UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934
For the fiscal year ended December 31, 20122015
or
oTRANSITION 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
INGREDION INCORPORATED
(Exact Name of Registrant as Specified inIts Charter)
Delaware | 22-3514823 | |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer |
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| Identification No.) |
5 Westbrook Corporate Center, Westchester, Illinois | 60154 | |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (708) 551-2600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, $.01 par value per share |
| New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer x |
| Accelerated filer o |
Non-accelerated filer o |
| |
|
| Smaller reporting company o |
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
The aggregate market value of the Registrant’s voting stock held by non-affiliates of the Registrant (based upon the per share closing price of $49.52$79.81 on June 29, 2012,30, 2015, and, for the purpose of this calculation only, the assumption that all of the Registrant’s directors and executive officers are affiliates) was approximately $3,793,000,000.$5,677,000,000.
The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, as of February 25, 2013,17, 2016, was 77,266,000.71,887,000.
Documents Incorporated by Reference:
Information required by Part III (Items 10, 11, 12, 13 and 14) of this document is incorporated by reference to certain portions of the Registrant’s definitive Proxy Statement (the “Proxy Statement”) to be distributed in connection with its 20132016 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2012.2015.
INGREDION INCORPORATED
FORM 10-K
The Company
On May 15, 2012, the Company’s stockholders approved the Company’s name change to Ingredion Incorporated (“Ingredion”) from Corn Products International, Inc. We believe the name better reflects our position asis a leading global manufactureringredients solutions provider. We turn corn, tapioca, potatoes and supplier of starchother vegetables and sweetenerfruits into value-added ingredients to a range of industries, including packagedand biomaterials for the food, beverage, paper and corrugating, brewing and industrial customers.other industries. Ingredion was incorporated as a Delaware corporation in 1997 and its common stock is traded on the New York Stock Exchange.
On March 11, 2015, we completed our acquisition of Penford Corporation (“Penford”), a manufacturer of specialty starches that was headquartered in Centennial, Colorado. The total purchase consideration for Penford was $332 million, which included the extinguishment of $93 million in debt in conjunction with the acquisition. The acquisition of Penford provides us with, among other things, an expanded specialty ingredient product portfolio consisting of potato starch-based offerings. Penford had net sales of $444 million for the fiscal year ended August 31, 2014 and operated six manufacturing facilities in the United States, all of which manufacture specialty starches.
On August 3, 2015, we completed our acquisition of Kerr Concentrates, Inc. (“Kerr”), a privately-held producer of natural fruit and vegetable concentrates for approximately $102 million in cash. Kerr serves major food and beverage companies, flavor houses and ingredient producers from its manufacturing locations in Oregon and California. The acquisition of Kerr provides us with the opportunity to expand our product portfolio.
We are principally engaged in the production and sale of starches and sweeteners for a wide range of industries, and are managed geographically on a regional basis. Our operations are classified into four reportable business segments: North America, South America, Asia Pacific and Europe, Middle East and Africa (“EMEA”). Our North America segment includes businesses in the United States, Canada and Mexico. Our South America segment includes businesses in Brazil, Colombia, Ecuador and the Southern Cone of South America, which includes Argentina, Chile, Peru and Uruguay. Our Asia Pacific segment includes businesses in South Korea, Thailand, Malaysia, China, Japan, Indonesia, the Philippines, Singapore, India, Australia and New Zealand. Our EMEA segment includes businesses in the United Kingdom, Germany, South Africa, Pakistan and Kenya.
For purposes of this report, unless the context otherwise requires, all references herein to the “Company,” “Ingredion,” “we,” “us,” and “our” shall mean Ingredion Incorporated and its subsidiaries.
On October 1, 2010, the Company acquired National Starch, a global developer and manufacturer of specialty modified starches from Akzo Nobel N.V., headquartered in the Netherlands. National Starch is a recognized innovator in starch and food ingredients. Its technologies are supported by a research and development infrastructure and protected by more than 800 patents and patents pending, which drive development of advanced specialty starches for the next generation of food products.
Ingredion supplies a broad range of customers in many diverse industries around the world, including the food, beverage, brewing, pharmaceutical, paper and corrugated products,corrugating, brewing, pharmaceutical, textile and personal care industries, as well as the global animal feed and corn oil markets.
Our product line includes starches and sweeteners, animal feed products and edible corn oil. Our starch-based products include both food-grade and industrial starches.starches, and biomaterials. Our sweetener products include glucose syrups, high maltose syrups, high fructose corn syrup (“HFCS”), caramel color, dextrose, polyols, maltodextrins and glucose and syrup solids.
Our products are derived primarily from the processing of corn and other starch-based materials, such as tapioca, potato and rice.
Our manufacturing process is based on a capital-intensive, two-step process that involves the wet milling and processing of starch-based materials, primarily corn. During the front-end process, corn is steeped in a water-based solution and separated into starch and co-products such as animal feed and corn oil. The starch is then either dried for sale or further processed to make sweeteners, starches and other ingredients that serve the particular needs of various industries.
We believe our approach to production and service, which focuses on local management and production improvements of our worldwide operations, 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 through innovative solutions. At the same time, we believe that our corporate functions allow us to identify synergies and maximize the benefits of our global presence.
Our consolidated net sales were $6.53$5.62 billion in 2012.2015. Approximately 5760 percent of our 20122015 net sales were provided from our North American operations. Our South American operations provided 2218 percent of net sales, while our Asia Pacific and EMEA (Europe, Middle East and Africa) operations contributed approximately 13 percent and 89 percent, respectively.
Products
Sweetener Products. Our sweetener products represented approximately 4440 percent, 4339 percent and 5242 percentof our net sales for 2012, 20112015, 2014 and 2010,2013, respectively.
Glucose Syrups: Glucose syrups are fundamental ingredients widely used in food products, such as baked goods, snack foods, beverages, canned fruits, condiments, candy and other sweets, dairy products, ice cream, jams and jellies, prepared mixes and table syrups. Glucose syrups offer functionality in addition to sweetness to processed foods. They add body and viscosity; help control freezing points, crystallization and browning; add humectancy (ability to add moisture) and flavor; and act as binders.
High Maltose Syrup: This special type of glucose syrup is primarily used as a fermentable sugar in brewing beers. High maltose syrups are also used in the production of confections, canning and some other food processing applications. Our high maltose syrups actually speedsspeed the fermentation process, allowing brewers to increase capacity without adding capital.
High Fructose Corn Syrup: High fructose corn syrup is used in a variety of consumer products including soft drinks, fruit-flavored beverages, baked goods, dairy products, confections and other food and beverage products. In addition to sweetness and ease of use, high fructose corn syrup provides body; humectancy; and aids in browning, freezing point and crystallization control.
Dextrose: Dextrose has a wide range of applications in the food and confection industries, in solutions for intravenous and other pharmaceutical applications, and numerous industrial applications like wallboard, biodegradable surface agents and moisture control agents. Dextrose functionality in foods, beverages and confectionary includes sweetness control; body and viscosity; actsacting as a bulking, drying and anti-caking agent; servesserving as a carrier; providesproviding freezing point and crystallization control; and aidsaiding in fermentation. Dextrose is also a fermentation agent in the production of light beer. In pharmaceutical applications dextrose is used in IV solutions as well as an excipient suitable for direct compression in tableting.
Polyols: These products are sugar-free, reduced calorie sweeteners primarily derived from starch or sugar for the food, beverage, confectionery, industrial, personal and oral care, and nutritional supplement markets. In addition to sweetness, polyols inhibit crystallization; provide binding, humectancy and plasticity; add texture; extend shelf life; prevent moisture migration; and are an excipient suitable for tableting.
Maltodextrins and Glucose Syrup Solids: These products have a multitude of food applications, including formulations where liquid syrups cannot be used. Maltodextrins are resistant to browning, provide excellent solubility, have a low hydroscopicity (do not retain moisture), and are ideal for their carrier/bulking properties. Glucose syrup solids have a bland flavor, remain clear in solution, are easy to handle and provide bulking properties.
Starch Products. Our starch products represented approximately 3744 percent, 3643 percent and 2841 percent of our
net sales for 2012, 20112015, 2014 and 2010,2013, respectively. Starches are an important component in a wide range of processed foods, where they are used for adhesions,adhesion, clouding, dusting, expansion, fat replacement, freshness, gelling, glazing, mouth feel, stabilization and texture. Cornstarch is sold to cornstarch packers for sale to consumers. Starches are also used in paper production to create a smooth surface for printed communications and to improve strength in recycled papers. Specialty starches are used for enhanced drainage, fiber retention, oil and grease resistance, improved printability and biochemical oxygen demand control. In the corrugating industry, starches and specialty starches are used to produce high quality adhesives for the production of shipping containers, display board and other corrugated applications. The textile industry uses starches and specialty starches for sizing (abrasion resistance) to provide size and finishes for manufactured products. Industrial starches are used in the production of construction materials, textiles, adhesives, pharmaceuticals and cosmetics, as well as in mining, water filtration and oil and gas drilling. Specialty starches are used
for biomaterial applications including biodegradable plastics, fabric softeners and detergents, hair and skin care applications, dusting powders for surgical gloves and in the production of glass fiber and insulation.
Co-ProductsSpecialty Ingredients. We consider certain of our starch and others. Co-products and others accounted for 19 percent, 21 percent and 20sweetener products to be specialty ingredients. Specialty ingredients comprised approximately 25 percent of our net sales for 2012, 20112015, up from 24 percent and 2010,21 percent in 2014 and 2013, respectively. Our specialty ingredients are aligned with growing market and consumer trends such as health and wellness, clean-label, affordability, indulgence and sustainability. We plan to drive growth for our specialty ingredients portfolio by leveraging the following six platforms: Wholesome, Texture, Nutrition, Sweetness, Delivery Systems and Biomaterial Solutions.
Wholesome — Clean and simple ingredients that consumers can identify and trust | Nutrition - Nutritional carbohydrates with benefits of digestive health and energy management | Texture - Precise texture solutions that optimize the consumer experience and build back texture | ||
Delivery Systems — Clean label emulsifiers that add value for customers by protecting and stabilizing expensive ingredients and flavors | Sweetness - Sweetening systems that provide affordable, natural, reduced calorie, and sugar-free solutions | Biomaterial Solutions - Nature-based materials for selected industrial segments and customers that answer demand for sustainable, non-synthetic ingredients |
Wholesome: Clean and simple specialty ingredients that consumers can identify and trust. Products include Novation clean label functional starches, value added pulse-based ingredients and Gluten Free offerings. Texture: Specialty ingredients that provide precise food texture solutions designed to optimize the consumer experience and build back texture. Include starch systems that replace more expensive ingredients and are designed to optimize customer formulation costs, texturizers that are designed to create rich, creamy mouth feel, and products that enhance texture in healthier offerings. Nutrition: Specialty ingredients that provide nutritional carbohydrates with benefits of digestive health and energy management. Our fibers and complimentary nutritional ingredients address the leading health and wellness concerns of consumers, including digestive health, infant nutrition, weight and energy management, aging and immunity. Sweetness: Specialty ingredients that provide affordable, natural, reduced calorie and sugar-free solutions for our customers. We have a broad portfolio of nutritive and non-nutritive sweeteners, including high potency sweeteners and our naturally based stevia sweetener. Delivery Systems: Clean label emulsifiers that are designed to add value for customers by protecting and stabilizing expensive ingredients and flavors. Products include starches to help emulsify or mix natural colors in beverages and specialty starches that encapsulate and protect flavors and vitamins in pharmaceuticals and spray-dried food ingredients. Biomaterial Solutions: Nature-based materials that help manufacturers become more sustainable by replacing synthetic materials with nature-based ingredients in personal care, home care and other industrial segments.
Each growth platform addresses multiple consumer trends. For instance, specialty texture solutions are leveraged to address consumer health and wellness, affordability and indulgence demands while wholesome solutions can address clean-label, indulgence and health and wellness consumer demands. Specialty ingredients that provide nutrition solutions for health and wellness can also address food indulgence and convenience desires of consumers. Specialty ingredients that provide sweetness solutions for health and wellness demands can also deliver affordability and food indulgence solutions.
Co-Products and others. Co-products and others accounted for 16 percent, 18 percent and 17 percent of our net sales for 2015, 2014 and 2013, respectively. Refined corn oil (from germ) is sold to packers of cooking oil and to producers of margarine, salad dressings, shortening, mayonnaise and other foods. Corn gluten feed is sold as animal feed. Corn gluten meal is sold as high proteinhigh-protein feed for chickens, pet food and aquaculture.
Geographic Scope and Operations
We are principally engaged in the production and sale of sweeteners and starches for a wide range of industries, and we manage our business on a geographic regional basis. Our operations are classified into four reportable business segments based on the geographic organization of our business:segments: North America, South America, Asia Pacific and EMEA. In 2012,2015, approximately 5760 percent of our net sales were derived from operations in North America, while net sales from operations in South America represented 2218 percent. OurNet sales from operations in Asia Pacific and EMEA operations represented approximately 13 percent and 89 percent, respectively, of our 2015 net sales, respectively.sales. See Note 1413 of the notes to the consolidated financial statements entitled “Segment Information” for additional financial information with respect to our reportable business segments.
In general, demand for our products is balanced throughout the year. However, demand for sweeteners in South America is greater in the first and fourth quarters (its summer season) while demand for sweeteners in North America is greater in the second and third quarters. Due to the offsetting impact of these demand trends, we do not experience material seasonal fluctuations in our net sales.
Our North America segment consists of operations in the US, Canada and Mexico. The region’s facilities include 1320 plants producing a wide range of both sweeteners, starches and starches.fruit and vegetable concentrates.
We are the largest manufacturer of corn-based starches and sweeteners in South America, with sales in Argentina, Brazil, Chile, Colombia and Peru.Ecuador and the Southern Cone of South America, which includes Argentina, Chile, Peru and Uruguay. Our South America segment includes 11 plants that produce regular, modified, waxy and tapioca starches, high fructose and high maltose syrups and syrup solids, dextrins and maltodextrins, dextrose, specialty starches, caramel color, sorbitol and vegetable adhesives.
Our Asia Pacific segment manufactures corn-based products in South Korea, Australia and China. Also, we manufacture tapioca-based products in Thailand, which supplies not only our Asia Pacific segment but the rest of our global network. The region’s facilities include 7 plants that produce modified, specialty, regular, waxy and tapioca starches, dextrins, glucose, high maltose syrup, dextrose, high fructose corn syrupsHFCS and caramel color.
Our EMEA segment includes 5 plants that produce modified and specialty starches, glucose and dextrose in England, Germany and Pakistan.
Additionally, Ingredion utilizeswe utilize a network of tolling manufacturers in its various regions in the production cycle of certain specialty starches. In general, these tolling manufacturers produce certain basic starches for the Company,us, and we in turn complete the manufacturing process of the specialty starches through our finishing channels.
We utilize our global network of manufacturing facilities to support key global product lines.
Competition
The starch and sweetener industry is highly competitive. Many of our products are viewed as basic ingredients that compete with virtually identical products and derivatives manufactured by other companies in the industry. The US is a highly competitive market where there are other starch processors, several of which are divisions of larger enterprises. Some of these competitors, unlike us, have vertically integrated their starch processing and other operations. Competitors include ADM Corn Processing Division (“ADM”) (a division of Archer-Daniels-Midland Company), Cargill, Inc., Tate & Lyle Ingredients Americas, Inc., and several others. Our operations in Mexico and Canada face competition from US imports and local producers including ALMEX, a Mexican joint venture between ADM and Tate & Lyle Ingredients Americas, Inc. In South America, Cargill has starch processing operations in Brazil and Argentina.
Many smaller local corn and tapioca refiners also operate in many of our markets. Competition within our markets is largely based on price, quality and product availability.
Several of our products also compete with products made from raw materials other than corn. High fructose corn syrupHFCS and monohydrate dextrose compete principally with cane and beet sugar products. Co-products such as corn oil and gluten meal compete with products of the corn dry milling industry and with soybean oil, soybean meal and other products. Fluctuations in prices of these competing products may affect prices of, and profits derived from, our products.
Customers
We supply a broad range of customers in over 60 industries worldwide. The following table provides the percentage of total net sales by industry for each of our segments for 2012:2015:
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| America |
| America |
| APAC |
| EMEA |
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| America |
| America |
| APAC |
| EMEA |
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Food |
| 44 | % | 39 | % | 42 | % | 52 | % | 68 | % |
| 50 | % | 48 | % | 44 | % | 66 | % | 59 | % |
Beverage |
| 15 | % | 19 | % | 12 | % | 6 | % | 2 | % |
| 13 | % | 16 | % | 12 | % | 7 | % | 1 | % |
Animal Nutrition |
| 12 | % | 12 | % | 14 | % | 8 | % | 8 | % |
| 11 | % | 12 | % | 15 | % | 6 | % | 8 | % |
Paper and Corrugating |
| 9 | % | 9 | % | 9 | % | 15 | % | 3 | % |
| 10 | % | 11 | % | 8 | % | 13 | % | 4 | % |
Brewing |
| 9 | % | 8 | % | 15 | % | 4 | % | 0 | % |
| 8 | % | 7 | % | 14 | % | 4 | % | 1 | % |
Other |
| 11 | % | 13 | % | 8 | % | 15 | % | 19 | % |
| 8 | % | 6 | % | 7 | % | 4 | % | 27 | % |
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Total |
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
Also noteworthy, approximately 18 percent of our net sales in 2012 were to customers that we regard as Global Accounts. No customer accounted for 10 percent or more of our net sales in 2012, 20112015, 2014 or 2010.2013.
Raw Materials
Corn (primarily yellow dent) is the primary basic raw material we use to produce starches and sweeteners. The supply of corn in the United States has been, and is anticipated to continue to be, adequate for our domestic needs. The price of corn, which is determined by reference to prices on the Chicago Board of Trade, fluctuates as a result of various factors including: farmerfarmers’ planting decisions, climate, and government policies (including those related to the production of ethanol), livestock feeding, shortages or surpluses of world grain supplies, and domestic and foreign government policies and trade agreements. The CompanyWe use starch from potato processors as the primary raw material to manufacture ingredients derived from potato-based starches. We also usesuse tapioca, potato, rice and sugar as a raw material.
Corn is also grown in other areas of the world, including Canada, Mexico, Europe, South Africa, Argentina, Australia, Brazil, China and Pakistan. Our affiliates outside the United States utilize both local supplies of corn and corn imported from other geographic areas, including the United States. The supply of corn for these affiliates is also generally expected to be adequate for our needs. Corn prices for our non-US affiliates generally fluctuate as a result of the same factors that affect US corn prices.
We also utilize specialty grains such as waxy and high amylose corn in our operations. In general, the planning cycle for our specialty grain sourcing begins three years in advance of the anticipated delivery of the specialty corn since the necessary seed must be grown in the season prior to grain contracting. In order to producesecure these specialty grains at the time of our anticipated needs, we contract with certain farmers to grow the specialty corn approximately two years in advance of delivery. These specialty grains are higher cost due to their more limited supply and require longer planning cycles to mitigate the risk of supply shortages.
Due to the competitive nature of our industry and the availability of substitute products not produced from corn, such as sugar from cane or beets, end product prices may not necessarily fluctuate in a manner that correlates to raw material costs of corn.
We follow a policy of hedging our exposure to commodity fluctuations with commodities futures and options contracts primarily for certain of our North American corn purchases. We use derivative hedging contracts to protect the gross margin of our firm-priced business in North America. Other business may or may not be hedged at any given time based on management’s judgment as to the need to fix the costs of our raw materials to protect our profitability. Outside of North America, we generally enter into short-term commercial sales contracts and adjust our selling prices based upon the local raw material costs. See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in the section entitled “Commodity Costs” for additional information.
Research and Development
We have a global research and development capability concentratednetwork of more than 350 scientists working in 25 Ingredion Idea Labs™ innovation centers with headquarters in Bridgewater, New Jersey. Activities at Bridgewater include plant science and physical, chemical and biochemical modifications to food formulation,formulations, food sensory evaluation, as well as development of non-food applications, such as starch-based biopolymers. In 2013, we expanded our Bridgewater facility with the addition Ingredion hasof a lab and sensory evaluation space dedicated to our sweeteners portfolio. In addition, we have product application technology centers that direct our product development teams worldwide to create product application solutions to better serve the ingredient needs of our customers. Product development activity is focused on developing product applications for identified customer and market needs. Through this approach, we have developed value-added products for use by customers in various industries. We usually collaborate with customers to develop the desired product application either in the customers’ facilities, our technical service laboratories or on a contract basis. These efforts are supported by our marketing, product technology and technology support staff. Research and development expense for 2012 was approximately $43 million in 2015 and $37 million or approximately one-half of one percent of our total net sales.in both 2014 and 2013.
Sales and Distribution
Our salaried sales personnel, who are generally dedicated to customers in a geographic region, sell our products directly to manufacturers and distributors. In addition, we have a staff that provides technical support to our sales personnel on an industry basis. We generally contract with trucking companies to deliver our bulk products to customer destinations. In North America, we generally use trucks to ship to nearby customers. For those customers located considerable distances from our plants, we use either rail or a combination of railcars and trucks to deliver our products. We generally lease railcars for terms of fivethree to fifteenten years.
Patents, Trademarks and Technical License Agreements
We own a number of patents, including approximately 800844 patents and patents pending through the acquisition of National Starch which relate to a variety of products and processes, and a number of established trademarks under which we market our products. We also have the right to use other patents and trademarks pursuant to patent and trademark licenses. We do not believe that any individual patent or trademark is material to our business. There is no currently pending challenge to the use or registration of any of our significant patents or trademarks that would have a material adverse impact on the Companyus or itsour results of operations if decided against us.
Employees
As of December 31, 20122015 we had approximately 11,20011,000 employees, of which approximately 1,9002,400 were located in the United States. Approximately 3568 percent of US and 4749 percent of our non-US employees are unionized. In addition, the Company hasAdditionally, we have approximately 9001,000 temporary employees.
Government Regulation and Environmental Matters
As a manufacturer and makermarketer of food items and items for use in the pharmaceutical industry, our operations and the use of many of our products are subject to various US,federal, state, foreign and local statutes and regulations,
including the Federal Food, Drug and Cosmetic Act and the Occupational Safety and Health Act. We and many of our products are also subject to regulation by various government agencies, including the United States Food and Drug Administration. Among other things, applicable regulations prescribe requirements and establish standards for product quality, purity and labeling. Failure to comply with one or more regulatory requirements can result in a variety of sanctions, including monetary fines. No such fines of a material nature were imposed on us in 2012.2015. We may also be required to comply with US,federal, state, foreign and local laws regulating food handling and storage. We believe these laws and regulations have not negatively affected our competitive position.
Our operations are also subject to various US,federal, state, foreign and local laws and regulations with respect to environmental matters, including air and water quality and underground fuel storage tanks, and other regulations intended to protect public health and the environment. We operate industrial boilers that fire natural gas, coal, or biofuels to operate our manufacturing facilities and they are our primary source of greenhouse gas emissions. In Argentina, we are in discussions with local regulators associated with conducting studies of possible environmental remediation programs at our Chacabuco plant. We are unable to predict the outcome of these discussions; however, we do not believe that the ultimate cost of remediation will be material. Based on current laws and regulations and the enforcement and interpretations thereof, we do not expect that the costs of future environmental compliance will be a material expense, although there can be no assurance that we will remain in compliance or that the costs of remaining in compliance will not have a material adverse effect on our future financial condition and results of operations.
During 2012,2015, we spent approximately $4$9 million for environmental control and wastewater treatment equipment to be incorporated into existing facilities and in planned construction projects. We currently anticipate that we will spend approximately $12$8 million and $8$18 million for environmental facilities and programs in 20132016 and 2014,2017, respectively.
Other
Our Internet address is www.ingredion.com. We make available, free of charge through our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. These reports are made available as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission. Our corporate governance guidelines, Boardboard committee charters and code of ethics are posted on our website, the address of which is www.ingredion.com, and each is available in print to any shareholder upon request in writing to Ingredion Incorporated, 5 Westbrook Corporate Center, Westchester, Illinois 60154 Attention: Corporate Secretary. The contents of our website are not incorporated by reference into this report.
Executive Officers of the Registrant
Set forth below are the names and ages of all of our executive officers, indicating their positions and offices with the Company and other business experience during the past five years.experience. Our executive officers are elected annually by the Board to serve until the next annual election of officers and until their respective successors have been elected and have qualified unless removed by the Board.
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Ilene S. Gordon |
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| Chairman of the Board, President and Chief Executive Officer of the Company since May 4, 2009. Ms. Gordon was President and Chief Executive Officer of Rio Tinto’s Alcan Packaging, a multinational business unit engaged in flexible and specialty packaging, from October 2007 until she |
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Christine M. Castellano |
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| Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer since April 1, 2013. Prior to that Ms. Castellano served |
as Senior Vice President, General Counsel and Corporate Secretary | ||||
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| Senior Vice President and Chief Innovation Officer since January 1, 2014. Prior to that Mr. DeLio served as Vice President, |
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Jack C. Fortnum |
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| Executive Vice President and Chief Financial Officer since January 6, 2014. Prior to that Mr. Fortnum served as Executive Vice President and President, North America |
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Diane J. Frisch |
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| Senior Vice President, Human Resources since October 1, 2010. Ms. Frisch previously served as Vice President, Human Resources, from May 1, 2010 to September 30, 2010. Prior to that, |
Ms. Frisch served as Vice President of Human Resources and Communications for the Food Americas and Global Pharmaceutical Packaging businesses of Rio Tinto’s Alcan Packaging, a multinational company engaged in flexible and specialty packaging, from January 2004 to March 30, 2010. Prior to being acquired by Alcan Packaging, Ms. Frisch served as Vice President of Human Resources for the flexible packaging business of Pechiney, S.A., an aluminum and packaging company with headquarters in Paris and Chicago, from January 2001 to January 2004. Previously, she served as Vice President of Human Resources for Culligan International Company and Vice President and Director of Human Resources for Alumax Mill Products, Inc., a division of Alumax Inc. Ms. Frisch holds a Bachelor of Arts degree in psychology from Ithaca College, Ithaca, NY, and a Master of Science degree in industrial |
relations from the University of Wisconsin in Madison. | ||||
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Matthew R. Galvanoni |
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| Vice President and Corporate Controller since August 15, 2012. Mr. Galvanoni previously served as Vice President, Corporate Accounting from June 18, 2012, when he joined Ingredion, to August 14, 2012. Mr. Galvanoni was previously employed by Exelon Corporation for 10 years. He served as Principal Accounting Officer of Exelon Generation and Vice President and Assistant Corporate Controller of Exelon Corporation from July 2009 until the merger of Exelon Corporation with Constellation Energy Group, Inc. in March 2012, at which time Mr. Galvanoni became the Vice President, Financial Systems Integration until May 2012. Mr. Galvanoni previously served as Vice President and Controller of Commonwealth Edison Company and PECO Energy Company from January 2007 to July 2009. He served in various roles at the Director level of the Controllership organization of Exelon Corporation from November 2002 to December 2006. Mr. Galvanoni holds a |
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| Executive Vice President, Global Specialties and President, Americas since January 1, 2016. Mr. Zallie previously served as Executive Vice |
President, Global Specialties and President, North America and EMEA from January 6, 2014 to December 31, 2015. Prior to that Mr. Zallie served as Executive Vice President, Global Specialties and President, EMEA and Asia-Pacific applications in food, beverage, dietary supplements, pharmaceutical, oral care and industrial end markets. He holds Masters degrees in food science and |
Our business and assets are subject to varying degrees of risk and uncertainty. The following are factors that we believe could cause our actual results to differ materially from expected and historical results. Additional risks that are currently unknown to us may also impair our business or adversely affect our financial condition or results of operations. In addition, forward-looking statements within the meaning of the federal securities laws that are contained in this Form 10-K or in our other filings or statements may be subject to the risks described below as well as other risks and uncertainties. Please read the cautionary notice regarding forward-looking statements in Item 7 below.
Current economic conditions may adversely impact demand for our products, reduce access to credit and cause our customers and others with whichwhom we do business to suffer financial hardship, all of which could adversely impact our business, results of operations, financial condition and cash flows.
Economic conditions in the US,South America, the European Union South America and many other countries and regions in which we do business have experienced various levels of weakness over the last few years, and may remain challenging for the foreseeable future. General business and economic conditions that could affect us include the strength of the economies in which we operate, unemployment, inflation and fluctuations in debt markets. While currently these conditions have not impaired our ability to access credit markets and finance our operations, there can be no assurance that there will not be a further deterioration in the financial markets.
There could be a number of other effects from these economic developments on our business, including reduced consumer demand for products; pressure to extend our customers’ payment terms; insolvency of our customers, resulting in increased provisions for credit losses; decreased customer demand, including order delays or cancellationscancellations; and counterparty failures negatively impacting our operations.
In connection with our defined benefit pension plans, adverse changes in investment returns earned on pension assets and discount rates used to calculate pension and related liabilities or changes in required pension funding levels may have an unfavorable impact on future pension expense and cash flow.
In addition, the volatile worldwide economic conditions and market instability may make it difficult for us, our customers and our suppliers to accurately forecast future product demand trends, which could cause us to produce excess products that cancould increase our inventory carrying costs. Alternatively, this forecasting difficulty could cause a shortage of products that could result in an inability to satisfy demand for our products.
We operate a multinational business subject to the economic, political and other risks inherent in operating in foreign countries and with foreign currencies.
We have operated in foreign countries and with foreign currencies for many years. Our results are subject to foreign currency exchange fluctuations. Our operations are subject to political, economic and other risks. There has been and continues to be significant political uncertainty in some countries in which we operate. Economic changes, terrorist activity and political unrest may result in business interruption or decreased demand for our products.Protectionist trade measures and import and export licensing requirements could also adversely affect our results of operations. Our success will depend in part on our ability to manage continued global political and/or economic uncertainty.
We primarily sell products derived from world commodities. Historically, we have been able to adjust local prices have adjusted relatively quickly to offset the effect of local currency devaluations, but there can be no assurancealthough we cannot guarantee our ability to do this in the future. For example, due to pricing controls on many consumer products imposed in the recent past by the Argentina government, it took longer than it had previously taken to achieve pricing improvement in response to currency devaluations in that this willcountry. The anticipated strength in the US dollar may continue to beprovide some challenges as it could take an extended period of time to fully recapture the case. impact of foreign currency devaluations, particularly in South America.
We may hedge transactions that are denominated in a currency other than the currency of the operating unit entering into the underlying transaction. We are subject to the risks normally attendant to such hedging activities.
Raw material and energy price fluctuations, and supply interruptions and shortages could adversely affect our results of operations.
Our finished products are made primarily from corn. Purchased corn and other raw material costs account for between 40 percent and 65 percent of finished product costs. Some of our products are based upon specific varieties of corn that are produced in significantly less volumes than yellow dent corn. These specialty grains are higher costhigher-cost due to their more limited supply and require planning cycles of up to three years in order for us to receive our desired amount of specialty corn. We also manufacture certain starch-based products from potatoes. Our current potato starch requirements constitute a material portion of the available North American supply. It is possible that, in the long term, continued growth in demand for potato starch-based ingredients and new product development could result in capacity constraints. Also, we utilize tapioca in the manufacturing of starch products primarily in Thailand. If our raw materials are not available in sufficient quantities or quality, our results of operations could be negatively impacted.
Energy costs represent approximately 1011 percent of our finished product costs. We use energy primarily to create steam in our production process and to dry product.products. We consume coal, natural gas, electricity, wood and fuel oil to generate energy. In Pakistan, the overall economy has been slowed by severe energy shortages which both negatively impact our ability to produce sweeteners and starches, and also negatively impactsimpact the demand from our customers due to their inability to produce their end products because of the shortage of reliable energy.
The market prices for these commoditiesour raw materials may vary considerably depending on supply and demand, world economies and other factors. We purchase these commodities based on our anticipated usage and future outlook for
these costs. We cannot assure that we will be able to purchase these commodities at prices that we can adequately pass on to customers to sustain or increase profitability.
In North America, we sell a large portion of our finished products at firm prices established in supply contracts typically lasting for periods of up to one year. In order to minimize the effect of volatility in the cost of corn related to these firm-priced supply contracts, we enter into corn futures and options contracts, or take other hedging positions in the corn futures market. Additionally, we produce and sell ethanol and enter into swap contracts to hedge price risk associated with fluctuations in market prices of ethanol. We are unable to directly hedge price risk related to co-product sales; however, we occasionally enter into hedges of soybean oil (a competing product to our animal feed and corn oil) in order to mitigate the price risk of animal
feed and corn oil sales. These derivative contracts typically mature within one year. At expiration, we settle the derivative contracts at a net amount equal to the difference between the then-current price of corn (orthe commodity (corn, soybean oil)oil or ethanol) and the derivative contract price. These hedging instruments are subject to fluctuations in value; however, changes in the value of the underlying exposures we are hedging generally offset such fluctuations. The fluctuations in the fair value of these hedging instruments may affect theour cash flow of the Company.flow. We fund any unrealized losses or receive cash for any unrealized gains on futures contracts on a daily basis. While the corn futures contracts or hedging positions are intended to minimize the effect of volatility of corn costs on operating profits, the hedging activity can result in losses, some of which may be material. Outside of North America, sales of finished products under long-term, firm-priced supply contracts are not material. We also use over-the-counter natural gas swaps to hedge portions of our natural gas costs, primarily in our North American operations.
Due to market volatility, we cannot assure that we can adequately pass potential increases in the cost of corn and other raw materials on to customers through product price increases or purchase quantities of corn and other raw materials at prices sufficient to sustain or increase our profitability.
Our corn and raw material costs account for 40 percent to 65 percent of our product costs. The price and availability of corn and other raw materialsis influenced by economic and industry conditions, including supply and demand factors such as crop disease and severe weather conditions such as drought, floods or frost that are difficult to anticipate and which we cannot control. There is also a demand for corn in the US to produce ethanol which has been significantly impacted by US governmental policies designed to encourage the production of ethanol. In addition, government programs supporting sugar prices indirectly impact the price of corn sweeteners, especially high fructose corn syrup.
Our profitability may be affected by other factors beyond our control.
Our operating income and ability to increase profitability depend to a large extent upon our ability to price finished products at a level that will cover manufacturing and raw material costs and provide an acceptable profit margin. Our ability to maintain appropriate price levels is determined by a number of factors largely beyond our control, such as aggregate industry supply and market demand, which may vary from time to time, and the economic conditions of the geographic regions wherein which we conduct our operations.
We operate in a highly competitive environment and it may be difficult to preserve operating margins and maintain market share.
We operate in a highly competitive environment. Many of our products compete with virtually identical or similar products manufactured by other companies in the starch and sweetener industry. In the United States, there are competitors, several of which are divisions of larger enterprises that have greater financial resources than we do. Some of these competitors, unlike us, have vertically integrated their corn refining and other operations. Many of our products also compete with products made from raw materials other than corn.corn, including cane and beet sugar. Fluctuation in prices of these competing products may affect prices of, and profits derived from, our products. In addition, government programs supporting sugar prices indirectly impact the price of corn sweeteners, especially HFCS. Competition in markets in which we compete is largely based on price, quality and product availability.
Changes in consumer preferences and perceptions may lessen the demand for our products, which could reduce our sales and profitability and harm our business.
Food products are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. For instance, changes in prevailing health or dietary preferences causing consumers
to avoid food products containing sweetener products, including high fructose corn syrup,HFCS, in favor of foods that are perceived as being more healthy, could reduce our sales and profitability, and such a reductionreductions could be material. Increasing concern among consumers, public health professionals and government agencies about the potential health concerns associated with obesity and inactive lifestyles (reflected, for instance, in taxes designed to combat obesity which have been imposed recently in North America) represent a significant challenge to some of our customers, including those engaged in the food and soft drink industries.
The uncertainty of acceptance of products developed through biotechnology could affect our profitability.
The commercial success of agricultural products developed through biotechnology, including genetically modified corn, depends in part on public acceptance of their development, cultivation, distribution and consumption. Public attitudes can be influenced by claims that genetically modified products are unsafe for consumption or that they pose unknown risks to the environment, even if such claims are not based on scientific studies. These public attitudes can influence regulatory and legislative decisions about biotechnology even where they are approved.biotechnology. The sale of the Company’s products which may contain genetically modified corn could be delayed or impaired because of adverse public perception regarding the safety of the Company’s products and the potential effects of these products on animals, human health and the environment.
Our information technology systems, processes, and sites may suffer interruptions or failures which may affect our ability to conduct our business.
Our information technology systems, some of which are dependent on services provided by third parties, provide critical data connectivity, information and services for internal and external users. These interactions include, but are not limited to, ordering and managing materials from suppliers, converting raw materials to finished products, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, human resources benefits and payroll management, complying with regulatory, legal or tax requirements, and other processes necessary to manage our business. We have put in place security measures to protect ourselves against cyber-based attacks and disaster recovery plans for our critical systems. However, if our information technology systems are breached, damaged, or cease to function properly due to any number of causes, such as catastrophic events, power outages, security breaches, or cyber-based attacks, and our disaster recovery plans do not effectively mitigate on a timely basis, we may encounter disruptions that could interrupt our ability to manage our operations and suffer damage to our reputation, which may adversely impact our revenues, operating results and financial condition.
Our profitability could be negatively impacted if we fail to maintain satisfactory labor relations.
Approximately 3568 percent of our US and 4749 percent of our non-US employees are members of unions. Strikes, lockouts or other work stoppages or slow downsslowdowns involving our unionized employees could have a material adverse effect on us.
Our reliance on certain industries for a significant portion of our sales could have a material adverse affecteffect on our business.
Approximately 4450 percent of our 20122015 sales were made to companies engaged in the food industry and approximately 1513 percent and 11 percent were made to companies in the beverage industry.and animal nutrition markets, respectively. Additionally, sales to the animal nutrition market, the paper and corrugating industry and the brewing industry represented approximately 12 percent, 910 percent and 98 percent of our 20122015 net sales, respectively. If our food customers, beverage customers, brewing industry customers, paper and corrugating customers or animal feed customers were to substantially decrease their purchases, our business might be materially adversely affected.
Natural disasters, war, acts and threats of terrorism, pandemic and other significant events could negatively impact our business.
If the economies of any countries wherein which we sell or manufacture products are affected by natural disastersdisasters; such as earthquakes, floods or severe weather; war, acts of war or terrorism; or the outbreak of a pandemic such as Severe Acute Respiratory Syndrome (“SARS”) or the Avian Flu,pandemic; it could result in asset write-offs, decreased sales and overall reduced cash flows.
Government policies and regulations in general, and specifically affecting agriculture-related businesses, could adversely affect our operating results.
Our operating results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, and other activities of United States and foreign governments, agencies, and similar organizations. These conditions include but are not limited to changes in a country’s or region’s economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights, changes in the regulatory or legal environment, restrictions on currency exchange activities, currency exchange rate fluctuations, burdensome taxes and tariffs, and other trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities, and war, could limit our ability to transact business in these markets and could adversely affect our revenues and operating results.
Due to cross-border disputes, our operations could be adversely affected by actions taken by the governments of countries wherein which we conduct business.
TableFuture costs of Contentsenvironmental compliance may be material.
Our business could be affected in the future by national and global regulation or taxation of greenhouse gas emissions. In the United States, the U. S. Environmental Protection Agency (“EPA”) has adopted regulations requiring the owners and operators of certain facilities to measure and report their greenhouse gas emission. The U. S. EPA has also begun to regulate greenhouse gas emissions from certain stationary and mobile sources under the Clean Air Act. For example, the U.S. EPA has proposed rules regarding the construction and operation of coal-fired boilers. California and Ontario are also moving forward with various programs to reduce greenhouse gases. Globally, a number of countries that are parties to the Kyoto Protocol have instituted or are considering climate change legislation and regulations. Most notable is the European Union Greenhouse Gas Emission Trading System. It is difficult at this time to estimate the likelihood of passage or predict the potential impact of any additional legislation. Potential consequences could include increase energy, transportation and raw materials costs and may require the Company to make additional investments in its facilities and equipment.
The recognition of impairment charges on goodwill or long-lived assets could adversely impact our future financial position and results of operations.
We have $1.0 billion of total intangible assets at December 31, 2015, consisting of $601 million of goodwill and $410 million of other intangible assets. Additionally, we have $2.1 billion of long-lived assets at December 31, 2015.
On September 8, 2015, we announced plans to consolidate our manufacturing network in Brazil. Plants in Trombudo Central and Conchal will be closed and production will be moved to plants in Balsa Nova and Mogi Guaçu, respectively. The consolidation process has commenced and is expected to be complete by the end of 2016. In the third quarter of 2015, we recorded a non-cash charge of $10 million to write-off impaired assets at our Brazil reporting unit.
We perform an annual impairment assessment for goodwill and our indefinite-lived intangible assets, and as necessary, for other long-lived assets. If the results of such assessments were to show that the fair value of these such assets were less than the carrying values, we could be required to recognize a charge for impairment of goodwill and/or long-lived assets and the amount of the impairment charge could be material. OurBased on the results of the annual impairment assessment, we concluded that as of October 1, 2012 did2015, it was more likely than not result in anythat the fair value of all of our reporting units was greater than their carrying value and no additional impairment charges forwere necessary (although the year.$22 million of goodwill at our Brazil reporting unit continues to be closely monitored due to recent trends and increased volatility experienced in this reporting unit, such as slow economic growth, heightened competition and possible future negative economic growth).
Even though it was determined that there was no additional long-lived asset impairment as of October 1, 2012,2015, the future occurrence of a potential indicator of impairment, such as a significant adverse change in the business climate that would require a change in our assumptions or strategic decisions made in response to economic or competitive conditions, could require us to perform an assessment prior to the next required assessment date of October 1, 2013.2016.
Changes in our tax rates or exposure to additional income tax liabilities could impact our profitability.
We are subject to income taxes in the United States and in various other foreign jurisdictions. Our effective tax rates could be adversely affected by changes in the mix of earnings by jurisdiction, changes in tax laws or tax rates including potential tax reform in the US to broaden the tax base and reduce deductions or credits, changes in the valuation of deferred tax assets and liabilities, and material adjustments from tax audits.
In particular,Significant changes in the carrying valuetax laws of the US and numerous foreign jurisdictions in which we do business could result from the base erosion and profit shifting (BEPS) project undertaken by the Organization for Economic Cooperation and Development (OECD). An OECD-led coalition of 44 countries is contemplating changes to long-standing international tax norms that determine each country’s right to tax cross-border transactions. These contemplated changes, if finalized and adopted by countries, would increase tax uncertainty and the risk of double taxation, thereby adversely affecting our provision for income taxes.
The recoverability of deferred tax assets, which are predominantly in the US, UKUnited Kingdom, Mexico and Korea, isare dependent upon our ability to generate future taxable income in these jurisdictions. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions and a material assessment by a governing tax authority could affect our profitability.
Operating difficulties at our manufacturing plants could adversely affect our operating results.
Producing starches and sweeteners through corn refining is a capital intensive industry. We have 3643 plants and have preventive maintenance and de-bottlenecking programs designed to maintain and improve grind capacity and facility reliability. If we encounter operating difficulties at a plant for an extended period of time or start upstart-up problems with any capital improvement projects, we may not be able to meet a portion of sales order commitments and could incur significantly higher operating expenses, both of which could adversely affect our operating results. We also use boilers to generate steam required in our manufacturing processes. An event that impaired the operation of a boiler for an extended period of time could have a significant adverse effect on the operations of any plant wherein which such event occurred.
Also, we are subject to risks related to such matters as product safety and quality; compliance with environmental, health and safety and food safety regulations; and customer product liability claims. The liabilities that could result from these risks may not always be covered by, or could exceed the limits of, our insurance coverage related to product liability and food safety matters. In addition, negative publicity caused by product liability and food safety matters may damage our reputation. The occurrence of any of the matters described above could adversely affect our revenues and operating results.
We may not have access to the funds required for future growth and expansion.
We may need additional funds to grow and expand our operations. We expect to fund our capital expenditures from operating cash flow to the extent we are able to do so. If our operating cash flow is insufficient to fund our capital expenditures, we may either reduce our capital expenditures or utilize our general credit facilities. For further strategic growth through mergers or acquisitions, we may also seek to generate additional liquidity through the sale of debt or equity securities in private or public markets or through the sale of non-productive assets. We cannot provide any assurance that our cash flows from operations will be sufficient to fund anticipated capital expenditures or that we will be able to obtain additional funds from financial markets or from the sale of assets at terms favorable to us. If we are unable to generate sufficient cash flows or raise sufficient additional funds to cover our capital expenditures or other strategic growth opportunities, we may not be able to achieve our desired operating efficiencies and expansion plans, which may
adversely impact our competitiveness and, therefore, our results of operations.
Table Our working capital requirements, including margin requirements on open positions on futures exchanges, are directly affected by the price of Contentscorn and other agricultural commodities, which may fluctuate significantly and change quickly.
We may not successfully identify and complete acquisitions or strategic alliances on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances, and such acquisitions could result in unforeseen operating difficulties and expenditures and require significant management resources.
We regularly review potential acquisitions of complementary businesses, technologies, services or products, as well as potential strategic alliances. We may be unable to find suitable acquisition candidates or appropriate partners with which to form partnerships or strategic alliances. Even if we identify appropriate acquisition or alliance candidates, we may be unable to complete such acquisitions or alliances on favorable terms, if at all. In addition, the process of integrating an acquired business (such as Penford), technology, service or product into our existing business and operations may result in unforeseen operating difficulties and expenditures. Integration of an acquired company also may require significant management resources that otherwise would be available for ongoing development of our business. Moreover, we may not realize the anticipated benefits of any acquisition or strategic alliance, and such transactions may not generate anticipated financial results. Future acquisitions could also require us to issue equity securities, incur debt, assume contingent liabilities or amortize expenses related to intangible assets, any of which could harm our business.
An inability to contain costs could adversely affect our future profitability and growth.
Our future profitability and growth depends on our ability to contain operating costs and per-unit product costs and to maintain and/or implement effective cost control programs, while at the same time maintaining competitive pricing and superior quality products, customer service and support. Our ability to maintain a competitive cost structure depends on continued containment of manufacturing, delivery and administrative costs, as well as the implementation of cost-effective purchasing programs for raw materials, energy and related manufacturing requirements.
If we are unable to contain our operating costs and maintain the productivity and reliability of our production facilities, our profitability and growth could be adversely affected.
Increased interest rates could increase our borrowing costs.
From time to time we may issue securities to finance acquisitions, capital expenditures, working capital and for other general corporate purposes. An increase in interest rates in the general economy could result in an increase in our borrowing costs for these financings, as well as under any existing debt that bears interest at an unhedged floating rate.
Volatility in the stock market, fluctuations in quarterly operating results and other factors could adversely affect the market price of our common stock.
The market price for our common stock may be significantly affected by factors such as our announcement of new products or services or such announcements by our competitors; technological innovation by us, our competitors or other vendors; quarterly variations in our operating results or the operating results of our competitors; general conditions in our or our customers’ markets; and changes in the earnings estimates by analysts or reported results that vary materially from such estimates. In addition, the stock market has experienced significant price fluctuations that have affected the market prices of equity securities of many companies that have been unrelated to the operating performance of any individual company.
No assurance can be given that we will continue to pay dividends.
The payment of dividends is at the discretion of our Board of Directors and will be subject to our financial results and the availability of surplus funds to pay dividends.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
We operate,own or lease (as noted below), directly and through our consolidated subsidiaries, 3643 manufacturing facilities, all of which are owned.facilities. In addition, we lease our corporate headquarters in Westchester, Illinois and our research and development facility in Bridgewater, New Jersey.
The following list details the locations of our manufacturing facilities within each of our four reportable business segments:
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Cardinal, Ontario, Canada |
| Baradero, Argentina |
| Lane Cove, Australia |
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London, Ontario, Canada |
| Chacabuco, Argentina |
| Shanghai, China |
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| Balsa Nova, Brazil |
| Ichon, South Korea |
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| Cabo, Brazil |
| Inchon, South Korea |
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| Conchal, Brazil (b) |
| Ban Kao Dien, Thailand |
| Goole, United Kingdom |
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| Kalasin, Thailand |
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Stockton, California, U.S. |
| Rio de Janeiro, Brazil |
| Sikhiu, Thailand |
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(a)Facility is leased.
(b)To be closed by the end of 2016.
We believe our manufacturing facilities are sufficient to meet our current production needs. We have preventive maintenance and de-bottlenecking programs designed to further improve grind capacity and facility reliability.
We have electricity co-generation facilities at all of our US and Canadian plants with the exception of Indianapolis, North Kansas City, Charleston and Mapleton, as well as at our plants in London, Ontario, Canada; Bedford Park, Illinois; Winston-Salem, North Carolina; San Juan del Rio and Mexico City, Mexico; Baradero, Argentina; Cali, Colombia; and Balsa Nova and Mogi-Guacu, Brazil, that provide electricity at a lower cost than is available from third parties. We generally own and operate these co-generation facilities, except for the facilities at our Cardinal, Ontario;Mexico City, Mexico; and Balsa Nova and Mogi-Guacu, Brazil locations, which are owned by, and operated pursuant to co-generation agreements with third parties. OurWe are constructing co-generation facilities at our plants in Cardinal, Ontario and Cornwala, Pakistan. We recently completed the construction of our co-generation facility in Stockton, California co-generation facility was previously operatedand we expect it be operating by a third party. It is not currently generating power for sale to the electrical grid.end of 2016.
In recent years, we have made significant capital expenditures to update, expand and improve our facilities, spending $313$280 million in 2012.2015. We believe these capital expenditures will allow us to operate efficient facilities for the foreseeable future. We currently anticipate that capital expenditures for 20132016 will approximate $350 million to $400$300 million.
As previously reported, on April 22, 2011, Western Sugar and two other sugar companies filed a complaint in the U.S. District Court for the Central District of California against the Corn Refiners Association (“CRA”) and certain of its member companies, including us, alleging false and/or misleading statements relating to high fructose corn syrup in violation of the Lanham Act and California’s unfair competition law. The complaint seeks injunctive relief and unspecified damages. On May 23, 2011, the plaintiffs amended the complaint to add additional plaintiffs, among other reasons.
On July 1, 2011, the CRA and the member companies in the case filed a motion to dismiss the first amended complaint on multiple grounds. On October 21, 2011, the U.S. District Court for the Central District of California dismissed all Federal and state claims against us and the other members of the CRA, with leave for the plaintiffs to amend their complaint, and also dismissed all state law claims against the CRA.
The state law claims against the CRA were dismissed pursuant to a California law known as the anti-SLAPP (Strategic Lawsuit Against Public Participation) statute, which, according to the court’s opinion, allows early dismissal of meritless first amendment cases aimed at chilling expression through costly, time-consuming litigation. The court held that the CRA’s statements were protected speech made in a public forum in connection
with an issue of public interest (high fructose corn syrup). Under the anti-SLAPP statute, the CRA is entitled to recover its attorney’s fees and costs from the plaintiffs.
On November 18, 2011, the plaintiffs filed a second amended complaint against certain of the CRA member companies, including us, seeking to reinstate the federal law claims, but not the state law claims, against certain of the CRA member companies, including us. On December 16, 2011, the CRA member companies filed a motion to dismiss the second amended complaint on multiple grounds. On July 31, 2012, the U.S. District Court for the Central District of California denied the motion to dismiss for all CRA member companies other than Roquette America, Inc.
Act. On September 4, 2012, we and the other CRA member companies that remain defendants in the case filed an answer to the plaintiffs’ second amended complaint that, among other things, added a counterclaim against the Sugar Association. The counterclaim allegesalleged that the Sugar Association hashad made false and misleading statements that processed sugar differs from high fructose corn syrup in ways that are beneficial to consumers’ health (i.e., that consumers will be healthier if they consume foods and beverages containing processed sugar instead of high fructose corn syrup). The complaint and the counterclaim which was filed in the U.S. District Court for the Central District of California, seekseach sought injunctive relief and unspecified damages. AlthoughOn November 20, 2015 the parties to this lawsuit entered into a confidential settlement agreement. The lawsuit, including the complaint and the counterclaim, was initially only filed against the Sugar Association, the Companydismissed with prejudice, and the other CRA member companies that remain defendants in the Western Sugar case have reserved the right to add other plaintiffs to the counterclaim in the future.
On October 29, 2012, the Sugar Association and the other plaintiffs filedwe made a motion to dismiss the counterclaim and certain related portionssettlement payment of the defendants’ answer, each on multiple grounds. On December 10, 2012, the remaining member companies which are defendants in the case responded to the motion to dismiss the counterclaim. On January 14, 2013, the plaintiffs filed a reply to the defendants’ response to the motion to dismiss. The motion to dismiss the counterclaim is still pending before the court.approximately $7 million.
We continueare a party to believe that the second amended complaint is without merita large number of labor claims relating to our Brazilian operations. We have reserved an aggregate of approximately $3 million as of December 31, 2015 in respect of these claims. These labor claims primarily relate to dismissals, severance, health and intend to vigorously defend this case. In addition, we intend to vigorously pursue our rights in connection with the counterclaim.safety, work schedules and salary adjustments.
We are currently subject to various other claims and suits arising in the ordinary course of business, including certain environmental proceedings.proceedings and other commercial claims. We also routinely receive inquiries from regulators and other government authorities relating to various aspects of our business, including with respect to compliance with laws and regulations relating to the environment, and at any given time, we have matters at various stages of resolution with the applicable governmental authorities. The outcomes of these matters are not within our complete control and may not be known for prolonged periods of time. We do not believe that the results of suchcurrently known legal proceedings and inquires, even if unfavorable to us, will be material to us. There can be no assurance, however, that such claims, suits or suitsinvestigations or those arising in the future, whether taken individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of our common stock are traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “INGR.” The number of holders of record of our common stock was 5,8624,733 at January 31, 2013.2016.
We have a history of paying quarterly dividends. The amount and timing of the dividend payment, if any, is based on a number of factors including estimated earnings, financial position and cash flow. The payment of a dividend is solely at the discretion of our Board of Directors. Future dividend payments will be subject to our financial results and the availability of funds and statutory surplus funds to pay dividends.
The quarterly high and low sales prices for our common stock and cash dividends declared per common share for 20112014 and 20122015 are shown below.
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Market prices |
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| ||||
High |
| $ | 58.38 |
| $ | 58.87 |
| $ | 56.57 |
| $ | 66.66 |
|
Low |
| 50.59 |
| 47.26 |
| 45.30 |
| 54.57 |
| ||||
Per share dividends |
| $ | 0.20 |
| $ | 0.20 |
| $ | 0.26 |
| $ | 0.26 |
|
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| ||||
2011 |
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| ||||
Market prices |
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| ||||
High |
| $ | 52.07 |
| $ | 57.91 |
| $ | 59.50 |
| $ | 53.25 |
|
Low |
| 44.51 |
| 50.30 |
| 38.87 |
| 36.65 |
| ||||
Per share dividends |
| $ | 0.14 |
| $ | 0.16 |
| $ | 0.16 |
| $ | 0.20 |
|
|
| 1st QTR |
| 2nd QTR |
| 3rd QTR |
| 4th QTR |
| ||||
2015 |
|
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| ||||
Market prices |
|
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| ||||
High |
| $ | 86.80 |
| $ | 83.00 |
| $ | 93.87 |
| $ | 99.64 |
|
Low |
| 75.11 |
| 76.26 |
| 79.31 |
| 85.85 |
| ||||
Per share dividends declared |
| $ | 0.42 |
| $ | 0.42 |
| $ | 0.45 |
| $ | 0.45 |
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2014 |
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| ||||
Market prices |
|
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| ||||
High |
| $ | 70.00 |
| $ | 77.92 |
| $ | 80.54 |
| $ | 87.20 |
|
Low |
| 58.28 |
| 65.25 |
| 73.10 |
| 69.94 |
| ||||
Per share dividends declared |
| $ | 0.42 |
| $ | 0.42 |
| $ | 0.42 |
| $ | 0.42 |
|
Issuer Purchases of Equity Securities:
The following table summarizes information with respect to our purchases of our common stock during the fourth quarter of 2012.2015.
(shares in thousands) |
| Total |
| Average |
| Total Number of |
| Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Oct. 1 |
| — |
| — |
| — |
|
|
|
Nov. 1 |
| — |
| — |
| — |
|
|
|
Dec. 1 |
| — |
| — |
| — |
|
|
|
Total |
| — |
| — |
| — |
|
|
|
On November 17, 2010, ourDecember 12, 2014, the Board of Directors authorized an extension of oura new stock repurchase program permitting usthe Company to purchase up to 5 million shares of ourits outstanding common stockshares from January 1, 2015 through November 30, 2015. The stock repurchase program was authorized by the Board of Directors on November 7, 2007 and would have expired on November 30, 2010. As of December 31, 2012,2019. At December 31, 2015, we had repurchased 1.6 million shares under the program, leaving 3.4have 4.7 million shares available for repurchase.repurchase under the stock repurchase program.
ITEM 6.SELECTED FINANCIAL DATA
Selected financial data is provided below.
(in millions, except per share amounts) |
| 2012 |
| 2011 |
| 2010 (a) |
| 2009 |
| 2008 |
|
| 2015 (a) |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| ||||||||||
Summary of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net sales |
| $ | 6,532 |
| $ | 6,219 |
| $ | 4,367 |
| $ | 3,672 |
| $ | 3,944 |
|
| $ | 5,621 |
| $ | 5,668 |
| $ | 6,328 |
| $ | 6,532 |
| $ | 6,219 |
|
Net income attributable to Ingredion |
| 428 | (b) | 416 | (c) | 169 | (d) | 41 | (e) | 267 |
|
| 402 | (b) | 355 | (c) | 396 |
| 428 | (d) | 416 | (e) | ||||||||||
Net earnings per common share of Ingredion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic |
| $ | 5.59 | (b) | $ | 5.44 | (c) | $ | 2.24 | (d) | $ | 0.55 | (e) | $ | 3.59 |
|
| $ | 5.62 | (b) | $ | 4.82 | (c) | $ | 5.14 |
| $ | 5.59 | (d) | $ | 5.44 | (e) |
Diluted |
| $ | 5.47 | (b) | $ | 5.32 | (c) | $ | 2.20 | (d) | $ | 0.54 | (e) | $ | 3.52 |
|
| $ | 5.51 | (b) | $ | 4.74 | (c) | $ | 5.05 |
| $ | 5.47 | (d) | $ | 5.32 | (e) |
Cash dividends declared per common share of Ingredion |
| $ | 0.92 |
| $ | 0.66 |
| $ | 0.56 |
| $ | 0.56 |
| $ | 0.54 |
| ||||||||||||||||
Cash dividends declared per common share of Ingredion Ingredion |
| $ | 1.74 |
| $ | 1.68 |
| $ | 1.56 |
| $ | 0.92 |
| $ | 0.66 |
| ||||||||||||||||
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Working capital |
| $ | 1,427 |
| $ | 1,176 |
| $ | 881 |
| $ | 450 |
| $ | 415 |
|
| $ | 1,208 |
| $ | 1,423 |
| $ | 1,394 |
| $ | 1,427 |
| $ | 1,176 |
|
Property, plant and equipment-net |
| 2,193 |
| 2,156 |
| 2,156 |
| 1,594 |
| 1,470 |
|
| 1,989 |
| 2,073 |
| 2,156 |
| 2,193 |
| 2,156 |
| ||||||||||
Total assets |
| 5,592 |
| 5,317 |
| 5,040 |
| 2,952 |
| 3,207 |
|
| 5,074 |
| 5,085 |
| 5,353 |
| 5,583 |
| 5,309 |
| ||||||||||
Long-term debt |
| 1,724 |
| 1,801 |
| 1,681 |
| 408 |
| 660 |
|
| 1,819 |
| 1,798 |
| 1,710 |
| 1,715 |
| 1,793 |
| ||||||||||
Total debt |
| 1,800 |
| 1,949 |
| 1,769 |
| 544 |
| 866 |
|
| 1,838 |
| 1,821 |
| 1,803 |
| 1,791 |
| 1,941 |
| ||||||||||
Redeemable common stock |
| — |
| — |
| — |
| 14 |
| 14 |
| |||||||||||||||||||||
Total equity (f) |
| $ | 2,459 |
| $ | 2,133 |
| $ | 2,001 |
| $ | 1,704 |
| $ | 1,406 |
|
| $ | 2,180 |
| $ | 2,207 |
| $ | 2,429 |
| $ | 2,459 |
| $ | 2,133 |
|
Shares outstanding, year end |
| 77.0 |
| 75.9 |
| 76.0 |
| 74.9 |
| 74.5 |
|
| 71.6 |
| 71.3 |
| 74.3 |
| 77.0 |
| 75.9 |
| ||||||||||
Additional data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Depreciation and amortization |
| $ | 211 |
| $ | 211 |
| $ | 155 |
| $ | 130 |
| $ | 128 |
|
| $ | 194 |
| $ | 195 |
| $ | 194 |
| $ | 211 |
| $ | 211 |
|
Capital expenditures |
| 313 |
| 263 |
| 159 |
| 146 |
| 228 |
|
| 280 |
| 276 |
| 298 |
| 313 |
| 263 |
|
(a)Includes National StarchPenford from October 1, 2010March 11, 2015 forward and Kerr from August 3, 2015 forward.
(b)Includes after-tax charges for impaired assets and restructuring costs of $18 million ($0.25 per diluted common share), after-tax costs of $7 million ($0.10 per diluted common share) relating to the acquisition and integration of both Penford and Kerr, after-tax costs of $6 million ($0.09 per diluted common share) relating to the sale of Penford and Kerr inventory that was adjusted to fair value at the respective acquisition dates in accordance with business combination accounting rules, after-tax costs of 4 million ($0.06 per diluted common share) relating to a litigation settlement and an after-tax gain from the sale of a plant of $9 million ($0.12 per diluted common share).
(c) Includes a $33 million impairment charge ($0.44 per diluted common share) to write-off goodwill at our Southern Cone of South America reporting unit and after-tax costs of $1.7 million ($0.02 per diluted common share) related to the then-pending Penford acquisition.
(b(d)Includes a$13 $13 million benefit from the reversal of a valuation allowance that had been recorded against net deferred tax assets of our Korean subsidiary ($0.16 per diluted common share), after-tax charges for impaired assets and restructuring costs of $23 million ($0.29 per diluted common share),an after-tax gain from a change in a North American benefit plan of $3 million ($0.04 per diluted common share), after-tax costs of $3 million ($0.03 per diluted common share) relating to the integration of National Starch and an after-tax gain from the sale of land sale of $2 million ($0.02 per diluted common share). See Notes 3, 4, 8 and 9 of the notes to the consolidated financial statements included in this Annual Report on Form 10-K for additional information.
(c(e)Includes a $58 million NAFTA award ($0.75 per diluted common share) received from the Government of the United Mexican States, an after-tax gain of $18 million ($0.23 per diluted common share) pertaining to a change in a postretirement plan, after-tax charges of $7 million for restructuring costs ($0.08 per diluted common share) and after-tax costs of $21 million ($0.26 per diluted common share) relating to the integration of National Starch. See Notes 3, 4, 9 and 13 of the notes to the consolidated financial statements included in this Annual Report on Form 10-K for additional information.
(d) Includes $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 $26 million ($0.34 per diluted common share), after-tax charges of $22 million ($0.29 per diluted common share) for impaired assets and other costs primarily associated with our operations in Chile and after-tax charges of $18 million ($0.23 per diluted common share) relating to the sale of National Starch inventory that was adjusted to fair value at the acquisition date in accordance with business combination accounting rules. See Notes 3, 4 and 6 of the notes to the consolidated financial statements included in this Annual Report on Form 10-K for additional information.
(e) Includes after-tax charges for impaired assets and restructuring costs of $110 million, or $1.47 per diluted common share.
(f) Includes non-controlling interests.interests.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a major supplier of high-quality food and industrial ingredients to customers around the world. We have 3643 manufacturing plants located throughoutin North America, South America, Asia Pacific and Europe, the Middle East and Africa (“EMEA”), and we manage and operate our businesses at a regional 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 ingredients are used by customers in the food, beverage, animal feed, paper and corrugating, and brewing industries, among others.
Our Strategic Blueprint continues to guide our decision-making and strategic choices with an emphasis on value-added ingredients for our customers. The foundation of our Strategic Blueprint is operational excellence, which includes our focus on safety, quality and continuous improvement. We see growth opportunities in three areas. First is organic growth as we work to expand our current business. Second, we are focused on broadening our ingredient portfolio of on-trend products through internal and external business development. Finally, we look for growth from geographic expansion as we pursue extension of our reach to new locations. The ultimate goal of these strategies and actions is to deliver increased shareholder value.
Critical success factors in our business include managing our significant manufacturing costs, including costs for corn, other raw materials and utilities. In addition, due to our global operations we are exposed to fluctuations in foreign currency exchange rates. We use derivative financial instruments, when appropriate, for the purpose of minimizing the risks and/or costs associated with fluctuations in certain raw material and energy costs, foreign exchange rates and interest rates. Also, the capital intensive nature of our business requires that we generate significant cash flow over time in order to selectively reinvest in our operations and grow organically, as well as through strategic acquisitions and alliances. We utilize certain key financial metrics relating to working capital, debt and return on capital employed to monitor our progress toward achieving our strategic business objectives (see section entitled “Key Financial Performance Metrics”).
2012 was a strong year for us as we achieved Company record highs forWhile net sales declined due to the devaluation of foreign currencies versus the US dollar, operating income, net income and diluted earnings per common share for 2015 increased from the year-ago period. This growth was driven primarilyprincipally by higher product selling pricessignificantly improved operating results in our North America segment. In North America, our largest segment, operating income rose 28 percent reflecting organic and volume growth. Despite challenging macroeconomic conditions, we achieved salesacquisition-related volume growth and lower costs. South America operating income declined 6 percent due to difficult economic conditions and unfavorable foreign currency translation driven by the stronger US dollar. Asia Pacific operating income grew 4 percent as volume growth more than offset the impact of unfavorable foreign currency translation. Operating income in EMEA decreased 2 percent mainly due to unfavorable foreign currency translation.
Our operating cash flow for 2015 was $686 million and we continued to advance our Strategic Blueprint by investing in our business, growing our product portfolio and rewarding shareholders.
On March 11, 2015, we completed our acquisition of Penford Corporation (“Penford”), a manufacturer of specialty starches. The purchase price improvementswas $332 million in cash. Penford had sales of $444 million for its fiscal year ended August 31, 2014 and the acquired business includes six manufacturing facilities in the United States, all of which manufacture specialty starches. This acquisition provides us with, among other things, an expanded specialty ingredient product portfolio consisting of potato starch-based offerings.
On August 3, 2015, we completed our acquisition of Kerr Concentrates, Inc. (“Kerr”), a privately held producer of natural fruit and vegetable concentrates, purees and essences for $102 million in cash. Kerr serves major food and beverage companies, flavor houses and ingredient producers from its manufacturing locations in Oregon and California. This acquisition provides us with an opportunity to cover higher raw materialgrow Kerr’s portfolio with our advanced technologies and product-development capabilities. We also intend to expand this business with our broad customer network and global presence.
The trend toward simple ingredients is rapidly growing and the Kerr acquisition provides another step towards broadening our portfolio of wholesome, clean-label ingredient solutions that consumers are increasingly demanding.
We funded our acquisitions with proceeds from borrowings under our $1 billion Revolving Credit Agreement. We have repaid much of these borrowings using proceeds from a new $350 million Term Loan and available cash resources. We also repaid $350 million of Senior Notes at their maturity date in November 2015. Additionally, we repurchased 435 thousand common shares in the open market for $34 million and increased our quarterly cash dividend by 7 percent in 2015. Our cash flow and balance sheet remain strong and we are well positioned for future strategic initiatives.
We are committed to an on-going continuous improvement effort to optimize our manufacturing network to control our fixed costs and use our resources efficiently.
On September 8, 2015, we announced plans to consolidate our manufacturing network in Brazil whereby plants in Trombudo Central and Conchal will be closed and production will be moved to plants in Balsa Nova and Mogi Guaçu, respectively. We continuously evaluate our manufacturing network for improvement opportunities. By consolidating production into Balsa Nova and Mogi Guaçu, we believe that we will reduce costs and improve operational efficiencies in our South American manufacturing network. In addition to Balsa Nova and Mogi Guaçu, we will continue to operate facilities in Cabo and Rio de Janeiro, Brazil. The consolidation process has commenced and is expected to be complete by the end of 2016. We will remain vigilant in our efforts to maximize productivity and enhance shareholder value.
On December 15, 2015, we sold our manufacturing assets in Port Colborne, Ontario, Canada for $35 million in cash. This transaction should help us to better balance supply with our customers’ needs as we focus on the growth of our higher-value specialty ingredient product portfolio.
Looking ahead, we anticipate that our operating income and net income will grow in 2016 compared to 2015. In North America, we expect operating income to increase driven by improved product mix and margins. In South America, we expect another challenging year. We believe that operating income will be relatively flat with 2015 as we anticipate continued slow economic growth and local foreign currency headwinds. Additionally,weakness. We intend to maintain a high degree of focus on cost and network optimization in this segment during this period which we further enhancedexpect to be challenging. In the longer-term, we believe that the underlying business fundamentals for our liquiditySouth American segment are positive for the future. We expect operating income in Asia Pacific and financial flexibilityEMEA to grow modestly in 2016, despite currency headwinds associated with a stronger US dollar. We anticipate that this growth will be driven mainly by selling $300 million of 1.80 percent five-year Senior Notesimproved price/product mix from our specialty ingredient product portfolio and by enteringeffective cost control.
On February 4, 2016, we announced that we entered into a new five-year $1 billion revolving credit agreement. We also completeddefinitive agreement with Pingyuan County Juyuan State-Owned Asset Management Co., Ltd. to acquire the state-owned Shandong Huanong Specialty Corn Development Co., Ltd. in Pingyuan County, Shandong Province, China. This pending acquisition is expected to support our integrationspecialty ingredients business in China and has been approved by our board of directors. The transaction represents another step in executing our strategic blueprint for growth. It enhances our capacity in the National StarchAsia-Pacific region with a vertically integrated manufacturing base for specialty ingredients. The acquisition and we look forwardis subject to continued business growth in 2013.approval by the Chinese government authorities as well as to other customary closing conditions. The acquisition is not expected to have a material impact on our financial condition, results of operations or cash flows.
We currently expect that our available cash balances, future cash flow from operations, access to debt markets and borrowing capacity under our credit facilities will provide us with sufficient liquidity to fund our anticipated capital expenditures, dividends and other investing and/or financing strategiesactivities for the foreseeable future.
RESULTS OF OPERATIONS
We have significant operations in four reporting segments: North America, South America, Asia Pacific and EMEA. For most of our foreign subsidiaries, the local foreign currency is the functional currency. Accordingly, revenuesThe US dollar is the functional currency for our Mexico subsidiary. 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 foreign currency exchange rate changes, where significant, is provided below.
As previously mentioned, we acquired Penford and Kerr on March 11, 2015 and August 3, 2015, respectively. The results of the acquired businesses are included in our consolidated financial results from the respective acquisition dates forward. While we identify significant fluctuations due to the acquisitions, our discussion below also addresses results of operations absent the impact of the acquisitions and the results of the acquired businesses, where appropriate, to provide a more comparable and meaningful analysis.
20122015 Compared to 20112014
Net Income attributable to Ingredion. Net income attributable to Ingredion for 20122015 increased to $428$402 million, or $5.47$5.51 per diluted common share, from 2011 net income of $416$355 million, or $5.32$4.74 per diluted common share.share in 2014. Our results for 20122015 include after-tax charges of $16$11 million ($0.200.15 per diluted common share) for impaired assets and restructuring costs in Kenya, ChinaBrazil and Colombia (see Note 4 of the notes to the consolidated financial statements for additional information),Canada, after-tax restructuring charges of $7 million ($0.10 per diluted common share) for employee severance-related costs associated with the Penford acquisition, after-tax costs of $7 million ($0.10 per diluted common share) associated with the acquisition and integration of both Penford and Kerr, after-tax costs of $6 million ($0.09 per diluted common share) relating to our manufacturing optimization planthe sale of Penford and Kerr inventory that was adjusted to fair value at the respective acquisition dates in North America, andaccordance with business combination accounting rules, after-tax costs of $3$4 million ($0.030.06 per diluted common share) associated with our integration of National Starch. Additionally, our 2012 results include the reversal ofrelating to a $13 million valuation allowance that had been recorded against net deferred tax assets of our Korean subsidiary ($0.16 per diluted
common share),litigation settlement and an after-tax gain from a change in a benefit plan of $3$9 million ($0.040.12 per diluted common share) and an after-tax gain from the sale of landour Port Colborne plant. Our results for 2014 include an impairment charge of $2$33 million ($0.020.44 per diluted common share). Our results for 2011 included a $58 million NAFTA award ($0.75 per diluted common share) received from the Government to write-off goodwill at our Southern Cone of the United Mexican StatesSouth America reporting unit (see Note 135 of the notes to the consolidated financial statements for additional information) and an after-tax gaincosts of $18$2 million ($0.230.02 per diluted common share) pertainingrelated to a change in a postretirement plan (see Note 9our then-pending acquisition of the notes to the consolidated financial statements for additional information). Additionally, our 2011 results included after-tax costs of $21 million ($0.26 per diluted common share) relating to the integration of National Starch and after-tax restructuring charges of $7 million ($0.08 per diluted common share) associated with our manufacturing optimization plan in North America.
Penford. Without the impairment/restructuring charges, the reversal of the Korean deferred tax asset valuation allowance, the gain from the benefit plan change,plant sale, the gain from the land salelitigation settlement costs and the integration costs in 2012impairment, restructuring and the integration costs, restructuringacquisition-related charges, NAFTA award and gain from the postretirement plan change in 2011,our net income and diluted earnings per common share for 2012 would have grown 1910 percent and 13 percent, respectively, from 2011. This net income growth2014. These increases primarily reflects an increase inreflect significantly improved operating income in North America and,for 2015, as compared to a lesser extent, in Asia Pacific. Reduced financing costs and a lower effective income tax rate2014. Our improved diluted earnings per common share for 2015 also contributed toreflects the improved earnings.favorable impact of our share repurchases.
Net Sales. Net sales for 2012 increased2015 decreased to $6.53$5.62 billion from $6.22$5.67 billion in 2011, as sales growth in North America and Asia Pacific more than offset declines in South America and EMEA.2014.
A summary of net sales by reportable business segment is shown below:
(in millions) |
| 2012 |
| 2011 |
| Increase |
| % Change |
|
| 2015 |
| 2014 |
| Increase |
| % Change |
| ||||||
North America |
| $ | 3,741 |
| $ | 3,356 |
| $ | 385 |
| 11 | % |
| $ | 3,345 |
| $ | 3,093 |
| $ | 252 |
| 8 | % |
South America |
| 1,462 |
| 1,569 |
| (107 | ) | (7 | )% |
| 1,013 |
| 1,203 |
| (190 | ) | (16 | )% | ||||||
Asia Pacific |
| 816 |
| 764 |
| 52 |
| 7 | % |
| 733 |
| 794 |
| (61 | ) | (8 | )% | ||||||
EMEA |
| 513 |
| 530 |
| (17 | ) | (3 | )% |
| 530 |
| 578 |
| (48 | ) | (8 | )% | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total |
| $ | 6,532 |
| $ | 6,219 |
| $ | 313 |
| 5 | % |
| $ | 5,621 |
| $ | 5,668 |
| $ | (47 | ) | (1 | )% |
The increasebusinesses acquired from Penford and Kerr contributed $328 million of net sales in 2015. The decrease in net sales primarily reflects improved price/product mixunfavorable currency translation of 69 percent and volume growth of 2 percent driven bydue to the stronger demand from our beverage, brewing and food customers,US dollar, which more than offset unfavorable currency translationvolume growth of 37 percent attributable to weaker foreign currencies relative tothat was driven mainly by the US dollar.operations of the acquired businesses and price/product mix improvement of 1 percent. The pass through of lower raw material costs (primarily corn) in our product pricing is reflected in the modest price/product mix improvement. Of the 7 percent volume increase, 1 percent represented organic volume growth.
Net sales in North America increased 118 percent, primarily reflecting improvedvolume growth of 12 percent driven largely by the addition of the acquired businesses, which more than offset a 2 percent price/product mix decline driven principally by lower raw material costs and unfavorable currency translation of 72 percent andattributable to a weaker Canadian dollar. Organic volume growth of 4 percent driven by stronger demand from our beverage, brewing and food customers. Improved selling prices helped to offset higher corn costs.grew 1 percent. Net sales in South America decreased 7declined 16 percent, as a 926 percent decline attributable to
weaker foreign currencies and a 3 percent volume reduction, more than offset a 5 percent price/product mix improvement. The volume decline primarily reflects a combinationimprovement of weaker economic activity10 percent. Volume in the segment and a transportation strike and labor issues that impacted our customers in Argentina earlier in the year.was flat. Asia Pacific net sales grew 7 percent, as volume growth of 5 percent and price/product mix improvement of 3 percent, more than offset unfavorable currency translation of 1 percent. EMEA net sales decreased 38 percent, as unfavorable currency translation of 67 percent and a 13 percent volume reduction resulting primarily from the closure of our manufacturing plant in Kenya,price/product mix decline, more than offset a 4volume growth of 2 percent. EMEA net sales fell 8 percent, price/reflecting unfavorable currency translation of 9 percent, primarily attributable to the weaker Euro and British Pound Sterling. Volume grew 1 percent. Price/product mix improvement.in the segment was flat.
Cost of Sales. Cost of sales for 2012 increased2015 decreased 4 percent to $5.29$4.38 billion from $5.09$4.55 billion in 2011. The increase2014. This reduction primarily reflects higherlower raw material costs and the effects of currency translation. Gross corn costs and volume growth.per ton for 2015 decreased approximately 13 percent from 2014, driven by lower market prices for corn. Currency translation caused cost of sales for 20122015 to decrease
approximately 310 percent from 2011,2014, reflecting the impact of weaker foreign currencies. Gross corn costs per ton for 2012 increased approximately 4 percent from 2011, driven by higher market prices for corn. Additionally, energy costs increased approximately 2 percent from 2011; primarily reflecting higher costs in Pakistan, where power shortages due to energy infrastructure problems in that country drove costs higher.the stronger US dollar. Our gross profit margin for 20122015 was 1922 percent, compared to 1820 percent in 2011.2014. Despite reduced selling prices driven by lower corn costs, we have generally maintained per unit gross profit levels in US dollars, resulting in the improved gross profit margin percentages.
Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses for 20122015 increased to $556$555 million from $543$525 million in 2011.2014. The increase primarily reflects incremental operating expenses of the acquired businesses as well as other costs associated with the acquisition and integration of those businesses. Favorable translation effects associated with the stronger US dollar more than offset higher compensation-related costs; lower integration expenses and the impact ofvarious other costs. Currency translation associated with weaker foreign currencies partially offset these increases. Currency translation caused operatingreduced SG&A expenses for 2012 to decrease2015 by approximately 38 percent from 2011.2014. SG&A expenses represented 945 percent of net salesgross profit in both 2012 and 2011. Without integration costs, SG&A expenses,2015, as a percentagecompared to 47 percent of net sales, would have been 8 percentgross profit in both 2012 and 2011.2014.
Other Income-net. Other income-net of $22$1 million for 20122015 decreased from other income-net of $98$24 million in 2011. This2014. The decrease for 2015 primarily reflects a $10 million gain from the effectssale of the $58Port Colborne plant and an $11 million NAFTA award receivedunfavorable swing from the Government$7 million of the United Mexican Statesincome in the first quarter2014 to $4 million of 2011 and a $30 million gainexpense in 2015 associated with a fourth quarter 2011 postretirementtax indemnification agreement relating to a subsidiary acquired from Akzo Nobel N.V. (“Akzo”) in 2010. In 2014, we recognized a charge to our income tax provision for an expected unfavorable income tax audit result at this subsidiary related to a pre-acquisition period for which we are indemnified by Akzo. The costs incurred by the acquired subsidiary were recorded in our provision for income taxes while the reimbursement from Akzo under the indemnification agreement was recorded as other income. In 2015, based upon the final settlement of the matter, we determined that the unfavorable income tax audit amount should be reduced from $7 million to $3 million. Accordingly, in 2015, we recognized a $4 million income tax benefit plan change. A $5 million gain from a change in a benefit plan in North America and a $2charge to other income-net of $4 million gainto reduce our receivable from Akzo associated with the indemnification agreement. The impact on our net income for 2015 and 2014 is zero. Other income-net for 2015 also includes $7 million of costs relating to a land sale in the fourth quarter of 2012 partially offset these declines.litigation settlement.
A summary of other income-net is as follows:
|
| Year Ended |
| ||||
|
| December 31, |
| ||||
Other Income (Expense) (in millions) |
| 2015 |
| 2014 |
| ||
|
|
|
|
|
| ||
Gain from sale of plant |
| $ | 10 |
| $ | — |
|
Litigation settlement |
| (7 | ) | — |
| ||
Income (expense) associated with tax indemnification |
| (4 | ) | 7 |
| ||
Gain from sale of investment |
| — |
| 5 |
| ||
Gain from sale of idled plant |
| — |
| 3 |
| ||
Other |
| 2 |
| 9 |
| ||
Totals |
| $ | 1 |
| $ | 24 |
|
Operating Income. A summary of operating income is shown below:
(in millions) |
| 2012 |
| 2011 |
| Favorable |
| Favorable |
|
| 2015 |
| 2014 |
| Favorable |
| Favorable |
| ||||||
North America |
| $ | 408 |
| $ | 322 |
| $ | 86 |
| 27 | % |
| $ | 479 |
| $ | 375 |
| $ | 104 |
| 28 | % |
South America |
| 198 |
| 203 |
| (5 | ) | (2 | )% |
| 101 |
| 108 |
| (7 | ) | (6 | )% | ||||||
Asia Pacific |
| 95 |
| 79 |
| 16 |
| 20 | % |
| 107 |
| 103 |
| 4 |
| 4 | % | ||||||
EMEA |
| 78 |
| 84 |
| (6 | ) | (7 | )% |
| 93 |
| 95 |
| (2 | ) | (2 | )% | ||||||
Corporate expenses |
| (78 | ) | (64 | ) | (14 | ) | (22 | )% |
| (75 | ) | (65 | ) | (10 | ) | (15 | )% | ||||||
Restructuring/impairment charges |
| (36 | ) | (10 | ) | (26 | ) | (260 | )% | |||||||||||||||
Gain from change in benefit plans |
| 5 |
| 30 |
| (25 | ) | (83 | )% | |||||||||||||||
Integration costs |
| (4 | ) | (31 | ) | 27 |
| 87 | % | |||||||||||||||
Gain from sale of land |
| 2 |
| — |
| 2 |
| nm |
| |||||||||||||||
NAFTA award |
| — |
| 58 |
| (58 | ) | nm |
| |||||||||||||||
Impairment/restructuring charges |
| (28 | ) | (33 | ) | 5 |
| 15 | % | |||||||||||||||
Gain from sale of plant |
| 10 |
| — |
| 10 |
| nm |
| |||||||||||||||
Acquisition/integration costs |
| (10 | ) | (2 | ) | (8 | ) | nm |
| |||||||||||||||
Charge for fair value markup of acquired inventory |
| (10 | ) | — |
| (10 | ) | nm |
| |||||||||||||||
Litigation settlement |
| (7 | ) | — |
| (7 | ) | nm |
| |||||||||||||||
Operating income |
| $ | 668 |
| $ | 671 |
| $ | (3 | ) | — | % |
| $ | 660 |
| $ | 581 |
| $ | 79 |
| 14 | % |
Operating income for 2012 declined slightly2015 increased to $668$660 million from $671$581 million in 2011.2014. Operating income for 20122015 includes $20a $10 million gain from the sale of our Port Colborne plant, $12 million of charges for impaired assets and restructuring costs in Kenya, $11 million of restructuring charges to reduce the carrying value of certain equipment associated with our manufacturing optimization planplant closings in North America, $5Brazil, a restructuring charge of $12 million for estimated severance-related costs associated with the Penford acquisition, costs of charges for impaired assets in China and Colombia, and$7 million relating to a litigation settlement, a $4 million ofrestructuring charge for estimated severance-related expenses and other costs pertaining to the integration of National Starch. Additionally, operating income for 2012 includes the $5 million gain from the benefit plan change in North America and a $2 million gain fromassociated with the sale of land. Operating income for 2011 included the $58 million NAFTA award, a $30 million gain from a change in a postretirement plan, $31 million of costs pertaining to the integration of National StarchPort Colborne plant, and $10 million of restructuring chargesother costs associated with the acquisitions and integration of the Penford and Kerr businesses. Additionally, the 2015 results include $10 million of costs associated with the sale of Penford and Kerr inventory that was marked up to fair value at the acquisition date in accordance with business combination accounting rules. Operating income for 2014 included a $33 million charge to write-off impaired goodwill at our Southern Cone of South America reporting unit and $2 million of costs associated with our North American manufacturing optimization plan.then-pending acquisition of Penford. Without the impairment/restructuring charges, integration costs, the NAFTA award, the gains from the changes in benefit plans, and the gain from the landplant sale, the litigation settlement costs and the restructuring, impairment and acquisition-related charges, operating income for 20122015 would have increased 12grown 14 percent from 2014. This increase primarily reflecting strong earnings growthreflects significantly improved operating income in North America and,compared to a lesser extent, in Asia Pacific.the weaker results of 2014. Unfavorable currency translation associated with weaker foreign currencies causedattributable to the stronger US dollar negatively impacted operating income to decline by approximately $30$68 million from 2011. as compared to 2014. Our product pricing actions helped to mitigate the unfavorable impact of currency translation.
North America operating income increased 2728 percent to $408$479 million from $322$375 million in 2011. Improved product selling prices and2014. Earnings contributed by the acquired operations represented approximately 6 percentage points of the increase. The remaining organic operating income improvement of 22 percent for 2015 primarily reflects more normal weather conditions, organic volume growth helpedand lower corn, energy and other manufacturing costs. Our North American results for 2015 also include $7 million of business interruption insurance recoveries related to offset higher cornlast year’s weather. Our 2014 results were negatively impacted by harsh winter weather conditions that caused high energy, transportation and production costs. Currency translationTranslation effects associated with a weaker Canadian dollar causedunfavorably impacted operating income to decrease by approximately $1$13 million in North America.the segment. South America operating income decreased 26 percent to $198$101 million from $203$108 million in 2011.2014. The decline primarily reflects weaker results in Brazil driven principally by local currency weakness. Improved product price/mix largelyselling prices for our products helped to partially offset the unfavorable impacts of currency devaluation and higher local product costs; translationproduction costs in the segment. Translation effects associated with weaker South American currencies (particularly the ArgentineBrazilian Real, Colombian Peso and Brazilian Real), which had a $22 million unfavorable impact on the segment; and lower volumes dueArgentine Peso) negatively impacted operating income by approximately $36 million. We currently anticipate that our business in South America will continue to soft demand from a weaker economy.
be challenged by difficult economic conditions in 2016. Asia Pacific operating income rose 20grew 4 percent to $107 million from $103 million in 2014. Volume growth and lower raw material costs helped to mitigate the impact of local currency weakness in the segment. Translation effects associated with weaker Asia Pacific currencies negatively impacted operating income by approximately $9 million in the segment. EMEA operating income declined 2 percent to $93 million from $95 million in
2014. This decrease primarily reflects the impact of currency translation. Cost reductions and improved sales volumes helped to partially offset this unfavorable impact. Additionally, the prior year results included a $3 million gain from $79the sale of an idled plant in Kenya. Translation effects primarily associated with the weaker Euro and British Pound Sterling had an unfavorable impact of $10 million on operating income in the segment. An increase in corporate expenses was driven by an adjustment with respect to the previously-mentioned Akzo tax indemnification that unfavorably impacted operating income by $11 million for 2015, as compared to 2014.
Financing Costs-net. Financing costs-net was $61 million in 2011. This2015, consistent with 2014. Lower interest expense and higher interest income were offset by a $5 million increase primarilyin foreign currency transaction losses. The reduction in interest expense reflects sales volume growthlower average interest rates driven by the effect of our interest rate swaps and improved price/mix,our low-rate term loan borrowing that we arranged in 2015, which more than offset the impact of weaker currencies. Unfavorable translation effects associated with weaker foreign currencies caused Asia Pacific operating income to decrease by approximately $1 million. EMEA operating income decreased 7 percent to $78 million from $84 million in 2011, primarily reflecting unfavorable currency translation. Translation effects associated with weaker foreign currencies caused EMEA operating income to decrease by approximately $6 million. While our installation of equipment helped to mitigate energy issues somewhat, energy infrastructure in Pakistan remains problematic and we continue to face challenges resulting from the power shortages in that country.
Financing Costs-net. Financing costs-net decreased to $67 million in 2012 from $78 million in 2011.higher average borrowings. The decrease primarily reflects an increase in interest income of $5 million attributable to ourwas driven primarily by higher average cash balances, a $4 million decrease in interest expense driven by lower borrowing rates and a $2 million reductionbalances. The increase in foreign currency transaction losses.losses primarily reflects the impact of the December devaluation of the Argentine peso. Hedge costs spiked in December and prevented hedges from offsetting the impact of the devaluation, negatively affecting Argentine peso denominated assets.
Provision for Income Taxes. Our effective tax rate was 27.831.2 percent in 2012,2015, as compared to 28.730.2 percent in 2011. Our2014. We use the US dollar as the functional currency for our subsidiaries in Mexico. Because of the continued decline in the value of the Mexican peso versus the US dollar, our tax provision for 2015 was increased by $17 million, or 2.9 percentage points. A primary cause was associated with foreign currency transaction gains for local income tax purposes on net US dollar monetary assets held in Mexico for which there is no corresponding gain in our pre-tax income. Based on the final settlement of an audit matter, in 2015 we reversed $4 million of the $7 million income tax expense and other income that was recorded in 2014 (see also discussion of Other Income-net presented earlier in this section). As a result, our effective income tax rate for 2012 includes the effects2015 was reduced by 0.7 percentage points. Substantial portions of the discrete reversalsale of a $13 million valuation allowancePort Colborne, Canada, assets resulted in favorable tax treatment that had been recorded against net deferred tax assets of our Korean subsidiary,reduced the recognition of an income tax benefit of $8 million related to our $20 million restructuring charge in Kenya and the associated tax write-off of the investment. Additionally, we recorded a $4 million pretax charge related to the disposition of our non wholly-owned consolidated subsidiary in China, which is not expected to produce a realizable tax benefit. Our effective income tax rate for 2011 includes the benefit of the one-time recognition of tax free income related to the NAFTA award in pretax income, which lowered our effective income tax rate by 3.5approximately 0.4 percentage points. Additionally, the 2015 tax provision includes $2 million of net favorable reversals of previously unrecognized tax benefits due to the lapsing of the statute of limitations, which reduced the effective tax rate by 0.3 percentage points.
In the fourth quarter of 2014 we determined that goodwill in our Southern Cone subsidiaries was impaired and recorded a charge of $33 million without a tax benefit, which increased the 2014 effective tax rate by 1.8 percentage points. We use the US dollar as the functional currency for our subsidiaries in Mexico. Because of the decline in the value of the Mexican peso versus the US dollar, primarily late in 2014, the Mexican tax provision was increased by approximately $7 million, or 1.3 percentage points in our effective tax rate, primarily associated with foreign currency transaction gains for local income tax purposes on net US dollar monetary assets held in Mexico for which there is no corresponding gain in our pre-tax income. The tax provision also includes approximately $7 million for an unfavorable audit result at a National Starch subsidiary related to a pre-acquisition period for which we are indemnified by Akzo. Additionally, the 2014 tax provision includes $12 million of net favorable reversals of previously unrecognized tax benefits due to the lapsing of the statute of limitations.
Without the impact of the items described above, our effective tax rates for 20122015 and 20112014 would have been approximately 3029.7 percent and 3228.1 percent, respectively. See also Note 89 of the notes to the consolidated financial statements.statements for additional information.
We have significant operations in the US, Canada, Mexico and Thailand where the statutory tax rates, including local income taxes are approximately 37 percent, 25 percent, 30 percent and 20 percent in 2015, respectively. In addition, our subsidiary in Brazil has a statutory tax rate of 34 percent, before local incentives that vary each year.
Net Income Attributable to Non-controlling Interests. Net income attributable to non-controlling interests was $6$10 million in 2012, down2015, up from $7$8 million in 2011.2014. The decreaseincrease primarily reflects lower earningsimproved net income at our non wholly-owned operationsnon-wholly-owned operation in Pakistan and China.Pakistan.
Comprehensive Income. We recorded comprehensive income of $366$82 million in 2012,2015, as compared with $193$156 million in 2011.2014. The increasedecrease in comprehensive income primarily reflects a $97$112 million favorableunfavorable variance in the currency translation adjustment, and a $94 million favorable variance associated withwhich more than offset our cash-flow hedging activity.net income growth. The favorableunfavorable variance in the currency translation adjustment reflects a more moderategreater weakening in end of period foreign currencies relative to the US dollar, in 2012, as compared to a year ago, when end of period foreign currency depreciation was more significant.ago.
20112014 Compared to 20102013
On October 1, 2010, we acquired National Starch, a global provider of specialty starches. The results of National Starch are included in our consolidated financial results from October 1, 2010 forward. As a result, there are significant fluctuations in our financial statements as compared to 2010. While we identify significant fluctuations due to the acquisition, our discussion below also addresses results of operations absent the impact of the National Starch acquisition and acquired operations for the nine months ended September 30, 2011, where appropriate, to provide a more comparable and meaningful analysis.
Net Income attributable to Ingredion. Net income attributable to Ingredion for 2011 more than doubled2014 decreased to $416$355 million, or $5.32$4.74 per diluted common share, from 2010 net income of $169$396 million, or $2.20$5.05 per diluted common share.share in 2013. Our results for 2011 included a $582014 include an impairment charge of $33 million NAFTA award ($0.750.44 per diluted common share) received from the Governmentto write-off goodwill at our Southern Cone of the United Mexican StatesSouth America reporting unit (see Note 135 of the notes to the consolidated financial statements for additional information) and an after-tax gain of $18 million ($0.23 per diluted common share) pertaining to a change in a postretirement plan (see Note 9 of the notes to the consolidated financial statements for additional information).
Additionally, our 2011 results included after-tax costs of $21$2 million ($0.26 per diluted common share) relating to the integration of National Starch and after-tax restructuring charges of $7 million ($0.08 per diluted common share) associated with our manufacturing optimization plan in North America. Our 2010 results included after-tax acquisition-related costs of $26 million ($0.34 per diluted common share), after-tax restructuring charges of $22 million ($0.29 per diluted common share) for impaired assets and other costs primarily associated with the closing of our plant in Chile, after-tax costs of $18 million ($0.23 per diluted common share) relating to the sale of National Starch inventory that was adjusted to fair value at the acquisition date in accordance with business combination accounting rules and after-tax charges of $14 million for bridge loan and other financing costs ($0.180.02 per diluted common share) related to theour then-pending acquisition of National Starch. See also Note 4 of the notes to the consolidated financial statements for additional information pertaining to the asset impairments and restructurings.
Penford. Without the integrationimpairment charge and acquisition costs, restructuring charges, the NAFTA award, and the gain from the postretirement plan change in 2011 and the impairment, restructuring, acquisition-related costs and bridge loan and other financing expenses in 2010,our net income for 2011would have declined 2 percent from 2013, while our diluted earnings per share would have grown 47 percent from 2010, whileby 3 percent. This improvement in our diluted earnings per common share would have risen 44 percent. This net income growth primarily reflects an increase in operating incomewas driven by earningsthe favorable impact of the acquired National Starch operations and, to a lesser extent, organic earnings growth. Higher financing costs partially offset the increased operating income.our share repurchases in 2014.
Net Sales. Net sales for 2011 increased2014 decreased to $6.22$5.67 billion from $4.37$6.33 billion in 2010, as2013, primarily reflecting reduced net sales grew in each ofNorth America driven by lower raw material costs (primarily corn) that were reflected in our segments.product pricing.
A summary of net sales by reportable business segment is shown below:
(in millions) |
| 2011 |
| 2010 |
| Increase |
| % Change |
|
| 2014 |
| 2013 |
| Increase |
| % Change |
| ||||||
North America |
| $ | 3,356 |
| $ | 2,439 |
| $ | 917 |
| 38 | % |
| $ | 3,093 |
| $ | 3,647 |
| $ | (554 | ) | (15 | )% |
South America |
| 1,569 |
| 1,241 |
| 328 |
| 26 | % |
| 1,203 |
| 1,334 |
| (131 | ) | (10 | )% | ||||||
Asia Pacific |
| 764 |
| 433 |
| 331 |
| 76 | % |
| 794 |
| 805 |
| (11 | ) | (1 | )% | ||||||
EMEA |
| 530 |
| 254 |
| 276 |
| 109 | % |
| 578 |
| 542 |
| 36 |
| 7 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ | 6,219 |
| $ | 4,367 |
| $ | 1,852 |
| 42 | % |
| $ | 5,668 |
| $ | 6,328 |
| $ | (660 | ) | (10 | )% |
The increasedecrease in net sales reflects a 22 percent volume increasewas driven by sales for the first nine months of 2011 from our acquired National Starch operations,an 8 percent price/product mix improvement of 19 percent reflecting the pass through of higherdecline primarily attributable to lower raw material costs and favorableunfavorable currency translation of 14 percent due to a stronger foreign currencies. Organic sales growth in eachUS dollar. A 2 percent volume increase partially offset the unfavorable impacts of our segments was strong, driven mainly by improved product selling prices. Organic volume was flat. Co-product sales of approximately $1.12 billion for 2011 increased 43 percent from $781 million in 2010, driven by improvedthe reduced selling prices and increased volume. Co-product sales from acquired operations for the first nine months of 2011 contributed approximately $66 million, or 8 percent, of the increase.currency translation.
Net sales in North America increased 38decreased 15 percent, primarily reflecting a 16 percent price/product mix decline driven principally by lower raw material costs. A 2 percent volume improvement more than offset unfavorable currency translation of 1 percent in Canada. Net sales contributed by the acquired National Starch operations and organic growth. Without sales from the acquired operations for the nine months ended September 30, 2011, net sales onin South America decreased 10 percent, as a comparable basis in North America would have increased approximately 1816 percent reflectingdecline attributable to weaker foreign currencies more than offset price/product mix improvement of 17 percent and a 1 percent increase attributable to currency translation.6 percent. Volume in the segment was flat. NetAsia Pacific net sales in South America increased 26declined 1 percent, driven byas a 255 percent price/product mix improvement. Favorabledecline and unfavorable currency translation of 2 percent, more than offset a 1 percent volume decline in the segment. The volume decline primarily reflects cooler than normal weather conditions in Brazil which reduced demand for beer and soft drink products. Additionally, our strategy to implement higher pricing contributed to the slight volume decline. Asia Pacificgrowth of 6 percent. EMEA net sales increased 76 percent, principally driven by sales contributed from acquired operations. Without the acquired operations, Asia Pacific net sales, on a comparable basis, would have increased approximately 11grew 7 percent reflecting price/product mix improvement of 113 percent, 3 percent volume growth and a 4 percentfavorable currency translation benefit associated with stronger foreign currencies, which more than offset an organic volume decline of 4 percent. The impacts of a tsunami and
flooding resulted in reduced demand for our products in the segment. EMEA net sales more than doubled, largely due to sales contributed from acquired operations. Without the acquired operations, EMEA net sales, on a comparable basis, would have increased approximately 201 percent driven by price/product mix improvement. Organic volume growth of 3 percent was offset by a 3 percent declineprimarily attributable to weaker foreign currencies in the segment.a stronger British Pound Sterling.
Cost of Sales. Cost of sales for 2011 increased 402014 decreased 12 percent to $5.09$4.55 billion from $3.64$5.20 billion in 2010. More than half2013. This reduction primarily reflects lower raw material costs and the effects of this increase reflects costs associated with sales of products from acquired operations for the first nine months of 2011. The remainder of the increase was driven principally by highercurrency translation. Gross corn costs and, to a lesser extent, currency translation.per ton for 2014 decreased approximately 24 percent from 2013, driven by lower market prices for corn. Currency translation caused cost of sales for 20112014 to increasedecrease approximately 24 percent from 2010,2013, reflecting the impact of strongerweaker foreign currencies. Gross corn costs per ton for 2011 increased approximately 36 percent from 2010, driven by higher market prices for corn.currencies, particularly in South America. Our gross profit margin for 20112014 was 1820 percent, compared to 1718 percent in 2010,reflecting2013. Despite reduced selling prices driven by lower corn costs, we have generally maintained per unit gross profit dollar levels, resulting in the impact of the acquired National Starch operations and improved product selling prices.gross profit margin percentages.
Selling, General and Administrative Expenses. SG&A expenses for 2011 increased2014 declined to $543$525 million from $370$534 million in 2010. This increase primarily reflects SG&A expenses of the acquired National Starch operations. Additionally,2013. The decrease was driven principally by foreign currency weakness which more than offset slightly higher compensation-related costs and stronger foreign currencies also contributed to the increase in SG&A expenses.costs. Currency translation caused operating expenses for 2011 to increase approximately 1 percent from 2010, reflecting the impact of stronger foreign currencies. SG&A expenses for 20112014 to decrease approximately 4 percent from 2013. SG&A expenses represented 947 percent of net sales, up from 8 percentgross profit in 2010. Without integration and acquisition costs, SG&A expenses, as a percentage of net sales, would have been 8 percent in both 2011 and 2010.2014, consistent with 2013.
Other Income-net. Other income-net of $98$24 million for 20112014 increased from other income-net of $10$16 million in 2010.2013. This increase primarily reflects the $58$7 million NAFTA award received from the Government of the United Mexican States in the first quarter of 2011 and a $30 million gainincome associated with a fourthtax indemnification agreement relating to a subsidiary acquired from Akzo in 2010 and a $3 million gain from the sale of our idled plant in Kenya. In the third quarter 2011 postretirement benefit plan change.of 2014, we recognized a charge to our income tax provision for an unfavorable income tax audit result at the former Akzo subsidiary related to a pre-acquisition period for which we are indemnified by Akzo. The costs incurred by the acquired subsidiary were recorded in our provision for income taxes while the reimbursement from Akzo under the indemnification agreement was recorded as other income. The impact on our net income is zero.
Operating Income. A summary of operating income is shown below:
(in millions) |
| 2011 |
| 2010 |
| Favorable |
| Favorable |
|
| 2014 |
| 2013 |
| Favorable Variance |
| Favorable (Unfavorable) |
| ||||||
North America |
| $ | 322 |
| $ | 249 |
| $ | 73 |
| 30 | % |
| $ | 375 |
| $ | 401 |
| $ | (26 | ) | (6 | )% |
South America |
| 203 |
| 163 |
| 40 |
| 24 | % |
| 108 |
| 116 |
| (8 | ) | (7 | )% | ||||||
Asia Pacific |
| 79 |
| 28 |
| 51 |
| 181 | % |
| 103 |
| 97 |
| 6 |
| 6 | % | ||||||
EMEA |
| 84 |
| 37 |
| 47 |
| 126 | % |
| 95 |
| 74 |
| 21 |
| 28 | % | ||||||
Corporate expenses |
| (64 | ) | (51 | ) | (13 | ) | (26 | )% |
| (65 | ) | (75 | ) | 10 |
| 13 | % | ||||||
NAFTA award |
| 58 |
| — |
| 58 |
| nm |
| |||||||||||||||
Gain from change in postretirement plan |
| 30 |
| — |
| 30 |
| nm |
| |||||||||||||||
Integration/acquisition costs |
| (31 | ) | (35 | ) | 4 |
| 12 | % | |||||||||||||||
Restructuring/impairment charges |
| (10 | ) | (25 | ) | 15 |
| 59 | % | |||||||||||||||
Charge for fair value mark-up of acquired inventory |
| — |
| (27 | ) | 27 |
| nm |
| |||||||||||||||
Write-off of impaired assets |
| (33 | ) | — |
| (33 | ) | nm |
| |||||||||||||||
Acquisition costs |
| (2 | ) | — |
| (2 | ) | nm |
| |||||||||||||||
Operating income |
| $ | 671 |
| $ | 339 |
| $ | 332 |
| 98 | % |
| $ | 581 |
| $ | 613 |
| $ | (32 | ) | (5 | )% |
Operating income for 2011 increased2014 decreased to $671$581 million from $339$613 million in 2010.2013. Operating income for 20112014 included the $58a $33 million NAFTA award, a $30 million gain from a change in a postretirement plan, $31 million of costs pertaining to the integration of National Starch and a $10 million restructuring charge to reduce the carrying valuewrite-off impaired goodwill at our Southern Cone of certain equipment in connection with our North American manufacturing optimization plan. Operating income for 2010 included acquisition-related costs of $35 million, impairment/restructuring charges of $25 millionSouth America reporting unit and the flow through of $27$2 million of costs associated with acquired National Starch inventory that was marked upour pending acquisition of Penford. Without the impairment charge and acquisition costs, operating income for 2014 would have been essentially flat with 2013. Our operating income primarily reflects earnings growth in EMEA and Asia Pacific along with reduced corporate expenses, which basically offset lower earnings in North America and South America. Unfavorable currency translation attributable to fair value at thea stronger US dollar reduced operating income by approximately $28 million from 2013.
acquisition date in accordance with business combination accounting rules. Without the NAFTA award, the gain from the change in the postretirement benefit plan and the integration and restructuring costs in 2011 and the impairment, restructuring, inventory mark-up charge andacquisition-related costs in 2010, operating income for 2011 would have increased 46 percent over the prior year, as earnings grew in each of our segments.This increase was driven by earnings contributed during the first nine months of 2011 from the acquired National Starch operations and, to a lesser extent, organic earnings growth in each of our segments principally driven by improved product pricing. Currency translation associated with stronger foreign currencies caused operating income to increase by approximately $4 million from 2010.North America operating income increased 30decreased 6 percent to $322$375 million from $249$401 million in 2010. Approximately one-fourth of this growth was attributable to income for the2013. The decline primarily reflects our weak first nine months of 2011 from acquired operations. The remaining increase was primarily drivenquarter 2014 results that were negatively impacted by harsh winter weather conditions that caused higher product selling prices. Currencyenergy, transportation and production costs. Additionally, currency translation associated with the strongera weaker Canadian dollar caused operating income to increasedecrease by approximately $3$7 million in North America. South America operating income increased 24decreased 7 percent to $203$108 million from $163$116 million in 2010. Higher product2013. The decrease was driven by weaker results in the Southern Cone of South America, which more than offset earnings growth in Brazil. The operating income decline in the Southern Cone of South America primarily reflects the impact of higher production costs and our inability to increase selling prices drove this earnings growth.to a level sufficient to recover the impacts of inflation and currency devaluation. Translation effects associated with weaker South American currencies (particularly the Argentine Peso and Brazilian Real) caused operating income to decrease by approximately $18 million. Asia Pacific operating income almost tripledgrew 6 percent to $79$103 million from $28$97 million in 2010, driven by earnings from acquired operations. Without the earnings from acquired operations, operating income in the segment, on a comparable basis, would have grown approximately 5 percent from a year ago.2013. This increase primarily reflects higher product selling priceswas driven principally by volume growth in our Asian business and favorable currency translation. Stronger foreignlower corn costs in South Korea. Unfavorable translation effects associated with weaker Asian currencies (particularly the Korean Won) caused Asia Pacific operating income to increasedecrease by approximately $1 million in Asia Pacific.$3 million. EMEA operating income more than doubledrose 28 percent to $84$95 million from $37$74 million in 2010, due in large part to2013. The improved earnings from acquired operations. Without the earnings from acquired operations, operating income, on a comparable basis, would have grown approximately 29 percent from a year ago, primarily driven by higher productreflect improved selling prices, volume growth and organic volume growth.manufacturing efficiencies resulting from capital investments, particularly in Europe, and lower energy costs in Pakistan.
Financing Costs-net. Financing costs-net increaseddecreased to $78$61 million in 20112014 from $64$66 million in 2010.2013. The year ago period includeddecline reflects a $20 million charge for bridge loan financing fees related to the acquisition of National Starch. Without this chargedecrease in 2010, financing costs for 2011 would have increased approximately 76 percent. This increase primarily reflects interest expense, an increase in interest income and a reduction in foreign currency transaction
losses. The reduction in interest expense reflects lower average interest rates driven by the effect of our interest rate swaps, which more than offset the impact of higher average borrowings. The increase in interest income was driven principally by higher interest rates on our higher average borrowings due to the National Starch acquisition.cash investments.
Provision for Income Taxes. Our effective tax rate was 28.730.2 percent in 2011,2014, as compared to 36.126.3 percent in 2010. 2013. In the fourth quarter of 2014 we impaired goodwill in our Southern Cone subsidiaries and recorded a charge of $33 million without a tax benefit, which increased the effective tax rate by 1.8 percentage points. Because of the decline in the value of the Mexican peso versus the US dollar, primarily late in 2014, the Mexican tax provision includes an unfavorable impact of approximately $7 million, or 1.3 percentage points in our effective tax rate, primarily associated with foreign currency transaction gains for local income tax purposes on net US dollar monetary assets held in Mexico for which there is no corresponding gain in our pre-tax income. The tax provision also includes approximately $7 million for an unfavorable audit result at a National Starch subsidiary related to a pre-acquisition period for which we are indemnified by Akzo. Additionally, the 2014 tax provision includes $12 million of net favorable reversals of previously unrecognized tax benefits due to the lapsing of the statute of limitations. We have significant operations in Canada, Mexico and Thailand where the statutory tax rates are 25 percent, 30 percent and 20 percent, respectively. In addition, our subsidiary in Brazil has a lower effective tax rate of 26 percent including local tax incentives.
Our effective income tax rate for 2011 included the benefit of the one-time recognition2013 includes approximately $2 million of tax free incomebenefits related to the NAFTA award in pre-tax income, which lowered our effective income tax rate by 3.5 percentage points. Our 2010 effective income tax rate included the impactsJanuary 2, 2013 enactment of the National Starch acquisition costs,US American Taxpayer Relief Act of 2012. We also received a favorable tax determination from the Chilean charges for impaired assets and otherCanadian courts during 2013 that resulted in approximately $4 million of tax benefits related costs,to prior years, and an increaseadditional $2 million related to 2013. In addition, in the valuation allowance for Chile. The 2011 impact2013, we recognized approximately $11 million of National Starch acquisition coststax benefits related to net changes in previously unrecognized tax benefits and changesglobal provision to the Chilean valuation allowance were not material. return adjustments.
Without the impact of the items described above, our effective tax rates for 20112014 and 20102013 would have been approximately 3228 percent and 3330 percent, respectively. See also Note 89 of the notes to the consolidated financial statements.statements for additional information.
Net Income Attributable to Non-controlling Interests. Net income attributable to non-controlling interests was $8 million in 2014, up from $7 million in 2011, consistent with 2010.2013. The increase primarily reflects improved net income at our non-wholly-owned operation in Pakistan.
Comprehensive Income. We recorded comprehensive income of $193$156 million in 2011,2014, as compared with $287$288 million in 2010.2013. The decrease in comprehensive income primarily reflects a $75 million unfavorable currency translation attributablevariance relating mainly to weaker foreign currenciesthe reduced funded status of our pension and losses on cash flow hedges, which more than offset our net income growth. Thepostretirement benefit plans associated with lower discount rates and a revised mortality table, a $58 million unfavorable variancesvariance in the currency translation adjustment reflectand our lower net income of $40 million, partially offset by a $44 million favorable variance associated with our cash-flow hedging activity. The unfavorable variance in the currency translation adjustment reflects a greater weakening in end of period foreign currencies relative to the US dollar in 2011,2014, as compared to a year ago when end of period foreign currencies had strengthened.2013.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2012,2015, our total assets were $5.59$5.07 billion, uprelatively unchanged from $5.32$5.09 billion at December 31, 2011. This increase primarily reflects our larger cash and cash equivalents position and increased inventories, partially2014. The impact of acquisitions was offset by currency translation effects associated with weaker end of period foreign currencies relative to the US dollar of approximately $28 million.dollar. Total equity increaseddecreased slightly to $2.46$2.18 billion at December 31, 20122015, from $2.13$2.21 billion at December 31, 2011,2014. This decrease primarily reflecting our net income for 2012 and the exercise of stock options, partially offset by dividends on our common stock,reflects an increase in our accumulated other
comprehensive loss driven principally driven by actuarial losses on our postretirement benefit obligations and unfavorable foreign currency translation.translation, particularly in South America where local foreign currencies have devalued substantially.
On October 22, 2012, we entered intoWe have a new five-year, senior, unsecured, $1 billion revolving credit agreement (the “Revolving Credit Agreement”). The Revolving Credit Agreement replaced our previously existing $1 billion senior unsecured revolving credit facility. We paid fees of approximately $3 million relating to the new credit facility, which are being amortized to interest expense over the term of the facility.
that matures on October 22, 2017. Subject to certain terms and conditions, we may increase the amount of the revolving credit facility under the Revolving Credit Agreement by up to $250 million in the aggregate. All committed pro rata borrowings under the revolving credit facility will bear interest at a variable annual rate based on the LIBOR or prime 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 covenant. The occurrence of an event of default under the Revolving Credit Agreement could result in all loans and other obligations under the agreement being declared due and payable and the revolving credit facility being terminated.
We met all covenant requirements as of December 31, 2015. At December 31, 2012,2015, there were no$111 million of borrowings outstanding under our $1 billion revolving credit facility.Revolving Credit Agreement, as compared to $87 million at December 31, 2014. In addition, we have a number of short-term credit facilities consisting of operating lines of credit. credit outside of the United States.
On July 10, 2015, we entered into a new Term Loan Credit Agreement to establish an 18-month, $350 million multi-currency senior unsecured term loan credit facility. All borrowings under the term loan 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. Proceeds of $350 million from the new Term Loan Credit Agreement were used to repay borrowings outstanding under our Revolving Credit Agreement.
The Term Loan 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 interest coverage ratio. The occurrence of an event of default under the Term Loan Credit Agreement could result in all loans and other obligations being declared due and payable and the term loan credit facility being terminated.
On November 2, 2015, we repaid our $350 million, 3.2 percent senior notes at the maturity date with proceeds from the Revolving Credit Agreement and cash on hand.
At December 31, 2012,2015, we had total debt outstanding of $1.80$1.84 billion, compared to $1.95$1.82 billion at December 31, 2011.2014. The increase primarily reflects borrowings to fund the acquisitions of Penford and Kerr, net of subsequent debt repayments. In addition to the borrowings outstanding under the Revolving Credit Agreement, our total debt includes $350 million (principal amount) of 3.2 percent notes due 2015,borrowings under the new Term Loan Credit Agreement, $300 million (principal amount) of 1.8 percent senior notes due 2017, $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 $76$19 million of consolidated subsidiary debt consisting of local country short-term borrowings. Ingredion Incorporated, as the parent company, guarantees certain obligations of its consolidated subsidiaries. At December 31, 2012,2015, such guarantees aggregated $57$204 million. Management believes that such consolidated subsidiaries will meet their financial obligations as they become due.
Historically, the principal source of our liquidity has been our internally generated cash flow, which we supplement as necessary with our ability to borrow on our bank lines and to raise funds in the capital markets. In addition to borrowing availability under our Revolving Credit Agreement, we also have approximately $503$409 million of unused operating lines of credit in the various foreign countries in which we operate.
The weighted average interest rate on our total indebtedness was approximately 4.53.4 percent and 4.84.1 percent for 20122015 and 2011,2014, respectively.
Net Cash Flows
A summary of operating cash flows is shown below:
(in millions) |
| 2012 |
| 2011 |
| ||
Net income |
| $ | 434 |
| $ | 423 |
|
Depreciation and amortization |
| 211 |
| 211 |
| ||
Write-off of impaired assets |
| 24 |
| — |
| ||
Gain from change in benefit plans |
| (5 | ) | (30 | ) | ||
Deferred income taxes |
| (3 | ) | 18 |
| ||
Changes in working capital |
| 33 |
| (334 | ) | ||
Other |
| 38 |
| 12 |
| ||
|
|
|
|
|
| ||
Cash provided by operations |
| $ | 732 |
| $ | 300 |
|
(in millions) |
| 2015 |
| 2014 |
| ||
Net income |
| $ | 412 |
| $ | 363 |
|
Depreciation and amortization |
| 194 |
| 195 |
| ||
Write-off of impaired assets |
| 10 |
| 33 |
| ||
Charge for fair value mark-up of acquired inventory |
| 10 |
| — |
| ||
Gain on sale of plant |
| (10 | ) | — |
| ||
Deferred income taxes |
| (6 | ) | (11 | ) | ||
Changes in working capital |
| (24 | ) | 84 |
| ||
Other |
| 100 |
| 67 |
| ||
|
|
|
|
|
| ||
Cash provided by operations |
| $ | 686 |
| $ | 731 |
|
Cash provided by operations was $732$686 million in 2012,2015, as compared with $300$731 million in 2011.2014. The increasedecrease in operating cash flow for 20122015 primarily reflects improveda reduction in cash flow from working capital management.activities which more than offset our net income growth. The improvementdecline in cash from working capital was driven principally by improved accounts receivable collections and inventory management, and an increase in accounts payable. Ouractivities primarily reflects margin account activity relating to our commodity hedging contracts. In 2015, we made cash deposits of $34 million to fund our margin accounts, relatingas compared to commodity hedging contracts were relatively unchanged. 2014, when we received $39 million of cash from margin accounts. The timing of payments on accounts payable and accrued liabilities also contributed to the year-over-year reduction in cash flow associated with working capital activities.
To manage price risk related to corn purchases in North America, we use derivative instruments (corn futures and options contracts) to lock in our corn costs associated with firm-priced customer sales contracts. We are unable to directly hedge price risk related to co-product sales; however, we occasionally enter into hedges of soybean oil (a competing product to our animal feed and corn oil) in order to mitigate the price risk of animal feed and corn oil sales. Additionally, we enter into futures contracts to hedge price risk associated with fluctuations in market prices of ethanol. As the market price of corn fluctuates,these commodities fluctuate, our derivative instruments change in value and we fund any unrealized losses or receive cash for any unrealized gains related to outstanding corncommodity futures and option contracts. We plan to continue to use corn futures and option contractsderivative instruments to hedge thesuch price risk associated with firm-priced customer sales contracts in our North American business and, accordingly, we will be required to make cash deposits to or be entitled to receive cash deposits forfrom our margin callsaccounts depending on the movement in the market price for corn.of the underlying commodity.
Listed below are our primary investing and financing activities for 2012:2015:
|
| Sources (Uses) |
| |
|
| of Cash |
| |
|
| (in millions) |
| |
Capital expenditures |
| $ | (313 | ) |
Payments on debt |
| (462 | ) | |
Proceeds from borrowings |
| 312 |
| |
Dividends paid (including dividends of $3 to non-controlling interests) |
| (69 | ) | |
Issuance of common stock |
| 34 |
| |
Repurchases of common stock |
| (18 | ) | |
On September 20, 2012, we sold $300 million of 1.80 percent Senior Notes due September 25, 2017 (the “Notes”). The Notes rank equally with our other senior unsecured debt. Interest on the Notes is required to be paid semi-annually on March 25th and September 25th, beginning in March 2013. We have the option to prepay the Notes at 100 percent of the principal amount plus interest up to the prepayment date and, in certain circumstances, a make-whole amount. The net proceeds from the sale of the Notes of approximately $297 million were used to repay $205 million of borrowings under our previously existing $1 billion revolving credit facility (see discussion above) and for general corporate purposes. We paid debt issuance costs of approximately $2 million relating to the Notes, which are being amortized to interest expense over the life of the Notes.
|
| Sources (Uses) |
| |
|
| of Cash |
| |
|
| (in millions) |
| |
|
|
|
| |
Payments for acquisitions |
| $ | (434 | ) |
Capital expenditures |
| (280 | ) | |
Payments on debt |
| (1,366 | ) | |
Proceeds from borrowings |
| 1,388 |
| |
Dividends paid (including to non-controlling interests) |
| (126 | ) | |
Repurchases of common stock |
| (41 | ) | |
On December 14, 2012,11, 2015, our board of directors declared a quarterly cash dividend of $0.26$0.45 per share of common stock. This dividend was paid on January 25, 20132016 to stockholders of record at the close of business on December 31, 2012.2015.
We currently anticipate that capital expenditures for 20132016 will beapproximate $300 million.
On February 4, 2016, we announced that we entered into a definitive agreement with Pingyuan County Juyuan State-Owned Asset Management Co., Ltd. to acquire the state-owned Shandong Huanong Specialty Corn Development Co., Ltd. in Pingyuan County, Shandong Province, China. This pending acquisition is expected to support our specialty ingredients business in China and has been approved by our board of directors. The transaction represents another step in executing our strategic blueprint for growth. It enhances our capacity in the rangeAsia-Pacific region with a vertically integrated manufacturing base for specialty ingredients. The acquisition is subject to approval by the Chinese government authorities as well as to other customary closing conditions. The acquisition is not expected to have a material impact on our financial condition, results of $350 million to $400 million.operations or cash flows.
We currently expect that our available cash balances, future cash flow from operations, access to debt markets, and borrowing capacity under our credit facilities will provide us with sufficient liquidity to fund our anticipated capital expenditures, dividends and other investing and/or financing strategiesactivities for the foreseeable future.
We have not provided federal and state income taxes on accumulated undistributed earnings of certain foreign subsidiaries because these earnings are plannedconsidered to be permanently reinvested. Approximately $296 million of our cash and cash equivalents as of December 31, 2012 is held by our operations outside of the United States. We expect that available cash balances and credit facilities in the United States, along with cash generated from operations, will be sufficient to meet our operating and cash needs for the foreseeable future. It is not practicable to determine the amount of the unrecognized deferred tax liability related to the undistributed earnings. We do not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
Table Approximately $431 million of Contentsour total cash and cash equivalents and short-term investments of $440 million at December 30, 2015, was held by our operations outside of the United States. We expect that available cash balances and credit facilities in the United States, along with cash generated from operations and access to debt markets, will be sufficient to meet our operating and other cash needs 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 tradedexchange-traded derivatives or over-the-counter derivatives with investment grade counterparties. Our hedging transactions may include, but are not limited to, a variety of derivative financial instruments such as commodity futures, options and swap contracts, forward currency contracts and options, interest rate swap agreements and treasury lock agreements. See Note 56 of the notes to the consolidated financial statements for additional information.
Commodity Price Risk:
WeOur principal use derivativesof derivative financial instruments is to manage commodity price risk relatedin North America relating to anticipated purchases of corn and natural gas to be 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 eighteentwenty-four months, in order to hedge price risk associated with fluctuations in market prices. TheseEffective with the acquisition of Penford, we now produce and sell ethanol. We now enter into futures contracts to hedge price risk associated with fluctuations in market prices of ethanol. Our 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 directly hedge price risk related to co-product sales; however, we enter into hedges of soybean oil (a competing product to our corn oil) in order to mitigate the price risk of corn oil 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 December 31, 2012,2015, our accumulated other comprehensive loss account (“AOCI”) included $7$21 million of losses, net of tax of $4$10 million, related to these derivative instruments. It is anticipated that approximately $3$19 million of these losses net of tax of $2 million, will be reclassified into earnings during the next twelve months. We expect the losses to be offset by changes in the underlying commodities cost.
Foreign Currency Exchange Risk:
Due to our global operations, including many emerging markets, 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 (USD) and to transactional foreign exchange risk when transactions not denominated in the functional currency of the operating unit are revalued. We primarily use derivative financial instruments such as foreign currency forward contracts, swaps and options to selectively hedgemanage our foreign currency transactional exposures. We generally hedge these exposures up to twelve months forward.exchange risk. At December 31, 2012,2015, we had $268 million of foreign currency forward sales contracts and $167with an aggregate notional amount of $606 million ofand foreign currency forward purchase contracts with an aggregate notional amount of $287 million that hedged transactional exposures. The fair value of these derivative instruments was approximately $5is an asset of $10 million at December 31, 2012.2015.
We also have foreign currency derivative instruments that hedge certain foreign currency transactional exposures and are designated as cash-flow hedges. The amount included in AOCI relating to these hedges at December 31, 2015 was not significant.
We have significant operations in Argentina. We utilize the official exchange rate published by the Argentine government for re-measurement purposes. Due to exchange controls put in place by the Argentine government, a parallel market exists for exchanging Argentine pesos to US dollars at rates less favorable than the official rate, although the difference in rates has recently decreased significantly.
Interest Rate Risk:
We occasionally 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 December 31, 2012, weWe did not have any T-Locks outstanding.outstanding at December 31, 2015 or 2014.
We have interest rate swap agreements that effectively convert the interest raterates on our 3.26.0 percent $350$200 million senior notes due April 15, 2017, our 1.8 percent $300 million senior notes due September 25, 2017 and on $200 million of our $400 million 4.625 percent senior notes due November 1, 20152020, to a variable rate.rates. These swap agreements call for us to receive interest at athe fixed coupon rate (3.2 percent)of the respective notes and to pay interest at a variable rate based on the six-month US dollar LIBOR rate plus a spread. We have designated these interest rate swap agreements as hedges of the changes in fair value of the underlying debt obligationobligations attributable to changes in interest rates and account for them as fair valuefair-value hedges. The fair value of these interest rate swap agreements approximated $20was $7 million at December 31, 20122015 and is
reflected in the Consolidated Balance Sheet within non-currentother assets, with an offsetting amount recorded in long-term debt to adjust the carrying amount of the hedged debt obligation.obligations.
At December 31, 2012,2015, our accumulated other comprehensive loss account included $10$5 million of losses (net of tax of $6$2 million) related to settled Treasury Lock agreements. These deferred losses are being amortized to financing costs
over the terms of the senior notes with which they are associated. 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.
Contractual Obligations and Off Balance Sheet Arrangements
The table below summarizes our significant contractual obligations as of December 31, 2012.2015. Information included in the table is cross-referenced to the notes to the consolidated financial statements elsewhere in this report, as applicable.
(in millions)
|
|
|
| Payments due by period |
|
|
|
| Payments due by period |
| ||||||||||||||||||||||||||
(in millions) |
|
|
|
|
| Less |
|
|
|
|
| More |
| |||||||||||||||||||||||
Contractual |
| Note |
| Total |
| Less |
| 2 – 3 |
| 4 – 5 |
| More |
|
| Note |
| Total |
| than 1 |
| 2 – 3 |
| 4 – 5 |
| than 5 |
| ||||||||||
Long-term debt |
| 6 |
| $ | 1,700 |
| $ | — |
| $ | 350 |
| $ | 500 |
| $ | 850 |
|
| 7 |
| $ | 1,811 |
| $ | — |
| $ | 961 |
| $ | 600 |
| $ | 250 |
|
Interest on long-term debt |
| 6 |
| 764 |
| 75 |
| 150 |
| 133 |
| 406 |
|
| 7 |
| 535 |
| 69 |
| 106 |
| 87 |
| 273 |
| ||||||||||
Operating lease obligations |
| 7 |
| 185 |
| 41 |
| 63 |
| 43 |
| 38 |
|
| 8 |
| 219 |
| 44 |
| 71 |
| 48 |
| 56 |
| ||||||||||
Pension and other postretirement obligations |
| 9 |
| 223 |
| 28 |
| 5 |
| 6 |
| 184 |
|
| 10 |
| 132 |
| 9 |
| 8 |
| 9 |
| 106 |
| ||||||||||
Purchase obligations (a) |
|
|
| 1,182 |
| 250 |
| 216 |
| 180 |
| 536 |
|
|
|
| 1,042 |
| 244 |
| 264 |
| 200 |
| 334 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total |
|
|
| $ | 4,054 |
| $ | 394 |
| $ | 784 |
| $ | 862 |
| $ | 2,014 |
|
|
|
| $ | 3,739 |
| $ | 366 |
| $ | 1,410 |
| $ | 944 |
| $ | 1,019 |
|
(a) The purchase obligations relate principally to power supply and raw material sourcing agreements, including take or pay energy supply contracts, which help to provide us with an adequate power and raw material supply at certain of our facilities.
(b) The above table does not reflect unrecognized income tax benefits of $37$12 million, the timing of which is uncertain. See Note 89 of the notes to the consolidated financial statements for additional information with respect to unrecognized income tax benefits.
On January 20, 2006, Ingredion Brasil Ingredientes Industriais Ltda. (“Ingredion Brazil”) entered into a Natural Gas Purchase and Sale Agreement (the “Agreement”) with Companhia de Gas de Sao Paulo — Comgas (“Comgas”). Pursuant to the terms of the Agreement, Comgas supplies natural gas to the cogeneration facility at Ingredion Brazil’s Mogi Guacu plant. This Agreement will expire on March 31, 2023, unless extended or terminated under certain conditions specified in the Agreement. During the term of the Agreement, Ingredion Brazil is obligated to purchase from Comgas, and Comgas is obligated to provide to Ingredion Brazil, certain minimum quantities of natural gas that are specified in the Agreement. The price for such quantities of natural gas is determined pursuant to a formula set forth in the Agreement. The price may vary based upon gas commodity cost and transportation costs, which are adjusted annually; the distribution margin which is set by the Brazilian Commission of Public Energy Services; and the fluctuation of exchange rates between the US dollar and the Brazilian real. We estimate that the total minimum expenditures by Ingredion Brazil through the remaining term of the Agreement will be approximately $195 million based on current exchange rates as of December 31, 2012 and estimates regarding the application of the formula set forth in the Agreement, spread evenly over the remaining term of the Agreement. These amounts are included in the purchase obligations disclosed in the table above. See also Note 10 of the notes to the consolidated financial statements for additional information.
We currently anticipate that in 20132016 we will make cash contributions of $12$1 million and $14$4 million to our US and non-US pension plans, respectively. See Note 910 of the notes to the consolidated financial statements for further information with respect to our pension and postretirement benefit plans.
Key Financial Performance Metrics
We use certain key financial metrics to monitor our progress towards achieving our long-term strategic business objectives. These metrics relate to our return on capital employed, our financial leverage, and our management of working capital, each of which is tracked on an ongoing basis. We assess whether we are achieving an adequate return on invested capital by measuring our “Return on Capital Employed” (“ROCE”) against our cost of capital. We monitor our financial leverage by regularly reviewing our ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization (“Net Debt to Adjusted EBITDA”) and our “Net Debt to Capitalization” percentage to assure that we are properly financed. We assess our level of working capital investment by evaluating our “Operating Working Capital as a percentage of Net Sales.” We believe these metrics provide valuable managerial information to help us run our business and isare useful to investors.
The metrics below include certain information (including Capital Employed, Adjusted Operating Income, Adjusted EBITDA, Net Debt, Adjusted Current Assets, Adjusted Current Liabilities and Operating Working Capital) that is not
calculated in accordance with Generally Accepted Accounting Principles (“GAAP”). Management uses non-GAAP financial measures internally for strategic decision making,decision-making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide a more meaningful, consistent comparison of our operating results and trends for the periods presented. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with generally accepted accounting principles.
Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies. A reconciliation of non-GAAP historical financial measures to the most comparable GAAP measure is provided in the tables below.
Our calculations of these key financial metrics for 20122015 with comparisons to the prior year are as follows:
Return on Capital Employed (dollars in millions) |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| ||||
Total equity * |
| $ | 2,133 |
| $ | 2,001 |
|
| $ | 2,207 |
| $ | 2,429 |
|
Add: |
|
|
|
|
|
|
|
|
|
| ||||
Cumulative translation adjustment * |
| 306 |
| 180 |
|
| 701 |
| 489 |
| ||||
Share-based payments subject to redemption* |
| 15 |
| 9 |
|
| 22 |
| 24 |
| ||||
Total debt * |
| 1,949 |
| 1,769 |
|
| 1,821 |
| 1,803 |
| ||||
Less: |
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents * |
| (401 | ) | (302 | ) |
| (580 | ) | (574 | ) | ||||
Capital employed * (a) |
| $ | 4,002 |
| $ | 3,657 |
|
| $ | 4,171 |
| $ | 4,171 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| $ | 668 |
| $ | 671 |
|
| $ | 660 |
| $ | 581 |
|
Adjusted for: |
|
|
|
|
|
|
|
|
|
| ||||
NAFTA award |
| — |
| (58 | ) | |||||||||
Gain from change in benefit plans |
| (5 | ) | (30 | ) | |||||||||
Gain from sale of land |
| (2 | ) | — |
| |||||||||
Integration costs |
| 4 |
| 31 |
| |||||||||
Restructuring / impairment charges |
| 36 |
| 10 |
| |||||||||
Impairment/restructuring charges |
| 28 |
| 33 |
| |||||||||
Acquisition /integration costs |
| 10 |
| 2 |
| |||||||||
Charge for fair value mark-up of acquired inventory |
| 10 |
| — |
| |||||||||
Litigation settlement |
| 7 |
| — |
| |||||||||
Gain on sale of plant |
| (10 | ) | — |
| |||||||||
Adjusted operating income |
| $ | 701 |
| $ | 624 |
|
| $ | 705 |
| $ | 616 |
|
Income taxes (at effective tax rates of 30.4% in 2012 and 31.9% in 2011)** |
| (213 | ) | (199 | ) | |||||||||
Income taxes (at effective tax rates of 31.8% in 2015 and 28.3% in 2014)** |
| (224 | ) | (174 | ) | |||||||||
Adjusted operating income, net of tax (b) |
| $ | 488 |
| $ | 425 |
|
| $ | 481 |
| $ | 442 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Return on Capital Employed (b¸a) |
| 12.2 | % | 11.6 | % |
| 11.5 | % | 10.6 | % |
* Balance sheet amounts used in computing capital employed represent beginning of period balances.
**The effective income tax rate for 20122015 and 2011 exclude2014 excludes the impacts of impairment and impairment/restructuring charges, acquisition and integration related costs, a litigation settlement cost and a gain on the reversalsale of the Korea deferred tax asset valuation allowance, integration costs, and the NAFTA award.a plant. Including these charges,items, the Company’s effective income tax rate for 20122015 and 2011 were 27.82014 was 31.2 percent and 28.730.2 percent, respectively. Listed below is a schedule that reconciles our effective income tax ratesrate under US GAAP to the adjusted income tax rates.rate.
|
| Income before |
| Provision for |
| Effective Income |
|
| Income before |
| Provision for |
| Effective Income |
| ||||||||||||||||||||
(dollars in millions) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| ||||||||
As reported |
| $ | 601 |
| $ | 593 |
| $ | 167 |
| $ | 170 |
| 27.8 | % | 28.7 | % |
| $ | 599 |
| $ | 520 |
| $ | 187 |
| $ | 157 |
| 31.2 | % | 30.2 | % |
Add back (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
NAFTA award |
| — |
| (58 | ) | — |
| — |
|
|
|
|
| |||||||||||||||||||||
Integration costs |
| 4 |
| 31 |
| 2 |
| 10 |
|
|
|
|
| |||||||||||||||||||||
Reversal of Korea deferred tax asset valuation allowance |
| — |
| — |
| 13 |
| — |
|
|
|
|
| |||||||||||||||||||||
Restructuring/impairment charges |
| 36 |
| 10 |
| 13 |
| 4 |
|
|
|
|
| |||||||||||||||||||||
Impairment/restructuring charges |
| 28 |
| 33 |
| 10 |
| — |
|
|
|
|
| |||||||||||||||||||||
Acquisition/integration costs |
| 10 |
| 2 |
| 3 |
| — |
|
|
|
|
| |||||||||||||||||||||
Charge for fair value mark-up of acquired inventory |
| 10 |
| — |
| 4 |
| — |
|
|
|
|
| |||||||||||||||||||||
Litigation settlement cost |
| 7 |
| — |
| 2 |
| — |
|
|
|
|
| |||||||||||||||||||||
Gain on sale of plant |
| (10 | ) | — |
| (1 | ) | — |
|
|
|
|
| |||||||||||||||||||||
Adjusted-non-GAAP |
| $ | 641 |
| $ | 576 |
| $ | 195 |
| $ | 184 |
| 30.4 | % | 31.9 | % |
| $ | 644 |
| $ | 555 |
| $ | 205 |
| $ | 157 |
| 31.8 | % | 28.3 | % |
Net Debt to Adjusted EBITDA ratio (dollars in millions) |
| 2015 |
| 2014 |
| ||
Short-term debt |
| $ | 19 |
| $ | 23 |
|
Long-term debt |
| 1,819 |
| 1,798 |
| ||
Less: Cash and cash equivalents |
| (434 | ) | (580 | ) | ||
Short-term investments |
| (6 | ) | (34 | ) | ||
Total net debt (a) |
| $ | 1,398 |
| $ | 1,207 |
|
Net income attributable to Ingredion |
| $ | 402 |
| $ | 355 |
|
Add back: |
|
|
|
|
| ||
Impairment/restructuring charges |
| 28 |
| 33 |
| ||
Acquisition /integration costs |
| 10 |
| 2 |
| ||
Charge for fair value mark-up of acquired inventory |
| 10 |
| — |
| ||
Litigation settlement |
| 7 |
| — |
| ||
Gain on sale of plant |
| (10 | ) | — |
| ||
Net income attributable to non-controlling interest |
| 10 |
| 8 |
| ||
Provision for income taxes |
| 187 |
| 157 |
| ||
Financing costs, net of interest income of $14 and $13, respectively |
| 61 |
| 61 |
| ||
Depreciation and amortization |
| 194 |
| 195 |
| ||
Adjusted EBITDA (b) |
| $ | 899 |
| $ | 811 |
|
Net Debt to Adjusted EBITDA ratio (a ÷ b) |
| 1.6 |
| 1.5 |
|
Net Debt to Capitalization percentage (dollars in millions) 2015 2014 Short-term debt $ 19 $ 23 Long-term debt 1,819 1,798 Less: Cash and cash equivalents (434 ) (580 ) Short-term investments (6 ) (34 ) Total net debt (a) $ 1,398 $ 1,207 Deferred income tax liabilities $ 139 $ 180 Share-based payments subject to redemption 24 22 Total equity 2,180 2,207 Total capital $ 2,343 $ 2,409 Total net debt and capital (b) $ 3,741 $ 3,616 Net Debt to Capitalization percentage (a¸b) 37.4 % 33.4 %37
Net Debt to Adjusted EBITDA ratio (dollars in millions) |
| 2012 |
| 2011 |
| ||
Short-term debt |
| $ | 76 |
| $ | 148 |
|
Long-term debt |
| 1,724 |
| 1,801 |
| ||
Less: Cash and cash equivalents |
| (609 | ) | (401 | ) | ||
Short-term investments |
| (19 | ) | — |
| ||
Total net debt (a) |
| $ | 1,172 |
| $ | 1,548 |
|
Net income attributable to Ingredion |
| $ | 428 |
| $ | 416 |
|
Add back (deduct): |
|
|
|
|
| ||
NAFTA award |
| — |
| (58 | ) | ||
Gain from change in benefit plans |
| (5 | ) | (30 | ) | ||
Gain from land sale |
| (2 | ) | — |
| ||
Integration costs |
| 4 |
| 31 |
| ||
Restructuring / impairment charges (*) |
| 25 |
| — |
| ||
Net income attributable to non-controlling interest |
| 6 |
| 7 |
| ||
Provision for income taxes |
| 167 |
| 170 |
| ||
Financing costs, net of interest income of $10 and $5, respectively |
| 67 |
| 78 |
| ||
Depreciation and amortization |
| 211 |
| 211 |
| ||
Adjusted EBITDA (b) |
| $ | 901 |
| $ | 825 |
|
Net Debt to Adjusted EBITDA ratio (a ÷ b) |
| 1.3 |
| 1.9 |
|
*Excludes depreciation related to North American manufacturing optimization plan.
Net Debt to Capitalization percentage (dollars in millions) |
| 2012 |
| 2011 |
| ||
Short-term debt |
| $ | 76 |
| $ | 148 |
|
Long-term debt |
| 1,724 |
| 1,801 |
| ||
Less: Cash and cash equivalents |
| (609 | ) | (401 | ) | ||
Short-term investments |
| (19 | ) | — |
| ||
Total net debt (a) |
| $ | 1,172 |
| $ | 1,548 |
|
Deferred income tax liabilities |
| $ | 160 |
| $ | 199 |
|
Share-based payments subject to redemption |
| 19 |
| 15 |
| ||
Total equity |
| 2,459 |
| 2,133 |
| ||
Total capital |
| $ | 2,638 |
| $ | 2,347 |
|
Total net debt and capital (b) |
| $ | 3,810 |
| $ | 3,895 |
|
|
|
|
|
|
| ||
Net Debt to Capitalization percentage (a¸b) |
| 30.8 | % | 39.7 | % |
Operating Working Capital |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| ||||
Current assets |
| $ | 2,360 |
| $ | 2,102 |
|
| $ | 1,950 |
| $ | 2,144 |
|
Less: Cash and cash equivalents |
| (609 | ) | (401 | ) |
| (434 | ) | (580 | ) | ||||
Short-term investments |
| (19 | ) | — |
|
| (6 | ) | (34 | ) | ||||
Deferred income tax assets |
| (65 | ) | (71 | ) |
| — |
| (48 | ) | ||||
Adjusted current assets |
| $ | 1,667 |
| $ | 1,630 |
|
| $ | 1,510 |
| $ | 1,482 |
|
Current liabilities |
| $ | 933 |
| $ | 926 |
|
| $ | 742 |
| $ | 721 |
|
Less: Short-term debt |
| (76 | ) | (148 | ) |
| (19 | ) | (23 | ) | ||||
Deferred income tax liabilities |
| (2 | ) | — |
| |||||||||
Adjusted current liabilities |
| $ | 855 |
| $ | 778 |
|
| $ | 723 |
| $ | 698 |
|
Operating working capital (a) |
| $ | 812 |
| $ | 852 |
|
| $ | 787 |
| $ | 784 |
|
Net sales (b) |
| $ | 6,532 |
| $ | 6,219 |
|
| $ | 5,621 |
| $ | 5,668 |
|
Operating Working Capital as a percentage of Net Sales (a ¸ b) |
| 12.4 | % | 13.7 | % |
| 14.0 | % | 13.8 | % |
Commentary on Key Financial Performance Metrics:
In accordance with our long-term objectives, we set certain goalsobjectives relating to these key financial performance metrics that we strive to meet. At December 31, 2012,2015, we had achieved three of our four established targets.objectives with our net debt to capitalization percentage being the only exception. However, no assurance can be given that we will continue to meet our financial performance metric targets. See Item 1A “Risk Factors” and Item 7A “Quantitative and Qualitative Disclosures About Market Risk.” The objectives set out below reflect our current
aspirations in light of our present plans and existing circumstances. We may change these objectives from time to time in the future to address new opportunities or changing circumstances as appropriate to meet our long-term needs and those of our shareholders.
Return on Capital EmployedROCE — Our long-term goalobjective is to achieve a Return on Capital Employed (ROCE)ROCE in excess of 8.510.0 percent. In determining this performance metric, the negative cumulative translation adjustment is added back to total equity to calculate returns based on the Company’s original investment costs. Our ROCE for 2012 grew2015 improved to 12.211.5 percent from 11.610.6 percent in 2011, as2014, reflecting our adjusted operating income growth more than offset a higher capital employed base. Our effective income tax rate for 2012, excluding the impact of the reversal of the Korea deferred tax asset valuation allowance, restructuring charges and integration costs, was 30.4 percent, down from 31.9 percent in 2011, excluding the impact of the NAFTA award, integration costs and restructuring charges.2015.
Net Debt to Adjusted EBITDA ratio — Our long-term objective is to maintain a ratio of net debt to adjusted EBITDA of less than 2.25. Driven by our strong earnings growth, thisThis ratio declined to 1.3was 1.6 at December 31, 2012,2015, up slightly from 1.9 at December 31, 2011.2014, but remains below our target.
Net Debt to Capitalization percentage — Our long-term goalobjective is to maintain a Net Debt to Capitalization percentage in the range of 32 to 35 percent. At December 31, 2012,2015, our Net Debt to Capitalization percentage was 30.837.4 percent, downup from 39.733.4 percent a year ago, primarily reflecting a 24 percent reductionan increase in totalour net debt and a higherlower capital base driven by an increase in our earnings growth.accumulated other comprehensive loss mainly due to unfavorable foreign currency translation, which more than offset the impact of our 2015 net income. The increase in our net debt primarily reflects the funding of our acquisitions in 2015.
Operating Working Capital as a percentage of Net Sales — Our long-term goalobjective is to maintain operating working capital in a range of 12 to 14 percent of our net sales. At December 31, 2012,2015, the metric was 12.414.0 percent, downup slightly from the 13.713.8 percent of a year ago. The decrease in the metric reflects our sales growth and improved working capital position.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions and conditions.
We have identified below the most critical accounting policies upon which the financial statements are based and that involve our most complex and subjective decisions and assessments. Our senior management has discussed the development, selection and disclosure of these policies with members of the Audit Committee of our Board of Directors. These accounting policies are provided in the notes to the consolidated financial statements. The discussion that follows should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Long-livedBusiness Combinations
Our acquisitions in 2015 of Penford Corporation and Kerr Concentrates, Inc. were accounted for in accordance with ASC Topic 805, Business Combinations, as amended. In purchase accounting, identifiable assets acquired and liabilities assumed, are recognized at their estimated fair values at the acquisition date, and any remaining purchase price is recorded as goodwill. In determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions, particularly with respect to long-lived tangible and intangible assets. Critical estimates used in valuing tangible and intangible assets include, but are not limited to, future expected cash flows, discount rates, market prices and asset lives. Although our estimates of fair value are based upon assumptions believed to be reasonable, actual results may differ. See Note 3 of the notes to the consolidated financial statements for more information related to our acquisitions.
Property, Plant and Equipment and Definite-Lived Intangible Assets
We have substantial investments in property, plant and equipment and definite-lived intangible assets. For property, plant and equipment, we recognize the cost of depreciable assets in operations over the estimated useful life of the assets and evaluate the recoverability of these assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. For definite-lived intangible assets, we recognize the cost of these amortizable assets in operations over their estimated useful life and evaluate the recoverability of the assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.
Table The carrying value of Contentsproperty, plant and equipment and definite-lived intangible assets at December 31, 2015 was $2.0 billion and $266 million, respectively.
In assessing the recoverability of the carrying value of property, plant and equipment and definite-lived intangible assets, we may have to make projections regarding future cash flows. In developing these projections, we make a variety of important assumptions and estimates that have a significant impact on our assessments of whether the carrying values of property, plant and equipment and definite-lived intangible assets should be adjusted to reflect impairment. Among these are assumptions and estimates about the future growth and profitability of the related business unit or asset group, anticipated future economic, regulatory and political conditions in the business unit’s market, the appropriate discount rates relative to the risk profile of the unit or assets being evaluatedasset group’s market and estimates of terminal or disposal values.
In 2012,2015, we decidedannounced plans to restructure our business operations in Kenya and closeconsolidate our manufacturing plantnetwork in Brazil. Plants in Trombudo Central and Conchal will be closed and production will be moved to plants in Balsa Nova and Mogi Guaçu, respectively. The consolidation process has commenced and is expected to be complete by the country. As partend of that decision,2016. In 2015, we recorded a $20total pre-tax restructuring-related charges of $12 million restructuring charge,related to these plant closures, which included fixed asset impairment charges of $6 million to write down the carrying amount of certain assets to their estimated fair values.
As part of our ongoing strategic optimization, in the third quarter of 2012, we decided to exit our investment in Shouguang Golden Far East Modified Starch Co., Ltd (“GFEMS”), a non wholly-owned consolidated subsidiary in China. In conjunction with that decision, we recorded a $4 million impairment charge to reduce the carrying value of GFEMS to its estimated net realizable value. We also recorded a $1$10 million charge for impaired assets.
No significant impairment charges for property, plant and equipment or definite-lived intangible assets were recorded in Colombia in the third quarter of 2012.
In addition, as part of a manufacturing optimization program developed in conjunction with the acquisition of National Starch to improve profitability, we completed a plan in October 2012 that will optimize our production capabilities at certain of our North American facilities. As a result, we recorded restructuring charges to write-off certain equipment by the plan completion date. For the year ended December 31, 2012, we recorded charges of $11 million of which $10 million represented accelerated depreciation on the equipment.2014 or 2013.
Through our continual assessment to optimize our operations, we address whether there is a need for additional consolidation of manufacturing facilities or to redeploy assets to areas where we can expect to achieve a higher return on our investment. This review may result in the closing or selling of certain of our manufacturing facilities. The closing or selling of any of the facilities could have a significant negative impact on the results of operations in the year that the closing or selling of a facility occurs.
Even though it was determined that there was no additional long-lived asset impairment as of December 31, 2012,2015, the future occurrence of a potential indicator of impairment, such as a significant adverse change in the business climate that would require a change in our assumptions or strategic decisions made in response to economic or competitive conditions, could require us to perform tests of recoverability in the future. We continue to closely monitor certain assets in our South America business due to the volatility and challenging economic environment in the segment.
Goodwill and Indefinite-Lived Intangible Assets
Our methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of a number of factors, including valuations performed by third-party appraisers when appropriate. Goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed. We have identified several reporting units for which cash flows are determinable and to which goodwill may be allocated. Goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative excess fair value of each reporting unit. In addition, we have certain indefinite-lived intangible assets in the form of trade names and trademarks, the majority of which were acquired through the National Starch acquisition in 2010.trademarks. The carrying value of goodwill and indefinite-lived intangible assets at December 31, 20122015 was $557$601 million and $144 million, respectively, up from $478 million and $132 million respectively.a year ago. The increases are due to the acquisitions of Penford and Kerr during 2015.
We perform our goodwill and indefinite-lived intangible asset impairment tests annually as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
Table In testing goodwill for impairment, we first assesses qualitative factors in determining whether it is more likely than not that the fair value of Contentsa reporting unit is less than its carrying amount. After assessing the qualitative factors, if we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we do not perform the two-step impairment test. If we conclude otherwise, then we perform the first step of the two-step impairment test as described in ASC Topic 350. In the first step, the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, a second step of the impairment assessment is performed in order to determine the implied fair value of a reporting unit’s goodwill.
In performing our annual impairment testtests for goodwill, as of October 1, management mademakes certain estimates and judgments. These estimates and judgments includinginclude the identification of reporting units and the determination of fair values for eachof reporting unit,units, which management estimates using both discounted cash flow analysisanalyses and an analysis of market multiples. Significant assumptions used in the determination of fair value for each reporting unitunits include estimates for discount and long-term net sales growth rates, in addition to operating and capital expenditure requirements. We considered significant changes in discount rates for eachthe reporting unitunits based on current market interest rates and specific risk factors within each geographic region. We also evaluated qualitative factors, such as legal, regulatory, or competitive forces, in estimating the impact to the fair value of eachthe reporting unitunits noting no significant changes that would result in any reporting unit failing the Step One impairment test. Changes in assumptions concerning projected results or other underlying assumptions could have a significant impact on the fair value of the reporting units in the future. Based on the results of ourthe annual assessment, we concluded that as of October 1, 2012, we concluded2015, it was more likely than not that the fair value of allour reporting units was greater than their carrying value.value (although the $22 million of goodwill at our Brazil reporting unit continues to be closely monitored due to recent trends and increased volatility experienced in this reporting unit, such as continued slow economic growth, heightened competition and possible future negative economic growth).
In performing the qualitative annual impairment assessment for other indefinite-lived intangible assets, we considered various factors in determining if it was more likely than not that the fair value of these indefinite-lived intangible assets was greater than their carrying value. We evaluated net sales attributable to these intangible assets as compared to original projections and evaluated future projections of net sales related to these assets. In addition, we considered market and industry conditions in the reporting units in which these intangible assets are allocatedreside noting no significant changes that would result in a failed Step One.One impairment test as described in ASC Topic 350. Based on the results of this qualitative assessment as of October 1, 2012,2015, we concluded that it was more likely than not that the fair value of these indefinite-lived intangible assets was greater than their carrying value.
Income Taxes
We use the asset and liability method of accounting for income taxes. This method recognizesrecognize the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities and providesprovide a valuation allowance when deferred tax assets are not more likely than not to be realized. We have considered forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would increase the valuation allowance and make a corresponding charge to earnings in the period in which we make such determination. Likewise, if we later determine that we are more likely than not to realize the net deferred tax assets, we would reverse the applicable portion of the previously provided valuation allowance. AtWe had a valuation allowance of $12 million and $11 million at December 31, 2012, we maintain valuation allowances of $9 million against approximately $6 million of foreign operating loss carryforwards, $2 million of state loss carryforwards2015 and $1 million of US capital loss carryforward that management has determined will more likely than not expire prior to realization. During 2012, valuation allowances were reduced from $23 million to $9 million. The December 31, 2011 valuation allowance on our Korean subsidiary of $15 million was reversed because we consider it more likely than not the net deferred tax assets are realizable. In addition, we have impaired virtually all the assets of our Kenyan subsidiary and ceased conducting business in the ordinary course. Because the net deferred tax assets no longer exist, the $3 million valuation allowance reported in December 31, 2011 has also been reversed. The remaining $4 million of change consists of the capital loss and other immaterial amounts.2014, respectively.
We are regularly audited by various taxing authorities, and sometimes these audits result in proposed assessments where the ultimate resolution may result in us owing additional taxes. We establish reserves when, despite our belief that our tax return positions are appropriate and supportable under local tax law, we believe there is uncertainty with respect to certain positions and we may not succeed in realizing the tax benefit. We evaluate these unrecognized tax benefits and related reserves each quarter and adjust the reserves and the related interest and penalties in light of changing facts and circumstances regarding the probability of realizing tax benefits, such as the settlement of a tax audit or the expiration of a statute of limitations. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are reasonable. However, final determinations of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and
liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income, or cash flows in the period in which that determination is made. We believe our tax positions comply with applicable tax law and that we have adequately provided for any known tax contingencies. Our liability for unrecognized tax benefits, excluding interest and penalties at December 31, 2015 and 2014 was $12 million and $23 million, respectively.
No taxes have been provided on approximately $2.4 billion of undistributed foreign earnings that are planned to be indefinitely reinvested. If future events, including changes in tax law, material changes in estimates of cash, working capital and long-term investment requirements, necessitate that these earnings be distributed, an additional provision for income and withholding taxes may apply, which could materially affect our future effective tax rate.rate and cash flows.
Retirement Benefits
We sponsor non-contributory defined benefit plans covering substantially all employees in the United States and Canada, and certain employees in other foreign countries. We also provide healthcare and life insurance benefits for retired employees in the United States, Canada and Brazil. In order to measure the expense and obligations associated with these benefits, our management must make a variety of estimates and assumptions including discount rates, expected long-term rates of return, rate of compensation increases, employee turnover rates, retirement rates, mortality rates and other factors. We review our actuarial assumptions on an annual basis as of December 31 (or more frequently if a significant event requiring remeasurement occurs) and modify our assumptions based on current rates and trends when it is appropriate to do so. The effects of modifications are recognized immediately on the balance sheet, but are generally amortized into operating earnings over future periods, with the deferred amount recorded in accumulated other
comprehensive loss.income. We believe the assumptions utilized in recording our obligations under our plans, which are reasonable and based on our experience, market conditions, and input from our actuaries.actuaries, are reasonable. We use third-party specialists to assist management in evaluating our assumptions and estimates, as well as to appropriately measure the costs and obligations associated with our retirement benefit plans. Had we used different estimates and assumptions with respect to these plans, our retirement benefit obligations and related expense could vary from the actual amounts recorded, and such differences could be material. Additionally, adverse changes in investment returns earned on pension assets and discount rates used to calculate pension and postretirement benefit related liabilities or changes in required funding levels may have an unfavorable impact on future expense and cash flow. Net periodic pension and postretirement benefit cost for all of our plans was $24$6 million in 20122015 and $20$16 million in 2011.2014.
We determine our assumption for the discount rate used to measure year-end pension and postretirement obligations based on high quality fixed incomehigh-quality fixed-income investments that match the duration of the expected benefit payments, which has been benchmarked using a long term, high qualitylong-term, high-quality AA corporate bond index. The weighted average discount rate used to determine our obligations under US pension plans for December 31, 20122015 and 2011 were 3.602014 was 4.54 percent and 4.504.00 percent, respectively. The weighted average discount rate used to determine our obligations under non-US pension plans for December 31, 20122015 and 2011 were 4.852014 was 4.57 percent and 5.684.47 percent, respectively. The weighted average discount rate used to determine our obligations under our postretirement plans for December 31, 20122015 and 2011 were 5.442014 was 5.30 percent and 6.235.70 percent, respectively. In 2016, we are changing the method used to estimate the service and interest cost components of net periodic benefit cost for our certain of our defined benefit pension and postretirement benefit plans. Historically, we estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to use a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We have made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. This change does not affect the measurement of our total benefit obligations as the change in the service cost and interest cost is completely offset in the actuarial (gain) loss reported. We have accounted for this change as a change in estimate and, accordingly, will account for it prospectively starting in 2016. The reduction in net periodic benefit expense in 2016 associated with this change in estimate is estimated to be $4 million.
A one-percentage point decrease in the discount rates at December 31, 20122015 would have increased the accumulated benefit obligation and projected benefit obligation by the following amounts (millions):
US Pension Plans |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Accumulated benefit obligation |
| $ | 38 |
|
| $ | 44 |
|
Projected benefit obligation |
| $ | 39 |
|
| $ | 45 |
|
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|
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|
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| ||
Non-US Pension Plans |
|
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| ||
|
|
|
|
|
|
| ||
Accumulated benefit obligation |
| $ | 32 |
|
| $ | 26 |
|
Projected benefit obligation |
| $ | 42 |
|
| $ | 29 |
|
|
|
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| ||
Postretirement Plans |
|
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|
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| ||
|
|
|
|
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| ||
Accumulated benefit obligation |
| $ | 13 |
|
| $ | 7 |
|
The Company’sOur current investment policy for itsour pension plans is to balance risk and return through diversified portfolios of passively-managed equity index instruments, fixed income index securities, and short-term investments. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. The asset allocation is reviewed regularly and portfolio investments are rebalanced to the targeted allocation when considered appropriate. We haveappropriate or to raise sufficient liquidity when necessary to meet near-term benefit payment obligations. For 2015, we assumed an expected long-term rate of return on assets, which is based on the fair value of 7.25 plan assets, of 7.00
percent for US plans and 6.50approximately 6.00 percent for Canadian plans. In developing the expected long-term rate of return assumption on plan assets, which consist mainly of US and Canadian equity and debt securities, management evaluated historical rates of return achieved on plan assets and the asset allocation of the plans, input from our independent actuaries and investment consultants, and historical trends in long-term inflation rates. Projected return estimates made by such consultants are based upon broad equity and bond indices. We also maintain several funded pension plans in other international locations. The expected returns on plan assets for these plans are determined based on each plan’s investment approach and asset allocations.
Health careWe expect to change our investment approach and related asset allocation during 2016 to a liability-driven investment approach by which a higher proportion of investments would be in interest-rate sensitive investments (fixed income) under an active-management approach as compared to the current investment strategy for the US and Canada pension plans. The approach seeks to protect the current funded status of the plans from market volatility with a greater asset allocation to interest-rate sensitive assets. The greater allocation to interest-rate sensitive assets is expected to reduce volatility in plan funded status by more closely matching movements in asset values to changes in liabilities. We will account for this change as a change in estimate and will assume an expected long-term rate of return on assets of 5.75 percent for the US plans and approximately 5.00 percent for the Canadian plans in 2016. This change in expected long-term rate of return assumption is expected to result in an increase in net periodic pension cost for the US and Canada pension plans of $4 million and $2 million, respectively.
Healthcare cost trend rates are used in valuing our postretirement benefit obligations and are established based upon actual health care cost trends and consultation with actuaries and benefit providers. At December 31, 2012,2015, the health care cost trend rate assumptionassumptions for the next year for the US, Canada and Brazil plans were 7.106.90 percent, 7.356.90 percent and 7.748.66 percent, respectively.
The sensitivities of service cost and interest cost and year-end benefit obligations to changes in health carehealthcare cost trend rates (both initial and ultimate rates) for the postretirement benefit plans as of December 31, 20122015 are as follows:
|
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| |
One-percentage point increase in trend rates: |
|
|
| |
|
| $ | 0.5 million |
|
|
| $ | 6.0 million |
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| |
One-percentage point decrease in trend rates: |
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| |
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| 0.3 million |
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| 5.0 million |
|
See also Note 910 of the notes to the consolidated financial statements for more information related to our benefit plans.
New Accounting Standards
In December 2011,May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11,2014-09, Balance SheetRevenue from Contracts with Customers (Topic 210)606) that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim
periods within that reporting period. The standard will allow various transition approaches upon adoption. We are assessing the impacts of this new standard; however, the adoption of the guidance in this Update is not expected to have a material impact on our Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Disclosures about Offsetting Assets and Liabilities. Simplifying the Measurement of Inventory. This Update requires an entity to disclose both gross informationmeasure inventory at the lower of cost and net information about instruments and transactions eligible for offset inrealizable value, removing the statementconsideration of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The guidance in this Updatecurrent replacement cost. It is effective for annual periods beginning January 1, 2013,fiscal years, and interim periods within those annual periods. We are assessing the requirements of this Update and will complyfiscal years, beginning after December 15, 2016, with the guidance it
contains in the first quarter of 2013.early adoption permitted. We do not expect that the adoption of the guidance containedin this Update will have a material impact on our Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update requires, among other things, that equity investments having readily determinable fair values be measured at fair value with changes recognized in net income rather than other comprehensive income. Equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this Update. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this Update are to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. We do not expect that the adoption of the guidance in this Update will have a material impact on our Consolidated Financial Statements.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This Update does not change the current requirements for reporting net income or other comprehensive income in financial statements; however, it requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income for only amounts reclassified in their entirety in the same reporting period. This guidance is effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. We are assessing the requirements of this Update and will comply with the guidance it contains in the first quarter of 2013. We do not expect that the adoption of the guidance contained in this Update will have a material impact on our Consolidated Financial Statements.
Forward LookingForward-Looking Statements
This Form 10-K 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
Forward-looking statements include, among other things, any statements regarding the Company’s prospects or future financial condition, earnings, revenues, tax rates, capital expenditures, expenses or other financial items, any statements concerning the Company’s prospects or future operations, including management’s 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,” “assume”, “believe,” “plan,” “project,” “estimate,” “expect,” “intend,” “continue,” “pro forma,” “forecast”“forecast,” “outlook” 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 circumstances or 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, including, particularly, continuation or worsening of the current economic, currency and political conditions in South America and economic conditions in Europe, and their impact on our sales volumes and pricing of our products, our 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 buy our raw materials or manufacture 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; availability of raw materials, including potato starch, tapioca and the specific varieties of corn upon which our products are based; energy issues in Pakistan; boiler reliability; our ability to effectively integrate and operate acquired businesses;businesses, including the Penford business; our ability to achieve budgets and to realize expected synergies; our ability to complete planned maintenance and investment projects successfully and on budget; labor disputes; genetic and biotechnology issues; changing consumption preferences including those relating to high fructose corn syrup; increased competitive and/or customer pressure in the starch processingcorn-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 Item 1A-Risk Factors above and subsequent reports on Forms 10-Q or 8-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Exposure. We are exposed to interest rate risk on our variable-rate debt and price risk on our fixed-rate date.debt. As of December 31, 2012,2015, approximately 7636 percent or $1.4 billion$651 million of our borrowings are fixed ratefixed-rate debt and the remaining 2464 percent or approximately $0.4$1.18 billion of our debt is subject to changes in short-term rates, which could affect our interest costs. We assess market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential change in earnings, fair values and cash flows based on a hypothetical 1 percentage point change in interest rates at December 31, 2012.2015. A hypothetical increase of 1 percentage point in the weighted average floating interest rate would increase our annual interest expense by approximately $4$12 million. See also Note 67 of the notes to the consolidated financial statements entitled “Financing Arrangements” for further information.
At December 31, 20122015 and 2011,2014, the carrying and fair values of long-term debt were as follows:
|
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| ||||||||||||||||
(in millions) |
| Carrying |
| Fair |
| Carrying |
| Fair |
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||||||
|
|
|
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|
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| ||||||||
4.625% senior notes, due November 1, 2020 |
| $ | 399 |
| $ | 448 |
| $ | 399 |
| $ | 422 |
|
| $ | 398 |
| $ | 420 |
| $ | 397 |
| $ | 427 |
|
3.2% senior notes, due November 1, 2015 |
| 350 |
| 368 |
| 350 |
| 360 |
| |||||||||||||||||
1.8% senior notes, due September 25, 2017 |
| 298 |
| 300 |
| — |
| — |
|
| 299 |
| 300 |
| 298 |
| 302 |
| ||||||||
6.625% senior notes, due April 15, 2037 |
| 257 |
| 315 |
| 257 |
| 297 |
|
| 254 |
| 302 |
| 254 |
| 312 |
| ||||||||
6.0% senior notes, due April 15, 2017 |
| 200 |
| 227 |
| 200 |
| 222 |
|
| 200 |
| 211 |
| 199 |
| 220 |
| ||||||||
5.62% senior notes, due March 25, 2020 |
| 200 |
| 236 |
| 200 |
| 225 |
|
| 200 |
| 218 |
| 200 |
| 222 |
| ||||||||
US revolving credit facility, due October 22, 2017 |
| — |
| — |
| 376 |
| 376 |
| |||||||||||||||||
Fair value adjustment related to hedged fixed rate debt |
| 20 |
| 20 |
| 19 |
| 19 |
| |||||||||||||||||
3.2% senior notes, repaid November 1, 2015 |
| — |
| — |
| 350 |
| 356 |
| |||||||||||||||||
U.S. revolving credit facility due October 22, 2017 |
| 111 |
| 111 |
| 87 |
| 87 |
| |||||||||||||||||
Term loan due January 10, 2017 |
| 350 |
| 350 |
| — |
| — |
| |||||||||||||||||
Fair value adjustment related to hedged fixed rate debt instruments |
| 7 |
| — |
| 13 |
| — |
| |||||||||||||||||
Total long-term debt |
| $ | 1,724 |
| $ | 1,914 |
| $ | 1,801 |
| $ | 1,921 |
|
| $ | 1,819 |
| $ | 1,912 |
| $ | 1,798 |
| $ | 1,926 |
|
A hypothetical change of 1 percentage point in interest rates would change the fair value of our fixed rate debt at December 31, 20122015 by approximately $119$71 million. Since we have no current plans to repurchase our outstanding fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt is not expected to have an affecta significant effect on our consolidated financial statements.
In anticipation ofWe have interest rate swap agreements that effectively convert the interest rates on our 2010 issuance of the $3506.0 percent $200 million 3.2 percent senior notes due November 1, 2015 (the “2015 Notes”)April 15, 2017, our 1.8 percent $300 million senior notes due September 25, 2017 and theon $200 million of our $400 million 4.625 percent senior notes due November 1, 2020, (the “2020 Notes”), 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 into 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.
On March 25, 2011, we entered into interest rate swap agreements that effectively convert the interest rate on our 2015 Notes to a variable rate.rates. These swap agreements call for us to receive interest at athe fixed coupon rate (3.2 percent)of the respective notes and to pay interest at a variable rate based on the six-monthsix-
month US dollar LIBOR rate plus a spread. We have designated these interest rate swap agreements as hedges of the changes in fair value of the underlying debt obligationobligations attributable to changes in interest rates and account for them as fair valuefair-value hedges. The fair value of these interest rate swap agreements approximated $20$7 million at December 31, 20122015 and is reflected in the Consolidated Balance SheetSheets within non-currentother assets, with an offsetting amount recorded in long-term debt to adjust the carrying amount of the hedged debt obligation.obligations.
Raw Material, Energy and Energy Costs.Other Commodity Exposure. Our finished products are made primarily from corn. In North America, we sell a large portion of finished products at firm prices established in supply contracts typically lasting for periods of up to one year. In order to minimize the effect of volatility in the cost of corn related to these firm-priced supply contracts, we enter into corn futures contracts or take other hedging positions in the corn futures market. These contracts typically
mature within one year. At expiration, we settle the derivative contracts at a net amount equal to the difference between the then-current price of corn and the futures contract price. While these hedging instruments are subject to fluctuations in value, changes in the value of the underlying exposures we are hedging generally offset such fluctuations. While the corn futures contracts or other hedging positions are intended to minimize the volatility of corn costs on operating profits, occasionally the hedging activity can result in losses, some of which may be material. Outside of North America, sales of finished products under long-term, firm-priced supply contracts are not material.
Energy costs represent approximately 1011 percent of our operating costs. The primary use of energy is to create steam in the production process and to dry product. We consume coal, natural gas, electricity, wood and fuel oil to generate energy. The market prices for these commodities vary depending on supply and demand, world economies and other factors. We purchase these commodities based on our anticipated usage and the future outlook for these costs. We cannot assure that we will be able to purchase these commodities at prices that we can adequately pass on to customers to sustain or increase profitability. We use derivative financial instruments, such as over-the-counter natural gas swaps, to hedge portions of our natural gas costs generally over the following twelve to twenty-four months, primarily in our North American operations.
Our commodity price hedging instruments generally relate to contracted firm-priced business. At December 31, 2012,2015, we had outstanding futures and option contracts that hedged the forecasted purchase of approximately 97120 million bushels of forecasted corn purchases. Also at December 31, 2012,and 28 million pounds of soybean oil. We are unable to directly hedge price risk related to co-product sales; however, we occasionally enter into hedges of soybean oil (a competing product to corn oil) in order to mitigate the price risk of corn oil sales. We also had outstanding swap and option contracts that hedged the forecasted purchase of approximately 1819 million mmbtu’s of forecasted natural gas purchases.at December 31, 2015. Additionally at December 31, 2015, we had outstanding ethanol futures contracts that hedged the forecasted sale of approximately 3 million gallons of ethanol. Based on our overall commodity hedge position at December 31, 2012,2015, a hypothetical 10 percent decline in market prices applied to the fair value of the instruments would result in a charge to other comprehensive income of approximately $44$30 million, net of income tax benefit. It should be noted that any change in the fair value of the contracts, real or hypothetical, would be substantially offset by an inverse change in the value of the underlying hedged item.
Foreign Currencies. 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 USDUS dollars and to transactional foreign exchange risk when transactions not denominated in the functional currency of the operating unit are revalued.
We selectively use derivative instruments such as forward contracts, currency swaps and options to manage transactional foreign exchange risk. Based on our overall foreign currency transactional exposure at December 31, 2012,2015, we estimate that a hypothetical 10 percent decline in the value of the USD would have resulted in a transactional foreign exchange gain of approximatelyless than $1 million. At December 31, 2012,2015, our accumulated other comprehensive loss account included in the equity section of our consolidated balance sheet includes a cumulative translation loss of $335 million.approximately $1.0 billion. The aggregate net assets of our foreign subsidiaries where the local currency is the functional currency approximated $1.5$1.3 billion at December 31, 2012.2015. A hypothetical 10 percent decline in the value of the US dollar relative to foreign currencies would have resulted in a reduction to our cumulative translation loss and a credit to other comprehensive income of approximately $170$145 million.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Ingredion Incorporated
Index to Consolidated Financial Statements and Supplementary Data
Ingredion Incorporated |
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ingredion Incorporated:
We have audited the accompanying consolidated balance sheets of Ingredion Incorporated and subsidiaries (formerly known as Corn Products International, Inc.) (the Company) as of December 31, 20122015 and 2011,2014, and the related consolidated statements of income, comprehensive income, equity and redeemable equity, and cash flows for each of the years in the three-year period ended December 31, 2012.2015. We also have audited the Company’s internal control over financial reporting as of December 31, 2012,2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ingredion Incorporated and subsidiaries as of December 31, 20122015 and 2011,2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012,2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2012,2015, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
Chicago, Illinois
February 27, 2013The Company acquired Kerr Concentrates, Inc. during 2015, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015, Kerr Concentrates, Inc.’s internal control over financial reporting associated with total assets of $107 million and total net sales of $23 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2015. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Kerr Concentrates, Inc.
/s/ KPMG LLP |
|
Chicago, Illinois | |
February 19, 2016 |
INGREDION INCORPORATED
Consolidated Statements of Income
Years Ended December 31, |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| ||||||
Net sales before shipping and handling costs |
| $ | 6,868 |
| $ | 6,544 |
| $ | 4,632 |
|
| $ | 5,958 |
| $ | 5,998 |
| $ | 6,653 |
|
Less — shipping and handling costs |
| 336 |
| 325 |
| 265 |
| |||||||||||||
Less - shipping and handling costs |
| 337 |
| 330 |
| 325 |
| |||||||||||||
Net sales |
| 6,532 |
| 6,219 |
| 4,367 |
|
| 5,621 |
| 5,668 |
| 6,328 |
| ||||||
Cost of sales |
| 5,294 |
| 5,093 |
| 3,643 |
|
| 4,379 |
| 4,553 |
| 5,197 |
| ||||||
|
|
|
|
|
|
|
| |||||||||||||
Gross profit |
| 1,238 |
| 1,126 |
| 724 |
|
| 1,242 |
| 1,115 |
| 1,131 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Selling, general and administrative expenses |
| 556 |
| 543 |
| 370 |
|
| 555 |
| 525 |
| 534 |
| ||||||
Other (income)-net |
| (22 | ) | (98 | ) | (10 | ) | |||||||||||||
Restructuring/impairment charges |
| 36 |
| 10 |
| 25 |
| |||||||||||||
Other (income) - net |
| (1 | ) | (24 | ) | (16 | ) | |||||||||||||
Impairment/restructuring charges |
| 28 |
| 33 |
| — |
| |||||||||||||
|
| 570 |
| 455 |
| 385 |
|
| 582 |
| 534 |
| 518 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| 668 |
| 671 |
| 339 |
|
| 660 |
| 581 |
| 613 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financing costs-net |
| 67 |
| 78 |
| 64 |
|
| 61 |
| 61 |
| 66 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income before income taxes |
| 601 |
| 593 |
| 275 |
|
| 599 |
| 520 |
| 547 |
| ||||||
Provision for income taxes |
| 167 |
| 170 |
| 99 |
|
| 187 |
| 157 |
| 144 |
| ||||||
Net income |
| 434 |
| 423 |
| 176 |
|
| 412 |
| 363 |
| 403 |
| ||||||
Less: Net income attributable to non-controlling interests |
| 6 |
| 7 |
| 7 |
| |||||||||||||
Less - Net income attributable to non-controlling interests |
| 10 |
| 8 |
| 7 |
| |||||||||||||
Net income attributable to Ingredion |
| $ | 428 |
| $ | 416 |
| $ | 169 |
|
| $ | 402 |
| $ | 355 |
| $ | 396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| 76.5 |
| 76.4 |
| 75.6 |
|
| 71.6 |
| 73.6 |
| 77.0 |
| ||||||
Diluted |
| 78.2 |
| 78.2 |
| 76.8 |
|
| 73.0 |
| 74.9 |
| 78.3 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per common share of Ingredion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| $ | 5.59 |
| $ | 5.44 |
| $ | 2.24 |
|
| $ | 5.62 |
| $ | 4.82 |
| $ | 5.14 |
|
Diluted |
| 5.47 |
| 5.32 |
| 2.20 |
|
| 5.51 |
| 4.74 |
| 5.05 |
|
See notes to the consolidated financial statements.
INGREDION INCORPORATED
Consolidated Statements of Comprehensive Income
Years ended December 31, |
| 2012 |
| 2011 |
| 2010 |
| |||||||||||||
Years ended December 31, |
|
|
|
|
|
|
| |||||||||||||
(in millions) |
| 2015 |
| 2014 |
| 2013 |
| |||||||||||||
Net income |
| $ | 434 |
| $ | 423 |
| $ | 176 |
|
| $ | 412 |
| $ | 363 |
| $ | 403 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gains on cash flow hedges, net of income tax effect of $25, $19 and $12, respectively |
| 43 |
| 29 |
| 20 |
| |||||||||||||
Reclassification adjustment for (gains) losses on cash flow hedges included in net income, net of income tax effect of $15, $61 and $34, respectively |
| (25 | ) | (105 | ) | 54 |
| |||||||||||||
Actuarial loss on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $27, $4 and $4, respectively |
| (56 | ) | (10 | ) | (7 | ) | |||||||||||||
Losses (gains) related to pension and other postretirement obligations reclassified to earnings, net of income tax effect of $2, $5 and $2, respectively |
| 5 |
| (11 | ) | 3 |
| |||||||||||||
Losses on cash-flow hedges, net of income tax effect of $19, $12 and $29, respectively |
| (42 | ) | (29 | ) | (64 | ) | |||||||||||||
Reclassification adjustment for losses on cash-flow hedges included in net income, net of income tax effect of $14, $23 and $19, respectively |
| 32 |
| 50 |
| 41 |
| |||||||||||||
Actuarial gains (losses) on pension and other postretirement obligations, settlements, curtailments and plan amendments, net of income tax effect of $5, $5 and $32, respectively |
| 13 |
| (12 | ) | 63 |
| |||||||||||||
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax effect of $-, $1 and $3, respectively |
| 1 |
| 4 |
| 5 |
| |||||||||||||
Unrealized gain on investment, net of income tax effect |
| — |
| — |
| 1 |
| |||||||||||||
Currency translation adjustment |
| (29 | ) | (126 | ) | 48 |
|
| (324 | ) | (212 | ) | (154 | ) | ||||||
Comprehensive income |
| $ | 372 |
| $ | 200 |
| $ | 294 |
|
| $ | 92 |
| $ | 164 |
| $ | 295 |
|
Less: Comprehensive income attributable to non-controlling interests |
| 6 |
| 7 |
| 7 |
|
| 10 |
| 8 |
| 7 |
| ||||||
Comprehensive income attributable to Ingredion |
| $ | 366 |
| $ | 193 |
| $ | 287 |
|
| $ | 82 |
| $ | 156 |
| $ | 288 |
|
See notes to the consolidated financial statements.
INGREDION INCORPORATED
As of December 31, |
| 2012 |
| 2011 |
| |||||||||
As of December 31, |
|
|
|
|
| |||||||||
(in millions, except share and per share amounts) |
| 2015 |
| 2014 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
|
| ||||
Current assets |
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 609 |
| $ | 401 |
|
| $ | 434 |
| $ | 580 |
|
Short-term investments |
| 19 |
| — |
|
| 6 |
| 34 |
| ||||
Accounts receivable — net |
| 814 |
| 837 |
|
| 775 |
| 762 |
| ||||
Inventories |
| 834 |
| 769 |
|
| 715 |
| 699 |
| ||||
Prepaid expenses |
| 19 |
| 24 |
|
| 20 |
| 21 |
| ||||
Deferred income tax assets |
| 65 |
| 71 |
| |||||||||
Deferred income taxes |
| — |
| 48 |
| |||||||||
Total current assets |
| 2,360 |
| 2,102 |
|
| 1,950 |
| 2,144 |
| ||||
Property, plant and equipment, at cost |
|
|
|
|
|
|
|
|
|
| ||||
Land |
| 175 |
| 172 |
|
| 171 |
| 170 |
| ||||
Buildings |
| 698 |
| 656 |
|
| 643 |
| 695 |
| ||||
Machinery and equipment |
| 4,035 |
| 3,882 |
|
| 3,817 |
| 4,021 |
| ||||
|
| 4,908 |
| 4,710 |
|
| 4,631 |
| 4,886 |
| ||||
Less: accumulated depreciation |
| (2,715 | ) | (2,554 | ) |
| (2,642 | ) | (2,813 | ) | ||||
|
| 2,193 |
| 2,156 |
| |||||||||
Property, plant and equipment, net |
| 1,989 |
| 2,073 |
| |||||||||
Goodwill |
| 557 |
| 562 |
|
| 601 |
| 478 |
| ||||
Other intangible assets (less accumulated amortization of $35 and $20, respectively) |
| 329 |
| 347 |
| |||||||||
Other intangible assets (less accumulated amortization of $82 and $62, respectively) |
| 410 |
| 290 |
| |||||||||
Deferred income tax assets |
| 21 |
| 19 |
|
| 7 |
| 4 |
| ||||
Investments |
| 10 |
| 10 |
| |||||||||
Other assets |
| 122 |
| 121 |
|
| 117 |
| 96 |
| ||||
Total assets |
| $ | 5,592 |
| $ | 5,317 |
|
| $ | 5,074 |
| $ | 5,085 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and equity |
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities |
|
|
|
|
|
|
|
|
|
| ||||
Short-term borrowings and current portion of long-term debt |
| $ | 76 |
| $ | 148 |
| |||||||
Deferred income taxes |
| 2 |
| — |
| |||||||||
Short-term borrowings |
| $ | 19 |
| $ | 23 |
| |||||||
Accounts payable |
| 590 |
| 529 |
|
| 423 |
| 430 |
| ||||
Accrued liabilities |
| 265 |
| 249 |
|
| 300 |
| 268 |
| ||||
Total current liabilities |
| 933 |
| 926 |
|
| 742 |
| 721 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Non-current liabilities |
| 297 |
| 243 |
|
| 170 |
| 157 |
| ||||
Long-term debt |
| 1,724 |
| 1,801 |
|
| 1,819 |
| 1,798 |
| ||||
Deferred income taxes |
| 160 |
| 199 |
|
| 139 |
| 180 |
| ||||
Share-based payments subject to redemption |
| 19 |
| 15 |
|
| 24 |
| 22 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Ingredion 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, 77,141,691 and 76,821,553 issued at December 31, 2012 and 2011, respectively |
| 1 |
| 1 |
| |||||||||
Common stock — authorized 200,000,000 shares-$0.01 par value, 77,810,875 issued at December 31, 2015 and 2014, respectively |
| 1 |
| 1 |
| |||||||||
Additional paid-in capital |
| 1,148 |
| 1,146 |
|
| 1,160 |
| 1,164 |
| ||||
Less: Treasury stock (common stock; 109,768 and 938,666 shares at December 31, 2012 and 2011, respectively) at cost |
| (6 | ) | (42 | ) | |||||||||
Less - Treasury stock (common stock: 6,194,510 and 6,488,605 shares at December 31, 2015 and 2014, respectively) at cost |
| (467 | ) | (481 | ) | |||||||||
Accumulated other comprehensive loss |
| (475 | ) | (413 | ) |
| (1,102 | ) | (782 | ) | ||||
Retained earnings |
| 1,769 |
| 1,412 |
|
| 2,552 |
| 2,275 |
| ||||
Total Ingredion stockholders’ equity |
| 2,437 |
| 2,104 |
|
| 2,144 |
| 2,177 |
| ||||
Non-controlling interests |
| 22 |
| 29 |
|
| 36 |
| 30 |
| ||||
Total equity |
| 2,459 |
| 2,133 |
|
| 2,180 |
| 2,207 |
| ||||
Total liabilities and equity |
| $ | 5,592 |
| $ | 5,317 |
|
| $ | 5,074 |
| $ | 5,085 |
|
See notes to the consolidated financial statements.
INGREDION INCORPORATED
Consolidated Statements of Equity and Redeemable Equity
|
| Equity |
|
|
|
|
|
| Equity |
|
|
| |||||||||||||||||||||||||||||||||||
(in millions) |
| Common |
| Additional |
| Treasury |
| Accumulated Other |
| Retained |
| Non-Controlling |
| Redeemable |
| Share-based |
|
| Common |
| Additional |
| Treasury |
| Accumulated Other |
| Retained |
| Non-Controlling |
| Share-based |
| |||||||||||||||
Balance, December 31, 2009 |
| $ | 1 |
| $ | 1, 082 |
| $ | (13 | ) | $ | (308 | ) | $ | 919 |
| $ | 23 |
| $ | 14 |
| $ | 8 |
| ||||||||||||||||||||||
Balance, December 31, 2012 |
| $ | 1 |
| $ | 1, 148 |
| $ | (6 | ) | $ | (475 | ) | $ | 1,769 |
| $ | 22 |
| $ | 19 |
| |||||||||||||||||||||||||
Net income attributable to Ingredion |
|
|
|
|
|
|
|
|
| 169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 396 |
|
|
|
|
| |||||||||||||||
Net income attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7 |
|
|
| |||||||||||||||
Dividends declared |
|
|
|
|
|
|
|
|
| (42 | ) | (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (120 | ) | (4 | ) |
|
| |||||||||||||||
Gains on cash flow hedges, net of income tax effect of $12 |
|
|
|
|
|
|
| 20 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Amount of losses on cash flow hedges reclassified to earnings, net of income tax effect of $34 |
|
|
|
|
|
|
| 54 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Losses on cash-flow hedges, net of income tax effect of $29 |
|
|
|
|
|
|
| (64 | ) |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $19 |
|
|
|
|
|
|
| 41 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Repurchases of common stock |
|
|
|
|
| (5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (228 | ) |
|
|
|
|
|
|
|
| |||||||||||||||
Issuance of common stock on exercise of stock options |
|
|
| 5 |
| 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8 |
| 6 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Stock option expense |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Other share-based compensation |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
| (1 | ) | 3 |
|
|
|
|
|
|
| 5 |
| |||||||||||||||
Excess tax benefit on share-based compensation |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Currency translation adjustment |
|
|
|
|
|
|
| 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (154 | ) |
|
|
|
|
|
| |||||||||||||||
Expiration of put option |
|
|
| 14 |
|
|
|
|
|
|
|
|
| (14 | ) |
|
| ||||||||||||||||||||||||||||||
Actuarial loss on postretirement obligations, settlements and plan amendments, net of income tax of $4 |
|
|
|
|
|
|
| (7 | ) |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Losses related to postretirement obligations reclassified to earnings, net of income tax of $2 |
|
|
|
|
|
|
| 3 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Other |
|
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
|
|
| ||||||||||||||||||||||||||||||
Balance, December 31, 2010 |
| $ | 1 |
| $ | 1, 119 |
| $ | (1 | ) | $ | (190 | ) | $ | 1,046 |
| $ | 26 |
| $ | — |
| $ | 9 |
| ||||||||||||||||||||||
Actuarial gains on pension and postretirement obligations, settlements and plan amendments, net of income tax effect of $32 |
|
|
|
|
|
|
| 63 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Losses on pension and postretirement obligations reclassified to earnings, net of income tax effect of $3 |
|
|
|
|
|
|
| 5 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Unrealized gain on investment, net of income tax effect |
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance, December 31, 2013 |
| $ | 1 |
| $ | 1, 166 |
| $ | (225 | ) | $ | (583 | ) | $ | 2,045 |
| $ | 25 |
| $ | 24 |
| |||||||||||||||||||||||||
Net income attributable to Ingredion |
|
|
|
|
|
|
|
|
| 416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 355 |
|
|
|
|
| |||||||||||||||
Net income attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8 |
|
|
| |||||||||||||||
Dividends declared |
|
|
|
|
|
|
|
|
| (50 | ) | (4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (125 | ) | (3 | ) |
|
| |||||||||||||||
Gains on cash flow hedges, net of income tax effect of $19 |
|
|
|
|
|
|
| 29 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Amount of gains on cash flow hedges reclassified to earnings, net of income tax effect of $61 |
|
|
|
|
|
|
| (105 | ) |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Losses on cash-flow hedges, net of income tax effect of $12 |
|
|
|
|
|
|
| (29 | ) |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $23 |
|
|
|
|
|
|
| 50 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Repurchases of common stock |
|
|
|
|
| (48 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (3 | ) | (301 | ) |
|
|
|
|
|
|
|
| |||||||||||||||
Issuance of common stock on exercise of stock options |
|
|
| 11 |
| 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (17 | ) | 37 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Stock option expense |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Other share-based compensation |
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
| 5 |
| 8 |
|
|
|
|
|
|
| (2 | ) | |||||||||||||||
Excess tax benefit on share-based compensation |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Currency translation adjustment |
|
|
|
|
|
|
| (126 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (212 | ) |
|
|
|
|
|
| |||||||||||||||
Actuarial loss on postretirement obligations, settlements and plan amendments, net of income tax of $4 |
|
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Gains related to postretirement obligations reclassified to earnings, net of income tax of $5 |
|
|
|
|
|
|
| (11 | ) |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance, December 31, 2011 |
| $ | 1 |
| $ | 1,146 |
| $ | (42 | ) | $ | (413 | ) | $ | 1,412 |
| $ | 29 |
| $ | — |
| $ | 15 |
| ||||||||||||||||||||||
Actuarial losses on pension and postretirement obligations, settlements and plan amendments, net of income tax effect of $5 |
|
|
|
|
|
|
| (12 | ) |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Losses on pension and postretirement obligations reclassified to earnings, net of income tax effect of $1 |
|
|
|
|
|
|
| 4 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance, December 31, 2014 |
| $ | 1 |
| $ | 1, 164 |
| $ | (481 | ) | $ | (782 | ) | $ | 2,275 |
| $ | 30 |
| $ | 22 |
| |||||||||||||||||||||||||
Net income attributable to Ingredion |
|
|
|
|
|
|
|
|
| 428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 402 |
|
|
|
|
| |||||||||||||||
Net income attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10 |
|
|
| |||||||||||||||
Dividends declared |
|
|
|
|
|
|
|
|
| (71 | ) | (4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (125 | ) | (4 | ) |
|
| |||||||||||||||
Gains on cash flow hedges, net of income tax effect of $25 |
|
|
|
|
|
|
| 43 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Amount of gains on cash flow hedges reclassified to earnings, net of income tax effect of $15 |
|
|
|
|
|
|
| (25 | ) |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Losses on cash-flow hedges, net of income tax effect of $19 |
|
|
|
|
|
|
| (42 | ) |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $14 |
|
|
|
|
|
|
| 32 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Repurchases of common stock |
|
|
|
|
| (18 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (7 | ) | (34 | ) |
|
|
|
|
|
|
|
| |||||||||||||||
Issuance of common stock on exercise of stock options |
|
|
| (13 | ) | 47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (14 | ) | 35 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Stock option expense |
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Other share-based compensation |
|
|
| (3 | ) | 7 |
|
|
|
|
|
|
|
|
| 4 |
|
|
|
| 2 |
| 13 |
|
|
|
|
|
|
| 2 |
| |||||||||||||||
Excess tax benefit on share-based compensation |
|
|
| 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Currency translation adjustment |
|
|
|
|
|
|
| (29 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (324 | ) |
|
|
|
|
|
| |||||||||||||||
Sale of non-controlling interests |
|
|
|
|
|
|
|
|
|
|
| (7 | ) |
|
|
|
| ||||||||||||||||||||||||||||||
Actuarial loss on postretirement obligations, settlements and plan amendments, net of income tax of $27 |
|
|
|
|
|
|
| (56 | ) |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Losses related to postretirement obligations reclassified to earnings, net of income tax of $2 |
|
|
|
|
|
|
| 5 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Other |
|
|
|
|
|
|
|
|
|
|
| (2 | ) |
|
|
|
| ||||||||||||||||||||||||||||||
Balance, December 31, 2012 |
| $ | 1 |
| $ | 1, 148 |
| $ | (6 | ) | $ | (475 | ) | $ | 1,769 |
| $ | 22 |
| $ | — |
| $ | 19 |
| ||||||||||||||||||||||
Actuarial gains on pension and postretirement obligations, settlements and plan amendments, net of income tax effect of $5 |
|
|
|
|
|
|
| 13 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Losses on pension and postretirement obligations reclassified to earnings, net of income tax effect |
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance, December 31, 2015 |
| $ | 1 |
| $ | 1,160 |
| $ | (467 | ) | $ | (1,102 | ) | $ | 2,552 |
| $ | 36 |
| $ | 24 |
|
See notes to the consolidated financial statements
INGREDION INCORPORATED
Consolidated Statements of Cash Flows
Years ended December 31, |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| ||||||
Cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 434 |
| $ | 423 |
| $ | 176 |
|
| $ | 412 |
| $ | 363 |
| $ | 403 |
|
Non-cash charges (credits) to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| |||||||||||||
Depreciation and amortization |
| 211 |
| 211 |
| 155 |
|
| 194 |
| 195 |
| 194 |
| ||||||
Deferred income taxes |
| (3 | ) | 18 |
| (30 | ) |
| (6 | ) | (11 | ) | 30 |
| ||||||
Write-off of impaired assets |
| 24 |
| — |
| 19 |
|
| 10 |
| 33 |
| — |
| ||||||
Gain from change in benefit plans |
| (5 | ) | (30 | ) | — |
| |||||||||||||
Gain on sale of plant |
| (10 | ) | — |
| — |
| |||||||||||||
Charge for fair value mark-up of acquired inventory |
| — |
| — |
| 27 |
|
| 10 |
| — |
| — |
| ||||||
Bridge loan financing cost charge |
| — |
| — |
| 20 |
| |||||||||||||
Other |
| 96 |
| 68 |
| 74 |
| |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Changes in working capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable and prepaid expenses |
| 22 |
| (134 | ) | (45 | ) |
| (29 | ) | (15 | ) | (69 | ) | ||||||
Inventories |
| (69 | ) | (149 | ) | (51 | ) |
| 9 |
| (6 | ) | 76 |
| ||||||
Accounts payable and accrued liabilities |
| 80 |
| 27 |
| 123 |
|
| 30 |
| 66 |
| (78 | ) | ||||||
Decrease (increase) in margin accounts |
| — |
| (78 | ) | 18 |
| |||||||||||||
Margin accounts |
| (34 | ) | 39 |
| 14 |
| |||||||||||||
Other |
| 38 |
| 12 |
| (18 | ) |
| 4 |
| (1 | ) | (25 | ) | ||||||
Cash provided by operating activities |
| 732 |
| 300 |
| 394 |
|
| 686 |
| 731 |
| 619 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash used for investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Payments for acquisitions, net of cash acquired of $16 |
| (434 | ) | — |
| — |
| |||||||||||||
Capital expenditures |
| (313 | ) | (263 | ) | (159 | ) |
| (280 | ) | (276 | ) | (298 | ) | ||||||
Short-term investment |
| (18 | ) | — |
| — |
| |||||||||||||
Short-term investments |
| 27 |
| (34 | ) | 19 |
| |||||||||||||
Proceeds from disposal of plants and properties |
| 9 |
| 3 |
| 3 |
|
| 38 |
| 5 |
| 3 |
| ||||||
Payments for acquisitions, net of cash acquired of $82 in 2010 |
| — |
| (15 | ) | (1,272 | ) | |||||||||||||
Proceeds from sale of investment |
| — |
| 11 |
| — |
| |||||||||||||
Other |
| — |
| 2 |
| — |
|
| — |
| — |
| 2 |
| ||||||
Cash used for investing activities |
| (322 | ) | (273 | ) | (1,428 | ) |
| (649 | ) | (294 | ) | (274 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash provided by (used for) financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Payments on debt |
| (462 | ) | (22 | ) | (77 | ) |
| (1,366 | ) | (213 | ) | (53 | ) | ||||||
Proceeds from borrowings |
| 312 |
| 182 |
| 1,289 |
|
| 1,388 |
| 231 |
| 21 |
| ||||||
Bridge loan financing costs |
| — |
| — |
| (20 | ) | |||||||||||||
Debt issuance costs |
| (5 | ) | — |
| (15 | ) | |||||||||||||
Dividends paid (including to non-controlling interests) |
| (69 | ) | (50 | ) | (45 | ) |
| (126 | ) | (128 | ) | (112 | ) | ||||||
Repurchases of common stock |
| (18 | ) | (48 | ) | (5 | ) |
| (41 | ) | (304 | ) | (228 | ) | ||||||
Issuance of common stock |
| 34 |
| 18 |
| 22 |
|
| 21 |
| 20 |
| 14 |
| ||||||
Excess tax benefit on share-based compensation |
| 11 |
| 6 |
| 6 |
|
| 8 |
| 6 |
| 5 |
| ||||||
Cash provided by (used for) financing activities |
| (197 | ) | 86 |
| 1,155 |
| |||||||||||||
Cash used for financing activities |
| (116 | ) | (388 | ) | (353 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Effects of foreign exchange rate changes on cash |
| (5 | ) | (14 | ) | 6 |
|
| (67 | ) | (43 | ) | (27 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Increase in cash and cash equivalents |
| 208 |
| 99 |
| 127 |
| |||||||||||||
Increase (decrease) in cash and cash equivalents |
| (146 | ) | 6 |
| (35 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents, beginning of period |
| 401 |
| 302 |
| 175 |
|
| 580 |
| 574 |
| 609 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents, end of period |
| $ | 609 |
| $ | 401 |
| $ | 302 |
|
| $ | 434 |
| $ | 580 |
| $ | 574 |
|
See notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- Description of the Business
Ingredion Incorporated (formerly Corn Products International, Inc.) (“the Company”) was founded in 1906 and became an independent and public company as of December 31, 1997. The Company primarily manufactures and sells sweetener, starches, nutrition ingredients and sweetenersbiomaterial solutions derived from the wet milling and processing of corn and other starch-based materials to a wide range of industries, both domestically and internationally.
NOTE 2- Summary of Significant Accounting Policies
Basis of presentation — The consolidated financial statements consist of the accounts of the Company, including all significant subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.
The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the value of purchase consideration, valuation of accounts receivable, inventories, goodwill, intangible assets and other long-lived assets, legal contingencies, guarantee obligations, and assumptions used in the calculation of income taxes, and pension and other postretirement benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management will adjust such estimates and assumptions when facts and circumstances dictate. Foreign currency devaluations, corn price volatility, access to difficult credit markets and adverse changes in the global economic environment have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the financial statements in future periods.
Certain prior year amounts in the Consolidated Balance Sheet have been reclassified to conform to the current year’s presentation. Specifically, debt issuance costs that had previously been included in Other Assets are now reported in Long-term Debt (see also “Recently adopted accounting standards” below and Note 7). Additionally, investments are now included in Other Assets. These reclassifications had no effect on previously reported net income or cash flows.
Assets and liabilities of foreign subsidiaries, other than those whose functional currency is the US dollar, are translated at current exchange rates with the related translation adjustments reported in equity as a component of accumulated other comprehensive income (loss). The US dollar is the functional currency for the Company’s Mexico subsidiary. Income statement accounts are translated at the average exchange rate during the period. However, significant nonrecurring items related to a specific event are recognized at the exchange rate on the date of the significant event. For foreign subsidiaries where the US dollar is the functional currency, monetary assets and liabilities are translated at current exchange rates with the related adjustment included in net income. Non-monetary assets and liabilities are translated at historical exchange rates. TheAlthough the Company hedges the predominance of its transactional foreign exchange risk (see Note 6), the Company incurs foreign currency transaction gains/losses relating to assets and liabilities that are denominated in a currency other than the functional currency. For 2012, 20112015, 2014 and 2010,2013, the Company incurred foreign currency transaction losses of less than$6 million, $1 million $2 million and $2$3 million, respectively. The Company’s accumulated other comprehensive loss included in equity on the Consolidated Balance Sheets includes cumulative translation loss adjustmentslosses of $335 millionapproximately $1 billion and $306$701 million at December 31, 20122015 and 2011,2014, respectively.
Cash and cash equivalents — Cash equivalents consist of all instruments purchased with an original maturity of three months or less, and which have virtually no risk of loss in value.
Inventories — Inventories are stated at the lower of cost or net realizable value. Costs are predominantly determined using the first-in, first-out (FIFO)weighted average method.
Investments — Investments in the common stock of affiliated companies over which the Company does not exercise significant influence are accounted for under the cost method. The Company’s wholly-owned Canadian subsidiary hasIn 2014, the Company sold an investment that isit had accounted for under the cost method. The carrying valueCompany received $11 million in cash and recorded a pre-tax gain of this investment was $6$5 million at December 31, 2012 and 2011.from the sale. The Company no longer has any investments accounted for under the cost method. Investments that enable the Company to exercise significant influence, but do not represent a controlling interest, are accounted for under the equity method; such investments are carried at cost, adjusted to reflect the Company’s proportionate share of income or loss, less dividends received. The Company did not have any investments accounted for under the equity method at December 31, 20122015 or 2011.2014. The Company also has equity interests in the CME Group Inc. and CBOE Holdings, Inc., which it classifiesare classified as available for sale securities. The investment isinvestments are carried at fair value with unrealized gains and losses recorded to other
comprehensive income. The Company would recognize a loss on its investments when there is a loss in value of an investment that is other than temporary. In 2011,Investments are included in Other Assets in the Consolidated Balance Sheet and are not significant.
Leases - The Company soldleases rail cars, certain machinery and equipment, and office space. The Company classifies its investmentleases as either capital or operating based on the terms of the related lease agreement and the criteria contained in Smurfit-Stone Container Corporation which had been accounted for as an available for sale securityFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 840, Leases, and recorded a nominal gain.related interpretations.
Property, plant and equipment and depreciation — Property, plant and equipment (“PP&E”) are stated at cost less accumulated depreciation. Depreciation is generally computed on the straight-line method over the estimated useful lives of depreciable assets, which range from 1025 to 50 years for buildings and from 32 to 25 years for all other assets. Where permitted by law, accelerated depreciation methods are used for tax purposes. The Company reviews the recoverability of the net book value of property, plant and equipmentPP&E for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable from estimated future cash flows expected to result from its use and eventual disposition. If this review indicates that the carrying values will not be recovered, the carrying values would be reduced to fair value and an impairment loss would be recognized. As required under accounting principles generally accepted in the United States, the impairment analysis for long-lived assets occurs before the goodwill impairment assessment described below.
Goodwill and other intangible assets — Goodwill ($557601 million and $562$478 million at December 31, 20122015 and 2011,2014, respectively) represents the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed. The Company also has other intangible assets aggregating $329of $410 million and $347$290 million at December 31, 20122015 and 2011,2014, respectively. The carrying amount of goodwill by geographicreportable business segment at December 31, 20122015 and 20112014 was as follows:
(in millions) |
| North |
| South |
| Asia |
| EMEA |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at December 31, 2010 |
| $ | 278 |
| $ | 107 |
| $ | 106 |
| $ | 81 |
| $ | 572 |
|
Translation |
| — |
| (6 | ) | — |
| (4 | ) | (10 | ) | |||||
Balance at December 31, 2011 |
| $ | 278 |
| $ | 101 |
| $ | 106 |
| $ | 77 |
| $ | 562 |
|
Impairment charges |
| — |
| — |
| (2 | ) | — |
| (2 | ) | |||||
Translation |
| — |
| (6 | ) | — |
| 3 |
| (3 | ) | |||||
Balance at December 31, 2012 |
| $ | 278 |
| $ | 95 |
| $ | 104 |
| $ | 80 |
| $ | 557 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goodwill before impairment charges |
| $ | 279 |
| $ | 101 |
| $ | 225 |
| $ | 77 |
| $ | 682 |
|
Accumulated impairment charges |
| (1 | ) | — |
| (119 | ) | — |
| (120 | ) | |||||
Balance at December 31, 2011 |
| $ | 278 |
| $ | 101 |
| $ | 106 |
| $ | 77 |
| $ | 562 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goodwill before impairment charges |
| $ | 279 |
| $ | 95 |
| $ | 225 |
| $ | 80 |
| $ | 679 |
|
Accumulated impairment charges |
| (1 | ) | — |
| (121 | ) | — |
| (122 | ) | |||||
Balance at December 31, 2012 |
| $ | 278 |
| $ | 95 |
| $ | 104 |
| $ | 80 |
| $ | 557 |
|
(in millions) |
| North |
| South |
| Asia |
| EMEA |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at December 31, 2012 |
| $ | 278 |
| $ | 95 |
| $ | 104 |
| $ | 80 |
| $ | 557 |
|
Currency translation |
| — |
| (17 | ) | (7 | ) | 2 |
| (22 | ) | |||||
Balance at December 31, 2013 |
| $ | 278 |
| $ | 78 |
| $ | 97 |
| $ | 82 |
| $ | 535 |
|
Impairment charges |
| — |
| (33 | ) | — |
| — |
| (33 | ) | |||||
Currency translation |
| — |
| (13 | ) | (4 | ) | (7 | ) | (24 | ) | |||||
Balance at December 31, 2014 |
| $ | 278 |
| $ | 32 |
| $ | 93 |
| $ | 75 |
| $ | 478 |
|
Currency translation |
| — |
| (10 | ) | (7 | ) | (6 | ) | (23 | ) | |||||
Acquisitions |
| 148 |
| — |
| — |
| — |
| 148 |
| |||||
Disposal |
| (2 | ) | — |
| — |
| — |
| (2 | ) | |||||
Balance at December 31, 2015 |
| $ | 424 |
| $ | 22 |
| $ | 86 |
| $ | 69 |
| $ | 601 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goodwill before impairment charges |
| $ | 279 |
| $ | 65 |
| $ | 214 |
| $ | 75 |
| $ | 633 |
|
Accumulated impairment charges |
| (1 | ) | (33 | ) | (121 | ) | — |
| (155 | ) | |||||
Balance at December 31, 2014 |
| $ | 278 |
| $ | 32 |
| $ | 93 |
| $ | 75 |
| $ | 478 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goodwill before impairment charges |
| $ | 425 |
| $ | 55 |
| $ | 207 |
| $ | 69 |
| $ | 756 |
|
Accumulated impairment charges |
| (1 | ) | (33 | ) | (121 | ) | — |
| (155 | ) | |||||
Balance at December 31, 2015 |
| $ | 424 |
| $ | 22 |
| $ | 86 |
| $ | 69 |
| $ | 601 |
|
The following table summarizes the Company’s other intangible assets for the periods presented:
|
| As of December 31, 2012 |
| As of December 31, 2011 |
| ||||||||||||||||
(in millions) |
| Gross |
| Accumulated |
| Net |
| Weighted |
| Gross |
| Accumulated |
| Net |
| Weighted |
| ||||
Trademarks/tradenames |
| $ | 132 |
| — |
| $ | 132 |
| — |
| $ | 137 |
| — |
| $ | 137 |
| — |
|
Customer relationships |
| 143 |
| (13 | ) | 130 |
| 25 |
| 141 |
| (10 | ) | 131 |
| 25 |
| ||||
Technology |
| 83 |
| (19 | ) | 64 |
| 10 |
| 83 |
| (7 | ) | 76 |
| 10 |
| ||||
Other |
| 6 |
| (3 | ) | 3 |
| 8 |
| 6 |
| (3 | ) | 3 |
| 8 |
| ||||
Total other intangible assets |
| $ | 364 |
| (35 | ) | $ | 329 |
| 19 |
| $ | 367 |
| (20 | ) | $ | 347 |
| 19 |
|
The following table summarizes the Company’s amortization expense related to intangible assets for the periods presented:
|
| Year ended December 31, |
|
| As of December 31, 2015 |
| As of December 31, 2014 |
| |||||||||||||||||||||||||
(in millions) |
| 2012 |
| 2011 |
| 2010 |
|
| Gross |
| Accumulated |
| Net |
| Weighted |
| Gross |
| Accumulated |
| Net |
| Weighted |
| |||||||||
Amortization expense |
| $ | 14 |
| $ | 14 |
| $ | 4 |
| |||||||||||||||||||||||
Trademarks/tradenames |
| $ | 144 |
| $ | — |
| $ | 144 |
| — |
| $ | 132 |
| $ | — |
| $ | 132 |
| — |
| ||||||||||
Customer relationships |
| 235 |
| (32 | ) | 203 |
| 25 |
| 132 |
| (23 | ) | 109 |
| 25 |
| ||||||||||||||||
Technology |
| 99 |
| (45 | ) | 54 |
| 10 |
| 83 |
| (35 | ) | 48 |
| 10 |
| ||||||||||||||||
Other |
| 14 |
| (5 | ) | 9 |
| 8 |
| 5 |
| (4 | ) | 1 |
| 8 |
| ||||||||||||||||
Total other intangible assets |
| $ | 492 |
| $ | (82 | ) | $ | 410 |
| 19 |
| $ | 352 |
| $ | (62 | ) | $ | 290 |
| 19 |
|
For definite-lived intangible assets, the Company recognizes the cost of such amortizable assets in operations over their estimated useful lives and evaluates the recoverability of the assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Amortization expense related to intangible assets was $22 million in 2015 and $14 million in both 2014 and 2013.
Based on acquisitions completed through December 31, 2012, the Company expects2015, intangible asset amortization expense for subsequent yearsis expected to be approximately $14$25 million annually through 2017.in both 2016 and 2017, $24 million in both 2018 and 2019, and $22 million in 2020.
The Company assesses goodwill and other indefinite-lived intangible assets for impairment annually (or more frequently if impairment indicators arise). The Company has chosen to perform this annual impairment assessment as of October 1 of each year. The Company has completed the required impairment assessments and determined there to be no impairment in the fourth quarter of 2012.
In testing goodwill for impairment, the Company first assesses qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the qualitative factors, if the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount then the Company does not perform the two-step impairment test. If the Company concludes otherwise, then it performs the first step of the two-step impairment test as described in FASB ASC Topic 350. In the first step, the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, a second step of the impairment assessment is performed in order to determine the implied fair value of a reporting unit’s goodwill. Determining the implied fair value of goodwill requires a valuation of the reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of its goodwill, goodwill is deemed impaired and is written down to the extent of the difference. Based on the results of the qualitativeannual assessment, the Company concluded that as of October 1, 2012,2015, it was more likely than not that the fair value of theseits reporting units was greater than their carrying value.value (although the $22 million of goodwill at the Company’s Brazil reporting unit continues to be closely monitored due to recent trends and increased volatility experienced in this reporting unit, such as continued slow economic growth, heightened competition and possible future negative economic growth).
The Company early adopted Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment for the October 1, 2012 impairment test. The objectiveresults of the updateCompany’s impairment testing in the fourth quarter of 2014 indicated that the estimated fair value of the Company’s Southern Cone of South America reporting unit was less than its carrying amount. Therefore, the Company recorded a non-cash impairment charge of $33 million to simplify how entities testwrite-off the remaining balance of goodwill for this reporting unit in 2014.
In testing indefinite-lived intangible assets for impairment, and improve the consistency of impairment testing guidance among long-lived asset categories. This update provides the option to assessCompany first assesses qualitative factors in determiningto determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is impaired. After assessing the qualitative factors, if an entitythe Company determines that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, then it would not be required to compute the fair value of the indefinite-lived intangible asset. In the event the qualitative assessment leads an entitythe Company to conclude otherwise, then the entityit would be required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test in accordance with ASC subtopic 350-30. In
performing thisthe qualitative analysis, the Company consideredconsiders various factors including net sales derived from these intangibles and certain market and industry conditions. Based on the results of this qualitative assessment, the Company concluded that as of October 1, 2012,2015, it was more likely than not that the fair value of thesethe indefinite-lived intangible assets was greater than their carrying value.
Revenue recognition — The Company recognizes operating revenues at the time title to the goods and all risks of ownership transfer to the customer. This transfer is considered complete when a sales agreement is in place, delivery has occurred, pricing is fixed or determinable and collection is reasonably assured. In the case of consigned inventories, the title passes and the transfer of ownership risk occurs when the goods are used by the customer. Taxes assessed by governmental authorities and collected from customers are accounted for on a net basis and excluded from revenues.
Hedging instruments — The Company uses derivative financial instruments principally to offset exposure to market risks arising from changes in commodity prices, foreign currency exchange rates and interest rates. Derivative financial instruments used by the Company consist of commodity futures and option contracts, forward currency contracts and options, interest rate swap agreements and treasury lock agreements. The Company enters into futures and option contracts, which are designated as hedges of specific volumes of commodities (corn(primarily corn and natural gas) that will be purchased in a future month. These derivative financial instruments are recognized in the Consolidated Balance Sheets at fair value. The Company has also entered into interest rate swap agreements that effectively convert the interest rate on certain fixed rate debt to a variable interest rate and, on certain variable rate debt, to a fixed interest rate. The Company periodically enters into treasury lock agreements to lock the benchmark rate for an anticipated fixed ratefixed-rate borrowing. See also Note 56 and Note 67 of the notes to the consolidated financial statements for additional information.
On the date a derivative contract is entered into, the Company designates the derivative as either a hedge of variable cash flows to be paid related to interest on variable rate debt, as a hedge of market variation in the benchmark rate for a future fixed rate debt issue, as a hedge of foreign currency cash flows associated with certain forecasted commercial transactions or loans, as a hedge of certain forecasted purchases of corn, or natural gas or ethanol used in the manufacturing process (“a cash-flow hedge”), or as a hedge of the fair value of certain debt obligations (“a fair-value hedge”). This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the Consolidated Balance Sheet, or to specific firm commitments or forecasted transactions. For all hedging relationships, the Company formally documents the hedging relationships and its risk-management objective and strategy for undertaking the hedge transactions, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed and a description of the method of measuring ineffectiveness. The Company also formally assesses both, at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows or fair values of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.
Changes in the fair value of floating-to-fixed interest rate swaps, treasury locks, or commodity futures and option contracts or foreign currency forward contracts, swaps and options that are highly effective and that are designated and qualify as cash-flow hedges are recorded in other comprehensive income, net of applicable income taxes. Realized gains and losses associated with changes in the fair value of interest rate swaps and treasury locks are reclassified from accumulated other comprehensive income (“AOCI”) to the Consolidated Statement of Income over the life of the underlying debt. Gains and losses on hedges of foreign currency cash flows associated with certain forecasted commercial transactions or loans are reclassified from AOCI to the Consolidated Statement of Income when such transactions or obligations are settled. Gains and losses on commodity hedging contracts are reclassified from AOCI to the Consolidated Statement of Income when the finished goods produced using the hedged item are sold. The maximum term over which the Company hedges exposures to the variability of cash flows for commodity price risk is generally 24 months. Changes in the fair value of a fixed-to-floating interest rate swap agreement that is highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged debt obligation, are recorded in earnings. The ineffective portion of the change in fair value of a derivative instrument that qualifies as either a cash-flow hedge or a fair-value hedge is reported in earnings.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows or fair value of the hedged item, the derivative is de-designated as a
hedging instrument because it is unlikely that a forecasted transaction will occur, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the Company continues to carry the derivative on the Consolidated Balance Sheet at its fair value, and gains and losses that were included in AOCI are recognized in earnings.earnings in the same line item affected by the hedged transaction and in the same period or periods during which the hedged transaction affects earnings, or in the month a hedge is determined to be ineffective.
The Company uses derivative financial instruments such as foreign currency forward contracts, swaps and options to manage the transactional foreign exchange risk that is created when transactions not denominated in the functional currency of the operating unit are revalued. The changes in fair value of these derivative instruments and the offsetting changes in the value of the underlying non-functional currency denominated transactions are recorded in earnings on a monthly basis.
Stock-based compensation — The Company has a stock incentive plan that provides for stock-based employee compensation, including the granting of stock options, and shares of restricted stock, restricted stock units and performance shares to certain key employees. Compensation expense is recognized in the Consolidated StatementStatements of Income for the Company’s stock-based employee compensation plan. The plan is more fully described in Note 12.
Earnings per common share — Basic earnings per common share is computed by dividing net income attributable to Ingredion by the weighted average number of shares outstanding, which totaled 76.571.6 million for 2012, 76.42015, 73.6 million for 20112014 and 75.677.0 million for 2010.2013. Diluted earnings per share (EPS) is computed by dividing net income attributable to Ingredion by the weighted average number of shares outstanding, including the dilutive effect of outstanding stock options and other instruments associated with long-term incentive compensation plans. The weighted average number of
shares outstanding for diluted EPS calculations was 78.273.0 million, 78.274.9 million and 76.878.3 million for 2012, 20112015, 2014 and 2010,2013, respectively. In 2012, 20112015, 2014 and 2010,2013, options to purchase approximately 0.90.3 million, 0.40.1 million and 1.40.4 million shares of common stock, respectively, were excluded from the calculation of the weighted average number of shares outstanding for diluted EPS because their effects were anti-dilutive.
Risks and uncertainties — The Company operates domestically and internationally. In each country, the business and assets are subject to varying degrees of risk and uncertainty. The Company insures its business and assets in each country against insurable risks in a manner that it deems appropriate. Because of this geographic dispersion, the Company believes that a loss from non-insurable events in any one country would not have a material adverse effect on the Company’s operations as a whole. Additionally, the Company believes there is no significant concentration of risk with any single customer or supplier whose failure or non-performance would materially affect the Company’s results.
Recently adopted accounting standards — In June 2011,April 2015, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) No. 2011-05,2015-03, PresentationInterest-Imputation of Comprehensive IncomeInterest (Subtopic 835-30). The objective, for the purpose of this Update is to improvesimplifying the comparability, consistency, and transparencypresentation of financial reportingdebt issuance costs. This standard requires that debt issuance costs associated with respect to comprehensive income. This Update requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, this Update requires an entity to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from AOCI to net incomerecognized debt liability be presented in the statement(s) wherebalance sheet as a direct reduction from the componentscarrying amount of net income andthat debt in the componentsbalance sheet, consistent with the recording of other comprehensive income are presented. In December 2011, the FASB deferred the effective date for those changes requireddebt discounts. The amendments in this Update relating to the presentation of reclassification adjustments. Except for the presentation of reclassification adjustments, this Update wasare effective for interim and annual periodsfinancial statements issued for fiscal years beginning after December 15, 2011.2015, and interim periods within those fiscal years and require an entity to apply the guidance on a retrospective basis. Early adoption is permitted. The Company has changed its presentationadopted the amendments in this Update in the fourth quarter of Comprehensive Income to immediately follow the Consolidated Statement of Income.2015. The implementationadoption of the guidance contained in this Update did not have a material impact on the Company’s Consolidated Financial Statements. See also Note 7.
In September 2011,2015, the FASB issued ASU No. 2011-08,2015-16, Testing GoodwillBusiness Combinations (Topic 805): Simplifying the Accounting for ImpairmentMeasurement — Period Adjustments. . The objective of this Update is to simplify how entities test goodwill for impairment. This Update providesrequires an entity withto present separately on the option to first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the qualitative factors, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If an entity concludes otherwise, then it is required to perform the first stepface of the two-step impairment test as describedincome statement or disclose in FASB ASC Topic 350. Entities have the option to bypassnotes the qualitative assessment for any reporting unit in any period and proceed directly to performing the first stepportion of the two-step impairment testamount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as well as resume performingof the qualitative assessment in any subsequent period.acquisition date. The guidanceamendments in this Update wasare effective for the Company for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.2015, including interim periods within those fiscal years. The Company performed its annual goodwill impairment testing inamendments are to be applied prospectively to adjustments to provisional amounts that occur after the fourth quartereffective date of 2011 andthis Update with earlier application permitted for financial statements that have not been issued. The Company early adopted the provisionsamendments in this Update in the third quarter of this Update. 2015. The implementationadoption of the guidance contained in this Update did not have ana material impact on the Company’s consolidated financial statements.Consolidated Financial Statements.
In September 2011,November 2015, the FASB issued ASU No. 2011-09,2015-17, Disclosures about an Employer’s Participation in a Multiemployer PlanIncome Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This Update requires additional disclosures regardingthat deferred tax assets and liabilities be classified only as noncurrent in the significant multiemployer plansbalance sheet. The amendments in which an employer participates, the level of an employer’s participation including contributions made, and whether the contributions made represent more than five percent of the total contributions made to the plan by all contributing employers. The expanded disclosures also address thethis Update are effective for financial health of significant multiemployer plans including the funded status and existence of funding improvement plans, the existence of imposed surcharges on contributions to the plan, as well as the nature of employer commitments to the plan. This Update was effectivestatements issued for annual periods for fiscal years endedbeginning after December 15, 2011, with early adoption permitted. The disclosures required by this Update are provided in Note 9.
In July 2012,2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The objective of this Update is to simplify how entities test indefinite-lived intangible assets for impairment and improve the consistency of impairment testing guidance among long-lived asset categories. This Update provides an entity with the option to assess qualitative factors in determining whether it is more likely than not that an
indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. After assessing the qualitative factors, if an entity determines that it is not more likely than not that the fair valuebeginning of an indefinite-lived intangible asset is less than its carrying amount then it would not be required to compute the fair value of the indefinite-lived intangible asset. In the event the qualitative assessment leads an entity to conclude otherwise then the entity would be required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test in accordance with ASC subtopic 350-30.interim or annual reporting period. The guidanceamendments in this Update is effective for the Company for annualmay be applied either prospectively to all deferred tax liabilities and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.assets or retrospectively to all periods presented. The Company early adopted the provisions ofamendments in this Update in the fourth quarter of 2012.2015 and applied its provisions prospectively. The implementationadoption of the guidance contained in this Update did not have ana significant impact on total current assets or total current liabilities on the Company’s consolidated financial statements.Consolidated Balance Sheet as of December 31, 2015.
NOTE 3 — Acquisitions
On October 1, 2010,March 11, 2015, the Company completed its acquisition of National Starch,Penford Corporation (“Penford”), a global providermanufacturer of specialty starches from Akzo Nobel N.V.that was headquartered in Centennial, Colorado. Total purchase consideration for Penford was $332 million, which included the extinguishment of $93 million in debt in conjunction with the acquisition. The acquisition of Penford provides the Company with, among other things, an expanded specialty ingredient product portfolio consisting of potato starch-based offerings. Penford had net sales of $444 million for the fiscal year ended August 31, 2014 and operates six manufacturing facilities in the United States, all of which manufacture specialty starches.
On August 3, 2015, the Company completed its acquisition of Kerr Concentrates, Inc. (“Kerr”), a global coatingsprivately held producer of natural fruit and specialty chemicals company, headquarteredvegetable concentrates for $102 million in cash. Kerr serves major food and beverage companies, flavor houses and ingredient producers from its manufacturing locations in Oregon and California. The Netherlands. acquisition of Kerr provides the Company with the opportunity to expand its product portfolio.
The Company acquired 100 percent of National Starch through asset purchases in certain countries and stock purchases in certain countries. The purchase price was $1.369 billion in cash. The funding of the purchase price was provided principallyfunded these acquisitions with proceeds from borrowings. See Note 6 for information regarding the Company’s borrowing activity. The Company incurred $35 million of acquisition costs and a $20 million charge for bridge loan financing costs related to the acquisition in 2010.borrowings under its revolving credit agreement. The results of National Starchthe acquired operations are included in the Company’s consolidated results from October 1, 2010 forward.
Thethe respective acquisition provideddates forward within 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 had sales of $1.2 billion in 2009 and provided the Company with, among other things, 11 additional manufacturing facilities in 8 countries, across 5 continents. The acquisition also provided additional sales and technical offices around the world. With the acquisition, the Company now operates 36 manufacturing facilities in 14 countries; has sales offices in 29 countries, and has research and ingredient development centers in key global markets.North America business segment.
Pro forma financial information:
Selected unaudited pro forma results of operations for the year ended December 31, 2010, assuming the National Starch acquisition occurred as of January 1, 2009, are presented below:
(in millions, except per share) |
| 2010 |
| |
Net sales |
| $ | 5,323 |
|
Net income attributable to Ingredion |
| 283 |
| |
Pro forma earnings per common share of Ingredion: |
|
|
| |
Basic |
| $ | 3.74 |
|
Diluted |
| $ | 3.68 |
|
For the nine months ended September 30, 2010,Penford acquisition, the National Starch financial statements excludedCompany has finalized the effectspurchase price allocation for all areas. The finalization of financingincome taxes in the fourth quarter of 2015 did not have a significant impact on previously estimated amounts. For the Kerr acquisition, an allocation of the purchase price to the assets acquired and taxes since Akzo Nobel, its previous parent company, used a centralized approachliabilities assumed was made based on available information and incorporating management’s best estimates. Assets acquired and liabilities assumed in the transactions were generally recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred.
Goodwill represents the amount by which the purchase price exceeds the estimated fair value of the net assets acquired. Goodwill related to the Penford acquisition is not tax deductible for cash managementthe Company. The goodwill related to Kerr is tax deductible due to the structure of this acquisition. The goodwill of $121 million for Penford and preliminary goodwill of $27 million for Kerr result from synergies and other operational benefits expected to finance its global operations,be derived from the acquisitions.
The following table summarizes the finalized purchase price allocation for the acquisition of Penford and preliminary purchase price allocation for the acquisition of Kerr as wellof March 11, 2015 and August 3, 2015, respectively:
(in millions) |
| Penford |
| Kerr |
| ||
Working capital (excluding cash) |
| $ | 61 |
| $ | 37 |
|
Property, plant and equipment |
| 86 |
| 8 |
| ||
Other assets |
| 9 |
| 1 |
| ||
Identifiable intangible assets |
| 121 |
| 29 |
| ||
Goodwill |
| 121 |
| 27 |
| ||
Non-current liabilities assumed |
| (66 | ) | — |
| ||
Total purchase price |
| $ | 332 |
| $ | 102 |
|
The identifiable intangible assets for the Penford acquisition include items such as customer relationships, proprietary technology, trade names, and noncompetition agreements. The fair values of these intangible assets
were determined to manage its global tax position. A 33 percent tax rate wasbe Level 3 under the fair value hierarchy. Level 3 inputs are unobservable inputs for an asset or liability. Unobservable inputs are used to tax effect pro forma adjustments.measure fair value to the extent that observable inputs are not available, thereby allowing for fair value estimates to be made in situations in which there is little, if any, market activity for an asset or liability at the measurement date. The following table presents the fair values, valuation techniques, and estimated remaining useful life at the acquisition date for these Level 3 measurements (dollars in millions):
|
| Fair |
| Valuation Technique |
| Estimated Useful Life |
| |
Customer Relationships |
| $ | 84 |
| Multi-period excess earnings method |
| 15-22 years |
|
|
|
|
|
|
|
|
| |
Trade Names |
| $ | 17 |
| Relief-from-royalty method |
| 10 years to indefinite |
|
|
|
|
|
|
|
|
| |
Technology |
| $ | 17 |
| Relief-from-royalty method |
| 6-11 years |
|
|
|
|
|
|
|
|
| |
Noncompetition Agreements |
| $ | 3 |
| Income Approach |
| 2 years |
|
The fair value of customer relationships, trade names, technology and noncompetition agreements were determined through the valuation techniques described above using various judgmental assumptions such as discount rates and customer attrition rates.
The fair values of property, plant and equipment associated with the Penford acquisition were determined to be Level 3 under the fair value hierarchy. Property, plant and equipment values were estimated using either the cost or market approach.
Included in the results of the acquired businesses for 2015 were increases in cost of sales of $10 million (Penford for $6 million and Kerr for $4 million) relating to the sale of inventory that was adjusted to fair value at the acquisition dates in accordance with business combination accounting rules.
The Company also incurred $10 million of pre-tax acquisition and integration costs for 2015 associated with the Penford and Kerr transactions.
NOTE 4 — RestructuringSale of Canadian Plant
On December 15, 2015, the Company sold its manufacturing assets in Port Colborne, Ontario, Canada for $35 million in cash. The Company recorded a pre-tax gain of $10 million on the sale, net of the write-off of goodwill of $2 million associated with the business. Additionally, the Company recorded pre-tax restructuring charges of $4 million associated with the sale of the plant as described below. The Company could incur pension-related charges and Assetother costs associated with post-closing conditions in 2016 related to the plant sale. Such charges, if any, are not expected to be significant.
NOTE 5 — Impairment and Restructuring Charges
In the second quarter of 2012,On September 8, 2015, the Company decidedannounced that it plans to restructure its business operations in Kenya and closeconsolidate its manufacturing plantnetwork in Brazil. Plants in Trombudo Central and Conchal will be closed and production will be moved to plants in Balsa Nova and Mogi Guaçu, respectively. The consolidation will begin early in 2016 and should be complete by the country. As partend of that decision, theyear. The Company recorded $20total pre-tax restructuring-related charges of $12 million of restructuring chargesrelated to its Statement of Incomethese plant closures in 2015, consisting of an $8 million charge to realize the cumulative translation adjustment associated with the Kenyan operations, a $6 million fixed asset impairment charge, a $2 million charge to reduce certain working capital balances to net realizable value based on the announced closure, $2 million of costs primarily consisting of severance pay related to the termination of the majority of its employees in Kenya and $2 million of additional charges related to this restructuring.
As part of the Company’s ongoing strategic optimization, in the third quarter of 2012, the Company decided to exit its investment in Shouguang Golden Far East Modified Starch Co., Ltd (“GFEMS”), a non wholly-owned consolidated subsidiary in China. In conjunction with that decision, the Company recorded a $4 million impairment charge to reduce the carrying value of GFEMS to its estimated net realizable value. The Company also recorded a $1 million charge for impaired assets in Colombia in the third quarter of 2012. The Company sold its interest in GFEMS in the fourth quarter of 2012 for $3 million in cash, which approximated the carrying value of the investment in GFEMS following the aforementioned impairment charge.
Additionally, as part of a manufacturing optimization program developed in conjunction with the acquisition of National Starch to improve profitability, in the second quarter of 2011 the Company committed to a plan to optimize its production capabilities at certain of its North American facilities. The plan was completed in October 2012. As a result, the Company recorded restructuring charges to write-off certain equipment by the plan completion date. These charges totaled $11 million and $10 million in 2012 and 2011, respectively, of which $10 million and $8 million represented accelerated depreciation on the equipment. The equipment has been completely written off.
On February 27, 2010, a devastating earthquake occurred off the coast of Chile. The Company’s 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 exceeded its fair value and therefore, these assets were impaired. As a result, the Company recorded a $24 million charge for impaired assets and $2 million of employee severance and related benefitseverance-related costs. Additional restructuring costs, although not expected to be significant, could be incurred in the future as part of the plant shutdowns.
The Company also recorded pre-tax restructuring charges of $4 million in 2015, of which $2 million was for estimated employee severance-related costs, associated with the terminationPort Colborne plant sale.
Additionally, the Company recorded a pre-tax restructuring charge of employees in Chile in its 2010 Statement$12 million for employee severance-related costs associated with the Penford acquisition.
A summary of Income. As ofthe Company’s severance accrual at December 31, 2010,2015 is as follows (in millions):
Restructuring charges for employee severance-related costs: |
|
|
| |
Penford acquisition |
| $ | 12 |
|
Brazil plant closures |
| 2 |
| |
Port Colborne plant sale |
| 2 |
| |
Sub-total |
| $ | 16 |
|
Payments made to terminated employees |
| (6 | ) | |
Balance in severance accrual at December 31, 2015 |
| $ | 10 |
|
The severance accrual at December 31, 2015 is expected to be paid within the employee terminations were completednext twelve months.
The Company assesses goodwill and other indefinite-lived intangible assets for impairment annually (or more frequently if impairment indicators arise) as of October 1 of each year. No goodwill impairment was recognized in the restructuring accrual was fully utilized. Shipmentsfourth quarter of 2015 related to customers in Chile are being fulfilled from the Company’s plantsannual impairment testing. The results of the Company’s impairment testing in Argentina, Brazil and Mexico. In December 2012,the fourth quarter of 2014 indicated that the estimated fair value of the Company’s Southern Cone of South America reporting unit was less than its carrying amount. Therefore, the Company sold the land for approximately $2recorded a non-cash impairment charge of $33 million in cash.the fourth quarter of 2014 to write-off the remaining balance of goodwill for this reporting unit.
NOTE 56 — Financial Instruments, Derivatives and Hedging Activities
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 gradeinvestment-grade counterparties. Derivative financial instruments currently used by the Company consist of commodity futures, options and swap contracts, foreign currency forward currency contracts, swaps and options, and interest rate swaps.
Commodity price hedging: The Company’s 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 eighteentwenty-four months. The Company maintains a commodity-price risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility. For example, the manufacturing of the Company’s products requires a significant volume of corn and natural gas. Price fluctuations in corn and natural gas cause the actual purchase price of corn and natural gas to differ from anticipated prices.
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 impact that volatility resulting from fluctuations in market prices will have on corn and natural gas purchases and have been designated as cash flowcash-flow hedges. Effective with the acquisition of Penford, the Company now produces and sells ethanol. The Company now enters into futures contracts to hedge price risk associated with fluctuations in market prices of ethanol. Unrealized gains and losses associated with marking the commodity hedging contracts to market (fair value) are recorded as a component of other comprehensive income (“OCI”) and included in the equity section of the Consolidated Balance Sheets as part of AOCI. These amounts are subsequently reclassified into earnings in the monthsame line item affected by the hedged transaction and in the same period or periods during which the related corn or natural gas impactshedged transaction affects earnings, 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 contract’s 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 flowcash-flow hedges are not significant.
At December 31, 2012,2015 and 2014, AOCI included $7$21 million of losses net(net of tax of $4$10 million) and $13 million of losses (net of tax of $6 million), respectively, pertaining to commodities-related derivative instruments designated as cash-flow hedges, of which $3 million, net of tax of $2 million, are expected to be recognized in earnings within the next twelve months. Transactions and events expected to occur over the next twelve months that will necessitate reclassifying these derivative losses to earnings include the sale of finished goods inventory that includes previously hedged purchases of corn and natural gas. The Company expects the losses to be offset by changes in the underlying commodities cost. Cash flow hedges discontinued during 2012 were not material.hedges.
Interest rate hedging: The Company assesses its exposure to variability in interest rates by identifying and monitoring changes in interest rates that may adversely impact future cash flows and the fair value of existing debt instruments, and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate risk attributable to both the Company’s outstanding and forecasted debt obligations as well as the Company’s offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including sensitivity analysis, to estimate the expected impact of changes in interest rates on future cash flows and the fair value of the Company’s outstanding and forecasted debt instruments.
Derivative financial instruments that have been used by the Company to manage its interest rate risk consist of Treasury Lock agreements (“T-Locks”) and interest rate swaps. The Company periodically enters into T-Locks to fix the benchmark component of the interest rate to be established for certain planned fixed-rate debt issuances (see also Note 6).issuances. The T-Locks are designated as hedges of the variability in cash flows associated with future interest payments caused by market fluctuations in the benchmark interest rate until the fixed interest rate is established, and are accounted for as cash-flow hedges. Accordingly, changes in the fair value of the T-Locks are recorded to AOCI until the consummation of the underlying debt offering, at which time any realized gain (loss) is amortized to earnings over the life of the debt. The net gain or loss recognized in earnings during 2012, 20112015, 2014 and 2010, representing the amount of the Company’s hedges’ ineffectiveness,2013 was not significant. The Company has also, from time to time, enteredenters into interest rate swap agreements that effectively convertedconvert the interest rate on certain fixed-rate debt to a variable rate. These swaps calledcall for the Company to receive interest at a fixed rate and to pay interest at a variable rate, thereby creating the equivalent of variable-rate debt. The Company designateddesignates these interest rate swap agreements as hedges of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and accountedaccounts for them as fair valuefair-value hedges. Changes in the fair value of interest rate swaps designated as hedging instruments that effectively offset the variability in the fair value of outstanding debt obligations are reported in earnings. These amounts offset the gain or loss (that is, the change in fair value) of the hedged debt instrument that is attributable to changes in interest rates (that is, the hedged risk) which is also recognized in earnings. The Company did not have any T-Locks outstanding at December 31, 20122015 or 2011.2014. At December 31, 2015 and 2014, AOCI included $5 million of losses (net of income taxes of $2 million) and $7 million of losses (net of income taxes of $4 million), respectively, related to settled T-Locks. These deferred losses are being amortized to financing costs over the terms of the senior notes with which they are associated.
On March 25, 2011,In September 2014, the Company entered into interest rate swap agreements that effectively convert the interest raterates on the Company’s 3.2its 6.0 percent $350$200 million senior notes due April 15, 2017, its 1.8 percent $300 million senior notes due September 25, 2017 and on $200 million of its $400 million 4.625 percent senior notes due November 1, 20152020, to a variable rate.rates. These swap agreements call for the Company to receive interest at athe fixed coupon rate (3.2 percent)of the respective notes and to pay interest at a variable rate based on the six-month US dollar LIBOR rate plus a spread. The Company has designated these interest rate swap agreements as hedges of the changes in fair value of the underlying debt obligationobligations attributable to changes in interest rates and accounts for them as fair valuefair-value hedges. The fair value of these interest rate swap agreements approximated $20was $7 million and $13 million at December 31, 20122015 and 2014, respectively, and is reflected in the Consolidated Balance SheetSheets within non-currentother assets, with an offsetting amount recorded in long-term debt to adjust the carrying amount of the hedged debt obligation.
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 6 for additional information regarding the Notes.In anticipation of the issuance these long-term fixed-rate Notes, the Company entered into T-Lock agreements with respect to $300 million of the 2015 Notes and $300 million of the 2020 Notes. These T-Lock agreements 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 into and the time the debt was priced and 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 December 31, 2012, AOCI included $10 million of losses, net of tax of $6 million, related to T-Locks, of which $2 million, net of tax of $1 million, are expected to be recognized in earnings within the next twelve months. Cash flow hedges discontinued during 2012 were not material.obligations.
Foreign currency hedging: Due to the Company’s global operations, including many emerging markets, it is exposed to fluctuations in foreign currency exchange rates. As a result, the Company has exposure to translational foreign exchange risk when the results of its foreign operation resultsoperations 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. 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 December 31, 2012,2015, the Company had $268 million of foreign currency forward sales contracts and $167with an aggregate notional amount of $606 million ofand foreign currency forward purchase contracts with an aggregate notional amount of $287 million that hedged transactional exposures. At December 31, 2011,2014, the Company had $287 million of foreign currency forward sales contracts and $163with an aggregate notional amount of $150 million ofand foreign currency forward purchase contracts with an aggregate notional amount of $70 million that hedged transactional exposures. The fair value of these derivative instruments was approximately $5were assets of $10 million and $1 million at December 31, 20122015 and 2011,2014, respectively.
The Company also has foreign currency derivative instruments that hedge certain foreign currency transactional exposures and are designated as cash-flow hedges. The amounts included in AOCI relating to these hedges at both December 31, 2015 and 2014 were not significant.
By using derivative financial instruments to hedge exposures, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty will fail to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into over-the-counter transactions only with investment grade counterparties or by utilizing exchange-traded derivatives. Market risk is the adverse effect on the value of a financial instrument that results from a change in commodity prices, interest rates or foreign exchange rates. The market risk associated with commodity-price, interest rate or foreign exchange contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The fair value and balance sheet location of the Company’s derivative instruments accounted for as cash flowcash-flow hedges and presented gross are presented below:
|
| Fair Value of Derivative Instruments |
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| Fair Value of Derivative Instruments |
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| Fair Value |
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| Fair Value |
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| Fair Value |
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| Fair Value |
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Derivatives designated as |
| Balance Sheet |
| At |
| At |
| Balance Sheet |
| At |
| At |
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Derivatives designated as |
| Balance Sheet |
| At |
| At |
| Balance Sheet |
| At |
| At |
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Commodity and foreign currency contracts |
| Accounts receivable-net |
| $ | 5 |
| $ | 14 |
| Accounts payable and accrued liabilities |
| $ | 34 |
| $ | 34 |
|
| Accounts receivable-net |
| $ | 6 |
| $ | 15 |
| Accounts payable |
| $ | 33 |
| $ | 18 |
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Commodity contracts |
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| Non-current liabilities |
| 6 |
| 11 |
| |||||||||||||||||||||
Commodity and foreign currency contracts |
| Other assets |
| 5 |
| 1 |
| Non-current liabilities |
| 4 |
| 6 |
| |||||||||||||||||||||
Total |
|
|
| $ | 5 |
| $ | 14 |
|
|
| $ | 40 |
| $ | 45 |
|
|
|
| $ | 11 |
| $ | 16 |
|
|
| $ | 37 |
| $ | 24 |
|
At December 31, 2012,2015, the Company had outstanding futures and option contracts that hedged the forecasted purchase of approximately 97120 million bushels of forecasted corn purchases. Also at December 31, 2012,and 28 million pounds of soybean oil. The Company is unable to directly hedge price risk related to co-product sales; however, it occasionally enters into hedges of soybean oil (a competing product to corn oil) in order to mitigate the price risk of corn oil sales. The Company also had outstanding swap and option contracts that hedged the forecasted purchase of approximately 1819 million mmbtu’s of forecasted natural gas purchases.at December 31, 2015. Additionally at December 31, 2015, the Company had outstanding ethanol futures contracts that hedged the forecasted sale of approximately 3 million gallons of ethanol.
Additional information relating to the Company’s derivative instruments is presented below (in millions)millions, pre-tax):
Derivatives in Amount of Gains (Losses) Location of Gains Amount of Gains (Losses) Cash-Flow Year Ended Year Ended Year Ended Reclassified from Year Ended Year Ended Year Ended Commodity and foreign currency contracts $ (61 ) $ (41 ) $ (93 ) Cost of Sales $ (43 ) $ (70 ) $ (57 ) Interest rate contracts — — — Financing costs, net (3 ) (3 ) (3 ) Total $ (61 ) $ (41 ) $ (93 ) $ (46 ) $ (73 ) $ (60 )64
Recognized in OCI
(Losses)
Reclassified from AOCI into Income
Hedging
Relationships
December 31,
2015
December 31,
2014
December 31,
2013
AOCI
into Income
December 31,
2015
December 31,
2014
December 31,
2013
TableAt December 31, 2015, AOCI included approximately $19 million of Contentslosses, net of income taxes of $9 million, on commodities-related derivative instruments designated as cash-flow hedges that are expected to be reclassified into earnings during the next twelve months. Transactions and events expected to occur over the next twelve months that will necessitate reclassifying these derivative losses to earnings include the sale of finished goods inventory that includes previously hedged purchases of corn, natural gas and ethanol. The Company expects the losses to be offset by changes in the underlying commodities cost. Additionally at December 31, 2015, AOCI included $2 million of losses on settled T-Locks (net of income taxes of $1 million) and $2 million of losses related to foreign currency hedges (net of income taxes of $1 million), which are expected to be reclassified into earnings during the next twelve months. Cash-flow hedges discontinued during 2015 or 2014 were not significant.
Derivatives in |
| Amount of Gains (Losses) |
| Location of Gains |
| Amount of Gains (Losses) |
| ||||||||||||||
Cash Flow |
| Year Ended |
| Year Ended |
| Year Ended |
| Reclassified from |
| Year Ended |
| Year Ended |
| Year Ended |
| ||||||
Commodity and foreign currency contracts |
| $ | 68 |
| $ | 48 |
| $ | 47 |
| Cost of Sales |
| $ | 43 |
| $ | 169 |
| $ | (87 | ) |
|
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|
|
|
|
|
|
|
|
|
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| ||||||
Interest rate contracts |
| — |
| — |
| (15 | ) | Financing costs, net |
| (3 | ) | (3 | ) | (1 | ) | ||||||
|
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|
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|
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| ||||||
Total |
| $ | 68 |
| $ | 48 |
| $ | 32 |
|
|
| $ | 40 |
| $ | 166 |
| $ | (88 | ) |
Presented below are the fair values of the Company’s financial instruments and derivatives for the periods presented:
|
| As of December 31, 2012 |
| As of December 31, 2011 |
|
| As of December 31, 2015 |
| As of December 31, 2014 |
| ||||||||||||||||||||||||||||||||||||||||
(in millions) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||||||||||
Available for sale securities |
| $ | 3 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | 2 |
| $ | 2 |
| $ | — |
| $ | — |
|
| $ | 6 |
| $ | 6 |
| $ | — |
| $ | — |
| $ | 5 |
| $ | 5 |
| $ | — |
| $ | — |
|
Derivative assets |
| 25 |
| 5 |
| 20 |
| — |
| 33 |
| 14 |
| 19 |
| — |
|
| 27 |
| — |
| 27 |
| — |
| 29 |
| 12 |
| 17 |
| — |
| ||||||||||||||||
Derivative liabilities |
| 45 |
| 24 |
| 21 |
| — |
| 46 |
| 16 |
| 30 |
| — |
|
| 37 |
| 19 |
| 18 |
| — |
| 23 |
| 6 |
| 17 |
| — |
| ||||||||||||||||
Long-term debt |
| 1,914 |
| — |
| 1,914 |
| — |
| 1,921 |
| — |
| 1,921 |
| — |
|
| 1,912 |
| — |
| 1,912 |
| — |
| 1,926 |
| — |
| 1,926 |
| — |
|
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 are based on 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 fair value estimates to be made in 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, short-term investments, accounts receivable, accounts payable and short-term borrowings approximate fair values. Commodity futures, options and swap contracts are recognized at fair value. Foreign currency forward contracts, swaps and options are also recognized at fair value. The fair value of the Company’s long-term debt is estimated based on quotations of major securities dealers who are market makers in the securities. Presented below are the carrying amounts and the fair values of the Company’s long-term debt at December 31, 20122015 and 2011.2014.
|
| 2012 |
| 2011 |
| ||||||||
(in millions) |
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
4.625% senior notes, due November 1, 2020 |
| $ | 399 |
| $ | 448 |
| $ | 399 |
| $ | 422 |
|
3.2% senior notes, due November 1, 2015 |
| 350 |
| 368 |
| 350 |
| 360 |
| ||||
1.8% senior notes, due September 25, 2017 |
| 298 |
| 300 |
| — |
| — |
| ||||
6.625% senior notes, due April 15, 2037 |
| 257 |
| 315 |
| 257 |
| 297 |
| ||||
6.0% senior notes, due April 15, 2017 |
| 200 |
| 227 |
| 200 |
| 222 |
| ||||
5.62% senior notes due March 25, 2020 |
| 200 |
| 236 |
| 200 |
| 225 |
| ||||
US revolving credit facility, due October 22, 2017 |
| — |
| — |
| 376 |
| 376 |
| ||||
Fair value adjustment related to hedged fixed rate debt |
| 20 |
| 20 |
| 19 |
| 19 |
| ||||
Total long-term debt |
| $ | 1,724 |
| $ | 1,914 |
| $ | 1,801 |
| $ | 1,921 |
|
|
| 2015 |
| 2014 |
| ||||||||
(in millions) |
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
4.625% senior notes due November 1, 2020 |
| $ | 398 |
| $ | 420 |
| $ | 397 |
| $ | 427 |
|
1.8% senior notes due September 25, 2017 |
| 299 |
| 300 |
| 298 |
| 302 |
| ||||
6.625% senior notes due April 15, 2037 |
| 254 |
| 302 |
| 254 |
| 312 |
| ||||
6.0% senior notes due April 15, 2017 |
| 200 |
| 211 |
| 199 |
| 220 |
| ||||
5.62% senior notes due March 25, 2020 |
| 200 |
| 218 |
| 200 |
| 222 |
| ||||
3.2% senior notes repaid November 1, 2015 |
| — |
| — |
| 350 |
| 356 |
| ||||
U.S. revolving credit facility due October 22, 2017 |
| 111 |
| 111 |
| 87 |
| 87 |
| ||||
Term loan due January 10, 2017 |
| 350 |
| 350 |
| — |
| — |
| ||||
Fair value adjustment related to hedged fixed rate debt instruments |
| 7 |
| — |
| 13 |
| — |
| ||||
Total long-term debt |
| $ | 1,819 |
| $ | 1,912 |
| $ | 1,798 |
| $ | 1,926 |
|
NOTE 67 — Financing Arrangements
The Company had total debt outstanding of $1.80$1.84 billion and $1.95$1.82 billion at December 31, 20122015 and 2011,2014, respectively. Short-term borrowings at December 31, 20122015 and 20112014 consist primarily of amounts outstanding under various unsecured local country operating lines of credit.
Short-term borrowings consist of the following at December 31:
(in millions) |
| 2012 |
| 2011 |
| ||
Short-term borrowings in various currencies (at rates ranging from |
|
|
|
|
| ||
1% to 7% for 2012 and 2% to 24% for 2011) |
| $ | 76 |
| $ | 148 |
|
(in millions) |
| 2015 |
| 2014 |
| ||
Short-term borrowings in various currencies (at rates ranging from 2% to 6% for 2015 and 1% to 7% for 2014) |
| $ | 19 |
| $ | 23 |
|
On October 22, 2012, theThe Company entered intohas a new five-year, senior, unsecured $1 billion revolving credit agreement (the “Revolving Credit Agreement”) that replaced our previously existing $1 billion senior unsecured revolving credit facility that was set to expire in June 2014. The Company paid fees of approximately $3 million relating to the new credit facility, which are being amortized to financing costs over the term of the facility.matures on October 22, 2017.
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 prime rate, at the Company’s election, subject to the terms and conditions thereof, plus, in each case, an applicable margin based on the Company’s 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 covenant. The occurrence of an event of default under the Revolving Credit Agreement could result in all loans and other obligations under the agreement being declared due and payable and the revolving credit facility being terminated.
TheOn July 10, 2015, the Company had noentered into a new Term Loan Credit Agreement to establish an 18-month, $350 million multi-currency senior unsecured term loan credit facility. All borrowings under the term loan facility bear interest at a variable annual rate based on the LIBOR or base rate, at the Company’s election, subject to the terms and conditions thereof, plus, in each case, an applicable margin. Proceeds of $350 million from the new Term Loan Credit Agreement were used to repay borrowings outstanding under its $1 billion revolvingour Revolving Credit Agreement.
The Term Loan 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 interest coverage ratio. The occurrence of an event of default under the Term Loan Credit Agreement could result in all loans and other obligations being declared due and payable and the term loan credit facility being terminated.
On November 2, 2015, the Company repaid its $350 million, 3.2 percent senior notes at the maturity date with proceeds from the Revolving Credit Agreement and cash on hand.
At December 31, 2012.2015, there were $111 million of borrowings outstanding under the Revolving Credit Agreement. In addition to borrowing availability under its Revolving Credit Agreement, the Company has approximately $503$409 million of unused operating lines of credit in the various foreign countries in which it operates.
On September 20, 2012, the Company issued 1.80 percent Senior Notes due September 25, 2017 in an aggregate principal amountLong-term debt, net of $300 million. These notes rank equally with the Company’s other senior unsecured debt. Interest on the notes is required to be paid semi-annually on March 25threlated discounts, premiums and September 25th, beginning in March 2013. The 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. The net proceeds from the sale of the notes of approximately $297 million were used to repay $205 million of borrowings under the Company’s previously existing $1 billion revolving credit facility and for general corporate purposes. The Company paid debt issuance costs of approximately $2 million relating to the notes, which are being amortized to financing costs over the life of the notes.
Long-term debt consists of the following at December 31:
(in millions) |
| 2012 |
| 2011 |
| ||
4.625% senior notes, due November 1, 2020, net of discount of $1 |
| $ | 399 |
| $ | 399 |
|
3.2% senior notes, due November 1, 2015 |
| 350 |
| 350 |
| ||
1.8% senior notes, due September 25, 2017, net of discount of $2 |
| 298 |
| — |
| ||
6.625% senior notes, due April 15, 2037, net of premium of $8 and discount of $1 |
| 257 |
| 257 |
| ||
6.0% senior notes, due April 15, 2017 |
| 200 |
| 200 |
| ||
5.62% senior notes, due March 25, 2020 |
| 200 |
| 200 |
| ||
US revolving credit facility, due October 22, 2017 (at LIBOR indexed floating rate) |
| — |
| 376 |
| ||
Fair value adjustment related to hedged fixed rate debt instrument |
| 20 |
| 19 |
| ||
Total |
| $ | 1,724 |
| $ | 1,801 |
|
Less: current maturities |
| — |
| — |
| ||
Long-term debt |
| $ | 1,724 |
| $ | 1,801 |
|
(in millions) |
| 2015 |
| 2014 |
| ||
4.625% senior notes due November 1, 2020 |
| $ | 398 |
| $ | 397 |
|
1.8% senior notes due September 25, 2017 |
| 299 |
| 298 |
| ||
6.625% senior notes due April 15, 2037 |
| 254 |
| 254 |
| ||
6.0% senior notes due April 15, 2017 |
| 200 |
| 199 |
| ||
5.62% senior notes due March 25, 2020 |
| 200 |
| 200 |
| ||
3.2% senior notes repaid November 1, 2015 |
| — |
| 350 |
| ||
U.S. revolving credit facility due October 22, 2017 |
| 111 |
| 87 |
| ||
Term loan due January 10, 2017 |
| 350 |
| — |
| ||
Fair value adjustment related to hedged fixed rate debt instruments |
| 7 |
| 13 |
| ||
Total |
| $ | 1,819 |
| $ | 1,798 |
|
Less: current maturities |
| — |
| — |
| ||
Long-term debt |
| $ | 1,819 |
| $ | 1,798 |
|
In the fourth quarter of 2015, the Company early adopted the provisions of ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30), which requires that debt issuance costs associated with a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt in the balance sheet. Accordingly, at December 31, 2015 and 2014, debt issuance costs of $5 million and $6 million, respectively, that otherwise would have been reported as other assets are classified as reductions of the carrying values of the related debt obligations. Deferred costs associated with the Company’s Revolving Credit Agreement remain in other assets.
The Company’s long-term debt matures as follows: $350 million in 2015, $500$961 million in 2017, $600 million in 2020 and $250 million in 2037. The Company’s long-term debt at December 31, 2014 included $350 million of 3.2 percent senior notes that were repaid at maturity in November 2015. These borrowings were included in long-term debt at December 31, 2014 as the Company had the ability and intent to refinance the notes on a long-term basis prior to the maturity date.
Ingredion Incorporated guarantees certain obligations of its consolidated subsidiaries. The amount of the obligations guaranteed aggregated $57$204 million and $77$214 million at December 31, 20122015 and 2011,2014, respectively.
NOTE 78 - Leases
The Company leases rail cars, certain machinery and equipment, and office space under various operating leases. Rental expense under operating leases was $45$52 million, $44$47 million and $33$47 million in 2012, 20112015, 2014 and 2010,2013, respectively. Minimum lease payments due on non-cancellable leases existing at December 31, 20122015 are shown below:
(in millions) |
|
|
| |
Year |
| Minimum Lease Payments |
| |
2013 |
| $ | 41 |
|
2014 |
| 34 |
| |
2015 |
| 29 |
| |
2016 |
| 25 |
| |
2017 |
| 18 |
| |
Balance thereafter |
| 38 |
| |
(in millions) Year Minimum Lease Payments 2016 $ 44 2017 38 2018 33 2019 28 2020 20 Balance thereafter 56 67
NOTE 89 - Income Taxes
The components of income before income taxes and the provision for income taxes are shown below:
(in millions) |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| ||||||
Income (loss) before income taxes: |
|
|
|
|
|
|
| |||||||||||||
Income before income taxes: |
|
|
|
|
|
|
| |||||||||||||
United States |
| $ | 91 |
| $ | 158 |
| $ | (26 | ) |
| $ | 109 |
| $ | 83 |
| $ | 138 |
|
Foreign |
| 510 |
| 435 |
| 301 |
|
| 490 |
| 437 |
| 409 |
| ||||||
Total |
| $ | 601 |
| $ | 593 |
| $ | 275 |
|
| $ | 599 |
| $ | 520 |
| $ | 547 |
|
Provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
US federal |
| $ | 3 |
| $ | 9 |
| $ | (4 | ) |
| $ | 26 |
| $ | 8 |
| $ | 5 |
|
State and local |
| 1 |
| 2 |
| 2 |
|
| 3 |
| 1 |
| 3 |
| ||||||
Foreign |
| 166 |
| 141 |
| 131 |
|
| 164 |
| 159 |
| 106 |
| ||||||
Total current |
| $ | 170 |
| $ | 152 |
| $ | 129 |
|
| $ | 193 |
| $ | 168 |
| $ | 114 |
|
Deferred tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
US federal |
| $ | (5 | ) | $ | 10 |
| $ | (8 | ) |
| $ | (8 | ) | $ | (16 | ) | $ | 11 |
|
State and local |
| 2 |
| 3 |
| (1 | ) |
| (1 | ) | (2 | ) | (2 | ) | ||||||
Foreign |
| — |
| 5 |
| (21 | ) |
| 3 |
| 7 |
| 21 |
| ||||||
Total deferred |
| $ | (3 | ) | $ | 18 |
| $ | (30 | ) |
| $ | (6 | ) | $ | (11 | ) | $ | 30 |
|
Total provision for income taxes |
| $ | 167 |
| $ | 170 |
| $ | 99 |
|
| $ | 187 |
| $ | 157 |
| $ | 144 |
|
Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Significant temporary differences at December 31, 20122015, and 20112014 are summarized as follows:
(in millions) |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| ||||
Deferred tax assets attributable to: |
|
|
|
|
|
|
|
|
|
| ||||
Employee benefit accruals |
| $ | 19 |
| $ | 17 |
|
| $ | 34 |
| $ | 23 |
|
Pensions and postretirement medical |
| 65 |
| 42 |
| |||||||||
Hedging/derivative contracts |
| 10 |
| 19 |
| |||||||||
Pensions and postretirement plans |
| 30 |
| 30 |
| |||||||||
Derivative contracts |
| 14 |
| 9 |
| |||||||||
Net operating loss carryforwards |
| 23 |
| 29 |
|
| 13 |
| 19 |
| ||||
Foreign tax credit carryforwards |
| 24 |
| 29 |
|
| 3 |
| — |
| ||||
Other |
| 53 |
| 37 |
|
| 38 |
| 30 |
| ||||
Gross deferred tax assets |
| $ | 194 |
| $ | 173 |
|
| $ | 132 |
| $ | 111 |
|
Valuation allowance |
| (9 | ) | (23 | ) |
| (12 | ) | (11 | ) | ||||
Net deferred tax assets |
| $ | 185 |
| $ | 150 |
|
| $ | 120 |
| $ | 100 |
|
Deferred tax liabilities attributable to: |
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment |
| $ | 202 |
| $ | 191 |
|
| $ | 193 |
| $ | 194 |
|
Identified intangibles |
| 59 |
| 68 |
|
| 59 |
| 34 |
| ||||
Total deferred tax liabilities |
| $ | 261 |
| $ | 259 |
| |||||||
Gross deferred tax liabilities |
| $ | 252 |
| $ | 228 |
| |||||||
Net deferred tax liabilities |
| $ | 76 |
| $ | 109 |
|
| $ | 132 |
| $ | 128 |
|
Of the $23$13 million of tax effectedtax-effected net operating loss carryforwards at December 31, 2012,2015, approximately $16$9 million are in Korea, and will expire in 2019 through 2021, if unused. The Company anticipates full utilization of the Korean carryforward. The tax value of the foreign tax credit carryforwards of $24 million at December 31,
2012 are scheduled to expire in 2014 through 2022. The Company anticipates full utilization of the foreign tax credits before any expiration.
for state loss carryforwards. Income tax accounting requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making this assessment, management considers the level of historical taxable income, scheduled reversal of deferred tax
liabilities, tax planning strategies, tax carryovers and projected future taxable income. At December 31, 2012,2015, the Company maintains valuation allowances of $9 million against approximately $6 million of foreign operating loss carryforwards, $2 million offor state loss carryforwards and $1$3 million of US capitalfor foreign loss carryforwardcarryforwards that management has determined will more likely than not expire prior to realization. The valuation allowance with respect to certain foreign net operating losses and net deferred tax assets decreased to approximately $6 million at December 31, 2012, from $23 million at December 31, 2011. The Company released the $15 million valuation allowance ($13 million discrete in the second quarter of 2012) on the net deferred tax assets of Korea during 2012. The Korean 36-month cumulative pretax income balance turned positive in 2012, and management has evaluated the realizability of the net deferred tax assets using all of the available evidence, both positive and negative, and concluded that it is more likely than not that the Korean deferred tax asset will be realized. Also, during 2012 the Company recognized an impairment charge for virtually all of the assets of its Kenyan subsidiary and ceased to conduct business in the ordinary course. Given the full asset impairment and no expectation of future utilization, the $3 million of net deferred tax assets and related $3 million of valuation allowance at December 31, 2011, have been extinguished during 2012.
A reconciliation of the US federal statutory tax rate to the Company’s effective tax rate follows:
|
| 2012 |
| 2011 |
| 2010 |
|
Provision for tax at US statutory rate |
| 35.00 | % | 35.00 | % | 35.00 | % |
Tax rate difference on foreign income |
| (3.86 | ) | (3.62 | ) | .31 |
|
State and local taxes — net |
| .79 |
| .58 |
| .15 |
|
Change in valuation allowance — foreign tax credits |
| — |
| (.62 | ) | (2.26 | ) |
Reversal of Korea valuation allowance |
| (2.52 | ) | — |
| — |
|
Reversal of Chile valuation allowance |
| (.06 | ) | (.09 | ) | 2.13 |
|
Non-deductible National Starch acquisition costs |
| .04 |
| .04 |
| 1.22 |
|
NAFTA Award |
| — |
| (3.45 | ) | — |
|
Other items — net |
| (1.61 | ) | .83 |
| (.46 | ) |
Provision at effective tax rate |
| 27.78 | % | 28.67 | % | 36.09 | % |
|
| 2015 |
| 2014 |
| 2013 |
|
Provision for tax at US federal statutory rate |
| 35.00 | % | 35.00 | % | 35.00 | % |
Tax rate difference on foreign income |
| (5.75 | ) | (6.26 | ) | (5.28 | ) |
State and local taxes — net |
| 0.28 |
| 0.13 |
| 0.35 |
|
Nondeductible goodwill impairment - Southern Cone |
| — |
| 2.18 |
| — |
|
Tax impact of fluctuations in Mexican Pesos to US Dollar |
| 2.87 |
| 1.30 |
| — |
|
Other items — net |
| (1.18 | ) | (2.16 | ) | (3.74 | ) |
Provision at effective tax rate |
| 31.22 | % | 30.19 | % | 26.33 | % |
The Company has significant operations in Canada, Mexico and Thailand where the statutory tax rates are 25 percent, 30 percent and 20 percent in 2015, respectively. In addition, the Company’s subsidiary in Brazil has a statutory tax rate of 34 percent, before local incentives that vary each year.
The Company has determined that the US dollar is the functional currency for its subsidiaries in Mexico. Because of the decline in the value of the Mexican peso versus the US dollar in 2015 and 2014, the Mexican tax provision includes increased tax expense of approximately $17 million or 2.87 percentage points on the effective tax rate in 2015, and $7 million or 1.3 percentage points on the effective tax rate in 2014. These impacts are largely associated with foreign currency transaction gains for local tax purposes on net US dollar monetary assets held in Mexico for which there is no corresponding gain in pre-tax income.
During 2015, an audit was settled at a National Starch subsidiary related to a pre-acquisition period for which we are indemnified by Akzo Nobel N.V. (“Akzo”). In the third quarter of 2014, the Company recognized increased tax expense to reserve approximately $7 million ($5 million of tax and $2 million of interest) or 1.3 percentage points in the effective tax rate for the audit. In the third quarter of 2015 the reserve was reduced by approximately $4 million ($3 million of tax and $1 million of interest) which resulted in a decrease of 0.7 percentage points in the 2015 effective tax rate. These impacts are included in the rate reconciliation within “Other items-net”. The $7 million of tax expense and $4 million of reduced tax expense were recorded in the tax provision of the subsidiary, while the reimbursement from Akzo under the indemnity is recorded as other income-net, which results in no impact in net income for all periods.
Provisions are made for estimated US and foreign income taxes, less credits that may be available, on distributions from foreign subsidiaries to the extent dividends are anticipated. No provision has been made for income taxes on approximately $1.585$2.4 billion of undistributed earnings of foreign subsidiaries at December 31, 2012,2015, as such amounts are considered permanently reinvested. It is not practicable to estimate the additional income taxes, including applicable withholding taxes and credits that would be due upon the repatriation of these earnings.
A reconciliation of the beginning and ending amountamounts of unrecognized tax benefits, excluding interest and penalties, for 20122015 and 20112014 is as follows:
(in millions) |
| 2012 |
| 2011 |
| ||
Balance at January 1 |
| $ | 35 |
| $ | 29 |
|
Additions for tax positions related to prior years |
| 3 |
| 9 |
| ||
Reductions for tax positions related to prior years |
| — |
| (1 | ) | ||
Additions based on tax positions related to the current year |
| 6 |
| 4 |
| ||
Reductions related to a lapse in the statute of limitations |
| (7 | ) | (6 | ) | ||
Balance at December 31 |
| $ | 37 |
| $ | 35 |
|
(in millions) 2015 2014 Balance at January 1 $ 23 $ 34 Additions for tax positions related to prior years — 6 Reductions for tax positions related to prior years (10 ) (5 ) Additions based on tax positions related to the current year 1 — Reductions related to a lapse in the statute of limitations (2 ) (12 ) Balance at December 31 $ 12 $ 23 69
Of the $37$12 million of unrecognized tax benefits at December 31, 2012, $262015, $3 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate in future periods. The remaining $11$9 million representswould include an offset of $12 million of foreign tax credit carryforwards that would otherwise be created as part of the Canada and US audit process described below.
The Company accounts for interest and penalties related to income tax matters inwithin the provision for income tax expense.taxes. The Company has accrued $2$4 million of interest expense (net of $4 million interest income) and $1 million of penalties related to the unrecognized tax benefits as of December 31, 2012.2015. The accrued interest expense was $4$6 million (net of $3 million interest income) and accrued penalties were $1 million of penalties as of December 31, 2011.2014.
The Company is subject to US federal income tax as well as income tax in multiple state and non-US jurisdictions. The US federal tax returns are subject to audit for the years 20092012 to 2012. The Company remains2015. In general, the Company’s foreign subsidiaries remain subject to potential examination in Canada, Argentinaaudit for years 2009 and Germanylater.
During 2014, the US and Canadian tax authorities reached an agreement that settled the issues for the years 2005 to 2012, and in Brazil, Mexico and Pakistan for the years 2007 to 2012. The statute of limitations is generally open for similar periods in various other non-US jurisdictions.
In 2008 and 2007, the Company made deposits of approximately $13 million and $17 million, respectively, to the Canadian tax authorities relating to an ongoing audit examination.2000 through 2003. The Company did not make any additional deposits relatingcontinues to this ongoing audit examination in 2012. The Company has settled $2 million of the claims and is in the process of pursuingpursue relief from double taxation under the US and Canadian tax treaty for the remaining items raised inyears 2004-2015, and it is possible but not assured, that a conclusion could be reached on the audit. As a result, the US and Canadian tax returns are subject to adjustment from 2000 and forward for the specific issues being contested.remaining periods within 12 months of December 31, 2015. The Company believes that it has adequately provided for the most likely outcome of the settlement process.
It is also reasonably possible that the total amount of unrecognized tax benefits will increase or decrease within twelve months of December 31, 2012.2015. The Company has classified $7$1 million of the unrecognized tax benefits as short termcurrent because they are expected to be resolved within the next twelve months.
NOTE 9 —10 – Benefit Plans
The Company and its subsidiaries sponsor noncontributory defined benefit pension plans covering substantially all employees in the United States and Canada, and certain employees in other foreign countries. Plans for most salaried employees provide pay-related benefits based on years of service. Plans for hourly employees generally provide benefits based on flat dollar amounts and years of service. The Company’s general funding policy is to make contributions to the plans in amounts that comply with minimum funding requirements and are within the limits of deductibility under current tax regulations. Certain foreign countries allow income tax deductions without regard to contribution levels, and the Company’s policy in those countries is to make contributions required by the terms of the applicable plan.
DomesticCertain US salaried employees are covered by a defined benefit “cash balance” pension plan, which provides benefits based on service credits to the participating employees’ accounts of between 3 percent and 10 percent of base salary, bonus and overtime.
Included in the Company’s pension obligation are nonqualified supplemental retirement plans for certain key employees. All benefits provided under these plans are unfunded, and payments to plan participants are made by the Company.
The Company also provides healthcare and/or life insurance benefits for retired employees in the United States, Canada and Brazil. Healthcare benefits for retirees outside of the United States, Canada, and Brazil are generally covered through local government plans.
During the first quarter of 2015, the Company amended one of its pension plans in Canada to eliminate future benefit accruals for the plan effective April 30, 2015. This plan curtailment resulted in an improvement in the funded status of the plan by approximately $9 million in the first quarter. The impact of this plan curtailment on net periodic benefit cost for the year ended December 31, 2015 was not significant. Also during the first quarter of 2015, the Company acquired certain pension and postretirement obligations and related assets as part of the Penford acquisition.
In the fourth quarter of 2014, the Company amended its retiree medical plan in the US for salaried employees. This amendment provided that employees must meet certain age and years of service requirements through December 31, 2014 in order to continue to participate in the plan. As such, the number of eligible employees was significantly reduced. Eligible US salaried employees are provided with access to postretirement medical insurance through retirement healthcare spending accounts. US salaried employees accrue an account during employment,
which can be used after employment to purchase postretirement medical insurance from the Company prior to age 65 and Medigap or through Medicare HMO policies after age 65. The accounts are credited with a flat dollar amount and indexed for inflation annually during employment. These credits ceased after December 31, 2014. The accounts also accrue interest credits using a rate equal to a specified amount above the yield on five-year US Treasury notes. Employees can use the amounts accumulated in these accounts, including credited interest, to purchase postretirement medical insurance. Employees become eligible for benefits when they meet minimum age and service requirements. The Company
recognizes the cost of these postretirement benefits by accruing a flat dollar amount on an annual basis for each domesticUS salaried employee.
Pension Obligation and Funded Status — – The changes in pension benefit obligations and plan assets during 20122015 and 2011,2014, as well as the funded status and the amounts recognized in the Company’s Consolidated Balance Sheets related to the Company’s pension plans at December 31, 20122015 and 2011,2014, were as follows:
|
| US Plans |
| Non-US Plans |
|
| US Plans |
| Non-US Plans |
| ||||||||||||||||
(in millions) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| ||||||||
Benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
At January 1 |
| $ | 271 |
| $ | 244 |
| $ | 216 |
| $ | 205 |
|
| $ | 314 |
| $ | 293 |
| $ | 267 |
| $ | 250 |
|
Service cost |
| 7 |
| 7 |
| 8 |
| 5 |
|
| 8 |
| 7 |
| 4 |
| 6 |
| ||||||||
Interest cost |
| 12 |
| 13 |
| 13 |
| 15 |
|
| 14 |
| 13 |
| 12 |
| 14 |
| ||||||||
Benefits paid |
| (15 | ) | (13 | ) | (12 | ) | (11 | ) |
| (15 | ) | (17 | ) | (11 | ) | (11 | ) | ||||||||
Actuarial loss |
| 48 |
| 19 |
| 34 |
| 12 |
| |||||||||||||||||
Actuarial (gain) loss |
| (26 | ) | 22 |
| (4 | ) | 33 |
| |||||||||||||||||
Business combinations / transfers |
| — |
| — |
| 12 |
| 8 |
|
| 73 |
| — |
| — |
| (2 | ) | ||||||||
Plan amendment |
| — |
| 1 |
| — |
| — |
| |||||||||||||||||
Curtailment / settlement |
| — |
| — |
| (4 | ) | (11 | ) | |||||||||||||||||
Curtailment / settlement / amendments |
| (9 | ) | (4 | ) | (11 | ) | — |
| |||||||||||||||||
Foreign currency translation |
| — |
| — |
| 5 |
| (7 | ) |
| — |
| — |
| (38 | ) | (23 | ) | ||||||||
Benefit obligation at December 31 |
| $ | 323 |
| $ | 271 |
| $ | 272 |
| $ | 216 |
|
| $ | 359 |
| $ | 314 |
| $ | 219 |
| $ | 267 |
|
Fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
At January 1 |
| $ | 222 |
| $ | 204 |
| $ | 156 |
| $ | 157 |
|
| $ | 313 |
| $ | 297 |
| $ | 232 |
| $ | 223 |
|
Actual return on plan assets |
| 27 |
| 14 |
| 12 |
| 8 |
|
| (2 | ) | 30 |
| 16 |
| 28 |
| ||||||||
Employer contributions |
| 23 |
| 17 |
| 15 |
| 15 |
|
| 11 |
| 6 |
| 5 |
| 11 |
| ||||||||
Benefits paid |
| (15 | ) | (13 | ) | (12 | ) | (11 | ) |
| (15 | ) | (17 | ) | (11 | ) | (11 | ) | ||||||||
Settlements |
| — |
| — |
| — |
| (11 | ) | |||||||||||||||||
Business combinations / transfers |
| — |
| — |
| 15 |
| 3 |
| |||||||||||||||||
Plan settlements |
| (9 | ) | (3 | ) | — |
| — |
| |||||||||||||||||
Business combinations |
| 56 |
| — |
| — |
| — |
| |||||||||||||||||
Foreign currency translation |
| — |
| — |
| 3 |
| (5 | ) |
| — |
| — |
| (36 | ) | (19 | ) | ||||||||
Fair value of plan assets at December 31 |
| $ | 257 |
| $ | 222 |
| $ | 189 |
| $ | 156 |
|
| $ | 354 |
| $ | 313 |
| $ | 206 |
| $ | 232 |
|
Funded status |
| $ | (66 | ) | $ | (49 | ) | $ | (83 | ) | $ | (60 | ) |
| $ | (5 | ) | $ | (1 | ) | $ | (13 | ) | $ | (35 | ) |
Amounts recognized in the Consolidated Balance Sheets as of December 31, 20122015 and 20112014 were as follows:
|
| US Plans |
| Non-US Plans |
| ||||||||
(in millions) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Noncurrent asset |
| $ | — |
| $ | — |
| $ | 1 |
| $ | 1 |
|
Current liabilities |
| (1 | ) | — |
| (3 | ) | (2 | ) | ||||
Noncurrent liabilities |
| (65 | ) | (49 | ) | (81 | ) | (59 | ) | ||||
Net liability recognized |
| $ | (66 | ) | $ | (49 | ) | $ | (83 | ) | $ | (60 | ) |
|
| US Plans |
| Non-US Plans |
| ||||||||
(in millions) |
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| ||||
Other assets |
| $ | 18 |
| $ | 12 |
| $ | 32 |
| $ | 18 |
|
Accrued liabilities |
| (1 | ) | (1 | ) | (3 | ) | (1 | ) | ||||
Non-current liabilities |
| (22 | ) | (12 | ) | (42 | ) | (52 | ) | ||||
Net liability recognized |
| $ | (5 | ) | $ | (1 | ) | $ | (13 | ) | $ | (35 | ) |
Amounts recognized in accumulated other comprehensive loss, excluding tax effects, that have not yet been recognized as components of net periodic benefit cost at December 31, 20122015 and 20112014 were as follows:
|
| US Plans |
| Non-US Plans |
|
| US Plans |
| Non-US Plans |
| ||||||||||||||||
(in millions) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| ||||||||
Net actuarial loss |
| $ | 67 |
| $ | 32 |
| $ | 92 |
| $ | 65 |
|
| $ | 19 |
| $ | 19 |
| $ | 48 |
| $ | 69 |
|
Prior service cost |
| — |
| — |
| — |
| (1 | ) | |||||||||||||||||
Transition obligation |
| — |
| — |
| 2 |
| 3 |
|
| — |
| — |
| 2 |
| 2 |
| ||||||||
Prior service credit |
| (2 | ) | (2 | ) | (1 | ) | (1 | ) | |||||||||||||||||
Net amount recognized |
| $ | 67 |
| $ | 32 |
| $ | 94 |
| $ | 67 |
|
| $ | 17 |
| $ | 17 |
| $ | 49 |
| $ | 70 |
|
The increasedecrease in the net amount recognized in accumulated comprehensive loss at December 31, 20122015 for the Non-US plans, as compared to December 31, 2011,2014, is largely due to a decreasean increase in discount rates used to measure the Company’s obligationobligations under ourits pension plans slightly offset by higher than expected returns on plan assets for most plans.in addition to the effect of the curtailment described above.
The accumulated benefit obligation for all defined benefit pension plans was $548$541 million and $447$527 million at December 31, 20122015 and December 31, 2011,2014, respectively.
Information about plan obligations and assets for plans with an accumulated benefit obligation in excess of plan assets is as follows:
|
| US Plans |
| Non-US Plans |
|
| US Plans |
| Non-US Plans |
| ||||||||||||||||
(in millions) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| ||||||||
Projected benefit obligation |
| $ | 323 |
| $ | 271 |
| $ | 262 |
| $ | 102 |
|
| $ | 164 |
| $ | 9 |
| $ | 47 |
| $ | 54 |
|
Accumulated benefit obligation |
| 314 |
| 265 |
| 227 |
| 85 |
|
| 158 |
| 8 |
| 38 |
| 43 |
| ||||||||
Fair value of plan assets |
| 257 |
| 222 |
| 178 |
| 51 |
|
| 141 |
| — |
| 2 |
| 2 |
|
Components of net periodic benefit cost consist of the following for the years ended December 31, 2012, 20112015, 2014 and 2010:2013:
|
| US Plans |
| Non-US Plans |
|
| US Plans |
| Non-US Plans |
| ||||||||||||||||||||||||||||
(in millions) |
| 2012 |
| 2011 |
| 2010 |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| 2015 |
| 2014 |
| 2013 |
| ||||||||||||
Service cost |
| $ | 7 |
| $ | 7 |
| $ | 5 |
| $ | 8 |
| $ | 5 |
| $ | 3 |
|
| $ | 8 |
| $ | 7 |
| $ | 8 |
| $ | 4 |
| $ | 6 |
| $ | 9 |
|
Interest cost |
| 12 |
| 13 |
| 7 |
| 13 |
| 15 |
| 10 |
|
| 14 |
| 13 |
| 11 |
| 12 |
| 14 |
| 12 |
| ||||||||||||
Expected return on plan assets |
| (16 | ) | (15 | ) | (7 | ) | (13 | ) | (11 | ) | (10 | ) |
| (24 | ) | (21 | ) | (18 | ) | (13 | ) | (14 | ) | (12 | ) | ||||||||||||
Amortization of actuarial loss |
| 1 |
| 1 |
| 1 |
| 4 |
| 2 |
| 1 |
|
| 1 |
| 1 |
| 2 |
| 3 |
| 3 |
| 5 |
| ||||||||||||
Amortization of transition obligation |
| — |
| — |
| — |
| 1 |
| 1 |
| — |
| |||||||||||||||||||||||||
Settlement/Curtailment |
| — |
| 2 |
| — |
| 1 |
| — |
| — |
| |||||||||||||||||||||||||
Settlement gain |
| (1 | ) | — |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||
Net periodic benefit cost |
| $ | 4 |
| $ | 8 |
| $ | 6 |
| $ | 14 |
| $ | 12 |
| $ | 4 |
|
| $ | (2 | ) | $ | — |
| $ | 3 |
| $ | 6 |
| $ | 9 |
| $ | 14 |
|
For the US plans, the Company estimates that net periodic benefit cost for 20132016 will include approximately $2$1 million relating to the amortization of its accumulated actuarial loss included in accumulated other comprehensive loss at December 31, 2012.2015.
For the non-US plans, the Company estimates that net periodic benefit cost for 20132016 will include approximately $5$1 million relating to the amortization of its accumulated actuarial loss and $0.3 million relating to the amortization of transition obligation included in accumulated other comprehensive loss at December 31, 2012.loss.
Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets are recognized as a component of net periodic benefit cost over the average remaining service period of a plan’s active employees for active defined benefit pension plans and over the average remaining life of a plan’s active employees for frozen defined benefit pension plans.
Total amounts recorded in other comprehensive lossincome and net periodic benefit cost during 20122015 was as follows:
(in millions) |
| US Plans |
| Non-US Plans |
| ||
Net actuarial loss |
| $ | 36 |
| $ | 29 |
|
Amortization of actuarial loss |
| (1 | ) | (4 | ) | ||
Amortization of transition obligation |
| — |
| (1 | ) | ||
Foreign currency translation |
| — |
| 3 |
| ||
Total recorded in other comprehensive loss |
| 35 |
| 27 |
| ||
Net periodic benefit cost |
| 4 |
| 14 |
| ||
Total recorded in other comprehensive loss and net periodic benefit cost |
| $ | 39 |
| $ | 41 |
|
(in millions, pre-tax) |
| US Plans |
| Non-US Plans |
| ||
Net actuarial gain |
| $ | — |
| $ | (18 | ) |
Amortization of actuarial loss |
| (1 | ) | (3 | ) | ||
Settlement gain |
| 1 |
| — |
| ||
Total recorded in other comprehensive income |
| — |
| (21 | ) | ||
Net periodic benefit cost |
| (2 | ) | 6 |
| ||
Total recorded in other comprehensive income and net periodic benefit cost |
| $ | (2 | ) | $ | (15 | ) |
The following weighted average assumptions were used to determine the Company’s obligations under the pension plans:
|
| US Plans |
| Non-US Plans |
|
| US Plans |
| Non-US Plans |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
|
Discount rate |
| 3.60 | % | 4.50 | % | 4.85 | % | 5.68 | % |
| 4.54 | % | 4.00 | % | 4.57 | % | 4.47 | % |
Rate of compensation increase |
| 4.19 | % | 4.19 | % | 4.35 | % | 4.51 | % |
| 4.71 | % | 4.31 | % | 3.73 | % | 3.76 | % |
The following weighted average assumptions were used to determine the Company’s net periodic benefit cost for the pension plans:
|
| US Plans |
| Non-US Plans |
|
| US Plans |
| Non-US Plans |
| ||||||||||||||||
|
| 2012 |
| 2011 |
| 2010 |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| 2015 |
| 2014 |
| 2013 |
|
Discount rate |
| 4.50 | % | 5.35 | % | 5.85 | % | 5.68 | % | 5.73 | % | 7.24 | % |
| 4.00 | % | 4.60 | % | 3.60 | % | 4.47 | % | 5.60 | % | 4.88 | % |
Expected long-term return on plan assets |
| 7.25 | % | 7.25 | % | 7.25 | % | 6.81 | % | 6.73 | % | 7.37 | % |
| 7.00 | % | 7.25 | % | 7.25 | % | 6.48 | % | 6.82 | % | 6.69 | % |
Rate of compensation increase |
| 4.19 | % | 2.75 | % | 2.75 | % | 4.51 | % | 3.79 | % | 4.12 | % |
| 4.31 | % | 4.22 | % | 4.19 | % | 3.76 | % | 4.39 | % | 4.35 | % |
TheFor 2016 and 2015, the Company has assumed an expected long-term rate of return on assets of 7.255.75 percent and 7.00 percent for US plans and 6.50approximately 5.00 percent and 6.00 percent for Canadian plans.plans, respectively. In developing the expected long-term rate of return assumption on plan assets, which consist mainly of US and Canadian equity and debt securities, management evaluated historical rates of return achieved on plan assets and the asset allocation of the plans, input from the Company’s independent actuaries and investment consultants, and historical trends in long-term inflation rates. Projected return estimates made by such consultants are based upon broad equity and bond indices. The decrease in expected long-term rate of return on assets is due to the expected change in our investment approach and related asset allocation during 2016 to a liability-driven investment approach. As a result, a higher proportion of investments are expected to be in interest-sensitive investments (fixed income) as compared to the current investment strategy for the US and Canada pension plans.
The discount rate reflects a rate of return on high qualityhigh-quality fixed income investments that match the duration of the expected benefit payments. The Company has typically used returns on long-term, high qualityhigh-quality corporate AA bonds as a benchmark in establishing this assumption. In 2016, we are changing the method used to estimate the service and interest cost components of net periodic benefit cost for certain of our defined benefit pension and postretirement benefit plans. Historically, we estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. For 2016, we have elected to use a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.
Plan Assets — – The Company’s investment policy for its pension plans is to balance risk and return through diversified portfolios of equity instruments, fixed income securities, and short-term investments. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. For US pension plans, the weighted average target range allocation of assets was 38-72 percent in equities, 31-58 percent in fixed income and 1-3 percent in cash and other short-term investments. The asset allocation is reviewed regularly and portfolio investments are rebalanced to the targeted allocation when considered appropriate.
Table The Company anticipates increasing its target allocation of Contentsassets in fixed income portfolios in the future due to the funded nature of the US and Canada plans.
The Company’s weighted average asset allocation as of December 31, 20122015 and 20112014 for US and non-US pension plan assets is as follows:
|
| US Plans |
| Non-US Plans |
|
| US Plans |
| Non-US Plans |
| ||||||||
Asset Category |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
|
Equity securities |
| 61 | % | 53 | % | 42 | % | 46 | % |
| 62 | % | 62 | % | 49 | % | 50 | % |
Debt securities |
| 38 | % | 45 | % | 47 | % | 46 | % |
| 37 | % | 37 | % | 38 | % | 40 | % |
Cash and other |
| 1 | % | 2 | % | 11 | % | 8 | % |
| 1 | % | 1 | % | 13 | % | 10 | % |
Total |
| 100 | % | 100 | % | 100 | % | 100 | % |
| 100 | % | 100 | % | 100 | % | 100 | % |
The fair values of the Company’s plan assets at December 31, 2012,2015, by asset category and level in the fair value hierarchy are as follows:
Asset Category
|
| Fair Value Measurements at December 31, 2012 |
|
| Fair Value Measurements at December 31, 2015 |
| ||||||||||||||||||
|
| Quoted Prices |
|
|
|
|
|
|
| |||||||||||||||
|
| in Active |
|
|
|
|
|
|
| |||||||||||||||
|
| Markets for |
| Significant |
| Significant |
|
|
| |||||||||||||||
|
| Identical |
| Observable |
| Unobservable |
|
|
| |||||||||||||||
Asset Category |
| Assets |
| Inputs |
| Inputs |
|
|
| |||||||||||||||
(in millions) |
| Quoted Prices |
| Significant |
| Significant |
| Total |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||||
US Plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Equity index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
US (a) |
|
|
| $ | 126 |
|
|
| $ | 126 |
|
|
|
| $ | 181 |
|
|
| $ | 181 |
| ||
International (b) |
|
|
| 27 |
|
|
| 27 |
|
|
|
| 32 |
|
|
| 32 |
| ||||||
Real estate (c) |
|
|
| 3 |
|
|
| 3 |
|
|
|
| 5 |
|
|
| 5 |
| ||||||
Fixed income index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Intermediate bond (d) |
|
|
| 22 |
|
|
| 22 |
|
|
|
| 68 |
|
|
| 68 |
| ||||||
Long bond (e) |
|
|
| 76 |
|
|
| 76 |
|
|
|
| 64 |
|
|
| 64 |
| ||||||
Cash (f) |
|
|
| 3 |
|
|
| 3 |
|
|
|
| 4 |
|
|
| 4 |
| ||||||
Total US Plans |
|
|
|
| $ | 257 |
|
|
| $ | 257 |
|
|
|
| $ | 354 |
|
|
| $ | 354 |
| |
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Non-US Plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Equity index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
US (a) |
|
|
| $ | 27 |
|
|
| $ | 27 |
|
|
|
| $ | 36 |
|
|
| $ | 36 |
| ||
Canada (g) |
|
|
| 28 |
|
|
| 28 |
|
|
|
| 28 |
|
|
| 28 |
| ||||||
International (b) |
|
|
| 26 |
|
|
| 26 |
|
|
|
| 35 |
|
|
| 35 |
| ||||||
Fixed income index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Intermediate bond (d) |
|
|
| 2 |
|
|
| 2 |
|
|
|
| 1 |
|
|
| 1 |
| ||||||
Long bond (h) |
|
|
| 87 |
|
|
| 87 |
|
|
|
| 79 |
|
|
| 79 |
| ||||||
Other (i) |
|
|
| 14 |
|
|
| 14 |
|
|
|
| 25 |
|
|
| 25 |
| ||||||
Cash (f) |
| 5 |
|
|
|
|
| 5 |
|
| 2 |
|
|
|
|
| 2 |
| ||||||
Total Non-US Plans |
| $ | 5 |
| $ | 184 |
|
|
| $ | 189 |
|
| $ | 2 |
| $ | 204 |
|
|
| $ | 206 |
|
(a)This category consists of a passively managed equity index fund that tracks the return of large capitalization US equities.
(b)This category consists of a passively managed equity index fund that tracks an index of returns on international developed market equities.
(c)This category consists of a passively managed equity index fund that tracks a US real estate equity securities index that includes equities of real estate investment trusts and real estate operating companies.
(d)This category consists of a passively managed fixed income index fund that tracks the return of intermediate duration US government and investment grade corporate bonds.
(e)This category consists of a passively managed fixed income fund that tracks the return of long duration US government and investment grade corporate bonds.
(f)This category represents cash or cash equivalents.
(g)This category consists of a passively managed equity index fund that tracks the return of large and mid-sized capitalization equities traded on the Toronto Stock Exchange.
(h)This category consists of a passively managed fixed income index fund that tracks the return of the universe of Canada government and investment grade corporate bonds.
(i)This category mainly consists of an investment productproducts provided by an insurance company that offers returns that are subject to a minimum guarantee.
All significant pension plan assets are held in collective trusts by the Company’s US and non-US plans (the “Plan”).plans. The fair values of shares of collective trusts are based upon the net asset values of the funds reported by the fund managers based on quoted market prices of the underlying securities as of the balance sheet date and are determinedconsidered to be Level 2 fair value measurements. This may produce a fair value measurement that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies could result in different fair value measurements at the reporting date.
In 2012,2015, the Company made cash contributions of $23$11 million and $15$5 million to its US and non-US pension plans, respectively. The Company anticipates that in 20132016 it will make cash contributions of $12$1 million and $14$4 million to its US and non-US pension plans, respectively. Cash contributions in subsequent years will depend on a number of factors including the performance of plan assets. The following benefit payments, which reflect anticipated future service, as appropriate, are expected to be made:
(in millions) |
| US Plans |
| Non-US Plans |
| ||
2013 |
| $ | 19 |
| $ | 13 |
|
2014 |
| 17 |
| 14 |
| ||
2015 |
| 17 |
| 13 |
| ||
2016 |
| 17 |
| 14 |
| ||
2017 |
| 20 |
| 15 |
| ||
Years 2018 - 2022 |
| 105 |
| 85 |
| ||
(in millions) |
| US Plans |
| Non-US Plans |
| ||
2016 |
| $ | 19 |
| $ | 16 |
|
2017 |
| 22 |
| 11 |
| ||
2018 |
| 22 |
| 10 |
| ||
2019 |
| 23 |
| 11 |
| ||
2020 |
| 24 |
| 11 |
| ||
Years 2021 - 2025 |
| 128 |
| 61 |
| ||
The Company and certain subsidiaries also maintain defined contribution plans. The Company makes matching contributions to these plans that are subject to certain vesting requirements and are based on a percentage of employee contributions. Amounts charged to expense for defined contribution plans totaled $13$17 million, $12$17 million and $8$15 million in 2012, 20112015, 2014 and 2010,2013, respectively.
Postretirement Benefit Plans — The Company’s postretirement benefit plans currently are not funded. The information presented below includes plans in the United States, Brazil, and Canada. The changes in the benefit obligations of the plans during 20122015 and 2011,2014, and the amounts recognized in the Company’s Consolidated Balance Sheets at December 31, 20122015 and 2011,2014, are as follows:
(in millions) |
| 2012 |
| 2011 |
| ||
Accumulated postretirement benefit obligation |
|
|
|
|
| ||
At January 1 |
| $ | 54 |
| $ | 88 |
|
Service cost |
| 2 |
| 2 |
| ||
Interest cost |
| 3 |
| 4 |
| ||
Plan amendment |
| — |
| (23 | ) | ||
Curtailment / settlement |
| — |
| (26 | ) | ||
Actuarial loss |
| 17 |
| 10 |
| ||
Benefits paid |
| (2 | ) | (3 | ) | ||
Business combinations / transfers |
| — |
| 4 |
| ||
Foreign currency translation |
| — |
| (2 | ) | ||
At December 31 |
| $ | 74 |
| $ | 54 |
|
Fair value of plan assets |
| — |
| — |
| ||
Funded status |
| $ | (74 | ) | $ | (54 | ) |
A United States hourly postretirement plan became a member of a multi-employer plan and because of this change, a non-cash curtailment gain of $30 million was recognized as a reduction of net periodic benefit cost in 2011. This curtailment gain represented the previously established liability related to this coverage, net of unrecognized actuarial amounts and prior service previously included in accumulated other comprehensive loss.
(in millions) |
| 2015 |
| 2014 |
| ||
Accumulated postretirement benefit obligation |
|
|
|
|
| ||
At January 1 |
| $ | 47 |
| $ | 57 |
|
Service cost |
| 1 |
| 3 |
| ||
Interest cost |
| 3 |
| 4 |
| ||
Plan amendment |
| 1 |
| (16 | ) | ||
Actuarial (gain) loss |
| (1 | ) | 4 |
| ||
Business combinations / transfers |
| 21 |
| — |
| ||
Benefits paid |
| (3 | ) | (3 | ) | ||
Foreign currency translation |
| (5 | ) | (2 | ) | ||
At December 31 |
| $ | 64 |
| $ | 47 |
|
Fair value of plan assets |
| — |
| — |
| ||
Funded status |
| $ | (64 | ) | $ | (47 | ) |
Amounts recognized in the Consolidated Balance Sheet consist of:
(in millions) |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| ||||
Current liabilities |
| $ | (2 | ) | $ | (2 | ) | |||||||
Noncurrent liabilities |
| (72 | ) | (52 | ) | |||||||||
Accrued liabilities |
| $ | (4 | ) | $ | (3 | ) | |||||||
Non-current liabilities |
| (60 | ) | (44 | ) | |||||||||
Net liability recognized |
| $ | (74 | ) | $ | (54 | ) |
| $ | (64 | ) | $ | (47 | ) |
Amounts recognized in accumulated other comprehensive (income) loss, excluding tax effects, that have not yet been recognized as components of net periodic benefit cost at December 31, 20122015 and 20112014 were as follows:
(in millions) |
| 2012 |
| 2011 |
| ||
Net actuarial loss |
| $ | 26 |
| $ | 10 |
|
Prior service cost |
| 1 |
| 1 |
| ||
Net amount recognized |
| $ | 27 |
| $ | 11 |
|
(in millions) |
| 2015 |
| 2014 |
| ||
Net actuarial loss |
| $ | 7 |
| $ | 9 |
|
Prior service credit |
| (11 | ) | (15 | ) | ||
Net amount recognized |
| $ | (4 | ) | $ | (6 | ) |
Components of net periodic benefit cost consisted of the following for the years ended December 31, 2012, 20112015, 2014 and 2010:2013:
(in millions) |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| ||||||
Service cost |
| $ | 2 |
| $ | 2 |
| $ | 2 |
|
| $ | 1 |
| $ | 3 |
| $ | 3 |
|
Interest cost |
| 3 |
| 4 |
| 4 |
|
| 3 |
| 4 |
| 4 |
| ||||||
Amortization of actuarial loss (gain) |
| 1 |
| (1 | ) | 2 |
| |||||||||||||
Amortization of prior service cost |
| — |
| 1 |
| — |
| |||||||||||||
Settlement / curtailment |
| — |
| (31 | ) | — |
| |||||||||||||
Amortization of prior service credit |
| (2 | ) | — |
| 1 |
| |||||||||||||
Net periodic benefit cost |
| $ | 6 |
| $ | (25 | ) | $ | 8 |
|
| $ | 2 |
| $ | 7 |
| $ | 8 |
|
The Company estimates that postretirement benefit expense for 2013these plans for 2016 will include approximately $1$3 million relating to the amortization of its accumulated actuarial loss and $0.2 million relating to the amortization of its prior service costcredit included in accumulated other comprehensive lossincome at December 31, 2012.2015.
Total amounts recorded in other comprehensive lossincome and net periodic benefit cost during 20122015 was as follows:
(in millions) |
| 2012 |
| |
Net actuarial loss |
| $ | 17 |
|
Amortization of actuarial loss |
| (1 | ) | |
Foreign currency translation |
| — |
| |
Total recorded in other comprehensive loss |
| 16 |
| |
Net periodic benefit cost |
| 6 |
| |
Total recorded in other comprehensive loss and net periodic benefit cost |
| $ | 22 |
|
(in millions, pre-tax) |
| 2015 |
| |
Net actuarial gain |
| $ | (2 | ) |
Amortization of prior service credit |
| 2 |
| |
New prior service cost |
| 2 |
| |
Total recorded in other comprehensive income |
| 2 |
| |
Net periodic benefit cost |
| 2 |
| |
Total recorded in other comprehensive income and net periodic benefit cost |
| $ | 4 |
|
The following weighted average assumptions were used to determine the Company’s obligations under the postretirement plans:
|
| 2012 |
| 2011 |
|
Discount rate |
| 5.44 | % | 6.23 | % |
|
| 2015 |
| 2014 |
|
Discount rate |
| 5.30 | % | 5.70 | % |
The following weighted average assumptions were used to determine the Company’s net postretirement benefit cost:
|
| 2012 |
| 2011 |
| 2010 |
|
Discount rate |
| 6.23 | % | 5.69 | % | 6.22 | % |
|
| 2015 |
| 2014 |
| 2013 |
|
Discount rate |
| 5.70 | % | 6.47 | % | 5.44 | % |
The discount rate reflects a rate of return on high quality fixed incomehigh-quality fixed-income investments that match the duration of expected benefit payments. The Company has typically used returns on long-term, high-quality corporate AA bonds as a benchmark in establishing this assumption.
The health-carehealthcare cost trend rates used in valuing the Company’s post-retirementpostretirement benefit obligations are established based upon actual health-carehealthcare trends and consultation with actuaries and benefit providers. The following assumptions were used as of December 31, 2012:2015:
|
| US |
| Canada |
| Brazil |
|
| US |
| Canada |
| Brazil |
|
2013 Increase in per capita cost |
| 7.10 | % | 7.35 | % | 7.74 | % | |||||||
2015 increase in per capita cost |
| 6.90 | % | 6.90 | % | 8.66 | % | |||||||
Ultimate trend |
| 4.50 | % | 4.50 | % | 7.74 | % |
| 4.50 | % | 4.50 | % | 8.66 | % |
Year ultimate trend reached |
| 2028 |
| 2031 |
| 2012 |
|
| 2037 |
| 2031 |
| 2015 |
|
The sensitivities of service cost and interest cost and year-end benefit obligations to changes in health carehealthcare cost trend rates for the postretirement benefit plans as of December 31, 20122015 are as follows:
|
|
|
| |
One-percentage point increase in trend rates: |
|
|
| |
· Increase in service cost and interest cost components |
| $ | 0.5 million |
|
· Increase in year-end benefit obligations |
| $ | 6.0 million |
|
|
| 2015 |
| |
One-percentage point decrease in trend rates: |
|
|
| |
· Decrease in service cost and interest cost components |
| $ | 0.3 million |
|
· Decrease in year-end benefit obligations |
| $ | 5.0 million |
|
The following benefit payments, which reflect anticipated future service, as appropriate, are expected to be made under the Company’s postretirement benefit plans:
(in millions) |
|
|
| |
2013 |
| $ | 2 |
|
2014 |
| 2 |
| |
2015 |
| 3 |
| |
2016 |
| 3 |
| |
2017 |
| 3 |
| |
Years 2018 - 2022 |
| $ | 20 |
|
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 provides a federal subsidy to employers sponsoring retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The Company receives a Medicare Part D subsidy for certain retirees. The impact of the Medicare Part D subsidy is not significant.
(in millions) |
|
|
| |
2016 |
| $ | 4 |
|
2017 |
| 4 |
| |
2018 |
| 4 |
| |
2019 |
| 4 |
| |
2020 |
| 5 |
| |
Years 2021 - 2025 |
| $ | 24 |
|
Multiemployer Plans — The Company participates in and contributes to one multiemployer benefit plan under the terms of a collective bargaining agreement that covercovers certain union-represented employees and retirees in the US. The plan covers medical and dental benefits for active hourly employees and retirees represented by the United States Steel Workers Union for certain US locations.
The risks of participating in this multiemployer plan are different from single-employer plans. This plan receives contributions from two or more unrelated employers pursuant to one or more collective bargaining agreements and the assets contributed by one employer may be used to fund the benefits of all employees covered within the plan.
The Company is required to make contributions to this plan as determined by the terms and conditions of the collective bargaining agreements and plan terms. For the years ended December 31, 2012, 20112015, 2014 and 2010,2013, the Company made regular contributions of $12 million $9 million and $2 million, respectively,for each year to this multi-employer
plan. Increases in regular contributions were due to one additional Company location becoming a member of the multi-employer plan as discussed above and due to partial year contributions reflected in certain locations 2010 due to the National Starch acquisition. The Company cannot currently estimate the amount of multi-employermultiemployer plan contributions that will be required in 20132016 and future years, but these contributions could increase due to healthcare cost trends.
NOTE 1011 — Supplementary Information
Balance Sheets
(in millions) |
| 2012 |
| 2011 |
|
| 2015 |
| 2014 |
| ||||
Accounts receivable — net: |
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable — trade |
| $ | 707 |
| $ | 683 |
|
| $ | 672 |
| $ | 655 |
|
Accounts receivable — other |
| 117 |
| 165 |
|
| 108 |
| 111 |
| ||||
Allowance for doubtful accounts |
| (10 | ) | (11 | ) |
| (5 | ) | (4 | ) | ||||
Total accounts receivable — net |
| $ | 814 |
| $ | 837 |
|
| $ | 775 |
| $ | 762 |
|
Inventories: |
|
|
|
|
|
|
|
|
|
| ||||
Finished and in process |
| $ | 475 |
| $ | 436 |
|
| $ | 438 |
| $ | 428 |
|
Raw materials |
| 313 |
| 294 |
|
| 229 |
| 225 |
| ||||
Manufacturing supplies |
| 46 |
| 39 |
|
| 48 |
| 46 |
| ||||
Total inventories |
| $ | 834 |
| $ | 769 |
|
| $ | 715 |
| $ | 699 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Compensation expenses |
| $ | 90 |
| $ | 85 |
| |||||||
Compensation-related costs |
| $ | 84 |
| $ | 74 |
| |||||||
Income taxes payable |
| 25 |
| 36 |
|
| 46 |
| 36 |
| ||||
Dividends payable |
| 20 |
| 15 |
|
| 33 |
| 31 |
| ||||
Accrued interest |
| 16 |
| 15 |
|
| 14 |
| 16 |
| ||||
Taxes payable other than income taxes |
| 33 |
| 31 |
|
| 34 |
| 36 |
| ||||
Other |
| 81 |
| 67 |
|
| 89 |
| 75 |
| ||||
Total accrued liabilities |
| $ | 265 |
| $ | 249 |
|
| $ | 300 |
| $ | 268 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Employees’ pension, indemnity and retirement |
| $ | 235 |
| $ | 180 |
| |||||||
Employees’ pension, indemnity and postretirement |
| $ | 142 |
| $ | 126 |
| |||||||
Other |
| 62 |
| 63 |
|
| 28 |
| 31 |
| ||||
Total non-current liabilities |
| $ | 297 |
| $ | 243 |
|
| $ | 170 |
| $ | 157 |
|
Statements of Income
(in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Other income - net: |
|
|
|
|
|
|
| |||
Gain from change in benefit plan in North America |
| $ | 5 |
| $ | — |
| $ | — |
|
Gain from sale of land |
| 2 |
| — |
| — |
| |||
NAFTA award |
| — |
| 58 |
| — |
| |||
Gain from change in a postretirement plan |
| — |
| 30 |
| — |
| |||
Gain on investment |
| — |
| — |
| 2 |
| |||
Other |
| 15 |
| 10 |
| 8 |
| |||
Other income - net |
| $ | 22 |
| $ | 98 |
| $ | 10 |
|
|
|
|
|
|
|
|
| |||
Financing costs-net: |
|
|
|
|
|
|
| |||
Interest expense, net of amounts capitalized (a) |
| $ | 77 |
| $ | 81 |
| $ | 68 |
|
Interest income |
| (10 | ) | (5 | ) | (6 | ) | |||
Foreign currency transaction losses |
| — |
| 2 |
| 2 |
| |||
Financing costs-net |
| $ | 67 |
| $ | 78 |
| $ | 64 |
|
(in millions) |
| 2015 |
| 2014 |
| 2013 |
| |||
Other income - net: |
|
|
|
|
|
|
| |||
Gain from sale of plant |
| $ | 10 |
| $ | — |
| $ | — |
|
Legal settlement |
| (7 | ) | — |
| — |
| |||
Income tax indemnification (expense) income (a) |
| (4 | ) | 7 |
| — |
| |||
Gain from sale of investment |
| — |
| 5 |
| — |
| |||
Gain from sale of idled plant |
| — |
| 3 |
| — |
| |||
Other |
| 2 |
| 9 |
| 16 |
| |||
Other income - net |
| $ | 1 |
| $ | 24 |
| $ | 16 |
|
(a)Amount fully offset by $4 million of benefit and $7 million of expense recorded in the income tax provision for 2015 and 2014, respectively.
Financing costs-net: |
|
|
|
|
|
|
| |||
Interest expense, net of amounts capitalized (a) |
| $ | 69 |
| $ | 73 |
| $ | 74 |
|
Interest income |
| (14 | ) | (13 | ) | (11 | ) | |||
Foreign currency transaction losses |
| 6 |
| 1 |
| 3 |
| |||
Financing costs-net |
| $ | 61 |
| $ | 61 |
| $ | 66 |
|
(a) Interest capitalized amounted to $6$2 million, $5$2 million and $3$4 million in 2012, 20112015, 2014 and 2010,2013, respectively.
Statements of Cash Flow
(in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Interest paid |
| $ | 72 |
| $ | 85 |
| $ | 50 |
|
Income taxes paid |
| 133 |
| 177 |
| 98 |
| |||
Noncash investing and financing activities: |
|
|
|
|
|
|
| |||
Assumption of debt in connection with acquisition |
| — |
| — |
| 11 |
| |||
Natural Gas Purchase Agreement:
On January 20, 2006, Ingredion Brasil Ingredientes Industriais Ltda. (“Ingredion Brazil”), the Company’s wholly-owned Brazilian subsidiary entered into a Natural Gas Purchase and Sale Agreement (the “Agreement”) with Companhia de Gas de Sao Paulo — Comgas (“Comgas”). Pursuant to the terms of the Agreement, Comgas supplies natural gas to the cogeneration facility at Ingredion Brazil’s Mogi Guacu plant. This agreement will expire on March 31, 2023, unless extended or terminated under certain conditions specified in the Agreement. During the term of the Agreement, Ingredion Brazil is obligated to purchase from Comgas, and Comgas is obligated to provide to Ingredion Brazil, certain minimum quantities of natural gas that are specified in the Agreement. The price for such quantities of natural gas is determined pursuant to a formula set forth in the Agreement. The price may vary based upon: gas commodity costs and transportation costs, which are adjusted annually; the distribution margin which is set by the Brazilian Commission of Public Energy Services; and the fluctuation of exchange rates between the US dollar and the Brazilian real. The Company estimates that the total minimum expenditures by Ingredion Brazil through the remaining term of the Agreement will be approximately $195 million based on current exchange rates as of December 31, 2012 and estimates regarding the application of the formula set forth in the Agreement, spread evenly over the remaining term of the Agreement. Ingredion Brazil will make payments of approximately $19 million in each of the next five years in accordance with the Agreement. The amount of gas purchased under this Agreement for the years ended December 31, 2012, 2011 and 2010 was approximately $25 million, $26 million and $24 million, respectively.
NOTE 11 — Redeemable Common Stock:
(in millions) |
| 2015 |
| 2014 |
| 2013 |
| |||
Other non-cash charges to net income: |
|
|
|
|
|
|
| |||
Mechanical stores expense (a) |
| $ | 57 |
| $ | 56 |
| $ | 48 |
|
Share-based compensation expense |
| 21 |
| 19 |
| 17 |
| |||
Other |
| 18 |
| (7 | ) | 9 |
| |||
Total other non-cash charges to net income |
| $ | 96 |
| $ | 68 |
| $ | 74 |
|
The Company had an agreement with certain common stockholders (collectively
(a) Represents spare parts used in the “holder”), relating to 500,000 sharesproduction process. Such spare parts are recorded in PP&E as part of our common stock, that providedmachinery and equipment until they are utilized in the holder with the right to require us to repurchase those common shares for cash atmanufacturing process and expensed as 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 based on the average of the closing per share market price of the Company’s common stock for the 20 trading days immediately preceding December 31, 2009 ($29.03 per share). 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.period cost.
(in millions) |
| 2015 |
| 2014 |
| 2013 |
| |||
Interest paid |
| $ | 52 |
| $ | 59 |
| $ | 61 |
|
Income taxes paid |
| 158 |
| 94 |
| 135 |
| |||
NOTE 12 - Equity
Preferred stock:
The Company has authorized 25 million shares of $0.01 par value preferred stock, none of which were issued or outstanding as ofat December 31, 20122015 and 2011.2014.
Treasury stock:
The Company reacquired 44,674, 73,260 and 51,999 shares of its common stock during 2012, 2011 and 2010, respectively, by both repurchasing shares from employees under the stock incentive plan and through the cancellation of forfeited restricted stock. The Company repurchased shares from employees at average purchase prices of $58.59, $47.48 and $33.53, or fair value at the date of purchase, during 2012, 2011 and 2010, respectively. All of the acquired shares are held as common stock in treasury, less shares issued to employees under the stock incentive plan.
On November 17, 2010,December 12, 2014, the Board of Directors authorized an extension of the Company’sa new stock repurchase program permitting the Company to purchase up to 5 million of its outstanding common shares from January 1, 2015 through November 30, 2015.December 12, 2019. The Company’s previously authorized stock repurchase program was authorized bypermitting the Boardpurchase of Directors on November 7, 2007 and would have expired on November 30, 2010. In 2012, the Company repurchased 300,000 commonup to 4 million shares in open market transactions at a cost of approximately $15 million. In 2011, the Company repurchased 1,000,000 common shares in open market transactions at a cost of approximately $45 million. In 2010, the Company repurchased 100,000 common shares in open market transactions at a cost of approximately $4 million. At December 31, 2012, the Company had 3,385,382 shares available to be repurchased under its program.has been fully utilized. 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.
In 2015, the Company repurchased 435 thousand common shares in open market transactions at a cost of approximately $34 million.
82As part of the previous stock repurchase program, the Company entered into an accelerated share repurchase agreement (“ASR”) on July 30, 2014 with an investment bank under which the Company repurchased $300 million of its common stock. The Company paid the $300 million on August 1, 2014 and received an initial delivery of shares from the investment bank of 3,152,502 shares, representing approximately 80 percent of the shares anticipated to be repurchased based on current market prices at that time. The ASR was initially accounted for as an initial stock purchase transaction and a forward stock purchase contract. The initial delivery of shares resulted in an immediate reduction in the number of shares used to calculate the weighted average common shares outstanding for basic and diluted net earnings per share from the effective date of the ASR. On December 29, 2014, the ASR was completed and the Company received 671,823 additional shares of its common stock bringing the total amount of repurchases to 3,824,325 shares, based upon the volume-weighted average price of $78.45 per share over the term of the share repurchase agreement. The ASR was funded through a combination of cash on hand and utilization of the Revolving Credit Agreement.
In 2013, the Company repurchased 3,385,000 common shares in open market transactions at a cost of approximately $227 million.
TableThe Company also reacquired 4,611, 8,738 and 21,629 shares of Contentsits common stock during 2015, 2014 and 2013, respectively, by both repurchasing shares from employees under the stock incentive plan and through the cancellation of forfeited restricted stock. The Company repurchased shares from employees at average purchase prices of $76.28, $61.05 and $44.55, or fair value at the date of purchase, during 2015, 2014 and 2013, respectively. All of the acquired shares are held as common stock in treasury, less shares issued to employees under the stock incentive plan.
Set forth below is a reconciliation of common stock share activity for the years ended December 31, 2010, 20112013, 2014 and 2012:2015:
(Shares of common stock, in thousands) |
| Issued |
| Held in Treasury |
| Redeemable Shares |
| Outstanding |
|
Balance at December 31, 2009 |
| 75,320 |
| 434 |
| 500 |
| 74,386 |
|
Issuance of restricted stock as compensation |
| 66 |
| (19 | ) | — |
| 85 |
|
Issuance under incentive and other plans |
| 42 |
| (2 | ) | — |
| 44 |
|
Stock options exercised |
| 607 |
| (552 | ) | — |
| 1,159 |
|
Purchase/acquisition of treasury stock |
| — |
| 151 |
| — |
| (151 | ) |
Expiration of put option (see Note 11) |
| — |
| — |
| (500 | ) | 500 |
|
Balance at December 31, 2010 |
| 76,035 |
| 12 |
| — |
| 76,023 |
|
Issuance of restricted stock units as compensation |
| 56 |
| — |
| — |
| 56 |
|
Issuance under incentive and other plans |
| 91 |
| (9 | ) | — |
| 100 |
|
Stock options exercised |
| 640 |
| (137 | ) | — |
| 777 |
|
Purchase/acquisition of treasury stock |
| — |
| 1,073 |
| — |
| (1,073 | ) |
Balance at December 31, 2011 |
| 76,822 |
| 939 |
| — |
| 75,883 |
|
Issuance of restricted stock units as compensation |
| — |
| (6 | ) | — |
| 6 |
|
Issuance under incentive and other plans |
| — |
| (142 | ) | — |
| 142 |
|
Stock options exercised |
| 320 |
| (993 | ) | — |
| 1,313 |
|
Purchase/acquisition of treasury stock |
| — |
| 312 |
| — |
| (312 | ) |
Balance at December 31, 2012 |
| 77,142 |
| 110 |
| — |
| 77,032 |
|
(Shares of common stock, in thousands) |
| Issued |
| Held in Treasury |
| Outstanding |
|
Balance at December 31, 2012 |
| 77,142 |
| 110 |
| 77,032 |
|
Issuance of restricted stock units as compensation |
| 6 |
| (3 | ) | 9 |
|
Issuance under incentive and other plans |
| 130 |
| (43 | ) | 173 |
|
Stock options exercised |
| 395 |
| (110 | ) | 505 |
|
Purchase/acquisition of treasury stock |
| — |
| 3,407 |
| (3,407 | ) |
Balance at December 31, 2013 |
| 77,673 |
| 3,361 |
| 74,312 |
|
Issuance of restricted stock units as compensation |
| 89 |
| (24 | ) | 113 |
|
Issuance under incentive and other plans |
| 49 |
| (63 | ) | 112 |
|
Stock options exercised |
| — |
| (618 | ) | 618 |
|
Purchase/acquisition of treasury stock |
| — |
| 3,833 |
| (3,833 | ) |
Balance at December 31, 2014 |
| 77,811 |
| 6,489 |
| 71,322 |
|
Issuance of restricted stock units as compensation |
| — |
| (102 | ) | 102 |
|
Issuance under incentive and other plans |
| — |
| (75 | ) | 75 |
|
Stock options exercised |
| — |
| (556 | ) | 556 |
|
Purchase/acquisition of treasury stock |
| — |
| 439 |
| (439 | ) |
Balance at December 31, 2015 |
| 77,811 |
| 6,195 |
| 71,616 |
|
Share-based payments:
The following table summarizes the components of the Company’s share-based compensation expense for the last three years:
(in millions) |
| 2015 |
| 2014 |
| 2013 |
| |||
Stock options: |
|
|
|
|
|
|
| |||
Pre-tax compensation expense |
| $ | 7 |
| $ | 7 |
| $ | 6 |
|
Income tax (benefit) |
| (3 | ) | (3 | ) | (2 | ) | |||
Stock option expense, net of income taxes |
| 4 |
| 4 |
| 4 |
| |||
|
|
|
|
|
|
|
| |||
RSUs and RSAs: |
|
|
|
|
|
|
| |||
Pre-tax compensation expense |
| 9 |
| 8 |
| 7 |
| |||
Income tax (benefit) |
| (3 | ) | (3 | ) | (3 | ) | |||
RSU and RSA compensation expense, net of income taxes |
| 6 |
| 5 |
| 4 |
| |||
|
|
|
|
|
|
|
| |||
Performance shares and other share-based awards: |
|
|
|
|
|
|
| |||
Pre-tax compensation expense |
| 5 |
| 4 |
| 4 |
| |||
Income tax (benefit) |
| (2 | ) | (1 | ) | (1 | ) | |||
Performance shares and other share-based compensation expense, net of income taxes |
| 3 |
| 3 |
| 3 |
| |||
|
|
|
|
|
|
|
| |||
Total share-based compensation: |
|
|
|
|
|
|
| |||
Pre-tax compensation expense |
| 21 |
| 19 |
| 17 |
| |||
Income tax (benefit) |
| (8 | ) | (7 | ) | (6 | ) | |||
Total share-based compensation expense, net of income taxes |
| $ | 13 |
| $ | 12 |
| $ | 11 |
|
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 stock-basedshare-based awards to certain key employees. A maximum of 8 million shares were originally authorized for awards under the SIP. As of December 31, 2012, 3.72015, 5.2 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. Total share-based compensation expense for 2012 was $12 million, net of income tax effect of $5 million. Total share-based compensation expense for 2011 was $11 million, net of income tax effect of $5 million. Total share-based compensation expense for 2010 was $8 million, net of income tax effect of $4 million.
The Company grants nonqualified options to purchase shares of the Company’s common stock. The stock options have a ten-year life and are exercisable upon vesting, which occurs evenly 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 awards. As of December 31, 2012,2015, certain of these nonqualified options have been forfeited due to the termination of employees.
The fair value of stock option awards was estimated at the grant dates using the Black-Scholes option-pricing model with the following assumptions:
|
| 2012 |
| 2011 |
| 2010 |
|
Expected life (in years) |
| 5.8 |
| 5.8 |
| 5.8 |
|
Risk-free interest rate |
| 1.1 | % | 2.8 | % | 2.7 | % |
Expected volatility |
| 33.3 | % | 32.7 | % | 33.1 | % |
Expected dividend yield |
| 1.2 | % | 1.2 | % | 1.9 | % |
|
| 2015 |
| 2014 |
| 2013 |
|
Expected life (in years) |
| 5.5 |
| 5.5 |
| 5.8 |
|
Risk-free interest rate |
| 1.36 | % | 1.6 | % | 1.1 | % |
Expected volatility |
| 25.19 | % | 30.3 | % | 32.6 | % |
Expected dividend yield |
| 2.0 | % | 2.8 | % | 1.6 | % |
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 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 Company’s common stock. Dividend yields are based on historical dividend payments. The weighted average fair value of options granted during 2012, 20112015, 2014 and 20102013 was estimated to be $16.16, $15.17$16.04, $12.99 and $8.41,$17.87, respectively.
A summary of stock option transactions for the last three yearsyear follows:
(shares in thousands) |
| Stock Option |
| Stock Option |
| Weighted |
|
| Stock Option |
| Weighted Average |
| Weighted Average |
| Aggregate |
| |||
Outstanding at December 31, 2009 |
| 4,842 |
| $ 11.37 to $40.71 |
| $ | 25.32 |
| |||||||||||
Outstanding at December 31, 2014 |
| 2,889 |
| $ | 46.84 |
| 6.17 |
| $ | 110 |
| ||||||||
Granted |
| 828 |
| 28.75 to 33.63 |
| 28.95 |
|
| 336 |
| 82.28 |
|
|
|
|
| |||
Exercised |
| (1,158 | ) | 11.37 to 34.93 |
| 19.29 |
|
| (559 | ) | 38.27 |
|
|
|
|
| |||
Cancelled |
| (78 | ) | 25.58 to 34.36 |
| 29.68 |
| ||||||||||||
Outstanding at December 31, 2010 |
| 4,434 |
| 14.17 to 40.71 |
| 27.49 |
| ||||||||||||
Granted |
| 438 |
| 47.95 to 52.64 |
| 47.96 |
| ||||||||||||
Exercised |
| (777 | ) | 14.17 to 40.71 |
| 24.24 |
| ||||||||||||
Cancelled |
| (65 | ) | 18.31 to 47.95 |
| 30.60 |
| ||||||||||||
Outstanding at December 31, 2011 |
| 4,030 |
| 14.33 to 52.64 |
|
| 30.29 |
| |||||||||||
Granted |
| 460 |
| 55.95 to 57.33 |
| 55.96 |
| ||||||||||||
Exercised |
| (1,409 | ) | 14.33 to 47.95 |
| 26.80 |
| ||||||||||||
Cancelled |
| (49 | ) | 25.58 to 55.95 |
| 39.29 |
| ||||||||||||
Outstanding at December 31, 2012 |
| 3,032 |
| 16.92 to 57.33 |
| 35.66 |
| ||||||||||||
Forfeited / Expired |
| (15 | ) | 52.44 |
|
|
|
|
| ||||||||||
Outstanding at December 31, 2015 |
| 2,651 |
| $ | 52.93 |
| 5.96 |
| $ | 114 |
| ||||||||
Exercisable at December 31, 2015 |
| 1,755 |
| $ | 44.76 |
| 4.75 |
| $ | 90 |
|
The intrinsic values of stock options exercised during 2012, 20112015, 2014 and 20102013 were approximately $46$27 million, $22$26 million and $22$20 million, respectively. For the years ended December 31, 2012, 20112015, 2014 and 2010,2013, cash received from the exercise of stock options was $34$21 million, $18$20 million and $22$14 million, respectively. The excess income tax benefit realized from share-based compensation was $11$8 million, $6 million and $6$5 million in 2012, 20112015, 2014 and 2010,2013, respectively. As of December 31, 2012,2015, the unrecognized compensation cost related to non-vested stock options totaled $8$7 million, which willis expected to be amortized over the weighted-average period of approximately one year.
The following table summarizes information about stock options outstanding at December 31, 2012:
(options in thousands) |
| Options |
| Weighted Average Exercise |
| Average Remaining |
| Options |
| Weighted Average |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
$16.92 to 17.20 |
| 87 |
| $ | 16.92 |
| 0.8 |
| 87 |
| $ | 16.92 |
|
$22.93 to 28.67 |
| 723 |
| 25.47 |
| 4.1 |
| 723 |
| 25.47 |
| ||
$28.68 to 34.40 |
| 1,368 |
| 31.94 |
| 5.7 |
| 1,150 |
| 32.50 |
| ||
$45.86 to 51.60 |
| 403 |
| 47.95 |
| 8.1 |
| 131 |
| 47.95 |
| ||
$51.61 to 57.33 |
| 451 |
| 55.95 |
| 9.1 |
| — |
| 52.64 |
| ||
|
| 3,032 |
| $ | 35.66 |
| 6.0 |
| 2,091 |
| $ | 30.39 |
|
Stock options outstanding at December 31, 2012 had an aggregate intrinsic value of approximately $87 million and an average remaining contractual life of 6.01.6 years. Stock options exercisable at December 31, 2012 had an aggregate intrinsic value of approximately $71 million and an average remaining contractual life of 4.9 years. Stock options outstanding at December 31, 2011 had an aggregate intrinsic value of approximately $90 million and an average remaining contractual life of 6.0 years. Stock options exercisable at December 31, 2011 had an aggregate intrinsic value of approximately $70 million and an average remaining contractual life of 5.1 years.
In addition to stock options, the Company awards shares of restricted common stock (“restricted shares”) and restricted stock units (“restricted units”) to certain key employees. The restricted shares and restricted units issued under the plan are subject to cliff vesting, generally after three to five years provided the employee remains in the service of the Company. Expense is generally recognized on a straight-line basis over the vesting period taking into account an estimated forfeiture rate. The fair value of the restricted stock and restricted units 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 compensation expense recognized for restricted stock and restricted stock units was $6 million in 2012, $4 million in 2011 and $3 million in 2010.
The following table summarizes restricted stockshare and restricted stock unit activity for the last three years:year:
(shares in thousands) |
| Number of |
| Weighted |
| Number of |
| Weighted |
|
| Number of |
| Weighted |
| Number of |
| Weighted |
| ||||
Non-vested at December 31, 2009 |
| 235 |
| $ | 29.60 |
| 146 |
| $ | 27.17 |
| |||||||||||
Non-vested at December 31, 2014 |
| 16 |
| $ | 27.94 |
| 434 |
| $ | 59.61 |
| |||||||||||
Granted |
| 30 |
| 30.86 |
| 25 |
| 40.82 |
|
| — |
| — |
| 169 |
| 82.41 |
| ||||
Vested |
| (76 | ) | 28.90 |
| (56 | ) | 25.81 |
|
| (14 | ) | 28.75 |
| (155 | ) | 54.90 |
| ||||
Cancelled |
| (8 | ) | 30.78 |
| (2 | ) | 45.21 |
| |||||||||||||
Non-vested at December 31, 2010 |
| 181 |
| $ | 30.04 |
| 113 |
| $ | 30.56 |
| |||||||||||
Granted |
| — |
| — |
| 182 |
| 48.04 |
| |||||||||||||
Vested |
| (34 | ) | 27.56 |
| (56 | ) | 26.08 |
| |||||||||||||
Cancelled |
| (11 | ) | 29.74 |
| (4 | ) | 47.98 |
| |||||||||||||
Non-vested at December 31, 2011 |
| 136 |
| $ | 30.69 |
| 235 |
| $ | 44.24 |
| |||||||||||
Granted |
| — |
| — |
| 174 |
| 55.69 |
| |||||||||||||
Vested |
| (37 | ) | 33.73 |
| (9 | ) | 37.57 |
| |||||||||||||
Cancelled |
| (4 | ) | 25.58 |
| (15 | ) | 44.95 |
| |||||||||||||
Non-vested at December 31, 2012 |
| 95 |
| $ | 29.69 |
| 385 |
| $ | 49.77 |
| |||||||||||
Forfeited |
| — |
| — |
| (9 | ) | 65.01 |
| |||||||||||||
Non-vested at December 31, 2015 |
| 2 |
| $ | 21.42 |
| 439 |
| $ | 69.96 |
|
The total fair value of restricted stockunits that vested in 2012, 20112015, 2014 and 20102013 was $1$13 million, $1$11 million and $2$1 million, respectively. The total fair value of restricted stock unitsshares that vested in 2012, 20112015, 2014 and 20102013 was $0.3 million, $1 million, $2 million and $1$2 million, respectively.
At December 31, 2012, there was $0.5 million of unrecognized compensation cost related to restricted stock that will be amortized on a weighted-average basis over 1.0 years. At December 31, 2012,2015, the total remaining unrecognized compensation cost related to restricted units was $10$14 million which will be amortized on a weighted-average basis over approximately 1.8 years. The recognizedUnrecognized compensation cost related to restricted shares was insignificant at December 31, 2015. Recognized compensation cost related to unvested
restricted share and restricted stock units totaling $11 million at December 31, 2012unit awards is included in share-based payments subject to redemption in the Consolidated Balance Sheet.Sheets and totaled $17 million and $16 million at December 31, 2015 and 2014, respectively.
Other share-based awards under the SIP:
Under the compensation agreement with the Board of Directors at least 50 percent of a director’s compensation is awarded in shares of common stock or restricted units based on each director’s election to receive suchhis or her compensation or a portion thereof in the form of restricted stockunits. These restricted units vest immediately, but cannot be transferred until a date not less than six months after the director’s termination of service from the board at which have investment returns equal to changes in valuetime the restricted units will be settled by delivering shares of the Company’s common stock with dividends being reinvested. Stock units under this plan vest immediately.stock. The compensation expense relating to this plan included in the Consolidated Statements of Income for 2012, 2011was approximately $1 million in 2015, 2014 and 2010 was not material.2013. At December 31, 2012,2015, there were approximately 238,000 share176,000 restricted units outstanding under this plan at a carrying value of approximately $7$8 million.
The Company has a long-term incentive plan for officerssenior management in the form of performance shares. The ultimate paymentpayments for performance shares awarded in 2010, 20112013, 2014 and 20122015 to be paid in 2013, 20142016, 2017 and 2015 are2018 will be based solely on the Company’s stock performance as compared to the stock performance of a peer group. 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 service period. Compensation expense relating to these awards included in the Consolidated Statements of Income for 2012, 2011 and 2010 was $4 million, $6 million and $3 million, respectively. As of December 31, 2012,2015, the unrecognized compensation cost relating to these plans was $4
$2 million, which will be amortized over the remaining requisite service periods of 1 to 2 years. The recognizedRecognized compensation cost related to these unvested awards totaling $8 million at December 31, 2012 is included in share-based payments subject to redemption in the Consolidated Balance Sheet.Sheets and totaled $7 million and $6 million at December 31, 2015 and 2014, respectively.
Accumulated Other Comprehensive Loss:
A summary of accumulated other comprehensive income (loss) for the years ended December 31, 2010, 20112013, 2014 and 20122015 is presented below:
|
|
|
| Deferred |
|
|
| Unrealized |
| Accumulated |
| |||||
|
| Currency |
| Gain/(Loss) |
| Pension |
| Gain (Loss) |
| Other |
| |||||
|
| Translation |
| on Hedging |
| Liability |
| on |
| Comprehensive |
| |||||
(in millions) |
| Adjustment |
| Activities |
| Adjustment |
| Investment |
| Income/(Loss) |
| |||||
Balance, December 31, 2009 |
| $ | (228 | ) | $ | (33 | ) | $ | (45 | ) | $ | (2 | ) | $ | (308 | ) |
Gains on cash flow hedges, net of income tax effect of $12 |
|
|
| 20 |
|
|
|
|
| 20 |
| |||||
Amount of losses on cash flow hedges reclassified to earnings, net of income tax effect of $34 |
|
|
| 54 |
|
|
|
|
| 54 |
| |||||
Actuarial loss on pension and other postretirement obligations, settlements and plan amendments, net of income tax of $4 |
|
|
|
|
| (7 | ) |
|
| (7 | ) | |||||
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax of $2 |
|
|
|
|
| 3 |
|
|
| 3 |
| |||||
Currency translation adjustment |
| 48 |
|
|
|
|
|
|
| 48 |
| |||||
Balance, December 31, 2010 |
| $ | (180 | ) | $ | 41 |
| $ | (49 | ) | $ | (2 | ) | $ | (190 | ) |
Gains on cash flow hedges, net of income tax effect of $19 |
|
|
| 29 |
|
|
|
|
| 29 |
| |||||
Amount of gains on cash flow hedges reclassified to earnings, net of income tax effect of $61 |
|
|
| (105 | ) |
|
|
|
| (105 | ) | |||||
Actuarial loss on pension and other postretirement obligations, settlements and plan amendments, net of income tax of $4 |
|
|
|
|
| (10 | ) |
|
| (10 | ) | |||||
Gains related to pension and other postretirement obligations reclassified to earnings, net of income tax of $5 |
|
|
|
|
| (11 | ) |
|
| (11 | ) | |||||
Currency translation adjustment |
| (126 | ) |
|
|
|
|
|
| (126 | ) | |||||
Balance, December 31, 2011 |
| $ | (306 | ) | $ | (35 | ) | $ | (70 | ) | $ | (2 | ) | $ | (413 | ) |
Gains on cash flow hedges, net of income tax effect of $25 |
|
|
| 43 |
|
|
|
|
| 43 |
| |||||
Amount of gains on cash flow hedges reclassified to earnings, net of income tax effect of $15 |
|
|
| (25 | ) |
|
|
|
| (25 | ) | |||||
Actuarial loss on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $27 |
|
|
|
|
| (56 | ) |
|
| (56 | ) | |||||
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax of $2 |
|
|
|
|
| 5 |
|
|
| 5 |
| |||||
Currency translation adjustment |
| (29 | ) |
|
|
|
|
|
| (29 | ) | |||||
Balance, December 31, 2012 |
| $ | (335 | ) | $ | (17 | ) | $ | (121 | ) | $ | (2 | ) | $ | (475 | ) |
(in millions) |
| Cumulative |
| Deferred |
| Pension/ |
| Unrealized |
| Accumulated |
| |||||
Balance, December 31, 2012 |
| $ | (335 | ) | $ | (17 | ) | $ | (121 | ) | $ | (2 | ) | $ | (475 | ) |
Losses on cash-flow hedges, net of income tax effect of $29 |
|
|
| (64 | ) |
|
|
|
| (64 | ) | |||||
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $19 |
|
|
| 41 |
|
|
|
|
| 41 |
| |||||
Actuarial gains on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $32 |
|
|
|
|
| 63 |
|
|
| 63 |
| |||||
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax of $3 |
|
|
|
|
| 5 |
|
|
| 5 |
| |||||
Unrealized gain on investment, net of income tax effect |
|
|
|
|
|
|
| 1 |
| 1 |
| |||||
Currency translation adjustment |
| (154 | ) |
|
|
|
|
|
| (154 | ) | |||||
Balance, December 31, 2013 |
| $ | (489 | ) | $ | (40 | ) | $ | (53 | ) | $ | (1 | ) | $ | (583 | ) |
Losses on cash-flow hedges, net of income tax effect of $12 |
|
|
| (29 | ) |
|
|
|
| (29 | ) | |||||
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $23 |
|
|
| 50 |
|
|
|
|
| 50 |
| |||||
Actuarial losses on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $5 |
|
|
|
|
| (12 | ) |
|
| (12 | ) | |||||
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax effect of $1 |
|
|
|
|
| 4 |
|
|
| 4 |
| |||||
Currency translation adjustment |
| (212 | ) |
|
|
|
|
|
| (212 | ) | |||||
Balance, December 31, 2014 |
| $ | (701 | ) | $ | (19 | ) | $ | (61 | ) | $ | (1 | ) | $ | (782 | ) |
Losses on cash-flow hedges, net of income tax effect of $19 |
|
|
| (42 | ) |
|
|
|
| (42 | ) | |||||
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $14 |
|
|
| 32 |
|
|
|
|
| 32 |
| |||||
Actuarial gains on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $5 |
|
|
|
|
| 13 |
|
|
| 13 |
| |||||
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax effect |
|
|
|
|
| 1 |
|
|
| 1 |
| |||||
Currency translation adjustment |
| (324 | ) |
|
|
|
|
|
| (324 | ) | |||||
Balance, December 31, 2015 |
| $ | (1,025 | ) | $ | (29 | ) | $ | (47 | ) | $ | (1 | ) | $ | (1,102 | ) |
NOTE 13 — Mexican Tax on Beverages Sweetened with HFCSThe following table provides detail pertaining to reclassifications from AOCI into net income for the periods presented:
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.
Details about AOCI Components |
| Amount Reclassified from AOCI |
| Affected Line Item in |
| |||||||
(in millions) |
| 2015 |
| 2014 |
| 2013 |
| of Income |
| |||
Gains (losses) on cash-flow hedges: |
|
|
|
|
|
|
|
|
| |||
Commodity and foreign currency contracts |
| $ | (43 | ) | $ | (70 | ) | $ | (57 | ) | Cost of sales |
|
Interest rate contracts |
| (3 | ) | (3 | ) | (3 | ) | Financing costs, net |
| |||
Losses related to pension and other postretirement obligations |
| (1 | ) | (5 | ) | (8 | ) | (a) |
| |||
Total before tax reclassifications |
| $ | (47 | ) | $ | (78 | ) | $ | (68 | ) |
|
|
Income tax benefit |
| 14 |
| 24 |
| 22 |
|
|
| |||
Total after-tax reclassifications |
| $ | (33 | ) | $ | (54 | ) | $ | (46 | ) |
|
|
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 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, 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 March 26, 2010, the Tribunal issued a correction of its August 18, 2009 damages award. While the amount of damages had not changed, the decision made the damages payable to Ingredion Incorporated (formerly Corn Products International, Inc.) instead of CPIngredientes.
On January 24 and 25, 2011, the Company received cash payments totaling $58.4 million from the Government of the United Mexican States pursuant to the corrected award. Mexico made these payments pursuant to an agreement with Ingredion Incorporated that provides for terminating pending post-award litigation and waiving post-award interest. The $58.4 million award(a) This component is included in other income in the Company’scomputation of net periodic benefit cost and affects both cost of sales and SG&A expenses on the Consolidated StatementStatements of IncomeIncome.
The following table provides the computation of basic and diluted earnings per common share (“EPS”) for 2011.the periods presented.
|
| 2015 |
| 2014 |
| 2013 |
| ||||||||||||||||||
|
| Net Income |
|
|
|
|
| Net Income |
|
|
|
|
| Net Income |
|
|
|
|
| ||||||
|
| Available |
| Weighted |
|
|
| Available |
| Weighted |
|
|
| Available |
| Weighted |
|
|
| ||||||
|
| to Ingredion |
| Average Shares |
| Per Share |
| to Ingredion |
| Average Shares |
| Per Share |
| to Ingredion |
| Average Shares |
| Per Share |
| ||||||
(in millions, except per share amounts) |
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic EPS |
| $ | 402.2 |
| 71.6 |
| $ | 5.62 |
| $ | 354.9 |
| 73.6 |
| $ | 4.82 |
| $ | 395.7 |
| 77.0 |
| $ | 5.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs, RSAs and other awards |
|
|
| 1.4 |
|
|
|
|
| 1.3 |
|
|
|
|
| 1.3 |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Diluted EPS |
| $ | 402.2 |
| 73.0 |
| $ | 5.51 |
| $ | 354.9 |
| 74.9 |
| $ | 4.74 |
| $ | 395.7 |
| 78.3 |
| $ | 5.05 |
|
NOTE 1413 - Segment Information
The Company is principally engaged in the production and sale of starches and sweeteners for a wide range of industries, and is managed geographically on a regional basis. The Company’s operations are classified into four reportable business segments: North America, South America, Asia Pacific and Europe, Middle East and Africa (“EMEA”). Its North America segment includes businesses in the United States, Canada and Mexico. The Company’s South America segment includes businesses in Brazil, Colombia, Ecuador Peru and the Southern Cone of South America, which includes Argentina, Chile, Peru and Uruguay. Its Asia Pacific segment includes businesses in South Korea, Thailand, Malaysia, China, Japan, Indonesia, the Philippines, Singapore, India, Australia and New Zealand. The Company’s EMEA segment includes businesses in the United Kingdom, Germany, South Africa, Pakistan and Kenya.
(in millions) |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| ||||||
Net sales to unaffiliated customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
North America |
| $ | 3,741 |
| $ | 3,356 |
| $ | 2,439 |
|
| $ | 3,345 |
| $ | 3,093 |
| $ | 3,647 |
|
South America |
| 1,462 |
| 1,569 |
| 1,241 |
|
| 1,013 |
| 1,203 |
| 1,334 |
| ||||||
Asia Pacific |
| 816 |
| 764 |
| 433 |
|
| 733 |
| 794 |
| 805 |
| ||||||
EMEA |
| 513 |
| 530 |
| 254 |
|
| 530 |
| 578 |
| 542 |
| ||||||
Total |
| $ | 6,532 |
| $ | 6,219 |
| $ | 4,367 |
|
| $ | 5,621 |
| $ | 5,668 |
| $ | 6,328 |
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
North America |
| $ | 408 |
| $ | 322 |
| $ | 249 |
|
| $ | 479 |
| $ | 375 |
| $ | 401 |
|
South America |
| 198 |
| 203 |
| 163 |
|
| 101 |
| 108 |
| 116 |
| ||||||
Asia Pacific |
| 95 |
| 79 |
| 28 |
|
| 107 |
| 103 |
| 97 |
| ||||||
EMEA |
| 78 |
| 84 |
| 37 |
| |||||||||||||
EMEA (a) |
| 93 |
| 95 |
| 74 |
| |||||||||||||
Corporate |
| (78 | ) | (64 | ) | (51 | ) |
| (75 | ) | (65 | ) | (75 | ) | ||||||
Subtotal |
| 701 |
| 624 |
| 426 |
|
| 705 |
| 616 |
| 613 |
| ||||||
Restructuring / impairment charges (a) |
| (36 | ) | (10 | ) | (25 | ) | |||||||||||||
Gain from change in benefit plans |
| 5 |
| 30 |
| — |
| |||||||||||||
Integration / acquisition costs |
| (4 | ) | (31 | ) | (35 | ) | |||||||||||||
Gain from land sale |
| 2 |
| — |
| — |
| |||||||||||||
NAFTA award |
| — |
| 58 |
| — |
| |||||||||||||
Impairment / restructuring charges (c) |
| (28 | ) | (33 | ) | — |
| |||||||||||||
Acquisition / integration costs |
| (10 | ) | (2 | ) | — |
| |||||||||||||
Charge for fair value mark-up of acquired inventory |
| — |
| — |
| (27 | ) |
| (10 | ) | — |
| — |
| ||||||
Litigation settlement |
| (7 | ) | — |
| — |
| |||||||||||||
Gain from sale of Canadian plant |
| 10 |
| — |
| — |
| |||||||||||||
Total |
| $ | 668 |
| $ | 671 |
| $ | 339 |
|
| $ | 660 |
| $ | 581 |
| $ | 613 |
|
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
North America |
| $ | 3,116 |
| $ | 2,879 |
| $ | 2,727 |
|
| $ | 3,163 |
| $ | 2,901 |
| $ | 3,001 |
|
South America |
| 1,230 |
| 1,218 |
| 1,178 |
|
| 714 |
| 923 |
| 1,088 |
| ||||||
Asia Pacific |
| 730 |
| 757 |
| 676 |
|
| 716 |
| 711 |
| 711 |
| ||||||
EMEA |
| 516 |
| 463 |
| 459 |
|
| 481 |
| 550 |
| 553 |
| ||||||
Total |
| $ | 5,592 |
| $ | 5,317 |
| $ | 5,040 |
|
| $ | 5,074 |
| $ | 5,085 |
| $ | 5,353 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
North America |
| $ | 130 |
| $ | 128 |
| $ | 96 |
|
| $ | 123 |
| $ | 111 |
| $ | 112 |
|
South America |
| 44 |
| 47 |
| 42 |
|
| 30 |
| 38 |
| 41 |
| ||||||
Asia Pacific |
| 24 |
| 23 |
| 13 |
|
| 23 |
| 26 |
| 25 |
| ||||||
EMEA |
| 13 |
| 13 |
| 4 |
|
| 18 |
| 20 |
| 16 |
| ||||||
Total |
| $ | 211 |
| $ | 211 |
| $ | 155 |
|
| $ | 194 |
| $ | 195 |
| $ | 194 |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
North America |
| $ | 162 |
| $ | 119 |
| $ | 73 |
|
| $ | 158 |
| $ | 130 |
| $ | 141 |
|
South America |
| 75 |
| 84 |
| 65 |
|
| 61 |
| 90 |
| 76 |
| ||||||
Asia Pacific |
| 33 |
| 24 |
| 10 |
|
| 36 |
| 30 |
| 28 |
| ||||||
EMEA |
| 43 |
| 36 |
| 11 |
|
| 25 |
| 26 |
| 53 |
| ||||||
Total |
| $ | 313 |
| $ | 263 |
| $ | 159 |
|
| $ | 280 |
| $ | 276 |
| $ | 298 |
|
(a)For 2012,2014, includes $20a $3 million gain from the sale of an idled plant in Kenya.
(b)For 2015, includes $4 million of expense relating to a tax indemnification agreement with offsetting income of $4 million recorded in the provision for income taxes. For 2014, includes $7 million of income relating to this tax indemnification agreement with an offsetting expense of $7 million recorded in the provision for income taxes (see Note 9).
(c)For 2015, includes $12 million of charges for impaired assets and restructuring costs in Kenya, $11Brazil, $12 million of charges to write-down certain equipment as part ofrestructuring costs associated with the Company’s North American manufacturing optimization planPenford acquisition and $5$4 million of charges for impaired assetsrestructuring costs in China and Colombia.Canada. For 2011, includes $10 million of charges to write-down certain equipment as part of the Company’s North American manufacturing optimization plan. For 2010,2014, includes a $19$33 million write-off of impaired assetsgoodwill in Chile and a chargethe Southern Cone of $6 million principally consisting of employee severance and related benefit costs associated with the termination of employees in Chile.South America.
The following table presents net sales to unaffiliated customers by country of origin for the last three years:
|
| Net Sales |
| |||||||
(in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
United States |
| $ | 2,035 |
| $ | 1,863 |
| $ | 1,157 |
|
Mexico |
| 1,143 |
| 957 |
| 863 |
| |||
Brazil |
| 731 |
| 841 |
| 662 |
| |||
Canada |
| 564 |
| 536 |
| 419 |
| |||
Argentina |
| 356 |
| 344 |
| 243 |
| |||
Korea |
| 306 |
| 284 |
| 235 |
| |||
Others |
| 1,397 |
| 1,394 |
| 788 |
| |||
Total |
| $ | 6,532 |
| $ | 6,219 |
| $ | 4,367 |
|
|
| Net Sales |
| |||||||
(in millions) |
| 2015 |
| 2014 |
| 2013 |
| |||
United States |
| $ | 1,983 |
| $ | 1,681 |
| $ | 1,970 |
|
Mexico |
| 945 |
| 955 |
| 1,130 |
| |||
Brazil |
| 452 |
| 591 |
| 670 |
| |||
Canada |
| 417 |
| 457 |
| 547 |
| |||
Korea |
| 276 |
| 295 |
| 301 |
| |||
Argentina |
| 252 |
| 262 |
| 305 |
| |||
Others |
| 1,296 |
| 1,427 |
| 1,405 |
| |||
Total |
| $ | 5,621 |
| $ | 5,668 |
| $ | 6,328 |
|
The following table presents long-lived assets (excluding intangible assets and deferred income taxes) by country at December 31:
|
| Long-lived Assets |
|
| Long-lived Assets |
| ||||||||||||||
(in millions) |
| 2012 |
| 2011 |
| 2010 |
|
| 2015 |
| 2014 |
| 2013 |
| ||||||
United States |
| $ | 1,176 |
| $ | 1,197 |
| $ | 1,183 |
|
| $ | 920 |
| $ | 803 |
| $ | 815 |
|
Mexico |
| 434 |
| 421 |
| 430 |
|
| 292 |
| 296 |
| 296 |
| ||||||
Brazil |
| 387 |
| 415 |
| 443 |
|
| 196 |
| 294 |
| 321 |
| ||||||
Canada |
| 204 |
| 194 |
| 198 |
|
| 126 |
| 154 |
| 181 |
| ||||||
Germany |
| 114 |
| 133 |
| 151 |
| |||||||||||||
Thailand |
| 161 |
| 154 |
| 162 |
|
| 111 |
| 105 |
| 112 |
| ||||||
Korea |
| 83 |
| 88 |
| 91 |
| |||||||||||||
Argentina |
| 162 |
| 160 |
| 155 |
|
| 64 |
| 82 |
| 92 |
| ||||||
Germany |
| 171 |
| 147 |
| 134 |
| |||||||||||||
United Kingdom |
| 79 |
| 77 |
| 80 |
| |||||||||||||
Korea |
| 91 |
| 83 |
| 87 |
| |||||||||||||
Others |
| 346 |
| 348 |
| 345 |
|
| 200 |
| 214 |
| 219 |
| ||||||
Total |
| $ | 3,211 |
| $ | 3,196 |
| $ | 3,217 |
|
| $ | 2,106 |
| $ | 2,169 |
| $ | 2,278 |
|
NOTE 1514 — Commitments and Contingencies
As previously reported, on April 22, 2011, Western Sugar and two other sugar companies filed a complaint in the U.S. District Court for the Central District of California against the Corn Refiners Association (“CRA”) and certain of its member companies, including the Company, alleging false and/or misleading statements relating to high fructose corn syrup in violation of the Lanham Act and California’s unfair competition law. The complaint seeks injunctive relief and unspecified damages. On May 23, 2011, the plaintiffs amended the complaint to add additional plaintiffs, among other reasons.
On July 1, 2011, the CRA and the member companies in the case filed a motion to dismiss the first amended complaint on multiple grounds. On October 21, 2011, the U.S. District Court for the Central District of California dismissed all Federal and state claims against the Company and the other members of the CRA, with leave for the plaintiffs to amend their complaint, and also dismissed all state law claims against the CRA.
The state law claims against the CRA were dismissed pursuant to a California law known as the anti-SLAPP (Strategic Lawsuit Against Public Participation) statute, which, according to the court’s opinion, allows early dismissal of meritless first amendment cases aimed at chilling expression through costly, time-consuming litigation. The court held that the CRA’s statements were protected speech made in a public forum in connection with an issue of public interest (high fructose corn syrup). Under the anti-SLAPP statute, the CRA is entitled to recover its attorney’s fees and costs from the plaintiffs.
On November 18, 2011, the plaintiffs filed a second amended complaint against certain of the CRA member companies, including the Company, seeking to reinstate the federal law claims, but not the state law claims, against certain of the CRA member companies, including the Company. On December 16, 2011, the CRA member companies filed a motion to dismiss the second amended complaint on multiple grounds. On July 31, 2012, the U.S. District Court for the Central District of California denied the motion to dismiss for all CRA member companies other than Roquette America, Inc.
Act. On September 4, 2012, the Company and the other CRA member companies that remain defendants in the case filed an answer to the plaintiffs’ second amended complaint that, among other things, added a counterclaim against the Sugar Association. The counterclaim allegesalleged that the Sugar Association hashad made false and misleading statements that processed sugar differs from high fructose corn syrup in ways that are beneficial to consumers’ health (i.e., that consumers will be healthier if they consume foods and beverages containing processed sugar instead of high fructose corn syrup). The complaint and the counterclaim which was filed in the U.S. District Court for the Central District of California, seekseach sought injunctive relief and unspecified damages. AlthoughOn November 20, 2015 the parties to this lawsuit entered into a confidential settlement agreement. The lawsuit, including the complaint and the counterclaim, was initially only filed against the Sugar Association,dismissed with prejudice, and the Company and the other CRA member companies that remain defendants in the Western Sugar case have reserved the right to add other plaintiffs to the counterclaim in the future.
On October 29, 2012, the Sugar Association and the other plaintiffs filedmade a motion to dismiss the counterclaim and certain related portionssettlement payment of the defendants’ answer, each on multiple grounds. On December 10, 2012, the remaining member
companies which are defendants in the case responded to the motion to dismiss the counterclaim. On January 14, 2013, the plaintiffs filed a reply to the defendants’ response to the motion to dismiss. The motion to dismiss the counterclaim is still pending before the court.approximately $7 million.
The Company continuesis a party to believe that the second amended complaint is without merita large number of labor claims relating to its Brazilian operations. The Company has reserved an aggregate of approximately $3 million as of December 31, 2015 in respect of these claims. These labor claims primarily relate to dismissals, severance, health and intends to vigorously defend this case. In addition, the Company intends to vigorously pursue its rights in connection with the counterclaim.safety, work schedules and salary adjustments.
The Company is currently subject to various other claims and suits arising in the ordinary course of business, including certain environmental proceedings.proceedings and other commercial claims. The Company also routinely receive inquiries from regulators and other government authorities relating to various aspects of its business, including with respect to compliance with laws and regulations relating to the environment, and at any given time, the Company has matters at various stages of resolution with the applicable governmental authorities. The outcomes of these matters are not within the Company’s complete control and may not be known for prolonged periods of time. The Company does not believe that the results of suchcurrently known legal proceedings and inquires, even if unfavorable to the Company, will be material to the Company. There can be no assurance, however, that such claims, suits or suitsinvestigations or those arising in the future, whether taken individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations.
Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows:
(in millions, except per share amounts) |
| 1st QTR |
| 2nd QTR |
| 3rd QTR |
| 4th QTR * |
|
| 1st QTR |
| 2nd QTR |
| 3rd QTR |
| 4th QTR * |
| ||||||||
2012 |
|
|
|
|
|
|
|
|
| |||||||||||||||||
2015 |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net sales before shipping and handling costs |
| $ | 1,658 |
| $ | 1,720 |
| $ | 1,764 |
| $ | 1,726 |
|
| $ | 1,410 |
| $ | 1,536 |
| $ | 1,524 |
| $ | 1,489 |
|
Less: shipping and handling costs |
| 84 |
| 85 |
| 85 |
| 82 |
|
| 80 |
| 87 |
| 87 |
| 84 |
| ||||||||
Net sales |
| $ | 1,574 |
| $ | 1,635 |
| $ | 1,679 |
| $ | 1,644 |
|
| $ | 1,330 |
| $ | 1,449 |
| $ | 1,437 |
| $ | 1,405 |
|
Gross profit |
| 296 |
| 295 |
| 313 |
| 333 |
|
| 281 |
| 319 |
| 330 |
| 313 |
| ||||||||
Net income attributable to Ingredion |
| 94 |
| 109 |
| 113 |
| 112 |
|
| 84 |
| 107 |
| 108 |
| 104 |
| ||||||||
Basic earnings per common share of Ingredion |
| $ | 1.23 |
| $ | 1.42 |
| $ | 1.47 |
| $ | 1.45 |
|
| $ | 1.17 |
| $ | 1.49 |
| $ | 1.51 |
| $ | 1.45 |
|
Diluted earnings per common share of Ingredion |
| $ | 1.21 |
| $ | 1.40 |
| $ | 1.45 |
| $ | 1.42 |
|
| $ | 1.15 |
| $ | 1.47 |
| $ | 1.48 |
| $ | 1.42 |
|
(in millions, except per share amounts) |
| 1st QTR |
| 2nd QTR |
| 3rd QTR |
| 4th QTR * |
|
| 1st QTR |
| 2nd QTR |
| 3rd QTR |
| 4th QTR * |
| ||||||||
2011 |
|
|
|
|
|
|
|
|
| |||||||||||||||||
2014 |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net sales before shipping and handling costs |
| $ | 1,536 |
| $ | 1,667 |
| $ | 1,712 |
| $ | 1,629 |
|
| $ | 1,435 |
| $ | 1,568 |
| $ | 1,545 |
| $ | 1,450 |
|
Less: shipping and handling costs |
| 76 |
| 82 |
| 84 |
| 81 |
|
| 78 |
| 85 |
| 85 |
| 82 |
| ||||||||
Net sales |
| $ | 1,460 |
| $ | 1,585 |
| $ | 1,628 |
| $ | 1,548 |
|
| $ | 1,357 |
| $ | 1,483 |
| $ | 1,460 |
| $ | 1,368 |
|
Gross profit |
| 298 |
| 272 |
| 276 |
| 280 |
|
| 250 |
| 296 |
| 298 |
| 272 |
| ||||||||
Net income attributable to Ingredion |
| 154 |
| 79 |
| 88 |
| 95 |
|
| 73 |
| 103 |
| 119 |
| 61 |
| ||||||||
Basic earnings per common share of Ingredion |
| $ | 2.01 |
| $ | 1.03 |
| $ | 1.15 |
| $ | 1.25 |
|
| $ | 0.97 |
| $ | 1.37 |
| $ | 1.62 |
| $ | 0.85 |
|
Diluted earnings per common share of Ingredion |
| $ | 1.97 |
| $ | 1.01 |
| $ | 1.12 |
| $ | 1.22 |
|
| $ | 0.96 |
| $ | 1.35 |
| $ | 1.60 |
| $ | 0.83 |
|
* Fourth quarter 20122015 includes a charge of $9$3.8 million ($9 million after-tax, or $0.11 per diluted common share) relating to the restructuring of the Kenyan operations, a gain of $5 million ($32.6 million after-tax, or $0.04 per diluted common share) for restructuring costs in Canada, the United States and Brazil, costs of $0.7 million ($0.6 million after-tax, or $0.01 per diluted common share) associated with a change in a benefit plan in North Americathe acquisition and a gainintegration of $2Penford and Kerr, costs of $1.8 million ($21.1 million after-tax, or $0.02 per diluted common share) fromrelating to the sale of land. Fourth quarter 2011 includes a gainKerr inventory that was adjusted to fair value at the acquisition date in accordance with business combination accounting rules, costs of $30$6.8 million ($184.3 million after-tax, or $0.23 per diluted common share) pertaining to a change in a postretirement plan, integration costs of $11 million ($7 million after-tax, or $0.09 per diluted common share) pertaining to the integration of National Starch and a restructuring charge of $4 million ($3 million after-tax, or $0.03$0.06 per diluted common share) relating to a litigation settlement and a gain of $9.8 million ($8.9 million after-tax, or $0.12 per diluted common share) from the Company’s North American manufacturing optimization plan.sale of our Port Colborne, Canada plant. Fourth quarter 2014 includes a write-off of impaired goodwill in the Southern Cone of South America of $32.8 million ($0.44 per diluted common share) and $2.1 million of costs ($1.7 million after-tax, or $0.02 per diluted common share) related to the then-pending Penford acquisition.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 December 31, 2012.2015. 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 SEC’s 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.
On August 3, 2015, we completed our acquisition of Kerr Concentrates, Inc. (“Kerr”). In conducting our evaluation of the effectiveness of internal control over financial reporting, we have elected to exclude Kerr from our evaluation as of December 31, 2015, as permitted by the Securities and Exchange Commission. We are currently in the process of evaluating and integrating Kerr’s operations, processes and internal controls. See Note 3 of the Notes to the Consolidated Financial Statements for additional information regarding the acquisition. There have been no other changes in our internal control over financial reporting during the quarter ended December 31, 20122015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. This system of internal controls is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management’s authorization.
Internal control over financial reporting includes those policies and procedures that:
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets.
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors.
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
��
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework of Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The scope of the assessment included all of the subsidiaries of the Company except for Kerr, which was acquired on August 3, 2015. The consolidated net
sales of the Company for the year ended December 31, 2015 were $5.62 billion of which Kerr represented $23 million. The consolidated total assets of the Company at December 31, 2015 were $5.07 billion of which Kerr represented $107 million. Based on the evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2012.2015. The effectiveness of our internal control over financial reporting has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation report included herein.
None.
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained under the headings “Proposal 1. Election of Directors,” “The Board and Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement for the Company’s 20132016 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part 1 of this report under the heading “Executive Officers of the Registrant.” The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and controller. The code of ethics is posted on the Company’s Internet website, which is found at www.ingredion.com. The Company intends to include on its website any amendments to, or waivers from, a provision of its code of ethics that applies to the Company’s principal executive officer, principal financial officer or controller that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K.
ITEM 11.EXECUTIVE COMPENSATION
The information contained under the headings “Executive Compensation,” “Compensation Committee Report,” “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information contained under the headings “Equity Compensation Plan Information as of December 31, 2012”2015” and “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information contained under the headings “Review and Approval of Transactions with Related Persons,” “Certain Relationships and Related Transactions” and “Independence of Board Members” in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained under the heading “2012“2015 and 20112014 Audit Firm Fee Summary” in the Proxy Statement is incorporated herein by reference.
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 15(a)(1) Consolidated Financial Statements
Financial Statements (see the Index to the Consolidated Financial Statements on page 4853 of this report).
Item 15(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted because the information either is not required or is otherwise included in the consolidated financial statements and notes thereto.
Item 15(a)(3) Exhibits
The following list of exhibits includes both exhibits submitted with this Form 10-K as filed with the SEC and those incorporated by reference from other filings.
Exhibit No. |
| Description |
| Agreement and Plan of Merger, dated as of October 14, 2014, by and among Penford Corporation, a Washington corporation, Prospect Sub, Inc., a Washington corporation and a wholly-owned subsidiary of the Company, and the Company (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, filed on November 3, 2014) (File No. 1-13397). Certain schedules referenced in the Agreement and Plan of Merger have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request. | |
3.1 |
| Amended and Restated Certificate of Incorporation of the Company |
|
|
|
|
| Certificate of Elimination of Series A Junior Participating Preferred Stock of Corn Products International, Inc. |
|
|
|
|
| Amendments to Amended and Restated Certificate of Incorporation |
|
|
|
3.4 |
| Certificate of Amendment of |
|
|
|
|
| Amended By-Laws of the Company |
4.1 |
| |
| Revolving Credit Agreement dated October 22, 2012, among Ingredion Incorporated, the lenders signatory thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., Citibank, N.A. and Bank of Montreal, as Co-Syndication Agents, and Mizuho Corporate Bank (USA), U.S. Bank National Association and Branch Banking and Trust Company, as Co-Documentation Agents | |
|
|
|
|
| Private Shelf Agreement, dated as of March 25, 2010 by and between Corn Products International, Inc. and Prudential Investment Management, Inc. |
|
|
|
|
| Amendment No. 1 to Private Shelf Agreement, dated as of February 25, 2011 by and between Corn Products International, Inc. and Prudential Investment Management, Inc. |
|
|
|
4.4 |
| Amendment No. 2 to Private Shelf Agreement, dated as of December 21, 2012 by and between Ingredion Incorporated and Prudential Investment Management, Inc. (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 28, 2013) (File No. 1-13397). |
|
|
|
|
| Indenture Agreement dated as of August 18, 1999 between the Company and The Bank of New York, as Trustee |
|
|
|
|
| Third Supplemental Indenture dated as of April 10, 2007 between Corn Products International, Inc. and The Bank of New York Trust Company, N.A., as trustee |
| ||
|
|
|
|
| Fourth Supplemental Indenture dated as of April 10, 2007 between Corn Products International, Inc. and The Bank of New York Trust Company, N.A., as trustee |
|
|
|
|
| Fifth Supplemental Indenture, dated September 17, 2010, between Corn Products International, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to The Bank of New York), as trustee |
|
|
|
|
| Sixth Supplemental Indenture, dated September 17, 2010, between Corn Products International, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to The Bank of New York), as trustee |
|
| Seventh Supplemental Indenture, dated September 17, 2010, between Corn Products International, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to The Bank of New York), as trustee |
|
|
|
|
| Eighth Supplemental Indenture, dated September 20, 2012, between Ingredion Incorporated and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to The Bank of New York), as trustee |
4.12 | Term Loan Credit Agreement dated July 10, 2015, by and among Ingredion Incorporated, the lenders signatory thereto, Bank of America, N.A., as Administrative Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Bookrunner and Sole Lead Arranger (incorporated by reference to Exhibit 4.12 to the Company’s Current Report on Form 8-K dated July 10, 2015, filed on July 14, 2015) (File No. 1-13397). | |
4.13 | First Amendment to Term Loan Credit Agreement dated as of September 18, 2015, by and among Ingredion Incorporated, the lenders signatory thereto, Bank of America, N.A., as Administrative Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Bookrunner and Sole Lead Arranger (incorporated by reference to Exhibit 4.13 to the Company’s Current Report on Form 8-K dated September 18, 2015, filed on September 21, 2015) (File No. 1-13397). | |
|
|
|
10.1 |
| Stock Incentive Plan as effective |
|
|
|
10.2* |
| |
|
| Form of Executive Severance Agreement entered into by Ilene S. Gordon |
|
|
|
|
| |
|
| Form of Indemnification Agreement entered into by each of the members of the Company’s Board of Directors and the |
|
|
|
|
| Deferred Compensation Plan for Outside Directors of the Company (Amended and Restated as of September 19, 2001), filed |
| ||
|
|
|
|
| Supplemental Executive Retirement Plan as effective July 18, 2012 |
|
|
|
|
| Executive Life Insurance |
|
|
|
|
| Deferred Compensation Plan, as amended by Amendment No. 1 |
|
| Annual Incentive Plan as effective July 18, 2012 |
10.9* | Executive Life Insurance Plan, Compensation Committee Summary (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 11, 2005) (File No. 1-13397). | |
10.10* | Form of Executive Life Insurance Plan Participation Agreement and Collateral Assignment entered into by Jack C. Fortnum (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 11, 2005) (File No. 1-13397). | |
|
|
|
10.11* |
| Form of Notice of Restricted Stock Award Agreement for use in connection with awards under the Stock Incentive Plan |
|
|
|
10.12* |
| |
|
| |
|
| |
|
| |
|
| Form of Performance Share Award Agreement for use in connection with awards under the Stock Incentive |
|
|
|
|
| Form of Stock Option Award Agreement for use in connection with awards under the Stock Incentive |
|
|
|
| Form of Restricted Stock Units Award Agreement for use in connection with awards under the Stock Incentive Plan. | |
10.15 |
| Natural Gas Purchase and Sale Agreement between Corn Products Brasil-Ingredientes Industrias Ltda. and Companhia de Ga de Sao Paulo-Comgas |
|
| Letter of Agreement dated as of April 2, 2009 between the Company and Ilene S. Gordon |
|
|
|
|
| |
|
| Letter of Agreement dated as of April 2, 2010 between the Company and Diane Frisch |
|
|
|
|
| Executive Severance Agreement dated as of May 1, 2010 between the Company and Diane Frisch |
|
|
|
|
| |
|
| Letter of Agreement dated as of September 28, 2010 between the Company and James Zallie |
2011) (File No. | ||
|
|
|
|
|
|
10.21* | Form of Executive Severance Agreement entered into by Ricardo de Abreu Souza and Jorgen Kokke (incorporated by reference to Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 2, 2014) (File No. 1-13397). | |
10.22* | Confidentiality and Non-Compete Agreement, dated March 7, 2014, by and between the Company and Cheryl K. Beebe (incorporated by reference to Exhibit 10.40 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 2, 2014) (File No. 1-13397). | |
10.23 * | Confidential Separation Agreement and General Release, dated as of March 29, 2013, by and between the Company and Kimberly A. Hunter (incorporated by reference to Exhibit 10.35 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, filed on August 2, 2013) (File No. 1-13397). | |
10.24* | Consulting Agreement, dated as of September 3, 2013, by and between the Company and Julio dos Reis (incorporated by reference to Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on November 1, 2013) (File No. 1-13397). | |
10.25* | Mutual Separation Agreement, dated as of September 3, 2013, by and between Ingredion Argentina S.A. and Julio dos Reis (incorporated by reference to Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on November 1, 2013) (File No. 1-13397). | |
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10.26* |
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10.29* | Executive Severance Agreement dated as of September 30, 2015 between the Company and Martin Sonntag (incorporated by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q, for the quarter ended September 30, 2015, filed on October 30, 2015) (File No. 1-13397). | |
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12.1 |
| Computation of Ratio of Earnings to Fixed Charges |
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21.1 |
| Subsidiaries of the Registrant |
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23.1 |
| Consent of Independent Registered Public Accounting Firm |
24.1 |
| Power of Attorney |
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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 |
| 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 the Ingredion Incorporated Annual Report on Form 10-K for the year ended December 31, |
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98* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(b) of this report.
Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th19th day of February, 2013.2016.
| INGREDION INCORPORATED | |
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| By: | /s/ Ilene S. Gordon |
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| Ilene S. Gordon |
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| Chairman, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant, in the capacities indicated and on the 27th19th day of February, 2013.2016.
Signature |
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| Chairman, President, Chief Executive Officer and Director |
Ilene S. Gordon |
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/s/ |
| Chief Financial Officer |
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/s/ Matthew R. Galvanoni |
| Controller |
Matthew R. Galvanoni |
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* |
| Director |
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* |
| Director |
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*Paul Hanrahan |
| Director |
Paul Hanrahan |
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* |
| Director |
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*Gregory B. Kenny |
| Director |
Gregory B. Kenny |
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*Barbara A. Klein |
| Director |
Barbara A. Klein |
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* |
| Director |
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* Jorge A. Uribe | Director | |
Jorge A. Uribe |
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*Dwayne A. Wilson |
| Director |
Dwayne A. Wilson |
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*By: |
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| Christine M. Castellano |
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| Attorney-in-fact |
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(Being the principal executive officer, the principal financial officer, the controller and a majority of the directors of Ingredion Incorporated)