Ingredion Inc. (then Corn Products International, Inc.) — 2011 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2011; it is an annual report, with unaudited quarterly data also provided. The company manufactures starches, sweeteners and related ingredients, and reports four geographic segments. It announced plans to change its name to Ingredion Incorporated, subject to shareholder approval. National Starch, acquired in October 2010, materially affects year-over-year comparability: 2011 includes its operations for a full year, versus only the fourth quarter of 2010.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Net sales | $6.219 billion | $4.367 billion |
| Gross profit / gross margin | $1.126 billion / 18% | $724 million / 17% |
| Operating income | $671 million | $339 million |
| Net income attributable to CPI | $416 million | $169 million |
| Diluted EPS | $5.32 | $2.20 |
| Cash provided by operations | $300 million | $394 million |
| Capital expenditures | $263 million | $159 million |
| Cash and cash equivalents at year-end | $401 million | $302 million |
| Total debt at year-end | $1.949 billion | $1.769 billion |
| Working capital | $1.176 billion | $881 million |
Reported 2011 operating margin was approximately 10.8% and net margin attributable to CPI approximately 6.7%, based on reported net sales. The company’s $1 billion revolving facility had $376 million drawn at year-end; it also reported approximately $424 million of unused foreign operating lines. Operating cash flow less capital expenditures was approximately $37 million.
For the fourth quarter, net sales were $1.548 billion, net income attributable to CPI was $95 million, and diluted EPS was $1.22. In fourth-quarter 2010, these were $1.407 billion, $52 million and $0.67, respectively.
Changes versus prior period
- Full-year sales rose 42%; management attributed the increase to a 22% volume contribution, largely from acquired operations, 19% price/product-mix improvement and 1% favorable currency translation. Organic volume was flat.
- Reported net income more than doubled. Excluding specified unusual and acquisition-related items in both years, management said net income grew 47% and diluted EPS 44%.
- Gross margin improved to 18% from 17%, reflecting the acquired specialty-starch business and higher selling prices. Corn costs per ton rose approximately 36%.
- Operating cash flow declined by $94 million, principally because working capital absorbed $334 million, including higher inventories, receivables and commodity-hedging margin requirements.
- Debt increased $180 million. Debt to adjusted EBITDA improved to 2.3 from 3.1, while debt to capitalization rose to 45.4% from 44.1%.
Outlook, commentary, risks and unusual items
- Management expected 2012 capital expenditures of $275–$325 million and said expected operating cash flow and available borrowing capacity should fund planned investment, dividends and other strategies for the foreseeable future. It expected to lower leverage further through earnings growth and debt reduction; no specific revenue or EPS guidance is provided.
- Management described 2011 as strong despite weak U.S. and European conditions, adverse weather and temporary maintenance downtime at its Argo plant. It said National Starch integration was on track. Foreign-currency devaluations late in 2011 were expected to be addressed through pricing actions.
- Reported 2011 results included a $58 million NAFTA award and a $30 million gain from a postretirement-plan change, partly offset by $31 million of National Starch integration costs and $10 million of restructuring charges. The 2010 comparison included acquisition costs, Chile impairment/restructuring charges, bridge-loan costs and acquired-inventory fair-value charges.
- A North American manufacturing optimization plan was expected to run through September 2012, with approximately $4 million of quarterly restructuring charges until completion. Pakistan energy infrastructure remained problematic; equipment had been installed to mitigate the issue.
- Key exposures include corn and energy cost volatility, the ability to pass costs through to customers, foreign exchange, competition, demand shifts affecting sweeteners, plant reliability, labor relations and integration execution. The company reported $1.949 billion of debt, covenant obligations, and $4.214 billion of contractual obligations, including debt, interest, leases, pension/postretirement obligations and purchase commitments.
- A lawsuit alleging misleading HFCS-related statements was dismissed in October 2011 with leave to amend; plaintiffs pursued the matter. The company said other ordinary-course claims were not expected to be material, while noting outcomes cannot be assured. The auditor gave an unqualified opinion and reported effective internal control over financial reporting.
Most important facts for investors to verify
- How much of earnings growth reflects recurring segment performance versus the $58 million award, $30 million plan gain, acquisition effects and restructuring/integration costs.
- Whether working-capital use and commodity-hedging cash requirements moderate, supporting stronger cash flow relative to capital spending and dividends.
- Progress toward lower debt and the company’s ability to comply with revolving-credit and other debt covenants.
- National Starch integration, North American optimization costs and expected benefits, plus resolution of Pakistan energy constraints.
- Developments in the HFCS litigation, corn and energy prices, and the proposed corporate name change and shareholder approval.