company increased its ownership in Arancia Corn
Products, S.A. de C.V., its consolidated Mexican subsidiary, from 90 percent to
100 percent by paying approximately $39 million in cash and issuing 70,000
shares of common stock valued at approximately $2 million.
8. RESTRUCTURING CHARGES
One of the Company's continuing business strategies is to improve North
America profitability. In order to remain competitive while improving margins,
the Company has implemented a restructuring plan that includes the termination
of approximately 200 employees throughout the three North American countries in
which it operates and the cancellation of certain lease obligations. In
connection with this restructuring plan, the Company recorded charges of $4.3
million during the first quarter of 2002. Of this amount, approximately $3.5
million represents employee severance costs and related benefits and the balance
represents provisions relating to the lease obligations. The charge of $4.3
million was recorded in general and administrative expenses. As of June 30,
2002, substantially all of the employee terminations under the restructuring
plan were completed.
9. INTEREST RATE SWAPS
On March 14, 2002, the Company entered into interest rate swap
agreements to take advantage of the current interest rate environment by
effectively converting the interest rate associated with the Company's 8.45
percent $200 million senior notes due 2009 to variable rates. These agreements
involve the exchange of fixed rate payments (at 8.45 percent) for variable rate
payments on $200 million of notional principal without the exchange of the
underlying face amount. Under the terms of the agreements, the Company receives
fixed rate payments and makes variable rate payments based on the six month U.S.
dollar LIBOR rate plus a spread. The fair value of these agreements is reflected
in the accompanying Condensed Consolidated Balance Sheets as an adjustment to
the carrying value of the hedged debt obligation. Interest rate differentials to
be paid or received under these agreements are recognized as adjustments to
interest expense using the accrual method. The Company does not hold or issue
interest rate swap agreements for trading purposes.
8
10. INVENTORIES
Inventories are summarized as follows: At At
June 30, December 31,
(in millions) 2002 2001
---- ----
Finished and in process $ 82 $ 91
Raw materials 77 75
Manufacturing supplies and other 33 35
- -------------------------------------------------------------------------------
Total inventories $192 $201
===============================================================================
11. SEGMENT INFORMATION
The Company operates in one business segment - Corn Refining - and is
managed on a geographic regional basis. Its North America operations include
corn-refining businesses in the United States, Canada and Mexico and its
non-consolidated equity interest in CornProductsMCP Sweeteners LLC. Its South
America operations include corn-refining businesses in Brazil, Argentina,
Colombia, Chile, Ecuador and Uruguay. Its Asia/Africa operations include
corn-refining businesses in Korea, Pakistan, Malaysia, Thailand and Kenya.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(in millions) 2002 2001 2002 2001
--------------------- ---------------------
NET SALES
North America $318.3 $316.6 $594.2 $596.7
South America 102.2 103.6 200.4 220.9
Asia/Africa 65.7 62.0 123.6 119.1
--------------------- ---------------------
Total $486.2 $482.2 $918.2 $936.7
===================== =====================
OPERATING INCOME
North America $ 17.0 $ 18.3 * $ 23.8 $ 33.3 *
South America 14.9 15.4 28.6 34.3
Asia/Africa 14.0 13.1 25.9 23.6
Corporate (5.9) (4.6) * (11.3) (9.4) *
Non-recurring items, net - - 4.6 -
--------------------- ---------------------
Total $ 40.0 $ 42.2 $ 71.6 $ 81.8
===================== =====================
* Certain expenses that had previously been reflected in North America results
are now classified as corporate expenses. Prior year information has been
reclassified to conform to the current year presentation.
AT AT
(in millions) JUNE 30, 2002 DECEMBER 31, 2001
------------------- ---------------------
TOTAL ASSETS
North America $1,357 $1,430
South America 368 489
Asia/Africa 334 308
------------------- ---------------------
Total $2,059 $2,227
=================== =====================
9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002
WITH COMPARATIVES FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001
NET INCOME. Net income for the quarter ended June 30, 2002 increased to
$18.6 million, or $0.52 per diluted share, from $15.3 million, or $0.43 per
diluted share, in the second quarter of 2001. The earnings increase was
principally due to significantly lower financing costs and, to a lesser extent,
the discontinuation of goodwill amortization, which more than offset a reduction
in operating income mainly related to volume reductions of HFCS in Mexico and
difficult economic conditions in South America. Second quarter 2001 results
included goodwill amortization expense of $2.9 million ($1.9 million, net of
income taxes), or $0.05 per diluted share. Net income for the six months ended
June 30, 2002 increased to $29.9 million, or $0.83 per diluted share, from $27.9
million, or $0.79 per diluted share in the prior year period. First half 2002
results include $4.6 million ($3.0 million after-tax) of net non-recurring
earnings consisting primarily of a gain from the sale of a business unit, net of
certain one-time charges. The non-recurring earnings include an $8.0 million
pretax gain from the February 2002 sale of Enzyme-Bio Systems Ltd. ("EBS"),
partially offset by $4.3 million of charges principally related to workforce
reductions in North America. Additionally, a one-time gain of $0.9 million
associated with the curtailment of certain benefit costs pertaining to the
aforementioned sale and workforce reduction was recorded. Excluding the net
non-recurring income, the Company earned $26.9 million, or $0.75 per diluted
share in the first half of 2002, down 4 percent from the $27.9 million earned in
the comparable prior year period. First half 2001 results included goodwill
amortization expense of $5.9 million ($3.8 million, net of income taxes), or
$0.11 per diluted share.
NET SALES. Second quarter 2002 net sales totaled $486 million, up 1
percent from second quarter 2001 net sales of $482 million. This slight increase
reflects an 8 percent price/mix improvement and modest volume growth, which more
than offset an 8 percent reduction attributable to weaker foreign currencies.
First half 2002 net sales decreased 2 percent to $918 million from $937 million
in the year-ago period, as a 7 percent decline attributable to weaker currencies
and a 3 percent volume reduction more than offset a price/mix improvement of 8
percent.
North American net sales for second quarter 2002 were up 1 percent from
the same period last year. Excluding past sales generated by EBS, sales in the
region increased 2 percent reflecting price/mix improvement of 2 percent and 1
percent volume growth, partially offset by the effect of a weaker Mexican peso.
Volumes in the region grew despite reduced demand in Mexico caused by the
Mexican HFCS tax issue (see following section entitled "Mexico HFCS Tax"). For
the six months ended June 30, 2002, North American net sales were flat compared
with the year-ago period, as a 4 percent price/mix improvement was offset by a 4
percent volume reduction.
South American net sales for second quarter 2002 decreased 1 percent
from the year-ago period as currency weakness, particularly in Argentina and
Brazil, more than offset
10
substantial price/mix improvement and 2 percent volume growth. For the six
months ended June 30, 2002, South American net sales were down 9 percent from
first half 2001 largely due to a 5 percent regional volume decline driven by
difficult economic conditions in Argentina and Brazil. Additionally, while
price/mix improvements in the region have been significant (up approximately 32
percent and 24 percent from second quarter and first half 2001, respectively),
the increases are currently lagging local currency devaluation.
Asia/Africa net sales for second quarter 2002 were up 6 percent from
the prior year period, reflecting 5 percent volume growth and a 3 percent
increase attributable to stronger local currencies, partially offset by a 2
percent price/mix decline. For the six months ended June 30, 2002, Asia/Africa
net sales increased 4 percent from the year-ago period, primarily reflecting
improved price/mix and modest volume growth.
COST OF SALES AND OPERATING EXPENSES. Cost of sales for second quarter
2002 increased 1 percent from second quarter 2001, while first half 2002 cost of
sales was slightly below the year-ago period. Excluding past expenses of EBS,
cost of sales for second quarter and first half 2002 were up 3 percent and 1
percent, respectively, from the prior year periods. The Company's gross profit
percentage for second quarter 2002 decreased slightly to 14.7 percent from 14.9
percent a year earlier, excluding EBS. First half 2002 gross profit percentage
was 14.2 percent, down from 15.7 percent in the prior year period, excluding
EBS. The lower gross profit percentages principally reflect reduced operating
margins mainly due to the HFCS tax issue in Mexico and economic weakness in
Brazil.
Due primarily to a change in accounting that prohibits the amortization
of goodwill, second quarter and first half 2002 operating expenses declined $2
million and $5 million, respectively, from the prior year periods, despite the
recording in first quarter 2002 of the aforementioned one-time charges and
curtailment gain, which together totaled $3.4 million. Excluding the effect of
the one-time items, past operating expenses of EBS and goodwill amortization,
second quarter and first half 2002 operating expenses were $33.0 million and
$66.2 million, respectively, compared with $31.3 million and $67.1 million in
the corresponding prior year periods.
OPERATING INCOME. Second quarter 2002 operating income declined 5
percent to $40.0 million from $42.2 million a year ago. Excluding goodwill
amortization and earnings of EBS from the prior year, operating income fell 10
percent from second quarter 2001. The decline in operating income principally
reflects lower earnings in North America and South America. Higher corporate
expenses also contributed to the reduced operating income. North America
operating income declined 7 percent to $17.0 million from $18.3 million in
second quarter 2001. Excluding goodwill amortization and earnings of EBS from
the prior year, operating income in the region fell 8 percent from second
quarter 2001. The decline primarily reflects lower results in Mexico, due
principally to the HFCS tax issue, which more than offset improved earnings in
the United States. South America operating income decreased 3 percent to $14.9
million from $15.4 million. Excluding goodwill amortization, operating income in
the region was down 6 percent from the prior year period as lower results in
Brazil attributable to the economic slowdown in that country more than offset
improved operating earnings in the Southern Cone of South America. Asia/Africa
operating income increased 7 percent to $14.0 million from $13.1 million a year
ago. Excluding goodwill amortization, operating income in the region declined 5
percent from second quarter 2001 primarily due to lower earnings in Malaysia and
Thailand. First half 2002 operating income, which includes the previously
mentioned $4.6 million of net non-recurring earnings, decreased 12 percent to
$71.6 million from $81.8 million last year.
11
Excluding the net non-recurring earnings from the current year, operating
earnings of EBS, and goodwill amortization from the 2001 period, operating
income decreased 23 percent from first half 2001, reflecting significantly lower
earnings in North America and South America. North America operating income of
$23.8 million decreased 29 percent from $33.3 million in first half 2001, mainly
due to the impact of Mexico's HFCS tax on our Mexican business. Excluding
earnings of EBS and goodwill amortization from the prior year, operating income
in North America dropped 31 percent from the year-ago period. South America
operating income of $28.6 million for first half 2002 decreased 17 percent from
$34.3 million in the prior year period, primarily due to soft economic
conditions in Brazil. Excluding goodwill amortization, first half 2002 operating
income declined 19 percent from last year. Asia/Africa operating income
increased 10 percent to $25.9 million from $23.6 million a year ago. Excluding
goodwill amortization, Asia/Africa operating income for first half 2002 was down
4 percent from the prior year period.
FINANCING COSTS. Financing costs for second quarter and first half 2002
declined 55 percent and 47 percent, respectively, from the year-ago periods
reflecting lower interest rates, reduced debt and, to a lesser extent, foreign
currency transaction gains.
PROVISION FOR INCOME TAXES. The effective tax rate increased to 36
percent for the three months and six months ended June 30, 2002, from 35 percent
in the prior year periods. The higher estimated tax rate for 2002 is based on
the expected change in the mix of domestic and foreign earnings for the full
year.
COMPREHENSIVE INCOME (LOSS). The Company recorded comprehensive income
of $17 million for second quarter 2002, as compared with a comprehensive loss of
$4 million in the prior year period. The increase resulted from improved net
income and gains from cash flow hedges (net of income taxes), partially offset
by a $14 million unfavorable variance in the currency translation adjustment.
For the six months ended June 30, 2002, the Company recorded a comprehensive
loss of $29 million, as compared with a $33 million comprehensive loss a year
ago. The reduction in the comprehensive loss principally reflects gains from
cash flow hedges (net of income taxes), which more than offset a $44 million
unfavorable variance in the currency translation adjustment. The unfavorable $44
million variance in the currency translation adjustment relates primarily to the
negative impact of weakened local currencies, particularly in Argentina and
Brazil.
MEXICO HFCS TAX
On January 1, 2002, the Mexican Congress passed a value-added tax on
soft drinks sweetened with high fructose corn syrup (HFCS), which on March 5,
2002, was suspended until September 30, 2002. In response to the enactment of
the tax, which at the time effectively ended the use of HFCS for soft drinks in
Mexico, the Company ceased production of HFCS 55 at its San Juan del Rio plant,
one of its four plants in Mexico. Effective with the March 5, 2002 suspension of
the tax, the Company resumed the production and sale of HFCS in Mexico, although
at levels below historical volumes. On July 12, 2002, the Mexican Supreme Court
annulled the temporary suspension of the tax, thereby resuming the tax, and the
Company curtailed the production of HFCS 55 at its San Juan del Rio plant. Until
there is a permanent resolution of the Mexican value-added tax on soft drinks
sweetened with HFCS, the Company expects to make no HFCS sales to the soft drink
industry in Mexico.
12
Management continues to seek a permanent repeal of the tax and
currently believes that the problem will be ultimately resolved by the
governments of the United States and Mexico. Until that occurs, the Company's
operating results and cash flows will continue to be adversely affected by the
Mexico HFCS tax issue.
DEVALUATION OF THE ARGENTINE PESO
On January 6, 2002, the Argentine government announced a devaluation of
its currency and the establishment of a floating exchange rate. The Company's
financial statements for the year ended December 31, 2001 reflect this event.
For the first half of 2002, the Company recognized an other comprehensive loss
of approximately $68 million relating to the further devaluation of the
Argentine peso in relation to the U.S. dollar. This loss was included in the
accumulated comprehensive loss account within the stockholders' equity section
of the Company's Condensed Consolidated Balance Sheet. However, as a result of
actions taken in both Argentina and throughout the Southern Cone of South
America, the devaluation did not have a material adverse effect on the Company's
second quarter or first half 2002 net income. Continued weakening of the
Argentine peso relative to the U.S. dollar could result in the recognition of
additional foreign currency translation losses in accumulated comprehensive loss
and a reduction in the Company's total stockholders' equity in the future.
Additionally, any further devaluation of the Argentine currency and/or other
economic and policy developments in Argentina could have an adverse impact on
the Company's financial position, results of operations and cash flows in future
periods, and such effects could be significant.
CORNPRODUCTSMCP SWEETENERS LLC ("CPMCP")
In 2001, the Company began selling, marketing and distributing
designated sweetener production destined for sale in the United States through
CPMCP, a limited liability joint marketing company owned by the Company and
Minnesota Corn Processors, LLC ("MCP"). On July 11, 2002, MCP announced that it
had signed a merger agreement with Acher-Daniels-Midland Company ("ADM"),
whereby MCP would merge with a subsidiary of ADM. The consummation of the merger
is subject to a number of conditions, including approval from MCP unit holders
and appropriate regulatory agencies.
If ADM were to acquire MCP without terminating CPMCP, the document
governing the joint marketing company would require ADM to, among other things,
sell, market and distribute all of its designated sweetener products destined
for sale in the United States through CPMCP. In the event of a sale of MCP to
ADM, the Company would have the right to terminate the joint marketing company
without paying a termination fee. Regardless of whether there is a potential
change in control, either member of CPMCP has the option to terminate the joint
marketing company by giving written notice at any time and paying a stipulated
termination fee.
The Company has no current intention to terminate CPMCP, nor has the
Company received notice from MCP to that effect. The Company cannot give any
assurance that ADM and MCP will consummate a transaction or that, even if such a
transaction is consummated, CPMCP will be terminated. If CPMCP were to terminate
in connection with an acquisition of MCP by ADM, the Company believes that, as a
result of negotiations with MCP and the regulatory process, it would be able to
unwind the joint marketing company and resume the marketing of its own
designated sweetener products without a material impact on the Company's future
financial position, results of operations or cash flows.
13
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, the Company's total assets decreased to $2,059
million from $2,227 million at December 31, 2001. The decline in total assets
mainly reflects weakening of the local currencies in Argentina and Brazil.
For the six months ended June 30, 2002, cash provided by operating
activities was $109 million, compared to $18 million in the prior year period.
This increase primarily reflects a significant improvement in cash flow
pertaining to changes in working capital, compared to the year-ago period. Cash
used for investing activities totaled $39 million for the first half of 2002,
reflecting capital expenditures and acquisition-related payments, partially
offset by proceeds from the sale of EBS. Capital expenditures of $32 million for
the first half of 2002 are in line with the Company's capital spending plan for
the year, which is currently expected to approximate $80 million for full year
2002. The Company's capital expenditures and acquisition of the 10 percent
minority interest in Arancia were funded by operating cash flows and with
proceeds from the sale of EBS.
On June 28, 2002, the Company sold $200 million of 8.25 percent senior
notes due July 15, 2007. The net proceeds from the sale of the notes, which were
received by the Company on July 8, 2002, were used to repay $197 million of
borrowings outstanding under the Company's $340 million U.S. revolving credit
facility that matures in December 2002. Accordingly, $197 million of borrowings
outstanding under the U.S. revolving credit facility at June 30, 2002 have been
included in long-term debt in the accompanying Condensed Consolidated Balance
Sheet. The Company expects to refinance its U.S. revolving credit facility
during the second half of 2002.
In addition to the U.S. revolving credit facility, the Company has a
number of short-term credit facilities consisting of operating lines of credit.
At June 30, 2002, the Company had total debt outstanding of $680 million
compared to $756 million at December 31, 2001. The decrease mainly reflects
payments made during the first half of 2002. The debt outstanding includes: $265
million outstanding under the U.S. revolving credit facility (before application
of the net proceeds from the aforementioned sale of the 8.25 percent senior
notes) at a weighted average interest rate of 2.2 percent for the six months
ended June 30, 2002; $200 million of 8.45 percent senior notes due 2009; and
various affiliate indebtedness totaling $215 million which includes borrowings
outstanding under local country operating credit lines. The weighted average
interest rate on affiliate debt was approximately 6.3 percent for the first half
of 2002. On March 14, 2002, the Company entered into interest rate swap
agreements that effectively converted the interest rate associated with the
Company's 8.45 percent senior notes to a variable interest rate.
The Company expects that its operating cash flows and borrowing
availability under its credit facilities will be more than sufficient to fund
its anticipated capital expenditures, dividends and other investing and/or
financing strategies for the foreseeable future.
MINORITY INTEREST IN SUBSIDIARIES. Minority interest in subsidiaries
decreased $50 million to $97 million at June 30, 2002 from $147 million at
December 31, 2001. The decrease is mainly attributable to the Company's purchase
of the 10 percent minority interest in Arancia Corn Products, S.A. de C.V.
Effective with the purchase, Arancia Corn Products, S.A. de C.V. became a
wholly-owned subsidiary of the Company.
14
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains or may contain forward-looking statements concerning the
Company's financial position, business and future earnings and prospects, in
addition to other statements using words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend" and other similar expressions. These
statements contain certain inherent risks and uncertainties. Although we believe
our expectations reflected in these forward-looking statements are based on
reasonable assumptions, stockholders are cautioned that no assurance can be
given that our expectations will prove correct. Actual results and developments
may differ materially from the expectations conveyed in these statements, based
on factors such as the following: fluctuations in worldwide commodities markets
and the associated risks of hedging against such fluctuations; fluctuations in
aggregate industry supply and market demand; general political, economic,
business, market and weather conditions in the various geographic regions and
countries in which we manufacture and sell our products, including fluctuations
in the value of local currencies, energy costs and availability and changes in
regulatory controls regarding quotas, tariffs, taxes and biotechnology issues;
and increased competitive and/or customer pressure in the corn-refining
industry. Our forward-looking statements speak only as of the date on which they
are made and we do not undertake any obligation to update any forward-looking
statement to reflect events or circumstances after the date of the statement. If
we do update or correct one or more of these statements, investors and others
should not conclude that we will make additional updates or corrections. For a
further description of risk factors, see the Company's most recently filed
Annual Report on Form 10-K/A and subsequent reports on Forms 10-Q or 8-K.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is set forth in the Company's Annual Report on Form
10-K/A for the year ended December 31, 2001, and is incorporated herein by
reference. Except for the items referenced below, there have been no material
changes to the Company's market risk during the six months ended June 30, 2002.
On January 1, 2002, the Mexican Congress passed a value-added tax on
soft drinks sweetened with high fructose corn syrup (HFCS), which on March 5,
2002, was suspended until September 30, 2002. On July 12, 2002, the Mexican
Supreme Court annulled the temporary suspension of the tax, thereby resuming the
tax. Please refer to Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations, section entitled "Mexico HFCS Tax",
included herewith, for information pertaining to the tax.
On January 6, 2002 the Argentine government announced a devaluation of
its currency and the establishment of a floating currency exchange rate. Please
refer to Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, section entitled "Devaluation of the Argentine Peso",
included herewith, for information pertaining to the devaluation.
As described in Note 2 to the Condensed Consolidated Financial
Statements included herewith, on June 28, 2002, the Company sold $200 million of
8.25 percent senior notes due
15
July 15, 2007. The net proceeds from the sale of the notes, which were received
by the Company on July 8, 2002, were used to repay borrowings outstanding under
the Company's U.S. revolving credit facility.
As described in Note 9 to the Condensed Consolidated Financial
Statements included herewith, on March 14, 2002, the Company entered into
interest rate swap agreements that effectively converted the interest rate
associated with the Company's 8.45 percent $200 million senior notes to a
variable interest rate.
PART II OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on May 15, 2002, the following
matters were submitted to a vote of security holders. The number of votes cast
for, against, or withheld and the number of abstentions as to each such matter
were as follows:
1. ELECTION OF DIRECTORS
The following nominees for election as Directors of the Company were
elected for terms expiring in the year indicated:
Name Term Expires Votes For Votes Withheld
---- ------------ --------- --------------
Richard J. Almeida 2005 30,280,425 260,288
Alfred C. DeCrane, Jr. 2005 30,192,556 348,157
Guenther E. Greiner 2005 30,208,975 331,738
James M. Ringler 2005 30,281,714 258,999
The following other Directors of the Company are continuing in
office for terms expiring in the year indicated:
Name Term Expires
---- ------------
Ignacio Aranguren-Castiello 2003
Ronald M. Gross 2003
William S. Norman 2003
Clifford B. Storms 2003
Karen L. Hendricks 2004
Bernard H. Kastory 2004
Samuel C. Scott III 2004
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The stockholders ratified the appointment of KPMG LLP as independent
auditors for the Company for 2002 with 30,293,310 votes cast in
favor, 214,550 votes cast against and 32,853 votes abstained.
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ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index hereto.
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 2002.
All other items hereunder are omitted because either such item is inapplicable
or the response is negative.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORN PRODUCTS INTERNATIONAL, INC.
DATE: August 12, 2002 By /s/ James W. Ripley
--------------------------------
James W. Ripley
Vice President and
Chief Financial Officer
DATE: August 12, 2002 By /s/ Robin A. Kornmeyer
--------------------------------
Robin A. Kornmeyer
Corporate Controller
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EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
11 Statement re: computation of earnings per share
99.1 CEO Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code
99.2 CFO Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code
19