1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 1-13397
CORN PRODUCTS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
22-3514823
(I.R.S. Employer Identification Number)
6500 SOUTH ARCHER ROAD,
BEDFORD PARK, ILLINOIS 60501-1933
(Address of principal executive offices) (Zip Code)
(708) 563-2400
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year,
if changed since last report)
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 periods that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days:
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 11, 1998
Common Stock, $.01 par value 35,615,934 shares
10Q-1
2
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC
CONSOLIDATED STATEMENTS OF INCOME
(ALL FIGURES ARE IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, RESTATED*
----------- ---------- ---------
1998 1997** 1997
----------- ---------- ---------
Net sales $ 339.0 $ 337.1 $ 327.4
Cost of sales 300.1 316.3 306.5
-------- -------- --------
Gross profit 38.9 20.8 20.9
Operating expense 25.3 27.1 26.8
Fees and income from unconsolidated subsidiaries 4.3 1.7 0.2
-------- -------- --------
Operating income 17.9 (4.6) (5.7)
========
Financing costs 5.0 8.1
-------- --------
Income before income taxes 12.9 (12.7)
Provision (benefit) for income taxes 4.3 (4.6)
-------- --------
8.6 (8.1)
Minority stockholders' interest 0.6 0.5
-------- --------
Net income (loss) $ 8.0 $ (8.6)
======== ========
Average common shares outstanding:
Basic 35.6 35.6
Diluted 35.9 35.6
Earnings (loss) per common share
-------- --------
Basic and diluted $ 0.22 $ (0.24)
======== ========
See Notes to Consolidated Financial Statements
* NOTE:
Commencing January 1, the fiscal year of our subsidiaries outside North
America has changed to that of our North American operation, which is the
calendar year. This disclosure represents a restated analysis of operating
income that puts the entire operation for 1997 on a December 31 year end basis
for analytical comparison purposes. The attached financial statements for
periods prior to January 1, 1998, as well as the above "as previously reported"
data, contain the results previously reported including the Other Operations on
a September year end basis.
**AS PREVIOUSLY REPORTED
10Q-2
3
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF:
($ MILLIONS) MARCH 31, DECEMBER 31,
1998 1997
------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 80 $ 85
Accounts receivable - net 211 182
Inventories 138 123
Prepaid expenses 16 13
Deferred tax asset 12 20
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 457 423
- -------------------------------------------------------------------------------------------------
Investments in and loans to unconsolidated subsidiaries 107 168
Plants and properties - net 1,040 1,057
Other assets 21 18
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,625 1,666
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable 276 337
Accounts payable 130 90
Accrued liabilities 42 69
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 448 496
- -------------------------------------------------------------------------------------------------
Noncurrent liabilities 39 37
Long - term debt 11 13
Deferred taxes on income 130 128
Minority stockholders' interest 7 6
STOCKHOLDERS' EQUITY
Preferred stock - authorized 25,000,000 shares-
$0.01 par value none issued -- --
Common stock - authorized 200,000,000 shares -
$0.01 par value - 35,652,134 and 35,594,360 issued
and outstanding on March 31, 1998 and 1 1
December 31, 1997, respectively
Additional paid in capital 1,020 1,020
Cumulative translation adjustment (39) (35)
Retained earnings 8 --
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 990 986
=================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,625 $ 1,666
=================================================================================================
See Notes To Consolidated Financial Statements
10Q-3
4
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
($ MILLIONS) THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------------------- ---------------------------
Net Income 8.0 (8.5)
Other comprehensive income/loss
Currency translation adjustment
(4.0) (.9)
------- -------
Comprehensive income 4.0 (9.4)
======= =======
CORN PRODUCTS INTERNATIONAL, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
($ MILLIONS) PREFERRED COMMON ADDITIONAL CUMULATIVE RETAINED TOTAL
STOCK STOCK PAID-IN TRANSACTION EARNINGS
CAPITAL ADJUSTMENT
--------------------------------------------------------------------------------------
Balance, December 31, 1997 $0 $1 $1,020 $(35) $0 $986
Net income for the period 8 8
Translation adjustment (4) (4)
--------------------------------------------------------------------------------------
Balance, March 31, 1998 $0 $1 $1,020 $(39) $8 $990
======================================================================================
See Notes to Consolidated Financial Statements
10Q-4
5
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
($ MILLIONS) 1998 1997
---------- ---------
CASH FLOWS FROM ( USED FOR ) OPERATING ACTIVITIES
Net income (loss) $ 8 $ (9)
Non-cash charges (credits) to net income:
Depreciation 23 23
Deferred taxes 10 --
Other - net 1 (6)
Equity in earnings of unconsolidated affiliates 3 --
Changes in trade working capital:
Accounts receivable and prepaid items (32) 34
Inventories (16) 12
Accounts payable and accrued liabilities 14 6
- ---------------------------------------------------------------------------------
Net cash flows from ( used for ) operating activities 11 60
=================================================================================
CASH FLOWS FROM ( USED FOR ) INVESTING ACTIVITIES:
Capital expenditures paid (15) (28)
Proceeds from disposal of plants and properties 2 --
Investments in and loans to unconsolidated affiliates 60 (10)
- ---------------------------------------------------------------------------------
Net cash flows used for investing activities 47 (38)
- ---------------------------------------------------------------------------------
Net cash flows after investments 58 22
- ---------------------------------------------------------------------------------
CASH FLOWS FROM ( USED FOR ) FINANCING ACTIVITIES:
Net change in debt (63) --
Increase (decrease) in transfer from CPC, net -- (23)
- ---------------------------------------------------------------------------------
Net cash flows from ( used for ) financing activities (63) (23)
- ---------------------------------------------------------------------------------
Increase ( decrease ) in cash and cash equivalents (5) (1)
Cash and cash equivalents, beginning of period 85 32
=================================================================================
Cash and cash equivalents, end of period $ 80 $ 31
=================================================================================
See Notes to Consolidated Financial Statements
10Q-5
6
CORN PRODUCTS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The unaudited consolidated interim financial statements included herein
were prepared by management and reflect all adjustments (consisting solely of
normal recurring items) which are, in the opinion of management, necessary to
present a fair statement of results of operations for the interim periods ended
March 31, 1998 and 1997 and the financial position as of March 31, 1998 and
December 31, 1997. The results for three months are not necessarily indicative
of the results expected for the year.
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 footnotes to these
statements contained in the Company's Annual Report to Stockholders which were
incorporated by reference in Form 10-K for the fiscal year ended December 31,
1997.
2. ACCOUNTING PRONOUNCEMENTS
Effective for fiscal years beginning after December 15, 1997 the
Financial Accounting Standards Board issued Statement No. 130 (FAS 130),
Reporting Comprehensive Income. Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. Other comprehensive income refers
to revenues, expenses, gains and losses that under generally accepted accounting
principles have previously been reported as separate components of equity such
as currency translation. The Company has adopted this reporting for the current
year.
Also in June 1997, FAS 131, "Disclosure About Segments of an Enterprise
and Related Information," was issued. This statement is currently in effect and
the Company is in compliance with the requirements of this pronouncement. The
Company is in one business segment - corn refining - from which it produces a
wide variety of products.
3. INVENTORIES ARE SUMMARIZED AS FOLLOWS: March 31, 1998 December 31, 1997
-------------- -----------------
Finished and in process ........................ 63 51
Raw materials .................................. 46 43
Manufacturing supplies ......................... 29 29
========================================================================================
Total inventories ............................. 138 123
========================================================================================
10Q-6
7
4. FINANCIAL INSTRUMENTS
COMMODITIES
Following the Company's policy of hedging its margin exposure to firm
priced business it had open corn futures contracts of $273 million for delivery
of corn beyond March 31, 1998. Of the total commitment $73 million is due in
May, 1998, $79 million is due in July, 1998, $61 million is due in September,
1998, and $29 million in December, 1998, and $31 million in March, 1999. At
March 31, 1998, the price of corn under these contracts was $11.9 million above
market quotations of the same date.
5. RESTRUCTURING CHARGES
In 1997, the Company recorded a $94 million pre-tax restructuring
charge. The restructuring charge includes the costs of the separation of
facilities that were used by CPC to produce both consumer foods and corn-derived
products. The majority of the restructuring is taking place in the Company's
international operations. The spin-off charge includes the direct costs of the
spin-off including legal, tax and investment banking fees. The re-structuring
change is summarized below:
- --------------------------------------------------------------------------------------------------
$ Millions 1997 Charge Utilized To Be Utilized In
Charge Through 3/31/98 Future Periods
- --------------------------------------------------------------------------------------------------
RESTRUCTURING CHARGES - NET
Employee costs ......................... 54 47 7
Plant and support facilities ........... 23 20 3
Other .................................. 17 10 7
==================================================================================================
Total ................................. $94 $77 $17
==================================================================================================
ITEM II
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The amount shown in this Form 10-Q filing for diluted earnings per
share as of March 31, 1998 differs from the amounts indicated in the earnings
release dated April 21, 1997. The revised calculation eliminates the one cent
($.01) per share dilution previously reported as compared to the basic earnings
per share. The recalculated diluted earnings per share is twenty-two cents
($.22) per share.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1997
On December 31, 1997, CPC International Inc. spun off its Corn Refining
Business as a separate independent company. The comparative financial statements
included in the report for the periods prior to January 1, 1998, were prepared
by attributing the historical data for the Corn Refining Business of CPC
International Inc. to the Company utilizing accounting policies consistent with
those applied in the preparation of CPC's historical financial statements. Since
the Corn Refining Business was operated as a division of CPC in prior periods,
such financial information and statements may not necessarily reflect the
consolidated results of operations or financial position of the Company or what
the results of
10Q-7
8
operation would have been if the Company had been an independent, public company
during these periods.
Commencing January 1, the fiscal year of our subsidiaries outside North
America has changed to that of our North American operation, which is the
calendar year. The following comments refer to a restated analysis that puts the
operating income for 1997 on a December 31 year end basis. The attached
financial statements for periods prior to January 1, 1998, contain the results
previously reported including the Other Operations which were on a September
year end basis.
Net Sales increased to $339 million from $327 million in 1997 or 3.5%
on a volume increase of 9%, with solid growth in North America and Other
Operations. Net Sales grew at a lower rate than volume because prices declined
in some areas as corn costs decreased and the strong dollar reduced the value of
some international sales.
Cost of sales decreased $6.4 million due principally to lower corn
costs. Gross profit improved to $38.9 million from $20.9 million or to 11% of
Net Sales from 6% of Net Sales. The improvement in Gross Margin reflects the net
effect of lower corn costs, more than offsetting the price declines in some
areas. The improvement also reflects better HFCS pricing in the U.S. market.
Operating Expenses were down 5.6% due principally to lower general and
administrative expenses resulting from the reorganization of the business in
conjunction with the spin-off. Fees and Income from Unconsolidated Subsidiaries
improved as a result of improved results in the Company's Mexican joint venture.
Operating Income advanced to $17.9 million from an operating loss of
$5.7 million in 1997. The improvement reflects better pricing in corn sweeteners
in the U.S. market and improved margins elsewhere.
Financing Costs were down from the prior year relating to lower average
debt and lower average interest rates. Net Income is $8.0 million or $0.22 per
share compared to a loss of $8.6 million in the same quarter of 1997 or $(0.24)
per share. Better results in North America accounted for an important part of
the improvement, helped by a strong earnings gain in Other Operations.
NORTH AMERICAN OPERATIONS
Net Sales increased by 2.1%, driven by a 7% volume increase, but were
held back by the lower exchange value of Canadian dollar sales. Pricing for new
HFCS contracts in the United States was comparable with the industry as publicly
reported by other corn refiners. Canadian HFCS prices declined becoming more in
line with U.S. pricing. Corn syrup pricing showed a strong increase while other
products showed flat pricing. Pricing of grain related contracts, as well as
some existing multi-year contracts, tempered the overall price gain. Earnings
were negatively impacted by dextrose volumes which declined during the quarter
due to softness in the export segment and a slowdown in some pockets in the
domestic market.
Operating income showed a healthy advance in most product lines, as
corn costs were lower and manufacturing costs were on target.
10Q-8
9
OTHER OPERATIONS
Volumes increased by 16%, while Net Sales advanced 5.7%, reflecting the
effects of lower exchange rates and product mix. Growth continued to be driven
by double digit volume growth in high maltose corn syrup overcoming some sales
softness in other products after the Asian financial crisis.
Operating income was up 12.4%, with the increasing margins paced by
lower corn costs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's total assets declined to $1,615
million from $1,666 million at December 31, 1997. This decline was the result of
the repayment of a $60 million dollar loan made by the Company to Arancia
Industrial, S.A. de C.V., its joint venture in Mexico. A portion of the
proceeds from this loan were used to repay short term debt in the United
States. An increase in seasonal working capital needs offset positive operating
cash flows from earnings and depreciation.
The Company has a $340 million 5-year revolving credit facility in the
United States due December 2002 and a six-month $98 million Canadian bridge loan
due June 1998. In addition, the Company has a number of short-term credit
facilities consisting of operating lines of credit. There is sufficient
borrowing capacity under the U.S. revolver to repay the Canadian bridge loan.
At March 31, 1998, the Company has total debt outstanding of $287
million. The debt outstanding consisted of $140 million drawn from the unsecured
revolving credit facility in the United States at a rate of 5.8% and $104
million drawn on the Canadian bridge loan and operating lines at a rate of 5.2%.
The remaining borrowings were drawn against the various local country operating
lines at a weighted average rate of 16.2%.
During the quarter capital expenditures totaled $15 million as compared
to $23 million for the same period last year reflecting lower capital needs as
the Company's major capital expenditure program of the last several years was
substantially completed. The Company however announced a $15 to $30 million
increase in the previously announced spending plan of $70 to $100 for 1998 to
accommodate new opportunities in Argentina and Pakistan.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements concerning
the Company. Although the Company believes its expectations reflected in such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that such expectations will prove correct and actual results and
developments may differ materially. Important factors that could cause actual
results to differ include fluctuations in worldwide commodities markets and the
associated risks of hedging against such fluctuations; fluctuations in aggregate
industry supply and market demand; general economic, business and market
conditions in the various geographic regions and countries in which the Company
manufactures and sells its products, including fluctuations in the value of
local currencies; and increased competitive and/or customer pressure in the corn
refining industry. For a further description of these factors, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
10Q-9
10
PART II OTHER INFORMATION
ITEM: 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits pursuant to Item 601 of Regulation S-K.
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index hereto.
b) Reports on Form 8-K.
None
10Q-10
11
CORN PRODUCTS INTERNATIONAL INC. AND SUBSIDIARIES
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 13, 1998
/s/ James Ripley
-----------------------------------
James Ripley
Chief Financial Officer
DATE: May 13, 1998
/s/ Jack Fortnum
-----------------------------------
Jack Fortnum
Comptroller - Principal Accounting Officer
10Q-11
12
EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
11 Statement re: computation of earnings per share
27 Financial Data Schedule
10Q-12
1
EXHIBIT 11
EARNINGS PER SHARE
CORN PRODUCTS INTERNATIONAL, INC.
COMPUTATION OF NET INCOME
PER SHARE OF CAPITAL STOCK
(UNAUDITED)
(ALL FIGURES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31, 1998
--------------------
Shares outstanding at beginning of period 35,594
Weighted average of shares issued during the period for exercise
of stock options 42
-------
Average shares outstanding - Basic 35,636
Effect of dilutive securities
Dilutive shares contingently issuable upon the exercise of
stock options 1,691
Shares assumed to have been purchased for treasury with assumed
proceeds from the exercise of stock options (1,345)
-------
Average share outstanding - Assuming dilution 35,982
=======
Income from continuing operations 8,000
-------
Net income 8,000
=======
Income per share - Basic and Dilutive
Continuing operations 0.22
Net income 0.22
10Q-13
5
1,000,000
YEAR YEAR
DEC-31-1998 DEC-31-1997
JAN-01-1998 JAN-01-1997
MAR-31-1998 MAR-31-1997
80 31
0 0
211 180
0 0
138 148
457 374
2,195 2,131
1,156 1,068
1,625 1,621
448 260
0 0
0 0
0 0
1 0
1,020 1,007
1,625 1,621
339 337
0 0
300 316
325 343
0 0
0 0
5 4
13 (13)
4 (5)
9 (8)
0 0
0 0
0 0
8 (9)
$0.22 $(0.24)
$0.22 $(0.24)
