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Equity

12 Months Ended

Dec. 31, 2019

NOTE 11 – Equity

Preferred stock: The Company has authorized 25 million shares of $0.01 par value preferred stock, none of which were issued or outstanding at December 31, 2019 and 2018.

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 shares of common stock 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 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.

In the year ended December 31, 2019, the Company did not repurchase shares of common stock. In the year ended December 31, 2018, the Company repurchased 5.8 million shares of common stock in open market transactions at a net cost of $594 million.

Set forth below is a reconciliation of common stock share activity for the years ended December 31, 2019, 2018, and 2017:


(Shares of common stock, in thousands)		Issued		Held in Treasury		Outstanding
Balance at December 31, 2016		77,811		5,397		72,414
Issuance of restricted stock units as compensation		—		(103)		103
Performance shares and other share-based awards		—		(75)		75
Stock options exercised		—		(443)		443
Purchase/acquisition of treasury stock		—		1,039		(1,039)
Balance at December 31, 2017		77,811		5,815		71,996
Issuance of restricted stock units as compensation		—		(100)		100
Performance shares and other share-based awards		—		(68)		68
Stock options exercised		—		(209)		209
Purchase/acquisition of treasury stock		—		5,847		(5,847)
Balance at December 31, 2018		77,811		11,285		66,526
Issuance of restricted stock units as compensation		—		(105)		105
Performance shares and other share-based awards		—		(5)		5
Stock options exercised		—		(182)		182
Purchase/acquisition of treasury stock		—		—		—
Balance at December 31, 2019		77,811		10,993		66,818

Share-based payments: The following table summarizes the components of the Company’s share-based compensation expense for the last three years:


(in millions)		2019			2018			2017
Stock options:
Pre-tax compensation expense		$	3		$	5		$	7
Income tax benefit			—			(1)			(2)
Stock option expense, net of income taxes			3			4			5

Restricted stock units ("RSUs"):
Pre-tax compensation expense			10			12			13
Income tax benefit			(2)			(2)			(4)
RSUs, net of income taxes			8			10			9

Performance shares and other share-based awards:
Pre-tax compensation expense			5			4			6
Income tax benefit			—			—			(2)
Performance shares and other share-based compensation expense, net of income taxes			5			4			4

Total share-based compensation:
Pre-tax compensation expense			18			21			26
Income tax benefit			(2)			(3)			(8)
Total share-based compensation expense, net of income taxes		$	16		$	18		$	18

The Company has a stock incentive plan (“SIP”) administered by the compensation committee of its Board of Directors that provides for the granting of stock options, restricted stock, restricted stock units, and other share-based awards to certain key employees. A maximum of 8 million shares were originally authorized for awards under the SIP. As

of December 31, 2019, 2.8 million shares were available for future grants under the SIP. Shares covered by awards that expire, terminate or lapse will again be available for the grant of awards under the SIP.

Stock Options: Under the Company’s SIP, 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 years ended December 31, 2019, and 2018, respectively. The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following assumptions:


		For the Year Ended December 31,
		2019			2018			2017
Expected life (in years)		5.5			5.5			5.5
Risk-free interest rate		2.5	%		2.5	%		1.9	%
Expected volatility		19.7	%		19.8	%		22.5	%
Expected dividend yield		2.7	%		1.8	%		1.7	%

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 yields are based on current dividend payments.

A summary of stock option transactions for the year 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		(182)			35.40
Cancelled		(89)			108.94
Outstanding as of December 31, 2019		2,055		$	84.36		5.30		$	34
Exercisable as of December 31, 2019		1,626		$	77.97		4.48		$	33

For the years ended December 31, 2019, 2018 and 2017, cash received from the exercise of stock options was $6 million, $10 million, and $20 million, respectively. As of December 31, 2019, the unrecognized compensation cost related to non-vested stock options totaled $2 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:



		Year Ended December 31,
(dollars in millions, except per share)		2019			2018			2017
Weighted average grant date fair value of stock options granted (per share)		$	14.02		$	24.01		$	23.90
Total intrinsic value of stock options exercised			10			15			35

Restricted Stock Units: The Company has granted restricted stock units (“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 quoted market price of the Company’s common stock at the date of the grant.

The following table summarizes RSU activity for the year:


				Weighted
		Number of		Average
		Restricted		Fair Value
(shares in thousands)		Shares		per Share
Non-vested at December 31, 2018		344		$	115.06
Granted		178			91.11
Vested		(137)			101.54
Cancelled		(46)			114.51
Non-vested at December 31, 2019		339		$	108.02

The total fair value of RSUs that vested in the years ended December 31, 2019, 2018, and 2017 was $16 million, $15 million, and $18 million, respectively.

At December 31, 2019, the total remaining unrecognized compensation cost related to RSUs was $14 million which will be amortized on a weighted-average basis over approximately 1.8 years. Recognized compensation cost related to unvested RSUs is included in Share-based payments subject to redemption in the Consolidated Balance Sheets and totaled $23 million and $26 million at December 31, 2019 and 2018, respectively.

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 performance share grants in the year ended December 31, 2019, 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 performance shares awarded in the first quarter of 2019, 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 performance shares awarded in the first quarter of 2019, 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.

The Company awarded 70 thousand, 27 thousand, and 38 thousand performance shares in the years ended December 31, 2019, 2018 and 2017, respectively. The weighted average fair value of the shares granted during the years ended December 31, 2019, 2018 and 2017 was $92.57, $141.91, and $114.08, respectively.

The performance share award granted in the year ended December 31, 2016 vested in the first quarter of 2019, achieving a zero percent payout of the granted performance shares. As of December 31, 2019, the performance awards granted in the year ended December 31, 2017 are estimated to pay out at zero percent, respectively. There were three thousand shares cancelled during the year ended December 31, 2019.

As of December 31, 2019, the unrecognized compensation cost relating to these plans was $4 million, which will be amortized over the remaining requisite service periods of 1.8 years. Recognized compensation cost related to these unvested awards is included in share-based payments subject to redemption in the Consolidated Balance Sheets and totaled $9 million and $10 million at December 31, 2019 and 2018, respectively.

Other share-based awards under the SIP: Under the compensation agreement with the Board of Directors, $120,000 of a non-employee director’s annual retainer and 50 percent of the additional retainers paid to the Lead Director and the Chairmen of committees of the Board of Directors are awarded in shares of common stock or, if a director elects to defer all or a portion of his or her common stock or cash compensation, in shares of restricted stock units. These restricted units cannot be transferred until a date not less than six months after the director’s termination of service from the Board of Directors at which time the restricted units will be settled by delivering shares of common stock with fractional shares to be paid in cash. The compensation expense relating to this plan included in the Consolidated Statements of Income was approximately $1 million in the years ended December 31, 2019, 2018, and 2017. At December 31, 2019, there were approximately 210 thousand restricted stock units outstanding under this plan at a carrying value of approximately $13 million.

Accumulated Other Comprehensive Loss: A summary of accumulated other comprehensive income (loss) for the years ended December 31, 2017, 2018, and 2019, is presented below:


(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, 2016		$	(1,008)		$	(7)		$	(56)		$	—		$	(1,071)
Other comprehensive income (loss) before reclassification adjustments			57			(16)			8			3			52
Amount reclassified from accumulated OCI			—			6			(2)			—			4
Tax benefit (provision)			—			4			(1)			(1)			2
Net other comprehensive income (loss)			57			(6)			5			2			58
Balance, December 31, 2017			(951)			(13)			(51)			2			(1,013)
Other comprehensive (loss) income before reclassification adjustments			(129)			8			(20)			—			(141)
Amount reclassified from accumulated OCI			—			6			—			—			6
Tax (provision) benefit			—			(4)			5			—			1
Net other comprehensive (loss) income			(129)			10			(15)			—			(134)
Adoption of ASU 2016-01			—			—			—			(2)			(2)
Adoption of ASU 2018-02			—			(2)			(3)			—			(5)
Other			—			(2)			(3)			(2)			(7)
Balance, December 31, 2018			(1,080)			(5)			(69)			—			(1,154)
Other comprehensive loss before reclassification adjustments			(9)			(19)			11			—			(17)
Amount reclassified from accumulated OCI			—			14			—			—			14
Tax benefit (provision)			—			1			(2)			—			(1)
Net other comprehensive loss			(9)			(4)			9			—			(4)
Balance, December 31, 2019		$	(1,089)		$	(9)		$	(60)		$	—		$	(1,158)

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


			2019									2018									2017
			Net Income			Weighted			Per			Net Income			Weighted			Per			Net Income			Weighted			Per
			Available			Average			Share			Available			Average			Share			Available			Average			Share
(in millions, except per share amounts)			to Ingredion			Shares			Amount			to Ingredion			Shares			Amount			to Ingredion			Shares			Amount
Basic EPS		$	413			66.9		$	6.17		$	443			70.9		$	6.25		$	519			72.0		$	7.21

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									1.5
Diluted EPS		$	413			67.4		$	6.13		$	443			71.8		$	6.17		$	519			73.5		$	7.06

Approximately 1.1 million, 0.5 million, and 0.3 million share-based awards of common stock were excluded in the years ended December 31, 2019, 2018, and 2017, respectively, from the calculation of the weighted average number of shares outstanding for diluted EPS because their effects were anti-dilutive.