UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~September 30, 2016~~March 31, 2017


☐	TRANSITION 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 in its charter)

DELAWARE

(State or other jurisdiction of incorporation or organization)

22-3514823

(I.R.S. Employer Identification Number)

5 WESTBROOK CORPORATE CENTER

WESTCHESTER, ILLINOIS

60154

(Address of principal executive offices)

(Zip Code)

(708) 551-2600

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 ☒ No ☐

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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

~~(Check one):~~


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


CLASS		OUTSTANDING AT ~~NOVEMBER 2, 2016~~MAY 3, 2017
Common Stock, $.01 par value		~~72,402,000~~71,641,000 shares

PART I FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in millions, except per share amounts)	2016		2015		2016		2015		2017		2016
Net sales before shipping and handling costs	$	1,569	$	1,524	$	4,537	$	4,470	$	1,537	$	1,434
Less - shipping and handling costs		80		87		233		254		84		74
Net sales		1,489		1,437		4,304		4,216		1,453		1,360
Cost of sales		1,120		1,107		3,241		3,287		1,101		1,021
Gross profit		369		330		1,063		929		352		339

Operating expenses		149		139		431		416		149		138
Other (income) expense - net		(3)		2		(2)		2		(2)		1
Restructuring/impairment charges		2		14		15		24		10		—

Operating income		221		175		619		487		195		200

Financing costs-net		15		14		48		44		21		14

Income before income taxes		206		161		571		443		174		186
Provision for income taxes		60		51		172		138		47		53
Net income		146		110		399		305		127		133
Less - Net income attributable to non-controlling interests		3		2		8		7		3		3
Net income attributable to Ingredion	$	143	$	108	$	391	$	298	$	124	$	130

Weighted average common shares outstanding:
Basic		72.5		71.6		72.2		71.6		72.2		72.0
Diluted		74.3		72.9		74.0		72.9		73.7		73.6

Earnings per common share of Ingredion:
Basic	$	1.98	$	1.51	$	5.42	$	4.17	$	1.72	$	1.81
Diluted	$	1.93	$	1.48	$	5.29	$	4.09	$	1.68	$	1.77

See Notes to Condensed Consolidated Financial Statements

PART I FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,
(in millions)

2016

2015

2016

2015
Net income

$
146

$
110

$
399

$
305
Other comprehensive income (loss):

Losses on cash-flow hedges, net of income tax effect of $9, $7, $9 and $8, respectively

(18)

(15)

(15)

(18)
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $2, $3, $9 and $10, respectively

4

7

18

23
Actuarial gain (loss) on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $-, $-, $1 and $2, respectively

—

—

(4)

6
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax effect

—

—

1

1
Currency translation adjustment

9

(157)

68

(283)
Comprehensive income (loss)

$
141

$
(55)

$
467

$
34
Less: Comprehensive income attributable to non-controlling interests

(3)

(2)

(8)

(6)
Comprehensive income (loss) attributable to Ingredion

$
138

$
(57)

$
459

$
28


	Three Months Ended
	March 31,
(in millions)	2017		2016
Net income	$	127	$	133
Other comprehensive income:
Gain / (loss) on cash-flow hedges, net of income tax effect of $3 and $6, respectively		5		(11)
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $1 and $3, respectively		3		7
Currency translation adjustment		40		39
Comprehensive income	$	175	$	168
Less: Comprehensive income attributable to non-controlling interests		(3)		(3)
Comprehensive income attributable to Ingredion	$	172	$	165

See Notes to Condensed Consolidated Financial Statements

PART I FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Balance Sheets


	September 30,		December 31,		March 31,		December 31,
(in millions, except share and per share amounts)	2016		2015		2017		2016
	(Unaudited)				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	751	$	434	$	435	$	512
Short-term investments		13		6		13		4
Accounts receivable — net		856		775		913		923
Inventories		736		715		835		789
Prepaid expenses		25		20		31		24
Total current assets		2,381		1,950		2,227		2,252

Property, plant and equipment - net of accumulated depreciation of $2,824 and $2,642, respectively		2,055		1,989
Property, plant and equipment - net of accumulated depreciation of $2,885 and $2,826, respectively						2,146		2,116
Goodwill		609		601		803		784
Other intangible assets - net of accumulated amortization of $100 and $82, respectively		386		410
Other intangible assets - net of accumulated amortization of $114 and $106, respectively						496		502
Deferred income tax assets		10		7		7		7
Other assets		132		117		120		121
Total assets	$	5,573	$	5,074	$	5,799	$	5,782

Liabilities and equity
Current liabilities:
Short-term borrowings	$	33	$	19	$	118	$	106
Accounts payable and accrued liabilities		763		723		815		872
Total current liabilities		796		742		933		978

Non-current liabilities		164		170
Non-current liabilities:						164		158
Long-term debt		1,859		1,819		1,895		1,850
Deferred income tax liabilities		148		139		174		171
Share-based payments subject to redemption		27		24		24		30

Ingredion stockholders’ equity
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, 77,810,875 issued at September 30, 2016 and December 31, 2015, respectively		1		1
Common stock — authorized 200,000,000 shares-$0.01 par value, 77,810,875 issued at March 31, 2017 and December 31, 2016, respectively						1		1
Additional paid-in capital		1,146		1,160		1,139		1,149
Less - Treasury stock (common stock: 5,417,022 and 6,194,510 shares at September 30, 2016 and December 31, 2015, respectively) at cost		(414)		(467)
Less - Treasury stock (common stock: 6,202,224 and 5,396,526 shares at March 31, 2017 and December 31, 2016, respectively) at cost						(520)		(413)
Accumulated other comprehensive loss		(1,024)		(1,102)		(1,023)		(1,071)
Retained earnings		2,842		2,552		2,987		2,899
Total Ingredion stockholders’ equity		2,551		2,144		2,584		2,565
Non-controlling interests		28		36		25		30
Total equity		2,579		2,180		2,609		2,595
Total liabilities and equity	$	5,573	$	5,074	$	5,799	$	5,782

See Notes to Condensed Consolidated Financial Statements

PART I FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Equity and Redeemable Equity

(Unaudited)


															Total Equity
	Total Equity												Share-based														Share-based
			Additional				Accumulated Other				Non-		Payments				Additional				Accumulated Other				Non-		Payments
	Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject		Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to
(in millions)	Stock		Capital		Stock		Income (Loss)		Earnings		Interests		Redemption		Stock		Capital		Stock		Loss		Earnings		Interests		Redemption
Balance, December 31, 2015	$	1	$	1,160	$	(467)	$	(1,102)	$	2,552	$	36	$	24
Balance, December 31, 2016															$	1	$	1,149	$	(413)	$	(1,071)	$	2,899	$	30	$	30
Net income attributable to Ingredion										391														124
Net income attributable to non-controlling interests												8														3
Dividends declared										(101)		(6)												(36)		(8)
Repurchases of common stock				(8)																(123)
Issuance of common stock on exercise of stock options				(14)		43
Share-based compensation				8		10								3
Other comprehensive income (loss)								78				(10)
Balance, September 30, 2016	$	1	$	1,146	$	(414)	$	(1,024)	$	2,842	$	28	$	27
Share-based compensation, net of issuance																		(10)		16								(6)
Other comprehensive income																						48
Balance, March 31, 2017															$	1	$	1,139	$	(520)	$	(1,023)	$	2,987	$	25	$	24

Total Equity

Share-based

Additional

Accumulated Other

Non-

Payments

Common

Paid-In

Treasury

Comprehensive

Retained

Controlling

Subject to

(in millions)

Stock

Capital

Stock

Income (Loss)

Earnings

Interests

Redemption

Balance, December 31, 2014

$
1

$
1,164

$
(481)

$
(782)

$
2,275

$
30

$
22

Net income attributable to Ingredion

298

Net income attributable to non-controlling interests

6

Dividends declared

(92)

(3)

Repurchases of common stock

(6)

(34)

Issuance of common stock on exercise of stock options

(12)

30

Share-based compensation

14

10

(1)

Other comprehensive loss

(271)

Balance, September 30, 2015

$
1

$
1,160

$
(475)

$
(1,053)

$
2,481

$
33

$
21


	Total Equity												Share-based
			Additional				Accumulated Other				Non-		Payments
	Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to
(in millions)	Stock		Capital		Stock		Loss		Earnings		Interests		Redemption
Balance, December 31, 2015	$	1	$	1,160	$	(467)	$	(1,102)	$	2,552	$	36	$	24
Net income attributable to Ingredion										130
Net income attributable to non-controlling interests												3
Dividends declared										(32)		(3)
Share-based compensation, net of issuance				(9)		23								(7)
Other comprehensive income								35
Balance, March 31, 2016	$	1	$	1,151	$	(444)	$	(1,067)	$	2,650	$	36	$	17

See Notes to Condensed Consolidated Financial Statements

PART I FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
(in millions)	2016		2015		2017		2016
Cash provided by operating activities:
Net income	$	399	$	305	$	127	$	133
Non-cash charges to net income:
Depreciation and amortization		146		145		51		47
Write-off of impaired assets		—		10
Charge for fair value mark-up of acquired inventory		—		8		5		—
Other		59		72		23		24
Changes in working capital:
Accounts receivable and prepaid expenses		(56)		(40)		12		(21)
Inventories		(8)		21		(40)		(32)
Accounts payable and accrued liabilities		18		(40)		(48)		(55)
Decrease (increase) in margin accounts		1		(7)
Decrease in margin accounts						6		12
Other		(17)		7		(5)		(9)
Cash provided by operating activities		542		481		131		99

Cash used for investing activities:
Capital expenditures, net of proceeds on disposals		(197)		(193)		(72)		(59)
Short-term investments		(7)		24		(8)		(13)
Payments for acquisitions, net of cash acquired of $16		—		(434)
Payments for acquisitions						(13)		—
Other						—		(1)
Cash used for investing activities		(204)		(603)		(93)		(73)

Cash provided by (used for) financing activities:
Cash (used for) provided by financing activities:
Proceeds from borrowings		793		997		108		84
Payments on debt		(742)		(558)		(55)		(44)
Debt issuance costs		(4)		—
Issuance (repurchase) of common stock - net		21		(22)		(130)		1
Dividends paid (including to non-controlling interests)		(103)		(94)		(44)		(35)
Excess tax benefit on share-based compensation		—		6
Cash provided by (used for) financing activities		(35)		329
Cash (used for) provided by financing activities						(121)		6

Effects of foreign exchange rate changes on cash		14		(65)		6		11

Increase in cash and cash equivalents		317		142
(Decrease) increase in cash and cash equivalents						(77)		43

Cash and cash equivalents, beginning of period		434		580		512		434

Cash and cash equivalents, end of period	$	751	$	722	$	435	$	477

See Notes to Condensed Consolidated Financial Statements

INGREDION INCORPORATED (“Ingredion”)

Notes to Condensed Consolidated Financial Statements

1. Interim Financial Statements

References to the “Company” are to Ingredion Incorporated (“Ingredion”) and its consolidated subsidiaries. These statements should be read in conjunction with the consolidated financial statements and the related notes to those statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

The unaudited ~~condensed consolidated interim financial statements~~Condensed Consolidated Financial Statements included herein were prepared by management on the same basis as the Company’s audited consolidated financial statements for the year ended December 31, ~~2015~~2016 and reflect all adjustments (consisting solely of normal recurring items unless otherwise noted) which are, in the opinion of management, necessary for the fair presentation of results of operations and cash flows for the interim periods ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ and the financial position of the Company as of ~~September 30, 2016.~~March 31, 2017. The results for the interim periods are not necessarily indicative of the results expected for the full years.

2. Recently Adopted and New Accounting Standards

~~Recently Adopted~~New Accounting ~~Standard~~Standards

In ~~March 2016,~~May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ~~("ASU"~~(“ASU”)~~No. 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting~~, a new standard that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows us to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. The new standard is effective for us beginning January 1, 2017, with early adoption permitted.

We elected to early adopt the new guidance in the second quarter of fiscal year 2016. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital for all periods in fiscal year 2016. The change in tax withholding guidance had no impact to retained earnings as of January 1, 2016, and therefore no cumulative effect was required to be recorded. We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.

We elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively, which resulted in an increase in cash provided by operating activities and a decrease in cash provided by financing activities for the nine months ended September 30, 2016. No changes in presentation will be made for prior years presented. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented in our consolidated cash flows statements since such cash flows have historically been presented as a financing ~~activity.~~

Adoption of the new standard resulted in the recognition of excess tax benefits in our provision for income taxes rather than additional paid-in-capital of $6 million and $12 million for the three and nine months ended September 30, 2016, as well as an increase of 0.3 million diluted weighted average common shares outstanding for both periods. The adoption of the new standard impacted our previously reported results for the first quarter of 2016 as follows:

(in millions, except share and per share amounts)

Three Months Ended March 31, 2016

Consolidated Statement of Income:

As reported

As adjusted

Provision for income taxes

$
56

$
53

Net income

$
130

$
133

Net income attributable to Ingredion

$
127

$
130

Basic earnings per common share of Ingredion

$
1.77

$
1.81

Diluted earnings per common share of Ingredion

$
1.73

$
1.77

Diluted weighted average common shares outstanding

73.3

73.6

Consolidated Statement of Cash Flows:

Cash provided by operating activities

$
96

$
99

Cash provided by financing activities

$
9

$
6

Consolidated Balance sheet:

Additional paid-in capital

$
1,154

$
1,151

Retained earnings

$
2,647

$
2,650

~~New Accounting Standards~~

~~In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU~~ No. 2014-09, Revenue from Contracts with Customers (Topic 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 ~~Update~~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. The FASB has also issued additional ASUs to provide further updates and clarification to the Update, including ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. We plan to adopt the standard as of the effective date. The standard will allow various transition approaches upon adoption. We ~~are assessing~~plan to use the ~~impacts of this new standard and~~modified retrospective approach for the ~~subsequent Accounting Standard Updates issued during the year that amend~~transition to the new standard.

~~In July 2015,~~ Based on the ~~FASB issued ASU No. 2015-11,~~ ~~Inventory (Topic 330): Simplifying~~analysis performed by the ~~Measurement of Inventory. This Update requires an entity~~Company to ~~measure inventory at the lower of cost and net realizable value, removing the consideration of current replacement cost. It~~date, our preliminary assessment is ~~effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted.~~ ~~We do not expect~~ that the adoption of ~~the~~this guidance in ~~this~~the Update will not have a material impact on the Company’s revenue recognition timing or amounts; however, that assessment could change as we complete our ~~Consolidated Financial Statements.~~

~~In January 2016,~~analysis. We anticipate that our assessment will be complete by the ~~FASB issued ASU No. 2016-01,~~third quarter of 2017. ~~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 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842),, which supersedes Topic 840, ~~Leases~~.Leases. This Update increases the transparency and comparability of organizations by recognizing lease assets and lease liabilities on the balance sheet for leases longer than 12 months and disclosing key information about leasing arrangements. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a

lessee have not significantly changed. This Update is effective for annual periods beginning after December 15, 2018, with early adoption permitted. We currently plan to adopt the standard as of the effective date. Adoption will require a modified retrospective transition. We expect the adoption of the guidance in this Update to have a material impact on our Condensed Consolidated Balance Sheet as operating leases will be recognized both as assets and liabilities on the balance sheet. We are ~~currently~~in the process of quantifying the magnitude of these changes and assessing the ~~impact~~implementation approach for accounting for these changes.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This Update simplifies the subsequent measurement of Goodwill as the Update eliminates Step 2 from the goodwill impairment test. Instead, under the Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. This Update is effective for annual periods beginning after December 15, 2019, with early adoption permitted.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This Update requires an entity to change the classification of the net periodic benefit cost for pension and postretirement plans within the statement of income by eliminating the ability to net all of the components of the costs together within operating income. The Update will require the service cost component to continue to be presented within operating income, classified within either cost of sales or operating expenses depending on the employees covered within the plan. The remaining components of the net periodic benefit cost, however, must be presented in the statement of income as a non-operating income (loss) below operating income. The Update is effective for annual periods beginning after December 15, 2017, with early adoption permitted only within the first interim period for public entities. We will not early adopt this Update. When adopted, the new guidance must be applied retrospectively for all income statement periods presented. The Update ~~on our~~will reduce the Company’s operating income and will require a new financial statement line item below operating income within the Consolidated ~~Financial Statements.~~Income Statements for the non-operating income (loss) components. Net income within the Consolidated Income Statements will not change upon adoption of the Update.

3. Acquisitions

On ~~August 3, 2015,~~March 9, 2017, the Company completed its acquisition of ~~Kerr Concentrates, Inc.~~Sun Flour Industry Co., Ltd. (“~~Kerr”~~Sun Flour”) in Thailand for $18 million. Upon closing, the Company paid $13 million in cash and recorded $5 million in accrued liabilities for deferred payments due to the previous owner. The Company funded the acquisition primarily with cash. The acquisition of Sun Flour adds a fourth manufacturing facility to our operations in Thailand. It produces rice-based ingredients used primarily in the food industry. The results of the acquired operation are included in the Company’s consolidated results from the acquisition date forward within the Asia Pacific business segment.

On December 29, 2016, the Company completed its acquisition of TIC Gums Incorporated (“TIC Gums”), a privately held, ~~producer of natural fruit and vegetable concentrates for $102 million in cash.~~ ~~Kerr serves major~~U.S.-based company that provides advanced texture systems to the food and beverage ~~companies, flavor houses and ingredient producers from its manufacturing locations in Oregon and California.~~industry, for $395 million, net of cash acquired. The acquisition ~~of Kerr provides~~adds a manufacturing facility in the ~~Company with the opportunity to expand its product portfolio.~~ US and in China. The Company funded the acquisition with proceeds from borrowings under its revolving credit agreement. The results of ~~Kerr~~the acquired operations are included in the Company’s consolidated results from ~~August 3, 2015~~the respective acquisition dates forward within the North America and Asia Pacific business ~~segment.~~segments.

On November 29, 2016, the Company completed its acquisition of Shandong Huanong Specialty Corn Development Co., Ltd. (“Shandong Huanong”) in China for $12 million in cash. The Company ~~has finalized~~funded the acquisition primarily with cash. The acquisition of Shandong Huanong, located in Shandong Province, adds a second manufacturing facility to our operations in China. It produces starch raw material for our plant in Shanghai, which makes value-added ingredients for the food industry. The results of the acquired operation are included in the Company’s consolidated results from the acquisition date forward within the Asia Pacific business segment.

A preliminary allocation of the purchase price ~~allocation.~~to the assets acquired and liabilities assumed was made based on available information and incorporating management’s best estimates. The ~~finalization of purchase accounting during~~assets acquired and liabilities assumed in the ~~first quarter of 2016 did not have a significant impact on previously~~transactions are generally recorded at their estimated ~~amounts.~~ 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. The goodwill ~~related to Kerr is tax deductible due to the structure of this acquisition. The goodwill of $27 million for Kerr~~ results from synergies and other operational benefits expected to be derived from the acquisitions. The goodwill related to TIC Gums and Shandong Huanong are tax deductible due to the structure of the acquisition. The goodwill related to Sun Flour is not tax deductible.

The following table summarizes the ~~final~~preliminary purchase price allocation for ~~Kerr:~~the acquisition of TIC Gums as of December 29, 2016:


~~(in millions)~~
~~Working capital (excluding cash)~~	$	37
~~Property, plant and equipment~~		8
~~Other assets~~		1
~~Identifiable intangible assets~~		29
~~Goodwill~~		27
~~Total final purchase price~~	$	~~102~~

The identifiable intangible assets for the Kerr acquisition include items such as customer relationships, trade names, and noncompetition agreements. The fair values of these intangible assets were determined to be Level 3 under the fair value hierarchy. Level 3 inputs are unobservable inputs for an asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for 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 for these acquired intangible assets (dollars in millions):


				~~Estimated~~
	~~Fair Value~~		~~Valuation Technique~~	~~Useful Life~~
~~Customer Relationships~~	$	24	~~Multi-period excess earnings method~~	~~15 years~~
~~Trade Names~~	$	4	~~Relief-from-royalty method~~	~~11 years~~
~~Noncompetition Agreements~~	$	1	~~Income Approach~~	~~3 years~~



		Preliminary
(in millions)		TIC Gums
Working capital (excluding cash)	$	50
Property, plant and equipment		42
Identifiable intangible assets		117
Goodwill		186
Total purchase price	$	395

The ~~fair value~~acquisitions of ~~customer relationships, trade names~~Sun Flour and ~~noncompetition agreements were determined through~~Shandong Huanong added $21 million to goodwill and identifiable intangible assets and $9 million to net tangible assets as of their respective acquisition dates.

All of the ~~valuation techniques described above using various judgmental assumptions such as discount rates, royalty rates,~~recorded assets and ~~customer attrition rates, as applicable. The fair values of~~liabilities, including working capital, property, plant and equipment ~~associated with~~(“PP&E”), goodwill and intangibles, are open to change as the ~~Kerr acquisition~~Company is still in process of performing purchase accounting for TIC Gums and Sun Flour. The purchase accounting for Shandong Huanong is still open to finalize the valuation of the intangibles.

Included in the results of the acquired businesses for the three months ended March 31, 2017 were ~~determined~~increases in cost of sales of $5 million relating to ~~be Level 3 under~~ the sale of inventory that was adjusted to fair value ~~hierarchy. Property, plant~~at the acquisition dates in accordance with business combination accounting rules.

Pro-forma results of operations for the acquisitions made in 2017 and ~~equipment values were estimated using either~~2016 have not been presented as the ~~cost or market approach.~~

effect of each acquisition individually and in aggregate would not be material to the Company’s results of operations for any periods presented.

The Company incurred ~~less than $1 million and~~ $2 million of pre-tax acquisition and integration costs for the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, associated with its recent acquisitions. In ~~2015,~~2016, the Company incurred ~~$2 million and $9~~$1 million of pre-tax acquisition and integration costs for the three ~~and nine~~ months ended ~~September 30, 2015, respectively,~~March 31, 2016 associated with the ~~Penford and~~acquisition of Kerr ~~transactions.~~Concentrates, Inc.

4. Impairment and Restructuring Charges

~~During~~For the ~~third quarter of 2016,~~three months ended March 31, 2017, the Company recorded $2$10 million of net restructuring charges. During the first quarter of 2017, the Company implemented an organizational restructuring effort in Argentina by notifying both the Argentinian Labor Ministry and the local labor union of a planned reduction in workforce in order to achieve a more competitive cost position. On April 28, 2017, the union notified the Company of their intent to strike. We will continue to work with both the labor union and the Argentinian Labor Ministry on this matter. The Company recorded total pre-tax restructuring related charges in Argentina of $11 million for ~~employee-related severance and other costs due to~~employee severance-related costs. Additionally, the Company recorded a $1 million reduction in expected employee severance-related charges associated with the execution of global information technology (“IT”) outsourcing contracts. The

~~Company expects to incur additional costs of approximately $2 million in the fourth quarter of 2016 related to the IT outsourcing project. Additionally, the~~ Company expects to incur approximately $2$1 million of additional restructuring costs associated with the IT outsourcing project ~~in the first half of 2017.~~

For the nine months ended September 30, 2016, the Company recorded $15 million of restructuring charges consisting of $10 million of employee-related severance and other costs due to the execution of global IT outsourcing contracts, $3 million of employee-related severance costs associated with the Company’s optimization initiative in South America and $2 million of costs attributable to the 2015 Port Colborne plant sale.

On September 8, 2015, the Company announced that it planned to consolidate its manufacturing network in Brazil. Production at plants in Trombudo Central and Conchal has ceased and will be moved to plants in Balsa Nova and Mogi Guaçu, respectively. The plant closures should be complete by the end of 2016. Inthrough the third quarter of 2015, the Company recorded total pre-tax restructuring-related charges of $12 million related to these plant closures, consisting of a $10 million charge for impaired assets and $2 million of employee severance-related costs.

~~Also, in the third quarter of 2015, the Company recorded a pre-tax restructuring charge of $2 million for estimated employee severance-related costs associated with the Port Colborne plant sale.~~

~~In the first quarter of 2015, the Company recorded a pre-tax restructuring charge of $10 million for employee severance-related costs associated with the Penford acquisition.~~2017.

A summary of the Company’s severance accrual at ~~September 30, 2016~~March 31, 2017 is as follows (in millions):

~~Balance in severance accrual at December 31, 2015~~


Balance in severance accrual at December 31, 2016	$	7
Restructuring charge for employee severance costs:
Argentina employee-related severance		11
IT transformation		(1)
Payments made to terminated employees		(2)
Balance in severance accrual at March 31, 2017	$	15

~~Restructuring charge for employee severance costs:~~

~~IT transformation~~

~~South America employee-related severance~~

~~Payments made to terminated employees~~

~~(8)~~

~~Balance in severance accrual at September 30, 2016~~

The severance accrual is expected to be paid within the next twelve months.

109

5. 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 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, Malaysia, India, Australia and New Zealand. The Company’s EMEA segment includes businesses in Germany, the United Kingdom, ~~Germany,~~Pakistan, South Africa ~~Pakistan~~ and Kenya.


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in millions)	2016		2015		2016		2015		2017		2016
Net sales to unaffiliated customers:
North America	$	899	$	880	$	2,634	$	2,503	$	881	$	841
South America		276		257		731		765		255		215
Asia Pacific		185		174		534		553		179		169
EMEA		129		126		405		395		138		135
Total	$	1,489	$	1,437	$	4,304	$	4,216	$	1,453	$	1,360

Operating income:
North America	$	164	$	133	$	474	$	362	$	160	$	149
South America		27		28		59		73		14		18
Asia Pacific		29		28		87		81		30		28
EMEA		25		22		80		67		28		26
Corporate		(22)		(18)		(64)		(54)		(20)		(20)
Subtotal		223		193		636		529		212		201
Restructuring / impairment charges		(2)		(14)		(15)		(24)
Restructuring charges										(10)		—
Acquisition / integration costs		—		(2)		(2)		(9)		(2)		(1)
Charge for fair value markup of acquired inventory		—		(2)		—		(9)		(5)		—
Total	$	221	$	175	$	619	$	487	$	195	$	200


	At		At		At		At
(in millions)	Sept. 30, 2016		Dec. 31, 2015		March 31, 2017		Dec. 31, 2016
Total assets
North America	$	3,403	$	3,163	$	3,727	$	3,796
South America		845		714		841		809
Asia Pacific		808		716		754		697
EMEA		517		481		477		480
Total	$	5,573	$	5,074	$	5,799	$	5,782

6. Financial Instruments, Derivatives and Hedging Activities

The Company is exposed to market risk stemming from changes in commodity prices (primarily 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 grade counterparties. Derivative financial instruments currently used by the Company consist of commodity related futures, options and swap contracts, foreign currency related forward 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 twenty-four months. 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~~over-the-counter natural 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-flow hedges. The Company also enters into futures contracts to hedge price risk associated with fluctuations in the market price of ethanol. Unrealized gains and losses associated with marking the commodity hedging contracts to market (fair value) are recorded as a component of ~~other~~Other comprehensive income (“OCI”) and included in the equity section of the Condensed Consolidated Balance Sheets as part of ~~accumulated~~Accumulated other comprehensive income/loss (“AOCI”). These amounts are subsequently reclassified into 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 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-flow hedges are not significant.

At ~~September 30, 2016,~~March 31, 2017, AOCI included ~~$21~~$6 million of ~~losses, net~~gains (net of ~~tax~~income taxes of ~~$11 million,~~$2 million), pertaining to commodities-related derivative instruments designated as cash-flow hedges. At December 31, ~~2015,~~2016, the amount included in AOCI ~~included $21 million of losses, net of tax of $10 million,~~ pertaining to these commodities-related derivative instruments designated as cash-flow ~~hedges.~~hedges was not significant.

Interest rate hedging: Derivative financial instruments that have been used by the Company to manage its interest rate risk consist of interest rate swaps and Treasury Lock agreements (“T-Locks”). The Company has interest rate swap agreements that effectively convert the interest rates on its 6.0 percent $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, 2020, to variable rates. These swap agreements call for the Company to receive interest at the fixed coupon rate 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 obligations attributable to changes in interest rates and accounts for them as fair-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~~(the change in fair value) of the hedged debt instrument that is attributable to changes in interest rates ~~(that is, the~~(the hedged risk), which is also recognized in earnings. The fair value of these interest rate swap agreements at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 was ~~$11~~$3 million and $7$3 million, respectively, and is reflected in the Condensed Consolidated Balance Sheets within Other assets, with an offsetting amount recorded in Long-term debt to adjust the carrying amount of the hedged debt obligations. The Company did not have any ~~T-locks~~T-Locks outstanding at ~~September 30, 2016~~March 31, 2017 or December 31, ~~2015.~~2016.

At ~~September 30, 2016,~~March 31, 2017, AOCI included $4$3 million of losses, (net of income taxes of $2 million), related to settled T-Locks. At December 31, ~~2015,~~2016, AOCI included $5$4 million of losses (net of income taxes of $2 million), 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.

Foreign currency hedging: Due to the Company’s global operations, including operations in 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 operations are translated to US dollars and to transactional foreign exchange risk when transactions not denominated in the functional currency 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. At ~~September 30,~~March 31, 2017, the Company had foreign currency forward sales contracts that are designated as fair value hedges with an aggregate notional amount of $430 million and foreign currency forward purchase contracts with an aggregate notional amount of $214 million that hedged transactional exposures. At December 31, 2016, the Company had foreign currency forward sales contracts with an aggregate notional amount of ~~$394~~$432 million and foreign currency forward purchase contracts with an aggregate notional amount of $89 million that hedged transactional exposures. At December 31, 2015, the Company had foreign currency forward sales contracts with an aggregate notional amount of $606 million and foreign currency forward purchase contracts with an aggregate notional amount of $287$227 million that hedged transactional exposures.

The Company also has foreign currency derivative instruments that hedge certain foreign currency transactional exposures and are designated as cash-flow hedges. ~~The amount~~At March 31, 2017, AOCI included ~~in AOCI~~$2 million of losses, net of tax, relating to these ~~hedges at both September 30, 2016 and~~hedges. At December 31, ~~2015 was not significant.~~2016, AOCI included $3 million of losses, net of tax, relating to these hedges.

1211

The fair value and balance sheet location of the Company’s derivative instruments, presented gross in the Condensed Consolidated Balance Sheets, are reflected below:


	Fair Value of Derivative Instruments										Fair Value of Derivative Instruments
		Fair Value					Fair Value					Fair Value					Fair Value
Derivatives designated as		At		At			At		At			At		At			At		At
hedging instruments:	Balance Sheet	September 30,		December 31,		Balance Sheet	September 30,		December 31,		Balance Sheet	March 31,		December 31,		Balance Sheet	March 31,		December 31,
(in millions)	Location	2016		2015		Location	2016		2015		Location	2017		2016		Location	2017		2016

Commodity and foreign currency	Accounts receivable-net	$	15	$	18	Accounts payable and accrued liabilities	$	46	$	38	Accounts receivable-net	$	29	$	31	Accounts payable and accrued liabilities	$	19	$	25

Commodity, foreign currency, and interest rate contracts	Other assets		20		14	Non-current liabilities		7		4	Other assets		4		8	Non-current liabilities		3		2

Total		$	35	$	32		$	53	$	42		$	33	$	39		$	22	$	27

At ~~September 30, 2016,~~March 31, 2017, the Company had outstanding futures and option contracts that hedged the forecasted purchase of approximately 99 million bushels of corn and 2043 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 1723 million mmbtu’s of natural gas at ~~September 30, 2016.~~March 31, 2017. Additionally at ~~September 30, 2016,~~March 31, 2017, the Company had outstanding ethanol futures contracts that hedged the forecasted sale of approximately 915 million gallons of ethanol.

Additional information relating to the Company’s derivative instruments is presented below (in millions, pre-tax):


					Location of Gains									Location of Gains
Derivatives in	Amount of Gains (Losses)				(Losses)	Amount of Gains (Losses)				Amount of Gains (Losses)				(Losses)	Amount of Gains (Losses)
Cash-Flow	Recognized in OCI				Reclassified from	Reclassified from AOCI into Income				Recognized in OCI				Reclassified from	Reclassified from AOCI into Income
Hedging	Three Months Ended		Three Months Ended		AOCI	Three Months Ended		Three Months Ended		Three Months Ended		Three Months Ended		AOCI	Three Months Ended		Three Months Ended
Relationships	September 30, 2016		September 30, 2015		into Income	September 30, 2016		September 30, 2015		March 31, 2017		March 31, 2016		into Income	March 31, 2017		March 31, 2016
Commodity and foreign currency contracts	$	(27)	$	(22)	Gross profit	$	(5)	$	(9)

Commodity contracts										$	7	$	(18)	Cost of sales	$	(3)	$	(9)
Foreign currency contracts											1		1	Gross profit		—		(1)
Interest rate contracts		—		—	Financing costs, net		(1)		(1)		—		—	Financing costs, net		(1)		—
Total	$	(27)	$	(22)		$	(6)	$	(10)	$	8	$	(17)		$	(4)	$	(10)

Location of Gains

Derivatives in

Amount of Gains (Losses)

(Losses)

Amount of Gains (Losses)

Cash-Flow

Recognized in OCI

Reclassified from

Reclassified from AOCI into Income

Hedging

Nine Months Ended

Nine Months Ended

AOCI

Nine Months Ended

Nine Months Ended

Relationships

September 30, 2016

September 30, 2015

into Income

September 30, 2016

September 30, 2015

Commodity and foreign currency contracts

$
(24)

$
(26)

Gross profit

$
(26)

$
(31)

Interest rate contracts

—

—

Financing costs, net

(1)

(2)

Total

$
(24)

$
(26)

$
(27)

$
(33)

At ~~September 30, 2016,~~March 31, 2017, AOCI included ~~$21~~$6 million of ~~losses~~gains (net of income taxes of ~~$11~~$3 million) on commodities-related derivative instruments designated as cash-flow hedges that are expected to be reclassified into earnings during the next twelve months. The Company expects the ~~losses~~gains to be offset by changes in the underlying commodities costs. The Company also has $1 million of losses on settled T-Locks (net of income taxes of $1 million) recorded in AOCI at ~~September 30, 2016,~~March 31, 2017, which are expected to be reclassified into earnings during the next twelve months. Additionally, at ~~September 30, 2016,~~March 31, 2017, AOCI included an insignificant amount of losses related to foreign currency hedges that are expected to be reclassified into earnings during the next twelve months.

Presented below are the fair values of the Company’s financial instruments and derivatives for the periods presented:


	As of September 30, 2016								As of December 31, 2015								As of March 31, 2017								As of December 31, 2016
(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	$	7	$	7	$	—	$	—	$	6	$	6	$	—	$	—	$	8	$	8	$	—	$	—	$	7	$	7	$	—	$	—
Derivative assets		35		6		29		—		32		2		30		—		33		11		22		—		39		6		33		—
Derivative liabilities		53		23		30		—		42		21		21		—		22		5		17		—		27		11		16		—
Long-term debt		2,000		—		2,000		—		1,912		—		1,912		—		1,998		—		1,998		—		1,929		—		1,929		—

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 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. At ~~September 30, 2016,~~March 31, 2017, the carrying value and fair value of the Company’s long-term debt were ~~$1.86 billion~~$1,895 million and ~~$2.00 billion,~~$1,998 million, respectively.

7. Share-Based Compensation

Stock Options:

Under the Company’s stock incentive plan, stock options are granted at exercise prices that equal the market value of the underlying common stock on the date of grant. The options have a 10-year term and are exercisable upon vesting, which occurs over a three-year period at the anniversary dates of the date of grant. Compensation expense is generally recognized on a straight-line basis for all ~~awards.~~awards over the employee’s vesting period or over a one-year required service period for certain retirement eligible executive level employees. The Company estimates a forfeiture rate at the time of grant and updates the estimate within the amount of compensation costs recognized in each period. As of March 31, 2017, certain of these nonqualified options have been forfeited due to termination of employees.

The Company granted non-qualified options to purchase ~~329~~268 thousand shares and ~~336~~329 thousand shares during the ~~nine~~three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively. The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following assumptions:


	For the Nine Months Ended				For the Three Months Ended
	September 30,				March 31,
	2016		2015		2017		2016
Expected life (in years)	5.5		5.5		5.5		5.5
Risk-free interest rate	1.36	%	1.36	%	1.93	%	1.36	%
Expected volatility	23.40	%	25.19	%	22.50	%	23.40	%
Expected dividend yield	1.80	%	2.04	%	1.68	%	1.80	%

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 grant date for the period corresponding to the expected life of the options. Expected volatility is based on historical volatilities of the Company’s common stock. Dividend yields are based on current dividend payments.

1413

Stock option activity for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 was as follows:

Weighted

Average

Average

Aggregate

Exercise

Remaining

Intrinsic

(dollars and options in thousands,

Number of

Price per

Contractual

Value

except per share amounts)

Options

Share

Term (Years)

(in millions)

Outstanding at December 31, 2015

2,651

$
52.93

Granted

329

99.96

Exercised

(628)

45.86

Cancelled

(51)

60.71

Outstanding at September 30, 2016

2,301

$
61.41

6.16

$
165

Exercisable at September 30, 2016

1,557

$
50.79

5.07

128


		Weighted
	Number of	Average		Average	Aggregate
	Options	Exercise		Remaining	Intrinsic
	(in	Price per		Contractual	Value
	thousands)	Share		Term (Years)	(in millions)
Outstanding at December 31, 2016	2,281	$	61.39	5.93	$	145
Granted	278		119.08
Exercised	(79)		37.38
Cancelled	(16)		80.47
Outstanding at March 31, 2017	2,464	$	68.53	6.26	$	128
Exercisable at March 31, 2017	1,880	$	56.86	6.20		120

For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, cash received from the exercise of stock options was ~~$29~~$3 million. At ~~September 30, 2016,~~March 31, 2017, the total remaining unrecognized compensation cost related to stock options ~~approximated $6~~was $8 million, which will be amortized over a weighted-average period of approximately ~~1.3~~1.6 years.

Additional information pertaining to stock option activity is as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(dollars in thousands, except per share)	2016		2015		2016		2015		2017		2016
Weighted average grant date fair value of stock options granted (per share)	$	—	$	—	$	18.73	$	16.04	$	23.90	$	18.73
Total intrinsic value of stock options exercised	$	21,365	$	10,860	$	45,499	$	22,064	$	6,849	$	12,665

Restricted Stock Units:

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

The following table summarizes RSU activity for the ~~nine~~three months ended ~~September 30, 2016:~~March 31, 2017:


		Weighted			Weighted
		Average			Average
	Number of	Fair Value		Number of	Fair Value
(shares in thousands)	RSUs	per Share
Non-vested at December 31, 2015	439	$	69.96
(RSUs in thousands)				RSUs	per Share
Non-vested at December 31, 2016				429	$	81.04
Granted	151		101.25	112		119.13
Vested	(129)		65.47	(124)		62.18
Cancelled	(23)		80.05	(5)		87.96
Non-vested at September 30, 2016	438	$	81.54
Non-vested at March 31, 2017				412	$	98.13

At ~~September 30, 2016,~~March 31, 2017, the total remaining unrecognized compensation cost related to RSUs was ~~$17~~$23 million, which will be amortized over a weighted-average period of approximately ~~1.8~~2.1 years.

Performance Shares:

The Company has a long-term incentive plan for senior management in the form of performance shares. The ultimate payments for performance shares awarded and eventually paid will be based solely on the Company’s stock performance as compared to the stock performance of a peer group. The final payments will be calculated at the end of the three year period and are subject to approval by management and the Compensation Committee. Compensation expense

is based on the fair value of the performance shares at the grant date, established using a Monte Carlo simulation model. The total compensation expense for these awards is amortized over a three-year graded vesting schedule.

For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the Company awarded 4438 thousand share units at a weighted average fair value of ~~$131.34. The Company awarded 47 thousand, 58 thousand, and 45 thousand~~$114.08 per share ~~units in 2015, 2014 and 2013, respectively.~~unit. The number of shares that ultimately vest can range from zero to 200 percent of the awarded grant depending on the Company’s stock performance as compared to the stock performance of the peer group. ~~The weighted average fair value of the shares granted during 2015, 2014 and 2013 was $77.54, $52.03 and $67.19, respectively.~~

The ~~2013~~2014 performance share award vested in the first ~~half~~quarter of ~~2016,~~2017, achieving a 200 percent pay out of the grant, or 90115 thousand total vested shares. There were no performance share cancellations during the first ~~nine months~~quarter of ~~2016.~~2017.

At ~~September 30, 2016,~~March 31, 2017, the unrecognized compensation cost related to these awards was $4$6 million, which will be amortized over the remaining requisite service periods of ~~1.9~~2.1 years.

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in millions)	2016		2015		2016		2015		2017		2016
Stock options:
Pre-tax compensation expense	$	2.2	$	1.7	$	6.5	$	5.1	$	2	$	2
Income tax (benefit)		(0.8)		(0.6)		(2.4)		(1.9)		(1)		(1)
Stock option expense, net of income taxes		1.4		1.1		4.1		3.2		1		1

RSUs:
Pre-tax compensation expense		3.0		2.4		9.2		6.8		3		3
Income tax (benefit)		(1.1)		(0.9)		(3.4)		(2.5)		(1)		(1)
RSUs, net of income taxes		1.9		1.5		5.8		4.3		2		2

Performance shares and other share-based awards:
Pre-tax compensation expense		1.6		1.3		5.0		3.8		2		2
Income tax (benefit)		(0.6)		(0.5)		(1.8)		(1.4)		(1)		(1)
Performance shares and other share-based compensation expense, net of income taxes		1.0		0.8		3.2		2.4		1		1

Total share-based compensation:
Pre-tax compensation expense		6.8		5.4		20.7		15.7		7		7
Income tax (benefit)		(2.5)		(2.0)		(7.6)		(5.8)		(3)		(3)
Total share-based compensation expense, net of income taxes	$	4.3	$	3.4	$	13.1	$	9.9	$	4	$	4

8. Net Periodic Pension and Postretirement Benefit Costs

For detailed information about the Company’s pension and postretirement benefit plans, please refer to Note 10 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

1615

The following table sets forth the components of net periodic benefit cost of the US and non-US defined benefit pension plans for the periods presented:


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
	US Plans				Non-US Plans				US Plans				Non-US Plans				US Plans				Non-US Plans
(in millions)	2016		2015		2016		2015		2016		2015		2016		2015		2017		2016		2017		2016
Service cost	$	1.5	$	2.0	$	0.8	$	1.0	$	4.6	$	5.8	$	2.4	$	3.4	$	1	$	2	$	1	$	1
Interest cost		3.4		3.7		2.7		2.8		10.2		10.6		8.0		8.8		3		3		2		3
Expected return on plan assets		(5.0)		(6.3)		(2.7)		(3.2)		(15.0)		(18.2)		(8.1)		(10.0)		(5)		(5)		(3)		(3)
Amortization of initial net obligation		—		—		0.1		—		—		—		0.3		—
Amortization of actuarial loss		0.2		0.2		0.5		0.5		0.6		0.5		1.3		1.7		—		—		1		1
Amortization of transition obligation		—		—		—		0.1		—		—		—		0.2
Amortization of prior service credit		—		—		—		—		(0.1)		—		—		(0.1)		—		—		—		—
Settlement loss		—		—		—		—		—		—		1.5		—		—		—		—		—
Net periodic benefit cost	$	0.1	$	(0.4)	$	1.4	$	1.2	$	0.3	$	(1.3)	$	5.4	$	4.0	$	(1)	$	—	$	1	$	2

The Company currently anticipates that it will make approximately ~~$15~~$3 million in cash contributions to its pension plans in ~~2016,~~2017, consisting of ~~$11~~$2 million to its non-US pension plans and $1 million to its US pension ~~plans and $4 million to its non-US pension~~ plans. For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, cash contributions of approximately ~~$10~~$1 million were made to the USnon-US plans and $3less than $1 million to the ~~non-US~~US plans.

In April 2016, the Company performed a pension remeasurement for one of its pension plans in Canada as a result of lump sum settlement payments made related to the Port Colborne plant sale. This plan settlement resulted in a reduction in the funded status of the Plan by $5 million. The Company recorded a pension charge of $1 million as a result of the settlement.

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. The impact of this plan curtailment on net periodic benefit cost for the first half of 2015 was not significant.

The following table sets forth the components of net postretirement benefit cost for the periods presented:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in millions)	2016		2015		2016		2015		2017		2016
Service cost	$	0.2	$	0.2	$	0.6	$	0.6	$	—	$	—
Interest cost		0.8		0.8		2.2		2.3		1		1
Amortization of actuarial loss		—		0.1		—		0.4		—		—
Amortization of prior service credit		(0.9)		(0.5)		(2.5)		(1.6)		(1)		(1)
Net periodic benefit cost	$	0.1	$	0.6	$	0.3	$	1.7	$	—	$	—

9. Earnings per Common Share

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

Three Months Ended September 30, 2016

Three Months Ended September 30, 2015

Net Income

Net Income

Available

Weighted

Available

Weighted

to Ingredion

Average Shares

Per Share

to Ingredion

Average Shares

Per Share

(in millions, except per share amounts)

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Basic EPS

$
143.4

72.5

$
1.98

$
107.9

71.6

$
1.51

Effect of Dilutive Securities:

Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards

1.8

1.3

Diluted EPS

$
143.4

74.3

$
1.93

$
107.9

72.9

$
1.48


	Nine Months Ended September 30, 2016					Nine Months Ended September 30, 2015					Three Months Ended March 31, 2017					Three Months Ended March 31, 2016
	Net Income					Net Income					Net Income					Net Income
	Available		Weighted			Available		Weighted			Available		Weighted			Available		Weighted
	to Ingredion		Average Shares	Per Share		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		(Numerator)		(Denominator)	Amount

Basic EPS	$	391.2	72.2	$	5.42	$	298.2	71.6	$	4.17	$	124	72.2	$	1.72	$	130	72.0	$	1.81

Effect of Dilutive Securities:

Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards			1.8					1.3					1.5					1.6

Diluted EPS	$	391.2	74.0	$	5.29	$	298.2	72.9	$	4.09	$	124	73.7	$	1.68	$	130	73.6	$	1.77

For both the ~~third~~first quarter 2017 and ~~first nine months of~~ 2016, ~~the number of share-based awards excluded from the calculation of diluted EPS was not material. For both the third quarter and first nine months of 2015,~~ approximately 0.3 million share-based awards of common stock were excluded from the calculation of diluted EPS as the impact of their inclusion would have been anti-dilutive.

10. Inventories

Inventories are summarized as follows:


	At		At		At		At
	September 30,		December 31,		March 31,		December 31,
(in millions)	2016		2015		2017		2016
Finished and in process	$	438	$	434	$	477	$	478
Raw materials		248		229		304		260
Manufacturing supplies and other		50		52		54		51
Total inventories	$	736	$	715	$	835	$	789

11. Debt

~~On September 22,~~At March 31, 2017 and December 31, 2016, the ~~Company issued 3.2 percent Senior Notes due October 1, 2026 in an aggregate principal amount of $500 million. These notes are unsecured obligations~~Company’s total debt consisted of the Company and rank equally with all of the Company’s other existing and future unsecured, senior indebtedness. Interest on the notes is required to be paid semi-annually in arrears on April 1 and October 1 of each year, commencing April 1, 2017. The Company may redeem these notes at its option, at any time in whole or from time to time in part, at the redemption prices set forth in the supplemental indenture pursuant to which these notes were issued. The net proceeds from the sale of the notes of approximately $497 million were used to repay the $350 million due under the Company’s Term Loan Credit Agreement, plus accrued interest, to repay $52 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 $4 million relating to the notes, which, along with the debt discount, are being amortized to financing costs over the life of the notes. following:


	At		At
	March 31,		December 31,
(in millions)	2017		2016
3.2% senior notes due October 1, 2026	$	497	$	496
4.625% senior notes due November 1, 2020		398		398
1.8% senior notes due September 25, 2017		300		299
6.625% senior notes due April 15, 2037		253		254
6.0% senior notes due April 15, 2017		200		200
5.62% senior notes due March 25, 2020		200		200
Revolving credit facility		44		—
Fair value adjustment related to hedged fixed rate debt instruments		3		3
Long-term debt	$	1,895	$	1,850
Short-term borrowings		118		106
Total debt	$	2,013	$	1,956

The Company’s long-term debt at ~~September 30, 2016~~March 31, 2017 includes $200 million of 6.0 percent Senior Notes that mature on April 15, 2017 and $300 million of 1.8 percent Senior Notes that mature on September 25, 2017. These borrowings are included in long-term debt as the Company has the ability and intent to refinance them on a long-term basis prior to the respective maturity dates.

~~On October 11, 2016,~~ In April 2017, the ~~Company entered into a new five-year, senior unsecured $1 billion revolving credit agreement (the “Revolving Credit Agreement”)~~$200 million of Senior Notes that ~~replaced our previously existing $1 billion senior unsecured revolving credit facility that would have~~ matured on October 22, 2017. The Company paid fees of approximately $2 million relating to the new credit facility, which will be recognized as Other assets and amortized to financing costs over the term of the facility.

~~Subject to certain terms and conditions, the Company may increase the amount~~were refinanced through use of the revolving facility under the Revolving Credit Agreement by up to $500 million in the aggregate. The Company may also obtain up to two one-year extensions of the maturity date of the Revolving Credit Agreement at its requests and subject to the agreement of the lenders. All committed pro rata borrowings under the revolving facility will 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 based on the Company’s leverage ratio (as reported in the financial statements delivered pursuant to the Revolving Credit Agreement) or the Company’s credit rating. Subject to specified conditions, the Company may designate one or more of its subsidiaries as additional borrowers under the Revolving Credit Agreement provided that the Company guarantees all borrowings and other obligations of any such subsidiaries thereunder.

The Revolving Credit Agreement contains customary representations, warranties, covenants, events of default and other terms and conditions, including limitations on liens, incurrence of subsidiary debt and mergers. 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.facility.

12. Accumulated Other Comprehensive Loss

A summary of accumulated other comprehensive loss for the ~~nine~~three months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ is provided below:

Deferred

Unrealized

Accumulated

Cumulative

Gain/(Loss)

Pension/

Loss

Other

Translation

on Hedging

Postretirement

on

Comprehensive

(in millions)

Adjustment

Activities

Adjustment

Investment

Loss

Balance, December 31, 2015

$
(1,025)

$
(29)

$
(47)

$
(1)

$
(1,102)

Losses on cash-flow hedges, net of income tax effect of $9

(15)

(15)

Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $9

18

18

Actuarial losses on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $1

(4)

(4)

Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax effect

1

1

Currency translation adjustment

78

78

Balance, September 30, 2016

$
(947)

$
(26)

$
(50)

$
(1)

$
(1,024)


			Deferred				Unrealized		Accumulated
	Cumulative		Gain/(Loss)		Pension/		Loss		Other
	Translation		on Hedging		Postretirement		on		Comprehensive
(in millions)	Adjustment		Activities		Adjustment		Investment		Loss
Balance, December 31, 2016	$	(1,008)	$	(7)	$	(56)	$	—	$	(1,071)
Gains on cash-flow hedges, net of income tax effect of $3				5						5
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $1				3						3
Currency translation adjustment		40								40
Balance, March 31, 2017	$	(968)	$	1	$	(56)	$	—	$	(1,023)

Deferred

Unrealized

Accumulated

Cumulative

Gain/(Loss)

Pension/

Loss

Other

Translation

on Hedging

Postretirement

on

Comprehensive

(in millions)

Adjustment

Activities

Adjustment

Investment

Loss

Balance, December 31, 2014

$
(701)

$
(19)

$
(61)

$
(1)

$
(782)

Losses on cash-flow hedges, net of income tax effect $8

(18)

(18)

Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $10

23

23

Actuarial gains on pension and postretirement obligations, settlements and plan amendments, net of income tax effect of $2

6

6

Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax effect

1

1

Currency translation adjustment

(283)

(283)

Balance, September 30, 2015

$
(984)

$
(14)

$
(54)

$
(1)

$
(1,053)


			Deferred				Unrealized		Accumulated
	Cumulative		Gain/(Loss)		Pension/		Loss		Other
	Translation		on Hedging		Postretirement		on		Comprehensive
(in millions)	Adjustment		Activities		Adjustment		Investment		Loss
Balance, December 31, 2015	$	(1,025)	$	(29)	$	(47)	$	(1)	$	(1,102)
Losses on cash-flow hedges, net of income tax effect $6				(11)						(11)
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $3				7						7
Currency translation adjustment		39								39
Balance, March 31, 2016	$	(986)	$	(33)	$	(47)	$	(1)	$	(1,067)

The following table provides detail pertaining to reclassifications from AOCI into net income for the periods presented:


	Amount				Amount					Amount
	Reclassified from				Reclassified from					Reclassified from
	AOCI				AOCI					AOCI
	Three Months Ended				Nine Months Ended				Affected Line Item in	Three Months Ended				Affected Line Item in
Details about AOCI Components	September 30,				September 30,				Condensed Consolidated	March 31,				Condensed Consolidated
(in millions)	2016		2015		2016		2015		Statements of Income	2017		2016		Statements of Income
Losses on cash-flow hedges:
Commodity and foreign currency contracts	$	(6)	$	(9)	$	(26)	$	(31)	Gross profit	$	(3)	$	(10)	Gross profit
Interest rate contracts		—		(1)		(1)		(2)	Financing costs, net		(1)		—	Financing costs, net
Losses related to pension and other postretirement obligations		—		—		(1)		(1)	(a)
Total before-tax reclassifications	$	(6)	$	(10)	$	(28)	$	(34)		$	(4)	$	(10)
Income tax benefit		2		3		9		10			1		3
Total after-tax reclassifications	$	(4)	$	(7)	$	(19)	$	(24)		$	(3)	$	(7)

~~(a)~~

~~This component is included in the computation of net periodic benefit cost and affects both cost of sales and operating expenses on the Condensed Consolidated Statements of Income.~~

2018

~~13.~~ ~~Subsequent Event~~

For the past seven years, the Company has been pursuing relief from double taxation under the US and Canadian tax treaty. As a result, the Company’s US and Canadian tax returns are subject to adjustment from 2004 and forward for the specific issues being contested. In October 2016, the Company was informed that the two countries reached a tentative agreement that would settle the issues for the years 2004 through 2013. Therefore, it is likely that a conclusion to the issues being contested could be reached within 12 months of September 30, 2016. The Company has not provided for the potential settlement and believes the settlement could result in additional tax expense of $23 million to $27 million, which is expected to be recorded in the fourth quarter of 2016. In addition, as a result of the settlement the Company expects to record a reserve for uncertain tax positions of $7 million to $13 million for the years 2014 – 2016 in the fourth quarter of 2016.

ITEM 2

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 4145 manufacturing plants located in 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~~operating 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 ofwith 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.

~~We had a strong third~~Net sales grew in the first quarter ~~and~~2017 compared to first ~~nine months of~~quarter 2016, ~~as net sales,~~while operating income, net income and diluted earnings per common share ~~grew from~~declined versus the ~~comparable 2015 periods.~~prior year. Our ~~earnings growth was driven principally by significantly improved operating results in our~~ North America, ~~segment. Operating income also grew in our~~ Asia Pacific, and EMEA ~~segments, which~~segment earnings grew as a result of continued strong operating results, however this was ~~partially~~more than offset by lower ~~results~~earnings in our South America ~~segment.~~segment and restructuring charges in the quarter. The decrease in net income and diluted earnings per common share was primarily due to higher financing costs associated with the use of short-term loans that had higher local interest rate costs. Additionally, we implemented an organizational restructuring effort in Argentina by notifying both the Argentinian Labor Ministry and the local labor union of a planned reduction in workforce in order to achieve a more competitive cost position. On April 28, 2017, the union notified the Company of their intent to strike. We will continue to work with both the labor union and the Argentinian Labor Ministry on this matter. The Company recorded total pre-tax restructuring related charges in Argentina of $11 million for employee severance-related costs during the quarter.

Our operating cash flow rose to ~~$542~~$131 million for the first ~~nine~~three months of ~~2016~~2017 from ~~$481~~$99 million in the year-earlier period, driven by our earnings ~~growth. We also refinanced $350~~and improved changes in working capital. During the first quarter of 2017, we repurchased approximately 1 million shares of ~~term loan debt~~our common stock in ~~September~~open market transactions for $123 million.

On March 9, 2017, the Company completed its acquisition of Sun Flour Industry Co., Ltd. (“Sun Flour”) in Thailand for $18 million. Upon closing, the Company paid $13 million in cash and recorded $5 million in accrued liabilities for deferred payments due to the previous owner. The acquisition of Sun Flour adds a fourth manufacturing facility to our operations in Thailand. It produces rice-based ingredients used primarily in the food industry. This transaction will enhance our global supply chain and leverage other capital investments that we ~~entered into~~have made in Thailand to grow our specialty ingredients and service customers around the world. The acquisition did not have a ~~new $1 billion revolving credit facility~~material impact on our financial condition, results of operations or cash flows in ~~October 2016. Additionally, we increased our quarterly cash dividend by 11 percent to $0.50 per share~~the first quarter of ~~common stock.~~2017.

Looking ahead, we anticipate that our full year ~~2016~~2017 operating income and net income will grow compared to ~~2015.~~2016. In North America, we expect full year operating income to increase driven by improved product mix and margins. In South America, we believe that full year operating income will ~~decline from 2015~~be flat to down compared to 2016 driven by continued slow economic activity and ~~foreign currency weakness.~~higher than normal costs. We will continue to ~~maintain a high degree of~~ focus on ~~cost and~~ network optimization in this segment for the remainder of the year. If we are unable to reach an effective outcome of our organizational restructuring effort with the union, we may consider various strategic options in Argentina which could result in future impairment charges in the segment. In the ~~longer term,~~longer-term, we believe that the underlying business demographics for our South American segment are positive for the future. We expect full year operating income to grow in EMEA ~~and Asia Pacific in 2016~~ principally driven by improved price/product mix from our specialty ingredient product portfolio, volume growth and effective cost control.

~~On February 4, 2016,~~ In Asia Pacific, 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. We expect it to enhance our capacity in the Asia-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 operations or cash flows.~~

On August 17, 2016, we announced that we entered into a definitive agreement to acquire the rice starch and rice flour business from Sun Flour Industry Co, Ltd. based in Banglen, Thailand. This pending acquisition supports our global strategyfull year operating income to increase ~~our specialty ingredients business~~driven by volume growth and has been approved by our board of directors. This transaction should enhance our global supply chain and leverage other capital investments that we have made in Thailand to grow our specialty ingredients and service customers around the world. The acquisition is subject to approval by Thailand 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.~~effective cost control.

2219

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, 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.

We acquired ~~Penford Corporation~~Shandong Huanong Specialty Corn Development Co., Ltd. (“~~Penford”~~Shandong Huanong”), TIC Gums Incorporated (“TIC Gums”) and ~~Kerr Concentrates, Inc. (“Kerr”)~~Sun Flour, on November 29, 2016, December 29, 2016 and March ~~11, 2015 and August 3, 2015,~~9, 2017 respectively. The results of the acquired businesses are included in our consolidated financial results ~~within the North America reporting segment~~ 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.

For The Three ~~and Nine~~ Months Ended ~~September 30, 2016~~March 31, 2017

With Comparatives for the Three ~~and Nine~~ Months Ended ~~September 30, 2015~~March 31, 2016

Net Income attributable to Ingredion. Net income for the quarter ended ~~September 30, 2016 increased~~March 31, 2017 decreased by 5 percent to ~~$143~~$124 million, or ~~$1.93~~$1.68 per diluted common share, from ~~$108~~$130 million, or ~~$1.48~~$1.77 per diluted common share, in the ~~third~~first quarter of 2015. Net income for the nine months ended September 30, 2016 increased to $391 million, or $5.29 per diluted common share, from $298 million, or $4.09 per diluted common share, in the prior-year period.2016. Our ~~third~~first quarter ~~2016~~2017 results include after-tax restructuring costs of $2$11 million ($~~0.02~~0.15 per diluted common share) consisting of employee severance-related charges and other costs associated with the execution of global information technology (“IT”) outsourcing contracts. Our results for the first nine months of 2016 include after-tax restructuring costs of $12 million ($0.16 per diluted common share) consisting of employee severance-related charges and other costs associated with the execution of global IT outsourcing contracts, severance-related costs attributable to our ~~optimization initiative~~restructuring initiatives in ~~South America and additional charges pertaining~~Argentina. Additionally, after-tax costs of $3 million ($0.04 per diluted common share) related to ~~our 2015 Port Colborne plant sale. Additionally, our~~the sale of TIC Gums inventory that was adjusted to fair value at the acquisition date in accordance with business combination accounting rules are included in the results. Finally, results for the first ~~nine months~~quarter of ~~2016~~2017 include after-tax costs of $1 million ($0.01 per diluted common share) associated with the integration of acquired operations. Our ~~third~~first quarter ~~2015~~2016 results included ~~after-tax charges of $9 million ($0.13 per diluted common share) for impaired assets and restructuring costs in Brazil and Canada,~~ after-tax costs of $1 million ($0.01 per diluted common share) associated with the ~~acquisition and~~ integration of both Penford Corporation (“Penford”) and Kerr and after-tax costs of $1 million ($0.02 per diluted common share) relating to the sale of Kerr inventory that was adjusted to fair value at the acquisition date in accordance with business combination accounting rules. Our results for the first nine months of 2015 included after-tax charges of $9 million ($0.13 per diluted common share) for impaired assets and restructuring costs in Brazil and Canada, after-tax restructuring charges of $6 million ($0.09 per diluted common share) for employee severance-related costs associated with the Penford acquisition, after-tax costs of $7 million ($0.09 per diluted common share) associated with the acquisition and integration of both Penford and Kerr and after-tax costs of $5 million ($0.07 per diluted common share) relating to the sale of Penford and Kerr inventory that was adjusted to fair value at the respective acquisition dates.Concentrates, Inc. (“Kerr”). Without the restructuring ~~impairment~~ and acquisition-related charges, our net income ~~for the third quarter~~ and ~~first nine months of 2016 would have grown 22 percent and 24 percent, respectively, from the comparable prior-year periods, while our~~ diluted earnings per share for the ~~third~~first quarter ~~and first nine months~~ of ~~2016~~2017 would have grown ~~by 20~~6 percent ~~and 22 percent, respectively.~~from the first quarter of 2016. These increases primarily reflect significantly improved operating income in North America, and to a lesser extent, in Asia Pacific and EMEA, as compared to the ~~2015 periods.~~first quarter of 2016.

Net Sales. ~~Third~~First quarter ~~2016~~2017 net sales increased 47 percent to ~~$1.49~~$1.45 billion from ~~$1.44~~$1.36 billion a year ago. ~~Price/product mix improvement of 6~~The increase in net sales reflects 5 percent ~~was partially offset~~volume growth driven by ~~unfavorable~~organic volume and our 2016 acquisition and 2 percent favorable currency translation ~~of 1 percent attributable~~ to ~~the~~ stronger ~~US dollar and a 1 percent volume decline.~~local currencies in South America.

North American net sales for ~~third~~first quarter ~~2016~~2017 increased 25 percent to ~~$899~~$881 million, from ~~$880~~$841 million a year ago. The increase in net sales was driven by ~~price/product mix improvement~~volume growth of 5 percent, ~~which more than offset a~~comprised of 3 percent ~~volume reduction primarily~~ driven by ~~the impact of~~ our ~~Port Colborne plant sale.~~2016 acquisition and 2 percent organic volume growth. In South America, ~~third~~first quarter ~~2016~~2017 net sales increased 819 percent to ~~$276~~$255 million from ~~$257~~$215 million a year ago, asdriven by favorable currency translation of 13 percent, a 244 percent price/product mix improvement, ~~more than offset an 8 percent~~and volume ~~reduction and unfavorable currency translation~~growth of ~~8 percent driven by a weaker Argentine peso.~~2 percent. Asia Pacific’s ~~third~~first quarter ~~2016~~2017 net sales increased 6 percent to ~~$185~~$179 million from ~~$174~~$169 million a year ago. The increase was driven by volume growth of 911 percent and favorable currency translation of 32 percent, which more than offset a 67 percent price/product mix decline reflecting the pass through of lower raw material costs. EMEA net

sales for ~~third~~first quarter ~~2016~~2017 increased 32 percent to ~~$129~~$138 million from ~~$126~~$135 million a year ago. This increase reflects volume growth of 84 percent and 1 percent price/product mix improvement, which more than offset unfavorable currency translation of 3 percent attributable to weaker local ~~currencies and a 2 percent price/product mix decline due to the pass through of lower corn costs.~~

~~Net sales for the nine months ended September 30, 2016 totaled~~currencies.$4.30 billion, up 2 percent from $4.22 billion a year ago. The increase in net sales reflects price/product mix improvement of 6 percent and 1 percent volume growth driven by the impact of our acquisitions, which more than offset unfavorable currency translation of 5 percent due to the stronger US dollar. Organic volume declined approximately 2 percent.

Net sales in North America for the first nine months of 2016 increased 5 percent to $2.63 billion, from $2.50 billion a year ago. The increase in net sales reflects price/product mix improvement of 5 percent and 1 percent volume growth driven by our 2015 acquisitions, partially offset by unfavorable currency translation of 1 percent attributable to a weaker Canadian dollar. Organic volume declined 3 percent driven by the impact of the Port Colborne plant sale. In South America, net sales for the first nine months of 2016 decreased 4 percent to $731 million from $765 million a year ago. This decline was driven by unfavorable currency translation of 21 percent and a 7 percent volume reduction, which more than offset price/product mix improvement of 24 percent. In Asia Pacific, net sales for the first nine months of 2016 decreased 3 percent to $534 million from $553 million a year ago. Volume growth of 4 percent was more than offset by a 4 percent price/product mix decline due to the pass through of lower raw material costs in pricing to our customers and unfavorable currency translation of 3 percent. EMEA net sales for the first nine months of 2016 increased 3 percent to $405 million from $395 million a year ago. Volume growth of 7 percent more than offset unfavorable currency translation of 3 percent attributable to weaker local currencies and a 1 percent price/product mix reduction resulting from the pass through of lower corn costs in pricing to our customers.

Cost of Sales and Operating Expenses. Cost of sales of ~~$1.12~~$1.10 billion for the ~~third~~first quarter of ~~2016~~2017 increased 18 percent from ~~$1.11~~$1.02 billion in the prior-year period. ~~Cost~~The increase in cost of sales ~~of $3.24 billion~~ for the first ~~nine months~~quarter of 2017 compared to the first quarter of 2016 ~~decreased 1 percent from $3.29 billion in the prior-year period. Gross~~was due primarily to sales volume increase of 5 percent. Additionally, gross corn costs per ton ~~for the third quarter of 2016 increased~~that rose approximately 56 percent, ~~from the prior-year period,~~ driven by higher market prices for corn. ~~For the first nine months of 2016, gross corn costs declined 1 percent from a year ago.~~ Currency translation caused cost of sales for the ~~third~~first quarter ~~and first nine months~~ of ~~2016~~2017 to ~~decrease~~increase approximately 2 percent ~~and 6 percent, respectively,~~ from ~~the prior-year periods,~~2016, reflecting the impact of ~~the~~ stronger ~~US dollar.~~foreign currencies overall. Our gross profit margin was 24 percent for the first quarter of 2017, down from 25 percent ~~for both the third quarter and first nine months of 2016, up from 23 percent and 22 percent, respectively,~~last year. The decrease primarily reflects declines in ~~the prior year periods. These increases primarily reflect significantly improved~~ gross profit margins in ~~North~~South America ~~and, to a lesser extent, in Asia Pacific and EMEA.~~

resulting from higher input costs. Operating expenses for the ~~third~~first quarter ~~and first nine months~~ of ~~2016~~2017 increased to $149 million ~~and $431 million, respectively,~~ from ~~$139 million and $416~~$138 million last year. The increases primarily reflect ~~higher compensation-related costs and~~ incremental operating expenses of acquired operations. Favorable translation effects associated with the stronger US dollar

partially offset these increases. Currency translation ~~reduced~~increased operating expenses for the ~~third~~first quarter ~~and first nine months~~ of ~~2016~~2017 by approximately 21 percent ~~and 5 percent, respectively,~~ from the prior-year ~~periods, reflecting the impact of the stronger US dollar.~~period. Operating expenses, as a percentage of gross profit, were 4042 percent for ~~both~~ the ~~third~~first quarter ~~and first nine months~~ of ~~2016,~~2017, as compared to 4241 percent ~~and 45 percent, respectively, in the comparable prior-year periods. The declines reflect our continued focus on cost control and gross profit growth.~~

~~Other (Income) Expense, net.~~ For the third quarter and first nine months of 2016 we had other income, net of $3 million and $2 million, respectively, as compared to other expense, net of $2 million in each of the comparable prior-year periods. The favorable variances primarily reflect the effect of $4 million of expenses that were recorded in the third quarter of 2015 related to a ~~tax indemnification agreement. We also recorded a $4 million benefit in our provision for income taxes in the third quarter of 2015 related to this tax indemnification.~~ year ago.

Operating Income. ~~Third~~First quarter ~~2016~~2017 operating income ~~increased 27~~decreased 3 percent to ~~$221~~$195 million from ~~$175~~$200 million a year ago. Operating income for ~~third~~the first quarter ~~2016~~of 2017 includes pre-tax net restructuring costs of $10 million. We implemented an organizational restructuring effort in Argentina by notifying both the Argentinian Labor Ministry and the local labor union of a planned reduction in workforce in order to achieve a more competitive cost position. The Company recorded total pre-tax restructuring ~~charge~~related charges in Argentina of $2$11 million for ~~employee-related severance and other~~employee severance-related costs ~~due to~~during the quarter offset by a $1 million reduction in expected employee severance-related charges associated with the execution of global ITinformation technology (“IT”) outsourcing ~~contracts (see Note 4 of the Notes to the Condensed Consolidated Financial Statements). Operating income for third~~contracts. Additionally, our first quarter 2015 included $12 million of charges for impaired assets and restructuring costs associated with our plant closings in Brazil, a $2 million restructuring charge for estimated employee severance-related costs related to the then-pending sale of our Port Colborne plant and $22017 results includes $5 million of costs associated with ~~our acquisitions and integration of Penford and Kerr. Additionally, the third quarter 2015 results included the flow through of $2 million of costs associated with the sale of Kerr~~TIC Gums inventory that was marked up to fair value at the acquisition date in accordance with business combination accounting rules. Lastly, operating income for first quarter 2017 included $2 million of costs associated with our integration of TIC Gums and Shandong Huanong. Operating income for first quarter 2016 included $1 million of costs associated with our integration of Penford and Kerr. Without the restructuring and acquisition-related charges, our ~~third~~first quarter ~~2016~~2017 operating income would have grown 165 percent from ~~third~~the first quarter ~~2015.~~of 2016. This

increase primarily reflects operating income growth in North America. Currency translation had a favorable impact of $4$3 million, ~~primarily~~ reflecting stronger Brazilian and Asia Pacific ~~and Brazilian~~ currencies.

North America operating income for ~~third~~the first quarter ~~2016~~2017 increased 237 percent to ~~$164~~$160 million from ~~$133~~$149 million a year ago. The increase primarily reflects ~~improved product price/mix~~volume growth and operating efficiencies in the segment. South America operating income for ~~third~~first quarter ~~2016~~2017 declined 422 percent to ~~$27~~$14 million from ~~$28~~$18 million in the year-ago period. The decrease was driven by lower earnings in the Southern Cone region of South America, which more than offset improved earnings in the rest of the segment. Improved ~~product~~ selling prices ~~were not enough to~~generally offset higher local raw material input costs, while production costs ~~and reduced volume attributable~~increased primarily due to the difficult macroeconomic environment in the Southern Cone. Currency translation had a favorable impact of $4$3 million in the segment, primarily reflecting the effect of a stronger Brazilian real. We anticipate that our business in South America will continue to be challenged by difficult economic conditions and we continue to assess various strategic options to better optimize our business and improve performance in South America. Implementation of certain of these options could result in future asset impairment charges in the segment. Asia Pacific operating income for ~~third~~first quarter ~~2016~~2017 increased 67 percent to ~~$29~~$30 million from $28 million a year ago. Volume growth and ~~good cost control~~lower raw material costs helped to mitigate the impact of reduced product selling prices in the segment. ~~Translation effects associated with stronger Asia Pacific currencies favorably impacted operating income by approximately $1 million in the segment.~~ EMEA operating income for ~~third~~first quarter ~~2016~~2017 increased 168 percent to ~~$25~~$28 million from ~~$22~~$26 million last year. The increase was driven by volume growth and ~~lower raw material and energy costs,~~improved product selling prices, which more than offset the impact of ~~reduced product selling prices and~~higher local ~~currency weakness~~production costs in the segment. Translation effects primarily associated with the weaker British Pound Sterling had an unfavorable impact of approximately $1 million on operating income in the segment.

For the first nine months of 2016, operating income increased 27 percent to $619 million from $487 million a year ago. Operating income for the first nine months of 2016 includes restructuring charges of $15 million and $2 million of costs associated with our integration of acquired operations. Operating income for the first nine months of 2015 included $12 million of charges for impaired assets and restructuring costs associated with our plant closings in Brazil, a $2 million restructuring charge for estimated severance-related costs associated with the then pending sale of our Port Colborne plant, a $10 million restructuring charge for employee severance-related costs associated with the Penford acquisition and $9 million of other costs associated with the acquisition and integration of acquired operations. Additionally, the results for the first nine months of 2015 included $8 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.Without the restructuring, impairment and acquisition-related charges, our operating income for the first nine months of 2016 would have grown 20 percent from the year-ago period. This increase primarily reflects operating income growth in North America. Unfavorable currency translation attributable to the stronger US dollar negatively impacted operating income by approximately $15 million, as compared to the prior-year period. Our product pricing actions helped to mitigate the unfavorable impact of currency translation. North America operating income for the first nine months of 2016 increased 31 percent to $474 million from $362 million a year ago. Earnings contributed by the operations acquired from Penford and Kerr represented approximately 3 percentage points of the increase. The remaining organic operating income improvement of 28 percent was driven principally by improved product price/mix and operating efficiencies in the segment. Translation effects associated with a weaker Canadian dollar negatively impacted operating income by approximately $4 million in the segment. South America operating income for the first nine months of 2016 decreased 19 percent to $59 million from $73 million a year ago. The decrease reflects lower earnings in the Southern Cone region of South America, which more than offset earnings growth in the rest of the segment. Improved product selling prices were not enough to offset higher local production costs, reduced volume attributable to the difficult macroeconomic environment (particularly in the Southern Cone) and unfavorable impacts of currency devaluations. Translation effects associated with weaker South American currencies (particularly the Brazilian Real and Colombian Peso) negatively impacted operating income by approximately $5 million. We anticipate that our business in South America will continue to be challenged by difficult economic conditions and we continue to assess various strategic options to better optimize our business and improve performance in South America. Implementation of certain of these options could result in future asset impairment charges in the segment. Asia Pacific operating income for the first nine months of 2016 increased 7 percent to $87 million from $81 million a year ago. Volume growth and good cost control more than offset the impact of reduced product selling prices and local currency weakness in the segment. Translation effects associated with weaker Asia Pacific currencies negatively impacted operating income by approximately $3 million in the segment. EMEA operating income for the first nine months of 2016 grew 21 percent to $80 million from $67 million a year ago. The increase was driven by volume growth and lower raw material and energy costs, which more than offset the impact of local currency weakness in the segment. Translation effects primarily associated with the weaker Pakistan Rupee and British Pound Sterling had an unfavorable impact of approximately $3 million on operating income in the segment.

Financing Costs-net. Financing costs for the ~~third~~first quarter ~~and first nine months~~ of ~~2016~~2017 increased to ~~$15~~$21 million ~~and $48 million, respectively,~~ from $14 million ~~and $44 million~~ in the ~~comparable~~ prior-year ~~periods.~~period. The increases primarily reflect ~~reduced interest income due to lower average cash balances and short-term investment rates and~~ an increase in interest expense driven by higher weighted average borrowing costs. Additionally, an increase in foreign currency transaction losses contributed to the higher financing costs for the ~~nine months ended September 30, 2016.~~first quarter of 2017.

Provision for Income Taxes. Our effective income tax rate for the ~~third~~first quarter of ~~2016 was 29.2~~2017 decreased to 27.0 percent ~~compared to 31.8 percent a year ago. The effective income tax rate for the first nine months of 2016 was 30.1 percent compared to 31.2~~from 28.5 percent a year ago.

~~The first nine months of 2016 include favorable reversals of previously unrecognized tax benefits due to the lapsing of the statute of limitations and other releases of approximately $2 million.~~

~~In addition, we~~We use the US dollar as the functional currency for our subsidiaries in Mexico. ~~Because~~In the first quarter of 2017, the ~~continued decline in~~effective tax rate was reduced by 3.3 percent due to the ~~value~~revaluation of the Mexican peso versus the US dollar, ~~our tax provision for the third quarter and first nine months of 2016 includes unfavorable tax amounts of approximately $5 million and $14 million, respectively.~~

Finally, in the second quarter of 2016 we elected to early adopt ASU No. 2016-09, related to stock compensation. See Note 2 of the Notes to the Condensed Consolidated Financial Statements. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when awards vest or are settled. Our tax provision for the third quarter and first nine months of 2016 includes a tax benefit of $6 million and $12 million, respectively, related to the adoption of this standard.

offset by individually insignificant factors. Without these items, ~~our effective income tax rates for both~~ the ~~third quarter and first nine months of 2016~~rate would have been ~~approximately 30~~28.6 percent.

Our effective income tax rate for the third quarter and first nine months of 2015 included the recognition of previously unrecognized tax benefits of approximately $1 million and $2 million, respectively. In addition, due to declines in the value of the Mexican peso versus the US dollar, our tax provision for the third quarter and first nine months of 2015 included unfavorable tax amounts of approximately $9 million and $13 million, respectively.

Finally, during the third quarter of 2015, based on the final settlement of an audit matter of a National Starch subsidiary related to a pre-acquisition period for which we are indemnified by Akzo Nobel N.V., we reversed $4 million of previously recognized income tax expense and other income recorded in 2014. As we are fully indemnified for this pre-acquisition obligation, the impact on net income is zero.

~~Without these items, our effective income tax rates for both the third quarter and first nine months of 2015 would have been approximately 29 percent.~~

We have classified $13 million of unrecognized tax benefits as current because they are expected to be resolved within the next twelve months, which would be offset in part by the recognition of approximately $12 million of foreign tax credit carryforwards.

For the past seven years, we have been pursuing relief from double taxation under the US and Canadian tax treaty. As a result, our US and Canadian tax returns are subject to adjustment from 2004 and forward for the specific issues being contested. In October 2016, we were informed that the two countries reached a tentative agreement that would settle the issues for the years 2004 through 2013. Therefore, it is likely that a conclusion to the issues being contested could be reached within 12 months of September 30, 2016. We have not provided for the potential settlement and believe the settlement could result in additional tax expense of $23 million to $27 million, which is expected to be recorded in the fourth quarter of 2016. In addition, as a result of the settlement we expect to record a reserve for uncertain tax positions of $7 million to $13 million for the years 2014 – 2016 in the fourth quarter of 2016.

Comprehensive Income ~~(Loss)~~ Attributable to Ingredion. We recorded comprehensive income of ~~$138~~$172 million for the ~~third~~first quarter of ~~2016, as compared to a comprehensive loss of $57 million in the third quarter of 2015. For the first nine months of 2016, we recorded comprehensive income of $459 million,~~2017, as compared to comprehensive income of ~~$28~~$165 million in the ~~year-ago period.~~first quarter of 2016. These increases in comprehensive income primarily reflect favorable variances in

~~the foreign currency translation adjustment and our~~due to gains resulting from cash flow hedging, offset by decreased net income ~~growth. The favorable variances in the foreign currency translation adjustment~~ for the current year periods reflect a strengthening in end of period foreign currencies relative to the US dollar, as compared to the year-ago periods when end of period foreign currencies had substantially weakened. period.

Liquidity and Capital Resources

Cash provided by operating activities for the ~~first nine~~three months of ~~2016~~2017 was ~~$542~~$131 million, as compared to ~~$481~~$99 million a year ago. The increase in operating cash flow primarily reflects changes in our working capital, partially offset by a slight decline in our net ~~income growth.~~income.

Capital expenditures of ~~$197~~$72 million for the ~~first nine~~three months of ~~2016~~2017 are in line with our capital spending plan for the year. We anticipate that our capital expenditures will ~~be approximately~~approximate $300 million to $325 million for ~~full year 2016.~~2017.

~~On October 11, 2016, we entered into a new five-year, senior unsecured $1 billion revolving credit agreement (the “Revolving~~ At March 31, 2017, there were borrowings of $44 million outstanding under the Revolving Credit ~~Agreement”) that replaced our previously existing $1 billion senior unsecured revolving credit facility that would have matured on October 22, 2017. See also Note 11 of the Notes~~Agreement, as compared to ~~the Condensed Consolidated financial statements.~~

On September 22, 2016, we issued 3.20 percent Senior Notes due October 1, 2026 in an aggregate principal amount of $500 million. The net proceeds from the sale of the notes of approximately $497 million were used to repay $350 million of term loan debt, to repay $52 million of borrowings under our previously existing $1 billion revolving credit facility and for general corporate purposes. See also Note 11 of the Notes to the Condensed Consolidated financial statements.

~~At September 30, 2016, there were~~ no borrowings outstanding ~~under our previously existing $1 billion revolving credit facility,~~ as ~~compared to $111 million at~~of December 31, ~~2015.~~2016. In addition to borrowing availability under our Revolving Credit Agreement, we have approximately ~~$406~~$434 million of unused operating lines of credit in the various foreign countries in which we operate.

At ~~September 30, 2016,~~March 31, 2017, we had total debt outstanding of ~~$1.89 billion,~~$2,013 million, compared to ~~$1.84 billion~~$1,956 million at December 31, ~~2015.~~2016. At ~~September 30, 2016~~March 31, 2017 our total debt consists of the following:


~~(in millions)~~
~~3.2% senior notes due October 1, 2026~~	$	~~500~~
~~4.625% senior notes due November 1, 2020~~		~~400~~
~~1.8% senior notes due September 25, 2017~~		~~300~~
~~6.625% senior notes due April 15, 2037~~		~~250~~
~~6.0% senior notes due April 15, 2017~~		~~200~~
~~5.62% senior notes due March 25, 2020~~		~~200~~
~~Revolving credit facility~~		—
~~Fair value adjustment related to hedged fixed rate debt instruments~~		11
~~Unamortized discount, premium and issuance costs-net~~		~~(2)~~
~~Long-term debt~~	$	~~1,859~~
~~Short-term borowings~~		33
~~Total debt~~	$	~~1,892~~




(in millions)
3.2% senior notes due October 1, 2026	$	497
4.625% senior notes due November 1, 2020		398
1.8% senior notes due September 25, 2017		300
6.625% senior notes due April 15, 2037		253
6.0% senior notes due April 15, 2017		200
5.62% senior notes due March 25, 2020		200
Revolving credit facility		44
Fair value adjustment related to hedged fixed rate debt instruments		3
Long-term debt	$	1,895
Short-term borrowings		118
Total debt	$	2,013

The weighted average interest rate on our total indebtedness was approximately ~~3.9~~4.5 percent for the first ~~nine~~three months of ~~2016,~~2017, compared to ~~3.4~~3.7 percent in the comparable prior-year period.

As noted above, as of March 31, 2017, we have $200 million of 6.0 percent Senior Notes that mature on April 15, 2017 and $300 million of 1.8 percent Senior Notes that mature on September 25, 2017. These borrowings are included in long-term debt in our Condensed Consolidated Balance Sheet as we have the ability and intent to refinance them on a long-term basis prior to the maturity dates. In April 2017, the $200 million of Senior Notes that matured were refinanced through use of the revolving credit facility.

On ~~September 21, 2016,~~March 15, 2017, our board of directors declared a quarterly cash dividend of $0.50 per share of common stock. This dividend ~~represents an 11 percent increase from the previous quarterly dividend of $0.45 per share. This dividend~~ was paid on ~~October~~April 25, ~~2016~~2017 to stockholders of record at the close of business on ~~October 3, 2016.~~

March 31, 2017. During the first quarter of 2017, we repurchased approximately 1 million shares of our common stock in open market transactions for $123 million.

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 activities 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 considered to be permanently reinvested. 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. Approximately ~~$625~~$406 million of ~~our~~the total $448 million of cash and cash equivalents and short-term investments ~~of $764 million~~ at ~~September 30, 2016,~~March 31, 2017 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-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 6 of the Notes to the Condensed Consolidated Financial Statements for additional information.

Commodity Price Risk:

Our 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 our 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 twenty-four months, in order to hedge price risk associated with fluctuations in market prices. We also enter into futures contracts to hedge price risk associated with fluctuations in the market price 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 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~~Other comprehensive income (“OCI”). At ~~September 30, 2016,~~March 31, 2017, our ~~accumulated~~Accumulated other comprehensive loss account (“AOCI”) included ~~$21~~$6 million of ~~losses,~~gains, net of income taxes of ~~$11~~$2 million, related to these derivative instruments. It is anticipated that these ~~losses~~gains will be reclassified into earnings during the next twelve months. We expect the ~~losses~~gains to be offset by changes in the underlying commodities costs.

Foreign Currency Exchange Risk:

Due to our global operations, including operations in 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 operations’ results 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. We primarily use derivative financial instruments such as foreign currency forward contracts, swaps and options to manage our foreign currency transactional exchange risk. At ~~September 30, 2016,~~March 31, 2017, we had foreign currency forward sales contracts that are designated as fair value hedges with an aggregate notional amount of ~~$394~~$430 million and foreign currency forward purchase contracts with an aggregate notional amount of ~~$89~~$214 million that hedged transactional exposures. ~~The fair value of these derivative instruments is a net liability of approximately $13 million at September 30, 2016.~~

We also have foreign currency derivative instruments that hedge certain foreign currency transactional exposures and are designated as cash-flow hedges. ~~The amount in~~At March 31, 2017, AOCI included $2 million of losses, net of income taxes, relating to these ~~hedges at September 30, 2016 was not significant.~~hedges.

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 decreased from past levels.

Interest Rate Risk:

We occasionally use interest rate swaps and Treasury Lock agreements (“T-Locks”) 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. We did not have any T-Locks outstanding at ~~September 30, 2016.~~March 31, 2017.

WeAs of March 31, 2017, we have interest rate swap agreements that effectively convert the interest rates on our 6.0 percent $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, 2020, to variable rates. These swap agreements call for us to receive interest at the fixed coupon rate 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 obligations attributable to changes in interest rates and account for them as fair-value hedges. The fair value of these interest rate swap agreements was ~~$11~~$3 million at ~~September 30, 2016~~March 31, 2017 and is reflected in the Condensed Consolidated Balance Sheet within Other assets, with an offsetting amount recorded in Long-term debt to adjust the carrying amount of the hedged debt obligations.

At ~~September 30, 2016,~~March 31, 2017, AOCI included $4$3 million of losses (net of income taxes of $2 million) 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. It is anticipated that $1 million of these losses (net of income taxes of $1 million) will be reclassified into earnings during the next twelve months.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2015~~2016 Annual Report on Form 10-K. There have been no changes to our critical accounting policies and estimates during the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017.

FORWARD-LOOKING STATEMENTS

This Form 10-Q 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.

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,” “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; 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, paper, corrugated 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;~~rates, particularly US tax reform; operating difficulties; availability of raw materials, including potato starch, tapioca, gum Arabic, and the specific varieties of corn upon which our products are based; our ability to develop new products and services at a rate or of a quality sufficient to meet expectations; energy issues in Pakistan; boiler reliability; our ability to effectively integrate and operate acquired businesses; 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 corn-refining industry; and the outbreak or continuation of serious communicable disease or hostilities including acts of terrorism. Factors relating to the acquisition of TIC Gums that could cause actual results and developments to differ from expectations include: the anticipated benefits of the acquisition, including synergies, may not be realized; and the integration of TIC Gum’s operations with those of Ingredion may be materially delayed or may be more costly or difficult than expected.

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 “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 and subsequent reports on Forms 10-Q and 8-K.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the discussion set forth in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk at pages 5250 to 5351 in our Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2016, for a discussion as to how we address risks with respect to interest rates, raw material and energy costs and foreign currencies. There have been no material changes in the information that would be provided with respect to those disclosures from December 31, ~~2015~~2016 to ~~September 30, 2016.~~March 31, 2017.

ITEM 4

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 ~~September 30, 2016.~~March 31, 2017. 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~~Securities and Exchange Commission’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.

In the fourth quarter of 2016, we acquired Shandong Huanong Specialty Corn Development Co., Ltd. in Pingyuan County, Shandong Province, China (“Shandong Huanong”) and TIC Gums Incorporated (“TIC Gums”). In the first quarter of 2017, we acquired Sun Flour Industry Co., Ltd. (“Sun Flour”) in Thailand. We are currently in the process of evaluating and integrating the acquired operations, processes and internal controls. See Note 3 of the Notes to the Consolidated Financial Statements for additional information regarding the acquisitions. There have been no other changes in our internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

We are ~~reporting~~a party to a large number of labor claims relating to our Brazilian operations. We have reserved an aggregate of approximately $5 million as of March 31, 2017 in respect of these claims. These labor claims primarily relate to dismissals, severance, health and safety, work schedules and salary adjustments.

We are currently subject to various other claims and suits arising in the ~~following matter in compliance with Securities and Exchange Commission requirements to disclose~~ordinary course of business, including certain environmental proceedings ~~where the~~and other commercial claims. We also routinely receive inquiries from regulators and other government ~~is a party potentially involving monetary sanctions~~authorities relating to various aspects of $100,000 or greater. In March 2015 and July 2016, we received Notices of Violation from the U.S. Environmental Protection Agency. The allegations reflected in the notices relate to exceedances of permit limitsour business, including with respect to ~~sulfur dioxide~~compliance with laws and ~~particulate matter emissions~~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 ~~Argo plant~~complete control and ~~failure~~may not be known for prolonged periods of time. We do not believe that the results of currently known legal proceedings and inquires, even if unfavorable to ~~satisfy obligations with respect~~us, will be material to ~~maintenance and repair~~us. There can be no assurance, however, that such claims, suits or investigations 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 ~~pollution control equipment at the plant. No formal legal action has been commenced to date.~~operations.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities:


				~~Maximum Number~~
				~~(or Approximate~~
			~~Total Number of~~	~~Dollar Value) of~~
	~~Total~~	~~Average~~	~~Shares Purchased as~~	~~Shares that may yet~~
	~~Number~~	~~Price~~	~~part of Publicly~~	~~be Purchased Under~~
	~~of Shares~~	~~Paid~~	~~Announced Plans or~~	~~the Plans or Programs~~
~~(shares in thousands)~~	~~Purchased~~	~~per Share~~	~~Programs~~	~~at end of period~~
~~July 1 – July 31, 2016~~	—	—	—	~~4,741 shares~~
~~August 1 – August 31, 2016~~	—	—	—	~~4,741 shares~~
~~September 1 – September 30, 2016~~	—	—	—	~~4,741 shares~~
~~Total~~	—	—	—


				Maximum Number
				(or Approximate
			Total Number of	Dollar Value) of
	Total	Average	Shares Purchased as	Shares that may yet
	Number	Price	part of Publicly	be Purchased Under
	of Shares	Paid	Announced Plans or	the Plans or Programs
(shares in thousands)	Purchased	per Share	Programs	at end of period
January 1 – January 31, 2017	—	—	—	4,741 shares
February 1 – February 28, 2017	862	118.59	862	3,879 shares
March 1 – March 31, 2017	177	119.69	177	3,702 shares
Total	1,039	118.79	1,039

On December 12, 2014, the Board of Directors authorized a ~~new~~ stock repurchase program permitting the Company to purchase up to 5 million of its outstanding common shares from January 1, 2015 through December 31, 2019. At ~~September 30, 2016,~~March 31, 2017, we have ~~4.7~~3.7 million shares available for repurchase under the stock repurchase program.

ITEM 6

EXHIBITS

a) Exhibits

Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto.

All other items hereunder are omitted because either such item is inapplicable or the response is negative.

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SIGNATURES

Pursuant to the requirements 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.


		INGREDION INCORPORATED


DATE:	~~November 3, 2016~~May 5, 2017	By	/s/ ~~Jack C. Fortnum~~James D. Gray
		~~Jack C. Fortnum~~James D. Gray
		Executive Vice President and Chief Financial Officer


DATE:	~~November 3, 2016~~May 5, 2017	By	/s/ Stephen K. Latreille
		Stephen K. Latreille
		Vice President and Corporate Controller

3227

EXHIBIT INDEX


Number		Description of Exhibit

~~4.1~~10.1		Revolving Credit Agreement dated October 11, 2016, by and among Ingredion Incorporated, the lenders signatory thereto, any subsidiary borrowers that may become party thereto from time to time, JPMorgan Chase Bank, N.A.,Stock Incentive Plan as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Branch Banking and Trust Company, Bank of Montreal, Wells Fargo Bank, National Association, Mizuho Bank, Ltd., HSBC Bank USA, N.A., Citibank, N.A., ING Capital LLC and PNC Bank, National Association, as Co-Documentation Agentseffective February 7, 2017 (incorporated by reference to Exhibit ~~4.1~~10.1 to the Company’s Current Report on Form 8-K dated ~~October 11, 2016,~~February 7, 2017, filed on ~~October 17, 2016)~~February 14, 2017).

~~4.12~~10.2		~~Ninth Supplemental Indenture, dated as~~Form of ~~September 22, 2016, between~~Performance Share Award Agreement for use in connection with awards under the ~~Company and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to The Bank of New York), as trustee~~ ~~(incorporated~~Stock Incentive Plan (incorporated by reference to Exhibit ~~4.1~~10.2 to the Company’s Current Report on Form 8-K dated ~~September 22, 2016,~~February 7, 2017, filed on ~~September 22, 2016)~~February 14, 2017).

10.3		Form of Stock Option Award Agreement for use in connection with awards under the Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 7, 2017, filed on February 14, 2017).

10.4		Form of Restricted Stock Units Award Agreement for use in connection with awards under the Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated February 7, 2017, filed on February 14, 2017).

10.5		Confidentiality Agreement dated March 1, 2017 between the Company and Jack C. Fortnum.

10.6		Non-Compete Agreement dated March 1, 2017 between the Company and Jack C. Fortnum.

10.7		Executive Severance Agreement dated March 1, 2017 between the Company and James D. Gray.

31.1		CEO Section 302 Certification Pursuant to the Sarbanes-Oxley Act of 2002

31.2		CFO Section 302 Certification Pursuant to the Sarbanes-Oxley Act of 2002

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

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 Ingredion Incorporated’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2016~~March 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Equity and Redeemable Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to the Condensed Consolidated Financial Statements.

3328


(in millions, except share and per share amounts)	Three Months Ended March 31, 2016
Consolidated Statement of Income:	As reported		As adjusted
Provision for income taxes	$	56	$	53
Net income	$	130	$	133
Net income attributable to Ingredion	$	127	$	130
Basic earnings per common share of Ingredion	$	1.77	$	1.81
Diluted earnings per common share of Ingredion	$	1.73	$	1.77
Diluted weighted average common shares outstanding		73.3		73.6

Consolidated Statement of Cash Flows:
Cash provided by operating activities	$	96	$	99
Cash provided by financing activities	$	9	$	6

Consolidated Balance sheet:
Additional paid-in capital	$	1,154	$	1,151
Retained earnings	$	2,647	$	2,650


	Three Months Ended September 30, 2016					Three Months Ended September 30, 2015
	Net Income					Net Income
	Available		Weighted			Available		Weighted
	to Ingredion		Average Shares	Per Share		to Ingredion		Average Shares	Per Share
(in millions, except per share amounts)	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount

Basic EPS	$	143.4	72.5	$	1.98	$	107.9	71.6	$	1.51

Effect of Dilutive Securities:

Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards			1.8					1.3

Diluted EPS	$	143.4	74.3	$	1.93	$	107.9	72.9	$	1.48