Attached files
file | filename |
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8-K - FORM 8-K - Ingredion Inc | c60213e8vk.htm |
EX-99.3 - EX-99.3 - Ingredion Inc | c60213exv99w3.htm |
EX-23.1 - EX-23.1 - Ingredion Inc | c60213exv23w1.htm |
EX-99.2 - EX-99.2 - Ingredion Inc | c60213exv99w2.htm |
Exhibit 99.1
The National Starch Business of
Akzo Nobel N.V.
(National Starch)
Akzo Nobel N.V.
(National Starch)
Combined financial statements as of and for each of the
two years ended December 31, 2009 and 2008
two years ended December 31, 2009 and 2008
August 17, 2010
INDEX TO THE COMBINED FINANCIAL STATEMENTS
Combined statements of operating activities for the years ended December 31, 2009 and 2008 |
2 | |||
Combined statements of assets and liabilities as of December 31, 2009 and 2008 |
3 | |||
Combined statements of identifiable cash flows for the years ended December 31, 2009 and 2008 |
4 | |||
Notes to the combined financial statements |
5 | |||
Independent auditors report |
28 |
1
NATIONAL STARCH
COMBINED STATEMENTS OF OPERATING ACTIVITIES
(Amounts in millions of US dollars)
COMBINED STATEMENTS OF OPERATING ACTIVITIES
(Amounts in millions of US dollars)
For the year ended December 31, | 2009 | 2008 | ||||||||||||||||||
Note | ||||||||||||||||||||
Revenues |
1,208.4 | 1,285.6 | ||||||||||||||||||
Revenues from related parties |
3 | 16.4 | 24.7 | |||||||||||||||||
Cost of sales |
(978.2 | ) | (978.2 | ) | ||||||||||||||||
Gross profit |
246.6 | 332.1 | ||||||||||||||||||
Selling expenses |
(85.4 | ) | (79.1 | ) | ||||||||||||||||
General and administrative expenses |
3 | (97.6 | ) | (91.9 | ) | |||||||||||||||
Research and development expenses |
(16.2 | ) | (16.5 | ) | ||||||||||||||||
Other operating income / (expenses) |
4.6 | 3.2 | ||||||||||||||||||
(194.6 | ) | (184.3 | ) | |||||||||||||||||
Operating income |
52.0 | 147.8 | ||||||||||||||||||
The accompanying notes are an integral part of these combined financial statements.
2
NATIONAL STARCH
COMBINED STATEMENTS OF ASSETS AND LIABILITIES
(Amounts in millions of US dollars)
COMBINED STATEMENTS OF ASSETS AND LIABILITIES
(Amounts in millions of US dollars)
As of December 31, | 2009 | 2008 | ||||||||||||||||||
Note | ||||||||||||||||||||
Assets |
||||||||||||||||||||
Non-current assets |
||||||||||||||||||||
Property, plant and equipment |
5 | 491.0 | 491.6 | |||||||||||||||||
Other assets |
28.4 | 30.0 | ||||||||||||||||||
Total non-current assets |
519.4 | 521.6 | ||||||||||||||||||
Current assets |
||||||||||||||||||||
Inventories |
6 | 176.9 | 217.7 | |||||||||||||||||
Trade and other receivables |
3, 7 | 171.7 | 179.3 | |||||||||||||||||
Total current assets |
348.6 | 397.0 | ||||||||||||||||||
Total assets |
868.0 | 918.6 | ||||||||||||||||||
Liabilities |
||||||||||||||||||||
Non-current liabilities |
||||||||||||||||||||
Provisions |
8 | 125.6 | 107.8 | |||||||||||||||||
Total non-current liabilities |
125.6 | 107.8 | ||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Trade and other payables |
3, 9 | 211.9 | 212.2 | |||||||||||||||||
Current portion of provisions |
8 | 4.4 | 3.4 | |||||||||||||||||
Total current liabilities |
216.3 | 215.6 | ||||||||||||||||||
Total liabilities |
341.9 | 323.4 | ||||||||||||||||||
Net assets |
526.1 | 595.2 | ||||||||||||||||||
The accompanying notes are an integral part of these combined financial statements.
3
NATIONAL STARCH
COMBINED STATEMENTS OF IDENTIFIABLE CASH FLOWS
(Amounts in millions of US dollars)
COMBINED STATEMENTS OF IDENTIFIABLE CASH FLOWS
(Amounts in millions of US dollars)
For the year ended December 31, | 2009 | 2008 | ||||||||||||||
Operating income |
52.0 | 147.8 | ||||||||||||||
Adjustments to reconcile operating income to net
cash generated from operating activities: |
||||||||||||||||
Depreciation and amortization |
43.4 | 44.0 | ||||||||||||||
Gain recognized on Lane Cove acquisition |
(0.3 | ) | | |||||||||||||
Realized loss/(gain) on corn inventory hedging positions (non-cash recognized in income) |
41.9 | (0.8 | ) | |||||||||||||
Loss on disposals of property, plant and equipment |
4.4 | 1.7 | ||||||||||||||
Unrealized gain on derivative contracts |
(2.3 | ) | | |||||||||||||
Corporate overhead allocations from parent |
3.0 | 2.0 | ||||||||||||||
Changes in working capital: |
||||||||||||||||
Trade and other receivables |
16.2 | (30.8 | ) | |||||||||||||
Inventories |
49.6 | (58.9 | ) | |||||||||||||
Trade and other payables |
(19.6 | ) | 39.6 | |||||||||||||
Net cash proceeds received/(payments made) on settled corn derivative contracts |
10.4 | (41.9 | ) | |||||||||||||
Net change in provisions |
10.2 | (1.7 | ) | |||||||||||||
Net cash from operating activities |
208.9 | 101.0 | ||||||||||||||
Investing activities |
||||||||||||||||
Purchases of property, plant and equipment |
(31.1 | ) | (39.4 | ) | ||||||||||||
Proceeds from disposals of property, plant and equipment |
0.1 | 0.2 | ||||||||||||||
Net change in other investments |
2.3 | (1.2 | ) | |||||||||||||
Acquisition of Lane Cove |
(11.1 | ) | | |||||||||||||
Net cash from investing activities |
(39.8 | ) | (40.4 | ) | ||||||||||||
Net cash from operating and investing activities |
169.1 | 60.6 | ||||||||||||||
The accompanying notes are an integral part of these combined financial statements.
4
NATIONAL STARCH
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Note 1Business and Basis of Presentation
Business
National Starch (the Business or the Company) is a business of Akzo Nobel N.V. (AkzoNobel).
The Company is a leading global supplier of specialty starches, principally focused on supplying
the food industry. Additionally, the Company serves niche papermaking markets and supplies
high-end industrial starch applications.
The Companys headquarters are located in Bridgewater, New Jersey, USA. Operating facilities which
manufacture products from different indigenous sources of starch (e.g. corn, tapioca, potato and
rice) are located in Australia, Brazil, China, Germany, Mexico, Thailand, the UK and the USA. In
total, the Business has 11 manufacturing facilities globally in eight countries, and there is a
blend of upstream (wet milling) and downstream (specialty processing) capabilities amongst the
plants.
Basis of Presentation
In January 2008, AkzoNobel completed the acquisition of Imperial Chemical Industries Plc. (ICI).
The Company was an existing business of ICI. These combined financial statements have been
prepared on a combined carve-out basis from the books and records of AkzoNobel to represent the
assets and liabilities and operating activities of the Company as if it had existed as a group of
consolidated businesses as of and during the years ended December 31, 2009 and 2008, and applying
International Accounting Standard (IAS) 27, Consolidated and Separate Financial Statements to
account for intergroup investments and transactions.
Furthermore, these combined financial statements exclude all purchase price allocation impacts
related to the National Starch business, resulting from AkzoNobels purchase of ICI, and are stated
at the historical amounts prior to the acquisition by AkzoNobel.
These combined financial statements have been prepared in order to fulfill the anticipated
reporting requirements of Corn Products International, Inc. (CPI) (see Note 12) under the
Securities Act of 1933 and the Securities Exchange Act of 1934, including those of the Securities
and Exchange Commission Regulation S-X 3-05 (Regulation S-X 3-05), Financial statements of
businesses acquired or to be acquired. The recognition and measurement principles of International
Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS)
have been applied to the assets, liabilities, income, expenses and cash flows included in these
combined financial statements as described in Note 1 and Note 2 to comply with Regulation S-X 3-05.
As these combined financial statements do not include the effects of financing and income taxes,
certain presentation and disclosures required by IFRS have been omitted in these combined financial
statements, including complete statements of financial position, statements of comprehensive
income, statements of equity and statements of cash flows, and certain other information required
by International Accounting Standard (IAS) 1, Presentation of Financial Statements and other
related disclosures.
These combined financial statements reflect the assets, liabilities, revenues, expenses and cash
flows of the Company, except as noted below. During 2009 and 2008, several legal restructurings
have taken place and therefore the legal structure during those two years is different from the
structure at December 31, 2009. The legal entities wholly owned by AkzoNobel forming part of the
Company as of December 31, 2009, are as follows:
Legal Entity
|
Country of Incorporation | |
National Starch Pty Ltd*
|
Australia | |
NSC Industrial Ltda
|
Brazil | |
National Starch ULC
|
Canada | |
NSS (Shanghai) Ltd
|
China |
5
Legal Entity | Country of Incorporation | |
Almidones y Quimicos Internacionales SA
|
Costa Rica | |
Deutsche ICI GmbH
|
Germany | |
NSC GmbH
|
Germany | |
PT National Starch
|
Indonesia | |
Nippon NSC Ltd
|
Japan | |
N-Starch Sdn Bhd
|
Malaysia | |
ICI Mauritius (Holdings) Ltd
|
Mauritius | |
Aranal SA de CV
|
Mexico | |
Grupo ICI Mexico SA de CV
|
Mexico | |
ICI Servicios Mexico SA de CV
|
Mexico | |
National Starch Servicios SA de CV
|
Mexico | |
Inter-National Starch Inc
|
Philippines | |
National Starch Pte Ltd
|
Singapore | |
NSC (Thailand) Ltd
|
Thailand | |
Brunob II B.V.
|
The Netherlands | |
Brunob IV B.V.
|
The Netherlands | |
Laing National Ltd
|
United Kingdom | |
National Starch LLC
|
United States of America | |
Raymond and White River LLC
|
United States of America |
* | Including Branch Office New Zealand |
Additionally, for the following legal entities wholly owned by AkzoNobel which will not be
transferred in any sale of National Starch, National Starch has historically had employees based in
and/or has had trading activities included within these legal entities. Any National Starch
related assets, liabilities, revenues, expenses, or cash flows that pertain directly to the
National Starch business from these entities have been included in these combined financial
statements. The non-National Starch businesses of these legal entities are dissimilar from
National Starch, have historically been managed as if they were autonomous from National Starch,
have no more than incidental common facilities and costs with National Starch, will be operated and
financed autonomously from National Starch after the sale of National Starch, and National Starch
is not expected to have material financial commitments, guarantees, or contingent liabilities to or
from the non-National Starch businesses after the sale of National Starch.
Legal Entity
|
Country of Incorporation | |
Akzo Nobel Quimica SA
|
Argentina | |
Akzo Nobel Coatings CZ s.r.o.
|
Czech Republic | |
Akzo Nobel SAS
|
France | |
Akzo Nobel India Ltd.
|
India | |
Akzo Nobel Chemical Spa
|
Italy | |
Akzo Nobel Powder Coatings Korea Co. Ltd.
|
Korea | |
Akzo Nobel Decorative Paints SP Z o.o.
|
Poland | |
Akzo Nobel Representative Office
|
Russia | |
ICI South Africa (Pty) Ltd.
|
South Africa | |
Akzo Nobel Packaging Coatings SA
|
Spain | |
EKA Chemicals AB
|
Sweden | |
Elotex AG
|
Switzerland | |
Akzo Nobel Functional Chemicals B.V.
|
The Netherlands | |
Akzo Nobel Representative Office
|
Ukraine | |
National Starch & Chemical Ltd.
|
United Kingdom | |
Akzo Nobel Paints Vietnam Ltd.
|
Vietnam |
6
Under the carve-out basis of presentation, these combined financial statements include
allocations for various expenses, including corporate administrative expenses incurred by AkzoNobel
and an allocation of certain assets and liabilities historically maintained by AkzoNobel, and an
allocation of income and expenses related to such assets and liabilities. These include corporate
overhead allocations, pension expenses and liabilities and other post-employment benefit expenses
and provisions. The various allocation methodologies for these items are discussed in the notes to
these combined financial statements.
With regard to corporate administrative expenses allocated to the Company from AkzoNobel, total
AkzoNobel costs approximating $50.6 million and $47.8 million have been considered for allocation
to these combined financial statements for the years ended December 31, 2009 and 2008,
respectively. These overhead costs include services provided to the Company relating to human
resources, procurement, treasury, accounting, tax, and legal related services. These costs have
been allocated to the Company based primarily on the headcount or revenues of the Company compared
to those of AkzoNobel. Using these allocation methods, corporate overheads of $3.0 million and
$2.0 million have been allocated to the Company for the years ended December 31, 2009 and 2008,
respectively. Further indirect corporate costs, such as those related to the board of management,
corporate governance, communications, investor relations and internal audit have been incurred by
AkzoNobel; however these costs have not been considered for allocation to the Company. During
2008, AkzoNobel decided that the Company should be operated independently for strategic purposes
and not be integrated into AkzoNobel or be included in AkzoNobels corporate programs and
activities.
Beginning in April 2008 and continuing throughout 2008 and 2009, various Transitional Service
Agreements (TSAs) were entered into with former parts of the ICI business, including businesses
sold by AkzoNobel and integrated into AkzoNobel. These agreements covered various items including
finance, information technology, human resources and support services, product supply and contract
manufacturing. The TSA costs were based on the 2008 budgets for actual services allocated with a
5% inflation factor effective April 1, 2009. During 2009, the Company pursued a self-sufficiency
agenda including the establishment of independent support functions while exiting the vast majority
of TSAs.
The charges related to the TSAs, as well as the allocations for various expenses incurred by
AkzoNobel, that have been included in these combined financial statements, may not be
representative of the cost which would have been incurred by the Company on a stand-alone basis or
which will be incurred under different ownership in the future.
These combined financial statements exclude the effects of financing and income taxes since
AkzoNobel uses a centralized approach to cash management and to finance its global operations as
well as to manage its global tax position.
Financing
The combined statements of operating activities exclude financing costs. The combined statements
of operating activities do include gains and losses related to futures and options for commodity
hedging as well as gains and losses related to forward foreign exchange contracts and foreign
exchange differences.
The combined statements of assets and liabilities exclude all cash and short-term and long-term
borrowings due from or to third parties (such as bank overdrafts, borrowings and loans) as well as
related parties. The combined statements of identifiable cash flows exclude all financing related
cash flows.
Income Taxes
The combined statements of operating activities exclude income tax charges. The combined
statements of assets and liabilities exclude all balances related to deferred income taxes (both
assets
7
and liabilities), as well as current income tax payables and receivables. The combined statements
of identifiable cash flows exclude all cash flows related to income taxes.
As a result of the foregoing exclusions, the combined financial statements may not necessarily be
indicative of the Companys financial position, results of operations, or cash flows had the
Company operated on a separate stand-alone basis during the periods presented, or for future
periods. Furthermore, the combined financial statements do not reflect the financial impact of the
actual separation of the Company from AkzoNobel.
These combined financial statements are presented in US dollars.
Note 2Significant Accounting Policies
The accounting policies as set out below have been applied consistently in preparing the combined
financial statements for the years ended December 31, 2009 and 2008.
A summary of the significant accounting policies used in the preparation of the accompanying
combined financial statements is presented below.
Principles of combination
These combined financial statements include the accounts of the Companys operations controlled by
AkzoNobel and have been combined as if they were a single consolidated group for all periods
presented.
All intercompany balances and transactions with combined entities have been eliminated. However,
intercompany balances and transactions with other AkzoNobel businesses, excluding National Starch,
have not been eliminated but are presented as balances and transactions with related parties,
except for those balances related to financing and income taxes, as these balances are excluded
from the combined financial statements.
Use of estimates
The preparation of financial statements requires management to make judgments, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on experience and various
other factors that are believed to be reasonable under the circumstances, the results of which form
the basis of making the judgments about carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future periods if the revision affects both
current and future periods.
The most critical accounting policies involving a higher degree of judgment and complexity in
applying principles of valuation are described below. Changes in the assumptions and estimates as
described could result in significantly different results than those recorded in the combined
financial statements. The Companys most significant accounting policies are:
A. Impairment of property, plant and equipment and estimation of useful lives
The Company assesses whether the carrying values of intangible assets and of property, plant and
equipment are recoverable. In this assessment, the Company makes significant judgments and
estimates to determine if the higher of the fair value less costs to sell or the value in use is
less than their carrying values. The data necessary for the impairment tests are based on the
strategic plans of the Company and estimates of future cash flows, which require estimating revenue
growth rates and profit margins. The estimated cash flows are discounted using a net present value
technique with market assessments of the time value of money and risks specific to the asset.
8
As part of performing an impairment analysis, the Company applies judgment when determining asset
groupings, or cash generating units (CGUs). CGUs represent the lowest level of identifiable
assets or asset groupings that are largely independent of the cash inflows for other assets or
groups of assets of the Company. Given the inter-related cash flows of the business, and the
manner in which the business is managed, the identification of CGUs, or groups of CGUs, for the
Company requires significant judgment.
Further, the Company estimates the useful lives of intangible assets and property, plant and
equipment. This process involves considerable judgment and is based on managements past
experience. Annually and when circumstances arise, the useful lives of intangibles and property,
plant and equipment are reassessed and adjusted.
B. Accounting for pensions and other post-retirement benefits
Post-retirement benefits represent obligations that will be settled in the future and require
assumptions to project obligations and returns on plan assets. The accounting requires the Company
to make assumptions regarding variables such as discount rate, rate of compensation increase,
return on assets, mortality rates and future healthcare costs. Periodically, the Company consults
with external actuaries regarding these assumptions. Changes in key assumptions can have a
significant impact on the projected benefit obligations, funding requirements and periodic costs
incurred.
Translation of foreign currencies
Assets and liabilities of foreign combined entities and businesses are translated into US dollars,
the reporting currency of the Company, at exchange rates ruling at the reporting date. Revenues
and expenses are translated into US dollars at average rates for the respective periods. Impacts
of the translation of foreign currencies are included in net assets.
Exchange gains and losses arising from operating transactions denominated in a currency other than
the functional currency of the entity involved are recorded within operating income in the combined
statements of operating activities.
Exchange rates against the reporting currency used in the preparation of the combined statements of
operating activities and the combined statements of assets and liabilities include:
Combined statement of | Combined statement of | |||||||||||||||
assets and liabilities | operating activities | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Australian Dollar |
1.1120 | 1.4427 | 1.2665 | 1.1889 | ||||||||||||
Brazilian Real |
1.7400 | 2.3308 | 1.9814 | 1.8244 | ||||||||||||
Canadian Dollar |
1.0497 | 1.2129 | 1.1335 | 1.0650 | ||||||||||||
Chinese Renminbi |
6.8268 | 6.8219 | 6.8341 | 6.9531 | ||||||||||||
Euro |
0.6943 | 0.7096 | 0.7174 | 0.6797 | ||||||||||||
Japanese Yen |
92.2254 | 90.2446 | 93.4056 | 103.0184 | ||||||||||||
Mexican Peso |
13.0774 | 13.7726 | 13.5274 | 11.1667 | ||||||||||||
Pound Sterling |
0.6200 | 0.6914 | 0.6385 | 0.5474 | ||||||||||||
Thai Baht |
33.3356 | 34.7150 | 34.2959 | 33.1950 |
Principles of valuation
The principles of valuation and determination of income used in these combined financial statements
are based on historical costs, unless stated otherwise in the principles of valuation of assets and
liabilities.
Revenue recognition
Revenues are defined as the consideration expected to be received from the sale and delivery of
goods. Revenues are presented net of value-added-tax, rebates, discounts and similar allowances.
9
Revenues from sales of goods and any byproducts are recognized when the significant risks and
rewards have been transferred to a third party. No revenue is recognized if there are significant
uncertainties regarding the recovery of the consideration due, associated costs, or the possible
return of goods, or if management has continuing involvement with the goods.
Cost of sales
Cost of sales comprises the manufacturing costs of the goods sold and delivered and any inventory
write-downs to net realizable value, offset by reversals of any such write-downs.
Manufacturing costs include items such as:
| the costs of raw materials, including hedging gains and losses, and supplies, energy and other materials; | |
| overhead charges assigned to the production process; | |
| depreciation and the costs of maintenance of the assets used in production; and | |
| salaries, wages and social charges for the personnel involved in manufacturing. |
Intangible assets and goodwill
Intangible assets and goodwill are presented under other assets in the combined statements of
assets and liabilities. The intangible assets, none of which have indefinite lives, are valued at
cost less accumulated amortization and impairment charges. All intangibles assets and goodwill are
tested for impairment whenever there is an indication that the asset may be impaired. Goodwill is
not amortized but tested for impairment annually. In cases where the carrying value of intangible
assets or goodwill exceeds the recoverable amount, an impairment charge is recognized in the
combined statements of operating activities.
Intangible assets with a finite useful life, such as certain licenses, computer software and
patents, are capitalized at historical cost and amortized on a straight-line basis over the
estimated useful life. Amortization methods, useful lives and residual values are reassessed
annually.
Intangible assets, other than goodwill, included in other assets, totals $6.4 million and $6.0
million as of December 31, 2009 and 2008, respectively. Goodwill, included in other assets, totals
$11.4 million and $10.9 million as of December 31, 2009 and 2008, respectively.
During 2009, the Company acquired the Lane Cove business in Australia. The acquisition
consideration totaled $13.6 million. $11.1 million of the total purchase price was paid in cash
during the year ended December 31, 2009 and the remainder in 2010. Based on the purchase price
allocation an amount of $0.3 million negative goodwill was recognized in other operating
income/(expenses) in relation to this acquisition.
Research and development costs
Expenditures on research activities, undertaken with the prospect of gaining new scientific or
technical knowledge and understanding are recognized in the combined statements of operating
activities as an expense as incurred. Development costs are capitalized if the costs can be
measured reliably, the product or process is technically and commercially feasible, sufficient
future economic benefits will be generated, and the Company has sufficient resources to complete
the development. The expenditures capitalized, if any, include the cost of materials, direct labor
and overhead costs that are directly attributable to preparing the asset for its intended use. No
development expenditure has been capitalized in these combined financial statements.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any
impairment recognized.
Subsequent costs are included in an assets carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will
flow to the Company and the cost of the item can be measured reliably. All other repairs and
maintenance
10
are charged to the combined statements of operating activities during the financial period in which
these costs are incurred.
Land is not depreciated. The cost of other property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the respective assets. The useful life for
buildings is up to 40 years and up to 17 years for plant and equipment.
Useful lives and residual values are reassessed annually. Components of property, plant and
equipment that have different useful lives are accounted for as separate items of property, plant
and equipment. The costs of major maintenance activities are capitalized as separate components of
property, plant and equipment and depreciated over the remaining useful lives of the components.
Leases
Leases of property, plant and equipment are classified as finance leases if the Company has
substantially all the risks and rewards of ownership. All other leases are accounted for as
operating leases.
Finance leases are capitalized at the commencement of the lease at the lower of the fair value of
the leased property or the present value of the minimum lease payments. Property, plant and
equipment acquired under finance leases are depreciated over the shorter of the useful life of the
asset or the lease term.
Operating lease payments are recognized as an expense in the combined statements of operating
activities on a straight-line basis over the term of the lease.
Impairment
The carrying amounts of the Companys assets are reviewed at each reporting date to determine
whether there is any indication of impairment. If the carrying value of an asset or its
cash-generating unit exceeds its estimated recoverable amount, an impairment loss is recognized in
the statements of operating activities.
Impairment losses recognized within a cash-generating unit are allocated first to the carrying
amount of goodwill and then to the carrying amount of the other assets on a pro rata basis. For
goodwill the recoverable amount is estimated at each reporting date. An impairment loss in respect
of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the assets carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
Inventories
Finished goods, raw materials and other inventories are stated at the lower of cost or net
realizable value. Net realizable value is the estimated selling price in the ordinary course of
business, less selling expenses and estimated costs of completion.
Costs of inventories comprise all costs of the raw materials, costs of conversion and other related
costs incurred in bringing the inventories to the present location and condition. The costs of
conversion of inventories include direct labor and fixed and variable production overheads, and
take into account the stage of completion. The cost of inventories is determined using the
weighted average cost formula.
Trade and other receivables
Trade and other receivables, excluding derivative financial instruments, are stated at amortized
cost, using the effective interest method, less any impairment loss. An allowance for impairment
of trade and other receivables is established if the collection of a receivable becomes doubtful.
Such receivable becomes doubtful when there is objective evidence that the Company will not be able
to collect all amounts due according to the original terms of the receivables. Significant
financial
11
difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial
reorganization and default or delinquency in payments are considered indicators that the receivable
is impaired. The amount of the allowance is the difference between the assets carrying amount and
the present value of estimated future cash flows, discounted at the original effective interest
rate. An impairment loss is recognized in the combined statements of operating activities, as are
subsequent recoveries of previous impairments.
Financial instruments
Regular purchases and sales of financial assets and liabilities are recognized on a trade date
basis, which is the date the Company commits to purchase or sell the asset. The initial
measurement of all financial instruments is fair value adjusted for directly attributable
transaction costs.
Derivative financial instruments
Derivative financial instruments include foreign exchange contracts, futures contracts and options
contracts. All derivative financial instruments are recognized at fair value on the combined
statements of assets and liabilities.
Fair values are derived from market prices and quotes from dealers and brokers, or are estimated
using observable market inputs. Foreign exchange and commodity contracts are reported within
current assets or current liabilities. Changes in the fair value of foreign exchange contracts are
recognized in cost of sales or other operating income/(expenses), depending on the nature of the
transaction, while changes in the fair value of commodity contracts are recognized in cost of
sales, unless cash flow hedge accounting is applied. In that case, the effective part of the fair
value changes is deferred as part of net assets until inventories are recognized and released to
cost of sales in the combined statements of operating activities at the same time as the hedged
item or earlier if it is determined that a deferred loss will not be recovered in one or more
future periods.
Both at the hedge inception and at each quarter end, it is assessed whether the derivatives used
are highly effective in offsetting changes in fair values or cash flows of hedged items. When a
derivative is not highly effective, hedge accounting is discontinued prospectively. When a cash
flow hedge relationship is terminated, the fair value changes deferred in net assets are released
to the combined statements of operating activities when the hedged transaction is no longer
expected to occur or when it is determined that deferred losses will not be recovered. Otherwise
these will be released to the combined statements of operating activities at the same time as the
hedged item affects operating income.
Trade and other payables
Trade and other payables, excluding derivative instruments, are measured at amortized cost, using
the effective interest method. Their carrying values approximate their cost because of the
short-term maturity of these instruments.
Provisions and contingent liabilities
Provisions are recorded when the Company has a present legal or constructive obligation as a result
of past events that can be measured reliably, and it is more likely than not that an outflow of
resources will be required to settle that obligation. The expected future cash outflows are
discounted, if significant, using appropriate pre-tax interest rates reflecting current market
assessments of the time value of money and, if applicable, the risks specific to the liability, to
reflect the Companys best estimate to settle the obligation at the reporting date.
Provisions for restructuring are recognized when a detailed and formal restructuring plan has been
approved, and the restructuring has either commenced or has been announced publicly.
12
By their nature, provisions and contingent liabilities are dependent upon estimates and assessments
as to whether the criteria for recognition have been met, including estimates of the probability of
cash and other resources outflows.
Pensions and other post-retirement benefits
National Starch has both defined benefit and defined contribution plans. A defined contribution
plan is a pension plan under which the business is required to pay fixed contributions for current
and past service into a separate entity with no legal or constructive obligations to pay further
contributions. A defined benefit plan is a pension plan that is not a defined contribution plan.
The Company records all actuarial gains and losses through net assets. The liability recognized in
the combined statements of assets and liabilities in respect of defined benefit pension plans is
the present value of the defined benefit obligation at the period end date less the fair value of
plan assets. The defined benefit obligation is calculated annually using the projected unit credit
method. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating to the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions
are charged or credited to net assets in the period in which they arise and will not be recognized
in the combined statements of operating activities in subsequent periods.
Past-service costs are recognized immediately in income, unless the changes to the pension plan are
conditional on the employees remaining in service for a specified period of time (the vesting
period). In this case, the past-service costs are amortized on a straight-line basis over the
vesting period.
For defined contribution plans, the Company pays contributions to publicly or privately
administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company
has no further payment obligations once the contributions have been paid. The contributions are
recognized as employee benefit expense when they are due. Prepaid contributions are recognized as
an asset to the extent that a cash refund or a reduction in the future payments is available.
In certain countries post-retirement benefits other than pensions are also provided to employees.
These plans are generally not funded. Valuations of the obligations under these plans are carried
out by independent actuaries based on the projected unit credit method. The costs relating to such
plans primarily consist of the present value of the benefits attributed on an equal basis to each
year of service and the interest on this obligation in respect of employee service in previous
years. The accounting for post-retirement benefits other than pensions is consistent with the
Companys accounting for defined benefit pension plans.
Certain defined benefit pension plans are maintained by AkzoNobel and also include non-National
Starch participants. Management has made various assumptions and estimates to allocate the
expenses and balances related to these plans to the Company.
Net periodic pension costs are recorded in the combined statements of operating activities
following the function of the respective Company employee.
Other long-term employee benefits
Other long-term employee benefits include long-term service benefits and other employee benefits
payable more than 12 months after the related service is rendered. These provisions are stated at
present value.
13
New IFRS accounting standards
Several new accounting pronouncements have been issued, but are not effective and have not been
adopted early as of the date of the combined financial statements. These include:
| IFRS 3, Business Combinations and IAS 27, Consolidated and Separate Financial Statements were revised and will be effective for the Company as from 2010, with earlier application permitted. These standards will bring significant changes to the accounting policies related to business combinations and changed ownership interests. | ||
| IFRS 9, Financial Instruments (replacement of IAS 39) will become effective as from 2013, with earlier adoption permitted. IFRS 9 introduces new requirements for classifying and measuring financial instruments. | ||
| The IASBs annual improvements project results in many smaller amendments to several IFRSs. Most amendments will be effective as from 2010. | ||
| An amendment to IAS 24, Related Party Disclosures clarifies the definition of a related party and provides a partial exemption from the disclosure requirements for government-related entities. The revised standard also clarifies that disclosure is required of any commitments of a related party to do something if a particular event occurs or does not occur in the future. The revised standard is effective as from 2011, with earlier application permitted. | ||
| An amendment to IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction on minimum funding requirements corrects an unintended consequence of the originally issued interpretation. The amendment is effective as from 2011, with earlier application permitted. |
National Starch has not yet assessed the potential impacts that the adoption of the above standards
will have on the combined financial statements of the Company.
Note 3Related Parties
These combined financial statements include transactions with related parties.
In 2009 and 2008, the Company entered into transactions with AkzoNobel and its subsidiaries.
Furthermore, AkzoNobel provided corporate services for the Company during the periods presented.
Sales of goods to AkzoNobel and its subsidiaries for the years ended December 31, 2009 and 2008
total $16.4 million and $24.7 million, respectively. From January 1, 2008 to June 30, 2008, these
sales to AkzoNobel and its subsidiaries were made at cost ($8.7 million) or at established transfer
prices. From July 1, 2008 through December 31, 2009, these sales to AkzoNobel and its subsidiaries
were based on cost plus and other transfer pricing methods with margins typically ranging between
20% and 25%.
At December 31, 2009 and 2008, the Company had receivables from AkzoNobel and its subsidiaries of
$3.0 million and $1.1 million, respectively. These amounts are reflected in trade and other
receivables in the combined statements of assets and liabilities. At December 31, 2009 and 2008,
the Company had payables to AkzoNobel and its subsidiaries of $4.0 million and $4.6 million,
respectively. These amounts are reflected in trade and other payables in the combined statements
of assets and liabilities.
During the years ended December 31, 2009 and 2008, the Company was charged for services provided to
the Company. These include, among other items, services at shared sites, insurance, taxation,
treasury, human resources, safety, health and environment. These corporate recharges total to $1.6
million and $5.8 million for the years ended December 31, 2009 and 2008, respectively, and are
recorded in general and administrative expenses.
From April 1, 2008 to December 31, 2009, the aforementioned charges decreased overall as certain of
the corporate groups were disbanded following AkzoNobels acquisition of ICI, and the subsequent
14
disposal of certain businesses by AkzoNobel in April 2008. These charges were replaced by
TSAs beginning in April 2008, which provided the allotment of services to the Company by AkzoNobel
corporate functions, other AkzoNobel business units, and Henkel AG & Co. KGaA (Henkel). The TSA
costs were based on the 2008 budgets for those services with a 5% inflation factor effective April
1, 2009. These TSA costs were directly charged to the Company for services provided based on rates
agreed upon by the providers and recipients of the services included in the TSAs. By 2010, only a
few TSAs are remaining and the Company is working toward a full exit of the TSAs, which may be
terminated with 4 months notice. The remaining TSAs are in effect with AkzoNobel, none are in
operation with Henkel. The TSA costs included in the statements of operating activities were $11.9
million and $11.2 million for the years ended December 31, 2009 and 2008, respectively and includes
amounts charged by both AkzoNobel and Henkel. The TSA costs are primarily recorded in general and
administrative expenses.
In addition to the above costs historically charged to the Company, additional AkzoNobel
administrative expenses have been allocated to the Company in these combined financial statements.
General and administrative expenses also include allocated corporate administrative expenses from
AkzoNobel of $3.0 million and $2.0 million for the years ended December 31, 2009 and 2008,
respectively. These costs include allocations of direct and indirect services provided to the
Company relating to human resources, procurement, treasury, accounting, tax, and legal related
services. These costs have been allocated to the Company based on headcount or revenues of the
Company compared to those of AkzoNobel.
During 2009 and 2008, the Company leased from AkzoNobel, the owner, the Companys headquarters
facility in Bridgewater, N.J., which required an annual payment of $3.0 million to the owner of the
property and is subject to escalation clauses. The lease expires in June 2024.
Key management compensation
Key management compensation included in the table below, relates to the Companys Global Leadership
Team members that were active during 2009 and 2008, respectively.
Key Management Compensation
In $ millions | 2009 | 2008 | ||||||
Salaries and other short-term employee benefits |
8.4 | 7.1 | ||||||
Post-employment benefits |
0.9 | 0.9 | ||||||
Other long-term benefits |
3.8 | | ||||||
Total |
13.1 | 8.0 | ||||||
Note 4Employee Benefits
Salaries, wages and other employee benefits
In $ millions | 2009 | 2008 | ||||||
Salaries and wages |
161.9 | 164.9 | ||||||
Pension and other post-retirement cost |
12.1 | 10.7 | ||||||
Other social charges |
9.0 | 10.9 | ||||||
Total |
183.0 | 186.5 | ||||||
15
Salaries, wages and other employee benefits per cost category
In $ millions | 2009 | 2008 | ||||||
Cost of sales |
92.7 | 97.2 | ||||||
Selling expenses |
48.0 | 47.9 | ||||||
Research and development expenses |
11.9 | 12.2 | ||||||
General and administrative expenses |
30.4 | 29.2 | ||||||
Total |
183.0 | 186.5 | ||||||
Employees
Average number during the year
2009 | 2008 | |||||||
North America |
992 | 1,054 | ||||||
Europe |
281 | 265 | ||||||
Asia |
726 | 655 | ||||||
Latin America |
279 | 256 | ||||||
Total |
2,278 | 2,230 | ||||||
Number of employees at year-end |
2,322 | 2,235 |
Note 5Property, Plant and Equipment
Buildings | Plant equipment | |||||||||||
In $ millions | and land | and machinery | Total | |||||||||
Cost of acquisition |
303.4 | 551.2 | 854.6 | |||||||||
Accumulated depreciation |
(97.8 | ) | (245.2 | ) | (343.0 | ) | ||||||
Carrying value at January 1, 2008 |
205.6 | 306.0 | 511.6 | |||||||||
Movements in 2008 |
||||||||||||
Divestments and disposals |
| (1.9 | ) | (1.9 | ) | |||||||
Capital expenditures |
11.9 | 27.5 | 39.4 | |||||||||
Depreciation |
(12.7 | ) | (29.9 | ) | (42.6 | ) | ||||||
Changes in exchange rates |
0.7 | (15.6 | ) | (14.9 | ) | |||||||
Total changes |
(0.1 | ) | (19.9 | ) | (20.0 | ) | ||||||
Cost of acquisition |
316.2 | 553.4 | 869.6 | |||||||||
Accumulated depreciation |
(110.7 | ) | (267.3 | ) | (378.0 | ) | ||||||
Carrying value at year-end 2008 |
205.5 | 286.1 | 491.6 | |||||||||
Movements in 2009 |
||||||||||||
Acquisitions through business combinations |
2.5 | 4.2 | 6.7 | |||||||||
Divestments and disposals |
(1.2 | ) | (3.3 | ) | (4.5 | ) | ||||||
Capital expenditures |
8.2 | 22.9 | 31.1 | |||||||||
Depreciation |
(15.0 | ) | (27.3 | ) | (42.3 | ) | ||||||
Changes in exchange rates |
1.7 | 6.7 | 8.4 | |||||||||
Total changes |
(3.8 | ) | 3.2 | (0.6 | ) | |||||||
Cost of acquisition |
327.6 | 585.6 | 913.2 | |||||||||
Accumulated depreciation |
(125.9 | ) | (296.3 | ) | (422.2 | ) | ||||||
Carrying value at year-end 2009 |
201.7 | 289.3 | 491.0 | |||||||||
The book value of property, plant and equipment financed by finance lease, and not legally
owned by the Company, was $2.5 million and $2.3 million as of December 31, 2009 and 2008,
respectively. As
16
of December 31, 2009 and 2008, no item of property, plant and equipment, or other
assets, were provided as security for bank loans.
Depreciation per cost category
In $ millions | 2009 | 2008 | ||||||
Cost of sales |
(39.1 | ) | (39.3 | ) | ||||
Selling expenses |
(0.7 | ) | (0.5 | ) | ||||
General and administrative expenses |
(1.5 | ) | (1.9 | ) | ||||
Research and development expenses |
(1.0 | ) | (0.9 | ) | ||||
Total |
(42.3 | ) | (42.6 | ) | ||||
Note 6Inventories
In $ millions | 2009 | 2008 | ||||||
Raw materials and supplies |
62.0 | 64.4 | ||||||
Finished products and goods for resale |
118.4 | 157.4 | ||||||
Provisions for obsolete items |
(3.5 | ) | (4.1 | ) | ||||
Total |
176.9 | 217.7 | ||||||
In 2009 and 2008, $1.7 million and $2.8 million, respectively, were recognized in the combined
statements of operating activities for the write-down of inventories to their net realizable
values, while $1.7 million and $2.6 million, respectively, of write-downs were reversed in the
period of sale.
As of December 31, 2009, $14.5 million of raw material inventories in North America have been
pledged as collateral for a line of credit with a third party.
Note 7Trade and Other Receivables
In $ millions | 2009 | 2008 | ||||||
Trade receivables |
148.1 | 160.0 | ||||||
Receivables from related parties |
3.0 | 1.1 | ||||||
Prepaid expenses |
7.1 | 7.9 | ||||||
Other receivables |
13.5 | 10.3 | ||||||
Total |
171.7 | 179.3 | ||||||
Aging of trade receivables
In $ millions | 2009 | 2008 | ||||||
Performing and < 3 months accounts receivable |
150.6 | 160.0 | ||||||
Past due accounts receivables: |
||||||||
3-6 months |
0.3 | 1.4 | ||||||
6-9 months |
1.0 | | ||||||
9-12 months |
0.9 | 0.4 | ||||||
> 12 months |
| 0.8 | ||||||
Allowance for impairment |
(4.7 | ) | (2.6 | ) | ||||
Total trade receivables |
148.1 | 160.0 | ||||||
17
With respect to the trade and other receivables that are neither impaired nor past due, there
are no indications as of December 31, 2009 that the debtors will not meet their payment
obligations.
Allowance for impairment of trade receivables
In $ millions | 2009 | 2008 | ||||||
Opening balance |
2.6 | 3.5 | ||||||
Additions charged to income |
2.6 | 0.1 | ||||||
Utilization |
(0.4 | ) | (1.3 | ) | ||||
Currency exchange differences |
(0.1 | ) | 0.3 | |||||
Closing balance |
4.7 | 2.6 | ||||||
The additions to the allowance for impairment of trade receivables have been included in the
combined statements of operating activities under selling expenses.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of
receivables presented above. The Company does not hold any collateral for impaired trade
receivables nor does the Company have a significant customer concentration.
Note 8Provisions
Pensions and other | ||||||||||||||||
post-retirement | Restructuring of | |||||||||||||||
In $ millions | Total | benefits | activities | Other | ||||||||||||
Balance at January 1, 2008 |
83.2 | 76.1 | 3.0 | 4.1 | ||||||||||||
Additions made during the year |
19.8 | 10.7 | 6.2 | 2.9 | ||||||||||||
Utilization |
(20.4 | ) | (15.5 | ) | (4.3 | ) | (0.6 | ) | ||||||||
Amounts reversed during the year |
(1.1 | ) | | | (1.1 | ) | ||||||||||
Actuarial losses, net |
29.8 | 29.8 | | | ||||||||||||
Changes in exchange rates |
(0.1 | ) | (0.1 | ) | | | ||||||||||
Balance at December 31, 2008 |
111.2 | 101.0 | 4.9 | 5.3 | ||||||||||||
Non-current portion of provisions |
107.8 | 101.0 | 2.6 | 4.2 | ||||||||||||
Current portion of provisions |
3.4 | | 2.3 | 1.1 | ||||||||||||
Total |
111.2 | 101.0 | 4.9 | 5.3 | ||||||||||||
Additions made during the year |
17.1 | 12.1 | 3.6 | 1.4 | ||||||||||||
Utilization |
(6.9 | ) | (3.5 | ) | (2.3 | ) | (1.1 | ) | ||||||||
Actuarial losses, net |
8.5 | 8.5 | | | ||||||||||||
Changes in exchange rates |
0.1 | 0.1 | (0.1 | ) | 0.1 | |||||||||||
Balance at December 31, 2009 |
130.0 | 118.2 | 6.1 | 5.7 | ||||||||||||
Non-current portion of provisions |
125.6 | 118.2 | 2.0 | 5.4 | ||||||||||||
Current portion of provisions |
4.4 | | 4.1 | 0.3 | ||||||||||||
Total |
130.0 | 118.2 | 6.1 | 5.7 | ||||||||||||
Provisions for pensions and other post-retirement benefits
The majority of the Companys employees participate in Company or other AkzoNobel defined benefit
pension plans, defined contribution pension plans and other post-retirement benefit plans, which
provide benefits to employees and former employees of both National Starch and other AkzoNobel
businesses. In certain of these plans, the assets and liabilities of Company employees (and former
Company employees) are combined with those related to employees and former employees of other
18
AkzoNobel businesses. The Company has obtained information about each of these AkzoNobel
plans measured in accordance with IAS 19 on the basis of assumptions that apply to each of the
plans as a whole, and used a reasonable allocation to determine the Companys portion of the each
plans assets, liabilities and benefit costs under IAS 19. The allocation method used was based on
plan participant headcount of the Companys employees compared to the plans total headcount.
Management considers that such allocations have been made on a reasonable basis.
For each of these plans, the defined benefit obligation (at each reporting date), and the service
cost, contributions, benefit payments, and impact of special events (in each accounting period),
relating to the Company, have been determined using actuarial techniques which take into account
the membership profile of the Companys participants. Where applicable, plan assets at each
reporting date have been split in the same proportion as the defined benefit obligation.
Management believes that such allocations have been made on a reasonable basis.
Other employees of the Company participate in stand-alone National Starch pension and other
post-retirement benefit plans. The related expenses, assets and liabilities for these plans are
accounted for in accordance with IAS 19.
Valuations of the obligations under the pension and other post-retirement benefit plans are carried
out annually. The discount rates applied are based on yields available on high-quality
corporate bonds that have currencies and terms consistent with the currencies and estimated terms
of the Companys obligations.
The defined benefit pension plans in which the Companys employees participate generally provide
benefits based on years of service and employees compensation. The funding policies for the plans
are consistent with local requirements in the countries of establishment. Obligations under these
plans are systematically provided for by depositing funds with trustees or separate foundations,
under insurance policies, or by recording provisions in the combined statements of assets and
liabilities.
A number of the Companys current and former employees participate in post-retirement healthcare
and life insurance plans. The Company has accrued for the expected costs of providing such
post-retirement benefits during the years that the employee rendered the necessary services.
Below, a table is provided with a summary of the changes in the pension and the other
post-retirement benefit obligations and plan assets for the years ended December 31, 2009 and 2008.
19
Other post-retirement | ||||||||||||||||
Pensions | benefits | |||||||||||||||
In $ millions | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Defined benefit obligation |
||||||||||||||||
Balance at beginning of year |
196.5 | 196.7 | 17.2 | 16.0 | ||||||||||||
Settlements / curtailments |
(0.1 | ) | | | | |||||||||||
Plan amendment |
0.5 | | | | ||||||||||||
Service costs |
6.1 | 7.5 | 0.7 | 0.6 | ||||||||||||
Contribution by employees |
| 0.2 | 0.3 | | ||||||||||||
Interest costs |
11.5 | 11.6 | 0.9 | 1.0 | ||||||||||||
Benefits paid |
(9.2 | ) | (13.3 | ) | (0.9 | ) | (1.6 | ) | ||||||||
Actuarial (gains) / losses |
16.1 | (2.8 | ) | (2.7 | ) | 1.3 | ||||||||||
Changes in exchange rates |
2.1 | (3.4 | ) | 0.1 | (0.1 | ) | ||||||||||
Defined benefit obligation at year-end |
223.5 | 196.5 | 15.6 | 17.2 | ||||||||||||
Plan assets |
||||||||||||||||
Balance at beginning of year |
(111.6 | ) | (135.4 | ) | | | ||||||||||
Contribution by employer |
(2.7 | ) | (13.7 | ) | (0.6 | ) | (1.6 | ) | ||||||||
Contribution by employees |
| (0.2 | ) | (0.3 | ) | | ||||||||||
Benefits paid |
9.0 | 13.1 | 0.9 | 1.6 | ||||||||||||
Expected return on plan assets |
(7.6 | ) | (10.1 | ) | | | ||||||||||
Actuarial (gains) / losses |
(4.9 | ) | 31.3 | | | |||||||||||
Changes in exchange rates |
(2.1 | ) | 3.4 | | | |||||||||||
Plan assets at year-end |
(119.9 | ) | (111.6 | ) | | | ||||||||||
Reconciliation of provision |
103.6 | 84.9 | 15.6 | 17.2 | ||||||||||||
Unrecognized past service costs |
| | (1.0 | ) | (1.1 | ) | ||||||||||
Total |
103.6 | 84.9 | 14.6 | 16.1 | ||||||||||||
Funded and unfunded pension plans
In $ millions | 2009 | 2008 | ||||||
Wholly or partly funded plans |
209.2 | 185.8 | ||||||
Unfunded plans |
14.3 | 10.7 | ||||||
Total |
223.5 | 196.5 | ||||||
The net periodic pension costs for the defined benefit pension plans were as follows:
Net periodic pension cost
Pensions | Other post-retirement benefits | |||||||||||||||
In $ millions | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service costs for benefits earned during the period |
6.1 | 7.5 | 0.7 | 0.6 | ||||||||||||
Interest costs on defined benefit obligations |
11.5 | 11.6 | 0.9 | 1.0 | ||||||||||||
Expected return on plan assets |
(7.6 | ) | (10.1 | ) | | | ||||||||||
Amortization of past service costs |
0.5 | | 0.1 | 0.1 | ||||||||||||
Settlement / curtailment gain |
(0.1 | ) | | | | |||||||||||
Total |
10.4 | 9.0 | 1.7 | 1.7 | ||||||||||||
The cumulative amount of actuarial losses from January 1, 2008 recognized through net assets
was $38.3 million and $29.8 million as of December 31, 2009 and 2008, respectively.
Expense recognized for defined contribution plans totalled $5.8 million and $4.3 million during the
years ended December 31, 2009 and 2008, respectively.
20
The weighted average remaining life expectancy of the persons participating in the defined benefit
pension plans were:
Remaining life expectancy
At December 31 | ||||||||
In years | 2009 | 2008 | ||||||
Currently aged 60 |
||||||||
Male |
26.9 | 27.3 | ||||||
Female |
29.2 | 29.8 | ||||||
Currently aged 45, at age 60 |
||||||||
Male |
27.2 | 27.6 | ||||||
Female |
29.5 | 30.0 |
All assumptions for pensions and other post-retirement benefits have been determined by
management based on past experience, future estimates, and based on the knowledge of the plan
participant base. The assumptions for the expected return on plan assets were based on a review of
the historical returns of the asset classes in which the assets of the pension plans are invested.
The historical returns on these asset classes were weighted based on the expected long-term
allocation of the assets of the pension plans.
Weighted average assumptions for pensions and other post-retirement benefits
Pensions | Other post-retirement benefits | |||||||||||||||
In % | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Pension benefit obligation at December 31: |
||||||||||||||||
-Discount rate |
5.3 | % | 5.8 | % | 5.5 | % | 6.0 | % | ||||||||
-Rate of compensation increase |
4.6 | % | 4.5 | % | ||||||||||||
Net periodic pensions costs: |
||||||||||||||||
-Discount rate |
5.8 | % | 5.8 | % | 6.0 | % | 5.8 | % | ||||||||
-Rate of compensation increase |
4.5 | % | 4.4 | % | ||||||||||||
-Expected return on plan assets |
6.9 | % | 7.1 | % |
National Starchs and AkzoNobels primary objective with regard to the investment of pension
plan assets is to ensure that in each individual scheme sufficient funds are available to satisfy
future benefit obligations. For this purpose, asset and liability management (ALM) studies are
made periodically for each pension fund. An appropriate mix is determined on the basis of the
outcome of these ALM studies, taking into account the local rules and regulations. Pension plan
assets principally consist of long-term interest-earning investments and quoted equity securities.
The weighted average pension plan asset allocation at December 31, 2009 and 2008 for the pension
plans by asset category are as follows:
Plan asset allocation
Plan assets at December 31 | ||||||||
In % | 2009 | 2008 | ||||||
Equity securities |
28.8 | % | 25.4 | % | ||||
Long-term interest earning investments |
57.3 | % | 56.7 | % | ||||
Real estate and other |
13.9 | % | 17.9 | % | ||||
Total |
100 | % | 100 | % | ||||
21
Weighted average assumptions for other post-retirement benefits were as follows:
Weighted average assumptions
In % / year | 2009 | 2008 | ||||||
Assumed healthcare cost trend rates at December 31: |
||||||||
Healthcare cost trend rate assumed for next year |
7.5 | % | 8.5 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |
5.0 | % | 5.0 | % | ||||
Year that the rate reaches the ultimate trend rate |
2015 | 2015 | ||||||
Assumed healthcare cost trend rates can have a significant effect on the amounts reported for
the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would
have the following effects:
Sensitivity healthcare cost trends
1% point | 1% point | |||||||
In $ millions | increase | decrease | ||||||
(Increase) / decrease on total of service and interest cost |
(0.1 | ) | | |||||
(Increase) / decrease on post-retirement benefit obligations |
(0.3 | ) | 0.3 |
Cash flows
The Company expects to contribute $6.6 million to its defined benefit pension and other
post-retirement benefit plans in 2010.
The following benefit payments, which take into account the effect of future service, are expected
to be paid:
Expected benefit payments
Other post- | ||||||||
retirement | ||||||||
In $ millions | Pensions | benefits | ||||||
2010 |
17.6 | 0.9 | ||||||
2011 |
15.9 | 1.0 | ||||||
2012 |
15.0 | 1.0 | ||||||
2013 |
15.3 | 1.0 | ||||||
2014 |
14.9 | 1.1 | ||||||
2015 2019 |
92.9 | 5.5 |
Provisions for restructuring of activities
Provisions for restructuring of activities comprise estimated cash outflows for certain employee
benefits and for costs that are directly associated with plans to exit specific activities and to
close down facilities. For all restructurings a detailed formal plan exists, and the
implementation of the plan
has started or the plan has been announced. Most restructuring activities relate to relatively
smaller restructurings, and are expected to be completed within two years from the respective date
of recognition. However, for certain plans, payments of termination benefits to former employees
may take several years longer.
Other provisions
Other provisions primarily relate to other non-pension related long-term employee benefits, such as
deferred compensation.
22
Note 9Trade and Other Payables
Trade and other payables
In $ millions | 2009 | 2008 | ||||||
Third party payables |
126.6 | 125.2 | ||||||
Payables to related parties |
4.0 | 4.6 | ||||||
Other liabilities |
81.3 | 82.4 | ||||||
Total |
211.9 | 212.2 | ||||||
Other liabilities include accrued employee compensation, including certain employee single and
multi-year incentive plans.
Note 10Financial Risk Management and Financial Instruments
The Companys activities expose the Company to a variety of financial risks including currency
risk, commodity price risk and credit risk. These risks are inherent to the way the Company
operates as a Company with a globally integrated supply chain and large number of locally operating
businesses. The Companys overall risk management program seeks to identify, assess, and, if
considered appropriate, mitigate these financial risks. These risk mitigating activities include
the use of derivative financial instruments to hedge certain risk exposures.
Foreign exchange risk management
The Company operates with a globally integrated supply chain, often sourcing products from a region
of one functional currency, but ultimately selling to third-party customers in another currency.
The Company enters into limited foreign exchange contracts within its Thailand business for
economic hedging purposes. All foreign exchange contracts outstanding at December 31, 2009 and
2008, have a maturity of less than one year. The Company does not use financial instruments to
hedge the translation risk of investments in foreign operations or earnings of foreign businesses.
Currency derivatives are not used for speculative purposes and are recorded at fair value through
the statements of operating activities.
The table below presents a breakdown of the notional amounts of outstanding foreign exchange
contracts that the Companys Thailand business has entered into as of December 31, 2009 and 2008:
Notional amounts at year-end
In millions of noted currency | 2009 | 2008 | ||||||||||||||
Buy | Sell | Buy | Sell | |||||||||||||
US Dollar |
21.4 | | 16.4 | | ||||||||||||
Euro |
1.5 | | 0.8 | 0.2 | ||||||||||||
Japanese Yen |
172.2 | 0.5 | 570.0 | 0.2 | ||||||||||||
Swedish Krona |
| 0.1 | | 0.1 |
The Company performs foreign currency sensitivity analysis by applying an adjustment to the
spot rates prevailing during the year. This adjustment is based on observed changes in the
exchange rate in the past and management expectation for possible future movements.
On a combined basis, for the year ended December 31, 2009, if the US dollar had weakened or
strengthened by 10 percent against the other currencies of the combined Company, with all other
variables held constant, operating income for the year would have been approximately $4 million
(2008: $7 million) higher or lower.
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Commodity price risk management
The Company hedges agricultural commodities with futures and options contracts purchased at the
Chicago Mercantile Exchange. Cash flow hedge accounting is applied to these contracts and the
Company has operated a hedging program throughout 2009 and 2008. The futures and cash markets for
agricultural commodities experienced volatility in 2009 and 2008. The Companys standard practice
is to hedge a substantial portion of the ensuing years crop.
As of January 1, 2008, the Company included gains of $3.3 million in net assets and recognized a
realized gain of $0.4 million in inventories. During the year ended December 31, 2008, the Company
recognized gains of $9.1 million into inventories, and also recognized losses of $28.5 million into
net assets, resulting in $34.3 million of realized and unrealized losses included in net assets as
of December 31, 2008. At December 31, 2008, a realized loss of $8.0 million was recognized in
inventories. At December 31, 2008, agricultural commodities were hedged by the business using
futures contracts with a notional value of $38.8 million and a fair value of $(1.7) million.
During the year ended December 31, 2009, the Company recognized losses of $38.9 million into
inventories, and also recognized gains of $3.5 million into net assets, resulting in $8.8 million
of realized and unrealized gains included in net assets as of December 31, 2009. At December 31,
2009, a realized gain of $1.9 million was recognized in inventories. At December 31, 2009,
agricultural commodities were hedged by the business using futures and options contracts with a
notional value of $59.1 million and a fair value of $4.6 million.
The Company regularly settles these cash flow hedge positions through margin accounts.
The commodity price risk sensitivity analysis is performed by applying an adjustment to the forward
rates prevailing at year-end. This adjustment is based on observed changes in commodity prices in
the previous year and management expectations for possible future movements. For the purpose of
this sensitivity analysis, the change of the price of the commodity is not discounted to the net
present value at the reporting date.
On December 31, 2009, if the prices of agricultural commodities were 10 percent weaker / stronger
than the market prices actually prevailing at that date, with all other variables held constant,
net assets would have been $5.7 million lower or higher. This is due to the fair value changes of
agricultural derivatives which have been accounted for under cash flow hedge accounting.
Credit risk
Credit risk arises from financial assets such as derivative financial instruments with a positive
fair value and trade and other receivables.
The Company has a credit risk management policy in place to limit credit losses due to
non-performance of financial counterparties and customers. The exposure to credit risk is
monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit.
Generally, the Company does not require collateral in respect of financial assets.
Transactions involving derivative financial instruments are with counterparties with sound credit
ratings and with whom the Company has contractual netting agreements. The Company has no reason to
expect non-performance by the counterparties to these agreements.
Due to the geographical spread of the Company and the diversity of its customers, at December 31,
2009 and 2008, the Company was not subject to any significant concentration of credit risks. The
maximum exposure to credit risk is represented by the carrying amount of each financial asset,
including derivative financial instruments, in the combined statements of assets and liabilities.
24
Liquidity risk management
The primary objective of liquidity management is to provide for sufficient cash and cash
equivalents to enable the Company to meet its payment obligations. Historically the Company has
relied on its parent for financing and cash management. As these combined financial statements
exclude financing, no further disclosure has been made regarding liquidity risk management.
Maturity of liabilities and cash outflows
Less than | Between 1 | |||||||||||
In $ millions | 1 year | and 5 years | Over 5 years | |||||||||
At December 31, 2009: |
||||||||||||
Trade and other payables, excluding derivative instruments |
211.9 | | | |||||||||
Derivative instruments: |
||||||||||||
Outflow (included in trade and other payables) |
| | | |||||||||
Total |
211.9 | | | |||||||||
At December 31, 2008: |
||||||||||||
Trade and other payables, excluding derivative instruments |
210.5 | | | |||||||||
Derivative instruments: |
||||||||||||
Outflow (included in trade and other payables) |
1.7 | | | |||||||||
Total |
212.2 | | | |||||||||
The carrying values and estimated fair values of financial instruments are as follows:
Fair value per financial instruments category
Carrying value per IAS 39 category | ||||||||||||||||||||||||
Loans and | At fair value | Total | ||||||||||||||||||||||
Carrying | Out of scope of | receivables / other | through profit or | carrying | ||||||||||||||||||||
In $ millions | amount | IFRS 7 | liabilities | loss | value | Fair value | ||||||||||||||||||
December 31, 2009: |
||||||||||||||||||||||||
Other assets |
28.4 | 17.8 | 6.8 | 3.8 | 10.6 | 10.6 | ||||||||||||||||||
Trade and other receivables |
171.7 | | 169.4 | 2.3 | 171.7 | 171.7 | ||||||||||||||||||
Total financial assets |
200.1 | 17.8 | 176.2 | 6.1 | 182.3 | 182.3 | ||||||||||||||||||
Trade and other payables |
211.9 | | 211.9 | | 211.9 | 211.9 | ||||||||||||||||||
Total financial liabilities |
211.9 | | 211.9 | | 211.9 | 211.9 | ||||||||||||||||||
December 31, 2008: |
||||||||||||||||||||||||
Other assets |
30.0 | 16.9 | 10.3 | 2.8 | 13.1 | 13.1 | ||||||||||||||||||
Trade and other receivables |
179.3 | | 179.3 | | 179.3 | 179.3 | ||||||||||||||||||
Total financial assets |
209.3 | 16.9 | 189.6 | 2.8 | 192.4 | 192.4 | ||||||||||||||||||
Trade and other payables |
212.2 | | 212.2 | | 212.2 | 212.2 | ||||||||||||||||||
Total financial liabilities |
212.2 | | 212.2 | | 212.2 | 212.2 | ||||||||||||||||||
Loans and receivables and other liabilities are recognized at amortized cost, using the
effective interest method, with the exception of amounts related to the unrealized gain/loss for
commodity hedges, which are measured at fair value. The carrying amounts of receivables less
allowance for impairment and other current liabilities approximate fair value due to the short
maturity period of those instruments.
Fair value of financial instruments
The following valuation methods for financial instruments carried at fair value through profit or
loss
25
are distinguished:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs)
All fair values of financial instruments carried at fair value through profit or loss and hedging
instruments employ level 1 and level 2 valuation methods.
Note 11 Contingent liabilities and unrecognized contractual commitments
Environmental matters
Environmental liability risks are reviewed periodically and adjusted, if necessary, and as
additional information becomes available. Environmental liabilities can change substantially due
to the emergence of additional information on the nature or extent of the contamination, the
necessity of employing particular methods of remediation, actions by governmental agencies or
private parties, or other factors.
It is the Companys policy to accrue when it is probable that a liability has materialized and an
amount is reasonably estimable. At December 31, 2009 and 2008, no provisions have been recorded
for environmental matters.
Litigation
From time to time the Company is subject to legal claims and disputes and a number of claims are
currently pending, all of which are contested. While the outcome of these claims cannot be
predicted with certainty, management believes, based upon legal advice and information received,
that the final outcome will not materially affect the Companys financial position.
Commitments
The Company holds operating leases for certain vehicles, equipment, warehouses, buildings and other
assets. Future minimum lease payments under operating leases as of December 31, 2009 are as
follows:
Maturity of operating leases
In $ millions | 2009 | |||
Payments due within one year |
11.7 | |||
Payments between one and five years |
30.0 | |||
Payments due after more than five years |
31.0 | |||
Total |
72.7 | |||
The Company also has commitments for the purchase of property, plant and equipment of $4.3
million as of December 31, 2009.
The Company has raw material and utility purchase commitments in the ordinary course of business.
As of December 31, 2009, the Company had outstanding commitments to purchase 1.2 million metric
tons and 84 thousand metric tons of corn in North America and Europe, respectively. Of these
amounts, 428 thousand metric tons and 47 thousand metric tons of corn had been priced in North
America and Europe, respectively. Such pricing is not indicative of the ultimate net cost the
Company will bear due to the Companys hedging strategy as described in Note 10. As of December
31, 2009, the Company had commitments to purchase 705 million kw-hrs of natural gas in North
America. Of
26
this amount, 424 million kw-hrs had been priced for a total value of $8.8 million. As
of December 31, 2009, the Company had commitments to purchase 102 million kw-hrs of natural gas and
49 million kw-hrs of electricity in Europe at a total cost of $7.6 million.
Note 12 Subsequent events
At April 23, 2010, AkzoNobel announced its intention to divest the National Starch business. At
June 19, 2010, AkzoNobel and CPI signed an International Share and Business Sale Agreement in
relation to the National Starch business. The change in ownership is subject to completion of
certain closing conditions, and the transfer of assets and liabilities is governed by the
International Share and Business Sale Agreement.
Bridgewater, August 17, 2010
J.P. Zallie
Chief Executive Officer and President of National Starch
/s/ J.P. Zallie
Chief Executive Officer and President of National Starch
/s/ J.P. Zallie
H.W.M. Kieftenbeld
Chief Financial Officer of National Starch
/s/ H.W.M. Kieftenbeld
Chief Financial Officer of National Starch
/s/ H.W.M. Kieftenbeld
27
Independent Auditors Report
The Board of Management
National Starch LLC:
National Starch LLC:
We have audited the accompanying combined statements of assets and liabilities of the National
Starch business of Akzo Nobel N.V. (the Business) as of December 31, 2009 and 2008, and the related
combined statements of operating activities and identifiable cash flows for the years then ended.
These combined financial statements are the responsibility of the Business management. Our
responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. 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 consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Business internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, 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.
The accompanying combined financial statements were prepared on the basis of accounting described
in Notes 1 and 2 for the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Form 8-K of Corn Products International, Inc., and are not
intended to be a complete presentation of the Business financial position, results of operations
or cash flows in full compliance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
In our opinion, the combined financial statements referred to above present fairly, in all material
respects, the assets and liabilities of the National Starch business of Akzo Nobel N.V. as of
December 31, 2009 and 2008, and the results of its operating activities and its identifiable cash
flows for the years then ended, on the basis of accounting described in Notes 1 and 2.
/s/ KPMG LLP | ||||
Short Hills, NJ
August 17, 2010
August 17, 2010
28