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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13397
CORN PRODUCTS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 22-3514823 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer | |
| Identification No.) | ||
| 5 Westbrook Corporate Center, Westchester, Illinois | 60154 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code (708) 551-2600
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, $.01 par value per share | New York Stock Exchange | |
| Preferred Stock Purchase Rights | New York Stock Exchange | |
| (currently traded with Common Stock) |
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Note — Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the Registrant’s voting stock held by non-affiliates of the
Registrant (based upon the per share closing price of $45.45 on June 29, 2007, and, for the purpose
of this calculation only, the assumption that all of the Registrant’s directors and executive
officers are affiliates) was approximately $3,324,168,000.
The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share,
as of February 22, 2008, was 73,868,967.
Documents Incorporated by Reference:
Information required by Part III (Items 10, 11, 12, 13 and 14) of this document is incorporated by
reference to certain portions of the Registrant’s definitive Proxy Statement (the “Proxy
Statement”) to be distributed in connection with its 2008 Annual Meeting of Stockholders which will
be filed with the Securities and Exchange Commission within 120 days after December 31, 2007.
CORN PRODUCTS INTERNATIONAL, INC.
FORM 10-K
TABLE OF CONTENTS
FORM 10-K
TABLE OF CONTENTS
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PART I.
ITEM 1. BUSINESS
The Company
Corn Products International, Inc. was incorporated as a Delaware corporation in 1997 and its
common stock is traded on the New York Stock Exchange. Corn Products International, Inc., together
with its subsidiaries, manufactures and sells a number of ingredients to a wide variety of food and
industrial customers.
For purposes of this report, unless the context otherwise requires, all references herein to
the “Company,” “Corn Products,” “we,” “us,” and “our” shall mean Corn Products International, Inc.
and its subsidiaries.
We are one of the world’s largest corn refiners and a major supplier of high-quality food
ingredients and industrial products derived from wet milling and processing of corn and other
starch-based materials.
Our consolidated net sales were $3.39 billion in 2007. Approximately 61 percent of our 2007
net sales were provided from our North American operations, while our South American and
Asia/African operations contributed approximately 27 percent and 12 percent, respectively.
Our products are derived primarily from the processing of corn and other starch-based
materials, such as tapioca. Corn refining is a capital-intensive, two-step process that involves
the wet milling and processing of corn. During the front-end process, corn is steeped in a
water-based solution and separated into starch and co-products such as animal feed and corn oil.
The starch is then either dried for sale or further processed to make sweeteners and other
ingredients that serve the particular needs of various industries.
Our sweetener products include high fructose corn syrup (“HFCS”), glucose corn syrups, high
maltose corn syrups, caramel color, dextrose, polyols, maltodextrins and glucose and corn syrup
solids. Our starch-based products include both industrial and food-grade starches.
Corn Products supplies a broad range of customers in many diverse industries around the world,
including the food and beverage, pharmaceutical, paper products, corrugated, laminated paper,
textile and brewing industries, as well as the global animal feed and corn oil markets.
We believe our approach to production and service, which focuses on local management and
production improvements of our worldwide operations, provides us with a unique understanding of the
cultures and product requirements in each of the geographic markets in which we operate, bringing
added value to our customers.
Products
Sweetener Products. Our sweetener products represented approximately 57 percent, 55 percent
and 53 percent of our net sales for 2007, 2006 and 2005, respectively.
High Fructose Corn Syrup: We primarily produce two types of high fructose corn
syrup: (i) HFCS-55, which is mainly used as a sweetener in soft drinks; and (ii) HFCS-42,
which is used as a sweetener in various consumer products such as fruit-flavored beverages,
yeast-raised breads, rolls, dough, ready-to-eat cakes, yogurt and ice cream.
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Glucose Corn Syrups: Corn syrups are fundamental ingredients widely used in
food products such as baked goods, snack foods, beverages, canned fruits, condiments, candy
and other sweets, dairy products, ice cream, jams and jellies, prepared mixes and table
syrups. In many markets, we offer corn syrups that are manufactured through an ion exchange
process, a method that creates the highest quality, purest corn syrups.
High Maltose Corn Syrup: This special type of glucose syrup has a unique
carbohydrate profile, making it ideal for use as a source of fermentable sugars in brewing
beers. High maltose corn syrups are also used in the production of confections, canning and
some other food processing applications.
Dextrose: We were granted the first US patent for dextrose in 1923. We
currently produce dextrose products that are grouped in three different categories -
monohydrate, anhydrous and specialty. Monohydrate dextrose is used across the food industry
in many of the same products as glucose corn syrups, especially in confectionery
applications. Anhydrous dextrose is used to make solutions for intravenous injection and
other pharmaceutical applications, as well as some specialty food applications. Specialty
dextrose products are used in a wide range of applications, from confectionery tableting to
dry mixes to carriers for high intensity sweeteners. Dextrose also has a wide range of
industrial applications, including use in wall board and production of biodegradable
surfactants (surface agents), humectants (moisture agents), and as the base for fermentation
products including vitamins, organic acids, amino acids and alcohol.
Polyols: These products are sugar-free, reduced calorie sweeteners primarily
derived from starch. They include crystalline sorbitol, crystalline maltitol, mannitol,
specialty liquid polyols and liquid sorbitol for the food, beverage, confectionary,
industrial, personal and oral care, and nutritional supplemental markets.
Maltodextrins and Glucose and Corn Syrup Solids: These products have a
multitude of food applications, including formulations where liquid corn syrups cannot be
used. Maltodextrins are resistant to browning, provide excellent solubility, have a low
hydroscopicity (do not retain moisture), and are ideal for their carrier/bulking properties.
Corn syrup solids have a bland flavor, remain clear in solution, and are easy to handle and
also provide bulking properties.
Starch Products. Starch products represented approximately 22 percent, 22 percent and 23
percent of our net sales for 2007, 2006 and 2005, respectively. Starches are an important component
in a wide range of processed foods, where they are used particularly as a thickener and binder.
Cornstarch is also sold to cornstarch packers for sale to consumers. Starches are also used in
paper production to produce a smooth surface for printed communications and to improve strength in
recycled papers. In the corrugating industry, starches are used to produce high quality adhesives
for the production of shipping containers, display board and other corrugated applications. The
textile industry has successfully used starches for over a century to provide size and finishes for
manufactured products. Industrial starches are used in the production of construction materials,
textiles, adhesives, pharmaceuticals and cosmetics, as well as in mining, water filtration and oil
and gas drilling.
Co-Products and others. Co-products and others accounted for 21 percent, 23 percent and 24
percent of our net sales for 2007, 2006 and 2005, respectively. Refined corn oil (from germ) is
sold to packers of cooking oil and to producers of margarine, salad dressings, shortening,
mayonnaise and other foods. Corn gluten feed is sold as animal feed. Corn gluten meal is sold as
high protein feed for chickens, pet food and aquaculture primarily, and steepwater is sold as an
additive for animal feed.
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Geographic Scope and Operations
We operate in one business segment, corn refining, and manage our business on a geographic
regional basis. Our business includes regional operations in North America, South America and
Asia/Africa. In 2007, approximately 61 percent of our net sales were derived from operations in
North America, while net sales from operations in South America and Asia/Africa represented
approximately 27 percent and 12 percent of our net sales, respectively. See Note 13 of the notes
to the consolidated financial statements entitled “Segment Information” for additional financial
information with respect to geographic areas.
In general, demand for our products is balanced throughout the year. However, demand for
sweeteners in South America is greater in the first and fourth quarters (its summer season) while
demand for sweeteners in North America is greater in the second and third quarters. Due to the
offsetting impact of these demand trends, we do not experience material seasonal fluctuations in
our business.
Our North America region consists of operations in the US, Canada and Mexico. The region’s
facilities include 11 plants producing regular and modified starches, dextrose, high fructose,
glucose and high maltose corn syrups and corn syrup solids, dextrins and maltodextrins, polyols,
caramel color, fructooligosaccharides and oat bran concentrate. Our plant in Bedford Park, Illinois
is a major supplier of starch and dextrose products for our US and export customers. Our other US
plants in Winston-Salem, North Carolina and Stockton, California enjoy strong market shares in
their local areas, as do our Canadian plants in Cardinal, London and Port Colborne, Ontario. Our
Winston-Salem, Stockton, Port Colborne and London plants primarily produce high fructose corn
syrup. We are the largest corn refiner in Mexico, with plants in Guadalajara, Mexico City and San
Juan del Rio. We also have a plant in Mapleton, Illinois that produces polyols and a plant in
Missoula, Montana that produces oat bran concentrate.
We are the largest corn refiner in South America, with strong market shares in Argentina,
Brazil, Chile, Colombia and Peru. Our South America region includes 12 plants that produce regular,
modified, waxy and tapioca starches, high fructose and high maltose corn syrups and corn syrup
solids, dextrins and maltodextrins, dextrose, caramel color, sorbitol and vegetable adhesives.
Our Asia/Africa region consists of corn and tapioca refining operations in South Korea,
Pakistan, Thailand, Kenya and China. The region’s facilities include 7 plants that produce
modified, regular, waxy and tapioca starches, dextrins, glucose, dextrose, high fructose corn
syrups and caramel color.
In addition to the operations in which we engage directly, we have strategic alliances through
technical license agreements with companies in South Africa and Venezuela. As a group, our
strategic alliance partners produce high fructose, glucose and high maltose syrups (both corn and
tapioca), regular, modified, waxy and tapioca starches, dextrose and dextrins, maltodextrins and
caramel color. These products have leading positions in many of their target markets.
Competition
The corn refining industry is highly competitive. Many of our products are viewed as basic
commodity ingredients that compete with virtually identical products and derivatives manufactured
by other companies in the industry. The US is a highly competitive market. Competitors include ADM
Corn Processing Division (“ADM”) (a division of Archer-Daniels-Midland Company), Cargill, Inc.,
Tate & Lyle Ingredients Americas, Inc., National Starch and Chemical Company (“National Starch”) (a
subsidiary of Akzo Nobel N.V.) and several others. Our operations in Mexico and Canada face
competition from US imports and local producers including ALMEX, a Mexican joint venture between
ADM and Tate & Lyle Ingredients Americas, Inc. In South America, Cargill and
National Starch have corn-refining operations in Brazil. Other local corn and tapioca refiners
also operate in many of our markets. Competition within markets is largely based on price, quality
and product availability.
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Several of our products also compete with products made from raw materials other than corn.
High fructose corn syrup and monohydrate dextrose compete principally with cane and beet sugar
products. Co-products such as corn oil and gluten meal compete with products of the corn dry
milling industry and with soybean oil, soybean meal and other products. Fluctuations in prices of
these competing products may affect prices of, and profits derived from, our products.
Customers
We supply a broad range of customers in over 60 industries. Approximately 25 percent of our
2007 net sales were to companies engaged in the processed foods industry and approximately 16
percent of our 2007 net sales were to companies engaged in the soft drink industry. Additionally,
sales to the brewing industry and to the animal feed market each represented approximately 11
percent of our 2007 net sales.
Raw Materials
The basic raw material of the corn refining industry is yellow dent corn. The supply of corn
in the United States has been, and is anticipated to continue to be, adequate for our domestic
needs. The price of corn, which is determined by reference to prices on the Chicago Board of Trade,
fluctuates as a result of three primary supply factors: farmer planting decisions, climate, and
government policies (including those related to the production of ethanol) and three major market
demand factors: livestock feeding, shortages or surpluses of world grain supplies, and domestic and
foreign government policies and trade agreements. Recently, demand for corn in the US to produce
ethanol has been a significant factor in increasing the price of corn.
Corn is also grown in other areas of the world, including Canada, Mexico, South Africa,
Argentina, Brazil, China, Pakistan and Kenya. Our affiliates outside the United States utilize both
local supplies of corn and corn imported from other geographic areas, including the United States.
The supply of corn for these affiliates is also generally expected to be adequate for our needs.
Corn prices for our non-US affiliates generally fluctuate as a result of the same factors that
affect US corn prices.
Due to the competitive nature of the corn refining industry and the availability of substitute
products not produced from corn, such as sugar from cane or beet, end product prices may not
necessarily fluctuate in a manner that correlates to raw material costs of corn.
We follow a policy of hedging our exposure to commodity fluctuations with commodities futures
contracts for certain of our North American corn purchases. All of our firm-priced business is
hedged. Other business may or may not be hedged at any given time based on management’s judgment
as to the need to fix the costs of our raw materials to protect our profitability. See Item 7A,
Quantitative and Qualitative Disclosures about Market Risk, section entitled “Commodity Costs” for
additional information.
Product Development
Corn Products has product application technology centers that direct our product development
teams worldwide to develop product application solutions to better serve the ingredient needs of
our customers. Product development activity is focused on developing product applications for
identified customer and market needs. Through this approach, we have developed value-added products
for use in the corrugated paper, food, textile, baking and confectionery industries. We usually
collaborate with customers to develop the desired product application either in the customers’
facilities, our technical service laboratories or on a contract basis. These efforts
are supported by our marketing, product technology and technology support staff.
Sales and Distribution
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Our salaried sales personnel, who are generally dedicated to customers in a geographic region,
sell our products directly to manufacturers and distributors. In addition, we have a staff that
provides technical support to our sales personnel on an industry basis. We generally contract with
trucking companies to deliver our bulk products to customer destinations. In North America, we
generally use trucks to ship to nearby customers. For those customers located considerable
distances from our plants, we use either rail or a combination of railcars and trucks to deliver
our product. We generally lease railcars for terms of five to fifteen years.
Patents, Trademarks and Technical License Agreements
We own a number of patents, which relate to a variety of products and processes, and a number
of established trademarks under which we market our products. We also have the right to use other
patents and trademarks pursuant to patent and trademark licenses. We do not believe that any
individual patent or trademark is material to our business. There is no currently pending challenge
to the use or registration of any of our significant patents or trademarks that would have a
material adverse impact on the Company or its results of operations if decided adversely to us.
We are a party to technical license agreements with third parties in other countries whereby
we provide technical, management and business advice on the operations of corn refining businesses
and receive royalties in return. These arrangements provide us with product penetration in the
various countries in which they exist, as well as experience and relationships that could
facilitate future expansion. The duration of the agreements range from one to three years, and
these agreements can be extended by mutual agreement. These relationships have been in place for
many years. We receive approximately $3 million of annual income for services provided under these
agreements.
Employees
As of December 31, 2007 we had approximately 7,100 employees, of which approximately 900 were
located in the United States. Approximately 30 percent of US and 60 percent of our non-US
employees are unionized. We believe our relations with our union and non-union employees are good.
In addition, the Company has approximately 1,000 temporary employees.
Government Regulation and Environmental Matters
As a manufacturer and maker of food items and items for use in the pharmaceutical industry,
our operations and the use of many of our products are subject to various US, state, foreign and
local statutes and regulations, including the Federal Food, Drug and Cosmetic Act and the
Occupational Safety and Health Act. We and many of our products are also subject to regulation by
various government agencies, including the United States Food and Drug Administration. Among
other things, applicable regulations prescribe requirements and establish standards for product
quality, purity and labeling. Failure to comply with one or more regulatory requirements can result
in a variety of sanctions, including monetary fines. No such fines of a material nature were
imposed on us in 2007. We may also be required to comply with US, state, foreign and local laws
regulating food handling and storage. We believe these laws and regulations have not negatively
affected our competitive position.
Our operations are also subject to various US, state, foreign and local laws and regulations
requirements with respect to environmental matters, including air and water quality and underground
fuel storage tanks, and other regulations intended to protect public health and the environment.
Based on current laws and regulations and
the enforcement and interpretations thereof, we do not expect that the costs of future
environmental compliance will be a material expense, although there can be no assurance that we
will remain in compliance or that the costs of
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remaining in compliance will not have a material
adverse effect on our future financial condition and results of operations.
During 2007 we spent approximately $4 million for environmental control and wastewater
treatment equipment to be incorporated into existing facilities and in planned construction
projects. We currently anticipate that we will spend approximately $8 million for environmental
facilities and programs in 2008 and a similar amount in 2009.
Other
Our Internet address is www.cornproducts.com. We make available, free of charge
through our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. These reports are made
available as soon as reasonably practicable after they are electronically filed with or furnished
to the Securities and Exchange Commission. Our corporate governance guidelines, Board committee
charters and code of ethics are posted on our website, the address of which is
www.cornproducts.com, and each is available in print to any shareholder upon request in writing to
Corn Products International, Inc., 5 Westbrook Corporate Center, Westchester, Illinois 60154
Attention: Corporate Secretary. The contents of our website are not incorporated by reference into
this report.
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Executive Officers of the Registrant
Set forth below are the names and ages of all of our executive officers, indicating their
positions and offices with the Company and other business experience during the past five years.
Our executive officers are elected annually by the Board to serve until the next annual election of
officers and until their respective successors have been elected and have qualified unless removed
by the Board.
| Name | Age | Positions, Offices and Business Experience | ||||
Samuel C. Scott III
|
63 | Chairman and Chief Executive Officer since February 2001 and President since 1997. Mr. Scott also served as Chief Operating Officer from 1997 through January 2001. Prior thereto, he served as President of the worldwide Corn Refining Business of CPC International, Inc; now Unilever Bestfoods (“CPC”), from 1995 to 1997 and was President of CPC’s North American Corn Refining Business from 1989 to 1997. He was elected a Vice President of CPC in 1991. Mr. Scott is a director of Motorola, Inc., The Bank of New York Mellon, Abbott Laboratories, ACCION International, The Executives’ Club of Chicago and The Chicago Council on Global Affairs. He is also a Trustee of the Conference Board. Mr. Scott is Lead Director of Motorola and Chairman of Motorola’s Compensation and Leadership Committee. | ||||
Cheryl K. Beebe
|
52 | Vice President and Chief Financial Officer since February 2004. Ms. Beebe previously served as Vice President, Finance from July 2002 to February 2004, as Vice President from 1999 to 2002 and as Treasurer from 1997 to February 2004. Prior thereto, she served as Director of Finance and Planning for the CPC Corn Refining Business worldwide from 1995 to 1997 and as Director of Financial Analysis and Planning for Corn Products North America from 1993. Ms. Beebe joined CPC in 1980 and served in various financial positions in CPC’s US consumer food business, North American audit group and worldwide corporate treasury function. She is a member of the Board of Trustees for Fairleigh Dickinson University. | ||||
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| Name | Age | Positions, Offices and Business Experience | ||||
Jorge L. Fiamenghi
|
52 | Vice President and President of the South America Division since 1999. Mr. Fiamenghi served as Acting President, US/Canadian Region from August 2001 to February 2002. Mr. Fiamenghi served as President and General Manager, Corn Products Brazil from 1996 to 1999. Mr. Fiamenghi was General Manager for the CPC Corn Refining affiliate in Argentina beginning in 1991. Prior thereto, he was Financial and Planning Director for the CPC South American Corn Refining Division from 1989 to 1991, and served as Financial and Administrative Manager for the CPC Corn Refining Division in Mexico beginning in 1987. Mr. Fiamenghi joined CPC in 1971 and served in various financial and planning positions in CPC. | ||||
Jack C. Fortnum
|
51 | Vice President since 1999 and President of North America Division since May 2004. Mr. Fortnum previously served as President, US/Canadian Region from July 2003 to May 2004, and as President, US Business from February 2002 until July 2003. Prior to that, Mr. Fortnum served as Executive Vice President, US/Canadian Region from August 2001 until February 2002, as the Controller from 1997 to 2001, as the Vice President of Finance for Refineries de Maiz, CPC’s Argentine subsidiary, from 1995 to 1997, as the Director of Finance and Planning for CPC’s Latin America Corn Refining Division from 1993 to 1995, and as the Vice President and Comptroller of Canada Starch Operating Company Inc., the Canadian subsidiary of CPC, and as the Vice President of Finance of the Canadian Corn Refining Business from 1989. | ||||
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| Name | Age | Positions, Offices and Business Experience | ||||
James J. Hirchak
|
54 | Vice President — Human Resources since 1997. Mr. Hirchak joined CPC in 1976 and held various Human Resources positions in CPC until 1984, when he joined the CPC Corn Products Division. In 1987, Mr. Hirchak was appointed Director, Human Resources for Corn Products’ North American Operations and he served as Vice President, Human Resources for the Corn Products Division of CPC from 1992 to 1997. He is a member of the Board of Directors of Accion Chicago, Inc. | ||||
Kimberly A. Hunter
|
46 | Corporate Treasurer since February 2004. Ms. Hunter previously served as Director of Corporate Treasury from September 2001 to February 2004. Prior to that, she served as Managing Director, Investment Grade Securities at Bank One Corporation, a financial institution, from 1997 to 2000 and as Vice President, Capital Markets of Bank One from 1992 to 1997. | ||||
Mary Ann Hynes
|
60 | Vice President, General Counsel and Corporate Secretary of Corn Products International, Inc. since March, 2006. Prior to that, Ms. Hynes was Senior Vice President and General Counsel, Chief Legal Officer for IMC Global Inc., a producer and distributor of crop nutrients and animal feed ingredients, from 1999 to 2004, and a consultant to The Mosaic Company, also a producer and distributor of crop nutrients and animal feed ingredients, in 2005. The Mosaic Company acquired IMC Global Inc. in 2004. | ||||
Robin A. Kornmeyer
|
59 | Vice President since September 2002 and Controller since January 2002. Prior to that, Mr. Kornmeyer served as Corporate Controller at Foster Wheeler Ltd., a worldwide engineering and construction company, from 2000 to 2002. | ||||
John F. Saucier
|
54 | Vice President and President Asia/Africa Division and Global Business Development since November 2007. Mr. Saucier previously served as Vice President, Global Business and Product Development, Sales and Marketing from April, 2006 to November 2007. Prior to that, Mr. Saucier was President of the Integrated Nylon Division of Solutia, Inc., a specialty chemical manufacturer from 2001 to 2005. | ||||
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ITEM 1A. RISK FACTORS
We operate in one business segment, corn refining, and our business is managed on a geographic
regional basis. In each country where we conduct business, our business and assets are subject to
varying degrees of risk and uncertainty. The following are factors that we believe could cause our
actual results to differ materially from expected and historical results. Additional risks that are
currently unknown to us may also impair our business or adversely affect our financial condition or
results of operations. In addition, forward-looking statements within the meaning of the federal
securities laws that are contained in this Form 10-K or in our other filings or statements may be
subject to the risks described below as well as other risks and uncertainties. Please read the
cautionary notice regarding forward-looking statements in Item 7 below.
We operate a multinational business subject to the economic, political and other risks
inherent in operating in foreign countries and with foreign currencies.
We have operated in foreign countries and with foreign currencies for many years. Our US
dollar denominated results are subject to foreign currency exchange fluctuations. Our operations
are subject to political, economic and other risks. Economic changes, terrorist activity and
political unrest may result in business interruption or decreased demand for our products.
Protectionist trade measures and import and export licensing requirements could also adversely
affect our results of operations. Our success will depend in part on our ability to manage
continued global political and/or economic uncertainty.
We primarily sell world commodities. Historically, local prices have adjusted relatively
quickly to offset the effect of local currency devaluations, but we can provide no assurance that
will always be the case. We may hedge transactions that are denominated in a currency other than
the currency of the operating unit entering into the underlying transaction. We are subject to the
risks normally attendant to such hedging activities.
Raw material and energy price fluctuations, and supply interruptions and shortages could
adversely affect our results of operations.
Our finished products are made primarily from corn. Purchased corn accounts for between 40
percent and 65 percent of finished product costs. Energy costs represent approximately 13 percent
of our finished product costs. We use energy primarily to create steam in our production process
and in dryers to dry product. We consume coal, natural gas, electricity, wood and fuel oil to
generate energy. The market prices for these commodities vary depending on supply and demand, world
economies and other factors. We purchase these commodities based on our anticipated usage and
future outlook for these costs. We cannot assure that we will be able to purchase these commodities
at prices that we can adequately pass on to customers to sustain or increase profitability.
In North America, we sell a large portion of our finished products at firm prices established
in supply contracts typically lasting for periods of up to one year. In order to minimize the
effect of volatility in the cost of corn related to these firm-priced supply contracts, we take
hedging positions by entering into corn futures contracts. These derivative contracts typically
mature within one year. At expiration, we settle the derivative contracts at a net amount equal to
the difference between the then-current price of corn and the fixed contract price. These hedging
instruments are subject to fluctuations in value; however, changes in the value of the underlying
exposures we are hedging generally offset such fluctuations. While the corn futures contracts or
hedging positions are intended to minimize the volatility of corn costs on operating profits, the
hedging activity can result in losses, some of which may be material. Outside of North America,
sales of finished product under long-term, firm-priced supply contracts are not material. We also
use derivative financial instruments to hedge portions of our natural gas costs, primarily in our
North American operations.
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Due to market volatility, we cannot assure that we can adequately pass potential increases in
the cost of corn on to customers through product price increases or purchase quantities of corn at
prices sufficient to sustain or increase our profitability.
Our corn purchasing costs, which include the price of the corn plus delivery cost, account for
40 percent to 65 percent of our product costs. The price and availability of corn is influenced by
economic and industry conditions, including supply and demand factors such as crop disease and
severe weather conditions such as drought, floods or frost that are difficult to anticipate and
which we cannot control. Recently, demand for corn used to produce ethanol has had a significant
impact on the price of corn in the United States. That demand has been significantly impacted by US
governmental policies designed to encourage the production of ethanol. In addition, government
programs supporting sugar prices indirectly impact the price of corn sweeteners, especially high
fructose corn syrup.
Our profitability may be affected by factors beyond our control.
Our operating income and ability to increase profitability depends to a large extent upon our
ability to price finished products at a level that will cover manufacturing and raw material costs
and provide an acceptable profit margin. Our ability to maintain appropriate price levels is
determined by a number of factors largely beyond our control, such as aggregate industry supply and
market demand, which may vary from time to time, and the economic conditions of the geographic
regions where we conduct our operations.
We operate in a highly competitive environment and it may be difficult to preserve operating
margins and maintain market share.
We operate in a highly competitive environment. Almost all of our products compete with
virtually identical or similar products manufactured by other companies in the corn refining
industry. In the United States, there are other corn refiners, several of which are divisions of
larger enterprises that have greater financial resources than we do. Some of these competitors,
unlike us, have vertically integrated their corn refining and other operations. Many of our
products also compete with products made from raw materials other than corn. Fluctuation in prices
of these competing products may affect prices of, and profits derived from, our products.
Competition in markets in which we compete is largely based on price, quality and product
availability.
Changes in consumer preferences and perceptions may lessen the demand for our products, which
could reduce our sales and profitability and harm our business.
Food products are often affected by changes in consumer tastes, national, regional and local
economic conditions and demographic trends. For instance, changes in prevailing health or dietary
preferences causing consumers to avoid food products containing sweetener products in favor of
foods that are perceived as being more healthy, could reduce our sales and profitability, and such
a reduction could be material.
The uncertainty of acceptance of products developed through biotechnology could affect our
profitability.
The commercial success of agricultural products developed through biotechnology, including
genetically modified corn, depends in part on public acceptance of their development, cultivation,
distribution and consumption. Public attitudes can be influenced by claims that genetically
modified products are unsafe for consumption or that they pose unknown risks to the environment
even if such claims are not based on scientific studies. These public attitudes can influence
regulatory and legislative decisions about biotechnology even where they are approved. The sale of
the Company’s products which may contain genetically modified corn could be
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delayed or impaired because of adverse public perception regarding the safety of the Company’s
products and the potential effects of these products on animals, human health and the environment.
Our profitability could be negatively impacted if we fail to maintain satisfactory labor
relations.
Approximately 30 percent of US and 60 percent of non-US employees are members of unions.
Strikes, lockouts or other work stoppages or slow downs involving our unionized employees could
have a material adverse effect on us.
Our reliance on certain industries for a significant portion of our sales could have a
material adverse affect on our business.
Approximately 25 percent of our 2007 sales were made to companies engaged in the processed
foods industry and approximately 16 percent were made to companies in the soft drink industry.
Additionally, sales to the brewing industry and to the animal feed market each represented
approximately 11 percent of our 2007 net sales. If our processed foods customers, soft drink
customers, brewing industry customers or animal feed customers were to substantially decrease their
purchases, our business might be materially adversely affected. However, we believe there is no
concentration of risk with any single customer or supplier whose failure or non-performance would
materially affect our financial results.
An outbreak of a life threatening communicable disease could negatively impact our business.
The outbreak of Severe Acute Respiratory Syndrome (“SARS”) previously affected the economies
of certain countries where we manufacture and sell products. If the economies of any countries
where we sell or manufacture products are affected by a similar outbreak of SARS, the Avian Flu, or
other life threatening communicable diseases, it could result in decreased sales and unfavorably
impact our business.
Government policies and regulations in general, and specifically affecting agriculture-related
businesses, could adversely affect our operating results.
Our operating results could be affected by changes in trade, monetary and fiscal policies,
laws and regulations, and other activities of United States and foreign governments, agencies, and
similar organizations. These conditions include but are not limited to changes in a country’s or
region’s economic or political conditions, trade regulations affecting production, pricing and
marketing of products, local labor conditions and regulations, reduced protection of intellectual
property rights, changes in the regulatory or legal environment, restrictions on currency exchange
activities, currency exchange fluctuations, burdensome taxes and tariffs, and other trade barriers.
International risks and uncertainties, including changing social and economic conditions as well as
terrorism, political hostilities, and war, could limit our ability to transact business in these
markets and could adversely affect our revenues and operating results.
Due to cross-border disputes, our operations could be adversely affected by actions taken by
the governments of countries where we conduct business. For example, in 2002, the Mexican
government imposed a discriminatory tax on beverages sweetened with HFCS, which resulted in a
substantial reduction of our sales of HFCS in Mexico. However, sales of HFCS in Mexico returned to
historical levels by 2005 and the tax was repealed on January 1, 2007. If we were unable to
maintain sales levels of high fructose corn syrup in Mexico, our results of operations from Mexico
could be negatively affected and we could be required to recognize a charge for impairment.
The recognition of impairment charges on goodwill or long-lived assets would adversely impact
the future financial position and results of operations of the Company.
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We perform an annual impairment assessment for goodwill and, as necessary, for long-lived
assets. If the results of such assessments were to show that the fair value of our property, plant
and equipment or goodwill were less than the carrying values, we would be required to recognize a
charge for impairment of goodwill and/or long-lived assets and the amount of the impairment charge
could be material.
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could
impact our profitability.
We are subject to income taxes in the United States and in various other foreign
jurisdictions, and our domestic and international tax liabilities are subject to allocation of
expenses among different jurisdictions. Our effective tax rates could be adversely affected by
changes in the mix of earnings by jurisdiction, changes in tax laws or tax rates, changes in the
valuation of deferred tax assets and liabilities, and material adjustments from tax audits.
In particular, the carrying value of deferred tax assets, which are predominantly in the US,
is dependent upon our ability to generate future taxable income in the US. In addition, the amount
of income taxes we pay is subject to ongoing audits in various jurisdictions and a material
assessment by a governing tax authority could affect our profitability.
Operating difficulties at our manufacturing plants could adversely affect our operating
results.
Corn refining is a capital intensive industry. We have 30 plants and have preventive
maintenance and de-bottlenecking programs designed to maintain and improve grind capacity and
facility reliability. If we encounter operating difficulties at a plant for an extended period of
time or start up problems with any capital improvement projects, we may not be able to meet a
portion of sales order commitments and could incur significantly higher operating expenses, both of
which could adversely affect our operating results.
We may not have access to the funds required for future growth and expansion.
We may need additional funds for working capital to grow and expand our operations. We expect
to fund our capital expenditures from operating cash flow to the extent we are able to do so. If
our operating cash flow is insufficient to fund our capital expenditures, we may either reduce our
capital expenditures or utilize our general credit facilities. We may also seek to generate
additional liquidity through the sale of debt or equity securities in private or public markets or
through the sale of non-productive assets. We cannot provide any assurance that our cash flows from
operations will be sufficient to fund anticipated capital expenditures or that we will be able to
obtain additional funds from financial markets or from the sale of assets at terms favorable to us.
If we are unable to generate sufficient cash flows or raise sufficient additional funds to cover
our capital expenditures, we may not be able to achieve our desired operating efficiencies and
expansion plans, which may adversely impact our competitiveness and, therefore, our results of
operations.
Increased interest rates could increase our borrowing costs.
From time to time we may issue securities to finance acquisitions, capital expenditures,
working capital and for other general corporate purposes. An increase in interest rates in the
general economy could result in an increase in our borrowing costs for these financings, as well as
under any existing debt that bears interest at an unhedged floating rate.
We may not successfully identify and complete acquisitions or strategic alliances on favorable
terms or achieve anticipated synergies relating to any acquisitions or alliances, and such
acquisitions could result in unforeseen operating difficulties and expenditures and require
significant management resources.
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We regularly review potential acquisitions of complementary businesses, technologies, services
or products, as well as potential strategic alliances. We may be unable to find suitable
acquisition candidates or appropriate partners with which to form partnerships or strategic
alliances. Even if we identify appropriate acquisition or alliance candidates, we may be unable to
complete such acquisitions or alliances on favorable terms, if at all. In addition, the process of
integrating an acquired business, technology, service or product into our existing business and
operations may result in unforeseen operating difficulties and expenditures. Integration of an
acquired company also may require significant management resources that otherwise would be
available for ongoing development of our business. Moreover, we may not realize the anticipated
benefits of any acquisition or strategic alliance, and such transactions may not generate
anticipated financial results. Future acquisitions could also require us to issue equity
securities, incur debt, assume contingent liabilities or amortize expenses related to intangible
assets, any of which could harm our business.
Our inability to contain costs could adversely affect our future profitability and growth.
Our future profitability and growth depends on our ability to contain operating costs and
per-unit product costs and to maintain and/or implement effective cost control programs, while at
the same time maintaining competitive pricing and superior quality products, customer service and
support. Our ability to maintain a competitive cost structure depends on continued containment of
manufacturing, delivery and administrative costs as well as the implementation of cost-effective
purchasing programs for raw materials, energy and related manufacturing requirements.
If we are unable to contain our operating costs and maintain the productivity and reliability
of our production facilities, our profitability and growth could be adversely affected.
Volatility in the stock market, fluctuations in quarterly operating results and other factors
could adversely affect the market price of our common stock.
The market price for our common stock may be significantly affected by factors such as our
announcement of new products or services or such announcements by our competitors; technological
innovation by us, our competitors or other vendors; quarterly variations in our operating results
or the operating results of our competitors; general conditions in our or our customers’ markets;
and changes in the earnings estimates by analysts or reported results that vary materially from
such estimates. In addition, the stock market has experienced significant price fluctuations that
have affected the market prices of equity securities of many companies that have been unrelated to
the operating performance of any individual company.
No assurance can be given that we will continue to pay dividends.
The payment of dividends is at the discretion of our Board of Directors and will be subject to
our financial results and the availability of surplus funds to pay dividends.
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ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2. PROPERTIES
We operate, directly and through our consolidated subsidiaries, 30 manufacturing facilities,
29 of which are owned and one of which is leased (Jundiai, Brazil). In addition, we lease our
corporate headquarters in Westchester, Illinois. The following list details the locations of our
manufacturing facilities within each of our three geographic regions:
| North America | South America | Asia/Africa | ||
Cardinal, Ontario, Canada
|
Baradero, Argentina | Shouguang, China | ||
London, Ontario, Canada
|
Chacabuco, Argentina | Eldoret, Kenya | ||
Port Colborne, Ontario, Canada
|
Balsa Nova, Brazil | Cornwala, Pakistan | ||
San Juan del Rio, Queretaro, Mexico
|
Cabo, Brazil | Faisalabad, Pakistan | ||
Guadalajara, Jalisco, Mexico
|
Conchal, Brazil | Ichon, South Korea | ||
Mexico City, Edo. de Mexico
|
Jundiai, Brazil | Inchon, South Korea | ||
Stockton, California, U.S.
|
Mogi-Guacu, Brazil | Sikhiu, Thailand | ||
Bedford Park, Illinois, U.S.
|
Rio de Janeiro, Brazil | |||
Winston-Salem, North Carolina, U.S.
|
Llay-Llay, Chile | |||
Missoula, Montana, U.S.
|
Barranquilla, Colombia | |||
Mapleton, Illinois, U.S.
|
Cali, Colombia | |||
| Lima, Peru |
We believe our manufacturing facilities are sufficient to meet our current production needs.
We have preventive maintenance and de-bottlenecking programs designed to further improve grind
capacity and facility reliability.
We have electricity co-generation facilities at all of our US and Canadian plants with the
exception of Missoula, Montana, and Mapleton, Illinois, as well as at our plants in San Juan del Rio, Mexico; Baradero,
Argentina; and Balsa Nova and Mogi-Guacu, Brazil, that provide electricity at a lower cost than is
available from third parties. We generally own and operate these co-generation facilities, except
for the facilities at our Stockton, California; Cardinal, Ontario;
and Balsa Nova and Mogi-Guacu,
Brazil locations, which are owned by, and operated pursuant to co-generation agreements with, third
parties.
We believe we have competitive facilities. In recent years, we have made significant capital
expenditures to update, expand and improve our facilities, averaging $164 million per year for the
last three years. We believe these capital expenditures will allow us to operate efficient
facilities for the foreseeable future. We currently anticipate that capital expenditures for 2008
will approximate $200 million. We anticipate that annual capital expenditures beyond 2008 will be
in line with historical averages.
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ITEM 3. LEGAL PROCEEDINGS
On October 21, 2003, we submitted, on our own behalf and on behalf of our Mexican affiliate,
CPIngredientes, S.A. de C.V., (previously known as Compania Proveedora de Ingredientes) a Request
for Institution of Arbitration Proceedings Submitted Pursuant to Chapter 11 of the North American
Free Trade Agreement (“NAFTA”) (the “Request”). The Request was submitted to the International
Centre for Settlement of Investment Disputes and was brought against the United Mexican States. In
the Request, we asserted that the imposition by Mexico of a discriminatory tax on beverages
containing HFCS breached various obligations of Mexico under NAFTA. The case was bifurcated into
two phases, liability and damages, and a hearing on liability was held before a Tribunal in July
2006. As previously disclosed, on December 18, 2007, the
Tribunal issued an order to the parties saying that it had completed
its decision on liability, and indicating that briefing on damages
should be based on a violation of NAFTA Article 1102, National
Treatment. In a separate procedural order, the Tribunal set a timetable
requiring written and oral argument on the damages questions to be completed by April 30, 2008 and
a hearing to be held after June 16, 2008. Pursuant to that procedural order, on February 4, 2008
we submitted a memorial on damages together with supporting materials. We seek damages and
pre-judgment interest which would total $288 million if an award
were to be rendered on December 31, 2008. See also Note 12 of the notes to the
consolidated financial statements.
Between May and June of 2005, the Company and certain officers were named as defendants in
five purported class action suits filed in the United States District Court for the Northern
District of Illinois, all of which were consolidated in the matter of Monty Blatt v. Corn Products
International, Inc. et al. (N.D. Ill. 05 C 3033). The complaints alleged violations of certain
federal securities laws and sought unspecified damages on behalf of a purported class of purchasers
of our common stock between January 25, 2005 and April 4, 2005. On June 19, 2007, the court
preliminarily approved an agreement to settle this case. Under the terms of the settlement we
agreed to make payments to claimants and counsel totaling $6.6 million, most of which we expect to
be covered by insurance. The settlement contains no admission of wrongdoing by us or any of the
other defendants. The deadline to file objections to the settlement passed on September 15, 2007.
With no objections being raised, the Court granted final approval to the settlement on November 15,
2007.
In July 2005, a shareholder derivative lawsuit, Halverson v. Samuel Scott, et al. (05 CH
12162), was filed in the Circuit Court of Cook County, Illinois against Corn Products
International, its directors and certain members of senior management. The lawsuit makes various
claims asserting mismanagement and breaches of fiduciary duty related to our performance in the
first quarter of 2005. The subject matter of the derivative lawsuit is substantially the same as
that of the shareholder class action, Monty Blatt v. Corn Products International, Inc. (N.D. Ill.
05 C 3033). On January 17, 2008 the Court granted preliminary approval to an agreement to settle
the case. Under the terms of the settlement, liability insurers agreed pay $325,000 in exchange
for dismissal with prejudice of all claims against the Company and its officers and directors. The
Company also agreed to implement and/or maintain certain corporate governance enhancements directed
toward promoting high standards of corporate operations and financial reporting. The settlement
contains no admission of wrongdoing by the Company or any of the other defendants.
In June 2005, certain associations purporting to represent Canadian corn producers filed a
request that the Canadian government investigate the effect of United States corn subsidization on
the Canadian corn market and the alleged dumping of United States corn into Canada. In September
2005, the Canadian government initiated an anti-dumping and/or countervailing duty investigation on
corn imported from the United States. In November 2005, the Canadian government made a positive
determination in connection with the preliminary determination of injury. In December 2005, the
Canadian government imposed preliminary antidumping and countervailing duties. In March 2006, the
Canadian International Trade Tribunal conducted an inquiry to determine whether the alleged dumping
and subsidizing of unprocessed grain corn, originating in the United States had caused injury or
threatened to cause injury to the Canadian domestic industry. On April 18, 2006, the Canadian
International Trade Tribunal issued a finding of no injury or threat of injury effectively ending
the anti-dumping, countervailing duty
18
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investigation. The preliminary duties were terminated and refunded. On June 8, 2006,
associations representing Canadian corn producers filed a notice of application for judicial review
relating to the April 18 decision by the Canadian International Trade Tribunal. On June 5, 2007,
the Federal Court of Canada denied the corn growers’ appeal in its entirety.
On April 4, 2006, we were served with complaints in two cases, Sun-Rype Products, Ltd v.
Archer Daniels Midland, et al. (L051456 Supreme Court of British Columbia, Canada) and Ali Holdco,
Inc. v. Archer Daniels Midland (06-CV-309948PD3 Ontario Superior Court of Justice, Canada), both
purporting to be class action anti-competition cases. These lawsuits contain nearly identical
allegations against a number of industry participants including us. The complaints seek unspecified
damages for an alleged conspiracy to fix the price of high fructose corn syrup sold in Canada
during the period between 1988 and June 1995. In the alternative, the complaints seek recovery
under restitutionary principles. In May 2007, the Court ruled on a joint defendants’ motion to
dismiss the lawsuit based on the statute of limitations. The court held that the plaintiffs’
causes of action other than the claims based on restitutionary principles are time-barred. Appeals
and cross-appeals regarding the order are pending and set for argument in April 2008. The Company
continues to believe the lawsuit is without merit and intends to defend it vigorously.
We are currently subject to various other claims and suits arising in the ordinary course of
business, including certain environmental proceedings. We do not believe that the results of such
legal proceedings, even if unfavorable to us, will be material to us. There can be no assurance,
however, that any claims or suits arising in the future, whether taken individually or in the
aggregate, will not have a material adverse effect on our financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our security holders, through the solicitation of
proxies or otherwise, during the quarter ended December 31, 2007.
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Shares of our common stock are traded on the New York Stock Exchange (“NYSE”) under the ticker
symbol “CPO.” The number of holders of record of our common stock was 8,152 at January 31, 2008.
Our policy is to pay a modest dividend. The amount and timing of the dividend payment, if
any, is based on a number of factors including estimated earnings, financial position and cash
flow. The payment of a dividend is solely at the discretion of our Board of Directors. Dividend
payments will be subject to our financial results and the availability of surplus funds to pay
dividends.
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The
quarterly high and low sales prices for our common stock and cash
dividends declared per common
share for 2006 and 2007 are shown below.
| 1st QTR | 2nd QTR | 3rd QTR | 4th QTR | |||||||||||||
2007 |
||||||||||||||||
Market prices |
||||||||||||||||
High |
$ | 37.20 | $ | 46.63 | $ | 48.85 | $ | 49.30 | ||||||||
Low |
25.48 | 33.52 | 37.79 | 35.36 | ||||||||||||
Per share dividends
declared |
$ | 0.09 | $ | 0.09 | $ | 0.11 | $ | 0.11 | ||||||||
2006 |
||||||||||||||||
Market prices |
||||||||||||||||
High |
$ | 30.00 | $ | 31.49 | $ | 35.35 | $ | 37.49 | ||||||||
Low |
22.92 | 24.72 | 28.60 | 30.87 | ||||||||||||
Per share dividends
declared |
$ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.09 | ||||||||
Issuer Purchases of Equity Securities:
The following table summarizes information with respect to our purchases of our common stock during
the fourth quarter of 2007.
| Maximum Number (or | ||||||||||||||||
| Total Number of | Approximate Dollar | |||||||||||||||
| Total | Average | Shares Purchased as | Value) of Shares | |||||||||||||
| Number | Price | part of Publicly | that may yet be | |||||||||||||
| of Shares | Paid | Announced Plans or | Purchased Under the | |||||||||||||
| (shares in thousands) | Purchased | Per Share | Programs | Plans or Programs | ||||||||||||
Oct. 1 — Oct. 31, 2007 |
— | — | — | 1,159 shares | ||||||||||||
Nov. 1 — Nov. 30, 2007 |
1,191 | 37.69 | 1,191 | 4,968 shares | ||||||||||||
Dec. 1 — Dec. 31, 2007 |
— | — | — | 4,968 shares | ||||||||||||
Total |
1,191 | 37.69 | 1,191 | |||||||||||||
On November 7, 2007, our Board of Directors approved a new stock repurchase program, which runs
through November 30, 2010, under which we may repurchase up to 5 million shares of our outstanding
common stock. During the fourth quarter of 2007 we repurchased the remaining 1,158,500 shares
allowed under our previously authorized 4 million share repurchase program and an additional 32,100
shares under the new program. As of December 31, 2007, we have 4,967,900 shares available for
repurchase under our 5 million stock repurchase program.
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ITEM 6. SELECTED FINANCIAL DATA*
Selected financial data is provided below.
| (in millions, except per share amounts) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
Summary of operations: |
||||||||||||||||||||
Net sales |
$ | 3,391 | $ | 2,621 | $ | 2,360 | $ | 2,283 | $ | 2,102 | ||||||||||
Net income |
198 | 124 | 90 | 94 | 76 | |||||||||||||||
Net earnings per common share: |
||||||||||||||||||||
Basic |
$ | 2.65 | $ | 1.67 | $ | 1.20 | $ | 1.28 | $ | 1.06 | ||||||||||
Diluted |
$ | 2.59 | $ | 1.63 | $ | 1.19 | $ | 1.25 | $ | 1.06 | ||||||||||
Cash dividends declared per common share |
$ | 0.40 | $ | 0.33 | $ | 0.28 | $ | 0.25 | $ | 0.21 | ||||||||||
Balance sheet data: |
||||||||||||||||||||
Working capital |
$ | 415 | $ | 320 | $ | 261 | $ | 222 | $ | 153 | ||||||||||
Property, plant and equipment-net |
1,500 | 1,356 | 1,274 | 1,211 | 1,187 | |||||||||||||||
Total assets |
3,103 | 2,645 | 2,389 | 2,367 | 2,216 | |||||||||||||||
Long-term debt |
519 | 480 | 471 | 480 | 452 | |||||||||||||||
Total debt |
649 | 554 | 528 | 568 | 550 | |||||||||||||||
Redeemable common stock |
19 | 44 | 29 | 33 | 67 | |||||||||||||||
Stockholders’ equity |
$ | 1,605 | $ | 1,330 | $ | 1,210 | $ | 1,081 | $ | 911 | ||||||||||
Shares outstanding, year end |
73.8 | 74.3 | 73.8 | 74.5 | 72.3 | |||||||||||||||
Additional data: |
||||||||||||||||||||
Depreciation |
$ | 125 | $ | 114 | $ | 106 | $ | 102 | $ | 101 | ||||||||||
Capital expenditures |
177 | 171 | 143 | 104 | 83 | |||||||||||||||
| * | All share and per share amounts have been adjusted for the 2-for-1 stock split effective January 25, 2005. |
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| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
We are one of the world’s largest corn refiners and a major supplier of high-quality food
ingredients and industrial products derived from the wet milling and processing of corn and other
starch-based materials. The corn refining industry is highly competitive. Many of our products
are viewed as commodities that compete with virtually identical products manufactured by other
companies in the industry. However, we have thirty manufacturing plants located throughout North
America, South America and Asia/Africa and we manage and operate our businesses at a local level.
We believe this approach provides us with a unique understanding of the cultures and product
requirements in each of the geographic markets in which we operate, bringing added value to our
customers. Our sweeteners are found in products such as baked goods, candies, chewing gum, dairy
products and ice cream, soft drinks and beer. Our starches are a staple of the food, paper,
textile and corrugating industries.
Critical success factors in our business include managing our significant manufacturing costs,
including corn and utilities. In addition, due to our global operations we are exposed to
fluctuations in foreign currency exchange rates. We use derivative financial instruments, when
appropriate, for the purpose of minimizing the risks and/or costs associated with fluctuations in
commodity prices, foreign exchange rates and interest rates. Also, the capital intensive nature of
the corn wet milling industry requires that we generate significant cash flow on a yearly basis in
order to selectively reinvest in the business and grow organically, as well as through strategic
acquisitions and alliances. We utilize certain key metrics relating to working capital, debt and
return on capital employed to monitor our progress toward achieving our strategic business
objectives (see section entitled “Key Performance Metrics”).
We achieved record highs for net sales, operating income, net income and diluted earnings per
common share for 2007. This record performance was primarily driven by significantly higher sales
and earnings in our North American and South American businesses. Additionally, we generated
strong operating cash flow in 2007 that we used to grow our business, repurchase common stock,
increase dividend payments and enhance our liquidity. Our record diluted earnings per common share
of $2.59 for 2007 included a $0.05 per share gain associated with our investment in the Chicago
Board of Trade Holdings, Inc. upon its July 2007 merger with Chicago Mercantile Exchange Holdings,
Inc., which created the CME Group Inc. (“CME”).
Looking forward, we expect that continued growth in our North America and South America regions
will more than offset a difficult period in our Asia Africa region. We expect lower operating
results in 2008 from our Asia/Africa region primarily due to difficult economic conditions in South
Korea, where higher corn and freight costs are expected to pressure sales volume and operating
income. Nonetheless, we currently expect that full year 2008 diluted earnings per common share
will increase to be in the range of $2.65 to $2.85 per common share, up from our record $2.59 per
diluted common share earned in 2007.
RESULTS OF OPERATIONS
We have significant operations in North America, South America and Asia/Africa. For most of our
foreign subsidiaries, the local foreign currency is the functional currency. Accordingly, revenues
and expenses denominated in the functional currencies of these subsidiaries are translated into US
dollars at the applicable average exchange rates for the period. Fluctuations in foreign currency
exchange rates affect the US dollar amounts of our foreign subsidiaries’ revenues and expenses.
The impact of currency exchange rate changes, where significant, is provided below.
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2007 Compared to 2006
Net Income. Net income for 2007 increased 60 percent to $198 million, or $2.59 per diluted common
share, from 2006 net income of $124 million, or $1.63 per diluted common share.
The increase in net income for 2007 primarily reflects a significant increase in operating income
driven by improved results in North America and South America. Additionally, in 2007 we recognized
a $6 million pretax gain ($4 million after-tax, or $.05 per diluted common share) associated with
our investment in the Chicago Board of Trade Holdings, Inc. (“CBOT”) upon the July 2007 merger of
the CBOT with the Chicago Mercantile Exchange Holdings Inc. to form the CME Group Inc. (the “CME
merger”).
Net Sales. Net sales for 2007 increased to $3.39 billion from $2.62 billion in 2006, as sales grew
in each of our regions.
A summary of net sales by geographic region is shown below:
| (in millions) | 2007 | 2006 | Increase | % Change | ||||||||||||
North America |
$ | 2,052 | $ | 1,588 | $ | 464 | 29 | % | ||||||||
South America |
925 | 670 | 255 | 38 | % | |||||||||||
Asia/Africa |
414 | 363 | 51 | 14 | % | |||||||||||
Total |
$ | 3,391 | $ | 2,621 | $ | 770 | 29 | % | ||||||||
The increase in net sales reflects price/product mix improvement of 24 percent ($632 million), a 4
percent benefit ($106 million) from currency translation attributable to stronger foreign
currencies relative to the US dollar and volume growth of 1 percent ($32 million). Operations from
recent acquisitions, including our December 2006 acquisition of DEMSA and our February acquisition
of SPI Polyols and GETEC (see Note 3 of the notes to the consolidated financial statements),
contributed approximately $106 million of net sales in 2007.
Sales in North America increased 29 percent driven principally by significantly improved
price/product mix as prices strengthened throughout the region reflecting higher corn costs. A
volume decline of 1 percent was offset by a 1 percent benefit from currency translation
attributable to a stronger Canadian dollar. Sales in South America increased 38 percent reflecting
price/product mix improvement of 21 percent due to higher pricing for all product categories, 6
percent volume growth driven by acquisitions and stronger demand for sweetener products, and an 11
percent translation benefit attributable to stronger South American currencies, particularly in
Brazil and Colombia. Sales in Asia/Africa increased 14 percent reflecting price/product mix
improvement of 11 percent driven by higher prices throughout the region mainly attributable to
increased corn and tapioca costs, and a 3 percent increase attributable to stronger Asian
currencies. Volume in the region was flat.
Cost of Sales. Cost of sales for 2007 increased 27 percent to $2.81 billion from $2.21 billion in
2006. This increase principally reflects higher corn costs, currency translation associated with
the weaker US dollar and increased sales volume. Currency translation attributable to the weaker
US dollar caused cost of sales to increase approximately 4 percent from 2006. Energy costs for
2007 increased approximately 3 percent over the prior year. Our gross profit margin for 2007 was
17 percent, compared with 16 percent in 2006, principally reflecting improved profitability and
margins in North America and South America as higher selling prices for our products were able to
recover increases in corn and other costs.
Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”)
expenses for 2007 were $249 million, up from $202 million in 2006. This increase principally
reflects higher compensation-related costs, operating expenses of acquired businesses and currency
translation associated with stronger foreign currencies. SG&A expenses for 2007 represented 7
percent of net sales, compared to 8 percent of net sales a year ago.
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Other Income-net. Other income-net for 2007 was $10 million, unchanged from last year. Other
income for 2007 includes the $6 million gain relating to our investment in CME. Other income for
2006 includes various insurance and tax recoveries approximating $5 million and $1 million of
earnings from non-controlled affiliates. Fee and royalty income for 2007 was consistent with the
prior year.
Operating Income. A summary of operating income is shown below:
| Favorable | Favorable | |||||||||||||||
| (Unfavorable) | (Unfavorable) | |||||||||||||||
| (in millions) | 2007 | 2006 | Variance | % Change | ||||||||||||
North America |
$ | 234 | $ | 130 | $ | 104 | 80 | % | ||||||||
South America |
115 | 84 | 31 | 37 | % | |||||||||||
Asia/Africa |
45 | 53 | (8 | ) | (15 | )% | ||||||||||
Corporate expenses |
(47 | ) | (43 | ) | (4 | ) | (9 | )% | ||||||||
Operating income |
$ | 347 | $ | 224 | $ | 123 | 55 | % | ||||||||
Operating income for 2007 increased 55 percent to $347 million from $224 million in 2006
driven by strong earnings growth in North America and South America. Currency translation
attributable to the weaker US dollar contributed approximately $14 million to the year over year
increase in operating income. North America operating income increased significantly to $234
million in 2007 from $130 million a year ago, as earnings grew throughout the region principally
attributable to improved product pricing. Currency translation attributable to the stronger
Canadian dollar contributed approximately $4 million to the operating income increase in the
region. South America operating income increased 37 percent to $115 million from $84 million in
2006, primarily reflecting significant earnings growth in Brazil driven by higher product pricing,
increased demand and a stronger local currency. Currency translation attributable to stronger
local currencies in Brazil and Colombia contributed approximately $10 million to the operating
income increase in the region. Additionally, earnings growth in the Andean region of South America
and results from acquired operations contributed to the increased operating income for South
America. Operating income for the Southern Cone of South America was relatively unchanged from
2006. Asia/Africa operating income declined 15 percent from 2006 as lower earnings in South Korea
mainly due to lower sales volume attributable to a stagnant economy and import competition, and
higher corn and ocean freight costs, more than offset earnings growth in Pakistan.
Financing Costs-net. Financing costs-net increased to $42 million in 2007 from $27 million in
2006. The increase primarily reflects increased borrowings, a reduction in capitalized interest
and an increase in foreign currency transaction losses. An increase in interest income driven by
higher average cash positions partially offset higher interest expense. Capitalized interest for
2007 was $4 million, as compared with $10 million in 2006.
Provision for Income Taxes. Our effective income tax rate was 33.5 percent in 2007, as compared to
35.3 percent in 2006. The decrease primarily reflects the effect of a year over year change in our
income mix and the recognition of $2 million of previously unrecognized tax benefits in 2007.
Minority Interest in Earnings. Minority interest in earnings increased to $5 million in 2007 from
$4 million in 2006. The increase from 2006 mainly reflects the effect of improved earnings in
Pakistan.
Comprehensive Income. We recorded comprehensive income of $306 million in 2007, as compared with
comprehensive income of $186 million in 2006. The increase in comprehensive income mainly reflects
our net income growth and a favorable variance in the currency translation adjustment attributable
to a weaker US dollar.
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2006 Compared to 2005
Net Income. Net income for 2006 increased 38 percent to $124 million, or $1.63 per diluted common
share, from 2005 net income of $90 million, or $1.19 per diluted common share.
The increase in net income for 2006 from 2005 primarily reflects a 22 percent increase in operating
income driven by significantly improved results for our North American business. Additionally,
lower financing costs contributed to the increase.
Net Sales. Net sales for 2006 increased to $2.62 billion from $2.36 billion in 2005, as sales grew
in each of our regions.
A summary of net sales by geographic region is shown below:
| (in millions) | 2006 | 2005 | Increase | % Change | ||||||||||||
North America |
$ | 1,588 | $ | 1,422 | $ | 166 | 12 | % | ||||||||
South America |
670 | 603 | 67 | 11 | % | |||||||||||
Asia/Africa |
363 | 335 | 28 | 8 | % | |||||||||||
Total |
$ | 2,621 | $ | 2,360 | $ | 261 | 11 | % | ||||||||
The increase in net sales reflects volume growth of 5 percent, price/product mix improvement of 3
percent, and a 3 percent benefit from currency translation attributable to stronger foreign
currencies relative to the US dollar.
Sales in North America increased 12 percent reflecting price/product mix improvement of 7 percent,
as prices strengthened throughout the region, volume growth of 3 percent primarily related to
increased demand for our sweetener products in Mexico and a 2 percent benefit from currency
translation attributable to a stronger Canadian dollar. Sales in South America increased
11 percent, as 9 percent volume growth primarily relating to greater demand for our sweetener and
co-products throughout the region as their economies continue to grow and a 5 percent translation
benefit attributable to stronger South American currencies (particularly the Brazilian Real) more
than offset a 3 percent price/product mix decline. The price/product mix decline primarily
occurred in Brazil, where in the first half of the year a strong currency and concerns over the
avian flu and hoof and mouth disease dampened our customers’ exports and limited pricing
flexibility. Sales in Asia/Africa increased 8 percent, as 6 percent volume growth from increased
demand across the region (with the exception of South Korea) and a 5 percent increase attributable
to stronger Asian currencies (particularly the South Korean Won), more than offset a 3 percent
price/product mix decline that was principally driven by a soft economy in South Korea resulting in
weak consumer demand for food and beverage products.
Cost of Sales. Cost of sales for 2006 increased 9 percent to $2.21 billion from $2.03 billion in
2005. The increase was principally due to volume growth, currency translation associated with the
weaker US dollar and higher energy costs. Currency translation attributable to the weaker US
dollar caused cost of sales to increase approximately 3 percent from 2005. In 2006, we
experienced an increase in global energy costs of approximately 20 percent over 2005, mainly
reflecting higher natural gas costs. Our gross profit margin for 2006 was 16 percent, compared
with 14 percent in 2005, principally reflecting improved profitability and margins in North America
resulting from improved pricing throughout the region and strong demand for our sweetener products
in Mexico.
Selling, General and Administrative Expenses. SG&A expenses for 2006 were $202 million, up from
$158 million in 2005. SG&A expenses for 2006 represented 8 percent of net sales, compared to 7
percent of net sales in 2005. This increase primarily reflects higher compensation-related costs,
including long-term incentive compensation principally driven by our strong net income growth and
the expensing of stock options.
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Other Income-net. Other income-net for 2006 increased to $10 million from $9 million in 2005. The
increase primarily reflects various insurance and tax recoveries that more than offset a $1 million
reduction in fee and royalty income. Additionally, the 2005 period included a $2 million gain from
the sale of non-core assets.
Operating Income. A summary of operating income is shown below:
| Favorable | Favorable | |||||||||||||||
| (Unfavorable) | (Unfavorable) | |||||||||||||||
| (in millions) | 2006 | 2005 | Variance | % Change | ||||||||||||
North America |
$ | 130 | $ | 59 | $ | 71 | 120 | % | ||||||||
South America |
84 | 101 | (17 | ) | (17 | )% | ||||||||||
Asia/Africa |
53 | 53 | — | — | % | |||||||||||
Corporate expenses |
(43 | ) | (30 | ) | (13 | ) | (43 | )% | ||||||||
Operating income |
$ | 224 | $ | 183 | $ | 41 | 22 | % | ||||||||
Operating income for 2006 increased 22 percent to $224 million from $183 million in 2005.
This increase was driven by significantly improved earnings in North America which more than offset
lower results in South America. Currency translation attributable to the weaker US dollar
contributed approximately $9 million to the year over year increase in operating income. An
increase in corporate expenses principally attributable to higher compensation-related costs,
including long-term incentive compensation and the expensing of stock options, partially offset the
earnings improvement in North America. North America operating income more than
doubled to $130 million in 2006 from $59 million in 2005, as earnings grew throughout the
region. Higher product selling prices throughout the region and significant volume growth in
Mexico drove the earnings improvement. Currency translation attributable to the stronger Canadian
dollar contributed approximately $2 million to the operating income increase in the region. South
America operating income decreased 17 percent from 2005, primarily reflecting lower earnings in
Brazil and, to a lesser extent, in the Southern Cone of South America. Higher corn and energy
costs throughout the region and lower product selling prices in Brazil were the principal
contributors to the earnings decline in South America. Currency translation, primarily associated
with the stronger Brazilian Real, partially offset the decline in operating income in the region by
contributing approximately $4 million in 2006 over 2005. Asia/Africa operating income for 2006 was
unchanged from 2005, as improved earnings in Pakistan and Thailand were partially offset by lower
results in South Korea. Operating income in the region for 2006 includes a currency translation
benefit of approximately $2 million over 2005, driven principally by a stronger South Korean Won.
The 2005 results included a $2 million gain from the sale of non-core assets in Malaysia.
Financing Costs-net. Financing costs-net decreased to $27 million in 2006 from $35 million in
2005. The decline primarily reflects an increase in capitalized interest and foreign currency
transaction gains, which more than offset the effect of higher interest rates. Additionally,
increased interest income contributed to the reduction in net financing costs. Capitalized
interest for 2006 was $10 million, as compared with $5 million in 2005.
Provision for Income Taxes. Our effective income tax rate was 35.3 percent in 2006, as compared to
37.5 percent in 2005. The decrease primarily reflects the effect of a change in our income mix for
2006, as compared with 2005, due principally to the improved earnings in the United States. The
rate was also positively affected by certain tax law changes and a reduction in foreign income
taxes attributable to certain statutory rate reductions.
Minority Interest in Earnings. Minority interest in earnings increased to $4 million in 2006 from
$3 million in 2005. The increase from 2005 mainly reflects the effect of improved earnings in
Pakistan.
Comprehensive Income. We recorded comprehensive income of $186 million in 2006, as compared with
comprehensive income of $160 million in 2005. The increase in comprehensive income mainly reflects
an increase
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in net income and a favorable variance in the currency translation adjustment, which
more than offset an unfavorable variance relating to cash flow hedges.
Adoption of SFAS 123R
Effective January 1, 2006, we adopted Statement of Accounting Standards SFAS No. 123R, “Share-based
Payment” (“SFAS 123R”) which requires, among other things, that compensation expense be recognized
for employee stock options. Prior to the adoption of SFAS 123R we accounted for stock compensation
using the recognition and measurement principles of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations. Under that
method, compensation expense was recorded only if the current market price of the underlying stock
on the date of grant exceeded the option exercise price. Since stock options are granted at
exercise prices that equal the market value of the underlying common stock on the date of grant
under our stock incentive plan, no compensation expense related to stock options was recorded in
the Consolidated Statements of Income prior to January 1, 2006. We adopted SFAS 123R using the
modified prospective method which requires that compensation cost be recognized in the financial
statements beginning with the effective date, based on the requirements of SFAS 123R for all share-based
awards granted or modified after that date, and based on the requirements of SFAS 123 for all
unvested awards granted prior to the effective date of SFAS 123R.
The effect of adopting SFAS 123R was a reduction in diluted earnings per common share of $.04
versus results under APB No. 25. As of December 31, 2006, the unrecognized compensation cost
related to non-vested stock options totaled $4 million, which will be amortized over the
weighted-average vesting period of approximately 1.4 years.
We have a long-term incentive plan for officers under which performance share awards are issued.
These awards are classified as equity in accordance with SFAS 123R. The ultimate payment of the
performance shares will be based 50 percent on our stock performance as compared to the stock
performance of a peer group and 50 percent on a return of capital employed versus the target
percentage. Compensation expense for the stock performance portion of the plan is based on the
fair value of the plan that is determined on the day the plan is established. Compensation expense
for the return on capital employed portion of the plan is based on the probability of attaining the
target percentage goal and is reviewed at the end of each reporting period. As of December 31,
2006, the unrecognized compensation cost relating to these plans was $2.7 million which will be
amortized over the remaining requisite service period of two years. This amount will vary each
reporting period based on changes in the probability of attaining the target percentage goal.
We also award shares of restricted common stock to certain key employees. The restricted shares
issued under the plan are subject to cliff vesting, generally after five years provided the
employee remains in the service of the Company. Expense is recognized on a straight line basis
over the vesting period. The fair value of the restricted stock is determined based upon the
number of shares granted and the quoted market price of our common stock on the date of the grant.
At December 31, 2006, there was $2 million of unrecognized compensation cost related to restricted
stock that will be amortized on a weighted-average basis over 2.5 years.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2007, our total assets were $3.10 billion, up from $2.65 billion at December 31,
2006. This increase primarily reflects our strong earnings and cash flow, capital investments,
acquisitions, translation effects associated with stronger foreign currencies relative to the US
dollar, and higher accounts receivable and inventories. The increase in inventories primarily
reflects higher corn costs and an inventory buildup to service 2008 demand, while the accounts
receivable increase was driven principally by higher sales and unrealized gains on
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corn futures
contracts. Stockholders’ equity increased to $1.61 billion at December 31, 2007 from $1.33 billion
at December 31, 2006, principally attributable to our 2007 net income, favorable currency
translation effects, credit offsets associated with a reduction in the number of shares of our
redeemable common stock, gains on cash flow hedges and the exercise of stock options. Open market
repurchases of our common shares and dividend payments to shareholders partially offset these
increases to stockholders’ equity.
On April 10, 2007, we sold $200 million of 6.0 percent Senior Notes due April 15, 2017 and $100
million of 6.625 percent Senior Notes due April 15, 2037. The net proceeds from the sale of the
notes were used to repay our $255 million 8.25 percent Senior Notes at the maturity date of
July 15, 2007 (including accrued interest thereon), and for general corporate purposes. See Note 5
of the notes to the consolidated financial statements for additional information.
In February 2007, Corn Products Brasil — Ingredientes Industriais Ltda. (“Corn Products Brazil”),
our wholly-owned Brazilian subsidiary, entered into two floating rate government export loans
totaling $23 million to finance the acquisition of the remaining ownership interest in GETEC. The
notes are local currency denominated obligations that mature in January 2010.
We have a $500 million senior, unsecured revolving credit facility consisting of a $470 million US
senior revolving credit facility and a $30 million Canadian revolving credit facility (the
“Revolving Credit Agreement”) that matures April 26, 2012. We guarantee the Canadian revolving
credit facility. At December 31, 2007, there were no outstanding borrowings under the US revolving
credit facility or the Canadian revolving credit facility. In addition, we have a number of
short-term credit facilities consisting of operating lines of credit. At December 31, 2007, we had
total debt outstanding of $649 million, compared to $554 million at December 31, 2006. The debt
includes $200 million (face amount) of 8.45 percent senior notes due 2009, $200 million (face
amount) of 6.0 percent senior notes due 2017, $100 million (face amount) of 6.625 percent senior
notes due 2037 and $150 million of consolidated subsidiary debt consisting of local country
borrowings. Approximately $130 million of the consolidated subsidiary debt represents short-term
borrowings. Corn Products International, as the parent company, guarantees certain obligations of
several of its consolidated subsidiaries, which aggregated $37 million at December 31, 2007.
Management believes that such consolidated subsidiaries will meet their financial obligations as
they become due.
The principal source of our liquidity is our internally generated cash flow, which we supplement as
necessary with our ability to borrow on our bank lines and to raise funds in both the debt and
equity markets. In addition to borrowing availability under our Revolving Credit Agreement, we
also have approximately $277 million of unused operating lines of credit in the various foreign
countries in which we operate.
The weighted average interest rate on our total indebtedness was approximately 7.5 percent and 7.7
percent for 2007 and 2006, respectively.
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Net Cash Flows
A summary of operating cash flows is shown below:
| (in millions) | 2007 | 2006 | ||||||
Net income |
$ | 198 | $ | 124 | ||||
Depreciation |
125 | 114 | ||||||
Deferred income taxes |
7 | (6 | ) | |||||
Stock option expense |
7 | 5 | ||||||
Unrealized gain on investment |
(6 | ) | — | |||||
Minority interest in earnings |
5 | 4 | ||||||
Changes in working capital |
(59 | ) | (29 | ) | ||||
Deposit with tax authority |
(17 | ) | — | |||||
Other |
(2 | ) | 18 | |||||
Cash provided by operations |
$ | 258 | $ | 230 | ||||
Cash provided by operations was $258 million in 2007, as compared with $230 million in 2006. The
increase in operating cash flow was primarily driven by our net income growth, which more than
offset an increase in the change in working capital. The increase in the working capital change
primarily reflects higher inventories, which more than offset cash collections on margin accounts
relating to corn futures contracts. The increase in inventories was principally attributable to
higher corn costs and an inventory buildup to service 2008 demand. We plan to continue to hedge
our North American corn purchases through the use of corn futures contracts and accordingly, will
be required to make or be entitled to receive, cash deposits for margin calls depending on the
movement in the market price for corn. The cash provided by operations was used primarily to fund
capital expenditures, make acquisitions, repurchase shares of common stock and pay dividends.
Listed below are our primary investing and financing activities for 2007 (in millions):
Capital expenditures
|
$ | (177 | ) | |
Acquisitions (net of cash acquired of $7)
|
(59 | ) | ||
Payments on debt
|
(283 | ) | ||
Proceeds from borrowings
|
366 | |||
Repurchases of common stock
|
(55 | ) | ||
Proceeds from issuance of common stock
|
16 | |||
Dividends paid (including dividends of $4
to minority interest shareholders)
|
(33 | ) |
On February 12, 2007, we acquired the food business assets of SPI Polyols, a subsidiary of ABF
North America Holdings, Inc., and the common shares of an SPI unit that owned the 50 percent of
GETEC not previously held by us. We paid approximately $66 million in cash to complete this
acquisition, which was accounted for under the purchase method of accounting. Goodwill of
approximately $43 million was recorded. Effective with the acquisition, GETEC, which was
previously accounted for as a non-controlled affiliate under the equity method, became a
consolidated subsidiary of ours. At December 31, 2006, our investment in GETEC was approximately
$28 million. See Note 3 of the notes to the consolidated financial statements for additional
information.
On November 14, 2007, our board of directors declared a quarterly cash dividend of $0.11 per share
of common stock. The cash dividend was paid on January 25, 2008 to stockholders of record at the
close of business on January 4, 2008.
We currently anticipate that capital expenditures for 2008 will approximate $200 million.
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We expect that our operating cash flows and borrowing availability under our credit facilities will
be more than sufficient to fund our anticipated capital expenditures, acquisitions, dividends and
other investing and/or financing strategies for the foreseeable future.
Hedging
We are exposed to market risk stemming from changes in commodity prices, foreign currency exchange
rates and interest rates. In the normal course of business, we actively manage our exposure to
these market risks by entering into various hedging transactions, authorized under established
policies that place clear controls on these activities. The counterparties in these transactions
are generally highly rated institutions. We establish credit limits for each counterparty. Our
hedging transactions include but are not limited to a variety of derivative financial instruments
such as commodity futures contracts, forward currency contracts and options, interest rate swap
agreements and treasury lock agreements. See Note 4 of the notes to the consolidated financial
statements for additional information.
Commodity Price Risk:
We use derivatives to manage price risk related to purchases of corn and natural gas used in the
manufacturing process. We periodically enter into futures and option contracts for a portion of
our anticipated corn and natural gas usage, generally over the following twelve months, in order to
hedge price risk associated with fluctuations in market prices. These readily available marketable
exchange-traded futures contracts are recognized at fair value and have effectively reduced our
exposure to changes in market prices for these commodities. Unrealized gains and losses associated
with marking these contracts to market are recorded as a component of other comprehensive income.
At December 31, 2007, our accumulated other comprehensive loss account included $49 million of
gains, net of tax of $29 million, related to these futures contracts.
Foreign Currency Exchange Risk:
Due to our global operations, we are exposed to fluctuations in foreign currency exchange rates.
As a result, we have exposure to translational foreign exchange risk when our foreign operation
results are translated to US dollars (USD) and to transactional foreign exchange risk when
transactions not denominated in the functional currency of the operating unit are revalued. We
primarily use foreign currency forward contracts, swaps and options to selectively hedge our
foreign currency cash flow exposures. We generally hedge 12 to 18 months forward. As of December
31, 2007, we had $14 million of net notional foreign currency swaps and forward contracts that
hedged net liability transactional exposures.
Interest Rate Risk:
We are exposed to interest rate volatility with regard to future issuances of fixed rate debt, and
existing and future issuances of variable rate debt. Primary exposures include US Treasury rates,
LIBOR, and local short-term borrowing rates. We use interest rate swaps and Treasury Lock
agreements (“T-Locks”) to hedge our exposure to interest rate changes, to reduce the volatility of
our financing costs, and to achieve a desired proportion of fixed versus floating rate debt, based
on current and projected market conditions. Generally for interest rate swaps, we agree with a
counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based
on an agreed notional principal amount. At December 31, 2007 we did not have any interest rate
swaps outstanding.
In conjunction with our plan to refinance our 8.45 percent $200 million senior notes due August
2009, we intend to issue long-term, fixed rate debt in 2009. In September 2007, in order to manage
our exposure to variability in the benchmark interest rate on which the fixed interest rate of the
planned debt will be based, we entered into a T-Lock with respect to $50 million of such future
indebtedness. The T-Lock is designated as a hedge of the variability in cash flows associated with
future interest payments caused by market fluctuations in the benchmark interest rate
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between the
time the T-Lock was entered and the time the debt is issued. It is accounted for as a cash flow
hedge. Accordingly, changes in the fair value of the T-Lock are recorded to other comprehensive
income (loss) until the consummation of the planned debt offering, at which time any realized gain
(loss) will be amortized over the life of the debt. In 2006, we had entered into T-Locks that
fixed the benchmark component of the interest rate to be established for our $200 million 6.0
percent Senior Notes due April 15, 2017. These $200 million T-Locks, which were accounted for as
cash flow hedges, expired on March 21, 2007 and we paid approximately $5 million, representing the
losses on the T-Locks, to settle the agreements. The $5 million loss is included in accumulated
other comprehensive loss and is being amortized to financing costs over the ten-year term of the
$200 million 6.0 percent Senior Notes due April 15, 2017. At December 31, 2007, our accumulated
other comprehensive loss account included $4 million of losses, net of tax of $2 million, related
to T-Locks.
Contractual Obligations and Off Balance Sheet Arrangements
The table below summarizes our significant contractual obligations as of December 31, 2007.
Information included in the table is cross-referenced to the Notes to the Consolidated Financial
Statements elsewhere in this report, as applicable.
| (in millions) | Payments due by period | |||||||||||||||||||||||
| Less | More | |||||||||||||||||||||||
| Contractual | Note | than 1 | 2 – 3 | 4 – 5 | than 5 | |||||||||||||||||||
| Obligations | reference | Total | year | years | years | years | ||||||||||||||||||
Long-term debt |
5 | $ | 537 | $ | 17 | $ | 220 | $ | — | $ | 300 | |||||||||||||
Interest on
long-term debt |
5 | 349 | 39 | 57 | 37 | 216 | ||||||||||||||||||
Operating lease
obligations |
6 | 137 | 27 | 43 | 26 | 41 | ||||||||||||||||||
Pension and other
postretirement
obligations |
8 | 277 | 16 | 30 | 31 | 200 | ||||||||||||||||||
Purchase obligations (a) |
630 | 121 | 96 | 81 | 332 | |||||||||||||||||||
Total |
$ | 1,930 | $ | 220 | $ | 446 | $ | 175 | $ | 1,089 | ||||||||||||||
| (a) | The purchase obligations relate principally to power supply agreements, including take or pay energy supply contracts, which help to provide us with an adequate power supply at certain of our facilities. | |
| (b) | The above table does not reflect unrecognized income tax benefits of $17 million, the timing of which is uncertain. See Note 7 of the notes to the consolidated financial statements for additional information with respect to unrecognized income tax benefits. |
On January 20, 2006, Corn Products Brazil (“CPO Brazil”) entered into a Natural Gas Purchase and
Sale Agreement (the “Agreement”) with Companhia de Gas de Sao Paulo — Comgas
(“Comgas”). Pursuant to the terms of the Agreement, Comgas supplies natural gas to the cogeneration
facility at CPO Brazil’s Mogi Guacu plant. This Agreement will expire on March 31, 2023, unless
extended or terminated under certain conditions specified in the Agreement. During the term of the
Agreement, CPO Brazil is obligated to purchase from Comgas, and Comgas is obligated to provide to
CPO Brazil, certain minimum quantities of natural gas that are specified in the Agreement. The
price for such quantities of natural gas is determined pursuant to a formula set forth in the
Agreement. We estimate that the total minimum expenditures by CPO Brazil through the remaining term
of the Agreement will be approximately US$258,000,000, based on current exchange rates and
estimates regarding the application of the formula set forth in the Agreement, spread evenly over
the remaining term of the Agreement. These amounts are
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included in the purchase obligations
disclosed in the table above.
As described in Note 10 of the notes to the consolidated financial statements, we have an agreement
with certain common stockholders (collectively the “holder”), relating to 500,000 shares of our
common stock, that provides the holder with the right to require us to repurchase those common
shares for cash at a price equal to the average of the closing per share market price of our
common stock for the 20 trading days immediately preceding the date that the holder exercises the
put option. The put option is exercisable at any time until January 2010 when it expires. The
holder can also elect to sell the common shares on the open market, subject to certain
restrictions. The holder of the put option may not require us to repurchase less than 500,000
shares on any single exercise of the put option, and the put option may not be exercised more than
once in any six month period. In the event the holder exercises the put option requiring us to
repurchase the shares, we would be required to pay for the shares within 90 calendar days from the
exercise date if the holder is selling the minimum number of shares (500,000). Any amount due would
accrue interest at our revolving credit facility rate from the date of exercise until the payment
date. If the holder had put the 500,000 shares then subject to the agreement to us on December 31,
2007, we would have been obligated to repurchase the shares for approximately $19 million based
upon the average of the closing per share market price of the Company’s common stock for the 20
trading days prior to December 31, 2007 ($38.30 per share). This amount is reflected as redeemable
common stock in our Consolidated Balance Sheet at December 31, 2007. During 2007, the holder sold
727,000 shares of redeemable common stock in open market transactions thereby reducing the number
of redeemable common shares to 500,000 at December 31, 2007 from 1,227,000 shares at December 31,
2006.
We currently anticipate that in 2008 we will make cash contributions to our US and non-US pension
plans of $9 million and $7 million, respectively. See Note 8 of the notes to the consolidated
financial statements for further information with respect to our pension and postretirement benefit
plans.
Key Performance Metrics
We use certain key metrics to better monitor our progress towards achieving our strategic business
objectives. These metrics relate to our return on capital employed, our financial leverage, and
our management of working capital, each of which is tracked on an ongoing basis. We assess whether
we are achieving an adequate return on invested capital by measuring our “Return on Capital
Employed” (“ROCE”) against our cost of capital. We monitor our financial leverage by regularly
reviewing our ratio of debt to earnings before interest, taxes, depreciation and amortization
(“Debt to EBITDA”) and our “Debt to Capitalization” percentage to assure that we are properly
financed. We assess our level of working capital investment by evaluating our “Operating Working
Capital as a percentage of Net Sales.” We believe the use of these metrics enables us to better
run our business and is useful to investors.
The metrics below include certain information (including Capital Employed, Adjusted Operating
Income, EBITDA, Adjusted Current Assets, Adjusted Current Liabilities and Operating Working
Capital) that is not calculated in accordance with Generally Accepted Accounting Principles
(“GAAP”). A reconciliation of these amounts to the most directly comparable financial measures
calculated in accordance with GAAP is contained in the following tables. Management believes that
this non-GAAP information provides investors with a meaningful presentation of useful information
on a basis consistent with the way in which management monitors and evaluates our operating
performance. The information presented should not be considered in isolation and should not be
used as a substitute for our financial results calculated under GAAP. In addition, these non-GAAP
amounts are susceptible to varying interpretations and calculations, and the amounts presented
below may not be comparable to similarly titled measures of other companies.
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Our calculations of these key metrics for 2007 with comparisons to the prior year are as follows:
| Return on Capital Employed (dollars in millions) | 2007 | 2006 | ||||||
Total stockholders’ equity * |
$ | 1,330 | $ | 1,210 | ||||
Add: |
||||||||
Cumulative translation adjustment * |
214 | 257 | ||||||
Minority interest in subsidiaries * |
19 | 17 | ||||||
Redeemable common stock * |
44 | 29 | ||||||
Share-based payments subject to redemption* |
4 | — | ||||||
Total debt * |
554 | 528 | ||||||
Less: |
||||||||
Cash and cash equivalents * |
(131 | ) | (116 | ) | ||||
Capital employed * (a) |
$ | 2,034 | $ | 1,925 | ||||
Operating income |
$ | 347 | $ | 224 | ||||
Adjusted for: |
||||||||
Income taxes (at effective tax rates of 33.5% in 2007
and 35.3% in 2006) |
(116 | ) | (79 | ) | ||||
Adjusted operating income, net of tax (b) |
$ | 231 | $ | 145 | ||||
Return on Capital Employed (b¸a) |
11.4 | % | 7.5 | % | ||||
| * | Balance sheet amounts used in computing capital employed represent beginning of period balances |
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| Debt to EBITDA ratio (dollars in millions) | 2007 | 2006 | ||||||
Short-term debt |
$ | 130 | $ | 74 | ||||
Long-term debt |
519 | 480 | ||||||
Total debt (a) |
$ | 649 | $ | 554 | ||||
Net income |
$ | 198 | $ | 124 | ||||
Add back: |
||||||||
Minority interest in earnings |
5 | 4 | ||||||
Provision for income taxes |
102 | 69 | ||||||
Interest expense, net of interest income of $12 and $6,
respectively |
38 | 28 | ||||||
Depreciation |
125 | 114 | ||||||
EBITDA (b) |
$ | 468 | $ | 339 | ||||
Debt to EBITDA ratio (a ÷ b) |
1.4 | 1.6 | ||||||
| Debt to Capitalization percentage (dollars in millions) | 2007 | 2006 | ||||||
Short-term debt |
$ | 130 | $ | 74 | ||||
Long-term debt |
519 | 480 | ||||||
Total debt (a) |
$ | 649 | $ | 554 | ||||
Deferred income tax liabilities |
$ | 133 | $ | 121 | ||||
Minority interest in subsidiaries |
21 | 19 | ||||||
Redeemable common stock |
19 | 44 | ||||||
Share-based payments subject to redemption |
9 | 4 | ||||||
Stockholders’ equity |
1,605 | 1,330 | ||||||
Total capital |
$ | 1,787 | $ | 1,518 | ||||
Total debt and capital (b) |
$ | 2,436 | $ | 2,072 | ||||
Debt to Capitalization percentage (a¸b) |
26.6 | % | 26.7 | % | ||||
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| Operating Working Capital | ||||||||
| as a percentage of Net Sales (dollars in millions) | 2007 | 2006 | ||||||
Current assets |
$ | 1,089 | $ | 837 | ||||
Less: Cash and cash equivalents |
(175 | ) | (131 | ) | ||||
Deferred income tax assets |
(13 | ) | (16 | ) | ||||
Adjusted current assets |
$ | 901 | $ | 690 | ||||
Current liabilities |
$ | 674 | $ | 517 | ||||
Less: Short-term debt |
(130 | ) | (74 | ) | ||||
Deferred income tax liabilities |
(28 | ) | (14 | ) | ||||
Adjusted current liabilities |
$ | 516 | $ | 429 | ||||
Operating working capital (a) |
$ | 385 | $ | 261 | ||||
Net sales (b) |
$ | 3,391 | $ | 2,621 | ||||
Operating Working Capital as a percentage
of Net Sales (a ¸ b) |
11.4 | % | 10.0 | % | ||||
Commentary on Key Performance Metrics:
In accordance with our long-term objectives, we have set certain goals relating to these key
performance metrics that we will strive to meet. At December 31, 2007, we have achieved three of
our four established targets with our operating working capital as a percentage of sales being the
only exception. While that metric is slightly higher than our targeted range, we believe that we
can return it to our targeted level in 2008. However, no assurance can be given that this goal
will be attained and various factors could affect our ability to achieve not only this goal, but to
also continue to meet our other key performance metric targets. See Item 1A “Risk Factors” and
Item 7A “Quantitative and Qualitative Disclosures About Market Risk.” The objectives set out below
reflect our current aspirations in light of our present plans and existing circumstances. We may
change these objectives from time to time in the future to address new opportunities or changing
circumstances as appropriate to meet our long-term needs and those of our shareholders.
Return on Capital Employed — Our long-term goal is to achieve a Return on Capital Employed in
excess of 8.5 percent. In determining this performance metric, the negative cumulative translation
adjustment is added back to stockholders’ equity to calculate returns based on the Company’s
original investment costs. Driven by our strong operating performance, our ROCE grew to 11.4
percent in 2007 from 7.5 percent last year. This represents the first time that we have achieved a
ROCE in excess of our 8.5 percent target. The increase primarily reflects the impact of our
significantly higher operating income in 2007. Additionally, the lower effective income tax rate
for 2007 contributed to the ROCE improvement. Our effective income tax rate for 2007 was 33.5
percent, down from 35.3 percent in 2006. The capital employed base used in our 2007 ROCE
computation increased $109 million from the prior year.
Debt to EBITDA ratio — Our long-term objective is to maintain a ratio of debt to EBITDA of less
than 2.25. This ratio strengthened to 1.4 at December 31, 2007 from 1.6 at December 31, 2006, as
EBITDA growth of 38 percent more than offset an increase in total debt. At a ratio of 1.4 at
December 31, 2007 we have additional capacity to support organic and/or acquisition growth should
we need to increase our financial leverage.
Debt to Capitalization percentage — Our long-term goal is to maintain a Debt to Capitalization
percentage in the range of 32 to 35 percent. At December 31, 2007 our Debt to Capitalization
percentage was 26.6 percent,
consistent with the 26.7 percent a year ago, as our increased capital base more than offset an
increase in debt. Our
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larger capital base was primarily driven by our 2007 net income and currency
translation attributable to the weaker US dollar.
Operating Working Capital as a percentage of Net Sales — Our long-term goal is to maintain
operating working capital in a range of 8 to 10 percent of our net sales. The metric increased to
11.4 percent at December 31, 2007 from 10.0 percent a year ago, primarily reflecting an increase in
operating working capital. The increase in our operating working capital was mainly attributable
to increased inventories and accounts receivable. The increase in inventories primarily reflects
higher corn costs and an inventory build-up to service 2008 demand, while the accounts receivable
increase was driven principally by higher sales and unrealized gains on corn futures contracts. We
will continue to focus on managing our working capital in 2008.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and expenses during the reporting
period. Actual results may differ from these estimates under different assumptions and conditions.
We have identified below the most critical accounting policies upon which the financial statements
are based and that involve our most complex and subjective decisions and assessments. Our senior
management has discussed the development, selection and disclosure of these policies with members
of the Audit Committee of our Board of Directors. These accounting policies are disclosed in the
notes to the consolidated financial statements. The discussion that follows should be read in
conjunction with the consolidated financial statements and related notes included elsewhere in this
Annual Report on Form 10-K.
Long-lived Assets:
We have substantial investments in property, plant and equipment and goodwill. For property, plant
and equipment we recognize the cost of depreciable assets in operations over the estimated useful
life of the assets, and we evaluate the recoverability of these assets whenever events or changes
in circumstances indicate that the carrying value of the assets may not be recoverable. For
goodwill we perform an annual impairment assessment (or more frequently if impairment indicators
arise) as required by Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and
Other Intangible Assets.” We have chosen to perform this annual impairment assessment in December
of each year. An impairment loss is assessed and recognized in operating earnings if the fair
value of either goodwill or property, plant and equipment is less than its carrying amount. For
long-lived assets we test for recoverability whenever events or circumstances indicate that the
carrying amount may not be recoverable as required by SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-lived Assets.”
In analyzing the fair value of goodwill and assessing the recoverability of the carrying value of property, plant and equipment, we have to make projections regarding future cash flows. In developing these projections, we make a variety of important assumptions and estimates that have a significant impact on our assessments of whether the carrying values of goodwill and property, plant and equipment should be adjusted to reflect impairment. Among these are assumptions and estimates about the future growth and profitability of the related business unit, anticipated future economic, regulatory and political conditions in the business unit’s market, the appropriate discount rates relative to the risk profile of the unit or assets being evaluated and estimates of terminal or disposal values.
In analyzing the fair value of goodwill and assessing the recoverability of the carrying value of property, plant and equipment, we have to make projections regarding future cash flows. In developing these projections, we make a variety of important assumptions and estimates that have a significant impact on our assessments of whether the carrying values of goodwill and property, plant and equipment should be adjusted to reflect impairment. Among these are assumptions and estimates about the future growth and profitability of the related business unit, anticipated future economic, regulatory and political conditions in the business unit’s market, the appropriate discount rates relative to the risk profile of the unit or assets being evaluated and estimates of terminal or disposal values.
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Income Taxes:
We use the asset and liability method of accounting for income taxes. This method recognizes the
expected future tax consequences of temporary differences between book and tax bases of assets and
liabilities and provides a valuation allowance based on a more likely than not criteria. We have
considered forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in
which we operate and prudent and feasible tax planning strategies in determining the need for a
valuation allowance. In the event we were to determine that we would not be able to realize all or
part of our net deferred tax assets in the future, we would increase the valuation allowance and
make a corresponding charge to earnings in the period in which we make such determination.
Likewise, if we later determine that we are more likely than not to realize the net deferred tax
assets, we would reverse the applicable portion of the previously provided valuation allowance. At
December 31, 2007, the Company maintained a valuation allowance of $26 million against certain
foreign tax credits and foreign net operating losses that management has determined will more
likely than not expire prior to realization. The valuation allowance at December 31, 2007, with
respect to foreign tax credit carry-forwards, increased to $18 million from $17 million at December
31, 2006. The increase was due to the limitation on using foreign tax credits in the United
States. The valuation allowance with respect to foreign net operating losses increased to $8
million at December 31, 2007 from $7 million at December 31, 2006.
We are regularly audited by various taxing authorities, and sometimes these audits result in
proposed assessments where the ultimate resolution may result in us owing additional taxes. We
establish reserves under FIN 48 when, despite our belief that our tax return positions are
appropriate and supportable under local tax law, we believe there is uncertainty with respect to
certain positions and we may not succeed in realizing the tax benefit. We evaluate these
unrecognized tax benefits and related reserves each quarter and adjust the reserves and the related
interest and penalties in light of changing facts and circumstances regarding the probability of
realizing tax benefits, such as the settlement of a tax audit or the expiration of a statute of
limitations. We believe the estimates and assumptions used to support our evaluation of tax
benefit realization are reasonable. However, final determinations of prior-year tax liabilities,
either by settlement with tax authorities or expiration of statutes of limitations, could be
materially different than estimates reflected in assets and liabilities and historical income tax
provisions. The outcome of these final determinations could have a material effect on our income
tax provision, net income, or cash flows in the period in which that determination is made. We
believe our tax positions comply with applicable tax law and that we have adequately provided for
any known tax contingencies under FIN 48.
No taxes have been provided on undistributed foreign earnings that are planned to be indefinitely
reinvested. If future events, including material changes in estimates of cash, working capital and
long-term investment requirements, necessitate that these earnings be distributed, an additional
provision for withholding taxes may apply, which could materially affect our future effective tax
rate.
Retirement Benefits:
We sponsor non-contributory defined benefit plans covering substantially all employees in the
United States and Canada, and certain employees in other foreign countries. We also provide
healthcare and life insurance benefits for retired employees in the United States and Canada. The
net periodic pension cost was $9 million in both 2007 and 2006. The Company estimates that net
periodic pension expense for 2008 will include approximately $2 million relating to the
amortization of its accumulated actuarial loss and prior service cost included in accumulated other
comprehensive loss at December 31, 2007. In order to measure the expense and obligations
associated with these retirement benefits, our management must make a variety of estimates and
assumptions, including discount rates used to value certain liabilities, expected return on plan
assets set aside to fund these costs, rate of compensation increase, employee turnover rates,
retirement rates, mortality rates, and other factors. These estimates and assumptions are based on
our historical experience, along with our knowledge and understanding of current facts, trends and
circumstances. We use third-party specialists to assist management in evaluating our assumptions
and estimates, as well as to appropriately measure the costs and obligations associated with our
retirement benefit plans. Had we used different estimates and assumptions with respect to these
plans, our
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retirement benefit obligations and related expense could vary from the actual amounts
recorded, and such differences could be material. See also Note 8 of the notes to the consolidated
financial statements.
New Accounting Standards
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements” (“SFAS 157”) which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. This statement does not require
any new fair value measurements but applies to other accounting pronouncements that require or
permit fair value measurements. This statement is effective for fiscal periods beginning after
November 15, 2007. On February 6, 2008 the FASB issued final Staff Positions that will partially
defer the effective date of SFAS 157 by one year for certain nonfinancial assets and nonfinancial
liabilities and also remove certain leasing transactions from the scope of SFAS 157. We do not
expect that the adoption of this statement will have a material impact on our consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS
158”). Among other things, SFAS 158 requires companies to: (i) recognize in the balance sheet, a
net liability or asset and an offsetting adjustment to accumulated other comprehensive income, to
record the funded status of defined benefit pension and other post-retirement benefit plans; (ii)
measure plan assets and obligations that determine its funded status as of the end of the company’s
fiscal year; and (iii) recognize in comprehensive income the changes in the funded status of a
defined benefit pension and postretirement plan in the year in which the changes occur. As
required, we adopted the recognition and disclosure provisions of SFAS 158 effective December 31,
2006 in our annual report on Form 10-K for the year then ended. The requirement to measure the
plan assets and benefit obligations as of the year-end balance sheet date is effective for fiscal
years ending after December 15, 2008. We do not expect that the eventual change to using a
year-end balance sheet measurement date will have a material impact on our consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities the option to measure certain
financial assets and liabilities at fair value at specified election dates. Such election, which
may be applied on an instrument by instrument basis, is typically irrevocable once elected.
Subsequent unrealized gains and losses on items for which the fair value option has been elected
are to be reported in earnings. SFAS 159 is effective for fiscal years beginning after November
15, 2007. We do not expect that the adoption of this statement will have a material impact on our
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations” (“SFAS 141R”), which
replaces SFAS No. 141, “Business Combinations”. SFAS 141R, among other things, requires that all
business combinations completed after the effective date of the statement be accounted for by
applying the acquisition method (previously referred to as the purchase method). Under this
method, an acquiring company is required to recognize the assets acquired, the liabilities assumed
and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair
values as of that date. This replaces the cost allocation process used under SFAS 141 where the
cost of the acquisition is allocated to the individual assets acquired and liabilities assumed
based on their estimated fair values. Acquisition-related costs, currently included in the cost of
an acquisition and allocated to assets acquired and liabilities assumed under SFAS 141, are
required to be recognized separately from an acquisition under SFAS 141R. SFAS 141R also requires
that an acquiring company recognize contingent consideration at the acquisition date, measured at
its fair value at that date. In the case of a bargain purchase, defined as a business combination
in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the
fair value of the consideration transferred plus any noncontrolling interest in the acquiree, the
acquiring company is required to recognize a gain for that excess. Under SFAS 141, this excess (or
negative goodwill) is allocated as a pro rata reduction of the amounts that otherwise would have
been assigned to the assets acquired. SFAS 141R applies
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prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. Early application is not allowed. The adoption of SFAS
141R will impact accounting for future business combinations and the effect will be dependent upon
the acquisitions at that time.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements—an Amendment of ARB No. 51 (“SFAS 160”), which establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Among other things, SFAS 160 clarifies that a noncontrolling interest in a subsidiary
is an ownership interest in the consolidated entity that is to be reported as equity in the
consolidated balance sheet, as opposed to being reported in the mezzanine section of the balance
sheet between liabilities and equity. Under SFAS 160, consolidated net income is to be reported at
amounts that include the amounts attributable to both the parent and the noncontrolling interest.
The statement requires disclosure of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest on the face of the consolidated statement of income.
Additionally, SFAS 160 establishes a single method of accounting for changes in a parent’s
ownership interest in a subsidiary that do not result in deconsolidation and clarifies that such
transactions are equity transactions if the parent retains its controlling financial interest in
the subsidiary. SFAS 160 also requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 and is to be applied prospectively, except for the presentation and disclosure
requirements which are to be applied retrospectively. Early adoption is prohibited. We are
currently evaluating SFAS 160, but do not expect that the adoption of this statement will have a
material effect on our consolidated financial statements.
Forward Looking Statements
This Form 10-K contains or may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The Company intends these forward looking statements to be covered by the safe harbor provisions
for such statements. These statements include, among other things, any predictions regarding the
Company’s prospects or future financial condition, earnings, revenues, expenses or other financial
items, any statements concerning the Company’s prospects or future operation, including
management’s plans or strategies and objectives therefor and any assumptions underlying the
foregoing. These statements can sometimes be identified by the use of forward looking words such
as “may,” “will,” “should,” “anticipate,” “believe,” “plan,” “project,” “estimate,” “expect,”
“intend,” “continue,” “pro forma,” “forecast” or other similar expressions or the negative thereof.
All statements other than statements of historical facts in this report or referred to or
incorporated by reference into this report are “forward-looking statements.” These statements are
subject to certain inherent risks and uncertainties. Although we believe our expectations
reflected in these forward-looking statements are based on reasonable assumptions, stockholders are
cautioned that no assurance can be given that our expectations will prove correct. Actual results
and developments may differ materially from the expectations conveyed in these statements, based on
various factors, including fluctuations in worldwide markets for corn and other commodities and the
associated risks of hedging against such fluctuations; fluctuations in aggregate industry supply
and market demand; general political, economic, business, market and weather conditions in the
various geographic regions and countries in which we manufacture and/or sell our products;
fluctuations in the value of local currencies, energy costs and availability, freight and shipping
costs, and changes in regulatory controls regarding quotas, tariffs, duties, taxes and income tax
rates; operating difficulties; boiler reliability; our ability to effectively integrate acquired
businesses; labor disputes; genetic and biotechnology issues; changing consumption preferences and
trends; increased competitive and/or customer pressure in the corn-refining industry; the outbreak
or continuation of serious communicable disease or hostilities including acts of terrorism; stock
market fluctuation and volatility; and our ability to maintain sales levels of HFCS in Mexico. Our
forward-looking statements speak only as of the date on which they are made and we do not
undertake any obligation to update any forward-looking statement to reflect events or
circumstances after the date of the statement. If we do update or correct one or more of these
statements, investors and others should not conclude that
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we will make additional updates or
corrections. For a further description of these risks, see Item 1A-Risk Factors above and
subsequent reports on Forms 10-Q and 8-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Exposure. Approximately 77 percent of our borrowings at December 31, 2007 are
fixed rate bonds and loans. Interest on the remaining 23 percent of our borrowings is subject to
change based on changes in short-term rates, which could affect our interest costs. See also Note
5 of the notes to the consolidated financial statements entitled “Financing Arrangements” for
further information. A hypothetical increase of 1 percentage point in the weighted average
floating interest rate for 2007 would have increased our interest expense and reduced our pretax
income for 2007 by approximately $1 million.
At December 31, 2007 and 2006, the carrying and fair values of long-term debt, including the
current portion, were as follows:
| 2007 | 2006 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| (in millions) | amount | value | amount | value | ||||||||||||
6.0% senior notes, due April 15, 2017 |
$ | 200 | $ | 205 | $ | — | $ | — | ||||||||
6.625% senior notes, due April 15, 2037 |
99 | 101 | — | — | ||||||||||||
8.25% senior notes, repaid July 2007 |
— | — | 255 | 259 | ||||||||||||
8.45% senior notes, due 2009 |
200 | 212 | 199 | 213 | ||||||||||||
Brazil loans, due 2010 |
20 | 20 | — | — | ||||||||||||
Mexican term loan, due 2008 |
17 | 17 | 17 | 17 | ||||||||||||
Canadian revolving credit facility, due 2012 |
— | — | 9 | 9 | ||||||||||||
Korean loans, due 2007 |
— | — | 18 | 18 | ||||||||||||
Sub-total |
$ | 536 | $ | 555 | $ | 498 | $ | 516 | ||||||||
Less: current maturities of long-term debt |
17 | 17 | 18 | 18 | ||||||||||||
Total long-term debt |
$ | 519 | $ | 538 | $ | 480 | $ | 498 | ||||||||
We plan to refinance our 8.45 percent $200 million senior notes due August 2009, by issuing
long-term, fixed rate debt in 2009. In conjunction with this plan and in order to manage our
exposure to variability in the benchmark interest rate on which the fixed interest rate of the
planned debt will be based, we entered into a Treasury Lock agreement (the “T-Lock”) with respect
to $50 million of such future indebtedness in September 2007. The T-Lock is designated as a hedge
of the variability in cash flows associated with future interest payments caused by market
fluctuations in the benchmark interest rate between the time the T-Lock was entered and the time
the debt is priced. It is accounted for as a cash flow hedge. Accordingly, changes in the fair
value of the T-Lock are recorded to other comprehensive income (loss) until the consummation of the
planned debt offering, at which time any realized gain (loss) will be amortized over the life of
the debt.
In 2006, we had entered into Treasury Lock agreements (the “T-Locks”) that fixed the benchmark
component of the interest rate to be established for the $200 million 6.0 percent Senior Notes due
April 15, 2017. The T-Locks were accounted for as cash flow hedges. The T-Locks expired on March
21, 2007 and we paid approximately $5 million, representing the losses on the T-Locks, to settle
the agreements. The $5 million loss is included in accumulated other comprehensive loss and is
being amortized to financing costs over the ten-year term of the $200 million 6.0 percent Senior
Notes due April 15, 2017.
On February 1, 2006, we terminated the remaining fixed to floating interest rate swap
agreements associated with our 8.45 percent senior notes. The swap termination resulted in a gain
of approximately $3 million, which approximated the fair value of the swap contract. The fair
value adjustment to the hedged debt at the
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termination date ($3 million) is being amortized as a
reduction to financing costs over the remaining term of the underlying debt (through August 2009).
Commodity Costs. Our finished products are made primarily from corn. In North America, we
sell a large portion of finished product at firm prices established in supply contracts typically
lasting for periods of up to one year. In order to minimize the effect of volatility in the cost
of corn related to these firm-priced supply contracts, we enter into corn futures contracts, or
take hedging positions in the corn futures market. These contracts typically mature within one
year. At expiration, we settle the derivative contracts at a net amount equal to the difference
between the then-current price of corn and the fixed contract price. While these hedging
instruments are subject to fluctuations in value, changes in the value of the underlying exposures
we are hedging generally offset such fluctuations. While the corn futures contracts or hedging
positions are intended to minimize the volatility of corn costs on operating profits, occasionally
the hedging activity can result in losses, some of which may be material. Outside of North
America, sales of finished product under long-term, firm-priced supply contracts are not material.
Energy costs represent a significant portion of our operating costs. The primary use of
energy is to create steam in the production process and in dryers to dry product. We consume coal,
natural gas, electricity, wood and fuel oil to generate energy. The market prices for these
commodities vary depending on supply and demand, world economies and other factors. We purchase
these commodities based on our anticipated usage and the future outlook for these costs. We cannot
assure that we will be able to purchase these commodities at prices that we can adequately pass on
to customers to sustain or increase profitability. We use derivative financial instruments to
hedge portions of our natural gas costs, primarily in our North American operations.
Our commodity price hedging instruments generally relate to contracted firm-priced business.
Based on our overall commodity hedge exposure at December 31, 2007, a hypothetical 10 percent
decline in market prices applied to the fair value of the instruments would result in a charge to
other comprehensive loss of approximately $38 million, net of income tax benefit. It should be
noted that any change in the fair value of the contracts, real or hypothetical, would be
substantially offset by an inverse change in the value of the underlying hedged item.
Foreign Currencies. Due to our global operations, we are exposed to fluctuations in foreign
currency exchange rates. As a result, we have exposure to translational foreign exchange risk when
our foreign operation results are translated to USD and to transactional foreign exchange risk when
transactions not denominated in the functional currency of the operating unit are revalued. We
generally use derivative instruments such as forward contracts, currency swaps and options to
manage transactional foreign exchange risk. Based on our overall foreign currency transactional
exposure at December 31, 2007, a hypothetical 10 percent decline in the value of the USD would have
resulted in a transactional foreign exchange loss of approximately $2 million. At December 31,
2007, our accumulated other comprehensive loss account included in the stockholders’ equity section
of our consolidated balance sheet includes a cumulative translation loss of $132 million. The
aggregate net assets of our foreign subsidiaries where the local currency is the functional
currency approximated $1.2 billion at December 31, 2007. A hypothetical 10 percent decline in the
value of the US dollar relative to foreign currencies would have resulted in a reduction to our
cumulative translation loss and a credit to other comprehensive income of approximately $136
million.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Corn Products International, Inc. | ||||
| Index to Consolidated Financial Statements and Supplementary Data | Page | |||
| 43 | ||||
| 45 | ||||
| 46 | ||||
| 47 | ||||
| 48 | ||||
| 49 | ||||
| 50 | ||||
| 78 | ||||
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Corn Products International, Inc.:
Corn Products International, Inc.:
We have audited the accompanying consolidated balance sheets of Corn Products International, Inc.
and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated
statements of income, comprehensive income, stockholders’ equity and redeemable equity, and cash
flows for each of the years in the three-year period ended December 31, 2007. We also have audited
the Company’s internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these
consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Controls over Financial
Reporting. Our responsibility is to express an opinion on these consolidated financial statements
and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included 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, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Corn Products International, Inc. and subsidiaries as
of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over
financial
43
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reporting as of December 31, 2007, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
As discussed in Note 2 to the accompanying consolidated financial statements, effective January 1,
2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109, and effective December 31, 2006, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88,
106, and 132(R) and effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based
Payment.
/s/ KPMG LLP
Chicago, Illinois
February 28, 2008
Chicago, Illinois
February 28, 2008
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CORN PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Income
Consolidated Statements of Income
Years Ended December 31,
(in millions, except per share amounts)
(in millions, except per share amounts)
| 2007 | 2006 | 2005 | ||||||||||
Net sales before shipping and handling costs |
$ | 3,628 | $ | 2,844 | $ | 2,559 | ||||||
Less — shipping and handling costs |
237 | 223 | 199 | |||||||||
Net sales |
3,391 | 2,621 | 2,360 | |||||||||
Cost of sales |
2,805 | 2,205 | 2,028 | |||||||||
Gross profit |
586 | 416 | 332 | |||||||||
Selling, general and administrative expenses |
249 | 202 | 158 | |||||||||
Other (income) |
(10 | ) | (10 | ) | (9 | ) | ||||||
| 239 | 192 | 149 | ||||||||||
Operating income |
347 | 224 | 183 | |||||||||
Financing costs-net |
42 | 27 | 35 | |||||||||
Income before income taxes and minority interest |
305 | 197 | 148 | |||||||||
Provision for income taxes |
102 | 69 | 55 | |||||||||
Minority interest in earnings |
5 | 4 | 3 | |||||||||
Net income |
$ | 198 | $ | 124 | $ | 90 | ||||||
Weighted average common shares outstanding: |
||||||||||||
Basic |
74.7 | 74.1 | 74.7 | |||||||||
Diluted |
76.5 | 75.8 | 75.6 | |||||||||
Earnings per common share: |
||||||||||||
Basic |
$ | 2.65 | $ | 1.67 | $ | 1.20 | ||||||
Diluted |
2.59 | 1.63 | 1.19 | |||||||||
See notes to the consolidated financial statements.
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CORN PRODUCTS INTERNATIONAL, INC.
Consolidated Balance Sheets
Consolidated Balance Sheets
| As of December 31, | ||||||||
| (in millions, except share and per share amounts) | 2007 | 2006 | ||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 175 | $ | 131 | ||||
Accounts receivable — net |
460 | 357 | ||||||
Inventories |
427 | 321 | ||||||
Prepaid expenses |
14 | 12 | ||||||
Deferred income tax assets |
13 | 16 | ||||||
Total current assets |
1,089 | 837 | ||||||
Property, plant and equipment, at cost |
||||||||
Land |
129 | 124 | ||||||
Buildings |
429 | 380 | ||||||
Machinery and equipment |
3,086 | 2,793 | ||||||
| 3,644 | 3,297 | |||||||
Less: accumulated depreciation |
(2,144 | ) | (1,941 | ) | ||||
| 1,500 | 1,356 | |||||||
Goodwill and other intangible assets
(less accumulated amortization of $33) |
426 | 381 | ||||||
Deferred income tax assets |
1 | 1 | ||||||
Investments |
13 | 33 | ||||||
Other assets |
74 | 37 | ||||||
Total assets |
$ | 3,103 | $ | 2,645 | ||||
Liabilities and equity |
||||||||
Current liabilities |
||||||||
Short-term borrowings and current portion of long-term debt |
$ | 130 | $ | 74 | ||||
Deferred income taxes |
28 | 14 | ||||||
Accounts payable |
382 | 311 | ||||||
Accrued liabilities |
134 | 118 | ||||||
Total current liabilities |
674 | 517 | ||||||
Non-current liabilities |
123 | 130 | ||||||
Long-term debt |
519 | 480 | ||||||
Deferred income taxes |
133 | 121 | ||||||
Minority interest in subsidiaries |
21 | 19 | ||||||
Redeemable common stock (500,000 and 1,227,000 shares issued and outstanding at
December 31, 2007 and 2006, respectively) stated at redemption value |
19 | 44 | ||||||
Share-based payments subject to redemption |
9 | 4 | ||||||
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 — 74,819,774 and 74,092,774 issued
at December 31, 2007 and 2006, respectively |
1 | 1 | ||||||
Additional paid-in capital |
1,082 | 1,051 | ||||||
Less: Treasury stock (common stock; 1,568,996 and 1,017,207 shares at
December 31, 2007 and 2006, respectively) at cost |
(57 | ) | (27 | ) | ||||
Accumulated other comprehensive loss |
(115 | ) | (223 | ) | ||||
Retained earnings |
694 | 528 | ||||||
Total stockholders’ equity |
1,605 | 1,330 | ||||||
Total liabilities and equity |
$ | 3,103 | $ | 2,645 | ||||
See notes to the consolidated financial statements.
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CORN PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Comprehensive Income
Consolidated Statements of Comprehensive Income
| Years ended December 31, | ||||||||||||
| (in millions) | 2007 | 2006 | 2005 | |||||||||
Net income |
$ | 198 | $ | 124 | $ | 90 | ||||||
Comprehensive income (loss): |
||||||||||||
Gains on cash flow hedges, net of income tax effect of $20,
$8 and $7, respectively |
32 | 12 | 12 | |||||||||
Reclassification adjustment for (gains) losses on cash flow
hedges included in net income, net of income tax effect of
$10, $2 and $14, respectively |
(15 | ) | 5 | 24 | ||||||||
Actuarial gain on pension and other postretirement
obligations, net of income tax effect of $3 |
6 | — | — | |||||||||
Losses
related to pension and other postretirement obligations reclassified to earnings, net of income tax effect of $1 |
2 | — | — | |||||||||
Unrealized gain on investment, net of income tax |
1 | — | — | |||||||||
Currency translation adjustment |
82 | 43 | 35 | |||||||||
Adjustment to minimum pension liability, net of income tax |
— | 2 | (1 | ) | ||||||||
Comprehensive income |
$ | 306 | $ | 186 | $ | 160 | ||||||
See notes to the consolidated financial statements.
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CORN PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Stockholders’ Equity and Redeemable Equity
Consolidated Statements of Stockholders’ Equity and Redeemable Equity
| Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| Additional | Accumulated Other | Share -based | ||||||||||||||||||||||||||||||
| Common | Paid-In | Treasury | Deferred | Comprehensive | Retained | Redeemable | Payments Subject | |||||||||||||||||||||||||
| (in millions) | Stock | Capital | Stock | Compensation | Income (Loss) | Earnings | Common Stock | to Redemption | ||||||||||||||||||||||||
Balance, December 31, 2004 |
$ | 1 | $ | 1,047 | $ | (4 | ) | $ | (2 | ) | $ | (321 | ) | $ | 360 | $ | 33 | $ | — | |||||||||||||
Net income |
90 | |||||||||||||||||||||||||||||||
Dividends declared |
(21 | ) | ||||||||||||||||||||||||||||||
Gains on cash flow hedges, net of income tax effect of $7 |
12 | |||||||||||||||||||||||||||||||
Amount of losses on cash flow hedges reclassified to earnings, net of income tax effect
of $14 |
24 | |||||||||||||||||||||||||||||||
Issuance of restricted stock units |
5 | |||||||||||||||||||||||||||||||
Repurchases of common stock |
(39 | ) | ||||||||||||||||||||||||||||||
Issuance of common stock on exercise of stock options |
7 | 7 | ||||||||||||||||||||||||||||||
Tax benefit attributable to exercises of employee stock options |
5 | |||||||||||||||||||||||||||||||
Amortization to compensation expense of restricted common stock |
1 | |||||||||||||||||||||||||||||||
Change in fair value of redeemable common stock |
4 | (4 | ) | |||||||||||||||||||||||||||||
Currency translation adjustment |
35 | |||||||||||||||||||||||||||||||
Minimum pension liability (“MPL”), net of income tax effect |
(1 | ) | ||||||||||||||||||||||||||||||
Balance, December 31, 2005 |
$ | 1 | $ | 1,068 | $ | (36 | ) | $ | (1 | ) | $ | (251 | ) | $ | 429 | $ | 29 | $ | — | |||||||||||||
Net income |
124 | |||||||||||||||||||||||||||||||
Dividends declared |
(25 | ) | ||||||||||||||||||||||||||||||
Gains on cash flow hedges, net of income tax effect of $8 |
12 | |||||||||||||||||||||||||||||||
Amount of losses on cash flow hedges reclassified to earnings, net of income tax effect
of $2 |
5 | |||||||||||||||||||||||||||||||
Repurchases of common stock |
(23 | ) | ||||||||||||||||||||||||||||||
Issuance of common stock on exercise of stock options |
(8 | ) | 29 | |||||||||||||||||||||||||||||
Stock option expense |
5 | |||||||||||||||||||||||||||||||
Other share-based compensation |
(4 | ) | 3 | 4 | ||||||||||||||||||||||||||||
Excess tax benefit on share-based compensation |
6 | |||||||||||||||||||||||||||||||
Reclassification of deferred compensation |
(1 | ) | 1 | |||||||||||||||||||||||||||||
Change in fair value of redeemable common stock |
(15 | ) | 15 | |||||||||||||||||||||||||||||
Currency translation adjustment |
43 | |||||||||||||||||||||||||||||||
Adjustment to MPL prior to adoption of SFAS No. 158, net of tax of $1 |
2 | |||||||||||||||||||||||||||||||
Recognition of unfunded portion of pension and other
postretirement liabilities, net of income tax effect of $18, upon adoption of SFAS No. 158 |
(34 | ) | ||||||||||||||||||||||||||||||
Balance, December 31, 2006 |
$ | 1 | $ | 1,051 | $ | (27 | ) | $ | — | $ | (223 | ) | $ | 528 | $ | 44 | $ | 4 | ||||||||||||||
Net income |
198 | |||||||||||||||||||||||||||||||
Dividends declared |
(30 | ) | ||||||||||||||||||||||||||||||
Gains on cash flow hedges, net of income tax effect of $20 |
32 | |||||||||||||||||||||||||||||||
Amount of gains on cash flow hedges reclassified to earnings, net of income tax effect of
$10 |
(15 | ) | ||||||||||||||||||||||||||||||
Unrealized gain on investment, net of income tax |
1 | |||||||||||||||||||||||||||||||
Repurchases of common stock |
(55 | ) | ||||||||||||||||||||||||||||||
Issuance of common stock on exercise of stock options |
(7 | ) | 23 | |||||||||||||||||||||||||||||
Stock option expense |
7 | |||||||||||||||||||||||||||||||
Other share-based compensation |
2 | 5 | ||||||||||||||||||||||||||||||
Excess tax benefit on share-based compensation |
6 | |||||||||||||||||||||||||||||||
Change in fair value and number of shares of redeemable common stock |
25 | (25 | ) | |||||||||||||||||||||||||||||
Currency translation adjustment |
82 | |||||||||||||||||||||||||||||||
Actuarial gain on postretirement obligations, net of income tax effect of $3 |
6 | |||||||||||||||||||||||||||||||
Losses related to postretirement obligations reclassified to earnings, net of income tax
income tax effect of $1 |
2 | |||||||||||||||||||||||||||||||
Cumulative effect of adopting FIN 48 |
(2 | ) | ||||||||||||||||||||||||||||||
Balance, December 31, 2007 |
$ | 1 | $ | 1,082 | $ | (57 | ) | $ | — | $ | (115 | ) | $ | 694 | $ | 19 | $ | 9 | ||||||||||||||
See notes to the consolidated financial statements.
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CORN PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
| Years ended December 31, | ||||||||||||
| (in millions) | 2007 | 2006 | 2005 | |||||||||
Cash provided by (used for) operating activities: |
||||||||||||
Net income |
$ | 198 | $ | 124 | $ | 90 | ||||||
Non-cash charges (credits) to net income: |
||||||||||||
Depreciation |
125 | 114 | 106 | |||||||||
Deferred income taxes |
7 | (6 | ) | (16 | ) | |||||||
Stock option expense |
7 | 5 | — | |||||||||
Unrealized gain on investment |
(6 | ) | — | — | ||||||||
Minority interest in earnings |
5 | 4 | 3 | |||||||||
Foreign currency transaction losses (gains) |
4 | (1 | ) | 3 | ||||||||
Earnings from non-controlled affiliates |
— | (1 | ) | (1 | ) | |||||||
Changes in working capital: |
||||||||||||
Accounts receivable and prepaid expenses |
(32 | ) | (31 | ) | 24 | |||||||
Inventories |
(86 | ) | (57 | ) | 5 | |||||||
Accounts payable and accrued liabilities |
59 | 59 | 31 | |||||||||
Deposit with tax authority |
(17 | ) | — | — | ||||||||
Other |
(6 | ) | 20 | — | ||||||||
Cash provided by operating activities |
258 | 230 | 245 | |||||||||
Cash provided by (used for) investing activities: |
||||||||||||
Capital expenditures |
(177 | ) | (171 | ) | (143 | ) | ||||||
Proceeds from disposal of plants and properties |
3 | 3 | 7 | |||||||||
Payments for acquisitions/investments, net of cash acquired |
(59 | ) | (42 | ) | (5 | ) | ||||||
Other |
1 | — | — | |||||||||
Cash used for investing activities |
(232 | ) | (210 | ) | (141 | ) | ||||||
Cash provided by (used for) financing activities: |
||||||||||||
Payments on debt |
(283 | ) | (46 | ) | (47 | ) | ||||||
Proceeds from borrowings |
366 | 62 | 3 | |||||||||
Dividends paid (including to minority interest shareholders) |
(33 | ) | (26 | ) | (22 | ) | ||||||
Repurchases of common stock |
(55 | ) | (23 | ) | (39 | ) | ||||||
Issuance of common stock |
16 | 21 | 14 | |||||||||
Excess tax benefit on share-based compensation |
6 | 6 | — | |||||||||
Other |
(2 | ) | — | — | ||||||||
Cash provided by (used for) financing activities |
15 | (6 | ) | (91 | ) | |||||||
Effects of foreign exchange rate changes on cash |
3 | 1 | 2 | |||||||||
Increase in cash and cash equivalents |
44 | 15 | 15 | |||||||||
Cash and cash equivalents, beginning of period |
131 | 116 | 101 | |||||||||
Cash and cash equivalents, end of period |
$ | 175 | $ | 131 | $ | 116 | ||||||
See notes to the consolidated financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- Description of the Business
Corn Products International, Inc. (the “Company”) was founded in 1906 and became an independent and
public company as of December 31, 1997. The Company operates domestically and internationally in
one business segment, corn refining, and produces a wide variety of products.
NOTE 2- Summary of Significant Accounting Policies
Basis of presentation — The consolidated financial statements consist of the accounts of the
Company, including all significant subsidiaries. Intercompany accounts and transactions are
eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Certain prior year amounts in the Consolidated Balance Sheet have been reclassified to conform to
the current year’s presentation. This adjustment consists of a
$17 million reclassification from other assets to non-current
liabilities to net pension assets against liabilities. The reclassification had no effect on previously reported net
income or stockholders’ equity.
Assets and liabilities of foreign subsidiaries, other than those whose functional currency is the
US dollar, are translated at current exchange rates with the related translation adjustments
reported in stockholders’ equity as a component of accumulated other comprehensive income (loss).
Income statement accounts are translated at the average exchange rate during the period. Where the
US dollar is considered the functional currency, monetary assets and liabilities are translated at
current exchange rates with the related adjustment included in net income. Non-monetary assets and
liabilities are translated at historical exchange rates. The Company incurs foreign currency
transaction gains/losses relating to assets and liabilities that are denominated in a currency
other than the functional currency. For 2007, 2006 and 2005, the Company incurred foreign currency
transaction gains (losses) of ($4 million), $1 million and ($3 million), respectively. The
Company’s accumulated other comprehensive loss included in stockholders’ equity on the Consolidated
Balance Sheets includes cumulative translation loss adjustments of $132 million and $214 million at
December 31, 2007 and 2006, respectively.
Cash and cash equivalents — Cash equivalents consist of all instruments purchased with an original
maturity of three months or less, and which have virtually no risk of loss in value.
Inventories — Inventories are stated at the lower of cost or net realizable value. Costs are
determined using the first-in, first-out (FIFO) method.
Investments — Investments in the common stock of affiliated companies over which the Company does
not exercise significant influence are accounted for under the cost method and are carried at cost
or less. The Company’s wholly-owned Canadian subsidiary had an investment accounted for under the
cost method having a carrying value of $6 million at December 31, 2007 and 2006. Investments that
enable the Company to exercise significant influence, but do not represent a controlling interest,
are accounted for under the equity method; such investments are carried at cost or less, adjusted
to reflect the Company’s proportionate share of income or loss, less dividends received. At
December 31, 2006, the Company’s wholly-owned Brazilian subsidiary, Corn Products Brasil -
Ingredientes Industriais Ltda., had a $28 million investment relating to its 50 percent equity
ownership interest in Getec Guanabara Quimica Industrial S.A. (“GETEC”). This investment in a
non-controlled affiliate was accounted for under the equity method. In 2007, the Company acquired
the remaining 50 percent equity interest in GETEC (see Note 3). The Company does not have any
investments accounted for under the equity method at December 31, 2007. The Company also has an
equity interest in the CME Group Inc. (“CME”), which it classifies as available for sale
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securities. This investment, which totaled $7 million at December 31, 2007, is carried at fair
value with unrealized gains and losses recorded to other comprehensive income. The Company would recognize a
loss on its investments when there is a loss in value of an investment that is other than a
temporary decline.
Property, plant and equipment and depreciation — Property, plant and equipment are stated at cost
less accumulated depreciation. Depreciation is generally computed on the straight-line method over
the estimated useful lives of depreciable assets, which range from 10 to 50 years for buildings and
from 3 to 25 years for all other assets. Where permitted by law, accelerated depreciation methods
are used for tax purposes. The Company reviews the recoverability of the net book value of
property, plant and equipment for impairment whenever events and circumstances indicate that the
net book value of an asset may not be recoverable from estimated future cash flows expected to
result from its use and eventual disposition. If this review indicates that the carrying values
will not be recovered, the carrying values would be reduced to fair value and an impairment loss
would be recognized.
Goodwill and other intangible assets — Goodwill ($423 million and $378 million at December 31,
2007 and 2006, respectively) represents the excess of cost over fair value of net assets acquired.
The Company also has other intangible assets ($3 million at December 31, 2007 and 2006). The
carrying amount of goodwill and other intangible assets by geographic segment as of December 31,
2007 and 2006 was as follows:
| At December 31, | ||||||||
| (in millions) | 2007 | 2006 | ||||||
North America |
$ | 140 | $ | 125 | ||||
South America |
102 | 71 | ||||||
Asia/Africa |
184 | 185 | ||||||
Total |
$ | 426 | $ | 381 | ||||
The Company assesses goodwill for impairment annually (or more frequent if impairment indicators
arise). The Company has chosen to perform this annual impairment assessment in December of each
year. The Company has completed the required impairment assessments and determined there to be no
goodwill impairment.
Revenue recognition — The Company recognizes operating revenues at the time title to the goods and
all risks of ownership transfer to customers. This transfer is considered complete when a sales
agreement is in place, delivery has occurred, pricing is fixed or determinable and collection is
reasonably assured. In the case of consigned inventories, the title passes and the transfer of
ownership risk occurs when the goods are used by the customer. Taxes
assessed by governmental authorities and collected from customers are
accounted for on a net basis and thereby excluded from revenues.
Hedging instruments — The Company uses derivative financial instruments principally to offset
exposure to market risks arising from changes in commodity prices and interest rates. Derivative
financial instruments currently used by the Company consist of commodity futures contracts,
interest rate swap agreements and treasury lock agreements. The Company enters into futures
contracts, which are designated as hedges of specific volumes of commodities (corn and natural gas)
that will be purchased and processed in a future month. These readily marketable exchange-traded
futures contracts are recognized in the Consolidated Balance Sheets at fair value. The Company
has also, from time to time, entered into interest rate swap agreements that effectively converted
the interest rate on certain fixed rate debt to a variable interest rate and, on certain variable
rate debt, to a fixed interest rate. The Company’s treasury lock agreements lock the benchmark
rate for an anticipated fixed rate borrowing. See also Note 4 and Note 5 of the notes to the
consolidated financial statements for additional information.
On the date a derivative contract is entered into, the Company designates the derivative as either
a hedge of variable cash flows to be paid related to interest on variable rate debt, as a hedge of
market variation in the benchmark rate for a future fixed rate debt issue or as a hedge of certain
forecasted purchases of corn or natural gas used in the manufacturing process (“a cash-flow
hedge”), or as a hedge of the fair value of certain debt obligations (“a fair-value hedge”). This
process includes linking all derivatives that are designated as fair-value or cash-flow hedges to
specific assets and liabilities on the Consolidated Balance Sheet, or to specific firm commitments
or forecasted transactions. For all hedging relationships, the Company formally documents the
hedging relationships and its risk-
51
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management objective and strategy for undertaking the hedge transactions, the hedging instrument, the item, the
nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the
hedged risk will be assessed, and a description of the method of measuring ineffectiveness. The
Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in
cash flows or fair values of hedged items. When it is determined that a derivative is not highly
effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues
hedge accounting prospectively.
Changes in the fair value of a floating-to-fixed interest rate swap, treasury lock or a futures
contract for corn or natural gas that is highly effective and that is designated and qualifies as a
cash-flow hedge are recorded in other comprehensive income (loss), net of applicable income taxes,
and recognized in the Consolidated Statement of Income when the variable rate interest is paid, the
future fixed interest rate is established or the finished goods produced using the hedged item are
sold. The maximum term over which the Company hedges exposures to the variability of cash flows
for commodity price risk is 60 months. Changes in the fair value of a fixed-to-floating interest
rate swap agreement that is highly effective and that is designated and qualifies as a fair-value
hedge, along with the loss or gain on the hedged debt obligation that is attributable to the hedged
risk, are recorded in earnings. The ineffective portion of the change in fair value of a
derivative instrument that qualifies as either a cash-flow hedge or a fair-value hedge is reported
in earnings.
The Company discontinues hedge accounting prospectively when it is determined that the derivative
is no longer effective in offsetting changes in the cash flows or fair value of the hedged item,
the derivative expires or is sold, terminated or exercised, the derivative is de-designated as a
hedging instrument because it is unlikely that a forecasted transaction will occur, or management
determines that designation of the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued because it is probable that a forecasted transaction will not
occur, the Company continues to carry the derivative on the Consolidated Balance Sheet at its fair
value, and gains and losses that were accumulated in other comprehensive income (loss) are
recognized immediately in earnings. When hedge accounting is discontinued because it is determined
that the derivative no longer qualifies as an effective fair-value hedge, the Company continues to
carry the derivative on the Consolidated Balance Sheet at its fair value and no longer adjusts the
hedged asset or liability for changes in fair value. The adjustment of the carrying amount of the
hedged asset or liability is accounted for in the same manner as other components of the carrying
amount of that asset or liability. In all other situations in which hedge accounting is
discontinued, the Company continues to carry the derivative at its fair value on the Consolidated
Balance Sheet and recognizes any changes in its fair value in earnings.
Stock-based compensation — The Company has a stock incentive plan that provides for stock-based
employee compensation, including the granting of stock options and shares of restricted stock, to
certain key employees. The plan is more fully described in Note 11. Effective January 1, 2006,
the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-based Payment”
(“SFAS 123R”), which requires, among other things, that compensation expense be recognized for
employee stock options. Prior to the adoption of SFAS 123R, the Company accounted for stock
compensation using the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Under
that method, compensation expense was recorded only if the current market price of the underlying
stock on the date of grant exceeded the option exercise price. Since stock options are granted at
exercise prices that equal the market value of the underlying common stock on the date of grant
under the Company’s stock incentive plan, no compensation expense related to stock options was
recorded in the Consolidated Statements of Income prior to January 1, 2006.
Earnings per common share — Basic earnings per common share is computed by dividing net income by
the weighted average number of shares outstanding (including redeemable common stock), which
totaled 74.7 for 2007, 74.1 million for 2006 and 74.7 million for 2005. Diluted earnings per share
(EPS) is computed by dividing net income by the weighted average number of shares outstanding,
including the dilutive effect of outstanding stock options and other shares associated with
long-term incentive compensation plans. The weighted average number of shares outstanding for
diluted EPS calculations was 76.5 million, 75.8 million and 75.6 million for 2007, 2006 and 2005,
respectively. In 2007 and 2005, options to purchase approximately 600 thousand shares and 1
million shares of common stock, respectively, were excluded from the calculation of the weighted
average number of shares
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outstanding for diluted EPS because their effects were anti-dilutive. There were no anti-dilutive
stock option shares for 2006.
Risks and uncertainties — The Company operates domestically and internationally in one business
segment. In each country, the business and assets are subject to varying degrees of risk and
uncertainty. The Company insures its business and assets in each country against insurable risks in
a manner that it deems appropriate. Because of this geographic dispersion, the Company believes
that a loss from non-insurable events in any one country would not have a material adverse effect
on the Company’s operations as a whole. Additionally, the Company believes there is no significant
concentration of risk with any single customer or supplier whose failure or non-performance would
materially affect the Company’s results.
Recently adopted accounting standards — In June 2006, the FASB issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB
Statement No. 109, “Accounting for Income Taxes,” and seeks to reduce the diversity in practice
associated with certain aspects of measurement and recognition in accounting for income taxes. In
addition, FIN 48 provides guidance on de-recognition, classification, interest and penalties, and
accounting in interim periods and requires expanded disclosure with respect to uncertainty in
income taxes. The Company adopted FIN 48 effective January 1, 2007. The cumulative effect of the
adoption of FIN 48 was reflected as a reduction in the beginning balance of retained earnings of $2
million. See also Note 7 for additional information.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS
158”). Among other things, SFAS 158 requires companies to: (i) recognize in the balance sheet, a
net liability or asset and an offsetting adjustment to accumulated other comprehensive income, to
record the funded status of defined benefit pension and other post-retirement benefit plans; (ii)
measure plan assets and obligations that determine its funded status as of the end of the company’s
fiscal year; and (iii) recognize in comprehensive income the changes in the funded status of a
defined benefit pension and postretirement plan in the year in which the changes occur. The
requirement to recognize the funded status of a benefit plan and the disclosure requirements are
effective as of the end of the fiscal year ending after December 15, 2006. The requirement to
measure the plan assets and benefit obligations as of the year-end balance sheet date is effective
for fiscal years ending after December 15, 2008. The Company adopted SFAS 158 effective December
31, 2006 by recording a charge to accumulated other comprehensive loss of $34 million, net of
income taxes of $18 million, to recognize the unfunded portion of its defined benefit pension and
other postretirement plan liabilities. The Company does not expect that the eventual change to
using a year-end balance sheet measurement date will have a material impact on its consolidated
financial statements. See also Note 8 of the notes to the consolidated financial statements for
additional information.
NOTE 3 — Acquisitions
On February 12, 2007, the Company acquired the food business assets of SPI Polyols, a subsidiary of
ABF North America Holdings, Inc., and the common shares of an SPI unit that owned the 50 percent of
Getec Guanabara Quimica Industrial S.A. (“GETEC”) not previously held by Corn Products
International. GETEC is a major Brazilian producer of polyols, including liquid sorbitol and
mannitol, and anhydrous dextrose, for the personal care, food, candy and confectionary, and
pharmaceutical markets. The Company paid approximately $66 million in cash to complete this
acquisition, which was accounted for under the purchase method of accounting. Goodwill of
approximately $43 million was recorded. Effective with the acquisition, GETEC, which was
previously accounted for as a non-controlled affiliate under the equity method, became a
consolidated subsidiary of the Company.
On August 31, 2006, the Company’s wholly-owned subsidiary, Corn Products Brasil — Ingredientes
Industriais Ltda. (“Corn Products Brazil”), paid $22 million in cash to increase its ownership interest in GETEC from 20
percent to 50 percent. The Company accounted for this investment as a non-controlled affiliate
under the equity method of accounting until February 2007 when, as discussed above, it increased
its ownership in GETEC to 100 percent.
On December 19, 2006, the Company’s wholly-owned Argentinean subsidiary, Productos de Maiz, S.A.,
paid $16 million in cash to acquire substantially all of the common stock of DEMSA Industrial
Peru-Derivados del Maiz, S.A. (“DEMSA”), the only corn refiner in Peru. Goodwill of approximately $9 million was recorded.
Established in
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1964, DEMSA sells regular and modified corn starch, glucose, grits, corn oil, corn
flour, hominy feed, caramel color and other products to the food and beverage, papermaking,
corrugated, pharmaceutical, textiles and animal feed markets.
The Company also made other acquisitions during the last three years, none of which, either
individually or in the aggregate, were material.
All of the Company’s acquisitions were accounted for under the purchase method. Had the
acquisitions described above occurred at the beginning of the respective years, the effect on the
Company’s consolidated financial statements would not have been significant.
NOTE 4 — Financial Instruments, Derivatives and Hedging Activities
Fair value of financial instruments:
The carrying values of cash equivalents, accounts receivable, accounts payable and short-term
borrowings approximate fair values. Futures contracts, which are designated as hedges of specific
volumes of commodities are recognized at fair value. Foreign currency forward contracts, swaps and
options hedge transactional foreign exchange risk related to assets and liabilities denominated in
currencies other than the functional currency and are recognized at fair value. The Company’s
treasury lock agreements, which lock the benchmark rate for an anticipated fixed rate borrowing,
are recognized at fair value. The fair value of the Company’s long-term debt is estimated based on
quotations of major securities dealers who are market makers in the securities. Presented below
are the carrying amounts and the fair values of the Company’s long-term debt at December 31, 2007
and 2006.
| 2007 | 2006 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| (in millions) | amount | value | amount | value | ||||||||||||
6.0% senior notes, due April 15, 2017 |
$ | 200 | $ | 205 | $ | — | $ | — | ||||||||
6.625% senior notes, due April 15, 2037 |
99 | 101 | — | — | ||||||||||||
8.25% senior notes, repaid July 2007 |
— | — | 255 | 259 | ||||||||||||
8.45% senior notes, due 2009 |
200 | 212 | 199 | 213 | ||||||||||||
Brazil loans, due 2010 |
20 | 20 | — | — | ||||||||||||
Mexican term loan, due 2008 |
17 | 17 | 17 | 17 | ||||||||||||
Canadian revolving credit facility, due 2012 |
— | — | 9 | 9 | ||||||||||||
Korean loans, due 2007 |
— | — | 18 | 18 | ||||||||||||
Sub-total |
$ | 536 | $ | 555 | $ | 498 | $ | 516 | ||||||||
Less: current maturities of long-term debt |
17 | 17 | 18 | 18 | ||||||||||||
Total long-term debt |
$ | 519 | $ | 538 | $ | 480 | $ | 498 | ||||||||
Derivatives:
The Company uses financial instruments primarily to manage the exposure to price risk related to
the purchases of corn and natural gas used in the manufacturing process, to manage transactional
foreign exchange risk and to manage its exposure to changes in interest rates on existing or
anticipated borrowings. The Company generally does not enter into derivative instruments for any
purpose other than hedging the cash flows associated with future interest payments on variable rate
debt and specific volumes of commodities that will be purchased and processed in a future month,
and hedging the exposure related to changes in the fair value of certain outstanding fixed rate
debt instruments and hedging transactional foreign exchange risk. The Company generally uses
derivative instruments such as forward contracts, currency swaps and options to manage
transactional foreign exchange risk and generally hedges twelve to eighteen months forward. As of
December 31, 2007, we had $14 million of net notional foreign currency swaps and forward contracts
that hedged net liability transactional exposures. As of December 31, 2006,
we had $44 million of net notional foreign currency swaps and forward contracts that hedged net
liability transactional exposures.
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The derivative financial instruments that the Company uses in its management of commodity-price
risk consist of open futures contracts and options traded through regulated commodity exchanges.
The derivative financial instruments that the Company uses in its management of interest rate risk
consist of interest rate swap and treasury lock agreements. By using derivative financial
instruments to hedge exposures to changes in commodity prices and interest rates, the Company
exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty will
fail to perform under the terms of the derivative contract. When the fair value of a derivative
contract is positive, the counterparty owes the Company, which creates credit risk for the Company.
When the fair value of a derivative contract is negative, the Company owes the counterparty and,
therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative
instruments by entering into transactions only with investment grade counterparties. Market risk is
the adverse effect on the value of a financial instrument that results from a change in commodity
prices or interest rates. The market risk associated with commodity-price and interest rate
contracts is managed by establishing and monitoring parameters that limit the types and degree of
market risk that may be undertaken.
The Company maintains a commodity-price risk management strategy that uses derivative instruments
to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility.
For example, the manufacturing of the Company’s products requires a significant volume of corn and
natural gas. Price fluctuations in corn and natural gas cause market values of corn inventory to
differ from its cost and the actual purchase price of corn and natural gas to differ from
anticipated prices.
The Company periodically enters into futures and option contracts for a portion of its anticipated
corn and natural gas usage, generally over the next twelve months, in order to hedge the price risk
associated with fluctuations in market prices. The contracts limit the unfavorable effect that
price increases will have on corn and natural gas purchases. All of the Company’s futures and
option contracts have been designated as cash flow hedges.
Unrealized gains and losses associated with marking the corn and natural gas futures and option
contracts to market are recorded as a component of other comprehensive income (loss) and included
in the stockholders’ equity section of the Consolidated Balance Sheets as part of accumulated other
comprehensive loss. These amounts are subsequently reclassified into earnings in the month in
which the related corn or natural gas is used or in the month a hedge is determined to be
ineffective.
The Company assesses the effectiveness of a hedge using a corn or natural gas futures or option
contract based on changes in the contract’s intrinsic value. The changes in the market value of
such contracts have historically been, and are expected to continue to be, highly effective at
offsetting changes in the price of the hedged items. The amounts representing the ineffectiveness
of these cash flow hedges are not significant.
The Company assesses its exposure to variability in interest rates by continually identifying and
monitoring changes in interest rates that may adversely impact future cash flows and the fair value
of existing debt instruments, and by evaluating hedging opportunities. The Company maintains risk
management control systems to monitor interest rate risk attributable to both the Company’s
outstanding and forecasted debt obligations as well as the Company’s offsetting hedge positions.
The risk management control systems involve the use of analytical techniques, including sensitivity
analysis, to estimate the expected impact of changes in interest rates on the fair value of the
Company’s outstanding and forecasted debt instruments.
The Company uses a combination of fixed and variable rate debt to finance its operations. The debt
obligations with fixed cash flows expose the Company to variability in the fair value of
outstanding debt instruments due to changes in interest rates. The Company has, from time to time,
entered into interest rate swap agreements that effectively converted the interest rate on certain
fixed-rate debt to a variable rate. These swaps called for the Company to receive interest at a
fixed rate and to pay interest at a variable rate, thereby creating the equivalent of variable-rate
debt. The Company designated these interest rate swap agreements as hedges of the changes in fair
value of the underlying debt obligation attributable to changes in interest rates and accounted for
them as fair value hedges. Changes in the fair value of interest rate swaps designated as hedging instruments that effectively
offset the variability in the fair value of outstanding debt obligations are reported in earnings.
These amounts offset the gain or loss (that is, the change in fair value) of the hedged debt
instrument that is attributable to changes in interest rates (that is, the hedged risk) which is
also recognized in earnings. The Company did not have any interest rate swap
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agreements outstanding at December 31, 2007 or 2006. In 2007 and 2006, the Company entered into Treasury Lock
agreements (the “T-Locks”) that fixed the benchmark component of the interest rate to be
established for certain fixed rate debt (see also Note 5). The T-Locks are designated as hedges of
the variability in cash flows associated with future interest payments caused by market
fluctuations in the benchmark interest rate until the fixed interest rate is established, and are
accounted for as cash flow hedges. Accordingly, changes in the fair value of the T-Locks are
recorded to other comprehensive income (loss) until the consummation of the underlying debt
offering, at which time any realized gain (loss) is amortized to earnings over the life of the
debt. The net gain or loss recognized in earnings during 2007, 2006 and 2005, representing the
amount of the Company’s hedges’ ineffectiveness and the component of the Company’s derivative
instruments’ gain or loss excluded from the assessment of hedge effectiveness, was not significant.
At December 31, 2007, the Company’s accumulated other comprehensive loss account included $49
million of gains, net of tax of $29 million, pertaining to commodities related derivative
instruments that hedge the anticipated cash flows from future transactions, most of which are
expected to be recognized in earnings within the next twelve months. Transactions and events
expected to occur over the next twelve months that will necessitate reclassifying these derivatives
gains to earnings include the sale of finished goods inventory that includes previously hedged
purchases of raw corn and the usage of hedged natural gas. Additionally, the Company’s accumulated
other comprehensive loss account at December 31, 2007 included $4 million of losses, net of tax of
$2 million, related to T-Locks. Cash flow hedges discontinued during 2007 were not material.
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NOTE 5 — Financing Arrangements
The Company had total debt outstanding of $649 million and $554 million at December 31, 2007 and
2006, respectively. Short-term borrowings at December 31, 2007 and 2006 consist primarily of
amounts outstanding under various unsecured local country operating lines of credit.
Short-term borrowings consist of the following at December 31:
| (in millions) | 2007 | 2006 | ||||||
Borrowings in various currencies (at rates of 4%-13% for
2007 and 3%-13% for 2006) |
$ | 113 | $ | 56 | ||||
Current maturities of long-term debt |
17 | 18 | ||||||
Total short-term borrowings |
$ | 130 | $ | 74 | ||||
The Company has a $500 million senior, unsecured revolving credit facility consisting of a $470
million US senior revolving credit facility and a $30 million Canadian revolving credit facility
(the “Revolving Credit Agreement”) that matures April 26, 2012. The Canadian revolving credit
facility is guaranteed by Corn Products International, Inc. At December 31, 2007, there were no
outstanding borrowings under the US revolving credit facility or the Canadian revolving credit
facility.
On April 10, 2007, the Company sold $200 million of 6.0 percent Senior Notes due April 15, 2017 and
$100 million of 6.625 percent Senior Notes due April 15, 2037. Interest on the notes is required
to be paid semi-annually on April 15th and October 15th. The notes are unsecured
obligations of the Company and rank equally with the Company’s other unsecured, senior
indebtedness. The Company may redeem the notes, in whole at any time or in part from time to time,
at its option at a redemption price equal to the greater of: (i) 100 percent of the principal
amount of the notes to be redeemed; and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon (not including any portion of such payments of
interest accrued as of the date of redemption), discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate
(as defined in the applicable Indenture), plus, in the case of the 2017 notes, 25 basis points and
plus, in the case of the 2037 notes, 30 basis points, plus, in each case, accrued interest thereon
to the date of redemption. The net proceeds from the sale of the notes were used by the Company to
repay its $255 million 8.25 percent Senior Notes at the maturity date of July 15, 2007 (including
accrued interest thereon), and for general corporate purposes.
In February 2007, Corn Products Brasil — Ingredientes Industriais Ltda., the Company’s wholly-owned
Brazilian subsidiary, entered into two floating rate government export loans totaling $23 million
to finance the acquisition of the remaining ownership interest in GETEC. The notes are local
currency denominated obligations that mature in January 2010.
Long-term debt consists of the following at December 31:
| (in millions) | 2007 | 2006 | ||||||
6.0% senior notes, due April 2017, net of discount |
$ | 200 | $ | — | ||||
6.625% senior notes, due April 2037, net of discount |
99 | — | ||||||
8.25% senior notes, repaid at maturity in July 2007 |
— | 255 | ||||||
8.45% senior notes, due August 2009, net of discount |
200 | 199 | ||||||
Brazil loans, due 2010 (average floating rate of 11%) |
20 | — | ||||||
Mexican term loan, due 2008 (at LIBOR indexed floating rate) |
17 | 17 | ||||||
Canadian revolver, matures 2012 (at LIBOR indexed floating rate) |
— | 9 | ||||||
Korean loan, due 2007 (at rate of 5% for 2006) |
— | 18 | ||||||
Total |
$ | 536 | $ | 498 | ||||
Less: current maturities |
17 | 18 | ||||||
Long-term debt |
$ | 519 | $ | 480 | ||||
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The Company’s long-term debt matures as follows: $17 million in 2008, $200 million in 2009, $20
million in 2010, $200 million in 2017 and $100 million in 2037. The Company’s long-term debt at
December 31, 2006 included $255 million of 8.25 percent senior notes that were repaid at maturity
on July 15, 2007. These borrowings were included in long-term debt at December 31, 2006 as the
Company expected to refinance the notes on a long-term basis prior to the maturity date.
Corn Products International, Inc. guarantees certain obligations of several of its consolidated
subsidiaries, which aggregated $37 million and $52 million at December 31, 2007 and 2006,
respectively.
The Company plans to refinance its 8.45 percent $200 million senior notes due August 2009, by
issuing long-term, fixed rate debt in 2009. In conjunction with this plan and in order to manage
its exposure to variability in the benchmark interest rate on which the fixed interest rate of the
planned debt will be based, the Company entered into a Treasury Lock agreement (the “T-Lock”) with
respect to $50 million of such future indebtedness in September 2007. The T-Lock is designated as
a hedge of the variability in cash flows associated with future interest payments caused by market
fluctuations in the benchmark interest rate between the time the T-Lock was entered and the time
the debt is priced. It is accounted for as a cash flow hedge. Accordingly, changes in the fair
value of the T-Lock are recorded to other comprehensive income (loss) until the consummation of the
planned debt offering, at which time any realized gain (loss) will be amortized over the life of
the debt.
In 2006, the Company had entered into Treasury Lock agreements (the “T-Locks”) that fixed the
benchmark component of the interest rate to be established for the $200 million 6.0 percent Senior
Notes due April 15, 2017. The T-Locks were accounted for as cash flow hedges. The T-Locks expired
on March 21, 2007 and the Company paid approximately $5 million, representing the losses on the
T-Locks, to settle the agreements. The $5 million loss is included in accumulated other
comprehensive loss and is being amortized to financing costs over the ten-year term of the $200
million 6.0 percent Senior Notes due April 15, 2017.
On February 1, 2006, the Company terminated its remaining fixed to floating interest rate swap
agreements associated with its 8.45 percent senior notes. The swap termination resulted in a gain
of approximately $3 million, which approximated the fair value of the swap contract. The fair
value adjustment to the hedged debt at the termination date ($3 million) is being amortized as a
reduction to financing costs over the remaining term of the underlying debt (through August 2009).
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NOTE 6 — Leases
The Company leases rail cars, certain machinery and equipment, and office space under various
operating leases. Rental expense under operating leases was $27 million, $24 million and $24
million in 2007, 2006 and 2005, respectively. Minimum lease payments due on leases existing at
December 31, 2007 are shown below:
| (in millions) | ||||
| Year | Minimum Lease Payments | |||
2008 |
$ | 27 | ||
2009 |
24 | |||
2010 |
19 | |||
2011 |
14 | |||
2012 |
12 | |||
Balance thereafter |
41 | |||
NOTE 7 — Income Taxes
The components of income before income taxes and the provision for income taxes are shown below:
| (in millions) | 2007 | 2006 | 2005 | |||||||||
Income (loss) before income taxes: |
||||||||||||
United States |
$ | 28 | $ | (10 | ) | $ | (30 | ) | ||||
Outside the United States |
277 | 207 | 178 | |||||||||
Total |
$ | 305 | $ | 197 | $ | 148 | ||||||
Provision for income taxes: |
||||||||||||
Current tax expense |
||||||||||||
US federal |
$ | 2 | $ | 5 | $ | 5 | ||||||
State and local |
1 | — | 2 | |||||||||
Foreign |
92 | 70 | 64 | |||||||||
Total current |
$ | 95 | $ | 75 | $ | 71 | ||||||
Deferred tax expense (benefit) |
||||||||||||
US federal |
$ | (1 | ) | $ | (4 | ) | $ | (11 | ) | |||
State and local |
— | — | (3 | ) | ||||||||
Foreign |
8 | (2 | ) | (2 | ) | |||||||
Total deferred |
$ | 7 | $ | (6 | ) | $ | (16 | ) | ||||
Total provision |
$ | 102 | $ | 69 | $ | 55 | ||||||
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Deferred income taxes are provided for the tax effects of temporary differences between the
financial reporting basis and tax basis of assets and liabilities. Significant temporary
differences at December 31, 2007 and 2006 are summarized as follows:
| (in millions) | 2007 | 2006 | ||||||
Deferred tax assets attributable to: |
||||||||
Employee benefit accruals |
$ | 28 | $ | 23 | ||||
Pensions |
17 | 21 | ||||||
Hedging/derivative contracts |
— | 4 | ||||||
Net operating loss carryforwards |
10 | 9 | ||||||
Foreign tax credit carryforwards |
25 | 25 | ||||||
Foreign minimum tax credits |
— | 1 | ||||||
Other |
17 | 10 | ||||||
Gross deferred tax assets |
$ | 97 | $ | 93 | ||||
Valuation allowance |
(26 | ) | (24 | ) | ||||
Net deferred tax assets |
$ | 71 | $ | 69 | ||||
Deferred tax liabilities attributable to: |
||||||||
Plants and properties |
$ | 171 | $ | 154 | ||||
Hedging/derivative contracts |
27 | 16 | ||||||
Goodwill |
20 | 17 | ||||||
Total deferred tax liabilities |
$ | 218 | $ | 187 | ||||
Net deferred tax liabilities |
$ | 147 | $ | 118 | ||||
Net operating loss carryforwards at December 31, 2007 include state net operating losses of $2
million and foreign net operating losses of $8 million. The state net operating losses expire in
various years through 2027. Foreign net operating losses of $4 million will expire in 2009 through
2013 if unused, while $4 million may be carried forward indefinitely. The foreign tax credit
carryforwards of $25 million at December 31, 2007 will expire in 2012 through 2017 if not utilized.
SFAS No. 109, Accounting for Income Taxes, requires that a valuation allowance be established when
it is more likely than not that all or a portion of a deferred tax asset will not be realized. In
making this assessment, management considers the level of historical taxable income, scheduled
reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income.
The Company maintains a valuation allowance of $26 million against certain foreign tax credits and
foreign net operating losses that management has determined will more likely than not expire prior
to realization. The valuation allowance at December 31, 2007, with respect to foreign tax credit
carryforwards, increased to $18 million from $17 million at December 31, 2006. The valuation
allowance with respect to foreign net operating losses increased to $8 million at December 31, 2007
from $7 million at December 31, 2006.
A reconciliation of the federal statutory tax rate to the Company’s effective tax rate follows:
| 2007 | 2006 | 2005 | ||||||||||
Provision for tax at US statutory rate |
35.00 | % | 35.00 | % | 35.00 | % | ||||||
Tax rate difference on foreign income |
(1.56 | ) | (0.04 | ) | (2.40 | ) | ||||||
State and local taxes — net |
0.25 | 0.22 | (1.50 | ) | ||||||||
Increase in valuation allowance — foreign tax credits |
0.47 | 1.73 | 5.41 | |||||||||
Change in foreign statutory tax rates |
(1.03 | ) | (1.07 | ) | — | |||||||
Non-conventional fuel tax credits |
(0.22 | ) | (0.68 | ) | — | |||||||
Other items — net |
0.59 | 0.09 | 0.99 | |||||||||
Provision at effective tax rate |
33.50 | % | 35.25 | % | 37.50 | % | ||||||
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Provisions are made for estimated US and foreign income taxes, less credits that may be available,
on distributions from foreign subsidiaries to the extent dividends are anticipated. No provision
has been made for income taxes on approximately $735 million of undistributed earnings of foreign
subsidiaries at December 31, 2007, as such amounts are considered permanently reinvested.
The Company adopted FIN 48 effective January 1, 2007. The cumulative effect of the adoption of FIN
48 was reflected as a reduction in the beginning balance of retained earnings of $2 million. A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (in millions) | ||||
Balance at January 1, 2007 |
$ | 16 | ||
Additions for tax positions related to prior years |
— | |||
Reductions for tax positions related to prior years |
(1 | ) | ||
Additions based on tax positions related to the current year |
4 | |||
Reductions related to settlements |
(1 | ) | ||
Reductions related to a lapse in the statute of limitations |
(1 | ) | ||
Balance at December 31, 2007 |
$ | 17 | ||
Of this total, $12 million represents the amount of unrecognized tax benefits that, if recognized,
would affect the effective tax rate in future periods.
The Company accounts for interest and penalties related to income tax matters in income tax
expense. The Company had accrued interest and penalties of $4 million as of January 1, 2007 and
December 31, 2007.
The Company is subject to US federal income tax as well as income tax in multiple state and non-US
jurisdictions. The Internal Revenue Service (“IRS”) has concluded its audit of all years through
2004. The Company remains subject to potential examination in Canada for the years 2000 to 2007,
Brazil for the years 2002 to 2006 and Mexico for the years 2003 to 2007. The statute of
limitations is generally open for the years 2001 to 2007 for various other non-US jurisdictions.
In the second quarter of 2007, the Company made a deposit of approximately $17 million to the
Canadian tax authorities relating to an ongoing audit examination. The Company has settled $2
million of the claims and is in the process of appealing the remaining items from the audit. It is
expected that the appeal process will not be concluded within the next twelve months. The Company
believes that it has adequately provided for the most likely outcome of the appeal process.
It is reasonably possible that the total amount of unrecognized tax benefits will increase or
decrease within twelve months of December 31, 2007. The Company currently estimates that such
increases or decreases will not be significant.
NOTE 8 — Benefit Plans
The Company and its subsidiaries sponsor noncontributory defined benefit pension plans covering
substantially all employees in the United States and Canada, and certain employees in other foreign
countries. Plans for most salaried employees provide pay-related benefits based on years of
service. Plans for hourly employees generally provide benefits based on flat dollar amounts and
years of service. The Company’s general funding policy is to make contributions to the plans in
amounts that are within the limits of deductibility under current tax regulations. Certain foreign
countries allow income tax deductions without regard to contribution levels, and the Company’s
policy in those countries is to make the contribution required by the terms of the applicable plan.
Domestic plan assets consist primarily of common stock, corporate debt securities and short-term
investment funds.
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Domestic salaried employees are covered by a defined benefit “cash balance” pension plan, which
provides benefits based on service and Company credits to the participating employees’ accounts of
between 3 percent and 10 percent of base salary, bonus and overtime.
The Company also provides healthcare and life insurance benefits for retired employees in the
United States and Canada. US salaried employees are provided with access to postretirement medical
insurance through Retirement Health Care Spending Accounts. US salaried employees accrue an
account during employment, which can be used after employment to purchase postretirement medical
insurance from the Company and Medigap or through Medicare
HMO policies after age 65. The accounts are credited with a flat dollar amount and indexed for
inflation annually during employment. The accounts also accrue interest credits using a rate equal
to a specified amount above the yield on five-year Treasury notes. Employees can use the amounts
accumulated in these accounts, including credited interest, to purchase postretirement medical
insurance. Employees become eligible for benefits when they meet minimum age and service
requirements. The Company recognizes the cost of these postretirement benefits by accruing a flat
dollar amount on an annual basis for each domestic salaried employee. The Company has the right to
modify or terminate these benefits. Healthcare benefits for retirees outside the United States and
Canada are generally covered through local government plans.
The Company adopted the recognition provisions of SFAS 158 effective December 31, 2006 by recording
a charge to accumulated other comprehensive loss of $34 million, net of income taxes of $18
million, to recognize the unfunded portion of its defined benefit pension and other postretirement
plan liabilities. This charge includes a credit of $3 million, net of tax of $2 million,
associated with the reversal of a minimum pension liability.
Pension Obligation and Funded Status —The changes in pension benefit obligations and plan assets
during 2007 and 2006, as well as the funded status and the amounts recognized in the Company’s
Consolidated Balance Sheets related to the Company’s pension plans at December 31, 2007 and 2006,
were as follows:
| (in millions) | US Plans | Non-US Plans | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Benefit obligation |
||||||||||||||||
At January 1 |
$ | 70 | $ | 73 | $ | 136 | $ | 119 | ||||||||
Service cost |
3 | 3 | 4 | 3 | ||||||||||||
Interest cost |
4 | 4 | 8 | 7 | ||||||||||||
Benefits paid |
(2 | ) | (9 | ) | (6 | ) | (5 | ) | ||||||||
Actuarial loss (gain) |
1 | (1 | ) | (10 | ) | 13 | ||||||||||
Curtailment / Settlement |
— | — | (1 | ) | — | |||||||||||
Foreign currency translation |
— | — | 18 | (1 | ) | |||||||||||
Benefit obligation at December 31 |
$ | 76 | $ | 70 | $ | 149 | $ | 136 | ||||||||
Fair value of plan assets |
||||||||||||||||
At January 1 |
$ | 58 | $ | 59 | $ | 113 | $ | 97 | ||||||||
Actual return on plan assets |
5 | 4 | 7 | 16 | ||||||||||||
Employer contributions |
3 | — | 9 | 5 | ||||||||||||
Benefits paid |
(2 | ) | (5 | ) | (7 | ) | (5 | ) | ||||||||
Foreign currency translation |
— | — | 17 | — | ||||||||||||
Fair value of plan assets at December 31 |
$ | 64 | $ | 58 | $ | 139 | $ | 113 | ||||||||
Funded status |
$ | (12 | ) | $ | (12 | ) | $ | (10 | ) | $ | (23 | ) | ||||
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Amounts recognized in the Consolidated Balance Sheets consist of:
| (in millions) | US Plans | Non-US Plans | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Non current asset |
$ | — | $ | — | $ | (5 | ) | $ | — | |||||||
Current liabilities |
1 | — | 1 | — | ||||||||||||
Non current liabilities |
11 | 12 | 14 | 23 | ||||||||||||
Net amount recognized |
$ | 12 | $ | 12 | $ | 10 | $ | 23 | ||||||||
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
| (in millions) | US Plans | Non-US Plans | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Net actuarial loss |
$ | 10 | $ | 10 | $ | 25 | $ | 31 | ||||||||
Prior service cost |
2 | 2 | — | 1 | ||||||||||||
Transition obligation |
— | — | 6 | 5 | ||||||||||||
Net amount recognized |
$ | 12 | $ | 12 | $ | 31 | $ | 37 | ||||||||
The accumulated benefit obligation for all defined benefit pension plans was $191 million and $173
million at December 31, 2007 and 2006, respectively.
Information about plan obligations and assets for plans with an accumulated benefit obligation in
excess of plan assets is as follows:
| (in millions) | US Plans | Non-US Plans | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Projected benefit obligation |
$ | 76 | $ | 70 | $ | 14 | $ | 10 | ||||||||
Accumulated benefit obligation |
71 | 64 | 11 | 10 | ||||||||||||
Fair value of plan assets |
64 | 58 | — | — | ||||||||||||
Included in the Company’s pension obligation are nonqualified supplemental retirement plans for
certain key employees. All benefits provided under these plans are unfunded, and payments to plan
participants are made by the Company.
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
consist of the following for the years ended December 31, 2007, 2006 and 2005:
| (in millions) | US Plans | Non-US Plans | ||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Service cost |
$ | 3 | $ | 3 | $ | 2 | $ | 4 | $ | 3 | $ | 2 | ||||||||||||
Interest cost |
4 | 4 | 4 | 8 | 7 | 6 | ||||||||||||||||||
Expected return on plan assets |
(4 | ) | (4 | ) | (3 | ) | (8 | ) | (7 | ) | (5 | ) | ||||||||||||
Amortization of actuarial loss |
— | 1 | — | 1 | 1 | — | ||||||||||||||||||
Amortization
of transition obligation |
— | — | — | 1 | — | — | ||||||||||||||||||
Settlement/Curtailment |
— | 1 | — | — | — | — | ||||||||||||||||||
Net pension cost |
$ | 3 | $ | 5 | $ | 3 | $ | 6 | $ | 4 | $ | 3 | ||||||||||||
For the US plans, the Company estimates that net pension expense for 2008 will include
approximately $0.2 million relating to the amortization of its accumulated actuarial loss and $0.5
million relating to the amortization of prior service cost included in accumulated other
comprehensive loss at December 31, 2007.
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For the non-US plans, the Company estimates that net pension expense for 2008 will include
approximately $0.8 million relating to the amortization of its accumulated actuarial loss and $0.6
million relating to the amortization of prior service cost included in accumulated other
comprehensive loss at December 31, 2007.
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income for
2007 are as follows:
| (in millions) | US Plans | Non-US | ||||||
Net actuarial loss/(gain) |
$ | — | $ | (9 | ) | |||
Amortization of actuarial (loss)/gain |
— | (1 | ) | |||||
Amortization of prior service (cost)/credit |
(1 | ) | — | |||||
Amortization of transition obligation |
— | (1 | ) | |||||
Total recorded in other comprehensive income |
(1 | ) | (11 | ) | ||||
Net periodic benefit cost |
3 | 6 | ||||||
Total recorded in other comprehensive income and net
periodic benefit cost |
2 | (5 | ) | |||||
The following weighted average assumptions were used to determine the Company’s obligations under
the pension plans:
| US Plans | Non-US Plans | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Discount rate |
6.20 | % | 5.90 | % | 6.10 | % | 5.80 | % | ||||||||
Rate of compensation increase |
2.75 | % | 2.75 | % | 4.00 | % | 4.00 | % | ||||||||
The following weighted average assumptions were used to determine the Company’s net periodic
benefit cost for the pension plans:
| US Plans | Non-US Plans | |||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Discount rate |
5.90 | % | 5.40 | % | 5.75 | % | 5.80 | % | 5.25 | % | 5.25 | % | ||||||||||||
Expected long-term return on plan assets |
7.25 | % | 7.25 | % | 7.25 | % | 7.20 | % | 7.00 | % | 7.25 | % | ||||||||||||
Rate of compensation increase |
2.75 | % | 2.75 | % | 2.75 | % | 4.00 | % | 3.50 | % | 3.50 | % | ||||||||||||
The Company has assumed an expected long-term rate of return on assets of 7.25 percent for US and
7.00% for Canadian plans. In developing the expected long-term rate of return assumption on plan
assets, which consist mainly of US equity and debt securities, management evaluated historical
rates of return achieved on plan assets and the asset allocation of the plans, input from the
Company’s independent actuaries and investment consultants, and historical trends in long-term
inflation rates. Projected return estimates made by such consultants are based upon broad equity
and bond indices.
The discount rate reflects a rate of return on high quality fixed income investments that match the
duration of expected benefit payments. The Company has typically used returns on long-term
corporate AA bonds as a benchmark in establishing this assumption. The discount rate is reviewed
annually.
Plan Assets — The Company’s investment policy for its pension plans is to balance risk and return
through diversified portfolios of high-quality equity instruments, fixed income securities, and
short-term investments. Maturities for fixed income securities are managed such that sufficient
liquidity exists to meet near-term benefit payment obligations. For US pension plans, the weighted
average target range allocation of assets was 31-55 percent with equity managers, and
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44-68 percent with fixed income managers. The asset allocation is reviewed regularly and
portfolio investments are rebalanced to the targeted allocation when considered appropriate. The
Company’s pension plan weighted average asset allocation as of September 30
for US plans and October 31 for non-US plans is as follows:
| Asset Category | US Plans | Non-US Plans | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Equity securities |
57 | % | 52 | % | 54 | % | 57 | % | ||||||||
Debt securities |
36 | % | 47 | % | 38 | % | 39 | % | ||||||||
Other |
7 | % | 1 | % | 8 | % | 4 | % | ||||||||
Total |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
In 2007, the Company made cash contributions of $3 million and $9 million to its US and non-US
pension plans, respectively. The Company anticipates that in 2008 it will make cash contributions
of $9 million and $7 million to its US and non-US pension plans, respectively. Cash contributions
in subsequent years will depend on a number of factors including the performance of plan assets.
The following benefit payments, which reflect anticipated future service, as appropriate, are
expected to be made:
| (in millions) | US Plans | Non-US Plans | ||||||
2008 |
$ | 5 | $ | 9 | ||||
2009 |
7 | 7 | ||||||
2010 |
5 | 7 | ||||||
2011 |
5 | 7 | ||||||
2012 |
7 | 8 | ||||||
Years 2013 — 2017 |
28 | 44 | ||||||
The Company and certain of its subsidiaries also maintain defined contribution plans. The Company
makes matching contributions to these plans based on a percentage of employee contributions.
Amounts charged to expense for defined contribution plans totaled $5 million, $4 million and $6
million in 2007, 2006 and 2005, respectively.
Postretirement Benefit Plans — The Company’s postretirement benefit plans currently are not
funded. The information presented below includes the plans in the United States and Canada. The
changes in the benefit obligations of the plans during 2007 and 2006, and the amounts recognized in
the Company’s Consolidated Balance Sheets at December 31, 2007 and 2006, were as follows:
| (in millions) | 2007 | 2006 | ||||||
Accumulated postretirement benefit obligation |
||||||||
At January 1 |
$ | 48 | $ | 44 | ||||
Service cost |
1 | 2 | ||||||
Interest cost |
3 | 2 | ||||||
Actuarial loss/(gain) |
1 | 2 | ||||||
Benefits paid |
(2 | ) | (2 | ) | ||||
Foreign Currency Translation |
1 | — | ||||||
Benefit obligation at December 31 |
$ | 52 | $ | 48 | ||||
Fair value of plan assets |
— | — | ||||||
Funded Status |
$ | 52 | $ | 48 | ||||
Amounts recognized in the Consolidated Balance Sheet consist of:
| (in millions) | 2007 | 2006 | ||||||
Current liabilities |
$ | 2 | $ | 2 | ||||
Non current liabilities |
50 | 46 | ||||||
Net amount recognized |
$ | 52 | $ | 48 | ||||
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Amounts recognized in Accumulated Other Comprehensive Loss consist of:
| (in millions) | 2007 | 2006 | ||||||
Net actuarial loss |
$ | 10 | $ | 9 | ||||
Prior service cost |
— | — | ||||||
Net amount recognized |
$ | 10 | $ | 9 | ||||
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
consisted of the following for the years ended December 31, 2007, 2006 and 2005:
| (in millions) | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
Service cost |
$ | 1 | $ | 2 | $ | 1 | ||||||
Interest cost |
3 | 2 | 3 | |||||||||
Amortization of actuarial loss |
— | — | — | |||||||||
Amortization of prior service cost |
— | — | — | |||||||||
Net postretirement benefit costs |
$ | 4 | $ | 4 | $ | 4 | ||||||
The Company estimates that postretirement benefit expense for 2008 will include approximately $0.5
million relating to the amortization of its accumulated actuarial loss and ($0.3) million relating
to the amortization of its prior service credit included in accumulated other comprehensive loss at
December 31, 2007.
Changes in amounts recorded in other comprehensive income for 2007 are as follows:
| (in millions) | ||||||||||||
Net actuarial loss/(gain) |
$ | 1 | ||||||||||
Total recorded in other comprehensive income |
1 | |||||||||||
Net periodic benefit cost |
4 | |||||||||||
Total recorded in other comprehensive income and net periodic benefit
cost |
5 | |||||||||||
The following weighted average assumptions were used to determine the Company’s obligations under
the postretirement plans:
| 2007 | 2006 | |||||||
Discount rate |
6.10 | % | 5.80 | % | ||||
The following weighted average assumptions were used to determine the Company’s net postretirement
benefit cost:
| 2007 | 2006 | 2005 | ||||||||||
Discount rate |
5.80 | % | 5.40 | % | 5.75 | % | ||||||
The
discount rate reflects a rate of return on high quality fixed income
investments that match the duration of expected benefit payments. The
Company has typically used returns on long-term corporate AA bonds as
a benchmark in establishing this assumption. The discount rate is
reviewed annually.
In measuring the postretirement benefit obligation, for the United States,
the Company assumed an increase in the per capita cost of healthcare
benefits of 9.0 percent
in 2008, declining ratably to 5.0 percent by the year 2016 and
remaining at that level thereafter. For Canada, the Company assumed
an increase in the per capita cost of healthcare benefits of 10.0
percent in 2008, declining ratably to 5.0 percent by the year 2013
and remaining at that level thereafter. In addition, for Canada, the Company assumed an increase in the per capita cost
of dental benefits of 4.0 percent per year. The Canadian London
Union Plan is not affected by health
care trend rates. An increase in the assumed healthcare cost trend rate by 1 percentage point would
increase the accumulated postretirement benefit obligation at December 31, 2007 by $7
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million, while a decrease in the rate of 1 percentage point would decrease the obligation by $6
million, with a corresponding effect on the service and interest cost components of the net
periodic postretirement benefit cost for the year then ended of $0.7 million for an increase of 1
percentage point and $0.6 million for a decrease of 1 percentage point.
Estimated future benefit payments — The following benefit payments, which reflect anticipated
future service, as appropriate, are expected to be made under the Company’s postretirement benefit
plans:
| (in millions) | ||||
2008 |
$ | 2 | ||
2009 |
2 | |||
2010 |
2 | |||
2011 |
2 | |||
2012 |
2 | |||
Years 2013 — 2017 |
16 | |||
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 provides a federal
subsidy to employers sponsoring retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. The Company receives a Medicare Part D subsidy
for certain retirees. The impact of the Medicare Part D subsidy is immaterial for benefit
payment cash flows.
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NOTE 9 — Supplementary Information
Balance Sheet — Supplementary information is set forth below:
| (in millions) | 2007 | 2006 | ||||||
Accounts receivable — net: |
||||||||
Accounts receivable — trade |
$ | 354 | $ | 287 | ||||
Accounts receivable — other |
110 | 75 | ||||||
Allowance for doubtful accounts |
(4 | ) | (5 | ) | ||||
Total accounts receivable — net |
$ | 460 | $ | 357 | ||||
Inventories: |
||||||||
Finished and in process |
$ | 165 | $ | 127 | ||||
Raw materials |
202 | 144 | ||||||
Manufacturing supplies |
60 | 50 | ||||||
Total inventories |
$ | 427 | $ | 321 | ||||
Accrued liabilities: |
||||||||
Compensation expenses |
$ | 60 | $ | 47 | ||||
Dividends payable |
8 | 7 | ||||||
Accrued interest |
12 | 17 | ||||||
Accrued income taxes |
6 | 13 | ||||||
Taxes payable other than income taxes |
17 | 12 | ||||||
Other |
31 | 22 | ||||||
Total accrued liabilities |
$ | 134 | $ | 118 | ||||
Non-current liabilities: |
||||||||
Employees’ pension, indemnity, retirement, and other |
$ | 99 | $ | 112 | ||||
Other |
24 | 18 | ||||||
Total non-current liabilities |
$ | 123 | $ | 130 | ||||
Income
Statement — Supplementary information is set forth below:
| (in millions) | 2007 | 2006 | 2005 | |||||||||
Other income (expense)-net: |
||||||||||||
Gain on investment |
$ | 6 | $ | — | $ | — | ||||||
Earnings from non-controlled affiliates |
— | 1 | 1 | |||||||||
Gain from sale of non-core assets |
— | — | 2 | |||||||||
Other |
4 | 9 | 6 | |||||||||
Other income (expense)-net |
$ | 10 | $ | 10 | $ | 9 | ||||||
Financing costs-net: |
||||||||||||
Interest expense, net of amounts
capitalized * |
$ | 50 | $ | 34 | $ | 37 | ||||||
Interest income |
(12 | ) | (6 | ) | (5 | ) | ||||||
Foreign currency transaction (gains) losses |
4 | (1 | ) | 3 | ||||||||
Financing costs-net |
$ | 42 | $ | 27 | $ | 35 | ||||||
| * | Interest capitalized amounted to $4 million, $10 million and $5 million in 2007, 2006 and 2005, respectively. |
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Statements
of Cash Flow — Supplementary information is set forth below:
| (in millions) | 2007 | 2006 | 2005 | |||||||||
Interest paid |
$ | 47 | $ | 38 | $ | 36 | ||||||
Income taxes paid |
93 | 73 | 62 | |||||||||
Noncash investing and financing activities: |
||||||||||||
Change in fair value and number of shares of
redeemable common stock |
(25 | ) | 15 | (4 | ) | |||||||
Assumption of debt in connection with acquisition |
— | 5 | — | |||||||||
Natural
Gas Purchase Agreement:
On
January 20, 2006, Corn Products Brazil (“CPO Brazil”),
the Company’s wholly-owned Brazilian subsidiary entered into a
Natural Gas Purchase and Sale Agreement (the “Agreement”)
with Companhia de Gas de Sao Paulo — Comgas
(“Comgas”). Pursuant to the terms of the Agreement, Comgas
supplies natural gas to the cogeneration facility at CPO
Brazil’s Mogi Guacu plant. This Agreement will expire on
March 31, 2023, unless extended or terminated under certain
conditions specified in the Agreement. During the term of the
Agreement, CPO Brazil is obligated to purchase from Comgas, and
Comgas is obligated to provide to CPO Brazil, certain minimum
quantities of natural gas that are specified in the Agreement. The
price for such quantities of natural gas is determined pursuant to a
formula set forth in the Agreement.
NOTE 10 — Redeemable Common Stock
The Company has an agreement with certain common stockholders (collectively the “holder”), relating
to 500,000 shares of the Company’s common stock, that provides the holder with the right to require
the Company to repurchase those common shares for cash at a price equal to the average of the
closing per share market price of the Company’s common stock for the 20 trading days immediately
preceding the date that the holder exercises the put option. The put option is exercisable at any
time until January 2010 when it expires. The holder can also elect to sell the common shares on
the open market, subject to certain restrictions. The common shares subject to the put option are
classified as redeemable common stock in the Company’s Consolidated Balance Sheets.
The Company has the right, but not the obligation, to extend the put option for an additional
three years. The holder of the put option may not require the Company to repurchase less than
500,000 shares on any single exercise of the option, and the put option may not be exercised more
than once in any six month period. In the event the holder exercises the put option requiring the
Company to repurchase the shares, the Company would be required to pay for the shares within 90
calendar days from the exercise date if the holder is selling the minimum number of shares
(500,000). Any amount due would accrue interest at the Company’s revolving credit facility rate
from the date of exercise until the payment date.
The carrying value of the redeemable common stock was $19 million at December 31, 2007 and $44
million at December 31, 2006, based on the average of the closing per share market prices of the
Company’s common stock for the 20 trading days immediately preceding the respective balance sheet
dates ($38.30 per share and $35.86 per share at December 31, 2007 and 2006, respectively).
Adjustments to mark the redeemable common stock to market value are recorded directly to additional
paid-in capital in the stockholders’ equity section of the Company’s Consolidated Balance Sheets.
During 2007, the holder sold 727,000 shares of redeemable common stock in open market transactions.
There were 500,000 and 1,227,000 shares of redeemable common stock outstanding at December 31,
2007 and 2006, respectively.
NOTE 11 — Stockholders’ Equity
Preferred stock:
The Company has authorized 25 million shares of $0.01 par value preferred stock, none of which were
issued or outstanding as of December 31, 2007 and December 31, 2006.
Treasury Stock:
During 2007, the Company issued, from treasury, 77,950 restricted common shares and 875,774 common
shares upon the exercise of stock options under the stock incentive plan and 7,027 common shares
under other incentive plans. During 2006, the Company issued, from treasury, 67,700 restricted
common shares and 1,300,095 common shares upon the exercise of stock options under the stock
incentive plan and 34,522 common shares under other incentive plans. During 2005, the Company
issued, from treasury, 6,500 restricted common shares and 996,980 common shares upon the exercise
of stock options under the stock incentive plan and 1,325 common shares under other incentive
plans.
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The Company reacquired 32,040, 28,000 and 52,475 shares of its common stock during 2007, 2006 and
2005, respectively, by both repurchasing shares from employees under the stock incentive plan and
through the cancellation of forfeited restricted stock. The Company repurchased shares from
employees at average purchase prices of $44.88, $31.80 and $23.73, or fair value at the date of
purchase, during 2007, 2006 and 2005, respectively. All of the acquired shares are held as common
stock in treasury, less shares issued to employees under the stock incentive plan.
On November 7, 2007 the Company’s Board of Directors approved a new common stock repurchase program
that permits the Company to purchase up to 5 million shares of its outstanding common stock over a
period that began on November 9, 2007 and runs through November 30, 2010. In 2007, the Company
repurchased 1,480,500 common shares in open market transactions at a cost of approximately $55
million. Substantially all of the 2007 repurchases were made under the Company’s previously
authorized 4 million share repurchase program, except for 32,100 shares that were repurchased under
the new program. At December 31, 2007 the Company had 4,967,900 shares available to be repurchased
under its new program. The Company has repurchased all of the shares allowed under its previously
authorized 4 million share repurchase program. In 2006, the Company repurchased 862,800 common
shares in open market transactions at a cost of $23 million. The parameters of the Company’s stock
repurchase program are not established solely with reference to the dilutive impact of shares
issued under the Company’s stock incentive plan. However, the Company expects that, over time,
share repurchases will offset the dilutive impact of shares issued under the stock incentive plan.
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Set forth below is a reconciliation of common stock share activity for the years ended December 31,
2005, 2006 and 2007:
| (Shares of common stock, in thousands) | Issued | Held in Treasury | Redeemable Shares | Outstanding | ||||||||||||
Balance at December 31, 2004 |
75,320 | 792 | 1,227 | 73,301 | ||||||||||||
Issuance of restricted stock as compensation |
— | (7 | ) | — | 7 | |||||||||||
Issuance under incentive and other plans |
— | (1 | ) | — | 1 | |||||||||||
Stock options exercised |
— | (997 | ) | — | 997 | |||||||||||
Purchase/acquisition of treasury stock |
— | 1,742 | — | (1,742 | ) | |||||||||||
Balance at December 31, 2005 |
75,320 | 1,529 | 1,227 | 72,564 | ||||||||||||
Issuance of restricted stock as compensation |
— | (68 | ) | — | 68 | |||||||||||
Issuance under incentive and other plans |
— | (35 | ) | — | 35 | |||||||||||
Stock options exercised |
— | (1,300 | ) | — | 1,300 | |||||||||||
Purchase/acquisition of treasury stock |
— | 891 | — | (891 | ) | |||||||||||
Balance at December 31, 2006 |
75,320 | 1,017 | 1,227 | 73,076 | ||||||||||||
Elimination of redemption requirement (see
Note 10) |
— | — | (727 | ) | 727 | |||||||||||
Issuance of restricted stock as compensation |
— | (78 | ) | — | 78 | |||||||||||
Issuance under incentive and other plans |
— | ( 7 | ) | — | 7 | |||||||||||
Stock options exercised |
— | (876 | ) | — | 876 | |||||||||||
Purchase/acquisition of treasury stock |
— | 1,513 | — | (1,513 | ) | |||||||||||
Balance at December 31, 2007 |
75,320 | 1,569 | 500 | 73,251 | ||||||||||||
Share-based payments:
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No.
123R, “Share-based Payment” (“SFAS 123R”), which requires, among other things, that compensation
expense be recognized for employee stock options. Prior to the adoption of SFAS 123R, the Company
accounted for stock compensation using the intrinsic value method provided under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees,” and related Interpretations. Pro forma disclosures of net income and
earnings per share for 2005, assuming the application of the fair value method to account for stock
options in accordance with SFAS 123R, are provided in the table below. For purposes of making the
pro forma disclosure, the estimated fair market value of stock option awards is amortized to
expense over the applicable vesting period. The following table illustrates the effect on net
income and earnings per common share assuming the Company had applied the fair value based
recognition provisions of SFAS 123R to all outstanding and unvested awards for the period
presented:
| (in millions, except per share amounts) | Year Ended December 31, 2005 |
|||
Net income, as reported |
$ | 90 | ||
Add: |
||||
Stock-based employee compensation expense included in
reported net income, net of tax |
1 | |||
Deduct: |
||||
Stock-based employee compensation expense determined
under fair value based method for all awards, net of
related tax effects |
(4 | ) | ||
Pro forma net income |
$ | 87 | ||
Earnings per common share: |
||||
Basic — as reported |
$ | 1.20 | ||
Basic — pro forma |
$ | 1.16 | ||
Diluted — as reported |
$ | 1.19 | ||
Diluted — pro forma |
$ | 1.15 | ||
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The Company has a stock incentive plan (“SIP”) administered by the compensation committee of its
Board of Directors that provides for the granting of stock options, restricted stock and other
stock-based awards to certain key employees. A maximum of 8 million shares were originally
authorized for awards under the SIP. As of December 31, 2007, 5.4 million shares were available
for future grants under the SIP. Shares covered by awards that expire, terminate or lapse will
again be available for the grant of awards under the SIP. Total
share-based compensation expense for 2007 was $9 million, net of
income tax effect of $4 million.
The Company granted nonqualified options to purchase 777,600, 1,084,200 and 4,000 shares of the
Company’s common stock during 2007, 2006 and 2005, respectively. The options are exercisable upon
vesting, which occurs for grants issued in 2007 evenly over a three year period at the anniversary
dates of the date of grant, and have a term of 10 years. Stock options granted prior to 2007 are
exercisable upon vesting, which occurs in 50 percent increments at the one and two year anniversary
dates of the date of grant, and also have a term of 10 years. Compensation expense is recognized
on a straight-line basis for awards. As of December 31, 2007, certain of these nonqualified
options have been forfeited due to the termination of employees.
The fair value of stock option awards was estimated at the grant dates using the Black-Scholes
option pricing model with the following assumptions:
| 2007 | 2006 | 2005 | ||||||||||
Expected life (in years) |
5.3 | 5.3 | 5.3 | |||||||||
Risk-free interest rate |
4.8 | % | 4.2 | % | 3.9 | % | ||||||
Expected volatility |
26.8 | % | 27.8 | % | 27.0 | % | ||||||
Expected dividend yield |
1.0 | % | 1.1 | % | 1.2 | % | ||||||
The expected life of options represents the weighted average period of time that options granted
are expected to be outstanding giving consideration to vesting schedules and the Company’s
historical exercise patterns. The risk-free interest rate is based on the US Treasury yield curve
in effect at the time of the grant for periods corresponding with the expected life of the options.
Expected volatility is based on historical volatilities of the Company’s common stock. Dividend
yields are based on historical dividend payments. The weighted average fair value of options
granted during 2007, 2006 and 2005 was estimated to be $10.33, $7.72 and $6.53, respectively.
A summary of stock option and restricted stock transactions for the last three years follows:
| Weighted Average | ||||||||||||||||
| Stock Option Price | Exercise Price for | Shares of | ||||||||||||||
| (shares in thousands) | Stock Option Shares | Range | Stock Options | Restricted Stock | ||||||||||||
Outstanding at December 31, 2004 |
5,722 | $10.12 to $24.70 | $ | 16.83 | 325 | |||||||||||
Granted |
4 | 21.23 to 21.23 | 21.23 | 6 | ||||||||||||
Exercised / vested |
(997 | ) | 10.23 to 17.65 | 15.07 | (138 | ) | ||||||||||
Cancelled |
(87 | ) | 11.37 to 24.70 | 20.63 | (18 | ) | ||||||||||
Outstanding at December 31, 2005 |
4,642 | 10.12 to 24.70 | 17.14 | 175 | ||||||||||||
Granted |
1,084 | 25.83 to 29.80 | 25.95 | 68 | ||||||||||||
Exercised / vested |
(1,300 | ) | 10.12 to 24.70 | 16.47 | (60 | ) | ||||||||||
Cancelled |
(76 | ) | 11.37 to 25.83 | 21.74 | (14 | ) | ||||||||||
Outstanding at December 31, 2006 |
4,350 | 11.37 to 29.80 | 19.45 | 169 | ||||||||||||
Granted |
778 | 33.32 to 40.71 | 33.93 | 78 | ||||||||||||
Exercised / vested |
(876 | ) | 11.37 to 25.83 | 17.90 | (69 | ) | ||||||||||
Cancelled |
(59 | ) | 25.83 to 33.80 | 30.29 | (12 | ) | ||||||||||
Outstanding at December 31, 2007 |
4,193 | $11.37 to $40.71 | $ | 22.30 | 166 | |||||||||||
The intrinsic values of stock options exercised during 2007, 2006 and 2005 were approximately $20
million, $20 million and $12 million, respectively. For the years ended December 31, 2007, 2006
and 2005, cash received from the exercise of stock options was $16 million, $21 million and $14 million, respectively. The
excess income
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tax benefit realized from share-based compensation was $6 million, $6 million and $5
million in 2007, 2006 and 2005, respectively. As of December 31, 2007, the unrecognized
compensation cost related to non-vested stock options totaled $5 million, which will be amortized
over the weighted-average period of approximately 2 years.
The following table summarizes information about stock options outstanding at December 31,
2007:
(shares in thousands)
| Average Remaining | ||||||||||||||||||||
| Options | Weighted Average | Contractual Life | Options | Weighted Average | ||||||||||||||||
| Range of Exercise Prices | Outstanding | Exercise Price | (Years) | Exercisable | Exercise Price | |||||||||||||||
$11.37 to 12.21 |
99 | $ | 11.37 | 2.8 | 99 | $ | 11.37 | |||||||||||||
$12.22 to 16.28 |
1,152 | 14.24 | 3.7 | 1,152 | 14.24 | |||||||||||||||
$16.29 to 20.35 |
601 | 16.90 | 5.8 | 601 | 16.90 | |||||||||||||||
$20.36 to 24.43 |
4 | 21.23 | 7.3 | 4 | 21.23 | |||||||||||||||
$24.44 to 28.50 |
1,574 | 25.36 | 7.5 | 1,082 | 25.13 | |||||||||||||||
$28.51 to 32.57 |
20 | 29.80 | 8.3 | 10 | 29.80 | |||||||||||||||
$32.58 to 36.64 |
728 | 33.80 | 9.1 | — | — | |||||||||||||||
$36.65 to 40.71 |
15 | 40.71 | 9.4 | — | — | |||||||||||||||
| 4,193 | $ | 22.30 | 6.4 | 2,948 | $ | 18.75 | ||||||||||||||
The number of options exercisable at December 31, 2006 was 3.3 million.
Stock options outstanding at December 31, 2007 had an aggregate intrinsic value of approximately
$61 million and an average remaining contractual life of 6.3 years. Stock options exercisable at
December 31, 2007 had an aggregate intrinsic value of
approximately $53 million and an average
remaining contractual life of 5.4 years. Stock options
outstanding at December 31, 2006 had an aggregate intrinsic
value of approximately $67 million and an average remaining
contractual life of 6.2 years. Stock options exercisable at
December 31, 2006 had an aggregate intrinsic value of
approximately $57 million and an average remaining contractual
life of 5.5 years.
In addition to stock options, the Company awards shares of restricted common stock to certain key
employees. The restricted shares issued under the plan are subject to cliff vesting, generally for
five years provided the employee remains in the service of the Company. Expense is recognized on a
straight line basis over the vesting period taking into account an estimated forfeiture rate. The
fair value of the restricted stock is determined based upon the number of shares granted and the
quoted market price of the Company’s common stock at the date of the grant. Compensation expense
pertaining to these awards was $1 million in each of 2007, 2006 and 2005.
The following table summarizes restricted share activity for the year ended December 31, 2007:
| Number of | Weighted | |||||||
| Restricted | Average | |||||||
| (shares in thousands) | Shares | Fair Value | ||||||
Non-vested at December 31, 2006 |
169 | $ | 21.00 | |||||
Granted |
78 | 34.43 | ||||||
Vested |
(69 | ) | 14.45 | |||||
Cancelled |
(12 | ) | 26.24 | |||||
Non-vested at December 31, 2007 |
166 | 29.85 | ||||||
The weighted-average fair value of restricted stock granted during the year ended December 31, 2007
and 2006 was $34.43 and $27.89, respectively. The total fair value of restricted stock that vested
in 2007, 2006 and 2005 was $1 million, $1 million and $2 million, respectively.
As of December 31, 2007, additional paid-in capital included $4 million of unrecognized
compensation cost related to restricted stock that will be amortized on a weighted-average basis
over 2.5 years. The recognized compensation cost related to restricted stock totaling $2 million
at December 31, 2007 is included in share-based payments subject to redemption in the Consolidated
Balance Sheet.
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Other share-based awards under the SIP:
Under the compensation agreement with the Board of Directors at least 50 percent of a director’s
compensation is awarded based on each director’s election to receive such compensation in the form
of restricted stock units, which track investment returns to changes in value of the Company’s
common stock with dividends being reinvested. Stock units under this plan vest immediately. The
compensation expense relating to this plan included in the Consolidated Statements of Income for
2007, 2006 and 2005 was not material. At December 31, 2007, there were approximately 184,000 share
units outstanding under this plan at a carrying value of approximately $5 million.
The Company has a long term incentive plan for Officers under which awards thereunder are
classified as equity in accordance with SFAS 123R. The ultimate payment of the performance shares
will be based 50 percent on the Company’s stock performance as compared to the stock performance of
a peer group and 50 percent on a return on capital employed versus the target percentage.
Compensation expense for the stock performance portion of the plan is based on the fair value of
the plan that is determined on the day the plan is established. The fair value is calculated using
a Monte Carlo simulation model. Compensation expense for the return on capital employed portion of
the plan is based on the probability of attaining the target percentage goal and is reviewed at the
end of each reporting period. The total compensation expense for these awards is being amortized
over a three-year service period. Compensation expense relating to these awards included in the
Consolidated Statements of Income for 2007, 2006 and 2005 were $4.9 million, $1.8 million and $0.6
million, respectively. These amounts are included in share-based payments subject to redemption in
the Consolidated Balance Sheet at December 31, 2007. As of December 31, 2007, the unrecognized
compensation cost relating to these plans was $3.2 million, which will be amortized over the
remaining requisite service period of 2 years. This amount will vary each reporting period based
on changes in the probability of attaining the goal.
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Accumulated Other Comprehensive Loss:
A summary of accumulated other comprehensive income (loss) for the
years ended December 31, 2005, 2006 and 2007 is presented below:
| Deferred | Accumulated | |||||||||||||||||||
| Currency | Gain/(Loss) | Pension | Unrealized | Other | ||||||||||||||||
| Translation | on Hedging | Liability | Gain on | Comprehensive | ||||||||||||||||
| (in millions) | Adjustment | Activities | Adjustment | Investment | Income/(Loss) | |||||||||||||||
Balance, December 31, 2004 |
$ | (292 | ) | $ | (25 | ) | $ | (4 | ) | $ | — | $ | (321 | ) | ||||||
Gains on cash flow hedges, net of income tax effect of $7 |
12 | 12 | ||||||||||||||||||
Amount of losses on cash flow hedges reclassified to
earnings, net of income tax effect of $14 |
24 | 24 | ||||||||||||||||||
Currency translation adjustment |
35 | 35 | ||||||||||||||||||
Minimum Pension Liability “MPL”, net of income tax effect |
(1 | ) | (1 | ) | ||||||||||||||||
Balance, December 31, 2005 |
(257 | ) | 11 | (5 | ) | — | (251 | ) | ||||||||||||
Gains on cash flow hedges, net of income tax effect of $8 |
12 | 12 | ||||||||||||||||||
Amount of losses on cash flow hedges reclassified to
earnings, net of income tax effect of $2 |
5 | 5 | ||||||||||||||||||
Currency translation adjustment |
43 | 43 | ||||||||||||||||||
Adjustment to MPL prior to adoption of SFAS No. 158,
net of income tax effect of $1 |
2 | 2 | ||||||||||||||||||
Adoption of SFAS No. 158, net of income tax effect of $18 |
(34 | ) | (34 | ) | ||||||||||||||||
Balance, December 31, 2006 |
(214 | ) | 28 | (37 | ) | — | (223 | ) | ||||||||||||
Gains on cash flow hedges, net of income tax effect of $20 |
32 | 32 | ||||||||||||||||||
Amount of losses on cash flow hedges reclassified to
earnings, net of income tax effect of $10 |
(15 | ) | (15 | ) | ||||||||||||||||
Actuarial gain on pension and other postretirement obligations,
net of income tax effect of $3 |
6 | 6 | ||||||||||||||||||
Losses related to pension and other postretirement obligations
reclassified to earnings, net of income tax effect of $1 |
2 | 2 | ||||||||||||||||||
Unrealized gain on investment, net of income tax effect |
1 | 1 | ||||||||||||||||||
Currency translation adjustment |
82 | 82 | ||||||||||||||||||
Balance, December 31, 2007 |
$ | (132 | ) | $ | 45 | $ | (29 | ) | $ | 1 | $ | (115 | ) | |||||||
NOTE 12 — Mexican Tax on Beverages Sweetened with HFCS
On January 1, 2002, a discriminatory tax on beverages sweetened with high fructose corn syrup
(“HFCS”) approved by the Mexican Congress late in 2001, became effective. In response to the
enactment of the tax, which at the time effectively ended the use of HFCS for beverages in Mexico,
the Company ceased production of HFCS 55 at its San Juan del Rio plant, one of its three plants in
Mexico. Over time, the Company resumed production and sales of HFCS to certain beverage customers.
These sales increased significantly beginning late in the third quarter of 2004, and in 2005 and
2006, returned to levels attained prior to the imposition of the tax as a result of certain
customers having obtained court rulings exempting them from paying the tax. The Mexican Congress
repealed this tax effective January 1, 2007.
As previously disclosed in response to the imposition of the tax, the Company submitted an
arbitration claim against the government of Mexico under the provisions of the North American Free
Trade Agreement (NAFTA) seeking recovery for damages. In July 2006, a hearing of the NAFTA
Tribunal in the case was held to determine whether Mexico has state responsibility for a violation
of obligations owed by Mexico to foreign investors under NAFTA
Chapter 11. On December 18, 2007, the Tribunal issued an
order to the parties saying that it had completed its decision on
liability, and indicating that briefing on damages should be based on
a violation of NAFTA Article 1102, National Treatment. In a separate procedural order, the Tribunal set a timetable requiring written and oral
argument on the damages questions to be completed by April 30, 2008 and a hearing to be held after
June 16, 2008. Pursuant to that procedural order, on February 4, 2008 the Company submitted a
memorial on damages together with supporting materials. The Company
seeks damages and pre-judgment interest that would total $288 million
if an award were to be rendered on December 31, 2008.
NOTE 13 — Segment Information
The Company operates in one business segment, corn refining, and is managed on a geographic
regional basis. Its North America operations include corn-refining businesses in the United
States, Canada and Mexico. The
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Company’s South America operations include corn-refining businesses
in Brazil, Colombia, Ecuador, Peru and the Southern Cone of South America, which includes
Argentina, Chile and Uruguay. The Company’s Asia/Africa operations include corn-refining
businesses in Korea, Pakistan, Malaysia, Kenya and China, and a tapioca root processing operation
in Thailand.
| (in millions) | 2007 | 2006 | 2005 | |||||||||
Net sales to unaffiliated customers (a): |
||||||||||||
North America |
$ | 2,052 | $ | 1,588 | $ | 1,422 | ||||||
South America |
925 | 670 | 603 | |||||||||
Asia/Africa |
414 | 363 | 335 | |||||||||
Total |
$ | 3,391 | $ | 2,621 | $ | 2,360 | ||||||
Operating income (b): |
||||||||||||
North America |
$ | 234 | $ | 130 | $ | 59 | ||||||
South America |
115 | 84 | 101 | |||||||||
Asia/Africa |
45 | 53 | 53 | |||||||||
Corporate |
(47 | ) | (43 | ) | (30 | ) | ||||||
Total |
$ | 347 | $ | 224 | $ | 183 | ||||||
Total assets (c): |
||||||||||||
North America |
$ | 1,716 | $ | 1,522 | $ | 1,394 | ||||||
South America |
902 | 667 | 559 | |||||||||
Asia/Africa |
485 | 456 | 436 | |||||||||
Total |
$ | 3,103 | $ | 2,645 | $ | 2,389 | ||||||
Depreciation and amortization: |
||||||||||||
North America |
$ | 83 | $ | 78 | $ | 73 | ||||||
South America |
30 | 25 | 23 | |||||||||
Asia/Africa |
12 | 11 | 10 | |||||||||
Total |
$ | 125 | $ | 114 | $ | 106 | ||||||
Capital expenditures: |
||||||||||||
North America |
$ | 90 | $ | 110 | $ | 78 | ||||||
South America |
77 | 49 | 48 | |||||||||
Asia/Africa |
10 | 12 | 17 | |||||||||
Total |
$ | 177 | $ | 171 | $ | 143 | ||||||
| Notes: | ||
| a. | Sales between geographic regions for each of the periods presented are insignificant and therefore are not presented. | |
| b. | Includes earnings from non-controlled affiliates accounted for under the equity method as follows: South America — nil in 2007 and $1 million in each of 2006 and 2005. | |
| c. | Includes investments in non-controlled affiliates accounted for under the equity method as follows: South America — none at December 31, 2007 and $28 million at December 31, 2006. | |
The following table presents net sales to unaffiliated customers by country of origin for the last
three years:
| Net Sales | ||||||||||||
| (in millions) | 2007 | 2006 | 2005 | |||||||||
United States |
$ | 1,021 | $ | 770 | $ | 710 | ||||||
Mexico |
668 | 532 | 450 | |||||||||
Brazil |
498 | 350 | 322 | |||||||||
Canada |
363 | 286 | 262 | |||||||||
Korea |
195 | 185 | 186 | |||||||||
Argentina |
160 | 129 | 114 | |||||||||
Others |
486 | 369 | 316 | |||||||||
Total |
$ | 3,391 | $ | 2,621 | $ | 2,360 | ||||||
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The following table presents long-lived assets by country at December 31:
| Long-lived Assets | ||||||||||||
| (in millions) | 2007 | 2006 | 2005 | |||||||||
United States |
$ | 506 | $ | 466 | $ | 428 | ||||||
Mexico |
370 | 365 | 382 | |||||||||
Brazil |
320 | 219 | 160 | |||||||||
Korea |
276 | 280 | 252 | |||||||||
Canada |
188 | 154 | 176 | |||||||||
Argentina |
137 | 125 | 120 | |||||||||
Others |
216 | 198 | 183 | |||||||||
Total |
$ | 2,013 | $ | 1,807 | $ | 1,701 | ||||||
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Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows:
| (in millions, except per share amounts) | 1st QTR | 2nd QTR | 3rd QTR | 4th QTR | ||||||||||||
2007 |
||||||||||||||||
Net sales before shipping and handling
costs |
$ | 817 | $ | 917 | $ | 939 | $ | 956 | ||||||||
Less: shipping and handling costs |
55 | 60 | 62 | 61 | ||||||||||||
Net sales |
$ | 762 | $ | 857 | $ | 877 | $ | 895 | ||||||||
Gross profit |
146 | 156 | 142 | 143 | ||||||||||||
Net income |
50 | 51 | 51 | 46 | ||||||||||||
Basic earnings per common share |
$ | 0.67 | $ | 0.68 | $ | 0.68 | $ | 0.62 | ||||||||
Diluted earnings per common share |
$ | 0.66 | $ | 0.66 | $ | 0.66 | $ | 0.61 | ||||||||
| (in millions, except per share amounts) | 1st QTR | 2nd QTR | 3rd QTR | 4th QTR | ||||||||||||
2006 |
||||||||||||||||
Net sales before shipping and handling
costs |
$ | 666 | $ | 701 | $ | 733 | $ | 743 | ||||||||
Less: shipping and handling costs |
51 | 56 | 59 | 56 | ||||||||||||
Net sales |
$ | 615 | $ | 645 | $ | 674 | $ | 687 | ||||||||
Gross profit |
93 | 105 | 112 | 107 | ||||||||||||
Net income |
23 | 30 | 37 | 33 | ||||||||||||
Basic earnings per common share |
$ | 0.32 | $ | 0.41 | $ | 0.50 | $ | 0.44 | ||||||||
Diluted earnings per common share |
$ | 0.31 | $ | 0.40 | $ | 0.49 | $ | 0.43 | ||||||||
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Table of Contents
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and our Chief Financial Officer,
performed an evaluation of the effectiveness of our disclosure controls and procedures as of
December 31, 2007. Based on that evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that our disclosure controls and procedures are effective in providing reasonable
assurance that all material information required to be filed in this report has been recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
There have been no changes in our internal control over financial reporting during the quarter
ended December 31, 2007 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. This system of internal controls is designed to provide reasonable assurance
that assets are safeguarded and transactions are properly recorded and executed in accordance with
management’s authorization.
Internal control over financial reporting includes those policies and procedures that:
| 1. | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets. | ||
| 2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors. | ||
| 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. |
Management conducted an evaluation of the effectiveness of internal control over financial
reporting based on the framework of Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on the evaluation, management
concluded that our internal control over financial reporting was effective as of December 31, 2007.
Management’s assessment of the effectiveness of our internal control over financial reporting has
been audited by KPMG LLP, an independent registered public accounting firm, as stated in their
report.
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Table of Contents
ITEM 9B. OTHER INFORMATION
None.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information contained under the headings “Proposal 1. Election of Directors,” “The Board
and Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
definitive proxy statement for the Company’s 2008 Annual Meeting of Stockholders (the “Proxy
Statement”) is incorporated herein by reference. The information regarding executive officers
called for by Item 401 of Regulation S-K is included in Part 1 of this report under the heading
“Executive Officers of the Registrant.” The Company has adopted a code of ethics that applies to
its principal executive officer, principal financial officer, and controller. The code of ethics
is posted on the Company’s Internet website, which is found at www.cornproducts.com. The Company
intends to include on its website any amendments to, or waivers from, a provision of its code of
ethics that applies to the Company’s principal executive officer, principal financial officer or
controller that relates to any element of the code of ethics definition enumerated in Item 406(b)
of Regulation S-K.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information contained under the headings “Executive Compensation” and “Compensation
Committee Report” in the Proxy Statement is incorporated herein by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information contained under the headings “Equity Compensation Plan Information as of
December 31, 2007” and “Security Ownership of Certain Beneficial Owners and Management” in the
Proxy Statement is incorporated herein by reference.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information contained under the headings “Certain Relationships and Related Transactions”
and “Independence of Board Members” in the Proxy Statement is incorporated herein by reference.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information contained under the heading “2007 and 2006 Audit Firm Fee Summary” in the
Proxy Statement is incorporated herein by reference.
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Item 15(a)(1) Consolidated Financial Statements
Financial
Statements (see the Index to the Consolidated Financial Statements on page 42 of
this report.
Item 15(a)(2) Financial Statement Schedules
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Table of Contents
All financial statement schedules have been omitted because the information either is not
required or is otherwise included in the consolidated financial statements and notes thereto.
Item 15(a)(3) Exhibits
The following list of exhibits includes both exhibits submitted with this Form 10-K as filed
with the SEC and those incorporated by reference from other filings.
| Exhibit No. | Description | |||
| 3.1* | Amended and Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company’s Registration Statement on Form 10, File
No. 1-13397 |
|||
| 3.2* | Certificate of Designation for the Company’s Series A Junior
Participating Preferred Stock, filed as Exhibit 1 to the Company’s
Registration Statement on Form 8-Al2B, File No. 1-13397 |
|||
| 3.3* | Amended By-Laws of the Company, filed as Exhibit 3.1 to the Company’s
report on Form 8-K dated March 21, 2007, File No. 1-13397 |
|||
| 4.3* | Revolving Credit Agreement dated April 26, 2006 among the Company and
the agents and banks named therein filed as Exhibit 10 to the Company’s
report on Form 10-Q for the quarter ended March 31, 2006 |
|||
| 4.4* | Extension Letter dated as of May 14, 2007 with respect to Revolving
Credit Agreement dated April 26, 2006 among the Company and the agents
and banks named therein filed on May 18, 2007 as Exhibit 4.4 to the
Company’s current report on Form 8-K, File No. 1-3397 |
|||
| 4.5 | First
Amendment dated as of October 30, 2007 to Revolving Credit Agreement dated
April 26, 2006 among the Company and the agents and banks named therein |
|||
| 4.6 | Second
Amendment dated as of October 30, 2007 to Revolving Credit Agreement
dated April 26, 2006 among the Company and the agents and banks named
therein |
|||
| 4.7* | Indenture Agreement dated as of August 18, 1999 between the Company and
The Bank of New York, as Trustee, filed on August 27, 1999 as Exhibit
4.1 to the Company’s current report on Form 8-K, File No. 1-13397 |
|||
| 4.8* | Third Supplemental Indenture dated as of April 10, 2007 between Corn
Products International, Inc. and The Bank of New York Trust Company,
N.A., as trustee (Incorporated by reference to Exhibit 4.3 to the
Company’s Current Report on Form 8-K filed on April 10, 2007
(Commission file No. 1-13397)) |
|||
| 4.9* | Fourth Supplemental Indenture dated as of April 10, 2007 between Corn
Products International, Inc. and The Bank of New York Trust Company,
N.A., as trustee (Incorporated by reference to Exhibit 4.4 to the
Company’s Current Report on Form 8-K filed on April 10, 2007
(Commission file No. 1-13397)) |
|||
| 10.1* *** | The Corn Products International, Inc. Stock Incentive Plan as effective
September 18, 2007, filed as Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2007, File No.
1-13397 |
|||
81
Table of Contents
| Exhibit No. | Description | |||
| 10.2** *** | Deferred Stock Unit Plan of the Company |
|||
| 10.3* *** | Form of Severance Agreement entered into by each of the Named Executive
Officers, filed as Exhibit 10.2 to the Company’s Current Report on Form
8-K, dated May 17, 2006, File No. 1-13397 |
|||
| 10.5** *** | Form of Indemnification Agreement entered into by each of the members
of the Company’s Board of Directors and the Named Executive Officers |
|||
| 10.6* *** | Deferred Compensation Plan for Outside Directors of the Company
(Amended and Restated as of September 19, 2001), filed as Exhibit 4(d)
to the Company’s Registration Statement on Form S-8, File No.
333-75844, as amended by Amendment No. 1 dated December 1, 2004, filed
as Exhibit 10.6 to the Company’s Annual report on Form 10-K for the
year ended December 31, 2004, File No. 1-13397 |
|||
| 10.7 *** | Supplemental Executive Retirement Plan as effective November 13, 2007 |
|||
| 10.8** *** | Executive Life Insurance Plan |
|||
| 10.9** *** | Deferred Compensation Plan, as amended by Amendment No. 1 filed as
Exhibit 10.21 to the Company’s Annual Report on Form 10-K/A for the
year ended December 31, 2001, File No. 1-13397 |
|||
| 10.10* *** | Annual Incentive Plan as effective September 18, 2007, filed as Exhibit
10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, File No. 1-13397 |
|||
| 10.11* *** | Performance Plan, filed as Exhibit 10.19 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 1999, File No. 1-13397 |
|||
| 10.12** *** | Tax Sharing Agreement dated December 1, 1997 between the Company and
Bestfoods |
|||
| 10.13* *** | Employee Benefits Agreement dated December 1, 1997 between the Company
and Bestfoods, filed as Exhibit 4.E to the Company’s Registration
Statement on Form S-8, File No. 333-43525 |
|||
| 10.14* *** | Executive Life Insurance Plan, Compensation Committee Summary, filed as
Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2004, File No. 1-13397 |
|||
| 10.15* *** | Form of Executive Life Insurance Plan Participation Agreement and
Collateral Assignment entered into by the Named Executive Officers with
the exception of Jorge Fiamenghi, filed as Exhibit 10.15 to the
Company’s Annual Report on Form 10-K for the year ended December 31,
2004, File No. 1-13397 |
|||
| 10.16* *** | Form of Performance Share Award, filed as Exhibit 10.1 to the Company’s
report on Form 8-K dated January 29, 2007, File No. 1-13397 |
|||
| 10.17* *** | Form of Notice of Grant of Stock Option and Option Award Agreement for
use in connection with awards under the Stock Incentive Plan, filed as
Exhibit 10.2 to the Company’s report on Form 8-K dated January 31,
2006, File No. 1-13397 |
|||
82
Table of Contents
| Exhibit No. | Description | |||
| 10.18* | Natural Gas Purchase and Sale Agreement between Corn Products
Brasil-Ingredientes Industrias Ltda. and Companhia de Ga de Sao
Paulo-Comgas, filed as Exhibit 10.17 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2005, File No. 1-13397 |
|||
| 11.1 | Earnings Per Share Computation |
|||
| 12.1 | Computation of Ratio of Earnings to Fixed Charges |
|||
| 21.1 | Subsidiaries of the Registrant |
|||
| 23.1 | Consent of Independent Registered Public Accounting Firm |
|||
| 24.1 | Power of Attorney |
|||
| 31.1 | CEO Section 302 Certification Pursuant to the Sarbanes-Oxley Act of 2002 |
|||
| 31.2 | CFO Section 302 Certification Pursuant to the Sarbanes-Oxley Act of 2002 |
|||
| 32.1 | CEO Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of
the United States Code as created by the Sarbanes-Oxley Act of 2002 |
|||
| 32.2 | CFO Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of
the United States Code as created by the Sarbanes-Oxley Act of 2002 |
|||
| * | Incorporated herein by reference as indicated in the exhibit description. |
|
| ** | Incorporated herein by reference to the exhibits filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 1997. | |
| *** | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to item 15(b) of this report. |
83
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 28th day of February, 2008.
| CORN PRODUCTS INTERNATIONAL, INC. |
||||
| By: | /s/ Samuel C. Scott III | |||
| Samuel C. Scott III | ||||
| Chairman, President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant, in the capacities indicated and
on the 28th day of February, 2008.
| Signature | Title | |
/s/ Samuel C. Scott III
|
Chairman, President, Chief Executive Officer and Director | |
/s/ Cheryl K. Beebe
|
Chief Financial Officer | |
/s/ Robin A. Kornmeyer
|
Controller | |
*Richard J. Almeida
|
Director | |
*Luis Aranguren
|
Director | |
*Guenther E. Greiner
|
Director | |
*Paul Hanrahan
|
Director | |
*Karen
L. Hendricks
|
Director | |
*Bernard H. Kastory
|
Director |
84
Table of Contents
| Signature | Title | |
*Gregory B. Kenny
|
Director | |
*Barbara A. Klein
|
Director | |
*William S. Norman
|
Director | |
*James M. Ringler
|
Director |
| By: | */s/ Mary Ann Hynes | |||
| Mary Ann Hynes | ||||
| Attorney-in-fact | ||||
(Being the
principal executive officer, the principal financial officer, the
controller and a majority of
the directors of Corn Products International, Inc.)
85
Exhibit 4.5
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (this “Amendment”), is made and
entered into as of October 30, 2007, by and among CORN PRODUCTS INTERNATIONAL, INC., a Delaware
corporation (the “U.S. Borrower”), CANADA STARCH OPERATING COMPANY INC., a company
constituted under the federal laws of Canada (the “Canadian Borrower”; together with the
U.S. Borrower, each individually a “Borrower” and collectively the “Borrowers”),
the several banks and other financial institutions and lenders from time to time party hereto
(collectively, the “Lenders”), BANK OF MONTREAL, as Canadian Funding Agent for the Canadian
Lenders (the “Canadian Funding Agent”), as issuing bank under the Canadian Facility (the
“Canadian Issuing Bank”) and as swing line lender under the Canadian Facility (the
“Canadian Swing Line Lender”), and SUNTRUST BANK, in its capacity as administrative agent
for the Lenders (the “Administrative Agent”), as issuing bank under the U.S. Facility (the
“U.S. Issuing Bank”) and as swing line lender under the U.S. Facility (the “U.S. Swing
Line Lender”).
WITNESSETH:
WHEREAS, the Borrowers, the Lenders, the Canadian Funding Agent and the Administrative Agent
are parties to a certain Revolving Credit Agreement, dated as of April 26, 2006 (as amended,
restated, supplemented or otherwise modified from time to time, the “Credit Agreement”;
capitalized terms used herein and not otherwise defined shall have the meanings assigned to such
terms in the Credit Agreement), pursuant to which the Lenders have made certain financial
accommodations available to the Borrowers;
WHEREAS, the Borrowers have requested that the Lenders and the Administrative Agent amend
certain provisions of the Credit Agreement, and subject to the terms and conditions hereof, the
Lenders are willing to do so;
NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of all of
which are acknowledged, the Borrowers, the Lenders and the Administrative Agent agree as follows:
1. Amendments.
(a) Section 1.1 of the Credit Agreement is hereby amended by replacing the definition of
“Canadian L/C Commitment” in its entirety with the following definition:
“Canadian L/C Commitment” shall mean a portion of the Canadian Facility
Commitments that may be used by the Canadian Borrower for the issuance of Letters of
Credit in an aggregate face amount not to exceed $10,000,000 or the Canadian Dollar
Equivalent thereof at any one time.
2. Conditions to Effectiveness of this Amendment. Notwithstanding any other provision
of this Amendment and without affecting in any manner the rights of the Lenders hereunder, it is
understood and agreed that this Amendment shall not become effective, and the Borrowers shall have
no rights under this Amendment, until the Administrative Agent shall have received executed
counterparts to this Amendment from the Borrowers and the Required Lenders.
3. Representations and Warranties. To induce the Lenders and the Administrative Agent
to enter into this Amendment, each Loan Party hereby represents and warrants to the Lenders and the
Administrative Agent:
(a) Each Borrower and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation and has all
requisite power and authority to carry on its business as now conducted;
(b) The execution, delivery and performance by the Borrowers of this Agreement and the
other Loan Documents, and the consummation of the transactions contemplated hereby, are within each
Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do
not contravene (i) any Borrower’s charter or by-laws or (ii) any law or contractual restriction
binding on or affecting any Borrower;
(c) The execution, delivery and performance by each Borrower of this Agreement and of the
other Loan Documents to which it is a party (a) do not require any consent or approval of,
registration or filing with, or any action by, any governmental authority, except those as have
been obtained or made and are in full force and effect, (b) will not violate any requirements of
law applicable to any Borrower or any of its Subsidiaries or any judgment, order or ruling of any
governmental authority, (c) will not violate or result in a default under any indenture, material
agreement or other material instrument binding on any Borrower or any of its Subsidiaries or any of
its assets or give rise to a right thereunder to require any payment to be made by any Borrower or
any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any
asset of any Borrower or any of its Subsidiaries;
(d) This Amendment has been duly executed and delivered and constitutes a legal, valid and
binding obligation of each Borrower, enforceable against each Borrower in accordance with its terms
except as the enforceability hereof may be limited by bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors’ rights generally; and
(e) After giving effect to this Amendment, the representations and warranties contained in the
Credit Agreement and the other Loan Documents are true and correct in all material respects, and no
Default or Event of Default has occurred and is continuing as of the date hereof.
4. Reaffirmation of Parent Guaranty. The U.S. Borrower consents to the execution and
delivery by the Canadian Borrower of this Amendment and jointly and severally
ratify and confirm the terms of the Parent Guaranty Agreement with respect to the indebtedness
now or hereafter outstanding under the Credit Agreement as amended hereby and all promissory notes
issued thereunder. The U.S. Borrower acknowledges that, notwithstanding anything to the contrary
contained herein or in any other document evidencing any indebtedness of the Canadian Borrower to
the Lenders or any other obligation of the Canadian Borrower, or any actions now or hereafter taken
by the Lenders with respect to any obligation of the Canadian Borrower, the Parent Guaranty
Agreement (i) is and shall continue to be a primary obligation of the U.S. Borrower, (ii) is and
shall continue to be an absolute, unconditional, joint and several, continuing and irrevocable
guaranty of payment, and (iii) is and shall continue to be in full force and effect in accordance
with its terms. Nothing contained herein to the contrary shall release, discharge, modify, change
or affect the original liability of the U.S. Borrower under the Parent Guaranty Agreement.
5. Effect of Amendment. Except as set forth expressly herein, all terms of the Credit
Agreement, as amended hereby, and the other Loan Documents shall be and remain in full force and
effect and shall constitute the legal, valid, binding and enforceable obligations of the Borrowers
to the Lenders and the Administrative Agent. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power
or remedy of the Lenders under the Credit Agreement, nor constitute a waiver of any provision of
the Credit Agreement. This Amendment shall constitute a Loan Document for all purposes of the
Credit Agreement.
6. Governing Law. This Amendment shall be governed by, and construed in accordance
with, the internal laws of the State of New York and all applicable federal laws of the United
States of America.
7. No Novation. This Amendment is not intended by the parties to be, and shall not be
construed to be, a novation of the Credit Agreement or an accord and satisfaction in regard
thereto.
8. Costs and Expenses. The Borrowers agree to pay on demand all costs and expenses of
the Administrative Agent in connection with the preparation, execution and delivery of this
Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of outside
counsel for the Administrative Agent with respect thereto.
9. Counterparts. This Amendment may be executed by one or more of the parties hereto
in any number of separate counterparts, each of which shall be deemed an original and all of which,
taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed
counterpart of this Amendment by facsimile transmission or by electronic mail in pdf form shall be
as effective as delivery of a manually executed counterpart hereof.
10. Binding Nature. This Amendment shall be binding upon and inure to the benefit of
the parties hereto, their respective successors, successors-in-titles, and assigns.
11. Entire Understanding. This Amendment sets forth the entire understanding of the
parties with respect to the matters set forth herein, and shall supersede any prior negotiations or
agreements, whether written or oral, with respect thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed, under
seal in the case of the Borrowers, by their respective authorized officers as of the day and year
first above written.
| CORN PRODUCTS INTERNATIONAL, INC., as U.S. Borrower |
||||
| By: | /s/ CHERYL K. BEEBE | |||
| Name: | Cheryl K. Beebe | |||
| Title: | Vice President and Chief Financial Officer | |||
| By: | /s/ KIMBERLY A. HUNTER | |||
| Name: | Kimberly A. Hunter | |||
| Title: | Treasurer | |||
| CANADA STARCH OPERATING COMPANY INC., as Canadian
Borrower |
||||
| By: | /s/ CHERYL K. BEEBE | |||
| Name: | Cheryl K. Beebe | |||
| Title: | Vice President and Chief Financial
Officer of Corn Products International, Inc., Authorized Signatory of Canada Starch Operating Company Inc. |
|||
| By: | /s/ KIMBERLY A. HUNTER | |||
| Name: | Kimberly A. Hunter | |||
| Title: | Treasury of Corn Products International, Inc., Authorized Signatory of Canada Starch Operating Company Inc. | |||
Signature Page to First Amendment to Revolving Credit Agreement
| SUNTRUST BANK, as Lender, Administrative Agent, U.S. Issuing Bank and U.S. Swing Line Lender |
||||
| By: | /s/ JEAN-PAUL PURDY | |||
| Name: | Jean-Paul Purdy | |||
| Title: | Director | |||
Signature Page to First Amendment to Revolving Credit Agreement
| BANK OF MONTREAL, as Lender, Canadian Funding Agent,
Canadian Issuing Bank and Canadian Swing Line Lender |
||||
| By: | /s/ BEN CIALLELLA | |||
| Name: | Ben Ciallella | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| HARRIS N.A., as Lender and Syndication Agent |
||||
| By: | /s/ ROBERT H. WOLOHAN | |||
| Name: | Robert H. Wolohan | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| ING CAPITAL LLC, as Lender and Co-Documentation Agent |
||||
| By: | /s/ LINA A GARCIA | |||
| Name: | Lina A. Garcia | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| COÖPERATIEVE CENTRALE RAIFFEISEN BOERENLEENBANK B.A.,
“RABOBANK INTERNATIONAL”, NEW YORK BRANCH, as Lender and Co-Documentation Agent |
||||
| By: | /s/ PETER GLAWE | |||
| Name: | Peter Glawe | |||
| Title: | Vice President | |||
| By: | /s/ BRETT DELFINO | |||
| Name: | Brett Delfino | |||
| Title: | Executive Director | |||
| RABOBANK NEDERLAND CANADIAN BRANCH, as Lender |
||||
| By: | /s/ ROMMEL J. DOMINGO | |||
| Name: | Rommel J. Domingo | |||
| Title: | Vice President | |||
| By: | /s/ JASON HOOGENBOOM | |||
| Name: | Jason Hoogenboom | |||
| Title: | Vice president | |||
Signature Page to First Amendment to Revolving Credit Agreement
| BANK OF AMERICA, N.A. as Lender |
||||
| By: | /s/ THOMAS R. DURHAM | |||
| Name: | Thomas R. Durham | |||
| Title: | Senior Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| BANK OF CHINA, NEW YORK BRANCH, as Lender |
||||
| By: | /s/ WILLIAM W. SMITH | |||
| Name: | William W. Smith | |||
| Title: | Deputy General Manager | |||
Signature Page to First Amendment to Revolving Credit Agreement
| BANK OF CHINA, LOS ANGELES BRANCH, as Lender |
||||
| By: | /s/ XIAO WANG | |||
| Name: | Xiao Wang | |||
| Title: | Branch Manager & First Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND, as Lender |
||||
| By: | /s/ JENNIFER LYONS | |||
| Name: | Jennifer Lyons | |||
| Title: | Authorized Signatory | |||
| By: | /s/ PHILIP ALLEN | |||
| Name: | Philip Allen | |||
| Title: | Authorized Signatory | |||
Signature Page to First Amendment to Revolving Credit Agreement
| FARM CREDIT BANK OF TEXAS, as Lender |
||||
| By: | /s/ ERIC J. PAUL | |||
| Name: | Eric J. Paul | |||
| Title: | Managing Director | |||
Signature Page to First Amendment to Revolving Credit Agreement
| MIZUHO CORPORATE BANK, LTD., as Lender |
||||
| By: | /s/ HIDEKATSU TAKE | |||
| Name: | Hidekatsu Take | |||
| Title: | Deputy General Manager | |||
Signature Page to First Amendment to Revolving Credit Agreement
| NATIONAL CITY BANK OF THE MIDWEST, as Lender |
||||
| By: | /s/ MICHAEL LEONG | |||
| Name: | Michael Leong | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| U.S. BANK NATIONAL ASSOCIATION, as Lender |
||||
| By: | /s/ JAMES N. DEVRIES | |||
| Name: | James N. DeVries | |||
| Title: | Senior Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| THE BANK OF NEW YORK, as Lender |
||||
| By: | /s/ DANIEL J. LENCKOS | |||
| Name: | Daniel J. Lenckos | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| FARM CREDIT SERVICES OF AMERICA, PCA, as Lender |
||||
| By: | /s/ BRUCE P. ROUSE | |||
| Name: | Bruce P. Rouse | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| FIFTH THIRD BANK (CHICAGO), A MICHIGAN BANKING CORPORATION, as Lender |
||||
| By: | /s/ JOSEPH A. WEMHOFF | |||
| Name: | Joseph A. Wemhoff | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| GREENSTONE FARM CREDIT SERVICES, ACA/FLCA, as Lender |
||||
| By: | /s/ BEN MAHLICH | |||
| Name: | Ben Mahlich | |||
| Title: | Assistant Vice president/Lending Officer | |||
Signature Page to First Amendment to Revolving Credit Agreement
| THE NORTHERN TRUST COMPANY, as Lender |
||||
| By: | /s/ KEITH BURSON | |||
| Name: | Keith Burson | |||
| Title: | Vice President | |||
Signature Page to First Amendment to Revolving Credit Agreement
| 1ST FARM CREDIT SERVICES, PCA, as Lender |
||||
| By: | /s/ DALE A. RICHARDSON | |||
| Name: | Dale A. Richardson | |||
| Title: | VP, Illinois Capital Markets Group | |||
Signature Page to First Amendment to Revolving Credit Agreement
| THE BANK OF NOVA SCOTIA, as Lender | ||||
| By: | /s/ DANA MALONEY | |||
| Name: | Dana Maloney | |||
| Title: | Director | |||
Signature Page to First Amendment to Revolving Credit Agreement
| THE BANK OF NOVA SCOTIA — Houston Branch, as US Lender |
||||
| By: | /s/ J. F. TODD | |||
| Name: | J.F. Todd | |||
| Title: | Managing Director | |||
Signature Page to First Amendment to Revolving Credit Agreement
Exhibit 4.6
Execution Copy
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT (this “Amendment”), is made and
entered into as of December 28, 2007, by and among CORN PRODUCTS INTERNATIONAL, INC., a Delaware
corporation (the “U.S. Borrower”), CANADA STARCH OPERATING COMPANY INC., a company
constituted under the federal laws of Canada (the “Canadian Borrower”; together with the
U.S. Borrower, each individually a “Borrower” and collectively the “Borrowers”),
the several banks and other financial institutions and lenders from time to time party hereto
(collectively, the “Lenders”), BANK OF MONTREAL, as Canadian Funding Agent for the Canadian
Lenders (the “Canadian Funding Agent”), as issuing bank under the Canadian Facility (the
“Canadian Issuing Bank”) and as swing line lender under the Canadian Facility (the
“Canadian Swing Line Lender”), and SUNTRUST BANK, in its capacity as administrative agent
for the Lenders (the “Administrative Agent”), as issuing bank under the U.S. Facility (the
“U.S. Issuing Bank”) and as swing line lender under the U.S. Facility (the “U.S. Swing
Line Lender”).
WITNESSETH:
WHEREAS, the Borrowers, the Lenders, the Canadian Funding Agent and the Administrative Agent
are parties to a certain Revolving Credit Agreement, dated as of April 26, 2006, as amended by that
First Amendment to Revolving Credit Agreement dated as of October 30, 2007 (as amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”; capitalized
terms used herein and not otherwise defined shall have the meanings assigned to such terms in the
Credit Agreement), pursuant to which the Lenders have made certain financial accommodations
available to the Borrowers;
WHEREAS, the Borrowers have requested that the Lenders and the Administrative Agent amend
certain provisions of the Credit Agreement, and subject to the terms and conditions hereof, the
Lenders are willing to do so;
NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of all of
which are acknowledged, the Borrowers, the Lenders and the Administrative Agent agree as follows:
Amendments.
Section 8.5 of the Credit Agreement is hereby amended by (i) renumbering the current
subsection (v) as subsection (vi) and (ii) inserting the following new subsection (v) immediately
prior to the subsection renumbered as subsection (vi):
(v) non-recourse sales, transfers and other dispositions of accounts receivable
at discounts reflective of prevailing local market rates provided the aggregate
amount of all such sales, transfers and other dispositions of accounts
receivable in any month does not to exceed 25% of the prior month end consolidated accounts
receivable of the Borrowers and their Subsidiaries, and
Conditions to Effectiveness of this Amendment. Notwithstanding any other provision of
this Amendment and without affecting in any manner the rights of the Lenders hereunder, it is
understood and agreed that this Amendment shall not become effective, and the Borrowers shall have
no rights under this Amendment, until the Administrative Agent shall have received executed
counterparts to this Amendment from the Borrowers and the Required Lenders.
Representations and Warranties. To induce the Lenders and the Administrative Agent to
enter into this Amendment, each Loan Party hereby represents and warrants to the Lenders and the
Administrative Agent:
(a) Each Borrower and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation and has all
requisite power and authority to carry on its business as now conducted;
(b) The execution, delivery and performance by the Borrowers of this Agreement and the
other Loan Documents, and the consummation of the transactions contemplated hereby, are within each
Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do
not contravene (i) any Borrower’s charter or by-laws or (ii) any law or contractual restriction
binding on or affecting any Borrower;
(c) The execution, delivery and performance by each Borrower of this Agreement and of the
other Loan Documents to which it is a party (a) do not require any consent or approval of,
registration or filing with, or any action by, any governmental authority, except those as have
been obtained or made and are in full force and effect, (b) will not violate any requirements of
law applicable to any Borrower or any of its Subsidiaries or any judgment, order or ruling of any
governmental authority, (c) will not violate or result in a default under any indenture, material
agreement or other material instrument binding on any Borrower or any of its Subsidiaries or any of
its assets or give rise to a right thereunder to require any payment to be made by any Borrower or
any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any
asset of any Borrower or any of its Subsidiaries;
(d) This Amendment has been duly executed and delivered and constitutes a legal, valid and
binding obligation of each Borrower, enforceable against each Borrower in accordance with its terms
except as the enforceability hereof may be limited by bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors’ rights generally; and
(e) After giving effect to this Amendment, the representations and warranties contained in the
Credit Agreement and the other Loan Documents are true and correct in all material respects, and no
Default or Event of Default has occurred and is continuing as of the date hereof.
Reaffirmation of Parent Guaranty. The U.S. Borrower consents to the execution and
delivery by the Canadian Borrower of this Amendment and jointly and severally ratify and
confirm the terms of the Parent Guaranty Agreement with respect to the indebtedness now or hereafter
outstanding under the Credit Agreement as amended hereby and all promissory notes issued
thereunder. The U.S. Borrower acknowledges that, notwithstanding anything to the contrary contained
herein or in any other document evidencing any indebtedness of the Canadian Borrower to the Lenders
or any other obligation of the Canadian Borrower, or any actions now or hereafter taken by the
Lenders with respect to any obligation of the Canadian Borrower, the Parent Guaranty Agreement (i)
is and shall continue to be a primary obligation of the U.S. Borrower, (ii) is and shall continue
to be an absolute, unconditional, joint and several, continuing and irrevocable guaranty of
payment, and (iii) is and shall continue to be in full force and effect in accordance with its
terms. Nothing contained herein to the contrary shall release, discharge, modify, change or affect
the original liability of the U.S. Borrower under the Parent Guaranty Agreement.
Effect of Amendment. Except as set forth expressly herein, all terms of the Credit
Agreement, as amended hereby, and the other Loan Documents shall be and remain in full force and
effect and shall constitute the legal, valid, binding and enforceable obligations of the Borrowers
to the Lenders and the Administrative Agent. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power
or remedy of the Lenders under the Credit Agreement, nor constitute a waiver of any provision of
the Credit Agreement. This Amendment shall constitute a Loan Document for all purposes of the
Credit Agreement.
Governing Law. This Amendment shall be governed by, and construed in accordance
with, the internal laws of the State of New York and all applicable federal laws of the United
States of America.
No Novation. This Amendment is not intended by the parties to be, and shall not be
construed to be, a novation of the Credit Agreement or an accord and satisfaction in regard
thereto.
Costs and Expenses. The Borrowers agree to pay on demand all costs and expenses of
the Administrative Agent in connection with the preparation, execution and delivery of this
Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of outside
counsel for the Administrative Agent with respect thereto.
Counterparts. This Amendment may be executed by one or more of the parties hereto in
any number of separate counterparts, each of which shall be deemed an original and all of which,
taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed
counterpart of this Amendment by facsimile transmission or by electronic mail in pdf form shall be
as effective as delivery of a manually executed counterpart hereof.
Binding Nature. This Amendment shall be binding upon and inure to the benefit of the
parties hereto, their respective successors, successors-in-titles, and assigns.
Entire Understanding. This Amendment sets forth the entire understanding of the parties
with respect to the matters set forth herein, and shall supersede any prior negotiations or
agreements, whether written or oral, with respect thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed, under
seal in the case of the Borrowers, by their respective authorized officers as of the day and year
first above written.
| CORN PRODUCTS INTERNATIONAL, INC., as U.S. Borrower |
||||
| By: | /s/ CHERYL K. BEEBE | |||
| Name: | Cheryl K. Beebe | |||
| Title: | Vice President and Chief Financial Officer | |||
| By: | /s/ KIMBERLY A. HUNTER | |||
| Name: | Kimberly A. Hunter | |||
| Title: | Treasurer | |||
| CANADA STARCH OPERATING COMPANY INC., as Canadian Borrower |
||||
| By: | /s/ CHERYL K. BEEBE | |||
| Name: | Cheryl K. Beebe | |||
| Title: | Vice President and Chief Financial Officer of Corn Products International, Inc., Authorized Signatory of Canada Starch Operating Company Inc. | |||
| By: | /s/ KIMBERLY A. HUNTER | |||
| Name: | Kimberly A. Hunter | |||
| Title: | Treasury of Corn Products International, Inc., Authorized Signatory of Canada Starch Operating Company Inc. |
|||
Signature Page to Second Amendment to Revolving Credit Agreement
| SUNTRUST BANK, as Lender, Administrative Agent, U.S. Issuing Bank and U.S. Swing Line Lender |
||||
| By: | /s/ JEAN-PAUL PURDY | |||
| Name: | Jean-Paul Purdy | |||
| Title: | Director | |||
Signature Page to Second Amendment to Revolving Credit Agreement
| BANK OF MONTREAL, as Lender, Canadian Funding Agent,
Canadian Issuing Bank and Canadian Swing Line Lender |
||||
| By: | /s/ MARTIN STEVENSON | |||
| Name: | Martin Stevenson | |||
| Title: | Vice President | |||
Signature Page to Second Amendment to Revolving Credit Agreement
| HARRIS N.A., as Lender and Syndication Agent |
||||
| By: | /s/ ROBERT H. WOLOHAN | |||
| Name: | Robert H. Wolohan | |||
| Title: | Vice President | |||
Signature Page to Second Amendment to Revolving Credit Agreement
| ING CAPITAL LLC, as Lender and Co-Documentation Agent |
||||
| By: | /s/ BILL REDMOND | |||
| Name: | Bill Redmond | |||
| Title: | Managing Director | |||
Signature Page to Second Amendment to Revolving Credit Agreement
| COÖPERATIEVE CENTRALE RAIFFEISEN BOERENLEENBANK B.A.,
“RABOBANK INTERNATIONAL”, NEW YORK BRANCH, as Lender
and Co-Documentation Agent |
||||
| By: | /s/ PETER GLAWE | |||
| Name: | Peter Glawe | |||
| Title: | Vice President | |||
| By: | /s/ ANDREW SHERMAN | |||
| Name: | Andrew Sherman | |||
| Title: | Executive Director | |||
| RABOBANK NEDERLAND CANADIAN BRANCH, as Lender |
||||
| By: | /s/ CRAIG SQUIRES | |||
| Name: | Craig Squires | |||
| Title: | Vice President | |||
| By: | /s/ JASON HOOGENBOOM | |||
| Name: | Jason Hoogenboom | |||
| Title: | Vice President | |||
| AGFIRST FARM CREDIT BANK, as Lender and
Co-Documentation Agent |
||||
| By: | /s/ JOHN W. BURNSIDE, JR. | |||
| Name: | John W. Burnside, Jr. | |||
| Title: | Vice President | |||
| BANK OF AMERICA, N.A. as Lender |
||||
| By: | /s/ ROBERT STAPLETON | |||
| Name: | Robert Stapleton | |||
| Title: | Senior Vice President | |||
| BANK OF CHINA, NEW YORK BRANCH, as Lender |
||||
| By: | /s/ WILLIAM W. SMITH | |||
| Name: | William W. Smith | |||
| Title: | Deputy General Manager | |||
| BANK OF CHINA, LOS ANGELES BRANCH, as Lender |
||||
| By: | /s/ XIAO WANG | |||
| Name: | Xiao Wang | |||
| Title: | Branch Manager | |||
| THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND, as Lender |
||||
| By: | /s/ JENNIFER LYONS | |||
| Name: | Jennifer Lyons | |||
| Title: | Authorised Signatory | |||
| By: | /s/ ELAINE CROWLEY | |||
| Name: | Elaine Crowley | |||
| Title: | Authorised Signatory | |||
| COBANK, ACB, as Lender |
||||
| By: | /s/ JEFF NORTE | |||
| Name: | Jeff Norte | |||
| Title: | VP | |||
| FARM CREDIT BANK OF TEXAS, as Lender |
||||
| By: | /s/ ERIC J. PAUL | |||
| Name: | Eric J. Paul | |||
| Title: | Managing Director | |||
| LASALLE BANK N.A., as Lender |
||||
| By: | /s/ ROBERT STAPLETON | |||
| Name: | Robert Stapleton | |||
| Title: | Senior Vice President | |||
| MIZUHO CORPORATE BANK, LTD., as Lender |
||||
| By: | /s/ HIDEKATSU TAKE | |||
| Name: | Hidekatsu Take | |||
| Title: | Deputy General Manager | |||
| NATIONAL CITY BANK OF THE MIDWEST, as Lender |
||||
| By: | /s/ MICHAEL LEONG | |||
| Name: | Michael Leong | |||
| Title: | Vice President | |||
| U.S. BANK NATIONAL ASSOCIATION, as Lender |
||||
| By: | /s/ JAMES N. DEVRIES | |||
| Name: | James N. DeVries | |||
| Title: | Senior Vice President | |||
| THE BANK OF NEW YORK, as Lender |
||||
| By: | /s/ DANIEL J. LENCKOS | |||
| Name: | Daniel J. Lenckos | |||
| Title: | Vice President | |||
| FARM CREDIT SERVICES OF AMERICA, PCA, as Lender |
||||
| By: | /s/ BRUCE P. ROUSE | |||
| Name: | Bruce P. Rouse | |||
| Title: | Vice President | |||
| FIFTH THIRD BANK (CHICAGO), A MICHIGAN BANKING
CORPORATION, as Lender |
||||
| By: | /s/ JOSEPH A. WEMHOFF | |||
| Name: | Joseph A. Wemhoff | |||
| Title: | Vice President | |||
| GREENSTONE FARM CREDIT SERVICES, ACA/FLCA, as Lender |
||||
| By: | /s/ BEN MAHLICH | |||
| Name: | Ben Mahlich | |||
| Title: | Assistant Vice President/Lending Officer | |||
| THE NORTHERN TRUST COMPANY, as Lender |
||||
| By: | /s/ KEITH BURSON | |||
| Name: | Keith Burson | |||
| Title: | Vice President | |||
| WELLS FARGO BANK, N.A., as Lender |
||||
| By: | /s/ DANIEL R. VAN ALEN | |||
| Name: | Daniel R. Van Alen | |||
| Title: | Vice President | |||
| 1ST FARM CREDIT SERVICES, PCA, as Lender |
||||
| By: | /s/ DALE A RICHARDSON | |||
| Name: | Dale A. Richardson | |||
| Title: | VP Illinois Capital Markets Group | |||
| THE BANK OF NOVA SCOTIA, as Lender |
||||
| By: | /s/ PAUL ROSTRUP | |||
| Name: | Paul Rostrup | |||
| Title: | Senior Manager | |||
| THE BANK OF NOVA SCOTIA, as Lender |
||||
| By: | /s/ J.F. TODD | |||
| Name: | J. F. Todd | |||
| Title: | Managing Director | |||
Signature Page to Second Amendment to Revolving Credit Agreement
Exhibit 10.7
CORN PRODUCTS INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1998
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 20011
| 1 | As amended by Amendment No. 1 (adopted September 16, 2007) and Amendment No. 2 (adopted November 18, 2007). |
FOREWORD
Effective as of January 1, 1998, Corn Products International, Inc. has adopted the Corn Products
International, Inc. Supplemental Executive Retirement Plan (the “Plan”) for the benefit of certain
of its Key Executives.
The purposes of the Plan are (a) to permit certain Key Executives to defer payment of a portion of
current compensation, including short and long term performance bonus payments, until a later year,
and (b) to provide Participants and their beneficiaries with the amount of retirement income that
is not provided under the Corn Products International, Inc. Cash Balance Plan for Salaried
Employees and the Corn Products International, Inc. Retirement Savings Plan by reason of limits on
recognized compensation required by Sections 401(a)(17), 402(g) and 415 of the Internal Revenue
Code of 1986, as amended, and by reason of elective compensation deferrals under this Plan.
It is intended that the Plan be a deferred compensation plan for “a select group of management or
highly compensated employees,” as that term is used in the Employee Retirement Income Security Act
of 1974, as amended.
2
SECTION ONE
Definitions
| 1.1 | Except to the extent otherwise indicated herein, and except to the extent otherwise inappropriate in the context, the definitions contained in the Cash Balance Plan or Savings Plan are applicable under the Plan. | |
| 1.2 | “Accounts” means the Cash Balance Plan Make-up Account, the Annual Deferral Account, the Prior Plan Account, the Savings Plan Make-up Account, the Performance Plan Account and the Annual Incentive Plan (AIP) Account. | |
| 1.3 | “AIP Account” means the bookkeeping Account established under Section 3.5 on behalf of a Participant, and includes any deemed investment earnings credited thereon. | |
| 1.4 | “Annual Deferral Account” means the bookkeeping Account established under Section 3.1 established on behalf of a Participant, and includes any deemed investment earnings credited thereon. | |
| 1.5 | “Annual Deferred Compensation” means the amount of a Key Executive’s Compensation that such Key Executive has deferred until a later year pursuant to an election under Section 2.2 of this Plan. | |
| 1.6 | “Base Salary Threshold” means, as of November 15, 1997, $160,000. As of each subsequent November 15, the Base Salary Threshold shall be redetermined as the annual limit (as of such November 15) in effect under Section 401(a)(17) of the Code. | |
| 1.7 | “Board of Directors” means the Board of Directors of the Corporation. | |
| 1.8 | “Cash Balance Plan” means the Corn Products International, Inc. Cash Balance Plan for Salaried Employees. | |
| 1.9 | “Cash Balance Plan Make-up Account” means the bookkeeping Account established under Section 3.2 established on behalf of a Participant, and includes any deemed investment earnings credited thereon. | |
| 1.10 | “Code” means the Internal Revenue Code of 1986, as amended. Any reference to any Code Section shall also mean any successor provision thereto. | |
| 1.11 | “Committee” means the Pension Committee established by the Board of Directors. | |
| 1.12 | “Common Stock” means common stock of Corn Products International, Inc. | |
| 1.13 | “Compensation” means a Participant’s base pay plus short-term incentive bonuses as paid, prior to reduction for (a) his or her Annual Deferred Compensation election and Annual Incentive Plan deferral election under this Plan, (b) pre-tax contributions under the Savings Plan and (c) any pre-tax contributions to a cafeteria plan under Section 125 of the Code, which is in excess of Limited Compensation. | |
| 1.14 | “Corporation” means Corn Products International, Inc. and any successor to such corporation by merger, purchase or otherwise. | |
| 1.15 | “Employer” means the Corporation and any other corporation adopting the Plan in accordance with Section 5.3 hereof. |
3
| 1.16 | “Fair Market Value” means the closing price of a share of Common Stock on the New York Stock Exchange on the date of the determination thereof, as reported in The Wall Street Journal as New York Stock Exchange Composite Transactions. | |
| 1.17 | “Key Executive” means an executive employed by the Corporation who is designated by the Vice President of Human Resources of the Corporation. | |
| 1.18 | “Limited Compensation” is the smaller of the limit on pensionable compensation specified by Section 401(a)(17) of Code (including adjustments for changes in the cost of living as prescribed by the Code), or Compensation earned prior to the time the Participant reaches the limit on elective deferrals to the Savings Plan specified by Section 402(g) of the Code (including adjustments for changes in the cost of living as prescribed by the Code). | |
| 1.19 | “Participant” means a Participant in the Plan who has satisfied the eligibility requirements of and is participating in the Plan under Section 2.1 of the Plan. | |
| 1.20 | “Performance Plan Account” means the bookkeeping Account established under Section 3.6 on behalf of a Participant and includes any deemed investment earnings credited thereon. | |
| 1.21 | “Plan” means the Corn Products International, Inc. Supplemental Executive Retirement Plan as from time to time amended. | |
| 1.22 | “Prime Rate” means the prime rate as published in the Wall Street Journal Midwest edition showing such rate in effect as of the first business day of each calendar quarter. | |
| 1.23 | “Prior Plan Account” means the bookkeeping Account established under Section 3.4 on behalf of a Participant to reflect the amounts accrued by such Participant under the Prior Savings Plan as of December 31, 1997, and includes any deemed investment earnings credited thereon. “Prior Plan Deferred Account” means the portion of the Prior Plan Account attributable to the Participant’s deferrals plus deemed investment earnings thereon; and “Prior Plan Company Account” means the portion of the Prior Plan Account attributable to company credits plus deemed investment earnings thereon. | |
| 1.24 | “Prior Savings Plan” means the CPC International Inc. Excess Savings Plan. | |
| 1.25 | “Prior SERP” means the CPC International Inc. Excess Benefit Plan. | |
| 1.26 | “Savings Plan” means the Corn Products International, Inc. Retirement Savings Plan. | |
| 1.27 | “Savings Plan Make-up Account” means the bookkeeping Account established under Section 3.3 established on behalf of a Participant, and includes any deemed investment earnings credited thereon. | |
| 1.28 | “Stock Unit” means a phantom unit corresponding to one share of Common Stock in which a Participant’s Account is deemed invested. |
SECTION TWO
Eligibility and Participation
| 2.1 | Eligibility and Participation | |
| Participation in the Annual Deferral Account portion of the Plan shall be limited to Key Executives. For purposes of participation as of January 1, 1998, the group of eligible Key Executives is limited to employees of the Corporation whose 1997 base pay plus 1997-paid short |
4
term bonuses from CPC International Inc. equaled at least the Base Salary Threshold as of
November 15, 1997.
If first employed by the Corporation after January 1, 1998, a Key Executive shall be
eligible to participate in the Annual Deferral Account portion of the Plan as of the first
of the month following one full calendar month of employment if his or her base salary plus
short-term bonus for the balance of the first calendar year of employment is expected to
equal at least the annual limit (as of such date of employment) under Section 401(a)(17) of
the Code, subject to approval of the Vice President of Human Resources of the Corporation.
Key Executives who have never participated under the Plan but whose base pay plus short
term bonus paid in any calendar year equals at least the Base Salary Threshold for such
year shall be eligible to participate in the Annual Deferral Account as of the following
January 1.
Key Executives who elect to participate in the Annual Deferral Account shall continue to be
eligible to make deferral elections in future years, notwithstanding their base salary as
of a November 15 falling below the Base Salary Threshold for Key Executives who have never
participated in the Plan.
Active participation in the Cash Balance Plan Make-up Account for any calendar year shall
be limited to Key Executives who make deferral elections for such year, or employees whose
benefits under the Cash Balance Plan are reduced by the limits on compensation or benefits
imposed by Sections 401(a)(17) or 415 of the Code.
Active participation in the Savings Plan Make-up Account for any calendar year shall be
limited to Key Executives who make deferral elections for such year and whose benefits
under the Savings Plan are reduced by the limits on compensation imposed by Section
401(a)(17) or Section 415 of the Code, or by a deferral election made under Section 2.2 of
this Plan.
Persons who have amounts transferred from the Prior Savings Plan to this Plan, as provided
in Section 3.4, shall be eligible for participation with respect to amounts held in their
Prior Plan Accounts hereunder.
Active participation in the Performance Plan Account portion of the Plan shall be limited
to Key Executives who elect to defer payment of Performance Plan Awards for which they are
eligible under the Corn Products International, Inc. Performance Plan or the Corn Products
International, Inc. Stock Incentive Plan. Designation as a Key Executive for purposes of
participation in the Performance Plan Account in a given year does not ensure or otherwise
entitle a Participant to such a designation in subsequent years.
Active participation in the AIP Account portion of the Plan shall be limited to Key
Executives who elect to defer payment of Annual Incentive Payments for which they are
eligible under the Corn Products International, Inc. Annual Incentive Plan. Designation as
a Key Executive for purposes of participation in the AIP Account in a given year does not
ensure or otherwise entitle a Participant to such a designation in subsequent years.
| 2.2 | Deferral Election |
| Annual Deferred Compensation elections shall be made only by Key Executives and shall be on forms furnished by the Committee. An Annual Deferred Compensation election shall apply only to Compensation paid in the particular year specified in the election. Key Executives shall specify the percentage of such Compensation to be deferred under the election, which percentage may not exceed 20%. | |
| An Annual Deferred Compensation election with respect to Compensation for a particular calendar year (a) must be made before January 1 of such calendar year (or prior to participation in |
5
the Plan if the Key Executive becomes eligible to participate during the calendar year),
(b) must specify (from the available alternatives, which shall include a lump sum option)
the date such Annual Deferred Compensation, plus deemed investment earnings, is to be paid
(or commence to be paid) and, the distribution date for a lump sum or first distribution
date if the form of distribution selected is installments must be a date which is at least
six months following separation from service and if the form of distribution selected is
annual installments, the number of annual installments (not to exceed 5 years) in which
such Annual Deferred Compensation, plus deemed investment earnings, is to be paid must be
designated, and (c) shall be irrevocable as of the latest time at which such selection
could be made in compliance with Section 409A of the Code.
In the case of a Key Executive who is eligible to participate in this Plan under Section
2.1 as of one month following the date on which his or her employment with the Corporation
commences, any Annual Deferred Compensation election must be made within 30 days of
employment and will apply to Compensation earned from the date of such election through the
end of that calendar year.
Elections to defer payment of Performance Plan Awards earned under the Corn Products
International, Inc. Performance Plan or the Corn Products International, Inc. Stock
Incentive Plan shall only be made by Key Executives and shall be on forms furnished by the
Committee. A Performance Plan Award deferral election shall apply only to the Performance
Plan Award Cycle specified in the election. Key Executives shall specify the amount of the
Performance Plan Award they elect to defer in 10% increments (minimum 10%). The deferral
election must be made no later than six months preceding the end of the applicable
performance period. The deferral election must include a selection from the available
distribution alternatives of a date and form of distribution of the deferred Performance
Plan Award plus deemed investment earnings. One form of distribution shall be a lump sum.
The distribution date for a lump sum or first distribution date if the form of distribution
selected is installments must be a date which is at least six months following separation
from service and if the form of distribution selected is annual installments, the number of
annual installments (not to exceed 5 years) must be designated. Once the form of
distribution is selected, it shall be irrevocable as of the latest time at which such
selection could be made in compliance with Section 409A of the Code.
Elections to defer payment of Annual Incentive Plan Awards earned under the Corn Products
International, Inc. Annual Incentive Plan shall only be made by Key Executives and shall be
on forms furnished by the Committee. An Annual Incentive Plan Award deferral election shall
apply only to the Plan Year specified in the election. Key Executives shall specify the
amount of the Annual Incentive Plan Award they elect to defer in 10% increments (minimum
10%). The deferral election must be made no later than 30 days after approval by the Board
of Directors of the Annual Incentive Plan for the Plan Year for which the election is being
made, provided, however, that the deferral election must in any event be made no later than
six months preceding the end of the applicable performance period. The deferral election
must include a selection from the available distribution alternatives of a date and form of
distribution of the deferred Annual Incentive Plan Award plus deemed investment earnings.
One form of distribution shall be a lump sum. The distribution date for a lump sum or first
distribution date if the form of distribution selected is installments must be a date which
is at least six months following separation from service and if the form of distribution
selected is annual installments, the number of annual installments (not to exceed 5 years)
must be designated. Once the form of distribution is selected, it shall be irrevocable as
of the latest time at which such selection could be made in compliance with Section 409A of
the Code.
6
SECTION THREE
Accounts
| 3.1 | Annual Deferral Account | |
| The aggregate of the amounts of Annual Deferred Compensation and deemed investment earnings on such amounts shall be paid to the Participant or his or her beneficiary, as applicable, from the general assets of the Corporation in accordance with this Plan and related election forms. Deemed investment earnings with respect to Annual Deferred Compensation shall be credited monthly at the monthly compound equivalent of the Prime Rate or other deemed investment earnings measurements, including, but not limited to, the increase or decrease in the Fair Market Value of Stock Units in a Corn Products International, Inc. Phantom Stock Unit investment option administered according to Section 4, as the Committee, in its sole discretion, permits and as is elected by each Participant to be the deemed investment measurement to be used for this bookkeeping Account. Such election of the deemed investment earnings measurement shall be made at times and according to administrative procedures established by the Committee. A bookkeeping Account shall be maintained for each Participant to record the amount of such Annual Deferred Compensation and deemed investment earnings thereon. Participants shall be 100 percent vested in all of their Annual Deferral Accounts. | ||
| Separate bookkeeping Accounts may be maintained for Annual Deferred Compensation for each Participant for each calendar year, plus deemed investment earnings with respect to such Annual Deferred Compensation, as may be necessary in order to facilitate calculation upon distribution. | ||
| 3.2 | Cash Balance Plan Make-up Account | |
| A bookkeeping Account shall be established on behalf of each Participant in the Plan which, at any time, shall yield a benefit equal to the benefit as of such date that would have accrued under the Cash Balance Plan had (a) the Participant not elected to defer Compensation under Section 2.2 of this Plan, and (b) limits on benefits or Compensation imposed by Sections 415 or 401(a)(17) of the Code not applied to the Participant under the Cash Balance Plan. | ||
| In addition, the following employees shall receive an additional annual pay credit as indicated below, applied to their total eligible Compensation as such is defined in the Cash Balance Plan, but without reflecting the limits of Section 401(a)(17) of the Code: |
| Employee | Additional Percentage | |||
Beebe, C. |
1.37 | % | ||
Fortnam, J. |
2.11 | % | ||
Hirchak, J.J. |
0.81 | % | ||
Ripley, J. |
4.72 | % | ||
Scott III, S. |
7.39 | % | ||
The beginning balance as of January 1, 1998 under this Account, if any, shall be determined
in accordance with the Opening Balance under the Cash Balance Plan as if the earned benefit
under the Prior SERP as of December 31, 1997 were the “Accrued Benefit as of December 31,
1997 under the Prior Plan” as such is defined in the Cash Balance Plan.
A Participant shall be vested in his or her Cash Balance Plan Make-up Account to the extent
that such Participant is vested in his or her Cash Balance Plan Account balance.
7
| 3.3 | Savings Plan Make-up Account | |
| A bookkeeping Account shall be established on behalf of each Participant in the Plan, which shall be credited with the excess, if any, of (a) the amount of employer matching and profit sharing contributions which would have been made on behalf of such Participant had the Participant’s Deferred Compensation been contributed to the Savings Plan (without regard to any refunds of Participant contributions required under the Code, or the effects of Sections 401(a)(17), 402(g) or 415 of the Code), over (b) actual employer matching and profit sharing contributions to the Savings Plan on behalf of such Participant. | ||
| The Savings Plan Make-up Account shall be credited monthly with deemed investment earnings at the monthly compound equivalent of the Prime Rate or other deemed investment earnings measurements, including, but not limited to, the increase or decrease in the Fair Market Value of Stock Units in a Corn Products International, Inc. Phantom Stock Unit investment option administered according to Section 4, as the Committee, in its sole discretion, permits and as is elected by each Participant to be the deemed investment measurement to be used for this bookkeeping Account. Such election of the deemed investment earnings measurement shall be made at times and according to administrative procedures established by the Committee. A Participant is vested in his or her Savings Plan Make-up Account to the extent that such Participant is vested in his or her Savings Plan matching and profit sharing contributions. | ||
| 3.4 | Prior Plan Account | |
| A Prior Plan Deferred Account shall be established for each Participant in the Prior Savings Plan who becomes a Participant on January 1, 1998, equal in initial value to the amounts held under the Prior Savings Plan as of December 31, 1997 attributable to employee deferrals under the Prior Savings Plan plus deemed investment earnings thereon through December 31, 1997. The Prior Plan Deferred Account shall be credited monthly with deemed investment earnings at the monthly compound equivalent of the Prime Rate or other deemed investment earnings measurements, including, but not limited to, the increase or decrease in the Fair Market Value of Stock Units in a Corn Products International, Inc. Phantom Stock Unit investment option administered according to Section 4, as the Committee, in its sole discretion, permits and as is elected by each Participant to be the deemed investment measurement to be used for this bookkeeping Account. Such election of the deemed investment earnings measurement shall be made at times and according to administrative procedures established by the Committee. Participants shall be 100 percent vested in any Prior Plan Deferred Account. | ||
| A Prior Plan Company Account shall be established for each Participant in the Prior Savings Plan who becomes a Participant on January 1, 1998, equal in initial value to the amounts held under the Prior Savings Plan as of December 31, 1997 attributable to company credits under the Prior Savings Plan plus deemed investment earnings thereon through December 31, 1997. The Prior Plan Company Account shall be credited monthly with deemed investment earnings at the monthly compound equivalent of the Prime Rate or other deemed investment earnings measurements, including, but not limited to, the increase or decrease in the Fair Market Value of Stock Units in a Corn Products International, Inc. Phantom Stock Unit investment option administered according to Section 4, as the Committee, in its sole discretion, permits and as is elected by each Participant to be the deemed investment measurement to be used for this bookkeeping Account. Such election of the deemed investment earnings measurement shall be made at times and according to administrative procedures established by the Committee. Participants shall be 100 percent vested in any Prior Plan Company Account. | ||
| 3.5 | AIP Account | |
| A bookkeeping Account shall be established on behalf of each Participant who has made an election to defer payment of Annual Incentive Plan Awards in accordance with this Plan and related election forms to record the amount of such deferred Annual Incentive Plan Awards and |
8
| deemed investment earnings thereon. The aggregate of the amounts of deferred Annual Incentive Plan awards and deemed investment earnings on such amounts shall be paid to the Participant or his or her beneficiary, as applicable, from the general assets of the Corporation in accordance with this Plan and related election forms. The Annual Incentive Plan Account shall be credited monthly with deemed investment earnings at the monthly compound equivalent of the Prime Rate or other deemed investment earnings measurements, including, but not limited to, the increase or decrease in the Fair Market Value of Stock Units in a Corn Products International, Inc. Phantom Stock Unit investment option administered according to Section 4, as the Committee, in its sole discretion, permits and as is elected by each Participant to be the deemed investment measurement to be used for this bookkeeping Account. Such election of the deemed investment earnings measurement shall be made at times and according to administrative procedures established by the Committee. Participants shall be 100 percent vested in their AIP Account. | ||
| Separate bookkeeping Accounts may be maintained for Annual Incentive Plan Award deferrals for each Participant for each calendar year plus deemed investment earnings with respect to each such deferral, as may be necessary in order to facilitate calculation upon distribution. | ||
| 3.6 | Performance Plan Account | |
| A bookkeeping Account shall be established on behalf of each Participant who has made an election to defer payment of Performance Plan Awards in accordance with this Plan and related election forms to record the amount of such deferred Performance Plan Awards and deemed investment earnings thereon. The aggregate of the amounts of deferred Performance Plan Awards and deemed investment earnings on such amounts shall be paid to the Participant or his or her beneficiary, as applicable, from the general assets of the Corporation in accordance with this Plan and related election forms. The Performance Plan Account shall be credited monthly with deemed investment earnings at the monthly compound equivalent of the Prime Rate or other deemed investment earnings measurements, including, but not limited to, the increase or decrease in the Fair Market Value of Stock Units in a Corn Products International, Inc. Phantom Stock Unit investment option administered according to Section 4, as the Committee, in its sole discretion, permits and as is elected by each Participant to be the deemed investment measurement to be used for this bookkeeping Account. Such election of the deemed investment earnings measurement shall be made at times and according to administrative procedures established by the Committee. Participants shall be 100 percent vested in their Performance Plan Account. | ||
| Separate bookkeeping Accounts may be maintained for Performance Plan Award deferrals for each Participant for each Performance Plan Award Cycle plus deemed investment earnings with respect to each such deferral, as may be necessary in order to facilitate calculation upon distribution. |
SECTION FOUR
Deemed Investment Options
| 4.1 | Corn Products International, Inc. Phantom Stock Unit Option | |
| Participants may elect to participate in the Corn Products International, Inc. Phantom Stock Unit Option at any time, using the forms and procedures established by the Committee. Any portion or all of any of the balances of the bookkeeping Accounts maintained on behalf of Participants pursuant to this Plan or any portion or all of any new deferrals may be “invested” in this option. Deemed balances or deferrals “invested” in this option will maintain their separate Account character with respect to distribution selections regarding the timing and form of the distribution. All distributions from this option will be in whole shares of Common Stock as determined by the whole number of Stock Units credited to the Participant at the time of distribution. Fractional |
9
Stock Units will be converted to a cash equivalent by multiplying the fractional Stock
Units by the Fair Market Value on the particular distribution date and will be distributed
as a cash payment.
All elections to “invest” existing Account balances or deferrals into this option are
irrevocable. Balances may not be transferred out of this option.
All amounts transferred into or deferred directly into this option shall be deemed to be
invested in Common Stock in the form of Stock Units. The number of Stock Units which shall
be credited to a Participant’s Account in respect of amounts transferred or deferred shall
be equal to the amount transferred or deferred divided by the Fair Market Value of a share
of Common Stock on the effective date of the transfer or deferral or, if such is date is
not a trading day for the New York Stock Exchange, then on the first trading day after such
date of transfer or deferral.
As of the date on which dividends are paid on the shares of Common Stock, the Company shall
credit to each Participant with a balance “invested” in this option additional Stock Units,
the number of which shall be determined by multiplying the amount of such dividends per
share of Common Stock by the number of Stock Units then credited to the Participant and
dividing the product thereof by the Fair Market Value of a share of Common Stock on the
applicable dividend payment date.
SECTION FIVE
Payment of Benefits
| 5.1 | No In-Service Withdrawals | |
| No withdrawals, including loans, may be allowed from the Plan for any reason while the Participant is still employed by the Corporation; however, reemployment of a Participant shall not suspend the payment of any benefits hereunder. | ||
| 5.2 | Payment of Annual Deferral Account | |
| Except as provided in Section 5.8 below, payment of benefits from a Participant’s Annual Deferral Account shall be made in accordance with the Annual Deferred Compensation deferral elections made at the time the Participant elects to defer Compensation hereunder. A separate Annual Deferred Compensation election shall govern each year’s Annual Deferred Compensation deferral and deemed investment earnings on such Annual Deferred Compensation attributable to any year. The terms of these Annual Deferred Compensation elections dealing with the timing and form of payment may be changed prospectively from year to year by the Committee, but a selection made by a Participant as to the timing and form of a distribution from the Annual Deferral Account with respect to a particular year is irrevocable as of the latest time at which such selection could be made in compliance with Section 409A of the Code. Until the distribution of the full value of a Participant’s Annual Deferral Account, the undistributed portion of such Account will continue to be credited with deemed investment earnings pursuant to Section 3.1 of the Plan. | ||
| 5.3 | Payment of Cash Balance Plan Make-up Account | |
| Effective for distributions commencing prior to January 1, 2008: Except as provided in Section 5.8 below, distributions from the Cash Balance Plan Make-up Account shall be made in the same form and at the same time as benefit payments made under the Cash Balance Plan or in accordance with an election made on a form furnished by the Committee. Until the distribution of the full value of a Participant’s Cash Balance Make-up Account, the undistributed portion of such Account will continue to be credited with deemed investment earnings pursuant to Section 3.2 of the Plan. |
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| Effective for distributions commencing on or after January 1, 2008: Distributions from a Participant’s Cash Balance Plan Make-up Account shall be made in accordance with the election made by the Participant in the form and manner prescribed by the Company, subject to Section 5.8 and the other limitations set forth below. Such distribution election must be made by the Participant (a) prior to January 1, 2008 in the case of a Participant who has an account balance on such date, and (b) in the case of any other Participant, prior to the calendar year in which such Participant becomes eligible to receive credits to such Participant’s Cash Balance Plan Make-up Account. Notwithstanding anything herein to the contrary, in the case of a Participant who does not make an election as specified in the immediately preceding sentence, such Participant’s Cash Balance Plan Make-Up Account shall be distributed in the form of a lump sum on the later of (a) the date on which such Participant attains age 60, (b) the date on which such Participant terminates employment and (c) June 30, 2008. | ||
| 5.4 | Payment of Savings Plan Make-up Account | |
| Effective for distributions commencing prior to January 1, 2008: Except as provided in Section 5.8 below, distributions from the Savings Plan Make-up Account shall be made in the same form and at the same time as benefit payments made under the Savings Plan after termination of employment or in accordance with an election made on a form furnished by the Committee. However, if the Participant elects an annuity distribution under the Savings Plan, he or she shall receive his Savings Plan Make-up Account in a single sum, subject to any election made on a form furnished by the Committee. Until the distribution of the full value of a Participant’s Savings Plan Make-up Account, the undistributed portion of such Account will continue to be credited with deemed investment earnings pursuant to Section 3.3 of the Plan. | ||
| Effective for distributions commencing on or after January 1, 2008: Distributions from a Participant’s Savings Plan Make-up Account shall be made in accordance with the election made by the Participant, subject to Section 5.8 and the other limitations set forth below. Such distribution election must be made by the Participant in the form and manner prescribed by the Company (a) prior to January 1, 2008 in the case of a Participant who has an account balance on such date, and (b) in the case of any other Participant, prior to the calendar year in which such Participant becomes eligible to receive credits to such Participant’s Savings Plan Make-up Account. Notwithstanding anything herein to the contrary, in the case of a Participant who does not make an election as specified in the immediately preceding sentence, such Participant’s Savings Plan Make-Up Account shall be distributed in the form of a lump sum on the later of (a) the date on which such Participant attains age 60, (b) the date of such Participant’s separation from service and (c) June 30, 2008. | ||
| 5.5 | Payment of Prior Plan Account | |
| Effective for distributions commencing prior to January 1, 2008: Except as provided in Section 5.8 below, distributions from the Prior Plan Account shall be payable pursuant to the selection made in writing by the Participant no later than the Participant’s termination date. Such selection shall be irrevocable as of the latest time at which such selection could be made in compliance with Section 409A of the Code and be made on forms and pursuant to procedures specified by the Committee. The Participant shall have the option to select to receive the value of the Prior Plan Account in one cash lump sum or payable in essentially equal annual installments over a specified number of years; provided, however, (i) that no distribution may commence sooner than the first anniversary of the Participant’s termination date; (ii) distribution must commence no later than the fifth anniversary of the Participant’s termination date; and (iii) full distribution of the Participant’s Prior Plan Account must be completed no later than the tenth anniversary of such termination date. If a Participant dies prior to receiving a complete distribution of the balance of the Prior Plan Account, the undistributed portion of such Account will be paid in one cash lump sum as soon as is practicable to the named beneficiary under the Plan. Until the distribution of the full value of a |
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| Participant’s Prior Plan Account, the undistributed portion of such Account will continue to be credited with deemed investment earnings pursuant to Section 3.4 of the Plan. | ||
| Effective for distributions commencing on or after January 1, 2008: Distributions from a Participant’s Prior Plan Account shall be made in accordance with the election made by the Participant, subject to Section 5.8 and the other limitations set forth below. Such distribution election must be made by the Participant in the form and manner prescribed by the Company prior to January 1, 2008. Notwithstanding anything herein to the contrary, in the case of a Participant who does not make an election as specified in the immediately preceding sentence, such Prior Plan Account shall be distributed in the form of a lump sum on the later of (a) the first anniversary of such Participant’s separation from service and (b) June 30, 2008. | ||
| 5.6 | Payment of AIP Account | |
| Except as provided in Section 5.8 below, distributions from the AIP Account will be made in accordance with the selections the Participant made at the time the Annual Incentive Plan Award was deferred. A separate deferral election form shall govern each Annual Incentive Plan year and deemed investment earnings thereon. The terms of these deferral election agreements dealing with the timing and form of payment may be changed prospectively from year to year by the Committee, but once a selection is made by a Participant as to the timing and form of a distribution from the AIP Account with respect to a particular year, such selection is irrevocable as of the latest time at which such selection could be made in compliance with Section 409A of the Code. Until the distribution of the full value of a Participant’s AIP Account, the undistributed portion of such Account will continue to be credited with deemed investment earnings pursuant to Section 3.5 of the Plan. | ||
| 5.7 | Payment of Performance Plan Account | |
| Except as provided in Section 5.8 below, distributions from the Performance Plan Account will be made in accordance with the selections the Participant made at the time the Performance Plan Award was deferred. A separate deferral election form shall govern each Performance Plan Award Cycle and deemed investment earnings thereon. The terms of these deferral election agreements dealing with the timing and form of payment may be changed prospectively from Cycle to Cycle by the Committee, but once a selection is made by a Participant as to the timing and form of a distribution from the Performance Plan Account with respect to a particular Cycle, such selection is irrevocable as of the latest time at which such selection could be made in compliance with Section 409A of the Code. Until the distribution of the full value of a Participant’s Performance Plan Account, the undistributed portion of such Account will continue to be credited with deemed investment earnings pursuant to Section 3.6 of the Plan. | ||
| 5.8 | Lump Sum Distributions of Smaller Benefits | |
| Notwithstanding anything herein to the contrary: |
| (a) | If the aggregate value of a Participant’s Cash Balance Plan Make-up Account, Savings Plan Make-up Account, and Prior Plan Account is less than $10,000, the Participant or his or her beneficiary shall receive benefits from such Accounts under this Plan in the form of a single lump sum payment six months after the Participant’s termination of employment, without regard to distribution selections made under the Cash Balance Plan or Savings Plan (effective prior to January 1, 2008) and without regard to distribution elections made with respect to such Accounts. | ||
| (b) | If the aggregate value of a Participant’s Annual Deferral Account, AIP Account and Performance Plan Account is less than $10,000, the Participant or his or her beneficiary shall receive benefits from such Account under this Plan in the form of a single lump sum |
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| payment six months after termination of employment, without regard to distribution selections made under such Accounts. |
| 5.9 | Beneficiaries | |
| The Participant’s beneficiary under this Plan with respect to his or her Accounts shall be the person or persons designated as beneficiary by the Participant by filing with the Committee a written beneficiary designation on a form provided by, and acceptable to, such Committee. In the event the Participant does not make an effective designation of a beneficiary with respect to his or her Accounts (or any one of them), the Participant’s beneficiary with respect to his or her Accounts shall be such Participant’s beneficiary under the Savings Plan. | ||
| 5.10 | Termination of the Cash Balance Plan or Savings Plan | |
| In the event that the Cash Balance Plan is terminated, payments from the Cash Balance Plan Make-up Account shall continue to be paid in accordance with Section 5.3 hereof. | ||
| In the event that the Savings Plan is terminated, payments from the Savings Plan Make-up Account shall continue to be paid in accordance with Section 5.4 hereof. | ||
| 5.11 | Tax Withholding | |
| The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to a distribution of benefits hereunder, payment by the recipient of such distribution of any Federal, state, local or other taxes which may be required to be withheld or paid in connection with such distribution. With respect to the withholding obligation attributable to a distribution of shares of Common Stock from the Phantom Stock Unit Option, at the election of the recipient (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered to a recipient, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with such distribution (the “Tax Date”), in the amount necessary to satisfy such obligation or (ii) the recipient may satisfy such obligation by any of the following means: (A) a cash payment to the Company, (B) delivery (either actual delivery or by attestation procedures established by the Company) to the Company of shares of previously-acquired shares of Common Stock, for which the recipient has good title, free and clear of all liens and encumbrances, having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy such obligation, (C) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to the recipient, equal to the amount necessary to satisfy any such obligation, or (D) any combination of (A), (B) and (C). Shares of Common Stock to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate. Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the recipient. With respect to the withholding obligation attributable to a distribution of cash, the Company shall withhold an amount of cash which would otherwise be payable to the recipient in the amount necessary to satisfy such obligation. | ||
| 5.12 | Section 409A Compliance | |
| Notwithstanding anything herein to the contrary, all payments made hereunder shall comply with the requirements of Section 409A of the Code and the regulations issued thereunder. Notwithstanding anything herein to the contrary, no payment payable upon a Participant’s separation from service shall be made to any Participant who is a “specified employee” as defined in Section 409A(a)(2) and the regulations issued thereunder until at least six months following such Participant’s separation from service or, if earlier, to such Participant’s estate upon such Participant’s death. |
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| 5.13 | Changes in Elections Regarding Time and Form of Payment | |
| Notwithstanding anything herein to the contrary, Participants shall have the opportunity to elect to change their prior payment elections with respect to their Annual Deferral Accounts, Annual Incentive Plan Accounts, Performance Plan Accounts, Cash Balance Make-up Accounts, Savings Plan Make-Up Accounts and/or Prior Plan Accounts, as applicable, provided that such changes are elected in the manner prescribed by the Company no later than December 31, 2008.” |
SECTION SIX
ADMINISTRATION AND GENERAL PROVISIONS
| 6.1 | Plan Administrator | |
| The Corporation shall be the “administrator” of the Plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended. | ||
| 6.2 | Committee | |
| Subject to the provisions of Section 6.1, the Committee shall be vested with the general administration of the Plan. The Committee shall have the exclusive right to interpret the Plan provisions and to exercise discretion where necessary or appropriate in the interpretation and administration of the Plan and to decide any and all matters arising thereunder or in connection with the administration of the Plan. The decisions, actions and records of the Committee shall be conclusive and binding upon the Corporation and all persons having or claiming to have any right or interest in or under the Plan. | ||
| The Committee may delegate to such officers, employees or departments of the Corporation such authority, duties, and responsibilities of the Committee as it, in its sole discretion, considers necessary or appropriate for the proper and efficient operation of the Plan, including, without limitation, (a) interpretation of the Plan, (b) approval and payment of claims, and (c) establishment of procedures for administration of the Plan. | ||
| 6.3 | Participation by Other Employers |
| (a) | Adoption of Plan. | ||
| With the consent of the Corporation, any corporation may become a participating Employer under the Plan by (i) taking such action as shall be necessary to adopt the Plan, (ii) filing with the Corporation a duly certified copy of the resolution of the board of directors of such corporation adopting the Plan, and (iii) executing and delivering such instruments and taking such other actions as may be necessary or desirable to put the Plan into effect with respect to such corporation. | |||
| (b) | Withdrawal from Participation | ||
| Any Employer may withdraw from participation in the Plan at any time by filing with the Corporation a duly certified copy of a resolution of its board of directors to that effect and giving notice of its intended withdrawal to the Corporation prior to the effective date of withdrawal. | |||
| (c) | Corporation as Agent for Employers |
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| Each corporation which shall become a participating Employer pursuant to Section 6.3(a) by so doing shall be deemed to have appointed the Corporation its agent to exercise on its behalf all of the powers and authorities hereby conferred upon the Corporation by the terms of the Plan, including, but not by way of limitation, the power to amend and terminate the Plan. |
| 6.4 | General Provisions |
| (a) | The Corporation shall make no provision for the funding of any benefits payable hereunder that (i) would cause the Plan to be a funded plan for purposes of Section 404(a)(5) of the Code, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or (ii) would cause the Plan to be other than an “unfunded and unsecured promise to pay money or other property in the future” under Treasury Regulations section 1.83-3(e); and shall have no obligation to make any arrangement for the accumulation of funds to pay any amounts under this Plan. | ||
| (b) | In the event that the Corporation shall decide to establish an advance accrual reserve on its books against the future expense of the Plan, such reserve shall not under any circumstances be deemed to be an asset of this Plan but, at all times, shall remain a general asset of the Corporation, subject to the claims of the Corporation’s creditors. | ||
| (c) | A person entitled to any amount under this Plan shall be a general unsecured creditor of the Corporation with respect to such amount. |
| 6.5 | Claims Procedure | |
| If any Participant or other person believes he is entitled to benefits in an amount greater than those which he is receiving or has received, he may file a written claim with the Secretary of the Committee. Such claim shall state the nature of the claim, the facts supporting the claim, the amount claimed, and the address of the claimant. The Secretary of the Committee shall review the claim and shall, within 60 days after receipt of the claim, give written notice by registered or certified mail to the claimant of the Committee’s decision with respect to the claim. The notice of the Committee’s decision with respect to the claim shall be written in a manner designed to be understood by the claimant and, if the claim is wholly or partially denied, set forth the specific reasons for the denial, specific references to the pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and an explanation of the claim review procedure under the Plan. | ||
| The Committee shall also advise the claimant that he or his duly authorized representative may request a review of the denial by the Chairperson of the Committee by filing with the Committee within 65 days after notice of the denial has been received by the claimant, a written request for such review. The claimant shall be informed that he may have reasonable access to pertinent documents and submit comments in writing to the Chairperson within the same 65-day period. If a request is so filed, review of the denial shall be made by the Chairperson within 60 days after receipt of such request, and the claimant shall be given written notice of the Chairperson’s final decision. The notice of the Chairperson’s final decision shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based and shall be written in a manner designed to be understood by the claimant. |
15
| 6.6 | Notices and Other Communications | |
| All notices, reports and statements given, made, delivered or transmitted to a Participant or any other person entitled to or claiming benefits under the Plan shall be deemed to have been duly given, made or transmitted when mailed by first class mail with postage prepaid and addressed to the Participant or such other person at the address last appearing on the records of the Corporation. A Participant or other person may record any change of his address from time to time by written notice filed with the Corporation. | ||
| Written directions, notices and other communications from Participants or any other person entitled to or claiming benefits under the Plan to the Employers or the Corporation shall be deemed to have been duly given, made or transmitted either when delivered to such location as shall be specified upon the forms prescribed by the Corporation for the giving of such directions, notices and other communications or when mailed by first class mail with postage prepaid and addressed as specified upon such forms. | ||
| 6.7 | Records | |
| The Committee shall keep a record of all its proceedings and shall keep or cause to be kept all books of Account, records and other data as may be necessary or advisable in its judgment for the administration of the Plan. | ||
| 6.8 | Non-assignability | |
| It is a condition of the Plan, and all rights of each Participant and any other person entitled to benefits hereunder shall be subject thereto, that no right or interest of any Participant or such other person in the Plan shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge or bankruptcy, but excluding rights or interests arising by reason of death or mental incompetency, and no right or interest of any Participant or other person in the Plan shall be liable for, or subject to, any obligation or liability of such Participant or other person, including claims for alimony or the support of any spouse or child. | ||
| 6.9 | Employment Non-contractual | |
| The Plan shall not be interpreted as conferring any right upon any employee to continue in employment. | ||
| 6.10 | Employer’s Option to Fund Benefits | |
| Nothing in this Plan shall be interpreted as requiring any Employer to set aside any of its assets for the purpose of funding its obligation under this Plan. No person entitled to benefits under this Plan shall have any right, title or claim in or to any specific assets of any Employer, but shall have the right only as a general creditor of his Employer to receive benefits from his Employer on the terms and conditions herein provided. Notwithstanding the foregoing, any obligation of an Employer under this Plan to a Participant or an other person entitled to payments in respect of the Participant shall be offset by any payments to the Participant or another person from any trust or other funding medium established by the Employers for the purpose of providing benefits of this Plan. | ||
| 6.11 | Governing Law | |
| This Plan shall be construed and enforced under the laws of the State of Illinois. |
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SECTION SEVEN
Amendment and Termination
| 7.1 | Amendment of the Plan | |
| The Plan may be wholly or partially amended or otherwise modified at any time by the Board of Directors or by a committee of the Board of Directors as designated thereby from time to time. | ||
| 7.2 | Termination of the Plan | |
| The Plan may be terminated at any time by the Board of Directors. Notwithstanding anything herein to the contrary, payments to Participants upon Plan termination shall be made in accordance with the requirements of Section 409A of the Code and the regulations issued thereunder. |
17
EXHIBIT 11.1
Earnings Per Share
CORN PRODUCTS INTERNATIONAL, INC.
Computation of Net Income per Share of Common Stock
Computation of Net Income per Share of Common Stock
(in millions, except per share data)
| Year Ended | ||||
| December 31, 2007 | ||||
Basic |
||||
Shares outstanding at the start of the period |
74.3 | |||
Weighted average of new shares issued during the period |
— | |||
Weighted average of treasury shares issued during the period
for exercise of stock options and other stock compensation
plans |
.8 | |||
Weighted average of treasury shares purchased during the period |
(.4 | ) | ||
Average shares outstanding — basic |
74.7 | |||
Effect of Dilutive Securities |
||||
Average dilutive shares outstanding — assuming dilution |
1.8 | |||
Average shares outstanding — diluted |
76.5 | |||
Net income |
$ | 197.8 | ||
Net income per common share — Basic |
$ | 2.65 | ||
Net income per common share — Diluted |
$ | 2.59 | ||
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CORN PRODUCTS INTERNATIONAL, INC.
Computation of Ratios of Earnings to Fixed Charges
Computation of Ratios of Earnings to Fixed Charges
| (in millions, except ratios) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
Income before income taxes
and minority interest |
$ | 305.4 | $ | 197.1 | $ | 148.4 | $ | 145.1 | $ | 135.4 | ||||||||||
Fixed charges |
55.2 | 46.4 | 43.1 | 39.7 | 43.5 | |||||||||||||||
Capitalized interest |
(4.1 | ) | (10.2 | ) | (4.8 | ) | (2.6 | ) | (2.0 | ) | ||||||||||
Total |
$ | 356.5 | $ | 233.3 | $ | 186.7 | $ | 182.2 | $ | 176.9 | ||||||||||
RATIO OF EARNINGS TO FIXED
CHARGES |
6.46 | 5.03 | 4.33 | 4.59 | 4.07 | |||||||||||||||
FIXED CHARGES: |
||||||||||||||||||||
Interest expense on debt |
$ | 52.5 | $ | 43.8 | $ | 40.7 | $ | 37.4 | $ | 41.1 | ||||||||||
Amortization of discount on debt |
1.1 | 1.0 | 1.0 | 1.1 | 1.1 | |||||||||||||||
Interest portion of rental expense
on operating leases |
1.6 | 1.6 | 1.4 | 1.2 | 1.3 | |||||||||||||||
Total |
$ | 55.2 | $ | 46.4 | $ | 43.1 | $ | 39.7 | $ | 43.5 | ||||||||||
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Following is a list of the Registrant’s subsidiaries and their subsidiaries showing the percentage
of voting securities owned, or other bases of control, by the immediate parent of each.
DOMESTIC — 100 percent
Corn Products Development, Inc. (Delaware)
Corn Products Sales Corporation (Delaware)
Crystal Car Line, Inc. (Illinois)
Feed Products Limited (New Jersey)
GTC Oats, Inc. (Delaware)
The Chicago, Peoria and Western Railway Company (Illinois)
Cali Investment Corp. (Delaware)
Colombia Millers Ltd. (Delaware)
Hispano-American Company, Inc. (Delaware)
Inversiones Latinoamericanas S.A. (Delaware)
Bedford Construction Company (New Jersey)
Corn Products Puerto Rico Inc. (Delaware)
Corn Products Educational Foundation (Delaware)
Corn Products Sales Corporation (Delaware)
Crystal Car Line, Inc. (Illinois)
Feed Products Limited (New Jersey)
GTC Oats, Inc. (Delaware)
The Chicago, Peoria and Western Railway Company (Illinois)
Cali Investment Corp. (Delaware)
Colombia Millers Ltd. (Delaware)
Hispano-American Company, Inc. (Delaware)
Inversiones Latinoamericanas S.A. (Delaware)
Bedford Construction Company (New Jersey)
Corn Products Puerto Rico Inc. (Delaware)
Corn Products Educational Foundation (Delaware)
FOREIGN — 100 percent
Argentina:
Corn Products Southern Cone S.A.*
-Productos de Maiz, S.A.
- -Corn Products Finance LLC (Delaware)
- -Corn Products Finance LLC (Delaware)
Barbados: Corn Products International Sales Company, Inc.
Brazil: Corn Products Brasil-Ingredientes Industriais Ltda.*
Brazil: Corn Products Brasil-Ingredientes Industriais Ltda.*
-GETEC Guanabara Quimica Industrial S/A
Canada:
Canada Starch Company Inc.*
-Canada Starch Operating Company Inc.
- -Casco Inc.
- -Corn Products Canada Inc.
- -Casco Sales Company Inc.
- -Casco Inc.
- -Corn Products Canada Inc.
- -Casco Sales Company Inc.
Chile:
Corn Products Chile-Inducorn S.A.
- -IMASA Chile S.A.
Colombia: Industrias del Maiz S.A. — Corn Products Andina
Ecuador: Indumaiz del Ecuador S.A.
Poliquimicas Del Ecuador S.A.
Kenya: Corn Products Kenya Limited
Korea: Corn Products Korea, Inc.
Malaysia: Stamford Food Industries Sdn. Berhad
Mexico: CPIngredientes, S.A. de C.V.*
Ecuador: Indumaiz del Ecuador S.A.
Poliquimicas Del Ecuador S.A.
Kenya: Corn Products Kenya Limited
Korea: Corn Products Korea, Inc.
Malaysia: Stamford Food Industries Sdn. Berhad
Mexico: CPIngredientes, S.A. de C.V.*
-Arrendadora Gefemesa, S.A. de C.V.
- -Bebidas y Algo Mas, S.A. de C.V.
- -Bebinter S.A. de C.V.
- -Bebidas y Algo Mas, S.A. de C.V.
- -Bebinter S.A. de C.V.
Peru: Derivados del Maiz, S.A.
Singapore: Corn Products Trading Co. Pte. Ltd.
Singapore: Corn Products Trading Co. Pte. Ltd.
Uruguay: Productos de Maiz Uruguay S.A.
Venezuela: Corn Products Venezuela, C.A.
*Subsidiaries of Corn Products Development, Inc.
Venezuela: Corn Products Venezuela, C.A.
*Subsidiaries of Corn Products Development, Inc.
OTHER
China: Shouguang Golden Far East Modified Starch Company, Ltd. — 51.0 percent
Ecuador: Poliquimicos del Ecuador S.A. — 91.72 percent
Pakistan: Rafhan Maize Products Co. Ltd. — 70.31 percent
Peru: DEMSA Industrial Peru-Derivados del Maiz, S.A. — 95.0 percent
Thailand: Corn Products Amardass (Thailand) Limited — 99.0 percent
United States: CP Ingredients LLC — 75.0 percent
Ecuador: Poliquimicos del Ecuador S.A. — 91.72 percent
Pakistan: Rafhan Maize Products Co. Ltd. — 70.31 percent
Peru: DEMSA Industrial Peru-Derivados del Maiz, S.A. — 95.0 percent
Thailand: Corn Products Amardass (Thailand) Limited — 99.0 percent
United States: CP Ingredients LLC — 75.0 percent
The Company also has other subsidiaries, which, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Corn Products International, Inc.:
Corn Products International, Inc.:
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos.
333-43525, 333-71573, 333-75844, 333-33100, 333-105660, 333-113746, 333-129498 and 333-143516) and
Form S-3 (No. 333-83557) of Corn Products International,
Inc. of our report dated February 28,
2008, with respect to the consolidated balance sheets of Corn Products International, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income,
comprehensive income, stockholders’ equity and redeemable equity and cash flows for each of the
years in the three-year period ended December 31, 2007 and the effectiveness of internal control
over financial reporting as of December 31, 2007, which report
appears in this December 31, 2007
annual report on Form 10-K of Corn Products International, Inc.
Our report on the financial statements refers to the Company’s adoption of FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, as of
January 1, 2007, Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87,
88, 106, and 132(R) on December 31, 2006, and SFAS No. 123(R), Share-Based Payment on January 1,
2006.
/s/ KPMG LLP
Chicago, Illinois
February 28, 2008
Chicago, Illinois
February 28, 2008
Exhibit 24.1
CORN PRODUCTS INTERNATIONAL, INC.
POWER OF ATTORNEY
Form 10-K for the Fiscal Year Ended December 31, 2007
POWER OF ATTORNEY
Form 10-K for the Fiscal Year Ended December 31, 2007
KNOW ALL MEN BY THESE PRESENTS, that I, as a director of Corn Products International, Inc., a
Delaware corporation, (the “Company”), do hereby constitute and appoint Mary Ann Hynes as my true
and lawful attorney-in-fact and agent, for me and in my name, place and stead, to sign the Annual
Report on Form 10-K of the Company for the fiscal year ended December 31, 2007, and any and all
amendments thereto, and to file the same and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to
do and perform each and every act and thing requisite and necessary to be done in the premises, as
fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact may lawfully do or cause to be done by virtue thereof.
IN
WITNESS WHEREOF, I have executed this instrument this 28th day of February, 2008.
/s/ Richard J. Almeida
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/s/ Luis Aranguren
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/s/ Guenther E. Greiner
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/s/ Paul Hanrahan
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/s/ Karen
L. Hendricks
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/s/ Bernard H. Kastory
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/s/ Gregory B. Kenny
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/s/ Barbara A. Klein
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/s/ William S. Norman
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/s/ James M. Ringler
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/s/ Samuel C. Scott III
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Samuel C. Scott III, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Corn Products International, Inc.; | ||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 28, 2008 | /s/ Samuel C. Scott III | |||
| Samuel C. Scott III | ||||
| Chairman, President and Chief Executive Officer | ||||
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Cheryl K. Beebe, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Corn Products International, Inc.; | ||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 28, 2008 | /s/ Cheryl K. Beebe | |||
| Cheryl K. Beebe | ||||
| Vice President and Chief Financial Officer | ||||
EXHIBIT 32.1
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
I, Samuel C. Scott III, the Chief Executive Officer of Corn Products International, Inc.,
certify that to my knowledge (i) the report on Form 10-K for the fiscal year ended December 31,
2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
(ii) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Corn Products International, Inc.
| /s/ Samuel C. Scott III | ||||
| Samuel C. Scott III | ||||
| Chief Executive Officer February 28, 2008 |
||||
A signed original of this written statement required by Section 906 has been provided to Corn
Products International, Inc. and will be retained by Corn Products International, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
I, Cheryl K. Beebe, the Chief Financial Officer of Corn Products International, Inc., certify
that to my knowledge (i) the report on Form 10-K for the fiscal year ended December 31, 2007 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of Corn Products International, Inc.
| /s/ Cheryl K. Beebe | ||||
| Cheryl K. Beebe | ||||
| Chief Financial Officer February 28, 2008 |
||||
A signed original of this written statement required by Section 906 has been provided to Corn
Products International, Inc. and will be retained by Corn Products International, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.