UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark
One)
x
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
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
(State or other jurisdiction of incorporation or organization)
22-3514823
(I.R.S. Employer Identification Number)
5 WESTBROOK CORPORATE CENTER,
|
|
|
WESTCHESTER, ILLINOIS
|
|
60154
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(708) 551-2600
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate
by check mark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a small reporting
company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer
x
|
|
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
x
Indicate
the number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date.
CLASS
|
|
OUTSTANDING AT August 2, 2010
|
Common Stock, $.01 par value
|
|
75,257,081 shares
|
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC. (CPI)
Condensed
Consolidated Statements of Income
(Unaudited)
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(In millions, except per share
amounts)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net sales before shipping and handling costs
|
|
$
|
1,065.6
|
|
$
|
965.6
|
|
$
|
2,060.6
|
|
$
|
1,846.4
|
|
Less: shipping and handling costs
|
|
62.6
|
|
54.0
|
|
120.3
|
|
103.7
|
|
Net sales
|
|
1,003.0
|
|
911.6
|
|
1,940.3
|
|
1,742.7
|
|
Cost of sales
|
|
839.2
|
|
800.1
|
|
1,633.6
|
|
1,538.3
|
|
Gross profit
|
|
163.8
|
|
111.5
|
|
306.7
|
|
204.4
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
73.2
|
|
61.0
|
|
143.0
|
|
115.7
|
|
Other (income), net
|
|
(4.0
|
)
|
(1.3
|
)
|
(5.4
|
)
|
(2.2
|
)
|
Impairment / restructuring charges
|
|
18.1
|
|
125.0
|
|
20.8
|
|
125.0
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
76.5
|
|
(73.2
|
)
|
148.3
|
|
(34.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing costs, net
|
|
6.8
|
|
10.8
|
|
11.5
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
69.7
|
|
(84.0
|
)
|
136.8
|
|
(56.3
|
)
|
Provision (benefit) for income taxes
|
|
30.9
|
|
(0.9
|
)
|
53.0
|
|
8.5
|
|
Net income (loss)
|
|
38.8
|
|
(83.1
|
)
|
83.8
|
|
(64.8
|
)
|
Less: Net income attributable to non-controlling
interests
|
|
2.0
|
|
1.7
|
|
3.5
|
|
3.3
|
|
Net income (loss) attributable to CPI
|
|
$
|
36.8
|
|
$
|
(84.8
|
)
|
$
|
80.3
|
|
$
|
(68.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
75.5
|
|
74.8
|
|
75.4
|
|
74.8
|
|
Diluted
|
|
76.6
|
|
74.8
|
|
76.5
|
|
74.8
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share of CPI:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.49
|
|
$
|
(1.13
|
)
|
$
|
1.06
|
|
$
|
(0.91
|
)
|
Diluted
|
|
$
|
0.48
|
|
$
|
(1.13
|
)
|
$
|
1.05
|
|
$
|
(0.91
|
)
|
See
Notes to Condensed Consolidated Financial Statements
2
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC. (CPI)
Condensed Consolidated Balance Sheets
(In
millions, except share and per share amounts)
|
|
June 30,
2010
|
|
December 31,
2009
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
326
|
|
$
|
175
|
|
Accounts receivable net
|
|
472
|
|
440
|
|
Inventories
|
|
399
|
|
394
|
|
Prepaid expenses
|
|
32
|
|
13
|
|
Deferred income taxes
|
|
25
|
|
23
|
|
Total current assets
|
|
1,254
|
|
1,045
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
1,515
|
|
1,564
|
|
Goodwill and other intangible assets
|
|
243
|
|
245
|
|
Deferred income taxes
|
|
2
|
|
3
|
|
Investments
|
|
11
|
|
10
|
|
Other assets
|
|
81
|
|
85
|
|
Total assets
|
|
$
|
3,106
|
|
$
|
2,952
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Short-term borrowings and current portion of
long-term debt
|
|
$
|
100
|
|
$
|
136
|
|
Deferred income taxes
|
|
|
|
9
|
|
Accounts payable and accrued liabilities
|
|
476
|
|
420
|
|
Total current liabilities
|
|
576
|
|
565
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
148
|
|
142
|
|
Long-term debt
|
|
499
|
|
408
|
|
Deferred income taxes
|
|
111
|
|
111
|
|
Redeemable common stock (500,000 shares issued and
outstanding at December 31, 2009) stated at redemption
value
|
|
|
|
14
|
|
Share-based payments
subject to redemption
|
|
6
|
|
8
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
CPI 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 75,419,870 and 74,819,774 shares issued at June 30, 2010 and
December 31, 2009, respectively
|
|
1
|
|
1
|
|
Additional paid-in capital
|
|
1,101
|
|
1,082
|
|
Less: Treasury stock (common stock; 168,455 and
433,596 shares at June 30, 2010 and December 31, 2009,
respectively) at cost
|
|
(6
|
)
|
(13
|
)
|
Accumulated other comprehensive loss
|
|
(332
|
)
|
(308
|
)
|
Retained earnings
|
|
979
|
|
919
|
|
Total CPI stockholders equity
|
|
1,743
|
|
1,681
|
|
Non-controlling interests
|
|
23
|
|
23
|
|
Total equity
|
|
1,766
|
|
1,704
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
3,106
|
|
$
|
2,952
|
|
See
Notes to Condensed Consolidated Financial Statements
3
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL
STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC. (CPI)
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(In
millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net income (loss)
|
|
$
|
39
|
|
$
|
(83
|
)
|
$
|
84
|
|
$
|
(65
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Gains (losses) on cash flow hedges, net of income
tax effect of $2, $18, $28 and $38, respectively
|
|
3
|
|
(31
|
)
|
(50
|
)
|
(65
|
)
|
Reclassification adjustment for losses on cash
flow hedges included in net income (loss), net of income tax effect of $12,
$37, $28, and $64, respectively
|
|
21
|
|
61
|
|
43
|
|
107
|
|
Unrealized gain on investment, net of income tax
effect
|
|
|
|
1
|
|
|
|
1
|
|
Currency translation adjustment
|
|
(24
|
)
|
104
|
|
(17
|
)
|
61
|
|
Comprehensive income
|
|
39
|
|
52
|
|
60
|
|
39
|
|
Comprehensive income attributable to
non-controlling interests
|
|
(2
|
)
|
(2
|
)
|
(4
|
)
|
(3
|
)
|
Comprehensive income attributable to CPI
|
|
$
|
37
|
|
$
|
50
|
|
$
|
56
|
|
$
|
36
|
|
See
Notes to Condensed Consolidated Financial Statements
4
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL
STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC. (CPI)
Condensed Consolidated Statements of Equity and Redeemable Equity
(Unaudited)
|
|
Equity
|
|
|
|
Share-based
|
|
(in millions)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
|
|
Non-
controlling
Interests
|
|
Redeemable
Common
Stock
|
|
Payments
Subject to
Redemption
|
|
Balance, December 31, 2009
|
|
$
|
1
|
|
$
|
1,082
|
|
$
|
(13
|
)
|
$
|
(308
|
)
|
$
|
919
|
|
$
|
23
|
|
$
|
14
|
|
$
|
8
|
|
Net
income attributable to CPI
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
Net
income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
(3
|
)
|
|
|
|
|
Losses
on cash flow hedges, net of income tax effect of $28
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
Amount
of losses on cash flow hedges reclassified to earnings, net of income tax
effect of $28
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
Repurchases
of common stock
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
|
5
|
|
12
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Expiration
of put option (see Note 10)
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Balance, June 30, 2010
|
|
$
|
1
|
|
$
|
1,101
|
|
$
|
(6
|
)
|
$
|
(332
|
)
|
$
|
979
|
|
$
|
23
|
|
$
|
|
|
$
|
6
|
|
5
|
|
Equity
|
|
|
|
Share-based
|
|
(in millions)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
|
|
Non-
controlling
Interests
|
|
Redeemable
Common
Stock
|
|
Payments
Subject to
Redemption
|
|
Balance at December 31, 2008
|
|
$
|
1
|
|
$
|
1,086
|
|
$
|
(29
|
)
|
$
|
(594
|
)
|
$
|
920
|
|
$
|
22
|
|
$
|
14
|
|
$
|
11
|
|
Net
(loss) attributable to CPI
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
Net
income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
(2
|
)
|
|
|
|
|
Losses
on cash flow hedges, net of income tax effect of $38
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
Amount
of losses on cash flow hedges reclassified to earnings, net of income tax
effect of $64
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
Repurchases
of common stock
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
|
(3
|
)
|
10
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Change
in fair value of redeemable common stock
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
1
|
|
$
|
1,084
|
|
$
|
(22
|
)
|
$
|
(490
|
)
|
$
|
831
|
|
$
|
22
|
|
$
|
13
|
|
$
|
6
|
|
See
Notes to Condensed Consolidated Financial Statements
6
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL
STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC. (CPI)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended
June 30,
|
|
(In
millions)
|
|
2010
|
|
2009
|
|
Cash provided by operating
activities:
|
|
|
|
|
|
Net income (loss)
|
|
$
|
84
|
|
$
|
(65
|
)
|
Non-cash charges (credits) to net income (loss):
|
|
|
|
|
|
Write-off of impaired assets
|
|
19
|
|
124
|
|
Depreciation and amortization
|
|
70
|
|
62
|
|
Changes in working capital:
|
|
|
|
|
|
Accounts receivable and prepaid items
|
|
(28
|
)
|
(32
|
)
|
Inventories
|
|
(10
|
)
|
24
|
|
Accounts payable and accrued liabilities
|
|
92
|
|
(23
|
)
|
(Increase)
decrease in
margin accounts
|
|
(43
|
)
|
127
|
|
Other
|
|
1
|
|
(6
|
)
|
Cash provided by operating activities
|
|
185
|
|
211
|
|
|
|
|
|
|
|
Cash used for investing
activities:
|
|
|
|
|
|
Capital expenditures, net of proceeds on disposals
|
|
(56
|
)
|
(66
|
)
|
Other
|
|
|
|
(1
|
)
|
Cash used for investing activities
|
|
(56
|
)
|
(67
|
)
|
|
|
|
|
|
|
Cash provided by (used for)
financing activities:
|
|
|
|
|
|
Proceeds from borrowings
|
|
218
|
|
67
|
|
Payments on debt
|
|
(159
|
)
|
(117
|
)
|
Bridge financing costs
|
|
(16
|
)
|
|
|
Repurchases of common stock
|
|
(5
|
)
|
(3
|
)
|
Issuance of common stock
|
|
7
|
|
1
|
|
Dividends paid (including to non-controlling
interests)
|
|
(23
|
)
|
(23
|
)
|
Excess tax benefit on share-based compensation
|
|
2
|
|
|
|
Cash provided by (used for) financing activities
|
|
24
|
|
(75
|
)
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
(2
|
)
|
(1
|
)
|
Increase in cash and cash equivalents
|
|
151
|
|
68
|
|
Cash and cash equivalents, beginning of period
|
|
175
|
|
107
|
|
Cash and cash equivalents, end of period
|
|
$
|
326
|
|
$
|
175
|
|
See Notes to Condensed Consolidated Financial Statements
7
CORN PRODUCTS INTERNATIONAL, INC. (CPI)
Notes to Condensed Consolidated Financial Statements
1.
Interim
Financial Statements
References
to the Company are to Corn Products International, Inc. (CPI) and its
consolidated subsidiaries. These
statements should be read in conjunction with the consolidated financial
statements and the related notes to those statements contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 2009.
The
unaudited condensed consolidated interim financial statements included herein
were prepared by management and reflect all adjustments (consisting solely of
normal recurring items unless otherwise noted) which are, in the opinion of
management, necessary to present a fair statement of results of operations and
cash flows for the interim periods ended June 30, 2010 and 2009, and the
financial position of the Company as of June 30, 2010. The results for the interim periods are not
necessarily indicative of the results expected for the full years.
2.
New
Accounting Standards
In January 2010, the
Financial Accounting Standards Board (FASB) issued Accounting Standards
Update No. 2010-06,
Improving Disclosures
about Fair Value Measurements
.
The Update requires entities to disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers.
In addition, the Update requires entities to present separately
information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable
inputs (Level 3). The disclosures
related to Level 1 and Level 2 fair value measurements are effective for
interim and annual periods beginning after December 15, 2009. The disclosures related to Level 3 fair value
measurements are effective for interim and annual periods beginning after December 15,
2010. The Company adopted the additional
disclosure provisions in the first quarter of 2010. See Note 6 for information regarding the
Companys fair value measurements.
3.
Acquisition
On
June 21, 2010, the Company announced that it entered into a definitive
agreement to acquire National Starch, a global provider of specialty starches,
from AkzoNobel, a global coatings and specialty chemicals company,
headquartered in The Netherlands. The
purchase price is estimated to be $1.3 billion in cash, which is expected to be
provided from cash and with proceeds from issuances of debt or a combination of
debt and common stock. The acquisition,
which has been approved by the Boards of Directors of both CPI and AkzoNobel
and does not require approval by the stockholders of either company, is
expected to close near the end of the third quarter of 2010, subject to
customary regulatory approvals.
4.
Asset
Impairment and Restructuring Charges
On
February 27, 2010, a devastating earthquake occurred off the coast of
Chile. The Companys plant in Llay-Llay,
Chile suffered damage, including damage to the waste-water treatment facility,
corn silos, water tanks and warehousing.
There was also structural damage to the buildings. A structural engineering study was completed
during the quarter ended June 30, 2010.
Based on the results of the study and other factors, the Company
determined that the
8
carrying
amount of a significant portion of the plant and equipment exceeds its fair
value and therefore, these assets are impaired.
As a result, the Company recorded a $21 million charge for impaired assets
and other related costs in its first-half 2010 Condensed Consolidated Statement
of Income, including a $2.7 million insurance deductible that was expensed in
the first quarter of 2010. Presently,
shipments to customers in Chile are being fulfilled from the Companys plants
in Argentina, Brazil and Mexico.
In
the second quarter of 2009, the Company recorded a $125 million charge to its
Condensed Consolidated Statement of Income for impaired assets and
restructuring costs. The charge included
the write-off of $119 million of goodwill pertaining to the Companys
operations in South Korea and a $5 million charge to write-off impaired assets
in North America. Additionally, the
Company recorded a $1 million charge for employee severance and related benefit
costs primarily attributable to the termination of employees in its Asia/Africa
region. The employee terminations have
been completed and the restructuring accrual has been fully utilized.
As
a result of the impairment and restructuring charges, the Companys effective
income tax rates for 2010 and 2009 differ from a more normalized effective tax
rate. The Companys effective income tax
rate for the second quarter and first half of 2010 was 44.3 percent and 38.7
percent, respectively, as compared to 1.1 percent and 15.1 percent in the prior
year periods. The Companys effective
income tax rates for the 2010 periods reflect the impact of the Chilean
charge for impaired assets and other related costs and an
increase to the valuation allowance in Chile.
The Companys effective income tax rates for the 2009 periods were
unusually low due to
the tax effect
of the goodwill write-off and an increase to the valuation allowance in Korea,
both of which were recorded in the second quarter of 2009.
5.
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 Companys 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 Companys Asia/Africa operations include
corn-refining businesses in Korea, Pakistan, Malaysia, Kenya and China, and a
tapioca root processing operation in Thailand.
9
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(in
millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
582.7
|
|
$
|
584.4
|
|
$
|
1,123.4
|
|
$
|
1,115.7
|
|
South America
|
|
286.6
|
|
228.2
|
|
564.3
|
|
442.7
|
|
Asia/Africa
|
|
133.7
|
|
99.0
|
|
252.6
|
|
184.3
|
|
Total
|
|
$
|
1,003.0
|
|
$
|
911.6
|
|
$
|
1,940.3
|
|
$
|
1,742.7
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
59.6
|
|
$
|
33.4
|
|
$
|
98.0
|
|
$
|
53.8
|
|
South America
|
|
39.1
|
|
26.4
|
|
77.7
|
|
54.1
|
|
Asia/Africa
|
|
12.9
|
|
5.6
|
|
26.0
|
|
7.4
|
|
Corporate
|
|
(13.1
|
)
|
(13.6
|
)
|
(25.7
|
)
|
(24.4
|
)
|
Sub-total
|
|
98.5
|
|
51.8
|
|
176.0
|
|
90.9
|
|
Impairment/restructuring charges (a)
|
|
(18.1
|
)
|
(125.0
|
)
|
(20.8
|
)
|
(125.0
|
)
|
Acquisition costs
|
|
(3.9
|
)
|
|
|
(6.9
|
)
|
|
|
Total
|
|
$
|
76.5
|
|
$
|
(73.2
|
)
|
$
|
148.3
|
|
$
|
(34.1
|
)
|
(a) Includes a $21 million charge for impaired
assets and related costs in Chile for 2010, including a $3 million insurance
deductible that was expensed in the first quarter, and a $125 million charge in
2009 consisting of a write-off of $119 million of goodwill pertaining to our
operations in South Korea, a $5 million write-off of impaired assets in North
America and a $1 million charge for employee severance and related benefit
costs primarily attributable to the termination of employees in our Asia/Africa
region.
(in millions)
|
|
At
June 30, 2010
|
|
At
December 31, 2009
|
|
Total Assets
|
|
|
|
|
|
North America
|
|
$
|
1,762
|
|
$
|
1,651
|
|
South America
|
|
1,017
|
|
999
|
|
Asia/Africa
|
|
327
|
|
302
|
|
Total
|
|
$
|
3,106
|
|
$
|
2,952
|
|
6.
Financial
Instruments, Derivatives and Hedging Activities
The
Company is one of the worlds largest corn refiners with manufacturing
operations in North America, South America and Asia/Africa. The Companys products are made primarily
from corn.
The
Company is exposed to market risk stemming from changes in commodity prices
(corn and natural gas), foreign currency exchange rates and interest
rates. In the normal course of business,
the Company actively manages its exposure to these market risks by entering
into various hedging transactions, authorized under established policies that
place clear controls on these activities.
These transactions utilize exchange traded derivatives or over-the-counter
derivatives with investment grade counterparties. Derivative
financial instruments currently used by the Company consist of commodity
futures, options and swap contracts, treasury lock agreements and forward
currency contracts and options.
10
Commodity price hedging
: The Companys principal use of derivative
financial instruments is to manage commodity price risk in North America
relating to anticipated purchases of corn and natural gas to be used in the
manufacturing process, generally over the
next twelve to eighteen months.
To manage price risk related to corn purchases in North America, the
Company uses corn futures and options contracts that trade on regulated commodity exchanges to lock in its corn
costs associated with firm-priced customer sales contracts. The Company uses over-the-counter gas swaps to hedge a portion of its natural gas usage in
North America. These derivative
financial instruments limit the volatility that results from
fluctuations in market prices for corn and natural gas and have been designated
as cash flow hedges. Unrealized gains and losses associated with
marking the commodity hedging contracts to market are recorded as a component
of other comprehensive income (OCI) and included in the equity section of the
Consolidated Balance Sheets as part of accumulated other comprehensive
income/loss (AOCI). 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 commodity hedge contract based on changes in the
contracts fair 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.
Interest rate hedging
: On March 25, 2010, the Company issued
$200 million of 5.62 percent Senior Series A Notes due March 25, 2020 (the
Notes). See Note 11 for additional
information regarding the Notes. In conjunction with a plan to issue the
Notes and in order to manage exposure to variability in the benchmark interest
rate on which the fixed interest rate of the Notes would be based, the Company
had previously entered into a Treasury Lock agreement (the T-Lock) with
respect to $50 million of these borrowings.
The T-Lock was 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 was priced. It is accounted for
as a cash flow hedge. The T-Lock expired
on April 30, 2009 and the Company paid approximately $6 million,
representing the losses on the T-Lock, to settle the agreement. The losses are included in AOCI and are being
amortized to financing costs over the ten-year term of the Notes.
At June 30, 2010, the
Companys AOCI account included $5 million of losses (net of tax of $3 million)
related to Treasury Lock agreements, of which $3 million (net of tax of
$2 million) related to the $50 million T-Lock.
Foreign currency hedging
:
Due to the Companys global
operations, it is exposed to fluctuations in foreign currency exchange
rates. As a result, the Company has
exposure to translational foreign exchange risk when its 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. The
Company primarily uses derivative financial instruments such as foreign
currency forward contracts, swaps and options to manage its transactional
foreign exchange risk. These derivative
financial instruments are primarily accounted for as fair value hedges. At June 30, 2010, the Company had $13
million of net notional foreign currency forward contracts that hedged net
liability transactional exposures.
The fair value and balance sheet location of the Companys
derivative instruments accounted for as cash flow hedges are presented below:
11
|
|
Fair Value of Derivative Instruments
|
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
Derivatives designated as
hedging instruments:
(in millions)
|
|
Balance Sheet
Location
|
|
At
June 30,
2010
|
|
At
December 31,
2009
|
|
Balance Sheet
Location
|
|
At
June 30,
2010
|
|
At
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Accounts
receivable-net
|
|
$
|
2
|
|
$
|
26
|
|
Accounts
payable and accrued liabilities
|
|
$
|
32
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
2
|
|
$
|
26
|
|
|
|
$
|
32
|
|
$
|
18
|
|
At June 30, 2010, the Company had outstanding
futures and option contracts that hedge approximately 54 million bushels of
forecasted corn purchases. Also at June 30,
2010, the Company had outstanding swap and option contracts that hedge
approximately 8 million mmbtus of forecasted natural gas purchases.
Additional information relating to the Companys
derivative instruments is presented below (in millions):
Derivatives
in
|
|
Amount of Gains (Losses)
Recognized in OCI
on Derivatives
|
|
Location of
Losses
|
|
Amount of Losses
Reclassified from AOCI
into Income
|
|
Cash
Flow
Hedging
Relationships
|
|
Three Months
Ended
June 30, 2010
|
|
Three Months
Ended
June 30, 2009
|
|
Reclassified
from AOCI into
Income
|
|
Three Months
Ended
June 30, 2010
|
|
Three Months
Ended
June 30, 2009
|
|
Commodity contracts
|
|
$
|
5
|
|
$
|
(51
|
)
|
Cost of sales
|
|
$
|
33
|
|
$
|
98
|
|
Interest rate contracts
|
|
|
|
2
|
|
|
|
|
|
|
|
Total
|
|
$
|
5
|
|
$
|
(49
|
)
|
|
|
$
|
33
|
|
$
|
98
|
|
Derivatives
in
|
|
Amount of Gains (Losses)
Recognized in OCI
on Derivatives
|
|
Location of
Losses
|
|
Amount of Losses
Reclassified from AOCI
into Income
|
|
Cash
Flow
Hedging
Relationships
|
|
Six Months
Ended
June 30, 2010
|
|
Six Months
Ended
June 30, 2009
|
|
Reclassified
from AOCI into
Income
|
|
Six Months
Ended
June 30, 2010
|
|
Six Months
Ended
June 30, 2009
|
|
Commodity contracts
|
|
$
|
(78
|
)
|
$
|
(107
|
)
|
Cost of sales
|
|
$
|
71
|
|
$
|
171
|
|
Interest rate contracts
|
|
|
|
4
|
|
|
|
|
|
|
|
Total
|
|
$
|
(78
|
)
|
$
|
(103
|
)
|
|
|
$
|
71
|
|
$
|
171
|
|
At June 30, 2010, the Companys AOCI account
included approximately $35 million of losses, net of income taxes, which are
expected to be reclassified into earnings during the next twelve months. The Company expects the losses to be offset
by changes in the underlying commodities cost.
Presented below are the fair values of the Companys
financial instruments and derivatives for the periods presented:
12
|
|
As of
June 30, 2010
|
|
As of
December 31, 2009
|
|
(in millions)
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Available
for sale securities
|
|
$
|
5
|
|
$
|
5
|
|
$
|
|
|
$
|
|
|
$
|
3
|
|
$
|
3
|
|
$
|
|
|
$
|
|
|
Derivative
assets
|
|
2
|
|
2
|
|
|
|
|
|
26
|
|
26
|
|
|
|
|
|
Derivative
liabilities
|
|
32
|
|
18
|
|
14
|
|
|
|
18
|
|
2
|
|
16
|
|
|
|
Long-term
debt
|
|
526
|
|
|
|
526
|
|
|
|
407
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
inputs consist of quoted prices (unadjusted) in active markets for identical
assets or liabilities. Level 2 inputs
are inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly for substantially the
full term of the financial instrument.
Level 2 inputs include quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, or inputs other than quoted prices that are
observable for the asset or liability or can be derived principally from or
corroborated by observable market data.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure
fair value to the extent that observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for
the asset or liability at the measurement date.
The carrying values of cash equivalents, accounts
receivable, accounts payable and short-term borrowings approximate fair
values. Commodity
futures,
options and swap 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 fair value of the Companys long-term debt is estimated based on
quotations of major securities dealers who are market makers in the
securities. At June 30, 2010, the
carrying value and fair value of the Companys long-term debt was $499 million
and $526 million, respectively.
7. Share-Based Compensation
A
summary of information with respect to stock-based compensation is as follows:
|
|
For the Three
Months Ended
June 30,
|
|
For the Six
Months Ended
June 30,
|
|
(in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Total stock-based
compensation expense included in net income (loss)
|
|
$
|
3.2
|
|
$
|
1.3
|
|
$
|
6.1
|
|
$
|
2.8
|
|
Income tax benefit
related to stock-based compensation included in net income (loss)
|
|
$
|
1.1
|
|
$
|
0.5
|
|
$
|
2.0
|
|
$
|
1.0
|
|
Stock Options:
Under
the Companys stock incentive plan, stock options are granted at exercise
prices that equal the market value of the underlying common stock on the date
of grant. The options have a 10 year
term and are exercisable upon vesting, which for grants issued in 2007 and
thereafter, occurs evenly over a three-year period from the date of the
grant. Compensation expense is
recognized on a straight-line basis for all awards.
The
Company granted non-qualified options to purchase 828 thousand shares of the
Companys common stock during the six months ended June 30, 2010.
13
The fair value of each option
grant was estimated using the Black-Scholes option pricing model with the
following assumptions:
|
|
June 30,
2010
|
|
June 30,
2009
|
|
Expected life (in
years)
|
|
5.8
|
|
5.3
|
|
Risk-free interest
rate
|
|
2.71
|
%
|
2.03
|
%
|
Expected volatility
|
|
33.08
|
%
|
31.17
|
%
|
Expected dividend
yield
|
|
1.94
|
%
|
2.12
|
%
|
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 Companys 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 Companys common stock.
Dividend yields are based on historical dividend payments.
Stock
option activity for the six months ended June 30, 2010 was as follows:
(dollars and shares in thousands)
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at
December 31, 2009
|
|
4,842
|
|
$
|
25.32
|
|
|
|
|
|
Granted
|
|
828
|
|
28.95
|
|
|
|
|
|
Exercised
|
|
(434
|
)
|
16.98
|
|
|
|
|
|
Cancelled
|
|
(14
|
)
|
34.03
|
|
|
|
|
|
Outstanding at
June 30, 2010
|
|
5,222
|
|
26.56
|
|
6.44
|
|
$
|
24,845
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
June 30, 2010
|
|
3,634
|
|
25.72
|
|
5.34
|
|
$
|
21,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months ended June 30, 2010, cash received from the exercise of
stock options was $7 million and the income tax benefit realized from the
exercise of stock options was $2 million.
As of June 30, 2010, the total remaining unrecognized compensation
cost related to stock options approximated $9 million, which will be amortized
over the weighted-average period of approximately 1.6 years.
Additional
information pertaining to stock option activity is as follows:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(dollars
in thousands, except per share)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Weighted average grant date fair value of stock
options granted (per share)
|
|
$
|
10.04
|
|
$
|
6.90
|
|
$
|
8.41
|
|
$
|
6.36
|
|
Total intrinsic value of stock options exercised
|
|
$
|
1,208
|
|
$
|
80
|
|
$
|
6,813
|
|
$
|
378
|
|
14
Restricted Shares of Common
Stock:
The Company has granted shares of restricted common
stock to certain key employees.
The restricted
shares are subject to cliff vesting, generally for five years provided the
employee remains in the service of the Company.
The fair value of the restricted stock is determined based upon the
number of shares granted and the quoted price of the Companys stock at the
date of the grant. Expense recognized
for the three and six months ended June 30, 2010 was $0.8 million and
$1.9 million, respectively, as compared to $0.8 million and $1.1 million in the
comparable prior year periods.
The
following table summarizes restricted share activity for the six months ended June 30,
2010.
(shares in thousands)
|
|
Number of
Restricted
Shares
|
|
Weighted
Average
Fair Value
|
|
Non-vested at
December 31, 2009
|
|
235
|
|
$
|
29.60
|
|
Granted
|
|
20
|
|
28.75
|
|
Vested
|
|
(74
|
)
|
28.90
|
|
Cancelled
|
|
(4
|
)
|
30.38
|
|
Non-vested at
June 30, 2010
|
|
177
|
|
29.78
|
|
|
|
|
|
|
|
|
As
of June 30, 2010, the total remaining unrecognized compensation cost
related to restricted stock was $3 million, which will be amortized on a
weighted-average basis over approximately 2.5 years.
8. Net Periodic
Benefit Cost
For detailed information about the Companys
pension and postretirement benefit plans, please refer to Note 9 to the
Consolidated Financial Statements included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2009.
The following sets forth the components of
net periodic benefit cost of the US and non-US defined benefit pension plans
for the three and six months ended June 30, 2010 and 2009:
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
|
|
US Plans
|
|
Non-US Plans
|
|
US Plans
|
|
Non-US Plans
|
|
(in
millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Service cost
|
|
$
|
0.8
|
|
$
|
0.8
|
|
$
|
0.6
|
|
$
|
0.4
|
|
$
|
1.7
|
|
$
|
1.6
|
|
$
|
1.2
|
|
$
|
0.9
|
|
Interest cost
|
|
1.1
|
|
1.2
|
|
1.9
|
|
1.7
|
|
2.3
|
|
2.3
|
|
3.9
|
|
3.3
|
|
Expected return on plan assets
|
|
(1.1
|
)
|
(1.0
|
)
|
(2.2
|
)
|
(1.8
|
)
|
(2.3
|
)
|
(2.0
|
)
|
(4.3
|
)
|
(3.5
|
)
|
Amortization of net actuarial loss
|
|
0.3
|
|
0.3
|
|
0.1
|
|
0.1
|
|
0.6
|
|
0.8
|
|
0.2
|
|
0.1
|
|
Amortization of prior service cost
|
|
0.1
|
|
0.1
|
|
0.2
|
|
0.1
|
|
0.1
|
|
0.1
|
|
0.3
|
|
0.2
|
|
Net pension cost
|
|
$
|
1.2
|
|
$
|
1.4
|
|
$
|
0.6
|
|
$
|
0.5
|
|
$
|
2.4
|
|
$
|
2.8
|
|
$
|
1.3
|
|
$
|
1.0
|
|
The
Company anticipates that it will make cash contributions of $8 million to its
non-US pension plans in 2010 of which $2 million was funded during the first
half of 2010. The Company has not yet
determined the amount, if any, that it will contribute to its US pension plans in
2010.
15
The following sets forth the
components of net postretirement benefit cost for the three and six months
ended June 30, 2010 and 2009:
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
(in
millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Service cost
|
|
$
|
0.6
|
|
$
|
0.5
|
|
$
|
1.2
|
|
$
|
1.0
|
|
Interest cost
|
|
1.0
|
|
1.0
|
|
2.0
|
|
1.9
|
|
Amortization of prior service cost
|
|
0.1
|
|
|
|
0.1
|
|
|
|
Amortization of net actuarial loss
|
|
0.2
|
|
0.1
|
|
0.4
|
|
0.3
|
|
Net postretirement benefit cost
|
|
$
|
1.9
|
|
$
|
1.6
|
|
$
|
3.7
|
|
$
|
3.2
|
|
9. Inventories
Inventories
are summarized as follows:
(in
millions)
|
|
At
June 30,
2010
|
|
At
December 31,
2009
|
|
Finished and in process
|
|
$
|
173
|
|
$
|
176
|
|
Raw materials
|
|
162
|
|
150
|
|
Manufacturing supplies and other
|
|
64
|
|
68
|
|
Total inventories
|
|
$
|
399
|
|
$
|
394
|
|
10. Expiration of Put Option
The
Company had an agreement with certain common stockholders (collectively the holder),
relating to 500,000 shares of the Companys common stock, that provided 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 Companys common stock for the 20 trading days immediately preceding the
date that the holder exercised the put option.
This put option was exercisable at any time, until January 2010,
when it expired. The shares associated
with the put option were classified as redeemable common stock in the Companys
consolidated balance sheet prior to the expiration of the put option. The carrying value of the redeemable common
stock was $14 million at December 31, 2009. Effective with the expiration of the
agreement, the Company discontinued reporting the shares as redeemable common
stock and reclassified the $14 million from redeemable common stock to
additional paid-in capital.
11. Debt Issuance
On March 25, 2010, the
Company entered into a Private Shelf Agreement (the Shelf Facility) with
Prudential Investment Management, Inc. (Prudential) providing for the
issuance of senior promissory notes (Shelf Notes) in an aggregate principal
amount of $200 million. The Shelf Notes
will rank equally with the Companys other senior unsecured debt.
16
On March 25, 2010, pursuant to the Shelf Facility, the Company
issued 5.62 percent Senior Series A Notes due March 25, 2020 in an
aggregate principal amount of $200 million. Interest on the Notes is
required to be paid semi-annually on March 25th and September 25th,
beginning in September 2010. The
Notes are subject to optional prepayment by the Company at 100 percent of the
principal amount plus interest up to the prepayment date and, in certain
circumstances, a make-whole amount.
Proceeds from the sale of the Notes are being used for general corporate
purposes, which includes refinancing of bank debt and/or acquisitions.
The Shelf Facility contains
various covenants which are substantially similar to the covenants in the
Companys current revolving credit facility, including financial covenants that
require maintenance of a maximum debt to EBITDA ratio and a minimum interest
coverage ratio, as well as covenants that restrict the Companys ability to
incur debt, create liens and merge with other entities. The Shelf Facility also contains customary
events of default.
In connection with the
acquisition of National Starch (see Note 3), the Company has obtained a bridge
loan financing commitment of $1.35 billion.
In June 2010, the Company paid $16 million of bridge loan
commitment fees. These costs are
included in prepaid expenses in the Companys June 30, 2010 Condensed
Consolidated Balance Sheet and will be amortized over the life of the bridge
loan.
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 and by 2006 had 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.
On October 21, 2003, the
Company submitted, on its own behalf and on behalf of its 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 Additional Office of the
International Centre for Settlement of Investment Disputes and was brought
against the United Mexican States. In
the Request, the Company asserted that the imposition by Mexico of a
discriminatory tax on beverages containing HFCS in force from 2002 through 2006
breached various obligations of Mexico under the investment protection
provisions of NAFTA. The case was
bifurcated into two phases, liability and damages, and a hearing on liability
was held before a Tribunal in July 2006.
In a Decision dated January 15, 2008, the Tribunal unanimously held
that Mexico had violated NAFTA Article 1102, National Treatment, by
treating beverages sweetened with HFCS produced by foreign companies
differently than those sweetened with domestic sugar. In July 2008, a hearing regarding the
quantum of damages was held before the same Tribunal. The Company sought damages and pre- and
post-judgment interest totaling $288 million through December 31, 2008.
In an award rendered August 18,
2009, the Tribunal awarded damages to CPIngredientes in the amount of $58.4
million, representing lost profits in Mexico as a result of
17
the tax and certain out-of-pocket
expenses incurred by CPIngredientes, together with accrued interest. On October 1, 2009, the Company
submitted to the Tribunal a request for correction of this award to avoid
effective double taxation on the amount of the award in Mexico. On November 16, 2009, the Company
preserved its appeal rights by entering a Notice of Application in the Superior
Court of Justice of Ontario, Canada requesting set-aside of the payment
provisions of the award.
On March 26, 2010, the
Tribunal issued a correction of its August 18, 2009 damages award. While the amount of damages has not changed,
the decision makes the damages payable to Corn Products International, Inc.
instead of CPIngredientes to eliminate double taxation. On June 15, 2010, Mexico preserved its
own appeal rights by entering a Notice of Application in the Superior Court of
Justice of Ontario, Canada with regard to the Tribunals March 26, 2010
correction. The damages awarded by the
Tribunal have not been recorded in the Companys consolidated financial
statements.
ITEM 2
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We
are one of the worlds 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 twenty-eight 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.
Our business improved in the second
quarter and first half of 2010 as net sales, operating income, net income and
diluted earnings per common share grew from the weak results of a year
ago. Increased sales volumes, improved
plant utilization rates, lower corn costs and favorable currency translations
drove the earnings improvement. We
continue to see economic recovery in many of our international markets and
expect our
business to continue to perform well across all of our regions. While comparison to 2009 will be more
challenging in the second half of the year, and there is a risk of an economic
slowdown in the fourth quarter, especially in the US, we
continue to expect improved sales and earnings for full
year 2010.
On
June 21, 2010, we announced that we entered into a definitive agreement to
acquire National Starch, a global provider of specialty starches, from
AkzoNobel, a global coatings and specialty chemicals company, headquartered in
The Netherlands. The purchase price is
estimated to be $1.3 billion in cash, which we expect to be provided from cash
and with proceeds from issuances of debt or a combination of debt and common
stock. We have obtained a commitment for
a bridge loan to pay the purchase price if those offerings are not completed
prior to the acquisition of National Starch.
The acquisition, which has been approved
18
by
the Boards of Directors of both Corn Products International and AkzoNobel and
does not require approval by the stockholders of either company, is expected to
close near the end of the third quarter of 2010, subject to customary
regulatory approvals.
On
February 27, 2010, a devastating earthquake occurred off the coast of
Chile. Our plant in Llay-Llay, Chile
suffered damage, including damage to the waste-water treatment facility, corn
silos, water tanks and warehousing.
There was also structural damage to the buildings. A structural engineering study was completed
during the quarter ended June 30, 2010. Based on the results of the study and other
factors, we determined that the carrying amount of a significant portion of the
plant and equipment exceeded its fair value and therefore, these assets were
impaired. As a result, we recorded a $21
million charge for impaired assets and other related costs in our first-half
2010 Condensed Consolidated Statement of Income, including a $2.7 million
insurance deductible that was expensed in the first quarter of 2010. Presently, shipments to customers in Chile
are being fulfilled from our plants in Argentina, Brazil and Mexico.
We
currently expect that our future operating cash flows, borrowing availability
under our credit facilities, a bridge loan commitment to provide up to $1.35
billion in financing for the acquisition of National Starch, and access to
capital markets will provide us with sufficient liquidity to fund our
anticipated capital expenditures, dividends, acquisitions and other investing
and/or financing strategies for the foreseeable future.
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.
For The Three Months and Six Months Ended June 30, 2010
With Comparatives for the Three Months and Six Months Ended June 30,
2009
Net Income
. Net income
for CPI for the quarter ended June 30, 2010 increased to $36.8 million, or
$0.48 per diluted common share, from a net loss of $84.8 million, or a net loss
of $1.13 per diluted common share, in the second quarter of 2009. Net income for CPI for the six months ended June 30,
2010 increased to $80.3 million, or $1.05 per diluted common share, from a net
loss of $68.1 million, or a net loss of $0.91 per diluted common share, in the
prior year period. The second quarter
and first half 2010 results include after-tax charges for impaired assets and
other costs associated with our operations in Chile of $18 million ($0.23 per
diluted common share) and $20 million ($0.27 per diluted common share),
respectively. Additionally, in the
second quarter and first half of 2010 we incurred after-tax acquisition-related
costs of $3 million ($0.04 per diluted common share) and $5 million ($0.06 per
diluted common share), respectively. The
second quarter 2009 results included an after-tax charge of $110 million ($1.47
per diluted common share) for impaired assets and restructuring costs. See Note 4 of the notes to the condensed
consolidated financial statements for additional information pertaining to the
asset impairments and restructurings.
Without the impairment, restructuring and acquisition-related charges,
net income for the second quarter and first half of 2010 would have grown 126
percent and 150 percent, respectively, over the comparable prior year periods,
19
while
our diluted earnings per share would have risen 121 percent and 146 percent,
respectively. This net income growth
primarily reflects an increase in operating income across all of our regions
principally driven by improved sales volumes,
improved
plant utilization rates, lower corn costs
and stronger foreign
currencies. Reduced financing costs also
contributed to the net income growth.
Net Sales
. Second
quarter net sales totaled $1.00 billion, up 10 percent from second quarter 2009
net sales of $912 million. The increase
reflects a 16 percent volume improvement and favorable currency translation of
5 percent due to stronger foreign currencies, which more than offset a
price/product mix decline of 11 percent.
Volumes grew in all of our regions and particularly in our international
businesses. Co-product sales of $177
million for second quarter 2010 increased 8 percent from the prior year period,
driven by improved volume and currency translation that more than offset lower
selling prices. North American net sales
of $583 million for second quarter 2010 were relatively unchanged from $584
million a year ago, as a 14 percent volume improvement and a 2 percent increase
attributable to currency translation were offset by a price/product mix decline
of 16 percent. Volumes grew across the
region, led by strong growth in Mexico, where demand for sweeteners from the
beverage industry remained strong. In
South America, second quarter 2010 net sales increased 26 percent to $287
million from $228 million in the prior year period, as favorable currency
translation of 12 percent and volume growth of 16 percent driven by strong
demand from various industries more than offset a price/product mix decline of
2 percent. In Asia/Africa, second
quarter 2010 net sales grew 35 percent to $134 million from $99 million a year
ago. The increase reflects volume growth
of 25 percent, primarily driven by significantly higher demand for sweeteners
in South Korea, a 5 percent benefit from currency translation and price/product
mix improvement of 5 percent.
First
half 2010 net sales totaled $1.94 billion, up 11 percent from $1.74 billion a
year ago. The increase reflects a 15
percent volume improvement and favorable currency translation of 6 percent due
to stronger foreign currencies, which more than offset a price/product mix
decline of 10 percent. Volumes grew
across all of our regions and particularly in our international
businesses. Co-product sales of $362
million for first half 2010 increased 13 percent from the prior year period, as
improved volume and currency translation more than offset lower selling
prices. Net sales in North America for
the first half of 2010 increased slightly to $1.123 billion from $1.116 billion
a year ago. The increase reflects a 13
percent volume improvement and a 3 percent increase attributable to currency
translation, which more than offset a price/product mix decline of 15
percent. Volumes grew across the region,
led by strong growth in Mexico, where demand for sweeteners from the beverage
industry was particularly strong. In
South America, first half 2010 net sales increased 27 percent to $564 million
from $443 million in the prior year period, as favorable currency translation
of 15 percent and volume growth of 16 percent driven by strong demand from
various industries more than offset a price/product mix decline of 4
percent. In Asia/Africa, net sales for
the first six months of 2010 rose 37 percent to $253 million, from $184 million
a year ago. The increase reflects volume
growth of 25 percent, primarily driven by significantly higher demand for
sweeteners in South Korea, an 8 percent benefit from currency translation and
price/product mix improvement of 4 percent.
Cost of Sales and Operating Expenses
. Cost of sales of $839
million for second quarter 2010 increased 5 percent from $800 million in the
prior year period. Cost of sales for the
first half of 2010 increased 6 percent to $1.63 billion from $1.54 billion a
year ago. These increases principally
reflect volume growth and currency translation, which more than offset
20
lower
corn costs. Gross corn costs for the
second quarter and first half of 2010 declined approximately 6 percent and 4
percent from the comparable prior year periods.
Currency translation attributable to the stronger US dollar caused cost
of sales for the second quarter and first half of 2010 to increase
approximately 5 percent and 7 percent, respectively, from the year ago
periods. Our gross profit margin for the
second quarter and first half of 2010 was 16.3 percent and 15.8 percent,
respectively, compared to 12.2 percent and 11.7 percent last year.
Operating
expenses for the second quarter and first half of 2010 increased to $73.2
million and $143.0 million, respectively, from $61.0 million and $115.7 million
last year. These increases primarily
reflect higher compensation-related costs, stronger foreign currencies, a
return to more historical run rates and expenses pertaining to the proposed acquisition
of National Starch. Currency translation
associated with the stronger foreign currencies caused operating expenses for
both the second quarter and first half of 2010 to increase approximately
4 percent and 5 percent, respectively, from the prior year periods. Operating expenses, as a percentage of net
sales, were 7.3 percent and 7.4 percent for the second quarter and first half
of 2010, respectively, up from 6.7 percent and 6.6 percent in the comparable
prior year periods.
Operating Income
.
Second quarter 2010 operating
income was $76.5 million, up from an operating loss of $73.2 million a year ago. Operating income for the second quarter of
2010 and 2009 include impairment/restructuring charges of $18 million and $125
million, respectively. Additionally, we
incurred $4 million of acquisition-related costs in the second quarter of
2010. Without the impairment,
restructuring and acquisition-related costs, operating income for second
quarter 2010 would have grown 90 percent over the year ago period, as earnings
grew in each of our regions.
Currency translation associated
with stronger foreign currencies caused operating income to increase by
approximately $6 million from the prior year period. North America operating income for second
quarter 2010 increased 78 percent to $59.6 million from $33.4 million a year
ago, primarily reflecting volume growth, lower corn costs and improved plant
utilization rates. Currency translation
associated with the stronger Canadian dollar caused operating income to
increase by approximately $3 million in the region. South America operating income for second
quarter 2010 increased 48 percent to $39.1 million from $26.4 million a year
ago. This increase primarily reflects
improved earnings in the Southern Cone of South America and Brazil driven by
strong volume growth and favorable currency translation. Translation effects associated with stronger
South American currencies, particularly the Brazilian Real, caused operating
income to increase by approximately $3 million in the region. Asia/Africa operating income more than
doubled to $12.9 million from $5.6 million a year ago. This improvement primarily reflects strong
volume growth, particularly in South Korea, and lower corn costs. Improved pricing also contributed to the
earnings growth in the region.
First
half 2010
operating income was $148.3 million,
up significantly from the operating loss of $34.1 million we incurred in the
prior year period. Operating income for
first half 2010 and 2009 include impairment/restructuring charges of $21
million and $125 million, respectively.
Additionally, we incurred $7 million of acquisition-related costs in the
first half of 2010. Without the
impairment, restructuring and acquisition-related costs, operating income for
first half 2010 would have grown 94 percent over the year ago period, as
earnings increased in each of our regions.
Currency translation associated
with stronger foreign currencies caused operating income to increase by
approximately $14 million from the prior year period. North America operating income increased 82
percent to $98.0 million from $53.8 million a year ago, driven by volume
growth, lower corn costs and improved plant utilization rates. Currency translation associated with the
stronger Canadian dollar caused operating income to increase by approximately
$6 million in the region. South
America operating income increased 44 percent to $77.7 million from $54.1
million a year ago. This increase primarily
reflects improved
21
earnings
in Brazil and in the Southern Cone of South America driven by strong volume
growth and favorable currency translation.
Translation effects associated with stronger South American currencies
(particularly the Brazilian Real) caused operating income to increase by
approximately $7 million in the region.
Asia/Africa operating income more than tripled to $26.0 million from
$7.4 million a year ago. This
improvement primarily reflects strong volume growth, particularly in South
Korea, and lower corn costs. Improved
pricing also contributed to the earnings growth in the region. Stronger foreign currencies caused operating
income to increase by approximately $1 million in the region.
Financing Costs-net
. Financing costs for the
second quarter and first half of 2010 declined 37 percent and 48 percent,
respectively, from the prior year periods.
These declines primarily reflect reduced borrowings, foreign currency
transaction gains and an increase in interest income driven by higher cash
positions. Lower interest rates also
contributed to the reduced financing costs for the first half of 2010.
Provision for Income Taxes
. Our effective income tax
rate for the second quarter and first half of 2010 was 44.3 percent and 38.7
percent, respectively, as compared to 1.1 percent and 15.1 percent in the prior
year periods. Our effective income tax
rates for the 2010 periods reflect the impact of the Chilean
charge for impaired assets and other related costs and an
increase to the valuation allowance for Chile.
Our effective income tax rates for the 2009 periods were unusually low
due to
the tax effect of our goodwill
write-off and an increase to our valuation allowance in Korea, both of which
were recorded in the second quarter of 2009.
Net Income Attributable to Non-controlling Interests
. The net
income attributable to non-controlling interests for the second quarter and
first half of 2010 was $2.0 million and $3.5 million, respectively, up slightly
from the prior year periods.
Comprehensive Income Attributable to CPI
. We recorded comprehensive
income of $37 million for the second quarter of 2010, as compared to $50
million in the prior year period. The
decrease primarily reflects unfavorable currency translation attributable to
weaker end of period foreign currencies, which more than offset our net income
growth. For the first half of 2010, we
recorded comprehensive income of $56 million, as compared with $36 million a
year ago. The increase reflects our net
income growth, which more than offset unfavorable foreign currency translation
and losses on cash flow hedges.
Liquidity and Capital Resources
Cash provided by operating activities for first half 2010 decreased to
$185 million from $211 million a year ago.
The decrease in operating cash flow primarily reflects a reduction in
cash flow from working capital activities, which more than offset our net
income growth. Due to the decrease in
the market price of corn, we were required to fund margin accounts related to
our corn futures and option contracts during the first six months of 2010. Capital expenditures of $56 million for first
half 2010 are in line with our capital spending plan for the year. We anticipate our capital expenditures to be
in the range of approximately $150 million to $175 million for full year 2010.
On March 25, 2010, we
sold $200 million of 5.62 percent Senior Series A Notes due March 25, 2020
(the Notes). Interest on the Notes is
required to be paid semi-annually on March 25th and September 25th,
beginning in September 2010. The
Notes are unsecured obligations of ours and rank equally with our other
unsecured, senior indebtedness. We have
the option to prepay the Notes
22
at 100 percent of the
principal amount plus interest up to the prepayment date and, in certain
circumstances, a make-whole amount.
Proceeds from the sale of the Notes are being used for general corporate
purposes, which includes refinancing of bank debt and/or acquisitions. See Note 11 of the notes to the condensed consolidated
financial statements for additional information regarding the Notes.
We have a $500 million senior,
unsecured revolving credit facility consisting of a $470 million US revolving
credit facility and a $30 million Canadian revolving credit facility (together,
the Revolving Credit Agreement) that matures in April 2012. We had no borrowings outstanding under the US
or Canadian revolving credit facilities at June 30, 2010. In addition to borrowing availability under
our Revolving Credit Agreement, we also have approximately $404 million of
unused operating lines of credit in the various foreign countries in which we
operate.
At June 30, 2010, we had total
debt outstanding of $599 million, compared to $544 million at December 31,
2009. The debt includes $200 million of
6.0 percent senior notes due 2017, $200 million of 5.62 percent senior notes
due 2020, $100 million (face amount) of 6.625 percent senior notes due 2037 and
$100 million of consolidated subsidiary debt consisting of local country short-term
borrowings. The weighted average
interest rate on our total indebtedness was approximately 5.5 percent for the
first six months of 2010, down from 5.8 percent in the comparable prior year
period.
We
had an agreement with certain common stockholders (collectively the holder),
relating to 500,000 shares of our common stock, that provided 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
exercised the put option. This put
option was exercisable at any time, until January 2010, when it
expired. The shares associated with the
put option were classified as redeemable common stock in our consolidated
balance sheet prior to the expiration of the put option. The carrying value of the redeemable common
stock was $14 million at December 31, 2009. Effective with the expiration of the
agreement, we discontinued reporting the shares as redeemable common stock and
reclassified the $14 million from redeemable common stock to additional paid-in
capital.
On
May 19, 2010, our board of directors declared a quarterly cash dividend of
$0.14 per share of common stock. This
dividend was paid on July 26, 2010 to stockholders of record at the close
of business on June 30, 2010.
In connection with the
acquisition of National Starch, we have obtained a bridge loan financing
commitment of $1.35 billion. In June 2010,
we paid $16 million of bridge loan commitment fees. These costs are included in prepaid expenses
in our June 30, 2010 Condensed Consolidated Balance Sheet and will be
amortized over the life of the bridge loan.
We expect the acquisition to ultimately be funded from cash and proceeds
from issuances of debt or a combination of debt and common stock.
We
currently expect that our future operating cash flows, borrowing availability
under our credit facilities, bridge loan commitment, and access to capital
markets will provide us with sufficient liquidity to fund our anticipated
capital expenditures, dividends, acquisitions and other investing and/or
financing strategies for the foreseeable future.
23
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. These transactions utilize exchange traded
derivatives or over-the-counter derivatives with investment grade counterparties. Our hedging transactions include but are not
limited to a variety of derivative financial instruments such as commodity
futures, options and swap contracts, forward currency contracts and options,
interest rate swap agreements and treasury lock agreements. See Note 6 of the notes to the condensed
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, options and swap contracts for a
portion of our anticipated corn and natural gas usage, generally over the
following twelve to eighteen months, in order to hedge price risk associated
with fluctuations in market prices.
These derivative instruments are recognized at fair value and have
effectively reduced our exposure to changes in market prices for these
commodities. We are unable to hedge
price risk related to co-product sales.
Unrealized gains and losses associated with marking our
commodities-based derivative instruments to market are recorded as a component
of other comprehensive income. At June
30, 2010, our accumulated other comprehensive loss account included $35 million
of losses, net of tax of $20 million, related to these derivative instruments. It is anticipated that these losses, net of
tax, will be reclassified into earnings during the next twelve months. We expect the losses to be offset by changes
in the underlying commodities cost.
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 transactional exposures. We
generally hedge these exposures up to twelve months forward. At June 30, 2010, we had $13 million of net
notional foreign currency 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) from
time to time to hedge our exposure to interest rate changes, to reduce the
volatility of our financing costs, or to achieve a desired proportion of fixed
versus floating rate debt, based on current and projected market conditions. At June 30, 2010, we did not have
any interest rate swaps or T-Locks outstanding.
24
In conjunction with a plan to issue the 5.62 percent Senior Notes and
in order to manage exposure to variability in the benchmark interest rate on
which the fixed interest rate of the Notes would be based, we had previously
entered into a Treasury Lock agreement (the T-Lock) with respect to $50
million of these borrowings. The T-Lock
was 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 was
priced. It is accounted for as a cash
flow hedge. The T-Lock expired on April
30, 2009 and we paid approximately $6 million, representing the losses on the
T-Lock, to settle the agreement. The
losses are included in the accumulated other comprehensive loss account in the
equity section of our balance sheet and are being amortized to financing costs
over the ten-year term of the Notes.
See also Note 6 of the notes to the condensed consolidated financial
statements for additional information.
At
June 30, 2010, our accumulated other comprehensive loss account included $5 million
of losses (net of tax of $3 million) related to T-Locks, of which $3 million
(net of tax of $2 million) related to the $50 million T-Lock.
Critical Accounting Policies and Estimates
Our
critical accounting policies and estimates are provided in the Managements
Discussion and Analysis of Financial Condition and Results of Operations included in our 2009 Annual Report on
Form 10-K. There have been no changes to
our critical accounting policies and estimates during the six months ended June
30, 2010.
New
Accounting Standards
In April 2010, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2010-17,
Milestone Method of Revenue Recognition
. The update provides guidance on defining a
milestone and determining when it may be appropriate to apply the milestone
method of revenue recognition for research or development transactions. The decision to use the milestone method of
revenue recognition is a policy election.
Other proportional revenue recognition methods also may be applied as
long as the application of those other methods does not result in the
recognition of consideration in its entirety in the period the milestone is
achieved. The guidance in this update is
effective on a prospective basis for milestones achieved in fiscal years, and
interim periods within those years, beginning on or after June 15, 2010. We do not expect that the application of this
guidance will have a material impact on our consolidated financial statements.
FORWARD-LOOKING
STATEMENTS
This
Form 10-Q contains or may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. 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 Companys prospects or future
financial condition, earnings, revenues, expenses or other financial items, any
statements concerning the Companys prospects or future operations, including
managements plans or strategies and objectives therefor and any assumptions,
expectations or beliefs 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
25
statements
other than statements of historical facts in this report or referred to in or
incorporated by reference into this report are forward-looking statements. These statements are based on current expectations,
but are subject to certain inherent risks and uncertainties, many of which are
difficult to predict and are beyond our control. 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 expressed in or
implied by these statements, based on various factors, including the effects of the global economic recession
and its impact on our sales volumes and pricing of our products, our ability to
collect our receivables from customers and our ability to raise funds at
reasonable rates; fluctuations in worldwide markets for corn and other
commodities, and the associated risks of hedging against such fluctuations; fluctuations in the markets and prices for
our co-products, particularly corn oil; fluctuations in aggregate
industry supply and market demand; the
behavior of financial markets, including foreign currency fluctuations and
fluctuations in interest and exchange rates; continued volatility and turmoil
in the capital markets; the commercial and consumer credit environment; general
political, economic, business, market and weather conditions in the various
geographic regions and countries in which we manufacture and/or sell our
products; future financial performance
of major industries which we serve, including, without limitation, the food and
beverage, pharmaceuticals, paper, corrugated, textile and brewing industries; 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; and the
outbreak or continuation of serious communicable disease or hostilities
including acts of terrorism. 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 as a result of
new information or future events or developments. If we do update or correct one or more of
these statements, investors and others should not conclude that we will make
additional updates or corrections. For a
further description of these and other risks, see Risk Factors included in
our Annual Report on Form 10-K for the year ended December 31, 2009 and
subsequent reports on Forms 10-Q or 8-K.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This
information is set forth in our Annual Report on Form 10-K for the year ended
December 31, 2009, and is incorporated herein by reference. There have been no material changes to our
market risk during the six months ended June 30, 2010.
ITEM 4
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 June 30, 2010.
Based on that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures (a) 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 SECs rules and forms and
(b) are designed to ensure that information required to be disclosed in the
reports we file or submit under the Securities Exchange Act of 1934, as
amended, is
26
accumulated
and communicated to our management, including our principal executive and
principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. There
have been no changes in our internal control over financial reporting during
the quarter ended June 30, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
27
PART II OTHER INFORMATION
ITEM 1
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 Additional Office of 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 in force from 2002 through 2006 breached various
obligations of Mexico under the investment protection provisions of NAFTA. The case was bifurcated into two phases,
liability and damages, and a hearing on liability was held before a Tribunal in
July 2006. In a Decision dated January
15, 2008, the Tribunal unanimously held that Mexico had violated NAFTA Article
1102, National Treatment, by treating beverages sweetened with HFCS produced by
foreign companies differently than those sweetened with domestic sugar. In July 2008, a hearing regarding the quantum
of damages was held before the same Tribunal.
We sought damages and pre- and post-judgment interest totaling $288
million through December 31, 2008.
In an award rendered August 18,
2009, the Tribunal awarded damages to CPIngredientes in the amount of $58.4
million, representing lost profits in Mexico as a result of the tax and certain
out-of-pocket expenses incurred by CPIngredientes, together with accrued
interest. On October 1, 2009, we
submitted to the Tribunal a request for correction of this award to avoid
effective double taxation on the amount of the award in Mexico. On November 16, 2009, we preserved our appeal
rights by entering a Notice of Application in the Superior Court of Justice of
Ontario, Canada requesting set-aside of the payment provisions of the award.
On March 26, 2010, the Tribunal
issued a correction of its August 18, 2009 damages award. While the amount of damages has not changed,
the decision makes the damages payable to Corn Products International, Inc.
instead of CPIngredientes to eliminate double taxation. On June 15, 2010, Mexico preserved its own
appeal rights by entering a Notice of Application in the Superior Court of
Justice of Ontario, Canada with regard to the Tribunals March 26, 2010
correction.
28
ITEM 2
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer
Purchase of Equity Securities:
(shares in thousands)
|
|
Total
Number
of Shares
Purchased
|
|
Average
Price
Paid
per Share
|
|
Total Number of
Shares Purchased
as part of Publicly
Announced Plans
or Programs
|
|
Maximum Number
(or Approximate
Dollar Value) of
Shares that may
yet be Purchased
Under the Plans or
Programs at end
of period
|
|
|
|
|
|
|
|
|
|
|
|
April 1 April 30, 2010
|
|
82
|
|
36.52
|
|
82
|
|
4,703 shares
|
|
May 1 May 31, 2010
|
|
18
|
|
36.52
|
|
18
|
|
4,685 shares
|
|
June 1 June 30, 2010
|
|
|
|
|
|
|
|
4,685 shares
|
|
Total
|
|
100
|
|
|
|
100
|
|
|
|
The Company has a stock repurchase program, which
runs through November 30, 2010, that permits the Company to repurchase up to 5
million shares of its outstanding common stock.
As of June 30, 2010, the Company had repurchased 315 thousand shares
under the program, leaving 4.7 million shares available for repurchase.
ITEM 6
EXHIBITS
a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index hereto.
All
other items hereunder are omitted because either such item is inapplicable or
the response is negative.
29
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
CORN
PRODUCTS INTERNATIONAL, INC.
|
|
|
|
|
|
|
DATE:
|
August
6, 2010
|
By
|
/s/
Cheryl K. Beebe
|
|
|
Cheryl
K. Beebe
|
|
|
Vice
President and Chief Financial Officer
|
|
|
|
|
|
|
DATE:
|
August
6, 2010
|
By
|
/s/
Robin A. Kornmeyer
|
|
|
Robin
A. Kornmeyer
|
|
|
Vice
President and Controller
|
30
EXHIBIT INDEX
Number
|
|
Description of Exhibit
|
|
|
|
10.24
|
|
Letter
of Agreement dated as of April 2, 2010 between the Company and Diane Frisch
|
|
|
|
10.25
|
|
Executive
Severance Agreement dated as of May 1, 2010 between the Company and Diane
Frisch
|
|
|
|
11
|
|
Statement
re: Computation of Earnings per Share
|
|
|
|
12
|
|
Statement
re: Computation of Ratio of Earnings to Fixed Charges
|
|
|
|
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
|
|
|
|
101
|
|
The
following financial information from Corn Products International, Inc.s
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2010 formatted in Extensible Business Reporting Language
(XBRL): (i) the Condensed Consolidated Statements of Income;
(ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed
Consolidated Statements of Comprehensive Income; (iv) the Condensed
Consolidated Statements of Equity and Redeemable Equity; (v) the
Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to
the Condensed Consolidated Financial Statements, tagged as block text.*
|
*
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit
101 hereto are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as
Amended, are deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as Amended, and otherwise are not subject to liability
under those sections.
31
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