UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

COMMISSION FILE NUMBER 1-13397

CORN PRODUCTS INTERNATIONAL, INC.

DELAWARE
(State or other jurisdiction of incorporation or organization)

22-3514823
(I.R.S. Employer Identification Number)

(708) 551-2600
(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.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1
FINANCIAL STATEMENTS

CORN PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Statements of Income
(Unaudited)

(In millions, except per share amounts)

See Notes To Condensed Consolidated Financial Statements

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PART I FINANCIAL INFORMATION

ITEM I
FINANCIAL STATEMENTS

CORN PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

See Notes To Condensed Consolidated Financial Statements

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PART I FINANCIAL INFORMATION

ITEM 1
FINANCIAL STATEMENTS

CORN PRODUCTS INTERNATIONAL, INC.

Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

(In millions)

See Notes To Condensed Consolidated Financial Statements

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PART I FINANCIAL INFORMATION

ITEM 1
FINANCIAL STATEMENTS

CORN PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Statement of Stockholders’ Equity and Redeemable Equity
(Unaudited)

See Notes To Condensed Consolidated Financial Statements

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PART I FINANCIAL INFORMATION

ITEM 1
FINANCIAL STATEMENTS

CORN PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

See Notes To Condensed Consolidated Financial Statements

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CORN PRODUCTS INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements

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 on Form 10-K for the year ended December 31, 2003.

     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 and cash flows for the interim periods ended March 31, 2004 and 2003, and the financial position of the Company as of March 31, 2004. The results for the interim periods are not necessarily indicative of the results expected for the full years.

     Certain prior year amounts in the Condensed Consolidated Financial Statements have been reclassified to conform with the current year’s presentation. These reclassifications had no effect on previously recorded net income.

2. Stock-based Compensation

     The Company accounts for stock compensation using the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Employee compensation cost related to restricted stock grants is recognized ratably over the vesting period.

     Amounts charged to compensation expense for amortization of restricted stock for the three months ended March 31, 2004 and 2003 were $0.5 million and $0.4 million, respectively. However, no employee compensation cost related to common stock options is reflected in net income, as each option granted under the Company’s plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per common share assuming the Company had applied the fair value based recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based

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Compensation,” to all awards of common stock options for the three months ended March 31, 2004 and 2003:

3. Inventories

Inventories are summarized as follows:

4. 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. The Company’s South America operations include corn-refining businesses in Brazil, Colombia, Ecuador and the Southern Cone of South America, which includes Argentina, Chile and Uruguay. The Company’s Asia/Africa operations include

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corn-refining businesses in Korea, Pakistan, Malaysia and Kenya, and a tapioca root processing operation in Thailand.

5. Net Periodic Benefit Cost

     For detailed information about the Company’s pension and postretirement benefit plans, please refer to Note 11 of the Company’s Consolidated Financial Statements included in the 2003 Annual Report on Form 10-K.

     The following sets forth the components of net periodic benefit cost of the US and non-US defined benefit plans for the three months ended March 31, 2004 and 2003:

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The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2003 that it expects to make cash contributions of $8 million to its US and $3 million to its Canadian pension plans in 2004. As of March 31, 2004, $0.6 million in pension contributions were made to the Canadian pension plan.

The following sets forth the components of net postretirement benefit cost for the three months ended March 31, 2004 and 2003, respectively:

6. New Accounting Standards

     In December 2003, the “Medicare Prescription Drug Improvement and Modernization Act of 2003” (the “Medicare Act”) was enacted into law. The Medicare Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.

     In the first quarter of 2004, a proposed Financial Accounting Standards Board Staff Position (“FSP 106-b”) was issued providing guidance on the accounting for the effects of the Medicare Act for employers that sponsor postretirement health care plans that provide prescription drug benefits. FSP 106-b will supersede FSP 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.”

     The guidance in FSP 106-b related to the accounting for the subsidy applies only to the sponsor of a single-employer defined benefit postretirement health care plan for which (a) the employer has concluded that prescription drug benefits available under the plan are actuarially equivalent and thus qualify for the subsidy under the Medicare Act and (b) the expected subsidy will offset or reduce the employer’s share of the costs of postretirement prescription drug coverage provided by the plan. The FSP also provides guidance for the disclosures about the effects of the subsidy for employers that sponsor postretirement health care benefit plans that provide prescription drug coverage but for which the employer has not yet determined actuarial equivalency. The FSP is effective for the first interim or annual period beginning after June 15, 2004. The Company is currently evaluating the effect of the Medicare Act and FSP 106-b on its postretirement health care plans.

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ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview and Outlook

     We are one of the world’s largest corn refiners and a major supplier of high-quality food ingredients and industrial products derived from the wet milling and processing of corn and other starch-based materials. Our starches, sweeteners and other products serve as ingredients to more than sixty industries throughout the world. The corn refining industry is highly competitive. Many of our products are viewed as commodities that compete with virtually identical products manufactured by other companies in the industry. However, we have twenty-seven manufacturing plants located throughout North America, South America and Asia/Africa and we manage and operate our businesses at a local level. We believe this approach provides us with a unique understanding of the cultures and product requirements in each of the geographic markets in which we operate, bringing added value to our customers.

     First quarter 2004 was a strong quarter for us as net sales, operating income, net income and diluted earnings per share grew significantly over the comparable prior year period. Increased sales volume world-wide, improved price/product mix and stronger foreign currencies drove these improvements. We anticipate that full year 2004 net income will grow over 2003, driven principally by a strong first half of the year. We currently expect full year 2004 diluted earnings per share to increase in the range of 12 to 17 percent over the $2.11 per diluted share we earned in 2003.

Results of Operations

For The Three Months Ended March 31, 2004
With Comparatives for the Three Months Ended March 31, 2003

     Net Income. Net income for the quarter ended March 31, 2004 increased to $25.7 million, or $0.70 per diluted share, from $13.6 million, or $0.38 per diluted share, in the first quarter of 2003. The increase in earnings principally reflects higher sales volumes, improved price/product mix and favorable translation effects attributable to stronger foreign currencies relative to the US dollar. Additionally, our ongoing focus on cost control contributed to the earnings improvement.

     Net Sales. First quarter net sales totaled $550 million, up 15 percent from first quarter 2003 net sales of $479 million. The increase principally reflects 8 percent volume growth and a 6 percent increase attributable to stronger foreign currencies. Price/product mix improvement also contributed to the increase.

     North American net sales for first quarter 2004 increased 10 percent to $339 million, from $307 million in the same period last year, as sales increased throughout the region. North American sales volume grew 5 percent, price/product mix improved 2 percent and favorable currency translation attributable to a stronger Canadian dollar contributed 3 percent to the net sales increase. In South America, first quarter 2004 net sales increased 29 percent to $136 million, from $105 million in first quarter 2003, reflecting strong volume growth (up 17 percent)

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and a 17 percent improvement attributable to stronger local currencies, partially offset by a 5 percent reduction attributable to lower price/product mix. In Asia/Africa, first quarter 2004 net sales increased 13 percent to $76 million, from $67 million in the year-ago period, reflecting volume growth of 7 percent, price/product mix improvement of 3 percent and a 3 percent increase attributable to stronger Asian currencies. Our new glucose operation in Thailand contributed to the region’s growth.

     Cost of Sales and Operating Expenses. Cost of sales of $456 million for first quarter 2004 was up 11 percent from $411 million in the prior year period, mainly due to increased volume and higher corn costs. Gross profit margin was 17 percent, up from 14 percent last year, primarily reflecting volume growth and improved product selling prices. Additionally, our ongoing focus on cost control contributed to the improved gross profit margin.

     First quarter 2004 operating expenses increased to $40.3 million from $34.6 million last year. First quarter 2004 operating expenses, as a percentage of net sales, was 7.3 percent, up slightly from 7.2 percent a year ago. We continue to focus on cost control while growing our business.

     Operating Income. First quarter 2004 operating income increased 53 percent to $54.2 million, from $35.5 million a year ago, reflecting earnings growth in each of our regions. North America operating income of $24.0 million more than doubled from $11.9 million in the first quarter of 2003, primarily reflecting higher sales volume, improved price/product mix and favorable currency translation effects attributable to a stronger Canadian dollar. South America operating income of $23.4 million for first quarter 2004 increased 44 percent from $16.3 million in the prior year period, mainly due to significant volume growth and favorable currency translation effects attributable to stronger local currencies throughout the region. Asia/Africa operating income increased 23 percent to $16.6 million, from $13.5 million a year ago, reflecting volume growth, improved price/product mix and favorable currency translation attributable to stronger Asian currencies.

     Financing Costs. Financing costs for first quarter 2004 increased slightly to $9.5 million from $9.2 million last year, principally due to foreign currency transaction losses that more than offset lower interest costs attributable to reduced indebtedness and lower interest rates.

     Provision for Income Taxes. The effective income tax rate for first quarter 2004 was 36 percent, unchanged from the prior year period.

     Minority Interest in Earnings. The decrease in minority interest for first quarter 2004 reflects the effect of our March 2003 purchase of the remaining interest in our now wholly-owned Southern Cone of South America business, partially offset by increased earnings at our majority-owned subsidiaries in Korea, Pakistan and Thailand.

     Comprehensive Income. The Company recorded comprehensive income of $64 million for the first quarter of 2004, up from $24 million in the same period last year. The increase principally reflects unrealized gains on cash flow hedges (net of income taxes) relating to corn and gas purchases, and an increase in net income.

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Mexican Tax on Beverages Sweetened with HFCS/Recoverability of Mexican Assets

     On January 1, 2002, a discriminatory tax on beverages sweetened with high fructose corn syrup (“HFCS”) approved by the Mexican Congress late in 2001, became effective. In response to the enactment of the tax, which effectively ended the use of HFCS for beverages in Mexico, we ceased production of HFCS 55 at our San Juan del Rio plant, one of our four plants in Mexico. As of March 31, 2004 the tax continues in place, although we have resumed limited sales of HFCS to certain beverage customers.

We continue to be disappointed with the Mexican Congress’ failure to repeal the tax and are exploring options for resolving the situation and minimizing any potential long-term negative financial impact that might occur. Discussions with government officials continue regarding the matter. These officials have implied on several occasions that a resolution of the matter is expected, however a resolution has not been achieved. We continue to support the ongoing bilateral trade efforts between individual groups representing interests in both the United States and Mexico to resolve the HFCS issue. Although we are hopeful that this matter will ultimately be resolved, we cannot predict with any certainty the likelihood or timing of repeal of the tax. We are attempting to mitigate the negative effects of the tax on HFCS demand in Mexico by exploring other markets for our HFCS production capability in and around Mexico. We have also restructured our Mexican operations in an effort to improve efficiency and reduce operating costs. On October 21, 2003, we submitted an arbitration claim against the Government of Mexico under the provisions of the North American Free Trade Agreement (“NAFTA”). The claim is for approximately $325 million as compensation for past and potential lost profits and other damages arising from the Government of Mexico’s imposition of the discriminatory tax on beverages containing HFCS. In addition, on March 14, 2004, the United States Government filed a complaint with the World Trade Organization accusing Mexico of imposing unfair taxes on beverages sweetened with HFCS.

Until there is a favorable resolution of the tax, we expect that we will be unable to make any significant sales of HFCS to the beverage industry in Mexico and our operating results and cash flows will continue to be adversely affected.

Our ability to fully recover the carrying value of our long-term investment in Mexico, which consists primarily of goodwill and property, plant and equipment associated with our Mexican operations, is dependent upon the generation of sufficient cash flows from the use or other disposition of these assets. Our ability to generate these cash flows will be significantly affected by a variety of factors, including the timing and permanence of a repeal, if any, of the tax, the timing and extent of any recovery in the demand for HFCS by the Mexican beverage industry, the extent to which alternative markets for HFCS develop in and around Mexico, the success of our restructuring activities in Mexico, and the amount of the proceeds received from the resolution of the our NAFTA claim against the Government of Mexico, if any, as well as by management’s ability to develop and implement a successful alternative long-term business strategy in Mexico. Based on our long-term forecasts of operating results, including the assumptions described below, we believe that we will generate sufficient cash flows from the use or other disposition of these long-term assets to fully recover their carrying values, and accordingly, no impairment of either goodwill or other long-term assets related to Mexico was recognized as of March 31, 2004.

In developing our current estimates of the cash flows that we expect to be generated from our Mexican operations, we have assumed that the tax will be repealed during 2004 and that sales of HFCS to the Mexican beverage industry will return to the levels they had attained prior to the imposition of the tax by the beginning of 2005. Under these assumptions, the estimated fair

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However, notwithstanding the developments outlined above, there have been no formal actions toward the repeal of the tax. While we continue to believe that the tax will be repealed and that the profitability of the Mexican operations will return to pre-2002 levels, we will continue to reevaluate certain of the key assumptions underlying our cash flow projections, including the impact on such assumptions of the lack of positive developments in the near future. We believe a continued lack of definitive results in negotiations with the Mexican Government leading to the repeal of the tax would substantially increase the likelihood that an impairment charge would be required. The amount of such non-cash charge, if any, will depend on our assessment of the factors identified above on expected future cash flow.

Liquidity and Capital Resources

     At March 31, 2004, our total assets were $2,287 million, up from $2,210 million at December 31, 2003. This increase primarily reflects strong cash flow, an increase in non-trade accounts receivable principally attributable to a rise in the value of commodity futures contracts, and translation effects associated with stronger local currencies, particularly in South America and Korea.

     Cash provided by operating activities was $75 million for first quarter 2004, up $78 million from first quarter 2003. The increase in operating cash flow principally reflects higher net income and a $62 million improvement in cash generated from changes in working capital, as compared with the prior year period. The increase in cash flow from working capital changes mainly reflects improved inventory and accounts payable management. Capital expenditures of $15 million for first quarter 2004 are in line with our capital spending plan for the year, which is currently expected to approximate $90 million for full year 2004. Included in this estimate are expenditures relating to our previously announced proposed $100 million capital project at our Argo plant located in Bedford Park, Illinois. The proposed project will include the shutdown and replacement of the plant’s three current coal-fired boilers with one environmentally sound coal-fired boiler. This project will also reduce the plant’s emissions as well as provide more efficient and effective energy production. An application requesting the issuance of a construction permit was submitted to the Illinois Environmental Protection Agency (“IEPA”) in September. Pending receipt of an IEPA permit, ground breaking on the project is anticipated to occur in the second half of 2004 and the project is expected to be completed in the second quarter of 2006.

     We have a $150 million revolving credit facility in the United States that extends to October 15, 2006, and under which there were no outstanding borrowings at March 31, 2004. In addition, we have a number of short-term credit facilities consisting of operating lines of credit. At March 31, 2004, the Company had total debt outstanding of $539 million compared to $550 million at December 31, 2003. The debt outstanding includes: $255 million (face amount) of 8.25 percent senior notes due 2007; $200 million (face amount) of 8.45 percent senior notes due 2009; and $87 million of consolidated subsidiary short-term indebtedness, including borrowings outstanding under local country operating credit lines. The weighted average interest rate on consolidated subsidiary debt was approximately 5.3 percent for the first three months of 2004. The Company has interest rate swap agreements that effectively convert the interest rate associated with the Company’s 8.45 percent senior notes to a variable interest rate. The fair value of these interest rate swap agreements approximated $25 million and $22 million at March 31, 2004 and December 31, 2003, respectively.

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     On March 24, 2004, our board of directors declared a quarterly cash dividend of $0.12 per share of common stock. The cash dividend was paid on April 26, 2004 to stockholders of record at the close of business on March 31, 2004.

     We expect that our operating cash flows and borrowing availability under our credit facilities will be more than sufficient to fund our anticipated capital expenditures, dividends and other investing and/or financing strategies for the foreseeable future.

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 various factors, including: 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; increased competitive and/or customer pressure in the corn-refining industry; the outbreak or continuation of hostilities; stock market fluctuation and volatility; and the resolution of the current uncertainties relating to the Mexican HFCS tax. 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 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 for the year ended December 31, 2003, and is incorporated herein by reference. There have been no material changes to the Company’s market risk during the three months ended March 31, 2004.

ITEM 4
CONTROLS AND PROCEDURES

     Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that all material information required to be filed in this report has been recorded, processed, summarized and reported within the time periods

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specified in the SEC’s rules and forms. There have been no changes in the Company’s internal controls over financial reporting subsequent to the date of our evaluation that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II OTHER INFORMATION

ITEM 2
CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Issuer Purchase of Equity Securities:

On September 16, 1998, the Company’s Board of Directors approved a stock repurchase program of up to 2 million shares. On January 21, 2000, the Company’s Board of Directors authorized an increase in the Company’s stock repurchase program from 2 million shares to 6 million shares of common stock over a 5-year period.

ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K

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: May 7, 2004	By /s/ Cheryl K. Beebe
	Cheryl K. Beebe
	Vice President and Chief Financial Officer

DATE: May 7, 2004	By /s/ Robin A. Kornmeyer
	Robin A. Kornmeyer
	Vice President and Controller

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EXHIBIT INDEX

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