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 SEPTEMBER 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 November 1, 2010
|
Common Stock, $.01 par value
|
|
75,615,987 shares
|
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORN PRODUCTS INTERNATIONAL, INC. (CPI)
Condensed
Consolidated Statements of Income
(Unaudited)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
(In millions, except per share amounts)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net sales before shipping and handling costs
|
|
$
|
1,083.4
|
|
$
|
1,027.2
|
|
$
|
3,144.0
|
|
$
|
2,873.7
|
|
Less: shipping and handling costs
|
|
63.9
|
|
56.6
|
|
184.2
|
|
160.3
|
|
Net sales
|
|
1,019.5
|
|
970.6
|
|
2,959.8
|
|
2,713.4
|
|
Cost of sales
|
|
847.9
|
|
817.3
|
|
2,481.6
|
|
2,355.6
|
|
Gross profit
|
|
171.6
|
|
153.3
|
|
478.2
|
|
357.8
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
81.6
|
|
65.9
|
|
224.5
|
|
181.6
|
|
Other (income), net
|
|
(1.8
|
)
|
(.4
|
)
|
(7.2
|
)
|
(2.5
|
)
|
Impairment / restructuring charges
|
|
3.2
|
|
|
|
24.0
|
|
125.0
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
88.6
|
|
87.8
|
|
236.9
|
|
53.7
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs, net
|
|
30.2
|
|
9.3
|
|
41.7
|
|
31.4
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
58.4
|
|
78.5
|
|
195.2
|
|
22.3
|
|
Provision for income taxes
|
|
19.6
|
|
24.5
|
|
72.6
|
|
33.0
|
|
Net income (loss)
|
|
38.8
|
|
54.0
|
|
122.6
|
|
(10.7
|
)
|
Less: Net income attributable to non-controlling
interests
|
|
1.9
|
|
1.2
|
|
5.4
|
|
4.5
|
|
Net income (loss) attributable to CPI
|
|
$
|
36.9
|
|
$
|
52.8
|
|
$
|
117.2
|
|
$
|
(15.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
75.6
|
|
74.9
|
|
75.5
|
|
74.9
|
|
Diluted
|
|
76.7
|
|
75.7
|
|
76.6
|
|
74.9
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share of CPI:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.49
|
|
$
|
.70
|
|
$
|
1.55
|
|
$
|
(0.20
|
)
|
Diluted
|
|
$
|
0.48
|
|
$
|
.70
|
|
$
|
1.53
|
|
$
|
(0.20
|
)
|
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)
|
|
September 30,
2010
|
|
December 31,
2009
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,587
|
|
$
|
175
|
|
Accounts receivable net
|
|
478
|
|
440
|
|
Inventories
|
|
419
|
|
394
|
|
Prepaid expenses
|
|
19
|
|
13
|
|
Deferred income taxes
|
|
13
|
|
23
|
|
Total current assets
|
|
2,516
|
|
1,045
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
1,551
|
|
1,564
|
|
Goodwill and other intangible assets
|
|
246
|
|
245
|
|
Deferred income taxes
|
|
2
|
|
3
|
|
Investments
|
|
11
|
|
10
|
|
Other assets
|
|
99
|
|
85
|
|
Total assets
|
|
$
|
4,425
|
|
$
|
2,952
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Short-term borrowings and current portion of
long-term debt
|
|
$
|
70
|
|
$
|
136
|
|
Deferred income taxes
|
|
|
|
9
|
|
Accounts payable and accrued liabilities
|
|
500
|
|
420
|
|
Total current liabilities
|
|
570
|
|
565
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
140
|
|
142
|
|
Long-term debt
|
|
1,705
|
|
408
|
|
Deferred income taxes
|
|
120
|
|
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 75,498,270 and 74,819,774 shares issued at September 30,
2010 and December 31, 2009, respectively
|
|
1
|
|
1
|
|
Additional paid-in capital
|
|
1,103
|
|
1,082
|
|
Less: Treasury stock (common stock; 8,429 and
433,596 shares at September 30, 2010 and December 31, 2009,
respectively) at cost
|
|
|
|
(13
|
)
|
Accumulated other comprehensive loss
|
|
(249
|
)
|
(308
|
)
|
Retained earnings
|
|
1,005
|
|
919
|
|
Total CPI stockholders equity
|
|
1,860
|
|
1,681
|
|
Non-controlling interests
|
|
24
|
|
23
|
|
Total equity
|
|
1,884
|
|
1,704
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
4,425
|
|
$
|
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
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net income (loss)
|
|
$
|
39
|
|
$
|
54
|
|
$
|
123
|
|
$
|
(11
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Gains (losses) on cash flow hedges, net of income
tax effect of $10, $6, $18 and $45, respectively
|
|
17
|
|
(11
|
)
|
(33
|
)
|
(75
|
)
|
Reclassification adjustment for losses on cash
flow hedges included in net income (loss), net of income tax effect of $8,
$30, $36, and $94, respectively
|
|
14
|
|
50
|
|
57
|
|
157
|
|
Unrealized (loss) gain on investment, net of
income tax effect
|
|
(1
|
)
|
|
|
(1
|
)
|
1
|
|
Currency translation adjustment
|
|
53
|
|
66
|
|
36
|
|
126
|
|
Comprehensive income
|
|
122
|
|
159
|
|
182
|
|
198
|
|
Comprehensive income attributable to
non-controlling interests
|
|
(2
|
)
|
(1
|
)
|
(5
|
)
|
(4
|
)
|
Comprehensive income attributable to CPI
|
|
$
|
120
|
|
$
|
158
|
|
$
|
177
|
|
$
|
194
|
|
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
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
Net income attributable to non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
(3
|
)
|
|
|
|
|
Losses on cash flow hedges, net of income tax
effect of $18
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
Amount of losses on cash flow hedges reclassified
to earnings, net of income tax effect of $36
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
7
|
|
18
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Expiration of put option (see Note 10)
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Balance, September 30,
2010
|
|
$
|
1
|
|
$
|
1,103
|
|
$
|
|
|
$
|
(249
|
)
|
$
|
1,005
|
|
$
|
24
|
|
$
|
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
Net income attributable to non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
(3
|
)
|
|
|
|
|
Losses on cash flow hedges, net of income tax
effect of $45
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
Amount of losses on cash flow hedges reclassified
to earnings, net of income tax effect of $94
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
(2
|
)
|
15
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
Purchase of non-controlling interest
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
Balance at September 30,
2009
|
|
$
|
1
|
|
$
|
1,081
|
|
$
|
(17
|
)
|
$
|
(385
|
)
|
$
|
874
|
|
$
|
21
|
|
$
|
14
|
|
$
|
7
|
|
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)
|
|
Nine Months Ended
September 30,
|
|
(In millions)
|
|
2010
|
|
2009
|
|
Cash provided by operating activities:
|
|
|
|
|
|
Net income (loss)
|
|
$
|
123
|
|
$
|
(11
|
)
|
Non-cash charges (credits) to net income (loss):
|
|
|
|
|
|
Write-off of impaired assets
|
|
19
|
|
124
|
|
Write-off of bridge loan financing costs
|
|
20
|
|
|
|
Depreciation and amortization
|
|
105
|
|
95
|
|
Changes in working capital:
|
|
|
|
|
|
Accounts receivable and prepaid items
|
|
(25
|
)
|
(33
|
)
|
Inventories
|
|
(17
|
)
|
76
|
|
Accounts payable and accrued liabilities
|
|
98
|
|
(10
|
)
|
Decrease in margin accounts
|
|
10
|
|
121
|
|
Other
|
|
(8
|
)
|
6
|
|
Cash provided by operating activities
|
|
325
|
|
368
|
|
|
|
|
|
|
|
Cash used for investing
activities:
|
|
|
|
|
|
Capital expenditures, net of proceeds on disposals
|
|
(90
|
)
|
(98
|
)
|
Other
|
|
(1
|
)
|
(4
|
)
|
Cash used for investing activities
|
|
(91
|
)
|
(102
|
)
|
|
|
|
|
|
|
Cash provided by (used for)
financing activities:
|
|
|
|
|
|
Proceeds from borrowings
|
|
1,306
|
|
97
|
|
Payments on debt
|
|
(75
|
)
|
(277
|
)
|
Bridge financing costs
|
|
(17
|
)
|
|
|
Debt issuance costs
|
|
(14
|
)
|
|
|
Repurchases of common stock
|
|
(5
|
)
|
(3
|
)
|
Issuance of common stock
|
|
11
|
|
2
|
|
Dividends paid (including to non-controlling
interests)
|
|
(35
|
)
|
(34
|
)
|
Excess tax benefit on share-based compensation
|
|
3
|
|
1
|
|
Cash provided by (used for) financing activities
|
|
1,174
|
|
(214
|
)
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
4
|
|
2
|
|
Increase in cash and cash equivalents
|
|
1,412
|
|
54
|
|
Cash and cash equivalents, beginning of period
|
|
175
|
|
107
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,587
|
|
$
|
161
|
|
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 on the same basis as the Companys audited
consolidated financial statements for the year ended December 31, 2009 and
reflect all adjustments (consisting solely of normal recurring items unless
otherwise noted) which are, in the opinion of management, necessary for the
fair presentation of results of operations and cash flows for the interim
periods ended September 30, 2010 and 2009, and the financial position of
the Company as of September 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 (ASU) 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.
In April 2010, the FASB issued
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. The application of this guidance did not have
a material impact on the Companys consolidated financial statements.
3.
Acquisition
On
October 1, 2010, the Company completed its acquisition of National Starch,
a global provider of specialty starches, from AkzoNobel, Inc., a global
coatings and specialty chemicals company, headquartered in The
Netherlands. The Company acquired 100
percent of National Starch through asset purchases in certain countries and
stock purchases in certain countries.
The purchase price was $1.3 billion in cash, subject
8
to
certain post-closing adjustments. The
funding of the purchase price was provided principally from borrowings. See Note 11 for information regarding the
Companys borrowing activity.
As
a result of the October 1, 2010 acquisition of National Starch, beginning
with the fourth quarter of 2010 the Companys consolidated results will include
National Starchs results. The Company
has not completed a detailed valuation analysis necessary to determine the fair
market values of the National Starch assets acquired and liabilities assumed,
any related income tax effects, or the supplemental pro forma historical
information. It is expected that the
Company will recognize an increase in the recorded book value of property,
plant and equipment and identify certain finite-lived intangibles assets and
the resulting additional depreciation or amortization under the provisions of
ASC Topic 805
Business Combinations
upon the
completion of the detailed valuation analysis.
The
acquisition positions the Company with a broader portfolio of products,
enhanced geographic reach, and the ability to offer customers a broad range of
value-added ingredient solutions for a variety of their evolving needs.
National
Starch, which employs approximately 2,200 people, had sales of $1.2 billion in
2009 and has 11 manufacturing facilities in 8 countries, across 5
continents. Additionally, National
Starch has various sales and technical offices around the world. The combined company currently employs
approximately 10,000 people in North America, South America, Europe, the Middle
East, Africa and the Asia-Pacific. It
operates 37 manufacturing facilities in 15 countries; has sales offices in 29
countries, and has research and ingredient development centers in key global
markets.
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 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 $24
million charge for impaired assets and other related costs in its Condensed
Consolidated Statement of Income for the nine months ended September 30,
2010, including a third quarter charge of $3 million principally consisting of
employee severance and related benefit costs associated with the termination of
employees in Chile. 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
9
effective
income tax rates were 37.2 percent and 148.0 percent for the nine months ended September 30,
2010 and 2009, respectively. The Companys
effective income tax rate for 2010 reflects 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 rate for 2009 reflects
the tax effect of the goodwill write-off and an increase to
the valuation allowance in Korea.
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.
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
(in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
577.8
|
|
$
|
598.3
|
|
$
|
1,701.2
|
|
$
|
1,714.0
|
|
South America
|
|
309.6
|
|
271.0
|
|
873.8
|
|
713.7
|
|
Asia/Africa
|
|
132.1
|
|
101.3
|
|
384.8
|
|
285.7
|
|
Total
|
|
$
|
1,019.5
|
|
$
|
970.6
|
|
$
|
2,959.8
|
|
$
|
2,713.4
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
66.5
|
|
$
|
61.1
|
|
$
|
164.6
|
|
$
|
114.8
|
|
South America
|
|
35.7
|
|
37.3
|
|
113.4
|
|
91.4
|
|
Asia/Africa
|
|
12.5
|
|
3.7
|
|
38.5
|
|
11.2
|
|
Corporate
|
|
(12.4
|
)
|
(14.3
|
)
|
(38.2
|
)
|
(38.7
|
)
|
Sub-total
|
|
102.3
|
|
87.8
|
|
278.3
|
|
178.7
|
|
Impairment/restructuring charges
|
|
(3.2
|
)
|
|
|
(24.0
|
)
|
(125.0
|
)
|
Acquisition costs
|
|
(10.5
|
)
|
|
|
(17.4
|
)
|
|
|
Total
|
|
$
|
88.6
|
|
$
|
87.8
|
|
$
|
236.9
|
|
$
|
53.7
|
|
(in millions)
|
|
At
September 30, 2010
|
|
At
December 31, 2009
|
|
Total Assets
|
|
|
|
|
|
North America
|
|
$
|
3,008
|
|
$
|
1,651
|
|
South America
|
|
1,081
|
|
999
|
|
Asia/Africa
|
|
336
|
|
302
|
|
Total
|
|
$
|
4,425
|
|
$
|
2,952
|
|
10
The
increase in North America assets primarily reflects the cash proceeds from
borrowings used to fund the October 1, 2010 acquisition of National
Starch. See Note 11 for information
related to the Companys borrowing activity.
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.
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 Series A Notes). See Note 11
for additional information regarding the Series A Notes. In
conjunction with a plan to issue the Series A Notes and in order to manage
exposure to variability in the benchmark interest rate on which the fixed
interest rate of these 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
11
losses are included in AOCI
and are being amortized to financing costs over the ten-year term of the Series
A Notes.
In connection with the
acquisition of National Starch, on September 17, 2010, the Company issued
and sold $900 million aggregate principal amount of senior unsecured notes (the
Notes). The Notes consist of $350
million aggregate principal amount of 3.2 percent notes due November 1,
2015 (the 2015 Notes), $400 million aggregate principal amount of 4.625
percent notes due November 1, 2020 (the 2020 Notes), and $150 million
aggregate principal amount of 6.625 percent notes due April 15, 2037. See Note 11 for additional information
regarding the Notes.
In conjunction with a plan to
issue these long-term fixed-rate Notes and in order to manage its exposure to
variability in the benchmark interest rates on which the fixed interest rates
of the Notes would be based, the Company entered into T-Lock agreements with
respect to $300 million of the 2015 Notes and $300 million of the 2020 Notes
(the T-Locks). The T-Locks were
designated as hedges 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-Locks were entered and the time the debt was
priced. The T-Locks are accounted for as
cash flow hedges. The T-Locks were
terminated on September 15, 2010 and the Company paid approximately $15
million, representing the losses on the T-Locks, to settle the agreements. The losses are included in AOCI and are being
amortized to financing costs over the terms of the 2015 and 2020 Notes.
At September 30, 2010,
the Companys AOCI account included $14 million of losses (net of tax of $9
million) related to Treasury Lock agreements.
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 September 30, 2010, the Company had
$28 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:
|
|
Fair Value of Derivative Instruments
|
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
Derivatives designated as
hedging instruments:
(in millions)
|
|
Balance Sheet
Location
|
|
At
Sept. 30,
2010
|
|
At
December 31,
2009
|
|
Balance Sheet
Location
|
|
At
Sept. 30,
2010
|
|
At
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
contracts
|
|
Accounts
receivable-net
|
|
$
|
28
|
|
$
|
26
|
|
Accounts
payable and accrued liabilities
|
|
$
|
21
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
1
|
|
|
|
Non-current
liabilities
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
29
|
|
$
|
26
|
|
|
|
$
|
22
|
|
$
|
18
|
|
12
At September 30, 2010, the Company had outstanding
futures and option contracts that hedge approximately 46 million bushels of
forecasted corn purchases. Also at September 30,
2010, the Company had outstanding swap and option contracts that hedge
approximately 11 million mmbtus of forecasted natural gas purchases.
Additional information relating to the Companys
derivative instruments is presented below (in millions):
|
|
Amount of Gains (Losses)
Recognized in OCI
on Derivatives
|
|
Location of
|
|
Amount of Losses
Reclassified from AOCI
into Income
|
|
Derivatives in
Cash Flow
Hedging
Relationships
|
|
Three Months
Ended
September 30,
2010
|
|
Three Months
Ended
September 30,
2009
|
|
Losses
Reclassified
from AOCI into
Income
|
|
Three Months
Ended
September 30,
2010
|
|
Three Months
Ended
September 30,
2009
|
|
Commodity contracts
|
|
$
|
42
|
|
$
|
(17
|
)
|
Cost
of sales
|
|
$
|
22
|
|
$
|
80
|
|
Interest rate contracts
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27
|
|
$
|
(17
|
)
|
|
|
$
|
22
|
|
$
|
80
|
|
|
|
Amount of Gains (Losses)
Recognized in OCI
on Derivatives
|
|
Location of
|
|
Amount of Losses
Reclassified from AOCI
into Income
|
|
Derivatives in
Cash Flow
Hedging
Relationships
|
|
Nine Months
Ended
September 30,
2010
|
|
Nine Months
Ended
September 30,
2009
|
|
Losses
Reclassified
from AOCI into
Income
|
|
Nine Months
Ended
September 30,
2010
|
|
Nine Months
Ended
September 30,
2009
|
|
Commodity contracts
|
|
$
|
(36
|
)
|
$
|
(124
|
)
|
Cost
of sales
|
|
$
|
92
|
|
$
|
250
|
|
Interest rate contracts
|
|
(15
|
)
|
4
|
|
Financing
costs, net
|
|
1
|
|
1
|
|
Total
|
|
$
|
(51
|
)
|
$
|
(120
|
)
|
|
|
$
|
93
|
|
$
|
251
|
|
At September 30, 2010, the Companys AOCI account
included approximately $5 million of gains on commodity hedging contracts, net
of income taxes, which are expected to be reclassified into earnings during the
next twelve months. The Company expects the
gains to be offset by changes in the underlying commodities cost. Additionally, at September 30, 2010, the
Companys AOCI account included approximately $2 million of losses on
Treasury Lock
agreements, net of income taxes, which are
expected to be reclassified into earnings during the next twelve months.
13
Presented below are the fair values of the Companys
financial instruments and derivatives for the periods presented:
|
|
As of September 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
|
|
$
|
4
|
|
$
|
4
|
|
$
|
|
|
$
|
|
|
$
|
3
|
|
$
|
3
|
|
$
|
|
|
$
|
|
|
Derivative assets
|
|
29
|
|
29
|
|
|
|
|
|
26
|
|
26
|
|
|
|
|
|
Derivative liabilities
|
|
22
|
|
6
|
|
16
|
|
|
|
18
|
|
2
|
|
16
|
|
|
|
Long-term debt
|
|
1,790
|
|
|
|
1,790
|
|
|
|
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 September 30, 2010,
the carrying value and fair value of the Companys long-term debt was $1.705
billion and $1.790 billion, respectively.
7.
Share-Based
Compensation
A
summary of information with respect to stock-based compensation is as follows:
|
|
For the Three
Months Ended
September 30,
|
|
For the Nine
Months Ended
September 30,
|
|
(in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Total stock-based
compensation expense included in net income (loss)
|
|
$
|
2.9
|
|
$
|
3.4
|
|
$
|
9.0
|
|
$
|
7.3
|
|
Income tax benefit
related to stock-based compensation included in net income (loss)
|
|
$
|
0.9
|
|
$
|
1.1
|
|
$
|
3.0
|
|
$
|
2.5
|
|
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.
14
The
Company granted non-qualified options to purchase 828 thousand shares of the
Companys common stock during the nine months ended September 30, 2010.
The
fair value of each option grant was estimated using the Black-Scholes option
pricing model with the following assumptions:
|
|
September 30,
2010
|
|
September 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 nine months ended September 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
|
|
(665
|
)
|
16.63
|
|
|
|
|
|
Cancelled
|
|
(36
|
)
|
30.53
|
|
|
|
|
|
Outstanding at
Sept. 30, 2010
|
|
4,969
|
|
27.05
|
|
6.37
|
|
$
|
52,000
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
Sept. 30, 2010
|
|
3,451
|
|
26.41
|
|
5.33
|
|
$
|
38,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended September 30, 2010, cash received from the exercise
of stock options was $11 million and the income tax benefit realized from the
exercise of stock options was $3 million.
As of September 30, 2010, the total remaining unrecognized
compensation cost related to stock options approximated $8 million, which will
be amortized over the weighted-average period of approximately 1.4 years.
Additional
information pertaining to stock option activity is as follows:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
(dollars in thousands, except per share)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Weighted average grant date fair value of stock
options granted (per share)
|
|
$
|
|
|
$
|
|
|
$
|
8.41
|
|
$
|
6.36
|
|
Total intrinsic value of stock options exercised
|
|
$
|
4,617
|
|
$
|
2,071
|
|
$
|
11,430
|
|
$
|
2,448
|
|
15
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 nine months ended September 30, 2010 was $0.5
million and $2.4 million, respectively, as compared to $1.1 million and $2.3
million in the comparable prior year periods.
The
following table summarizes restricted share activity for the nine months ended September 30,
2010:
(shares in thousands)
|
|
Number of
Restricted
Shares
|
|
Weighted
Average
Fair Value
|
|
Non-vested at
December 31, 2009
|
|
235
|
|
$
|
29.60
|
|
Granted
|
|
30
|
|
30.86
|
|
Vested
|
|
(76
|
)
|
28.90
|
|
Cancelled
|
|
(5
|
)
|
31.02
|
|
Non-vested at Sept.
30, 2010
|
|
184
|
|
30.05
|
|
|
|
|
|
|
|
|
As
of September 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 2.3 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 nine months ended September 30, 2010 and 2009:
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
|
|
US Plans
|
|
Non-US Plans
|
|
US Plans
|
|
Non-US Plans
|
|
(in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Service cost
|
|
$
|
0.9
|
|
$
|
0.8
|
|
$
|
0.7
|
|
$
|
0.5
|
|
$
|
2.6
|
|
$
|
2.4
|
|
$
|
1.9
|
|
$
|
1.4
|
|
Interest cost
|
|
1.2
|
|
1.1
|
|
2.0
|
|
1.8
|
|
3.5
|
|
3.4
|
|
5.9
|
|
5.1
|
|
Expected return on plan assets
|
|
(1.2
|
)
|
(1.0
|
)
|
(2.2
|
)
|
(1.9
|
)
|
(3.5
|
)
|
(3.0
|
)
|
(6.5
|
)
|
(5.4
|
)
|
Amortization of net actuarial loss
|
|
0.3
|
|
0.4
|
|
0.1
|
|
|
|
0.9
|
|
1.2
|
|
0.3
|
|
0.1
|
|
Amortization of prior service cost
|
|
|
|
0.1
|
|
0.1
|
|
0.1
|
|
0.1
|
|
0.2
|
|
0.4
|
|
0.3
|
|
Net pension cost
|
|
$
|
1.2
|
|
$
|
1.4
|
|
$
|
0.7
|
|
$
|
0.5
|
|
$
|
3.6
|
|
$
|
4.2
|
|
$
|
2.0
|
|
$
|
1.5
|
|
16
The
Company currently anticipates that it will make approximately $16 million in
cash contributions to its pension plans in 2010, consisting of $8 million to
its US pension plans and $8 million to its non-US pension plans. For the nine months ended September 30,
2010, payments of $8 million and $6 million have been made to the US plans and
non-US plans, respectively.
The following sets forth the components of net
postretirement benefit cost for the three and nine months ended September 30,
2010 and 2009:
|
|
Three Months
Ended September 30,
|
|
Nine Months
Ended September 30,
|
|
(in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Service cost
|
|
$
|
0.6
|
|
$
|
0.5
|
|
$
|
1.8
|
|
$
|
1.5
|
|
Interest cost
|
|
1.0
|
|
0.9
|
|
3.0
|
|
2.8
|
|
Amortization of prior service cost
|
|
|
|
0.1
|
|
0.1
|
|
0.1
|
|
Amortization of net actuarial loss
|
|
0.2
|
|
0.2
|
|
0.6
|
|
0.5
|
|
Net postretirement benefit cost
|
|
$
|
1.8
|
|
$
|
1.7
|
|
$
|
5.5
|
|
$
|
4.9
|
|
9.
Inventories
Inventories
are summarized as follows:
(in millions)
|
|
At
September 30,
2010
|
|
At
December 31,
2009
|
|
Finished and in process
|
|
$
|
181
|
|
$
|
176
|
|
Raw materials
|
|
171
|
|
150
|
|
Manufacturing supplies and other
|
|
67
|
|
68
|
|
Total inventories
|
|
$
|
419
|
|
$
|
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.
17
11.
Debt
On March 25, 2010, the
Company entered into a Private Shelf Agreement (the Shelf Agreement) with
Prudential Investment Management, Inc. providing for the issuance of
senior promissory notes in an aggregate principal amount of $200 million.
On March 25, 2010,
pursuant to the Shelf Agreement, the Company issued 5.62 percent Senior
Series A Notes due March 25, 2020 in an aggregate principal amount of
$200 million. The Series A Notes rank equally with the Companys
other senior unsecured debt. Interest on
the Series A Notes is required to be paid semi-annually on March 25th
and September 25th, beginning in September 2010. The Series A 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 Series A
Notes have been used for general corporate purposes.
The Shelf Agreement contains
various covenants which are substantially similar to the covenants in the
Companys 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 Agreement also contains customary events of default.
On September 2, 2010,
the Company entered into a new three-year, senior unsecured $1 billion
revolving credit facility. The new
credit facility replaced the Companys previously existing $500 million senior
unsecured revolving credit facility. The
Company paid fees of approximately $8 million relating to the new credit
facility, which are being amortized to interest expense over the three-year
term of the facility. The Company had
$300 million of borrowings outstanding under the revolving credit facility at September 30,
2010.
Subject
to certain terms and conditions, the Company may increase the amount of the
revolving facility under the Revolving Credit Agreement by up to $250 million
in the aggregate. All committed pro rata
borrowings under the revolving facility will bear interest at a variable annual
rate based on the LIBOR or base rate, at the Companys election, subject to the
terms and conditions thereof, plus, in each case, an applicable margin based on
the Companys leverage ratio (as reported in the financial statements delivered
pursuant to the Revolving Credit Agreement).
The
Revolving Credit Agreement contains customary representations, warranties,
covenants, events of default, terms and conditions, including limitations on
liens, incurrence of debt, mergers and significant asset dispositions.
The Company must also comply with a leverage ratio and an interest coverage
ratio. The occurrence of an event of
default under the Revolving Credit Agreement could result in all loans and
other obligations being declared due and payable and the revolving credit
facility being terminated.
18
In connection with the acquisition of National Starch, on September 17,
2010, the Company issued and sold $900 million aggregate principal amount of
senior unsecured notes (the Notes) as follows:
|
|
|
|
Premium
|
|
Selling
|
|
(in millions)
|
|
Principal
|
|
(Discount)
|
|
Price
|
|
3.2% notes due November 1, 2015
|
|
$
|
350
|
|
$
|
(1
|
)
|
$
|
349
|
|
4.625% notes due November 1, 2020
|
|
400
|
|
(1
|
)
|
399
|
|
6.625% notes due April 15, 2037
|
|
150
|
|
8
|
|
158
|
|
|
|
$
|
900
|
|
$
|
6
|
|
$
|
906
|
|
The Company paid debt
issuance costs of approximately $6 million relating to the Notes, which will be
amortized to interest expense over the lives of the respective notes. Additionally, the premium and discounts on
the Notes will be amortized to interest expense over the lives of the
respective notes.
Interest on the 3.2 percent
notes and the 4.625 percent notes is required to be paid semi-annually on May 1
st
and November 1
st
, commencing May 1, 2011. Interest on the 6.625 percent notes is
required to be paid semi-annually on April 15
th
and October 15
th
, commencing October 15,
2010.
The Notes are redeemable, in
whole at any time or in part from time to time, at the Companys 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), plus 30 basis points, plus, in each case, accrued interest
thereon to the date of redemption.
As a result of the sale of
the Notes and the entry into the new revolving credit facility, the Company
terminated the $1.35 billion bridge term loan facility that it had previously
arranged. Fees associated with the
bridge loan totaling $20 million were expensed to financing costs in September 2010.
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
19
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 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
entered 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 entered 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.
In an order dated July 30,
2010, the Ontario Court consolidated the set-aside actions. They will be heard together on March 7-8,
2011.
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
On
October 1, 2010, the Company completed its acquisition of National Starch,
a global provider of specialty starches, from AkzoNobel, Inc., a global
coatings and specialty chemicals company, headquartered in The
Netherlands. The Company acquired 100
percent of National Starch through asset purchases in certain countries and
stock purchases in certain countries.
The purchase price was $1.3 billion in cash, subject to certain
post-closing adjustments. The funding of
the purchase price was provided principally from borrowings. The acquisition positions us with a broader
portfolio of products, enhanced geographic reach, and the ability to offer
customers a broad range of value-added ingredient solutions for a variety of
their evolving needs.
20
National
Starch is headquartered in Bridgewater, New Jersey and has approximately 2,200
employees world-wide. National Starch
had sales of $1.2 billion in 2009 and has 11 manufacturing facilities in 8
countries, across 5 continents.
Additionally, National Starch has various sales and technical offices
around the world. See Note 3 of the
notes to the condensed consolidated financial statements for additional
information related to the acquisition.
Our
combined company currently employs approximately 10,000 people in North
America, South America, Europe, the Middle East, Africa and the
Asia-Pacific. It operates 37
manufacturing facilities in 15 countries; has sales offices in 29 countries,
and has research and ingredient development centers in key global markets.
We
are one of the worlds largest corn refiners and a major supplier of
high-quality food ingredients, industrial products and specialty starches
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. As noted above, we have thirty-seven
manufacturing plants located throughout North America, South America, Europe,
Africa and the Asia-Pacific 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 third
quarter of 2010 as net sales and operating income grew from the year ago
period. Increased sales volumes,
improved plant utilization rates, lower corn costs and favorable currency translations
drove the earnings improvement. Our net
income and diluted earnings per common share declined from the year ago periods
due to charges related to our acquisition of National Starch (see below) and
impairment/restructuring charges pertaining to our operations in Chile. Without such charges, our net income and
diluted earnings per common share would have increased from the 2009 third
quarter results. 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. We
continue
to expect improved sales and earnings for full year 2010 over 2009. Additionally, we enhanced our financial
flexibility during the third quarter by entering into a new $1 billion
revolving credit facility.
We
currently expect that our future operating cash flows and borrowing
availability under our credit facilities will provide us with sufficient
liquidity to fund our anticipated capital expenditures, dividends, 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.
21
For The Three Months and Nine Months Ended September 30, 2010
With Comparatives for the Three Months and Nine Months Ended September 30,
2009
Net Income
. Net income
for CPI for the quarter ended September 30, 2010 decreased to $36.9
million, or $0.48 per diluted common share, from $52.8 million, or $0.70 per
diluted common share, in the third quarter of 2009. Net income for CPI for the nine months ended September 30,
2010 increased to $117.2 million, or $1.53 per diluted common share, from a net
loss of $15.2 million, or a net loss of $0.20 per diluted common share, in the
prior year period. The third quarter
2010 results include after-tax charges for bridge loan and other financing
costs of $14 million ($0.18 per diluted common share), after-tax
acquisition-related costs of $10 million ($0.13 per diluted common share) and
after-tax charges of $1 million ($0.02 per diluted common share) principally
consisting of employee severance and related benefit costs associated with the
termination of employees in Chile. The
results for the nine months ended September 30, 2010 include the $14
million of after-tax charges for bridge loan and other financing costs ($0.18
per diluted common share), after-tax acquisition-related costs of $15 million
($0.19 per diluted common share) and after-tax charges of $22 million ($0.29 per
diluted common share) for impaired assets and other costs associated with our
operations in Chile. The results for the
nine months ended September 30, 2009 include 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 bridge loan and other financing
costs, and the impairment, restructuring and acquisition-related charges, net
income for the third quarter and first nine months of 2010 would have grown 18
percent and 76 percent, respectively, over the comparable prior year periods,
while our diluted earnings per share would have risen 16 percent and 72
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.
Net Sales
. Third
quarter net sales totaled $1.02 billion, up 5 percent from third quarter 2009
net sales of $971 million. The increase
reflects a 9 percent volume improvement and favorable currency translation of 3
percent due to stronger foreign currencies, which more than offset a
price/product mix decline of 7 percent.
Volumes grew in all of our regions and particularly in our international
businesses. Co-product sales of $183
million for third quarter 2010 increased 4 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 $578 million for third quarter 2010 declined 3 percent from $598 million a
year ago, as a price/product mix decline of 12 percent attributable to lower
corn costs more than offset an 8 percent volume improvement and a 1 percent
increase attributable to currency translation.
Volume growth in the region was driven by strong growth in Mexico where
demand for sweeteners from the beverage industry remained strong. Improved demand in Canada also contributed to
the volume growth in the region. In
South America, third quarter 2010 net sales increased 14 percent to $310
million from $271 million in the prior year period, as favorable currency
translation of 6 percent and volume growth of 10 percent driven by strong
demand from various industries more than offset a price/product mix decline of
2 percent. In Asia/Africa, third quarter
2010 net sales grew 30 percent to $132 million from $101 million a year
ago. The increase reflects volume growth
of 17 percent, primarily driven by significantly higher demand for sweeteners
in South Korea, price/product mix improvement of 11 percent and a 2 percent
benefit from currency translation.
22
Net sales for the nine months ended September 30, 2010 totaled
$2.96 billion, up 9 percent from $2.71 billion a year ago. The increase reflects a 13 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 9
percent. Volumes grew across all of our
regions and particularly in our international businesses. Co-product sales of $545 million for the
first nine months of 2010 increased 9 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 nine months of 2010 decreased slightly to $1.70 billion from $1.71
billion a year ago. The decrease
reflects a price/product mix decline of 14 percent, which more than offset an
11 percent volume improvement and a 2 percent increase attributable to currency
translation. Volumes grew across the
region, led by strong growth in Mexico where demand for sweeteners from the
beverage industry was particularly strong.
Improved demand in Canada also contributed to the volume growth in the
region. In South America, net sales for
the first nine months of 2010 increased 22 percent to $874 million from $714
million in the prior year period, as favorable currency translation of 12
percent and volume growth of 14 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 nine
months of 2010 rose 35 percent to $385 million, from $286 million a year
ago. The increase reflects volume growth
of 23 percent, primarily driven by significantly higher demand for sweeteners
in South Korea, a 6 percent benefit from currency translation and price/product
mix improvement of 6 percent.
Cost of Sales and Operating Expenses
. Cost of sales of $848
million for third quarter 2010 increased 4 percent from $817 million in the
prior year period. Cost of sales for the
first nine months of 2010 increased 5 percent to $2.48 billion from $2.36
billion a year ago. These increases
principally reflect volume growth and currency translation, which more than
offset lower corn costs. Gross corn costs
for the third quarter and first nine months of 2010 declined approximately 1
percent and 3 percent from the comparable prior year periods. Currency translation attributable to the
stronger US dollar caused cost of sales for the third quarter and first nine
months of 2010 to increase approximately 3 percent and 5 percent,
respectively, from the year ago periods.
Our gross profit margin for the third quarter and first nine months of
2010 was 16.8 percent and 16.2 percent, respectively, compared to 15.8 percent
and 13.2 percent last year.
Operating
expenses for the third quarter and first nine months of 2010 increased to $81.6
million and $224.5 million, respectively, from $65.9 million and $181.6 million
last year. These increases primarily
reflect expenses pertaining to the acquisition of National Starch, higher
compensation-related costs, a return to more historical run rates and stronger
foreign currencies. Operating expenses
for the third quarter and first nine months of 2010 include costs pertaining to
the acquisition of National Starch of $11 million and $17 million,
respectively. Currency translation
associated with the stronger foreign currencies caused operating expenses for
the third quarter and first nine months of 2010 to increase approximately
2 percent and 4 percent, respectively, from the prior year periods. Operating expenses, as a percentage of net
sales, were 8.0 percent and 7.6 percent for the third quarter and first nine
months of 2010, respectively, up from 6.8 percent and 6.7 percent in the
comparable prior year periods. Excluding
the acquisition-related costs, operating expenses, as a percentage of net
sales, was 7.0 percent for both the third quarter and first nine months of September 2010.
Operating Income
.
Third quarter 2010 operating income
was $88.6 million, up slightly from $87.8 million a year ago. Operating income for the third quarter of
2010 includes $11 million of acquisition-related costs and a charge of $3
million principally consisting of employee
23
severance and related benefit costs associated with the termination of
employees in Chile. Without these costs,
operating income for third quarter 2010 would have grown 17 percent over the
year ago period, driven by earnings growth in North America and Asia/Africa.
Currency translation
associated with stronger foreign currencies caused operating income to increase
by approximately $3 million from the prior year period. North America operating income for third
quarter 2010 increased 9 percent to $66.5 million from $61.1 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 $1 million in the region. South America operating income for third
quarter 2010 decreased 4 percent to $35.7 million from $37.3 million a year
ago. This decline reflects reduced
earnings in Brazil and in the Andean region of South America mainly due to
lower product selling prices, which more than offset increased earnings in the
Southern Cone of South America where strong volume and higher pricing drove
improved results. Translation effects
associated with stronger South American currencies, particularly the Brazilian
Real, caused operating income to increase by approximately $2 million in the
region. Asia/Africa operating income
more than tripled to $12.5 million from $3.7 million a year ago. This improvement primarily reflects strong
volume growth, particularly in South Korea, and higher product selling prices
in the region.
Operating
income for the nine months ended September 30, 2010 increased to $236.9
million from $53.7 million a year ago.
Operating income for the first nine months of 2010 and 2009 include
impairment/restructuring charges of $24 million and $125 million,
respectively. Additionally, we incurred
$17 million of acquisition-related costs in the first nine months of 2010. Without the impairment, restructuring and
acquisition-related costs, operating income for the first nine months of 2010
would have grown 56 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 $18 million from the prior year period. North America operating income increased 43
percent to $164.6 million from $114.8 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
$8 million in the region. South America
operating income increased 24 percent to $113.4 million from $91.4 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 $9 million in the region. Asia/Africa operating income more than
tripled to $38.5 million from $11.2 million a year ago. This improvement primarily reflects strong
volume growth, particularly in South Korea, higher product selling prices and
lower corn costs. Stronger foreign
currencies caused operating income to increase by approximately $1 million in
the region.
Financing Costs-net
. Financing costs for the third quarter and
first nine months of 2010 increased 225 percent and 33 percent, respectively,
from the prior year periods. These
increases primarily reflect the third quarter 2010 write-off of $20 million in
bridge loan financing costs. In
connection with the acquisition of National Starch (see Note 3 of the notes to
the condensed consolidated financial statements), we had obtained a bridge loan
financing commitment of $1.35 billion.
As a result of our September 2010 sale of $900 million aggregate
principal amount of senior unsecured notes and the entry into our new $1
billion revolving credit facility (see also Liquidity and Capital Resources
section), we terminated the $1.35 billion bridge term loan facility. Fees associated with the bridge loan totaling
$20 million were expensed to financing costs in September 2010. Without this charge, financing costs for
third quarter 2010
24
would
have increased approximately 15 percent from the prior year period, primarily
reflecting higher average borrowings and interest rates, partially offset by a
reduction in foreign currency transaction losses. Without the $20 million charge, financing
costs for the first nine months of 2010 would have decreased approximately 29
percent from the prior year period, primarily reflecting lower average
borrowings, a reduction in foreign currency transaction losses and an increase
in interest income driven by higher cash positions.
Provision for Income Taxes
. Our effective income tax
rates for the third quarter and first nine months of 2010 were 33.6 percent and
37.2 percent, respectively, as compared to 31.2 percent and 148.0 percent in
the prior year periods. Our effective
income tax rates for the 2010 periods reflect the impacts of National Starch
acquisition costs and the Chilean
charges for
impaired assets and other related costs and an increase to the valuation
allowance for Chile, the majority of which was recorded in the second quarter
of 2010. Our effective income tax rate
for the nine months ended September 30, 2009 reflects
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.
Net Income Attributable to Non-controlling Interests
. The net
income attributable to non-controlling interests for the third quarter and
first nine months of 2010 was $1.9 million and $5.4 million, respectively, up
from $1.2 million and $4.5 million from the comparable prior year periods. These increases primarily reflect improved
earnings from our operations in Pakistan.
Comprehensive Income Attributable to CPI
. We recorded comprehensive
income of $120 million for the third quarter of 2010, as compared to $158
million in the prior year period. The
decrease primarily reflects our lower net income, unfavorable variances in the
currency translation adjustment and reduced gains on cash flow hedges. For the first nine months of 2010, we
recorded comprehensive income of $177 million, as compared to $194 million a year
ago. The decrease primarily reflects
unfavorable variances in the currency translation adjustment and reduced gains
on cash flow hedges, which more than offset our net income growth. The unfavorable variances in the currency
translation adjustment reflect a more moderate strengthening in end of period
foreign currencies during the 2010 periods, as compared to the 2009 periods,
when end of period foreign currency appreciation was more significant.
Liquidity and Capital Resources
Cash provided by operating activities for the first nine months of 2010
decreased to $325 million from $368 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.
Capital expenditures of $90 million for the first nine months of 2010
are in line with our capital spending plan for the year. We anticipate that our capital expenditures
will approximate $150 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 Series A Notes). Interest on
the Series A Notes is required to be paid semi-annually on March 25th
and September 25th, beginning in September 2010. The Series A Notes are unsecured
obligations of ours and rank equally with our other unsecured, senior
indebtedness. We have the option to
prepay the Series A Notes 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 Series A
Notes have been used for general corporate
25
purposes. See Note 11 of the notes to the condensed
consolidated financial statements for additional information regarding the Series A
Notes.
On September 2, 2010,
we entered into a new three-year, senior unsecured $1 billion revolving credit
facility. The new credit facility
replaced our previously existing $500 million senior unsecured revolving credit
facility. We paid fees of approximately
$8 million relating to the new credit facility, which are being amortized to
interest expense over the three-year term of the facility. We had $300 million of borrowings outstanding
under the revolving credit facility at September 30, 2010. In addition to borrowing availability under
our revolving credit facility, we also have approximately $443 million of
unused operating lines of credit in the various foreign countries in which we
operate.
Subject
to certain terms and conditions, we may increase the amount of the revolving
facility under the Revolving Credit Agreement by up to $250 million in the
aggregate. All committed pro rata
borrowings under the revolving facility will bear interest at a variable annual
rate based on the LIBOR or base rate, at our election, subject to the terms and
conditions thereof, plus, in each case, an applicable margin based on our
leverage ratio (as reported in the financial statements delivered pursuant to
the Revolving Credit Agreement).
The
Revolving Credit Agreement contains customary representations, warranties,
covenants, events of default, terms and conditions, including limitations on
liens, incurrence of debt, mergers and significant asset dispositions. We
must also comply with a leverage ratio and an interest coverage ratio. The occurrence of an event of default under
the Revolving Credit Agreement could result in all loans and other obligations
being declared due and payable and the revolving credit facility being
terminated.
In connection with the
acquisition of National Starch, on September 17, 2010, we issued and sold
$900 million aggregate principal amount of senior unsecured notes (the Notes)
as follows:
(in millions)
|
|
Principal
|
|
Premium
(Discount)
|
|
Selling
Price
|
|
3.2% notes due November 1, 2015
|
|
$
|
350
|
|
$
|
(1
|
)
|
$
|
349
|
|
4.625% notes due November 1, 2020
|
|
400
|
|
(1
|
)
|
399
|
|
6.625% notes due April 15, 2037
|
|
150
|
|
8
|
|
158
|
|
|
|
$
|
900
|
|
$
|
6
|
|
$
|
906
|
|
We paid debt issuance costs
of approximately $6 million relating to the Notes, which will be amortized to
interest expense over the lives of the respective notes. Additionally, the premium and discounts on
the Notes will be amortized to interest expense over the lives of the respective
notes.
Interest on the 3.2 percent
notes and the 4.625 percent notes is required to be paid semi-annually on May 1
st
and November 1
st
, commencing May 1, 2011. Interest on the 6.625 percent notes is
required to be paid semi-annually on April 15
th
and October 15
th
, commencing October 15,
2010.
26
The Notes are redeemable, in
whole at any time or in part from time to time, at our option. See Note 11 of the notes to the condensed
consolidated financial statements for additional information regarding the
Notes.
As a result of the sale of
the Notes and the completion of the new revolving credit facility, we
terminated the $1.35 billion bridge term loan facility that we had previously
arranged. Fees associated with the
bridge loan totaling $20 million were expensed to financing costs in September 2010.
At September 30, 2010, we had
total debt outstanding of $1.775 billion, compared to $544 million at December 31,
2009. In addition to the borrowings
outstanding under the revolving credit facility, the debt includes $350 million
(principal amount) of 3.2 percent notes due 2015, $200 million of 6.0 percent senior notes due
2017, $200 million of 5.62 percent senior notes due 2020, $400 million
(principal amount) of 4.625 percent notes due 2020, $250 million (principal
amount) of 6.625 percent senior notes due 2037 and $70 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 nine months of
2010, up slightly from 5.4 percent in the comparable prior year period. The weighted average interest rate for 2010
excludes the $20 million of bridge loan fees charged to financing costs in September 2010.
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
September 15, 2010, our board of directors declared a quarterly cash
dividend of $0.14 per share of common stock.
This dividend was paid on October 25, 2010 to stockholders of
record at the close of business on September 30, 2010.
We
currently expect that our future operating cash flows and borrowing
availability under our credit facilities will provide us with sufficient
liquidity to fund our anticipated capital expenditures, 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. 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
27
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 (OCI). At September 30,
2010, our accumulated other comprehensive loss account (AOCI) included $5
million of gains, net of tax of $3 million, related to these derivative
instruments. It is anticipated that
these gains, net of tax, will be reclassified into earnings during the next
twelve months. We expect the gains 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 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 September 30, 2010, we had $28
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 September 30, 2010,
we did not have any interest rate swaps or T-Locks outstanding.
In conjunction with a plan
to issue the 5.62 percent Senior Series A Notes and in order to manage
exposure to variability in the benchmark interest rate on which the fixed
interest rate of the Senior Series A 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 AOCI in the equity section of our balance sheet and are
being amortized to financing costs over the ten-year term of the Senior
28
Series A Notes. See also Note 6 of the notes to the
condensed consolidated financial statements for additional information.
In conjunction with a plan to issue the 3.2 percent Senior Notes due November 1,
2015 (the 2015 Notes) and the 4.625 percent Senior Notes due November 1,
2020 (the 2020 Notes), and in order to manage our exposure to variability in
the benchmark interest rates on which the fixed interest rates of these notes
would be based, we entered into T-Lock agreements with respect to $300 million
of the 2015 Notes and $300 million of the 2020 Notes (the T-Locks). The T-Locks were designated as hedges 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-Locks
were entered and the time the debt was priced.
The T-Locks are accounted for as cash flow hedges. The T-Locks were terminated on September 15,
2010 and we paid approximately $15 million, representing the losses on the
T-Locks, to settle the agreements. The
losses are included in AOCI and are being amortized to financing costs over the
terms of the 2015 and 2020 Notes. See
also Note 6 of the notes to the condensed consolidated financial statements for
additional information.
At
September 30, 2010, our accumulated other comprehensive loss account
included $14 million of losses (net of tax of $9 million) related to Treasury
Lock agreements. It is anticipated that
$2 million of these losses (net of tax of $1 million) will be reclassified into
earnings during the next twelve months.
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 nine months ended September 30,
2010.
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 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 global economic conditions
and their impact on our sales volumes and pricing of our products, our
29
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 and operate acquired businesses, including National
Starch; 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 nine months ended September 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 September 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 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 September 30,
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
30
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 entered 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 entered a
Notice of Application in the Superior Court of Justice of Ontario, Canada with
regard to the Tribunals March 26, 2010 correction.
In an order dated July 30,
2010, the Ontario Court consolidated the set-aside actions. They will be heard together on March 7-8,
2011.
31
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
|
|
|
|
|
|
|
|
|
|
July 1 July 31, 2010
|
|
|
|
|
|
|
|
4,685 shares
|
August 1 August 31, 2010
|
|
|
|
|
|
|
|
4,685 shares
|
Sept. 1 Sept. 30, 2010
|
|
|
|
|
|
|
|
4,685 shares
|
Total
|
|
|
|
|
|
|
|
|
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 September 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.
32
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:
|
November 4,
2010
|
By
|
/s/
Cheryl K. Beebe
|
|
|
Cheryl
K. Beebe
|
|
|
Vice
President and Chief Financial Officer
|
|
|
|
|
|
|
DATE:
|
November 4,
2010
|
By
|
/s/
Robin A. Kornmeyer
|
|
|
Robin
A. Kornmeyer
|
|
|
Vice
President and Controller
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33
EXHIBIT INDEX
Number
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Description of Exhibit
|
|
|
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4.1
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Revolving
Credit Agreement, dated as of September 2, 2010, among Corn Products
International, Inc., as borrower, the lenders from time to time party
thereto, JPMorgan Chase Bank, National Association, as administrative agent,
Bank of Montreal, as syndication agent, and Bank of America, N.A. and
Citibank, N.A., as co-documentation agents incorporated by reference to
Exhibit 4.1 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed September 2, 2010, SEC
File No. 1-13397)
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|
|
|
4.2
|
|
Amendment
No. 1 to Revolving Credit Agreement, dated as of September 29,
2010, among Corn Products International, Inc., as borrower, the lenders
from time to time party thereto, JPMorgan Chase Bank, National Association,
as administrative agent, Bank of Montreal, as syndication agent, and Bank of
America, N.A. and Citibank, N.A., as co-documentation agents
|
|
|
|
4.6
|
|
Fifth
Supplemental Indenture, dated September 17, 2010, between the Company
and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to
The Bank of New York), as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K filed
September 20, 2010, SEC File No. 1-13397)
|
|
|
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4.7
|
|
Sixth
Supplemental Indenture, dated September 17, 2010, between the Company
and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to
The Bank of New York), as trustee (incorporated by reference to
Exhibit 4.2 to the Companys Current Report on Form 8-K filed
September 20, 2010, SEC File No. 1-13397)
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|
|
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4.8
|
|
Seventh
Supplemental Indenture, dated September 17, 2010, between the Company
and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to
The Bank of New York), as trustee (incorporated by reference to
Exhibit 4.3 to the Companys Current Report on Form 8-K filed
September 20, 2010, SEC File No. 1-13397)
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|
|
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10.26
|
|
Confidentiality
and Noncompete Agreement, dated as of July 23, 2010, between Corn
Products Brasil-Ingredientes Industrias Ltda., the Company and Jorge L.
Fiamenghi
|
|
|
|
10.27
|
|
Consulting
Agreement, dated as of July 23, 2010, between the Company and Jorge L.
Fiamenghi
|
|
|
|
10.28
|
|
Term
Sheet, dated as of July 23, 2010 for Employment Agreements between the
Company and Julio dos Reis and Productos de Maiz S.A. and Julio dos Reis
|
|
|
|
11
|
|
Statement
re: Computation of Earnings per Share
|
34
31.1
|
|
CEO
Section 302 Certification Pursuant to the Sarbanes-Oxley Act of 2002
|
|
|
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31.2
|
|
CFO
Section 302 Certification Pursuant to the Sarbanes-Oxley Act of 2002
|
|
|
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32.1
|
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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
|
|
|
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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
September 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.*
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*
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.
35
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