Equity

9 Months Ended

Sep. 30, 2019

Equity

Equity

12. Equity

Treasury stock: On October 22, 2018, the Board of Directors authorized a new stock repurchase program permitting the Company to purchase up to 8 million of its outstanding common shares from November 5, 2018 through December 31, 2023.  The parameters of the Company’s stock repurchase program are not established solely with reference to the dilutive impact of shares issued under the Company’s stock incentive plan. However, the Company expects that, over time, share repurchases will offset the dilutive impact of shares issued under the stock incentive plan.

On November 5, 2018, the Company entered into a Variable Timing Accelerated Share Repurchase (“ASR”) program with JPMorgan (“JPM”).  Under the ASR program, the Company paid $455 million on November 5, 2018, and acquired 4 million shares of its common stock having an approximate value of $423 million on that date.  On February 5, 2019, the Company and JPM settled the difference between the initial price and average daily volume weighted average price (“VWAP”) less the agreed upon discount during the term of the ASR agreement.  The final VWAP was $98.04 per share, which was less than originally paid.  The Company settled the difference in cash, resulting in JPM returning $63 million of the upfront payment to the Company on February 6, 2019, and lowering the total cost of repurchasing the 4 million shares of common stock to $392 million.  The Company adjusted Additional paid-in capital and Treasury stock by $32 million and $31 million, respectively, during the first quarter of 2019 for this inflow of cash.

Shared-based payments: The following table summarizes the components of the Company’s share-based compensation expense:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2019		2018		2019		2018
Stock options:
Pre-tax compensation expense	$	—	$	1	$	2	$	4
Income tax benefit		—		—		—		(1)
Stock option expense, net of income taxes		—		1		2		3
Restricted stock units ("RSUs"):
Pre-tax compensation expense		2		3		7		9
Income tax benefit		—		(1)		(1)		(2)
RSUs, net of income taxes		2		2		6		7
Performance shares and other share-based awards:
Pre-tax compensation expense		2		—		5		2
Income tax benefit		—		(1)		—		(1)
Performance shares and other share-based compensation expense, net of income taxes		2		(1)		5		1
Total share-based compensation:
Pre-tax compensation expense		4		4		14		15
Income tax benefit		—		(2)		(1)		(4)
Total share-based compensation expense, net of income taxes	$	4	$	2	$	13	$	11

Stock Options: Under the Company’s 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 occurs over a three-year period at the anniversary dates of the date of grant. Compensation expense is generally recognized on a straight-line basis for all awards over the employee’s vesting period or over a one-year required service period for certain retirement-eligible executive level employees. The Company estimates a forfeiture rate at the time of grant and updates the estimate throughout the vesting of the stock options within the amount of compensation costs recognized in each period.

The Company granted non-qualified options to purchase 247 thousand shares and 215 thousand shares for the nine months ended September 30, 2019 and 2018, respectively. The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following assumptions at the date of grant:

	Nine Months Ended September 30,
	2019		2018
Expected life (in years)	5.5		5.5
Risk-free interest rate	2.5	%	2.5	%
Expected volatility	19.7	%	19.8	%
Expected dividend yield	2.7	%	1.8	%

The expected life of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date for the period corresponding to the expected life of the options. Expected volatility is based on historical volatilities of the Company’s common stock. Dividend yield is based on current dividend payments at the date of grant.

Stock option activity for the nine months ended September 30, 2019 was as follows:

	Number of Options (in thousands)	Weighted Average Exercise Price per Share		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2018	2,079	$	80.25	5.51	$	42
Granted	247		91.85
Exercised	(129)		34.09
Cancelled	(56)		113.73
Outstanding as of September 30, 2019	2,141	$	83.49	5.46	$	22
Exercisable as of September 30, 2019	1,696	$	76.92	4.63	$	22

For the nine months ended September 30, 2019, cash received from the exercise of stock options was $4 million. As of September 30, 2019, the unrecognized compensation cost related to non-vested stock options totaled $3 million, which is expected to be amortized over the weighted-average period of approximately 1.5 years.

Additional information pertaining to stock option activity is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in millions, except per share)	2019		2018		2019		2018
Weighted average grant date fair value of stock options granted (per share)	$	—	$	—	$	14.02	$	24.01
Total intrinsic value of stock options exercised	$	1	$	1	$	7	$	12

Restricted Stock Units: The Company has granted RSUs to certain key employees. The RSUs are subject to cliff vesting, generally after three years provided the employee remains in the service of the Company. Compensation expense is generally recognized on a straight-line basis for all awards over the employee’s vesting period or over a one-year required service period for certain retirement-eligible executive level employees. The Company estimates a forfeiture rate at the time of grant and updates the estimate throughout the vesting of the RSUs within the amount of compensation costs recognized in each period. The fair value of the RSUs is determined based upon the number of shares granted and the market price of the Company’s common stock on the date of the grant.

The following table summarizes RSU activity for the nine months ended September 30, 2019:

(RSUs in thousands)	Number of Restricted Shares	Weighted Average Fair Value per Share
Non-vested as of December 31, 2018	344	$	115.06
Granted	174		91.28
Vested	(136)		101.40
Cancelled	(37)		115.79
Non-vested as of September 30, 2019	345	$	108.37

As of September 30, 2019, the total remaining unrecognized compensation cost related to RSUs was $17 million, which will be amortized over a weighted average period of approximately 1.9 years.

Performance Shares: The Company has a long-term incentive plan for senior management in the form of performance shares. Historically these performance shares vested based solely on the Company’s total shareholder return as compared to the total shareholder return of its peer group over the three-year vesting period. Beginning with the 2019 performance share grants, the vesting of the performance shares will be based on two performance metrics. Fifty percent of the performance shares awarded will vest based on the Company’s total shareholder return as compared to the total shareholder return of its peer group, and the remaining fifty percent will vest based on the calculation of the Company’s three-year average Return on Invested Capital (“ROIC”) against an established ROIC target.

For the 2019 performance shares awarded based on the Company’s total shareholder return, the number of shares that ultimately vest can range from zero to 200 percent of the awarded grant depending on the Company’s total shareholder return as compared to the total shareholder return of its peer group. The share award vesting will be calculated at the end

of the three-year period and is subject to approval by management and the Compensation Committee of the Board of Directors. Compensation expense is based on the fair value of the performance shares at the grant date, established using a Monte Carlo simulation model. The total compensation expense for these awards is amortized over a three-year graded vesting schedule.

For the 2019 performance shares awarded based on ROIC, the number of shares that ultimately vest can range from zero to 200 percent of the awarded grant depending on the Company’s ROIC performance against the target. The share award vesting will be calculated at the end of the three-year period and is subject to approval by management and the Compensation Committee. Compensation expense is based on the market price of the Company’s common stock on the date of the grant and the final number of shares that ultimately vest.  The Company will estimate the potential share vesting at least annually to adjust the compensation expense for these awards over the vesting period to reflect the Company’s estimated ROIC performance versus the target. The total compensation expense for these awards is amortized over a three-year graded vesting schedule.

For the nine months ended September 30, 2019, the Company awarded 70 thousand performance shares at a weighted average fair value of $92.57 per share.

As of September 30, 2019, the unrecognized compensation cost related to these awards was $5 million, which will be amortized over the remaining requisite service period of 2.0 years.

The 2016 performance share awards vested in the first quarter of 2019, achieving a zero percent payout of the granted performance shares.  Additionally, there were three thousand performance share cancellations during the nine months ended September 30, 2019.

Accumulated Other Comprehensive Loss: The following is a summary of net changes in Accumulated other comprehensive loss by component and net of tax for the nine months ended September 30, 2019 and 2018:

(in millions)	Cumulative Translation Adjustment		Deferred (Loss) Gain on Hedging Activities		Pension and Postretirement Adjustment		Unrealized (Loss) Gain on Investment		Accumulated Other Comprehensive Loss
Balance, December 31, 2018	$	(1,080)	$	(5)	$	(69)	$	—	$	(1,154)
Other comprehensive loss before reclassification adjustments		(48)		(16)		(2)		—		(66)
Amount reclassified from accumulated OCI		—		3		—		—		3
Tax benefit		—		3		—		—		3
Net other comprehensive loss		(48)		(10)		(2)		—		(60)
Balance, September 30, 2019	$	(1,128)	$	(15)	$	(71)	$	—	$	(1,214)

(in millions)	Cumulative Translation Adjustment		Deferred (Loss) Gain on Hedging Activities		Pension and Postretirement Adjustment		Unrealized (Loss) Gain on Investment		Accumulated Other Comprehensive Loss
Balance, December 31, 2017	$	(951)	$	(13)	$	(51)	$	2	$	(1,013)
Other comprehensive loss before reclassification adjustments		(113)		(1)		(1)		—		(115)
Amount reclassified from accumulated OCI		—		5		—		—		5
Adoption of ASU 2016-01		—		—		—		(2)		(2)
Adoption of ASU 2018-02		—		(2)		(3)		—		(5)
Tax provision		—		(1)		—		—		(1)
Net other comprehensive (loss) income		(113)		1		(4)		(2)		(118)
Balance, September 30, 2018	$	(1,064)	$	(12)	$	(55)	$	—	$	(1,131)

Supplemental Information: The following Condensed Consolidated Statements of Equity and Redeemable Equity provide the dividends per share for common stock for the periods presented:

	Total Equity												Share-based
			Additional				Accumulated Other				Non-		Payments
	Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to
(in millions)	Stock		Capital		Stock		Loss		Earnings		Interests		Redemption
Balance, December 31, 2018	$	1	$	1,096	$	(1,091)	$	(1,154)	$	3,536	$	20	$	37
Net income attributable to Ingredion										100
Net income attributable to non-controlling interests												2
Dividends declared, common stock ($0.625/share)										(42)
Repurchases of common stock				32		31
Share-based compensation, net of issuance				9		10								(16)
Other comprehensive loss								(6)
Balance, March 31, 2019	$	1	$	1,137	$	(1,050)	$	(1,160)	$	3,594	$	22	$	21
Net income attributable to Ingredion										105
Net income attributable to non-controlling interests												2
Dividends declared, common stock ($0.625/share)										(43)
Dividends declared, non-controlling interests												(4)
Share-based compensation, net of issuance				1		3								4
Other comprehensive income (loss)								8				(4)
Balance, June 30, 2019	$	1	$	1,138	$	(1,047)	$	(1,152)	$	3,656	$	16	$	25
Net income attributable to Ingredion										99
Net income attributable to non-controlling interests												3
Dividends declared, common stock ($0.63/share)										(42)
Dividends declared, non-controlling interests												(2)
Share-based compensation, net of issuance				(1)		3								3
Other comprehensive (loss) income								(62)				2
Balance, September 30, 2019	$	1	$	1,137	$	(1,044)	$	(1,214)	$	3,713	$	19	$	28

	Total Equity												Share-based
			Additional				Accumulated Other				Non-		Payments
	Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to
(in millions)	Stock		Capital		Stock		Loss		Earnings		Interests		Redemption
Balance, December 31, 2017	$	1	$	1,138	$	(494)	$	(1,013)	$	3,259	$	26	$	36
Net income attributable to Ingredion										140
Net income attributable to non-controlling interests												3
Dividends declared, common stock ($0.60/share)										(44)
Dividends declared, non-controlling interests												(3)
Share-based compensation, net of issuance				(6)		18								(9)
Other comprehensive income (loss)								41				(2)
Balance, March 31, 2018	$	1	$	1,132	$	(476)	$	(972)	$	3,355	$	24	$	27
Net income attributable to Ingredion										114
Net income attributable to non-controlling interests												2
Dividends declared, common stock ($0.60/share)										(44)
Dividends declared, non-controlling interests												(1)
Repurchase of common stock						(141)
Share-based compensation, net of issuance						2								4
Other comprehensive loss								(134)				(2)
Other				(4)						1		(1)
Balance, June 30, 2018	$	1	$	1,128	$	(615)	$	(1,106)	$	3,426	$	22	$	31
Net income attributable to Ingredion										95
Net income attributable to non-controlling interests												3
Dividends declared, common stock ($0.625/share)										(43)
Dividends declared, non-controlling interests												(3)
Repurchases of common stock						(36)
Share-based compensation, net of issuance				3		1								1
Other comprehensive loss								(18)
Other								(7)		6
Balance, September 30, 2018	$	1	$	1,131	$	(650)	$	(1,131)	$	3,484	$	22	$	32

Supplemental Information: The following table provides the computation of basic and diluted earnings per common share ("EPS") for the periods presented:

	Three Months Ended September 30, 2019					Three Months Ended September 30, 2018
(in millions, except per share amounts)	Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount		Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount
Basic EPS	$	99	66.9	$	1.48	$	95	71.2	$	1.33
Effect of Dilutive Securities:
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards			0.5					0.7
Diluted EPS	$	99	67.4	$	1.47	$	95	71.9	$	1.32

	Nine Months Ended September 30, 2019					Nine Months Ended September 30, 2018
(in millions, except per share amounts)	Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount		Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount
Basic EPS	$	304	66.9	$	4.54	$	349	71.8	$	4.86
Effect of Dilutive Securities:
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards			0.5					0.9
Diluted EPS	$	304	67.4	$	4.51	$	349	72.7	$	4.80

For the three and nine months ended September 30, 2019, approximately 1.4 million and 1.1 million share-based awards of common stock, respectively, were excluded from the calculation of diluted EPS as the impact of their inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2018, approximately 0.6 million and 0.5 million share-based awards of common stock, respectively, were excluded from the calculation of diluted EPS as the impact of their inclusion would have been anti-dilutive.