Ingredion Inc (INGR) 2002 Q4 法說會逐字稿

Good morning, everyone. And welcome to the Corn Products fourth quarter 2002 earnings release conference call. This call is being recorded.

At this time, I will turn the call over to Vice President of Strategic Business Development and Investor Relations, Mr. Dick Vandervoort. Please go ahead, sir.

Good morning, and welcome to the Corn Products fourth quarter 2002 earnings conference call. This is an open conference call, simultaneously broadcast on our web site, www.cornproducts.com. The charts for our presentations can be both viewed and downloaded from our web site, and they’re available 60 minutes ahead of our conference call each quarter. Those using the web site broadcast of this conference call are in listen-only mode.

Today Sam Scott, our Chairman, President, and Chief Executive Officer, Jim Ripley, our Chief Financial Officer, and I will conduct the call. We’ll indicate as we move from chart to chart so you can follow along through this presentation.

I’ve shifted to chart two, the forward-looking statement chart. Our comments within this presentation may contain forward-looking statements. Actual results could differ materially from those projected in these forward-looking statements, and Corn Products is under no obligation to update them in the future as, or if circumstances change.

Additional information concerning factors that could cause actual results to differ materially from those discussed during today’s conference call or in today’s press release can be found in the company’s most recently filed annual report on Form 10-K and subsequent reports on Forms 10-Q or 8-K.

I’ve shifted to chart three, the agenda chart. Today, following this introduction, Jim Ripley will present the financials relative to the fourth quarter and full year of 2000. I will then discuss the business review, the Mexico notice of intent press release, and a summary prior to the Q&A portion.

Jim.

Thank you, Dick. As Dick said, he will be reviewing the fundamentals of our business in a few moments. Our financial statements are attached to our press release. I will briefly review the quarter’s financial results, and then concentrate on the year-end financial statements. Dick will go into more details on the quarter.

I am now on chart five, the summary income statement for the quarter. Net sales for the quarter of 473m decreased one percent. Without the loss of sales in Mexico of HFCS net sales would have increased by approximately three percent. Gross margins declined one-tenth of one percent, to 14 percent, once again reflecting the loss of the HFCS sales in Mexico.

Operating income at $42m, is up $5m, or it is up $2m excluding non-recurring income. This reflects the situation in Mexico and the weak economic conditions in South America. Offsetting these problems is continued improvement in the United States, and continuing good results in Asia-Africa, as well as the cessation of goodwill amortization that amounted to $3m in last year’s fourth quarter. Our business in the United States has shown very good improvement over last year on cost reductions and somehow from higher prices, including better byproduct prices. We realized a non-recurring income less cost of dissolution from the termination of our joint marketing company with MCP, and that was $3m.

Moving down to financing costs, financing cost is down $7m or 42 percent from last year. This is associated with reduced borrowings, about $2m, while higher interest rates increased interest $1m as we refinanced our debt and turned it out to longer term maturity. Last year’s results included a $6m exchange loss from the devaluation of the Argentine currency, which occurred on January 8, 2002 but was required to be booked in the fourth quarter of 2001.

Minority interests at $3m is the same as last year. This represents minority in Korea, Argentina, and Pakistan.

Our tax rate increased to 36 percent versus 35 percent last year.

EPS is up 20 cents per share to 46 cents per share. The improvement mainly comes from lower financing costs, about 14 cents, the cessation of goodwill amortization, about five cents a share, and six cents is attributed to the non-recurring income. Net contributions from the operation are down slightly from last year.

I am now moving on to chart six, highlights for the quarter. In North America operating profits are up 11 percent from last year, reflecting lower manufacturing costs and better pricing. Volumes excluding the impact of the HFCS sales in Mexico are up in the region. Higher selling prices helped offset currency declines that impacted the region’s sales by approximately three percent.

In South America operating profits were down four percent. Weak economic conditions in Brazil and currency declines throughout the region could not be offset with price improvements. Volumes in the region are up, however, as we began to see improved demand in the quarter.

Asia-Africa operating profits were up 24 percent. Three percent excluding the goodwill amortization last year. This is on higher volumes and currency gains throughout the region. This region continues to be our engine for growth.

I am now moving on to chart seven, which is the summary income statement for the year. For the year net sales of $1.87b decreased one percent from the prior year. Gross margins declined to 14.3 percent, from 15.8 percent in 2001. Again, reflecting the loss of the HF55 sales in Mexico to the soft drink industry for most of the year.

Operating income at $153m is down 13m, or 16m excluding non-recurring income from both years’ results. Once again, this reflects the situation in Mexico, the weak economic conditions in South America, as well. Offsetting these problems is continued good improvement in the United States, and continuing good results in Asia-Africa as well as the cessation of goodwill which amounted to $11m for the full year last year. Our business in the United States reported very good improvements over last year on good volumes, cost reduction, and some help from higher prices, which I mentioned before.

Our financing cost is down $28m, or 43 percent from last year, debt reduction and lower interest rates. We have paid-down our debt substantially over the last 21 months which was our high point, $804m at that point. This was following the strategic investments we had made in the prior three years. Total debt is now $573m, versus $756 at the end of 2001. This represents a $183m reduction since last year-end, and a $230m reduction since our high point in the first quarter of 2001. During 2002 we focused our attention on cash flow as we fine-tuned our capital expenditure and began a major working capital management project. We also refocused our strategic growth initiatives.

Moving down to minority interest at $12m, it’s up $2m over last year. This represents better results in Korea, Argentina, and Pakistan. Once again, our tax rate increased from 35 percent to 36 percent this year. The increase reflects higher U.S. taxes primarily from the impact of U.S. State and local taxes on the improved earnings from our domestic operations.

EPS is up 17 cents per share to $1.77 per share, including the non-recurring income, or $1.63 per share excluding the non-recurring income. The 14-cent non-recurring income includes the six cents realized in the fourth quarter, as well as eight cents which we realized in the first quarter from the sale of our enzyme business less some restructuring costs. Last year we had a net non-recurring income of 10 cents per share.

I am now moving onto chart eight, net sales by geographic segment. North American sales were virtually flat with 2001. South American sales were off nine percent. Asian-African sales increased seven percent.

Now for the details of the sales variance, I will move on to chart nine. For the total company sales dollars declined by nine-tenths of one percent. The reduction in sales comes from lower volumes, as price increases in total have offset currency changes.

In North America sales were up four-tenths of one percent, as the cessation of HFCS sales to the soft drink industry in Mexico caused volumes in the total region to drop. Overall, price product mix was up 3.2 percent, while the currency was off 1.4 percent. The currency reduction is mainly due to the weakening of the Mexican peso in the second, third, and fourth quarters of this year.

In the South American region we saw sales decline by 8.8 percent from last year. This reflects a 1.4 percent volume decline and a 7.4 percent lag of prices on currency devaluation. We made significant progress on this gap as the year progressed.

In the Asia-African region the 7.1 percent increase in sales is coming from 3.6 percent volume growth with the remainder coming primarily from currency gains as prices were relatively stable.

I am now moving on to chart 10, the geographic operating income analysis for the year. Overall, operating income is off eight percent. North American operating income is off 14 percent. The improvements in the United States and continued good results in Canada were mitigated by the negative results we saw in Mexico.

South American operations income decreased 14 percent. Although currency devaluations and slow economic conditions impacted the entire region we were able to overcome the earnings impact everywhere with the exception of Brazil, where there has been the normal lag in passing on higher local costs following the devaluation of the [real] [ph]. As I mentioned previously we are now beginning to close that gap.

Asia-Africa operating income increased 18 percent. This came from higher exchange rates, the cessation of goodwill amortization, higher volumes, and some margin improvements following better byproduct pricing.

The corporate expenses are higher than last year. Last year’s costs in the fourth quarter were reduced by a credit from the termination of a long-term obligation in our enzyme business that we [suffered] when we sold in the first quarter of 2002.

I am now moving on to chart 11, the estimated source of EPS. Last year we earned $1.60 per share for the full year. This year the net is $1.77 per share or a 17-cent per share improvement. I have grouped these into three separate areas. In the operations we’ve seen a 28-cent decline from last year, while in the financial area we have an improvement of 41 cents per share. Non-recurring items net last year versus this year added four cents per share.

Now some of the details. In the operating area reduced volumes cost us approximately 19 cents per share. Again, the Mexican situation, offset by improvements in the U.S., Canada, and Asia. Higher operating margins and local currency added 52 cents per share, this is higher local currency pricing, cost reductions, and better byproduct pricing. Currency declines cost 82 cents per share. Argentina, Brazil, Columbia, and Mexico. Last year’s results included 21 cents per share of goodwill amortization. That ceased at the beginning of 2002, under the new FAS accounting standards.

In the non-operating area we reduced financing costs by approximately 50 cents per share. As I mentioned before, we had substantial debt reduction and lower interest rates. The increase in the tax rate reduced EPS by three cents. Higher minority interests took five cents per share.

I am now moving on to cash flow, which is chart 12. In the cash flow area we generated $206m of positive cash flow from operations during the year, versus $171m last year, a $35m improvement year-over-year. Most of this improvement came out of our working capital program where we are showing a $65m reduction in working capital over the year. This represents an $81m swing from the $16m that was used in 2001.

Net income contributed $63m to the cash flow, versus $57m last year. Depreciation and amortization dropped to 103, versus 127 with the cessation of goodwill amortization and as exchange rates dropped.

A net of $73m was invested in the business. $77m was used for fixed asset investments to grow and protect our production base. We used $42m to purchase minority interests, while we got $46m of positive cash flow from the sale and dissolution of businesses we no longer needed.

We utilized $159m of our cash flow in our financing activities. In July of 2002 we refinanced $200m of our revolving credit loans to a longer term five-year bond. And in October we refinanced the remaining of the revolving credit that was expiring in December. We now have a new $125m three-year revolving credit agreement. These actions have improved the liquidity of our debt, which is now approximately 80 percent long-term. And our debt has an approximate maturity of five years.

In addition to the restructuring of our debt, we utilized $144m of our free cash flow to pay-down debt. This plus other non-cash activities reduced our total debt year-over-year by $183m. Finally, we also paid $19m to our shareholders and minority partners.

I am now moving on to chart 13, [see] ratios. Our return on sales is now four percent, versus 3.5 percent last year. Our return on capital employed declined slightly to 6.2 percent, from 6.3 percent. We are still targeting to get this return up to the eight to 10 percent range.

Our debt-to-capitalization ratio is now at 34.6 percent, versus 38.8 percent last year when our target was to get it down to 35 percent. Our target now is to get our debt down and keep it in the range of 32 to 35 percent.

Working capital to sales has dropped to 12 percent, versus 17 percent last year. Again, from our working capital program. And finally, net debt, that is total debt less cash and short-term investments, is at $537m versus $691m last year.

I will now turn the presentation back to Dick Vandervoort on more details on our business.

Thanks, Jim. I’ll review our fourth quarter and full-year 2002 performance from a qualitative standpoint, and briefly comment on the notice of intent filed in Mexico today, and then provide some comments about our outlook for 2003.

I am now switching from chart 14 to chart 15. Chart 15 is the currency update. First, the chart. I have listed our countries in the first column. The second column I have listed the average currency values for the fourth quarter of 2002. The third column shows how the fourth quarter average for 2002 compares with the same quarter in 2001. And because currencies can often be a moving target in the fourth column I have listed last Friday’s close versus the final day of the third quarter.

The two largest economies in South America again dominated the currency news. In Argentina the peso declined by 72 percent year-over-year. And in Brazil, the [real] weakened in the fourth quarter of 2001, firmed in the first quarter of 2002, and then declined by 70 percent in the second and third quarters, finally firming in the fourth quarter after the Brazilian Presidential election and selection of the cabinet ministers. The affect was positive at that point, and the [real] and the Argentine peso reacted well. Since then the Argentine peso, as you can see in the fourth column, has continued strong while the [real] has fallen back. In Mexico the peso has been closely linked with the decline of the dollar.

Now chart 16, fourth quarter 2002. First looking at North America, U.S. and Canadian operating rates were better again in the fourth quarter. The same held true for non HFCS sales in Mexico as our other product lines performed well. In the U.S. the dissolution of Corn Products MCP was set. Our transition is completed for our customers, and we retained our key personnel in our sales organization as we returned to our pre-MCP sweeteners mode. As we stated in the third quarter press release the gain we realized from the dissolution was over and above our earlier announced 2002 outlook for at or near 2001 EPS.

Shifting to South America we had a strong finish in Argentina of goods start and recovering the currency impact in Brazil, and the balance of the continent performed well. Asia-Africa saw strong fundamentals throughout the region with good volumes and good profits. As stated last year our plant in Thailand started up in the third quarter, and has continued operating since that time.

Chart 17, 2002 review of North America. Now I am going to look at the entire year. Looking first at the improvement in the U.S. external arena, ethanol demand was very strong in 2002, with expectations that supply and demand will be in balance in 2003 at even higher levels which should result in high overall utilization rates.

In the acquisitions arena Cargill purchased [Sarastar] [ph], and ADM bought 70 percent of MCP they didn’t already own. [Four Corner Finders] [ph] now have 97 percent of the HFCS capacity, versus in 2000 when there were seven players, three of whom had 17 percent of HFCS capacity.

Shifting to an internal look at North America. In our U.S. Canadian portion while we are still far from providing our shareholders the rates of return they should expect from the assets deployed in the U.S., as we have said in prior quarters, we made excellent progress in operating cost reduction throughout the entire year, combined with price increases negotiated as the year began, as well as byproduct prices.

We saw volume growth, and in support of the company’s working capital initiatives excellent cash generation performance. Early in the year we sold Enzyme Bio Systems to better focus our business and improve our returns.

By now, everyone familiar with our company is aware of what we call the ‘January surprise’ in Mexico, when the government levied its discriminatory tax on soft drink sweetened with HFCS. I’ll speak more to that issue later. However, as noted earlier, our other product lines performed well, as usual. Furthermore, we have taken significant steps with controllables. Like its counterparts to the north, our Mexican business did a fine job reducing operating costs.

Chart 18, the 2002 review for South America. In Brazil the external environment was volatile last year, as mentioned, with the currency chart. Devaluations, inflation, and reduced economic growth marked the year until late in the fourth quarter when we saw some improvement after the government leadership team was announced. We, however, enjoyed good volumes throughout the year, and made progress recovering operating income as the year came to a close.

In Argentina the currency events are well-known, and the economy was in a deep recession. Our business was quite good, and as we noted in our third-quarter release we had recovered pre-devaluation operating income by the end of the third quarter. Our businesses in Columbia and Chile while operating in somewhat less volatile economic environment performed very well.

Chart 19, 2002 review of Asia-Africa. As we’ve often said, we view our Asia-Africa business as our region for strategic growth. We had another great year in the region. And to characterize that growth we offer two metrics. Our 2002 sales of $251m are 3.5 times the sales achieved in 1998. And 2002 operating income of $54m is just under five times that of 1998. We delivered this performance initially through accretive acquisition growth, and then continued organic growth delivered by those businesses. As mentioned in our third-quarter conference call we’ve stated our new Thai plant was again operating over the summer, and we expect contribution from that facility in 2003. Finally, in Asia we had another very strong year in Pakistan, as our local team operates an excellent business in what obviously would be considered to be a difficult environment.

Chart 20, 2002 review of cash generation. As Jim has stated, this company-wide effort which began delivering results in the fourth quarter of 2001 met with real success in 2002. 2002 cash generation increased by 20 percent, and our debt was reduced by $183m. Viewing cash flow on a per-share basis last year we generated $5.80 per share, up from $4.78 per share in 2001, and our cash flow as a percent of sales increased from nine to 11 percent. We delivered this performance while many companies with a large foreign component were in retreat. And we believe that our cash generation compares quite favorably with other ag processing businesses. Our task as we go-forward is to institutionalize these gains.

I am now on chart 21, 2003 outlook, optimistic. We are now looking forward to a good year in 2003. As Sam said in our press release today, we are optimistic of delivering a solid increase over the $1.77 we achieved in 2002. And that’s assuming the potential resolution with Mexico is not achieved.

The basis for our confidence for the year 2003, in North America U.S. contracting is mostly complete and we believe it has been successful, meeting our expectations for this year but clearly still short of where we expect the return to be in the coming years. However, it is an important step in the right direction.

Further, our volume growth projections are positive, as well. As we look to South America we believe Brazil is tracking the historical currency devaluation margin recovery timeframe. There have been several significant devaluations in Brazil since 1998, and our projections call for a fairly difficult recovery. Our Argentine business continues to perform well. In Asia-Africa we appear to be set for another good year.

Chart 22, Mexico notice of intent. Since the highly discriminatory tax on soft drinks sweetened with HFCS remains in effect, and the Mexican Congress voted to continue the tax for 2003 this morning we filed our notice of intent to sue the Government of Mexico for $250m. The tax was originally levied in January of 2002, and we have participated in and supported at all levels and on both sides of the border the lobbying efforts for resolution. As we stated last January this tax requires us to curtail operations in one of the most important segments of our business. It’s in position and reduces EPS by five to six cents per month, or $35m to $40m per year at the operating income level.

We are filing the claim for compensation under the investment provisions of [NASAF] [ph]. Our claim is for costs and past and future profits. NASAF claim provisions call for written notice of intent, and we are complying with the treaty. Over the next 90 days we and the Mexican Government will continue to negotiate in hopes of resolving the issue.

Chart 23, the summary. To close this portion of the call, we summarize 2002 as $1.77 EPS performance. On the down side several critical events, some of which turned out quite well. First, the Mexican tax on HFCS sweetened soft drinks, obviously, still an open circuit. January 6th the Argentines devalued their currency, initiating a 72-percent drop while in the throes of a steep recession. Happily, this shows-up in the plus column. In Brazil after a reasonable first quarter the currency devalued by 70 percent through the third quarter, and the economy slowed. This also shows-up, though not to the same extent, in the plus column. Finally, our U.S. tax rate increased. Certainly, not something anyone looks forward to, but we delivered our $1.77 EPS even though taxes went up.

On the up side we delivered on a number of important factors. Our progress with cash generation was excellent. We generated internal operating cost reductions throughout North America. Volumes were strong in Asia, Africa, and North America excluding the HFCS sales in Mexico. And even in South America volumes went down by only one percent, when in many industries volumes collapsed. We received our one-time payment for the dissolution of Corn Products MCP sweeteners, and that was over and above our projected 2002 outlook. And finally, the FAS accounting rules changed for accounting for goodwill. For 2003 our outlook calls for solid EPS improvement.

And that’s it, and we’ll now open the call for questions. Steve.

Thank you. Today’s question-and-answer session will be conducted electronically. (Caller Instructions.)

Our first question, David Nelson, Credit Suisse First Boston. Mr. Nelson, your line is open.

Good morning, David.

Good morning, David.

Good morning. A strong improvement in cash flow, so we’ve got financing way down. Would you still say that debt reduction is your main priority for use of cash?

David, as we’ve stated before – this is Sam, obviously, and good morning. We certainly had a priority to bring debt down before, and we intend to maintain it the ratio that Jim has mentioned already. We are also looking to grow the business. We have initiatives in Asia, as we’ve talked to, that are available to us to continue growing, and we’ll look at that as well as investing in the business and other parts of it. But certainly, we want to maintain that balance sheet strong as we go-forward, and that will be a continued focus.

On the working capital improvement, that was what $65m, is that – have we got to the law of large numbers there? Is that the low hanging fruit, or is there much more to go?

Certainly, we got the low hanging fruits as well as some other pieces of the working capital during the course of the year. We believe now in some parts of our world we are world class.

I will just say that we, as I mentioned at one of the prior conference calls, we tied 20 percent of everyone’s bonus to working capital this year, and so people do know that we’re serious. Some people will not get a pay-out on that 20 percent because they didn’t meet the targets. So, certainly, I would expect those Divisions will improve a little bit going forward into 2003.

Okay. I might as well be the first to ask is there any – would you care to get more specific on what you mean by [call it]?

And I’ll be the first to answer as many, it’ll be the same. We’re not prepared to comment yet, David. We still have some contracting out there, and I – as I’ve said many, many times in prior years, we’re not ready to comment while we have contracting still ongoing.

Great. Thank you.

Thank you very much.

Our next question, David Driscol, Salomon Smith Barney.

Hi, good morning everyone.

Hey, David.

Could you give us your estimate of the sensitivity of the EPS impact of the 10-percent price increase on U.S. high fructose? So if you can’t tell us what the number is at least just give us a sensitivity?

David, I guess, I am trying to figure-out how I answer that question. If we’ve got a 10-percent price increase in high fructose corn syrup we’d probably improve our earnings by about 10 to 15 cents a share, I guess. And I am guessing right now, and I haven’t looked at it that way.

Okay. Next question, why didn’t you take a – or did you think about taking a write-down of your high fructose 55 assets in Mexico? Also, just related to this, you mentioned in your prepared comments that the Mexican operations continue to reduce their costs. Really what I am driving at here is that you mentioned in ’02 that we’ve got a – we had a five to six cents per share negative impact because of the tax. Are we still going to have that same impact in ’03, or are you going to reduce costs, and therefore, reduce that impact in ’03?

Let me answer the first part, and I’ll let Jim answer the second part of the question for you, David. Certainly, we have reduced our costs, and the impact as compared to 2001 will be about the same level going forward. We cannot take that kind of cost out until we physically determine that those assets are just not going to perform. And we’re not there yet. Certainly, the actions we’ve taken with respect to the lawsuit we are trying to work with the Government to get this thing resolved. But we believe that going forward the impact would be of the same magnitude as it was compared to 2001 net of any cost reductions we’ve been able to take out of the business down there.

I’ll let Jim talk to the impact of the assets themselves.

Yes, we have done, which is required, an impairment test on these assets. We did it at the beginning of last year. We’re doing it again at the end of this year. You have to remember these are long-term assets. They have approximately a 20-year useful life. They also potentially have other uses, and so, it is really at this point too early to take an impairment charge. We would not want to take a charge, and then see the tax rescinded sometime in the future, because once you write the assets off you cannot write them back on. And we would not want to be accused of acting too quickly. And we’re monitoring it, and as I say, right now the calculations show there is no long-term impairment.

As related to the foreign exchange [impact,] you guys indicated that it was 82 cents in 2002, but I think we had a positive bonus in operating margins of like 52 cents. And a bunch of it was due to increased pricing. And so, if we just net the two together we got basically a 30-cent impact, if it all had to deal with FX on that 52 cents which, obviously, it didn’t. But if we did we’d have a net impact of foreign currencies of 30 cents.

So looking at how the currencies stand right now today are we going to see basically just on foreign currencies alone a 30-cent increase on EPS versus 2002 levels? Like I said, given where currencies are right now today?

David, I am not going to comment on what you’re going to see. But certainly, we’ve seen in the past that we recouped the currency lag. And certainly, the currency lag we’re seeing in the various parts of the world there, and we believe that that will continue. So we’re putting price increases in as we go-forward to try to recoup that and more.

Let me just add to that. If you look at our fourth quarter the GAAP was a lot less than that. So, you’re quoting the GAAP for the full year. And as we move through the year the GAAP was closed on just about every place except for Brazil. And you know, we’re now working on the Brazilian situation.

David, I have to comment also on the question you asked earlier. I was too low in the numbers. We don’t typically comment on what a 10-percent increase would be, but it would be more than the number I gave. We’ve been looking at the numbers to figure-out where it would be, if in fact we would had 10 percent it would be more than that but I won’t tell you what it would have been.

The last question then, in your comments here you said that we’re going to do substantially better. I think I used the right word, then 2002 of $1.77. Is substantially better, I mean just bottom line, guys, is that a double-digit type of increase? Is that what that word means to you? Or are, you know, I am just trying to get some sense here. Because, you know, you’ve just heard some of the numbers that I’ve thrown-out, it seems to me like we’re well over $2.00 at this point.

I am not going to comment on where we are. Our comment was solid improvement over 2002. As I said, David, we’re not finished with contracting yet, and we have a pretty volatile world we’re in at the moment, and so we’re not going to give guidance specifically. But we believe the improvements will be there over that number.

Okay, thanks a lot.

Thank you.

Our next question, John Macmillan, Prudential Securities.

Well, I’d tell you you can’t sue City Hall, but I guess …

Thank you, John!

I guess that’s true only up here. I mean what do you really expect to gain by this?

Well, John, we have had situations in the past in Mexico for various things where we have gone back at the Government, and we have won lawsuits. This one, obviously, is much more substantial. It’s one that we feel that there has been a violation of our rights in Mexico, and the provisions of NAFDA allow us to do it. And so, based on the impact on the income of business last year and going forward we figured we take it forward and see if we can start discussions to resolve the issue this way, or in fact, pursue the lawsuit itself.

Your HFCS capacity is a little over 2b pounds counting 42, is that right?

I don’t even – where are you talking about, John? In the U.S.?

Yes.

It’s a good bit more than that.

Yeah, because the number you gave to David would be 30 cents plus, by my calculations.

Well, I just …

Even using 2b pounds would be 30 cents plus, depending on – because I am just trying to – you know, in the past you have given specific earnings guidance, is this just a question of timing, Sam?

It’s the timing issue right now. Yeah, we’re, you know, we’re in the first month of the year. We have not finished our pricing, although as Dick said we are, you know, substantially along our way. We’re comfortable with where we are right now, but it’s still some hoping, and you and I have been in conversations before where we’ve seen things not finished off. And we want to finish it off. And we do have some issues in the world right now, that our President will be addressing this evening on his call. But I don’t know what’s going to happen as a result of those things. We’re not prepared to come-forward right now with guidance. We will look it as soon as we’re able to do it.

Well, what impact would a war have? It really wouldn’t … I mean?

It would have energy costs impact.

Yeah.

It could have demand impact. You know, we saw what happened with the terrorism in 9/11, where no one was visiting any of the resort areas that use our product quite heavily. We don’t know. And as a result of that I am not prepared to say what we think we’ll make going forward until we have a couple of things behind us.

Okay, that’s fair. Thank you.

Okay, thank you.

Our next question, [Christine McCracken] [ph] with Midwest Research.

Good morning.

Good morning, Christine.

Wondering if you could just extend a little on kind of what the timeline is on the process in Mexico, now that this has been filed? When, what comes next?

Well, as we’ve said, we have 90 days of working to see if we can resolve it, at which point in time if we continue to proceed with the lawsuit, as with any lawsuit it’s going to take quite awhile to finish it off. And so, we’re not expecting any resolution in the next couple of quarters, but we do believe that we will continue to pursue it as long as we have to.

Assuming nothing …

Assuming nothing, yeah, happens, right.

Okay. And then, just on a separate subject, on the issue of drought. There’s several areas in the Midwest that I guess are rather dry. And I am wondering, I know it’s early, but to what extent could an increase in corn prices in the year ahead impact your business? Or what do you think the likelihood I guess is of a drought this year? And have you made any provisions given an early stage of contracting now, to lock-in your corn prices ahead of kind of expanded fears about the drought?

Well, as we’ve always said, Christine, we tend to hedge our corn as we book our business. And we’ve said we’re fairly well along in the contracting process and don’t expect it to be much longer. So certainly, as we stand now we can book the corn. And corn has been coming down for over the last three or four months, and so, you know, it’s benefited us in that direction over the last couple of months, as opposed to having booked it much earlier.

I just can’t comment on a drought. It’s dry out there right now, but we’ve seen this many times before. And if we get the rains coming through, and everything will be fine. If not, we’re going to see higher priced corn. But with most of ours booked as a result of the contracting that’s been done we’re not at risk for that for the most part.

And then, finally, you know, obviously you’re not going to comment on high fructose prices. But maybe you could comment on some of your other products, dextrose prices appear to be coming up, some of your other sweetener products seem to be doing fairly well, is that the current situation, or could you give us an update there?

When we said we were satisfied with the movement we were not only talking about a fructose we were talking about everything. Typically when we’re talked to about our pricing everyone is concerned almost strictly about the fructose business. We always look at our starch, our dextrose, our corn syrup and our fructose. And generally we comment on all of those.

And so, across-the-board we feel that we had accomplishments in our price arena, and we’re comfortable with the movement. As Dick said, though, and the most important thing that I can share, we’re happy with what we’ve got this year because we’ve met our expectations so far. But it’s noting close to what we feel we need going forward to get the returns in the U.S. business that are required to keep running a business in good, solid conditions. So we have, as we’ve said before, this is not a one-year process, it’s a two or three-year process to get back to the kind of profitability we expect.

Great, thanks.

Thank you.

(Caller Instructions.)

We have a follow-up question, David Driscol, Salomon Smith Barney.

Thank you. You guys mentioned that you had your titling plant up at the end of the third quarter, it operated in the fourth quarter. I am assuming there was no significant financial impact that would be sort of Part A of this, one? And the second part would be can you give us some kind of idea as to what the impact of that plant would be in 2003?

We have not given the size of that business out, David. We’ve said it’s not a huge business. You’re right in that it was just in the startup mode throughout all of 2002. We expect it to contribute to the business in 2003, but we’ve not talked about the size of that, and we’re not prepared to comment on that.

Could you give us a few numbers here, a little help on interest expense for ’03, capex, and D &A?

On capex we’re looking at about the same level as 2002, low 80’s as far as capex goes. Depreciation and amortization are around 100m, thereabouts. And interest expense will be about the same as it was last year, it may be up a little bit because, as Jim said, when we refinanced the debt we have a higher debt level, or a higher rate but our debt is down substantially coming into the year from where it was last year. And so we are financing less debt than we did last year, and so we’re close.

Okay. And then just a follow-up question on your Mexican comment, it seems like you’ve probably had multiple options here in how you pursued some type of resolution down there. You chose to go with a NAFDA suit. Why not do a local suit and challenge what the Mexican Government actually did? I don’t know the laws there, but I am assuming – I am going to make the presumption here that this is almost going to be unconstitutional to just selectively go after one particular industry.

I don’t know that we could go after that, David. I mean what they did, although we don’t like it at all, you know, they just put a tax on something that I don’t know that we could say – I mean the President said it was illegal, and he didn’t get anything out of it, so I don’t know that we’d win it.

The provisions of NAFDA allow for this. And we have investigated, as you might guess, quite thoroughly. We’ve hired a very good law firm to handle it for us. They’ve given us advice on it. We’ve shared with them all of the issues that we have experienced over the last many years as we started the plant up down there. And we believe this was the strongest course of action for us to take.

Let me just add to that. Since the tax is on the soft drinks it’s not actually on our product. We don’t have status to institute a lawsuit against the tax per se.

Any other comments that you might be able to share with us about U.S. Mexican trade negotiations on the sugar issue overall?

All we know is that they’re still ongoing, both parties are still talking. However, we’ve said that before. And I guess, I don’t know anything more than that, David. We went into a lull over the holidays which tended to happen, you know, everyplace. But I do know that both parties are still talking. As you know, [Dervez] [ph] has switched positions, but our understanding is he’s requested that he stay in touch with this negotiation, or he’d continue to handle it. And I believe that’s the case, although I can’t say with certainty that’s the case. But we believe he’s going to continue with it. And our folks in Washington are still talking with him.

But basically there’s nothing there out to suggest that we’re going to have a resolution on this anytime soon?

Nothing that’s clear, no.

Okay, very good. Thank you very much.

Thank you.

Our next question, Eric [Feld] [ph] with [Taza] [ph] Capital.

I just wondered if you could give some guidance as far as capex and cash flow for next year, or working capital? Are you going to be able to continue to reap benefits of capital improvements? Or are you sort of done there? Or can you comment on some of the cash flow items for next year?

Yes, this is Jim Ripley. Sam did mention that our capital expenditures are going to be in the range that we saw this year, and so the same or slightly higher. In the area of cash flow improvements from working capital we’re still targeting improvements but we will not see anywhere near the level of improvements that we saw last year. But we’re still looking for some improvement there.

We still have put-in this part of the bonus going forward this year a working capital target to make sure we hold or improve the gains we had, so that we’re still going to continue focusing on it, and not letting go for sure.

All right, thanks.

Thank you.

(Caller Instructions.) Having no further questions, Mr. Vandervoort, I’d like to turn the conference back over to you for any additional or closing comments.

And, again, thanks so much, Steve. And thanks to everybody for joining us today.

This does conclude today’s conference. Thank you for your participation, and you may now disconnect.