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 ~~June~~September 30, 2020


☐	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)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	INGR	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

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




Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		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 ~~July~~October 31, 2020
Common Stock, $.01 par value		~~66,987,048~~66,990,288 shares

Table of Contents

~~PART I FINANCIAL INFORMATION~~

~~ITEM 1~~

~~FINANCIAL STATEMENTS~~

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in millions, except per share amounts)	2020		2019		2020		2019		2020		2019		2020		2019
Net sales	$	1,349	$	1,550	$	2,892	$	3,086	$	1,502	$	1,574	$	4,394	$	4,660
Cost of sales		1,078		1,221		2,298		2,441		1,176		1,230		3,474		3,671
Gross profit		271		329		594		645		326		344		920		989

Operating expenses		147		154		301		304		155		153		456		457
Other income, net		—		(2)		2		(1)
Other expense (income), net										2		(2)		4		(3)
Restructuring/impairment charges		11		9		25		13		16		28		41		41

Operating income		113		168		266		329		153		165		419		494

Financing costs, net		19		16		37		38		22		24		59		62
Other, non-operating income, net		—		—		(1)		—
Other, non-operating (income) expense, net										(2)		1		(3)		1

Income before income taxes		94		152		230		291		133		140		363		431
Provision for income taxes		27		45		85		82		40		38		125		120
Net income		67		107		145		209		93		102		238		311
Less: Net income attributable to non-controlling interests		1		2		4		4		1		3		5		7
Net income attributable to Ingredion	$	66	$	105	$	141	$	205	$	92	$	99	$	233	$	304

Weighted average common shares outstanding:
Basic		67.2		66.9		67.2		66.9		67.2		66.9		67.2		66.9
Diluted		67.6		67.4		67.7		67.4		67.6		67.4		67.6		67.4

Earnings per common share of Ingredion:
Basic	$	0.98	$	1.57	$	2.10	$	3.06	$	1.37	$	1.48	$	3.47	$	4.54
Diluted	$	0.98	$	1.56	$	2.08	$	3.04	$	1.36	$	1.47	$	3.45	$	4.51

See Notes to Condensed Consolidated Financial Statements

Table of Contents

~~PART I FINANCIAL INFORMATION~~

~~ITEM 1~~

~~FINANCIAL STATEMENTS~~

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~

(Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Net income	$	67	$	107	$	145	$	209	$	93	$	102	$	238	$	311
Other comprehensive income (loss):
(Losses) gains on cash flow hedges, net of income tax effect of $4, $3, $16 and $ — , respectively		(16)		10		(50)		1
Losses on cash flow hedges reclassified to earnings, net of income tax effect of $4, $1, $6 and $1, respectively		15		3		19		5
Other comprehensive income:
Gains (losses) on cash flow hedges, net of income tax effect of $4, $4, $12 and $4, respectively										12		(13)		(38)		(12)
Losses (gains) on cash flow hedges reclassified to earnings, net of income tax effect of $8, $ — , $14 and $1, respectively										23		(3)		42		2
Actuarial losses on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $ —		—		(1)		—		(1)		—		(1)		—		(2)
Currency translation adjustment		16		(4)		(118)		(3)		13		(45)		(105)		(48)
Comprehensive income (loss)		82		115		(4)		211
Less: Comprehensive income (loss) attributable to non-controlling interests		2		(2)		2		—
Comprehensive income (loss) attributable to Ingredion	$	80	$	117	$	(6)	$	211
Comprehensive income										141		40		137		251
Less: Comprehensive income attributable to non-controlling interests										3		5		5		5
Comprehensive income attributable to Ingredion									$	138	$	35	$	132	$	246

See Notes to Condensed Consolidated Financial Statements

Table of Contents

~~PART I FINANCIAL INFORMATION~~

~~ITEM 1~~

~~FINANCIAL STATEMENTS~~

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Balance Sheets

June 30,

December 31,

(in millions, except share and per share amounts)

2020

2019

(Unaudited)

Assets




Current assets:

Cash and cash equivalents

$
1,047

$
264

Short-term investments

1

4

Accounts receivable, net

861

977

Inventories

859

861

Prepaid expenses

52

54

Total current assets

2,820

2,160

Property, plant and equipment, net of accumulated depreciation of $3,039 and $3,056, respectively

2,231

2,306

Goodwill

791

801

Other intangible assets, net of accumulated amortization of $210 and $197, respectively

421

437

Operating lease assets

149

151

Deferred income tax assets

17

13

Other assets

182

172

Total assets

$
6,611

$
6,040

Liabilities and equity

Current liabilities:

Short-term borrowings

$
470

$
82

Accounts payable and accrued liabilities

812

885

Total current liabilities

1,282

967

Non-current liabilities

209

220

Long-term debt

2,140

1,766

Non-current operating lease liabilities

115

120

Deferred income tax liabilities

172

195

Share-based payments subject to redemption

27

31

Ingredion stockholders’ equity:

Preferred stock — authorized 25,000,000 shares — $0.01 par value, NaN issued

—

—

Common stock — authorized 200,000,000 shares — $0.01 par value, 77,810,875 issued at June 30, 2020 and December 31, 2019, respectively

1

1

Additional paid-in capital

1,143

1,137

Less: Treasury stock (common stock: 10,825,142 and 10,993,388 shares at June 30, 2020 and December 31, 2019, respectively) at cost

(1,027)

(1,040)

Accumulated other comprehensive loss

(1,307)

(1,158)

Retained earnings

3,836

3,780

Total Ingredion stockholders’ equity

2,646

2,720

Non-controlling interests

20

21

Total equity

2,666

2,741

Total liabilities and equity

$
6,611

$
6,040


	September 30,		December 31,
(in millions, except share and per share amounts)	2020		2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	553	$	264
Short-term investments		—		4
Accounts receivable, net		913		977
Inventories		908		861
Prepaid expenses		56		54
Total current assets		2,430		2,160

Property, plant and equipment, net of accumulated depreciation of $3,087 and $3,056, respectively		2,354		2,306
Goodwill		841		801
Other intangible assets, net of accumulated amortization of $220 and $197, respectively		479		437
Operating lease assets		161		151
Deferred income tax assets		23		13
Other assets		176		172
Total assets	$	6,464	$	6,040

Liabilities and equity
Current liabilities:
Short-term borrowings	$	62	$	82
Accounts payable and accrued liabilities		893		885
Total current liabilities		955		967

Non-current liabilities		211		220
Long-term debt		2,115		1,766
Non-current operating lease liabilities		123		120
Deferred income tax liabilities		189		195
Total liabilities		3,593		3,268

Share-based payments subject to redemption		32		31
Redeemable non-controlling interests		74		—

Ingredion stockholders’ equity:
Preferred stock — authorized 25,000,000 shares — $0.01 par value, NaN issued		—		—
Common stock — authorized 200,000,000 shares — $0.01 par value, 77,810,875 issued at September 30, 2020 and December 31, 2019, respectively		1		1
Additional paid-in capital		1,145		1,137
Less: Treasury stock (common stock: 10,822,592 and 10,993,388 shares at September 30, 2020 and December 31, 2019, respectively) at cost		(1,027)		(1,040)
Accumulated other comprehensive loss		(1,259)		(1,158)
Retained earnings		3,884		3,780
Total Ingredion stockholders’ equity		2,744		2,720
Non-redeemable non-controlling interests		21		21
Total equity		2,765		2,741
Total liabilities and equity	$	6,464	$	6,040

See Notes to Condensed Consolidated Financial Statements

Table of Contents

~~PART I FINANCIAL INFORMATION~~

~~ITEM 1~~

~~FINANCIAL STATEMENTS~~

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Equity and Redeemable Equity

(Unaudited)


	Total Equity
													Non-
													Redeemable		Share-based		Redeemable
					Additional				Accumulated Other				Non-		Payments		Non-
	Preferred		Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to		Controlling
(in millions)	Stock		Stock		Capital		Stock		Loss		Earnings		Interests		Redemption		Interests
Balance, December 31, 2019	$	—	$	1	$	1,137	$	(1,040)	$	(1,158)	$	3,780	$	21	$	31	$	—
Net income attributable to Ingredion												233
Net income (loss) attributable to non-controlling interests														7				(2)
Dividends declared												(129)		(5)
Share-based compensation, net of issuance						8		13								1
Acquisition of redeemable non-controlling interests																		74
Other comprehensive (loss) income										(101)				(2)				2
Balance, September 30, 2020	$	—	$	1	$	1,145	$	(1,027)	$	(1,259)	$	3,884	$	21	$	32	$	74


	Total Equity
													Non-
													Redeemable		Share-based		Redeemable
					Additional				Accumulated Other				Non-		Payments		Non-
	Preferred		Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to		Controlling
(in millions)	Stock		Stock		Capital		Stock		Loss		Earnings		Interests		Redemption		Interests
Balance, December 31, 2018	$	—	$	1	$	1,096	$	(1,091)	$	(1,154)	$	3,536	$	20	$	37	$	—
Net income attributable to Ingredion												304
Net income attributable to non-controlling interests														7
Dividends declared												(127)		(6)
Repurchases of common stock						32		31
Share-based compensation, net of issuance						9		16								(9)
Other comprehensive income (loss)										(60)				(2)
Balance, September 30, 2019	$	—	$	1	$	1,137	$	(1,044)	$	(1,214)	$	3,713	$	19	$	28	$	—

See Notes to Condensed Consolidated Financial Statements

Table of Contents

~~PART I FINANCIAL INFORMATION~~

~~ITEM 1~~

~~FINANCIAL STATEMENTS~~

Ingredion Incorporated (“Ingredion”)

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended				Nine Months Ended
	June 30,				September 30,
(in millions)	2020		2019		2020		2019
Cash provided by operating activities
Net income	$	145	$	209	$	238	$	311
Non-cash charges to net income:
Depreciation and amortization		106		103		158		158
Mechanical stores expense		26		28		39		42
Deferred income taxes		(2)		10		(1)		2
Charge for fair value markup of acquired inventory						3		—
Other		25		33		46		21
Changes in working capital:
Accounts receivable and prepaid expenses		64		(65)		36		(56)
Inventories		(31)		(39)		(10)		(71)
Accounts payable and accrued liabilities		(21)		(32)		54		76
Margin accounts		(18)		15		6		(4)
Other		—		(9)		(7)		11
Cash provided by operating activities		294		253		562		490

Cash used for investing activities
Capital expenditures and mechanical stores purchases, net of proceeds on disposals		(175)		(156)		(250)		(231)
Payments for acquisitions, net of cash acquired of $ — and $4, respectively		—		(42)
Payments for acquisitions, net of cash acquired of $14 and $4, respectively						(208)		(42)
Investment in non-consolidated affiliates		(6)		(10)		(6)		(10)
Short-term investments		3		3		4		4
Other						—		1
Cash used for investing activities		(178)		(205)		(460)		(278)

Cash provided by (used for) financing activities
Proceeds from borrowings		1,486		714		1,527		839
Payments on debt		(709)		(765)		(1,186)		(858)
Payments for debt issuance costs		(9)		—		(9)		—
Repurchases of common stock, net		—		63		—		63
Issuances of common stock for share-based compensation, net of settlements		2		—		2		1
Dividends paid, including to non-controlling interests		(87)		(87)		(132)		(131)
Cash provided by (used for) financing activities		683		(75)		202		(86)

Effects of foreign exchange rate changes on cash		(16)		(3)		(15)		(10)

Increase (decrease) in cash and cash equivalents		783		(30)
Increase in cash and cash equivalents						289		116

Cash and cash equivalents, beginning of period		264		327		264		327

Cash and cash equivalents, end of period	$	1,047	$	297	$	553	$	443

See Notes to Condensed Consolidated Financial Statements

Table of Contents

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, 2019.

The unaudited Condensed Consolidated Financial Statements as of ~~June~~September 30, 2020 and for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 included herein were prepared by management on the same basis as the Company’s audited Consolidated Financial Statements for the year ended December 31, 2019 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 the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income, ~~(Loss),~~ Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Equity and Redeemable Equity, and Condensed Consolidated Statements of Cash Flows. The results for the interim period are not necessarily indicative of the results expected for the full ~~year.~~year or any other future period.

2. Summary of Significant Accounting Standards and Policies

For detailed information about the Company’s significant accounting standards, see Note 2 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, 2019. Except for the matters discussed below, there have been no other material changes to the Company’s significant accounting policies for the ~~three and six~~nine months ended ~~June~~September 30, 2020.

Recently Adopted Accounting Standards

ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350)

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ~~Update~~ASU simplifies the subsequent measurement of goodwill as ~~the Update~~this ASU eliminates Step 2 from the goodwill impairment test. Under ~~the Update,~~this ASU, an entity will continue to perform its annual, or interim, goodwill impairment test to determine if the fair value of a reporting unit is greater than 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 using the results of its Step 1 assessment, with the loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. This ~~Update~~ASU is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2017-04 at the beginning of its 2020 fiscal year, and ~~the Update~~this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements upon adoption.

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. This ~~Update~~ASU is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2016-13 at the beginning of its 2020 fiscal year, and ~~the Update~~this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements upon adoption.

Significant Accounting Policies

Indefinite-lived intangible assets and goodwill: The Company has indefinite-lived intangible assets of $178 million at September 30, 2020 and December 31, 2019. Goodwill ($841 million and $801 million at September 30, 2020 and December 31, 2019, respectively) represents the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed. The following table summarizes the Company’s indefinite-lived intangible assets at the dates presented:

Table of Contents


(in millions)	Balance at September 30, 2020		Balance at December 31, 2019
Trademarks/tradenames (indefinite-lived)	$	178	$	178

The original carrying value of goodwill and accumulated impairment charges by reportable business segment at September 30, 2020 was as follows:


	North		South		Asia-
(in millions)	America		America		Pacific		EMEA		Total
Goodwill before impairment charges	$	608	$	54	$	229	$	65	$	956
Accumulated impairment charges		(1)		(33)		(121)		—		(155)
Balance at January 1, 2020		607		21		108		65		801
Acquisitions		—		—		48		—		48
Currency translation		—		(6)		(3)		1		(8)
Balance at September 30, 2020	$	607	$	15	$	153	$	66	$	841

The Company assesses indefinite-lived intangible assets and goodwill for impairment annually (or more frequently if impairment indicators arise). The Company performs this annual impairment assessment as of July 1 each year. In testing indefinite-lived intangible assets for impairment, the Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value. After assessing the qualitative factors, if the Company determines that it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is greater than its carrying amount, then it would not be required to compute the fair value of the indefinite-lived intangible asset. In the event the qualitative assessment leads the Company to conclude otherwise, then it would be required to determine the fair value of the indefinite-lived intangible assets and perform a quantitative impairment test in accordance with Accounting Standards Codification (“ASC”) subtopic 350-30. In performing the qualitative analysis, the Company considers various factors including net sales derived from these intangibles and certain market and industry conditions. Based on the results of its assessment, the Company concluded that as of July 1, 2020, there were 0 impairments in its indefinite-lived intangible assets.

In testing goodwill for impairment, the Company first assesses qualitative factors in determining whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. After assessing the qualitative factors, if the Company determines that it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, then the Company does not perform an impairment test. If the Company concludes otherwise, then it performs an impairment test as described in ASC subtopic 350-30. This test compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, an impairment is recorded. Based on the results of the annual assessment, the Company concluded that as of July 1, 2020, there were 0 impairments in its reporting units.

Net Sales Presentation Change

During the three months ended December 31, 2019, the Company changed its presentation of shipping and handling costs. These expenses were previously included as a reduction to Net sales in the Condensed Consolidated Statements of Income. The Company is now presenting these expenses within Cost of sales in the Condensed Consolidated Statements of Income. The change in presentation was applied retrospectively to all periods presented in the Condensed Consolidated Statements of Income. The change in presentation had no effect on Gross profit, Operating income, Net income, or Earnings per share. The Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Equity and Redeemable Equity, and Condensed Consolidated Statements of Cash Flows are not affected by this change in presentation.

Table of Contents

~~Comprehensive Income (Loss), Condensed Consolidated Statements of Equity and Redeemable Equity, and Condensed Consolidated Statements of Cash Flows are not affected by this change in presentation.~~

The effect of the adjustment is as follows:


	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019				Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
(in millions)	As Reported		As Adjusted		As Reported		As Adjusted		As Reported		As Adjusted		As Reported		As Adjusted
Consolidated Statements of Income:
Net sales before shipping and handling costs	$	1,550	$	—	$	3,086	$	—	$	1,574	$	—	$	4,660	$	—
Less: shipping and handling costs		116		—		232		—		117		—		349		—
Net sales		1,434		1,550		2,854		3,086		1,457		1,574		4,311		4,660
Cost of sales		1,105		1,221		2,209		2,441		1,113		1,230		3,322		3,671
Gross profit	$	329	$	329	$	645	$	645	$	344	$	344	$	989	$	989


	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019				Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
(in millions)	As Reported		As Adjusted		As Reported		As Adjusted		As Reported		As Adjusted		As Reported		As Adjusted
Net sales to unaffiliated customers:
North America	$	885	$	977	$	1,745	$	1,928	$	892	$	984	$	2,637	$	2,912
South America		215		226		433		454		234		245		667		699
Asia-Pacific		195		203		389		406		196		205		585		611
EMEA		139		144		287		298		135		140		422		438
Total	$	1,434	$	1,550	$	2,854	$	3,086	$	1,457	$	1,574	$	4,311	$	4,660

3. Acquisitions

On July 1, 2020, the Company completed its acquisition of PureCircle Limited (“PureCircle”) through its wholly owned subsidiary Ingredion SRSS Holdings Limited (“Ingredion SRSS”), an unlisted United Kingdom private limited company. PureCircle is one of the leading producers and innovators of stevia sweeteners for global food and beverage industries. To complete the closing, the Company made a total cash payment of $208 million, net of $14 million of cash acquired, which it funded from cash on hand. Upon the closing, PureCircle is wholly owned by Ingredion SRSS, which in turn is 75%-owned by Ingredion and 25%-owned by former PureCircle shareholders. PureCircle is consolidated by Ingredion for financial reporting purposes, with a corresponding redeemable non-controlling interest of $74 million recorded for the portion not owned by the Company. The results of PureCircle will be reported on a one-month lag within the Company’s consolidated financial statements during the integration process of the companies. The results of the acquired operations are included in the Company’s consolidated results from the acquisition date within the Asia-Pacific reportable segment. Pro-forma results of operations for the acquisition have not been presented as the effect of the acquisition would not be material to the Company’s results of operations for any periods presented.

A preliminary allocation of the purchase price to the assets acquired and liabilities assumed was made based on available information and incorporating management’s best estimates. The assets acquired and liabilities assumed in the transaction are generally recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred. Goodwill represents the amount by which the purchase price exceeds the estimated fair value of the net assets acquired. The goodwill related to PureCircle is not tax-deductible due to the structure of the acquisition.

The following table summarizes the preliminary purchase price allocations for the PureCircle acquisition as of September 30, 2020:


		Preliminary
(in millions)		PureCircle
Working capital (excluding cash)	$	77
Property, plant and equipment		89
Other, net		4
Identifiable intangible assets		64
Goodwill		48
Total purchase price, net of cash	$	282

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All of the recorded assets and liabilities, including working capital, property, plant and equipment, goodwill, intangibles and taxes, are open to change as the Company is still in process of performing purchase accounting for PureCircle, pending receipt of certain information required to finalize the determination of fair value. The goodwill results from synergies and other operational benefits expected to be derived from the acquisition.

The identifiable intangible assets for the acquisition of PureCircle include items such as customer relationships, trade names, and proprietary technology. 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 fair value estimates to be made in situations in which there is little, if any, market activity for an asset or liability at the measurement date. For more information on the fair value hierarchy, see Note 6.

On March 1, 2019, the Company completed its acquisition of Western Polymer LLC (“Western Polymer”), a privately-held, U.S.-based company headquartered in Moses Lake, Washington, that produces native and modified potato starches for industrial and food applications for $42 million, net of cash acquired of $4 million. The acquisition ~~will expand~~expanded the Company's potato starch manufacturing capacity, ~~enhance~~enhanced its processing capabilities, and ~~broaden~~broadened its higher-value specialty ingredients business and customer base. The results of the acquired operation are included in the Company’s consolidated results from the acquisition date ~~forward~~ within the North America business segment.

During the three months ended March 31, 2020, the Company finalized the purchase price allocation for the Western Polymer acquisition. The finalization of goodwill and intangible assets did not have a significant impact on previously estimated amounts. The acquisition of Western Polymer added $13 million of goodwill and intangible assets and $29 million of net tangible assets as of the acquisition date.

Goodwill represents the amount by which the purchase price exceeds the estimated fair value of the net assets acquired. The goodwill results from synergies and other operational benefits expected to be derived from the acquisition. The goodwill related to Western Polymer is tax-deductible due to the structure of the acquisition.

Pro-forma results of operations for the acquisition made in 2019 have not been presented as the effect of the acquisition would not be material to the Company’s results of operations for any periods presented.

The Company incurred $5 million and $8 million of pre-tax acquisition and integration costs for the three and nine months ended September 30, 2020, respectively, associated with the PureCircle acquisition. The Company incurred an insignificant amount of pre-tax acquisition and integration costs for the three months ended September 30, 2019 and $2 million of pre-tax acquisition and integration costs for the nine months ended September 30, 2019 associated with the Western Polymer acquisition.

4. Revenue Recognition

The Company applies the provisions of ~~Accounting Standards Codification (“ASC”)~~ASC 606-10, Revenue from Contracts with Customers. The Company recognizes revenue under the core principle to depict the transfer of products to customers in an amount reflecting the consideration the Company expects to receive. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The Company identified customer purchase orders, which in some cases are governed by a master sales agreement, as the contracts with its customers. For each contract, the Company considers the transfer of products, each of which is distinct, to be the identified performance obligation. In determining the transaction price for the performance

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obligation, the Company evaluates whether the price is subject to adjustment to determine the consideration to which the Company expects to be entitled. The pricing model can be fixed or variable within the contract. The variable pricing model is based on historical commodity pricing and is determinable prior to completion of the performance obligation. Additionally, the Company has certain sales adjustments for volume incentive discounts and other discount arrangements that reduce the transaction price. The reduction of the transaction price is estimated using the expected value method based on an analysis of historical volume incentives or discounts, over a period of time considered adequate to account for current pricing and business trends. Historically, actual volume incentives and discounts relative to those estimated and included when determining the transaction price have not materially differed. Volume incentives and discounts are accrued at the satisfaction of the performance obligation and accounted for in Accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets. These amounts ~~are~~were not significant as of ~~June~~September 30, 2020 or December 31, 2019. The product price as specified in the contract, net of any discounts, is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Payment is received

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shortly after the performance obligation is satisfied; therefore, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component.

Revenue is recognized when the Company’s performance obligation is satisfied and control is transferred to the customer, which occurs at a point in time, either upon delivery to an agreed upon location or to the customer. Further, in determining whether control has transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer.

Shipping and handling activities related to contracts with customers represent fulfillment costs and are recorded in Cost of sales. Taxes assessed by governmental authorities and collected from customers are accounted for on a net basis and excluded from revenues. The Company applies a practical expedient to expense costs to obtain a contract as incurred as most contracts are one year or less. These costs primarily include the Company’s internal sales force compensation. Under the terms of these programs, ~~these~~such costs are generally earned and the costs are recognized at the time the revenue is recognized.

From time to time, the Company may enter into long-term contracts with its customers. Historically, the contracts entered into by the Company do not result in significant contract assets or liabilities. Any such arrangements are accounted for in Other assets or Accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets. There were no significant contract assets or liabilities as of ~~June~~September 30, 2020 or December 31, 2019.


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Net sales to unaffiliated customers:
North America	$	848	$	977	$	1,811	$	1,928	$	928	$	984	$	2,739	$	2,912
South America		182		226		419		454		224		245		643		699
Asia-Pacific		187		203		376		406		207		205		583		611
EMEA		132		144		286		298		143		140		429		438
Total net sales	$	1,349	$	1,550	$	2,892	$	3,086	$	1,502	$	1,574	$	4,394	$	4,660

5. Restructuring and Impairment Charges

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company recorded a total of ~~$11~~$16 million and ~~$25~~$41 million of pre-tax restructuring and impairment charges, ~~respectively, as part of the Cost Smart program.~~respectively. For the three and nine months ended ~~June~~September 30, 2020, the Company recorded $6$2 million and $17 million of pre-tax restructuring charges for its Cost Smart cost of sales program, ~~including $3 million of asset write-offs and~~respectively. During the three months ended September 30, 2020, the Company recorded $1 million of other restructuring costs in relation to the closure of the Lane Cove, Australia production facility and $1 million of other costs related to the closure of the Stockton, California production facility. During the nine months ended September 30, 2020, the Company recorded $10 million of restructuring charges in relation to the closure of the Lane Cove, Australia production facility, $6 million related to the closure of the Stockton, California production facility and $1 million of other restructuring costs. The Lane Cove, Australia restructuring costs consist of $6 million of asset write-offs, $3 million of other costs, and $1 million of accelerated depreciation. The Stockton, California restructuring costs consist of $4 million of accelerated depreciation, $1 million of employee-related severance, and $1 million of other costs. The Company expects to incur $1 million to $2 million of additional restructuring costs during the remainder of 2020 related to the Lane Cove production facility closure.

Additionally, the Company recorded pre-tax restructuring charges of $4 million and $14 million during the three and nine months ended September 30, 2020, respectively, for its Cost Smart selling, general and administrative expense (“SG&A”) program. During the three months ended ~~June 30, 2020, the Company also recorded $1 million of accelerated depreciation and $1 million of employee-related severance, primarily in North America. For the six months ended June~~September 30, 2020, the Company recorded ~~$15~~$4 million of pre-tax restructuring charges, ~~for its Cost Smart cost~~consisting primarily of ~~sales program,~~other costs, including $6professional services, in North America. During the nine months ended September 30, 2020, the Company recorded pre-tax restructuring costs of $14 million primarily in

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million of asset write-offs, $2 million of other costs, and $1 million of accelerated depreciation in relation to the closure of the Lane Cove, Australia production facility. The Company expects to incur $2 million of additional restructuring costs during the remainder of 2020 related to the Lane Cove production facility closure. During the six months ended June 30, 2020, the Company also recorded $4 million of accelerated depreciation, $1 million of employee-related severance, and $1 million of other costs, primarily in North America.

Additionally, the Company recorded pre-tax restructuring charges of $5 million and $10 million during the three and six months ended June 30, 2020, respectively, for its Cost Smart selling, general and administrative expense (“SG&A”) program. During the three months ended June 30, 2020, the Company recorded $5 million of pre-tax restructuring charges, consisting primarily of other costs, including professional services, in North America. During the six months ended June 30, 2020, the Company recorded pre-tax restructuring costs of $10 million primarily in North America, consisting of $8$12 million of other costs, including professional services, and $2 million of employee-related severance.

Finally, the Company recognized an other-than-temporary impairment of $10 million on its equity method investment in Verdient Foods Inc. during the three months ended September 30, 2020. The other-than-temporary impairment was triggered by the decrease in the fair value of its investment as determined by the agreed upon price for Ingredion to acquire the remaining 80% interest in Verdient Foods Inc. This agreement is more fully described in Note 14, Subsequent Event.

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded $9$28 million and ~~$13~~$41 million of pre-tax restructuring charges, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded $6$14 million and $9$23 million, respectively, of other costs, including professional services, and employee-related severance in the North America and South America segments as part of its Cost Smart SG&A program. This included $1 million and $2 million of other costs associated with the Finance Transformation initiative in Latin America for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. Additionally, for the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded $3$14 million and $4$18 million, respectively, of other costs, including professional services, as part of the Cost Smart cost of sales program, including ~~$1 million and~~ $2 million ~~respectively,~~ in relation to the prior year cessation of wet-milling at the Stockton, California plant.

A summary of the Company’s employee-related severance accrual as of ~~June~~September 30, 2020 is as follows (in millions):


Balance in severance accrual as of December 31, 2019	$	15	$	15
Cost Smart cost of sales and SG&A		3		3
Payments made to terminated employees		(9)		(11)
Foreign exchange translation		(1)		(1)
Balance in severance accrual as of June 30, 2020	$	8
Balance in severance accrual as of September 30, 2020			$	6

Of the $8$6 million severance accrual as of ~~June~~September 30, 2020, $7$5 million is expected to be paid in the next 12 months.

As of ~~June~~September 30, 2020, the Company identified certain assets within the Stockton, California and Lane Cove, Australia locations that met the held for sale criteria. The Company expects to sell these assets at a fair value equal to or greater than the carrying value as of ~~June~~September 30, 2020, and did not record a gain or loss associated with the reclassification of these assets to held for sale for the ~~six~~nine months ended ~~June~~September 30, 2020. The assets classified as held for sale are reflected in the Condensed Consolidated Balance Sheets as follows:


(in millions)		June 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Other assets	$	13	$	—	$	8	$	—

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 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, interest rate swaps, and treasury locks (“T-Locks”).

Commodity price hedging: The Company’s principal use of derivative financial instruments is to manage commodity price risk relating to anticipated purchases of corn and natural gas to be used in the manufacturing process, generally over the next 12 to 24 months. The Company maintains a commodity-price risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility.

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To manage price risk related to corn purchases primarily in North America, the Company uses corn futures and option contracts that trade on regulated commodity exchanges to lock-in corn costs associated with fixed-priced customer sales contracts. The Company also uses over-the-counter natural gas swaps in North America to hedge a portion of its natural

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gas usage. These derivative financial instruments limit the impact that volatility resulting from fluctuations in market prices will have on corn and natural gas purchases. The Company’s natural gas derivatives and the majority of its corn derivatives have been designated as cash flow hedging instruments.

The Company enters into certain corn derivative instruments that are not designated as hedging instruments as defined by ASC 815, Derivatives and Hedging. Therefore, the realized and unrealized gains and losses from these instruments are recognized in cost of sales during each accounting period. These derivative instruments also mitigate commodity price risk related to anticipated purchases of corn.

For commodity hedges designated as cash flow hedges, unrealized gains and losses associated with marking the commodity hedging contracts to market (fair value) are recorded as a component of other comprehensive income (“OCI”) and included in the equity section of the Condensed Consolidated Balance Sheets as part of Accumulated other comprehensive income (“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. Gains and losses from cash flow hedging instruments reclassified from AOCI to earnings are reported as Cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

As of ~~June~~September 30, 2020, the Company had outstanding futures and option contracts that hedged the forecasted purchase of approximately 64 million bushels of corn. The Company had outstanding swap and option contracts that hedged the forecasted purchase of approximately 3329 million mmbtu’s of natural gas at ~~June~~September 30, 2020.

Foreign currency hedging: Due to the Company’s global operations, including operations in many emerging markets, the Company 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 U.S. dollars and to transactional foreign-exchange risk when transactions not denominated in the functional currency are revalued. The Company’s foreign-exchange risk management strategy uses derivative financial instruments such as foreign currency forward contracts, swaps and options to manage its transactional foreign exchange risk. The Company enters into foreign currency derivative instruments that are designated as both cash flow hedging instruments as well as instruments not designated as hedging instruments as defined by ASC 815, Derivatives and Hedging, in order to mitigate transactional foreign-exchange risk. Gains and losses from derivative financial instruments not designated as hedging instruments are marked to market in earnings during each accounting period.

The Company hedges certain assets using foreign currency derivatives not designated as hedging instruments, which had a notional value of ~~$590~~$648 million and $621 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively. The Company also hedges certain liabilities using foreign currency derivatives not designated as hedging instruments, which had a notional value of ~~$478~~$457 million and $356 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

The Company hedges certain assets using foreign currency cash flow hedging instruments, which had a notional value of ~~$325~~$495 million and $374 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively. The Company also hedges certain liability positions using foreign currency cash flow hedging instruments, which had a notional value of ~~$460~~$619 million and $541 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

Interest rate hedging: The Company assesses its exposure to variability in interest rates by identifying and monitoring changes in interest rates that may adversely impact future cash flows and the fair value of existing debt instruments, and by evaluating hedging opportunities. The Company’s risk management strategy is to monitor interest rate risk attributable to both the Company’s outstanding and forecasted debt obligations as well as the Company’s offsetting hedge positions. Derivative financial instruments that have been used by the Company to manage its interest rate risk consist of interest rate swaps and T-Locks.

The Company periodically enters into interest rate swaps to hedge its exposure to interest rate changes. The changes in 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 gains or losses (the changes in fair value) of the hedged debt instruments that are attributable to changes in interest rates (the hedged risk), which are

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fair value of outstanding debt obligations are reported in earnings. These amounts offset the gains or losses (the changes in fair value) of the hedged debt instruments that are attributable to changes in interest rates (the hedged risk), which are also recognized in earnings. As of ~~June~~September 30, 2020, the Company did not have any outstanding interest rate swaps. As of December 31, 2019, the Company had an outstanding interest rate swap agreement that converted the interest rates on $200 million of its $400 million 4.625% senior notes due November 1, 2020, to variable rates. The Company redeemed these notes in July 2020 and settled the outstanding interest rate swap.

The Company periodically enters into T-Locks to hedge its exposure to interest rate changes. The T-Locks are designated as hedges of the variability in cash flows associated with future interest payments caused by market fluctuations in the benchmark interest rate until the fixed interest rate is established, and are accounted for as cash flow hedges. Accordingly, changes in the fair value of the T-Locks are recorded to AOCI until the consummation of the underlying debt offering, at which time any realized gain (loss) is amortized to earnings over the life of the debt. The Company did not have outstanding T-locks as of ~~June~~September 30, 2020 or December 31, 2019. T-locks outstanding as of March 31, 2020 were settled the three months ended June 30, 2020. The corresponding realized loss was recorded in AOCI and will be amortized to earnings over the life of the senior notes sold.

The derivative instruments designated as cash flow hedges included in AOCI as of ~~June~~September 30, 2020 and December 31, 2019 are reflected below:


Derivatives in Cash Flow Hedging Relationships	Gains (Losses) included in AOCI				Gains (Losses) included in AOCI
(in millions)	June 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Commodity contracts, net of income tax effect of $13 and $5, respectively	$	(36)	$	(11)
Foreign currency contracts, net of income tax effect of $ — and $1, respectively		—		3
Commodity contracts, net of income tax effect of $ — and $5, respectively					$	2	$	(11)
Foreign currency contracts, net of income tax effect of $1 and $1, respectively						(3)		3
Interest rate contracts, net of income tax effect of $1 and $ — , respectively		(4)		(1)		(4)		(1)
Total	$	(40)	$	(9)	$	(5)	$	(9)

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 Hedging Instruments as of June 30, 2020																Fair Value of Hedging Instruments as of September 30, 2020
	Designated Hedging Instruments (in millions)								Non-Designated Hedging Instruments (in millions)								Designated Hedging Instruments (in millions)								Non-Designated Hedging Instruments (in millions)
Balance Sheet Location		Commodity Contracts		Foreign Currency Contracts		Interest Rate Contracts	Total			Commodity Contracts		Foreign Currency Contracts		Interest Rate Contracts	Total			Commodity Contracts		Foreign Currency Contracts		Interest Rate Contracts	Total			Commodity Contracts		Foreign Currency Contracts		Interest Rate Contracts	Total
Accounts receivable, net	$	3	$	—	$	—	$	3	$	—	$	5	$	—	$	5	$	18	$	—	$	—	$	18	$	—	$	7	$	—	$	7
Other assets		2		1		—		3		—		1		—		1		4		—		—		4		—		3		—		3
Assets		5		1		—		6		—		6		—		6		22		—		—		22		—		10		—		10
Accounts payable and accrued liabilities		26		2		—		28		4		16		—		20		6		1		—		7		1		23		—		24
Non-current liabilities		2		—		—		2		—		3		—		3		1		3		—		4		—		2		—		2
Liabilities		28		2		—		30		4		19		—		23		7		4		—		11		1		25		—		26
Net (Liabilities)/Assets	$	(23)	$	(1)	$	—	$	(24)	$	(4)	$	(13)	$	—	$	(17)	$	15	$	(4)	$	—	$	11	$	(1)	$	(15)	$	—	$	(16)


	Fair Value of Hedging Instruments as of December 31, 2019
	Designated Hedging Instruments (in millions)								Non-Designated Hedging Instruments (in millions)
Balance Sheet Location		Commodity Contracts		Foreign Currency Contracts		Interest Rate Contracts	Total			Commodity Contracts		Foreign Currency Contracts		Interest Rate Contracts	Total
Accounts receivable, net	$	5	$	7	$	—	$	12	$	2	$	4	$	—	$	6
Other assets		1		3		1		5		—		1		—		1
Assets		6		10		1		17		2		5		—		7
Accounts payable and accrued liabilities		13		4		—		17		1		8		—		9
Non-current liabilities		4		4		—		8		—		2		—		2
Liabilities		17		8		—		25		1		10		—		11
Net (Liabilities)/Assets	$	(11)	$	2	$	1	$	(8)	$	1	$	(5)	$	—	$	(4)

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Additional information pertaining to the Company’s fair value hedges is presented below:


Line item in the statement of financial position in which the hedged item is included (in millions)	Carrying Amount of the Hedged Assets/(Liabilities)				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities)				Carrying Amount of the Hedged Assets/(Liabilities)				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities)
Balance sheet date as of	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Interest Rate Contracts:
Long-Term Debt	$	—	$	(201)	$	—	$	(1)	$	—	$	(201)	$	—	$	(1)

Additional information relating to the Company’s derivative instruments is presented below:


Derivatives in Cash Flow	Gains (Losses) Recognized in OCI on Derivatives				Income	Gains (Losses) Reclassified from AOCI into Income				Gains (Losses) Recognized in OCI on Derivatives				Income	Gains (Losses) Reclassified from AOCI into Income
Hedging Relationships	Three Months Ended June 30,				Statement	Three Months Ended June 30,				Three Months Ended September 30,				Statement	Three Months Ended September 30,
(in millions)	2020		2019		Location	2020		2019		2020		2019		Location	2020		2019
Commodity contracts	$	(20)	$	10	Cost of sales	$	(17)	$	(5)	$	21	$	(20)	Cost of sales	$	(30)	$	2
Foreign currency contracts		1		3	Net sales/Cost of sales		(1)		1		(5)		3	Net sales/Cost of sales		(1)		1
Interest rate contracts		(1)		—	Financing costs, net		(1)		—		—		—	Financing costs, net		—		—
Total	$	(20)	$	13		$	(19)	$	(4)	$	16	$	(17)		$	(31)	$	3


Derivatives in Cash-Flow	Gains (Losses) Recognized in OCI on Derivatives				Income	Gains (Losses) Reclassified from AOCI into Income				Gains (Losses) Recognized in OCI on Derivatives				Income	Gains (Losses) Reclassified from AOCI into Income
Hedging Relationships	Six Months Ended June 30,				Statement	Six Months Ended June 30,				Nine Months Ended September 30,				Statement	Nine Months Ended September 30,
(in millions, pre-tax)	2020		2019		Location	2020		2019		2020		2019		Location	2020		2019
Commodity contracts	$	(57)	$	—	Cost of sales	$	(24)	$	(3)	$	(36)	$	(20)	Cost of sales	$	(54)	$	(1)
Foreign currency contracts		(4)		1	Net sales/Cost of sales		—		(2)		(9)		4	Net sales/Cost of sales		(1)		(1)
Interest rate contracts		(5)		—	Financing costs, net		(1)		(1)		(5)		—	Financing costs, net		(1)		(1)
Total	$	(66)	$	1		$	(25)	$	(6)	$	(50)	$	(16)		$	(56)	$	(3)

Derivatives in Fair Value Hedging

Income Statement Location of

Gains (Losses) Recognized in Income

Income Statement

Gains (Losses) Recognized in Income

Income Statement Location of

Gains (Losses) Recognized in Income

Income Statement

Gains (Losses) Recognized in Income

Relationships

Derivatives Designated as

Three Months Ended June 30,

Location

Three Months Ended June 30,

Derivatives Designated as

Three Months Ended September 30,

Location

Three Months Ended September 30,

(in millions)

Hedging Instruments

2020

2019

of Hedged Items

2020

2019

Hedging Instruments

2020

2019

of Hedged Items

2020

2019

Interest rate contracts

Financing costs, net

(4)

Financing costs, net

(3)

Financing costs, net

—

Financing costs, net

—

Derivatives in Fair Value

Income Statement Location of

Gains (Losses) Recognized in Income

Income Statement

Gains (Losses) Recognized in Income

Income Statement Location of

Gains (Losses) Recognized in Income

Income Statement

Gains (Losses) Recognized in Income

Hedging Relationships

Derivatives Designated as

Six Months Ended June 30,

Location

Six Months Ended June 30,

Derivatives Designated as

Nine Months Ended September 30,

Location

Nine Months Ended September 30,

(in millions)

Hedging Instruments

2020

2019

of Hedged Items

2020

2019

Hedging Instruments

2020

2019

of Hedged Items

2020

2019

Interest rate contracts

Financing costs, net

(1)

Financing costs, net

(3)

Financing costs, net

(1)

Financing costs, net

(3)

As of ~~June~~September 30, 2020, AOCI included ~~$36~~$3 million of net losses (net of income taxes of ~~$13~~$1 million) on settled commodities-related derivatives instruments, T-Locks, and foreign currency hedges designated as cash flow hedges that are expected to be reclassified into earnings during the next 12 months.

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Fair Value Measurements: Presented below are the fair values of the Company’s financial instruments and derivatives ~~for~~as of the ~~periods~~dates presented:


	As of June 30, 2020								As of December 31, 2019								As of September 30, 2020								As of December 31, 2019
(in millions)	Total		Level 1 (a)		Level 2 (b)		Level 3 (c)		Total		Level 1 (a)		Level 2 (b)		Level 3 (c)		Total		Level 1 (a)		Level 2 (b)		Level 3 (c)		Total		Level 1 (a)		Level 2 (b)		Level 3 (c)
Available for sale securities	$	10	$	10	$	—	$	—	$	13	$	13	$	—	$	—	$	10	$	10	$	—	$	—	$	13	$	13	$	—	$	—
Derivative assets		12		2		10		—		24		7		17		—		32		15		17		—		24		7		17		—
Derivative liabilities		53		21		32		—		36		5		31		—		37		5		32		—		36		5		31		—
Long-term debt		2,215		—		2,215		—		1,751		—		1,751		—		2,106		—		2,106		—		1,751		—		1,751		—

(a)

Level 1 inputs consist of quoted prices (unadjusted) in active markets for identical assets or liabilities.

(b)

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.

(c)

Level 3 inputs are unobservable inputs for the 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 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. As of ~~June~~September 30, 2020, the carrying value and fair value of the Company’s Long-term debt was $2.1 ~~billion and $2.2 billion, respectively.~~billion.

7. Debt

As of ~~June~~September 30, 2020 and December 31, 2019, the Company’s total debt consisted of the following:


	As of		As of		As of		As of
(in millions)	June 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
2.900% senior notes due June 1, 2030	$	594	$	—	$	594	$	—
3.200% senior notes due October 1, 2026		497		497		497		497
3.900% senior notes due June 1, 2050		390		—		390		—
6.625% senior notes due April 15, 2037		253		253		253		253
4.625% senior notes due November 1, 2020		—		400		—		400
5.62% senior notes due March 25, 2020		—		200		—		200
Term loan credit agreement due April 12, 2021		405		405		380		405
Revolving credit facility		—		10		—		10
Other long-term borrowings		1		—		1		—
Fair value adjustment related to hedged fixed rate debt instruments		—		1		—		1
Long-term debt		2,140		1,766		2,115		1,766
4.625% senior notes due November 1, 2020		400		—
Other short-term borrowings		70		82
Short-term debt		470		82
Short-term borrowings						62		82
Total debt	$	2,610	$	1,848	$	2,177	$	1,848

During the three months ended March 31, 2020, the Company used proceeds from the revolving credit facility (“Revolving Credit Facility”) to refinance $200 million of its 5.62% senior notes due March 25, 2020.

During the three months ended June 30, 2020, the Company sold its (i) 2.900% senior notes due 2030 in the principal amount of $600 million (the “2030 Notes”) and (ii) 3.900% senior notes due 2050 in the principal amount of $400 million (the “2050 Notes” and, together with the “2030 Notes,” the “Notes”). The Company recorded the aggregate discount of approximately $7 million at which the Notes were issued and capitalized debt issuance costs of approximately $9 million associated with the Notes.

~~Table of Contents~~

During the three months ended June 30, 2020, the Company applied the net proceeds from the sale of the Notes to pay in full the outstanding balance of $394 million under the Revolving Credit Facility and to set aside funds to repay its 4.625% senior notes due November 1, 2020 (the ~~“2020~~“November 2020 Notes”). On June 8, 2020, the Company issued a notice for the redemption in full of all $400 million principal amount of the November 2020 Notes. The November 2020 Notes

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were redeemed on July 9, 2020 for a total redemption price of $409 million, including $4 million of accrued interest and a $5 million “make-whole” premium as set forth in the indenture.

The Company’s long-term debt as of ~~June~~September 30, 2020 includes the term loan credit agreement due April 12, 2021, as the Company has the ability and intent to refinance it on a long-term basis using ~~our~~the Revolving Credit Facility or other means prior to the maturity date.

8. Leases

The Company determines if an arrangement is a lease at inception of the agreement. Operating leases are included in operating lease assets, and current and non-current operating lease liabilities in the Company’s Condensed Consolidated Balance Sheets. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease asset value includes in its calculation any prepaid lease payments made and any lease incentives received from the arrangement as a reduction of the asset. The Company’s lease terms may include options to extend or terminate the lease, and the impact of these options is included in the lease liability and lease asset calculations when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option. The Company will not separate lease and non-lease components for its leases when it is impracticable to separate the two, such as for leases with variable payment arrangements. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company has operating leases for certain rail cars, office space, warehouses, and machinery and equipment. The commencement date used for the calculation of the lease obligations recorded is the latter of the commencement date of the new standard (January 1, 2019) or the lease start date. Certain of the leases have options to extend the life of the lease, which are included in the liability calculation when the option is at the sole discretion of the Company and it is reasonably certain that the Company will exercise the option. The Company has certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s balance sheet presentation and expensed as incurred. The Company currently has 0 finance leases.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows:


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
Lease Cost	June 30,				June 30,				September 30,				September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Operating lease cost	$	13	$	14	$	26	$	27	$	14	$	13	$	40	$	40
Variable operating lease cost		7		6		15		12		8		6		23		18
Short term lease cost		1		1		2		1		1		1		3		2
Lease cost	$	21	$	21	$	43	$	40	$	23	$	20	$	66	$	60

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The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities and the related operating lease assets as presented on the Condensed Consolidated Balance Sheet as of ~~June~~September 30, 2020.


Operating Leases		As of		As of
(in millions)		June 30, 2020		September 30, 2020
2020 (Excluding the six months ended June 30, 2020)	$	26
2020 (Excluding the nine months ended September 30, 2020)			$	14
2021		44		49
2022		35		40
2023		26		31
2024		18		21
Thereafter		34		37
Total future lease payments		183		192
Less imputed interest		27		23
Present value of future lease payments		156		169
Less current lease liabilities		41		46
Non-current operating lease liabilities	$	115	$	123
Operating lease assets	$	149	$	161

Additional information related to the Company’s operating leases is listed below.


	Three Months Ended				Six Months Ended						Three Months Ended				Nine Months Ended
Other Information	June 30,				June 30,						September 30,				September 30,
($ in millions)	2020		2019		2020			2019			2020		2019		2020			2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	13	$	14	$	26		$	29		$	14	$	12	$	40		$	41
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	13	$	6	$	21		$	167		$	24	$	11	$	45		$	178
					As of			As of							As of			As of
					June 30, 2020			December 31, 2019				��			September 30, 2020			December 31, 2019
Weighted average remaining lease term:
Operating leases						5.2 years			5.5 years							5.0 years			5.5 years
Weighted average discount rate:
Operating leases						5.5	%		5.7	%						5.1	%		5.7	%

9. Taxes

The Company’s effective tax rate for the three months ended ~~June~~September 30, 2020 ~~decreased~~increased to ~~28.7~~30.1 percent from ~~29.6~~27.1 percent during the three months ended ~~June~~September 30, 2019. The ~~decrease~~increase in the effective income tax rate was ~~primarily~~ driven by one-time items in the quarter over quarter results, a change in the mix of earnings including the consolidation of PureCircle and a valuation allowance on U.S. foreign tax credits. These items were partially offset by a reduction in the Company’s U.S. global intangible low-taxed income (“GILTI”), based on the newly issued final U.S. Treasury regulations relating thereto, an ~~adjustment for inflation~~increase in ~~Mexico~~the valuation of the Mexican peso against the U.S. dollar and utilization of ~~previously unbenefited~~ net operating losses for which a benefit had not been previously recognized compared to ~~an increase in~~a valuation allowance inrecorded for the ~~2019 period. The decrease was partially offset by an increase in Argentine hyperinflation adjustments.~~three months ended September 30, 2019.

The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~37.0~~34.4 percent compared to ~~28.2~~27.8 percent during the ~~six~~nine months ended ~~June~~September 30, 2019. The increase in the effective tax rate was driven by a ~~22 percent~~ decrease in the valuation of the Mexican peso against the U.S. dollar, during the six months ended June 30, 2020. Because the Company uses the U.S. dollar as the functional currency for its subsidiaries in Mexico, its effective tax rate is strongly influenced by the remeasurement of the Mexican peso financial statements into U.S. dollars. In addition, the decreaseone-time items in the quarter over quarter results, a change in the mix of earnings including the consolidation of PureCircle and a valuation allowance on U.S. foreign tax credits. These items were partially offset by a reduction in the Company’s GILTI based on the newly issued final U.S. Treasury regulations relating thereto and utilization of ~~the Mexican peso against the U.S. dollar produced taxable translation gains on net-U.S.-dollar-monetary assets held in Mexico~~net operating losses for which ~~there was no corresponding gain in pre-tax income. Consequently, the Company recorded~~ a ~~discrete tax expense of $22 million in the six months ended June 30, 2020, as~~benefit had not previously been recognized compared to a ~~$1 million discrete tax benefit in~~valuation allowance recorded for the ~~six~~three months ended ~~June~~September 30, 2019.

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10. Net Periodic Pension and Postretirement Benefit Costs

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


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
	U.S. Plans				Non-U.S. Plans				U.S. Plans				Non-U.S. Plans				U.S. Plans				Non-U.S. Plans				U.S. Plans				Non-U.S. Plans
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Service cost	$	1	$	1	$	1	$	1	$	2	$	2	$	2	$	2	$	2	$	2	$	1	$	—	$	4	$	4	$	3	$	2
Interest cost		3		3		3		2		6		7		6		5		2		4		2		3		8		11		8		8
Expected return on plan assets		(6)		(4)		(2)		(2)		(11)		(9)		(4)		(4)		(5)		(5)		(2)		(2)		(16)		(14)		(6)		(6)
Amortization of actuarial loss		—		—		1		1		—		—		1		1		—		—		1		—		—		—		2		1
Net periodic benefit cost (a)	$	(2)	$	—	$	3	$	2	$	(3)	$	—	$	5	$	4	$	(1)	$	1	$	2	$	1	$	(4)	$	1	$	7	$	5

The Company currently anticipates that it will make approximately $4 million in cash contributions to its pension plans in 2020, consisting of contributions of $3 million to its non-U.S. pension plans and $1 million to its U.S. pension plans. For the ~~six~~nine months ended ~~June~~September 30, 2020, cash contributions of approximately $1$2 million were made to the non-U.S. plans and ~~an insignificant amount~~$1 million to the U.S. plans.

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Service cost	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest cost		1		—		2		1		—		1		2		2
Amortization of prior service credit		—		—		(1)		(1)		—		—		(1)		(1)
Net periodic benefit cost (a)	$	1	$	—	$	1	$	—	$	—	$	1	$	1	$	1

(a)

The service cost component of net periodic benefit cost is presented within either cost of sales or operating expenses on the Condensed Consolidated Statements of Income. The interest cost, expected return on plan assets, amortization of prior service credit, and amortization of actuarial loss components of net periodic benefit cost are presented as other, non-operating income on the Condensed Consolidated Statements of Income.

11. Inventories

Inventories are summarized as follows:


	As of		As of		As of		As of
(in millions)	June 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Finished and in process	$	552	$	565	$	593	$	565
Raw materials		246		237		221		237
Manufacturing supplies and other		61		59		94		59
Total inventories	$	859	$	861	$	908	$	861

12. Equity

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

On November 5, 2018, the Company entered into a Variable Timing Accelerated Share Repurchase (“ASR”) program with JPMorgan (“JPM”). Under the ASR program, the Company paid $455 million on November 5, 2018, and acquired 4 million shares of its common stock having an approximate value of $423 million on that date. On February 5, 2019, the Company and JPM settled the difference between the initial price and average daily volume weighted average price (“VWAP”) less the agreed upon discount during the term of the ASR agreement. The final VWAP was $98.04 per ~~share, which was less than originally paid. The Company settled the difference in cash, resulting in JPM returning $63~~

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share, which was less than originally paid. The Company settled the difference in cash, resulting in JPM returning $63 million of the upfront payment to the Company on February 6, 2019, and lowering the total cost of repurchasing the 4 million shares of common stock to $392 million. The Company adjusted Additional paid-in capital and Treasury stock by $32 million and $31 million, respectively, during the ~~six~~nine months ended ~~June~~September 30, 2019 for this inflow of cash. In the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company did 0t repurchase shares of common stock.

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


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Stock options:
Pre-tax compensation expense	$	1	$	1	$	2	$	2	$	1	$	—	$	3	$	2
Income tax benefit		—		—		—		—		—		—		—		—
Stock option expense, net of income taxes		1		1		2		2		1		—		3		2

Restricted stock units ("RSUs"):
Pre-tax compensation expense		3		3		6		5		3		2		9		7
Income tax benefit		—		(1)		(1)		(1)		—		—		(1)		(1)
RSUs, net of income taxes		3		2		5		4		3		2		8		6

Performance shares and other share-based awards:
Pre-tax compensation expense		2		2		4		3		2		2		6		5
Income tax benefit		—		—		—		—		(1)		—		(1)		—
Performance shares and other share-based compensation expense, net of income taxes		2		2		4		3		1		2		5		5

Total share-based compensation:
Pre-tax compensation expense		6		6		12		10		6		4		18		14
Income tax benefit		—		(1)		(1)		(1)		(1)		—		(2)		(1)
Total share-based compensation expense, net of income taxes	$	6	$	5	$	11	$	9	$	5	$	4	$	16	$	13

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

The Company granted non-qualified options to purchase 336 thousand shares and 247 thousand shares for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively. The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following assumptions at the date of grant:


	Six Months Ended June 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Expected life (in years)	5.5		5.5		5.5		5.5
Risk-free interest rate	1.4	%	2.5	%	1.4	%	2.5	%
Expected volatility	19.8	%	19.7	%	19.8	%	19.7	%
Expected dividend yield	2.9	%	2.7	%	2.9	%	2.7	%

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

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Stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2020 was as follows:


	Number of Options (in thousands)	Weighted Average Exercise Price per Share		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)		Number of Options (in thousands)	Weighted Average Exercise Price per Share		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2019	2,055	$	84.36	5.30	$	34	2,055	$	84.36	5.30	$	34
Granted	336		88.35				336		88.35
Exercised	(91)		45.01				(93)		45.12
Cancelled	(7)		81.09				(19)		85.75
Outstanding as of June 30, 2020	2,293	$	86.53	5.64	$	15
Exercisable as of June 30, 2020	1,742	$	84.05	4.58	$	15
Outstanding as of September 30, 2020							2,279	$	86.55	5.37	$	12
Exercisable as of September 30, 2020							1,740	$	84.09	4.33	$	12

For the ~~six~~nine months ended ~~June~~September 30, 2020, cash received from the exercise of stock options was $5 million. As of ~~June~~September 30, 2020, the unrecognized compensation cost related to non-vested stock options totaled $4$3 million, which is expected to be amortized over the weighted-average period of approximately ~~1.7~~1.5 years.

Additional information pertaining to stock option activity is as follows:


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(dollars in millions, except per share)	2020		2019		2020		2019		2020		2019		2020		2019
Weighted average grant date fair value of stock options granted (per share)	$	—	$	—	$	11.48	$	14.02	$	—	$	—	$	11.48	$	14.02
Total intrinsic value of stock options exercised	$	—	$	2	$	4	$	6	$	—	$	1	$	4	$	7

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

The following table summarizes RSU activity for the ~~six~~nine months ended ~~June~~September 30, 2020:


(RSUs in thousands)	Number of Restricted Shares	Weighted Average Fair Value per Share		Number of Restricted Shares	Weighted Average Fair Value per Share
Non-vested as of December 31, 2019	339	$	108.02	339	$	108.02
Granted	171		88.29	178		88.10
Vested	(92)		117.25	(92)		117.18
Cancelled	(12)		104.34	(14)		102.71
Non-vested as of June 30, 2020	406	$	97.75
Non-vested as of September 30, 2020				411	$	97.52

As of ~~June~~September 30, 2020, the total remaining unrecognized compensation cost related to RSUs was ~~$21~~$18 million, which will be amortized over a weighted average period of approximately ~~2.0~~1.8 years.

Performance Shares: The Company has a long-term incentive plan for senior management in the form of performance shares. Historically these performance shares vested based solely on the Company’s total shareholder return as compared to the total shareholder return of its peer group over the three-year vesting period. Beginning with the 2019 performance share grants, the vesting of the performance shares ~~are~~is based on 2 performance metrics. NaN percent of the performance shares awarded will vest based on the Company’s total shareholder return as compared to the total shareholder return of its peer group, and the remaining 50 percent will vest based on the calculation of the Company’s three-year average Return on Invested Capital (“ROIC”) against an established ROIC target.

For the 2020 performance shares awarded based on the Company’s total shareholder return, the number of shares that ultimately vest can range from 0 to 200 percent of the awarded grant depending on the Company’s total shareholder ~~return as compared to the total shareholder return of its peer group. The share award vesting will be calculated at the end~~

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return as compared to the total shareholder return of its peer group. The share award vesting will be calculated at the end of the three-year period and is subject to approval by management and the Compensation Committee of the Board of Directors. Compensation expense is based on the fair value of the performance shares at the grant date, established using a Monte Carlo simulation model. The total compensation expense for these awards is amortized over a three-year graded vesting schedule.

For the 2020 performance shares awarded based on ROIC, the number of shares that ultimately vest can range from 0 to 200 percent of the awarded grant depending on the Company’s ROIC performance against the target. The share award vesting will be calculated at the end of the three-year period and is subject to approval by management and the Compensation Committee. Compensation expense is based on the market price of the Company’s common stock on the date of the grant and the final number of shares that ultimately vest. The Company will estimate the potential share vesting at least annually to adjust the compensation expense for these awards over the vesting period to reflect the Company’s estimated ROIC performance versus the target. The total compensation expense for these awards is amortized over a three-year graded vesting schedule.

For the ~~six~~nine months ended ~~June~~September 30, 2020, the Company awarded 81 thousand performance shares at a weighted average fair value of $94.48 per share.

As of ~~June~~September 30, 2020, the unrecognized compensation cost related to these awards was $8$6 million, which will be amortized over the remaining requisite service period of ~~2.2~~1.9 years.

The 2017 performance share awards vested during the ~~six~~nine months ended ~~June~~September 30, 2020, achieving a 0 percent payout of the granted performance shares. Additionally, there were 03 thousand performance share cancellations during the ~~six~~nine months ended ~~June~~September 30, 2020.

Accumulated Other Comprehensive Loss: The following is a summary of net changes in Accumulated other comprehensive loss by component and net of tax for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:

(in millions)

Cumulative Translation Adjustment

Deferred (Loss) Gain on Hedging Activities

Pension and Postretirement Adjustment

Accumulated Other Comprehensive Loss

Balance, December 31, 2019

$
(1,089)

$
(9)

$
(60)

$
(1,158)

Other comprehensive loss before reclassification adjustments

(118)

(66)

—

(184)

Amount reclassified from accumulated OCI

—

25

—

25

Tax benefit

—

10

—

10

Net other comprehensive loss

(118)

(31)

—

(149)

Balance, June 30, 2020

$
(1,207)

$
(40)

$
(60)

$
(1,307)


(in millions)	Cumulative Translation Adjustment		Hedging Activities		Pension and Postretirement Adjustment		Accumulated Other Comprehensive Loss
Balance, December 31, 2019	$	(1,089)	$	(9)	$	(60)	$	(1,158)
Other comprehensive (loss) before reclassification adjustments		(105)		(50)		—		(155)
Loss reclassified from accumulated OCI		—		56		—		56
Tax (provision)		—		(2)		—		(2)
Net other comprehensive (loss) income		(105)		4		—		(101)
Balance, September 30, 2020	$	(1,194)	$	(5)	$	(60)	$	(1,259)

(in millions)

Cumulative Translation Adjustment

Deferred (Loss) Gain on Hedging Activities

Pension and Postretirement Adjustment

Accumulated Other Comprehensive Loss

Balance, December 31, 2018

$
(1,080)

$
(5)

$
(69)

$
(1,154)

Other comprehensive income (loss) before reclassification adjustments

(3)

1

(1)

(3)

Amount reclassified from accumulated OCI

—

6

—

6

Tax provision

—

(1)

—

(1)

Net other comprehensive income (loss)

(3)

6

(1)

2

Balance, June 30, 2019

$
(1,083)

$
1

$
(70)

$
(1,152)


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

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

Total Equity

Share-based

Additional

Accumulated Other

Non-

Payments

Preferred

Common

Paid-In

Treasury

Comprehensive

Retained

Controlling

Subject to

(in millions)

Stock

Stock

Capital

Stock

Loss

Earnings

Interests

Redemption

Balance, December 31, 2019

$
—

$
1

$
1,137

$
(1,040)

$
(1,158)

$
3,780

$
21

$
31

Net income attributable to Ingredion

75

Net income attributable to non-controlling interests

3

Dividends declared, common stock ($0.63/share)

(42)

Share-based compensation, net of issuance

5

12

(8)

Other comprehensive loss

(164)

(3)

Balance, March 31, 2020

$
—

$
1

$
1,142

$
(1,028)

$
(1,322)

$
3,813

$
21

$
23

Net income attributable to Ingredion

66

Net income attributable to non-controlling interests

1

Dividends declared, common stock ($0.63/share)

(43)

Dividends declared, non-controlling interests

(3)

Share-based compensation, net of issuance

1

1

4

Other comprehensive income

15

1

Balance, June 30, 2020

$
—

$
1

$
1,143

$
(1,027)

$
(1,307)

$
3,836

$
20

$
27


																	Total Equity
																													Non-
	Total Equity														Share-based										Accumulated				Redeemable		Share-based		Redeemable
					Additional				Accumulated Other				Non-		Payments						Additional				Other				Non-		Payments		Non-
	Preferred		Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to		Preferred		Common		Paid-In		Treasury		Comprehensive		Retained		Controlling		Subject to		Controlling
(in millions)	Stock		Stock		Capital		Stock		Loss		Earnings		Interests		Redemption		Stock		Stock		Capital		Stock		Loss		Earnings		Interests		Redemption		Interests
Balance, December 31, 2018	$	—	$	1	$	1,096	$	(1,091)	$	(1,154)	$	3,536	$	20	$	37
Balance, December 31, 2019																	$	—	$	1	$	1,137	$	(1,040)	$	(1,158)	$	3,780	$	21	$	31	$	—
Net income attributable to Ingredion												100																75
Net income attributable to non-controlling interests														2																3
Dividends declared, common stock ($0.625/share)												(42)
Repurchases of common stock						32		31
Dividends declared, common stock ($0.63/share)																												(42)
Share-based compensation, net of issuance						9		10								(16)						5		12								(8)
Other comprehensive loss										(6)																(164)				(3)
Balance, March 31, 2019	$	—	$	1	$	1,137	$	(1,050)	$	(1,160)	$	3,594	$	22	$	21
Balance, March 31, 2020																	$	—	$	1	$	1,142	$	(1,028)	$	(1,322)	$	3,813	$	21	$	23	$	—
Net income attributable to Ingredion												105																66
Net income attributable to non-controlling interests														2																1
Dividends declared, common stock ($0.625/share)												(43)
Dividends declared, common stock ($0.63/share)																												(43)
Dividends declared, non-controlling interests														(4)																(3)
Share-based compensation, net of issuance						1		3								4						1		1								4
Other comprehensive income (loss)										8				(4)
Balance, June 30, 2019	$	—	$	1	$	1,138	$	(1,047)	$	(1,152)	$	3,656	$	16	$	25
Other comprehensive income																										15				1
Balance, June 30, 2020																	$	—	$	1	$	1,143	$	(1,027)	$	(1,307)	$	3,836	$	20	$	27	$	—
Net income attributable to Ingredion																												92
Net income attributable to non-controlling interests																														3				(2)
Dividends declared, common stock ($0.64/share)																												(44)
Dividends declared, non-controlling interests																														(2)
Acquisition of redeemable non-controlling interests																																		74
Share-based compensation, net of issuance																						2										5
Other comprehensive (loss) income																										48								2
Balance, September 30, 2020																	$	—	$	1	$	1,145	$	(1,027)	$	(1,259)	$	3,884	$	21	$	32	$	74

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

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


	Three Months Ended June 30, 2020					Three Months Ended June 30, 2019					Three Months Ended September 30, 2020					Three Months Ended September 30, 2019
(in millions, except per share amounts)	Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount		Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount		Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount		Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount
Basic EPS	$	66	67.2	$	0.98	$	105	66.9	$	1.57	$	92	67.2	$	1.37	$	99	66.9	$	1.48

Effect of Dilutive Securities:
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards			0.4					0.5					0.4					0.5
Diluted EPS	$	66	67.6	$	0.98	$	105	67.4	$	1.56	$	92	67.6	$	1.36	$	99	67.4	$	1.47

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

(in millions, except per share amounts)

Net Income Available to Ingredion

Weighted Average Shares

Per Share Amount

Net Income Available to Ingredion

Weighted Average Shares

Per Share Amount

Basic EPS

$
141

67.2

$
2.10

$
205

66.9

$
3.06

Effect of Dilutive Securities:

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

0.5

0.5

Diluted EPS

$
141

67.7

$
2.08

$
205

67.4

$
3.04

Table of Contents


	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
(in millions, except per share amounts)	Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount		Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount
Basic EPS	$	233	67.2	$	3.47	$	304	66.9	$	4.54

Effect of Dilutive Securities:
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards			0.4					0.5
Diluted EPS	$	233	67.6	$	3.45	$	304	67.4	$	4.51

For the three and ~~six~~nine months ended ~~June~~September 30, 2020 approximately ~~1.6~~1.7 million and ~~1.3~~1.4 million share-based awards of common stock, respectively, were excluded from the calculation of diluted EPS as the impact of their inclusion would have been anti-dilutive. For the three and ~~six~~nine months ended ~~June~~September 30, 2019 approximately ~~1.0~~1.4 million and ~~1.0~~1.1 million share-based awards of common stock, respectively, were excluded from the calculation of diluted EPS as the impact of their inclusion would have been anti-dilutive.

13. 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 4 reportable business segments: North America, South America, Asia-Pacific, and EMEA. Its North America segment includes businesses in the U.S., Mexico, and Canada. The Company’s South America segment includes businesses in Brazil, Colombia, Ecuador, and the Southern Cone of South America, which includes Argentina, Peru, Chile, and Uruguay. Its Asia-Pacific segment includes businesses in South Korea, Thailand, China, Australia, Japan, Indonesia, Singapore, the Philippines, India, Malaysia, New Zealand, and Vietnam. The Company’s EMEA segment includes businesses in Pakistan, Germany, the United Kingdom, South Africa, and Kenya. The Company ~~does not aggregate its~~has aggregated the PureCircle operating ~~segments when determining its~~segment into the Asia-Pacific reportable ~~segments.~~segment. Net sales by product are not presented because to do so would be impracticable.


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in millions)	2020		2019		2020		2019		2020		2019		2020		2019
Net sales to unaffiliated customers:
North America	$	848	$	977	$	1,811	$	1,928	$	928	$	984	$	2,739	$	2,912
South America		182		226		419		454		224		245		643		699
Asia-Pacific		187		203		376		406		207		205		583		611
EMEA		132		144		286		298		143		140		429		438
Total net sales	$	1,349	$	1,550	$	2,892	$	3,086	$	1,502	$	1,574	$	4,394	$	4,660


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2020		2019		2020		2019
Operating income:
North America	$	132	$	145	$	358	$	409
South America		29		27		68		61
Asia-Pacific		18		22		60		65
EMEA		25		24		73		71
Corporate		(25)		(25)		(86)		(69)
Subtotal		179		193		473		537
Restructuring/impairment charges		(16)		(28)		(41)		(41)
Acquisition/integration costs		(5)		—		(8)		(2)
Charge for fair value markup of acquired inventory		(3)		—		(3)		—
North America storm damage		(2)		—		(2)		—
Total operating income	$	153	$	165	$	419	$	494

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Three Months Ended

Six Months Ended

June 30,

June 30,

(in millions)

2020

2019

2020

2019

Operating income:

North America

$
101

$
139

$
226

$
264

South America

13

16

39

34

Asia-Pacific

22

23

42

43

EMEA

21

23

48

47

Corporate

(30)

(23)

(61)

(44)

Subtotal

127

178

294

344

Restructuring/impairment charges

(11)

(9)

(25)

(13)

Acquisition/integration costs

(3)

(1)

(3)

(2)

Total operating income

$
113

$
168

$
266

$
329


	As of		As of		As of		As of
(in millions)	June 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Assets:
North America (a)	$	4,611	$	3,924	$	4,072	$	3,924
South America		647		774		676		774
Asia-Pacific		838		843		1,193		843
EMEA		515		499		523		499
Total assets	$	6,611	$	6,040	$	6,464	$	6,040

(a)

For purposes of presentation, North America includes Corporate assets.

14. Subsequent Event

In 2018, the Company entered into an equity method investment with Verdient Foods, Inc. (“Verdient”) by acquiring 20% of its outstanding shares. Verdient is a Canada-based producer of pulse-based protein concentrates and flours from peas, lentils and fava beans for human food applications. On ~~July 1,~~November 3, 2020, the Company ~~completed its acquisition~~acquired the remaining 80% of ~~PureCircle Limited (“PureCircle”) through its wholly~~the outstanding shares of Verdient not owned ~~subsidiary Ingredion SRSS Holdings Limited (“Ingredion SRSS”), an unlisted United Kingdom private limited company.~~by the Company. To complete the closing, the Company made a total cash payment of ~~$222~~CAD $33 million, which it funded from cash on hand. ~~Upon~~

As a result of the ~~closing, PureCircle~~agreed upon price to acquire the remaining shares of Verdient, the Company recognized an other-than-temporary impairment of $10 million on its previously held 20% interest, which is ~~wholly owned by Ingredion SRSS, which~~included in ~~turn is 75%-owned by Ingredion~~Restructuring/impairment charges in the Condensed Consolidated Statements of Income for the three and ~~25%-owned by former PureCircle shareholders. PureCircle will be consolidated by Ingredion for financial reporting purposes.~~nine months ended September 30, 2020.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context indicates otherwise, references to “we,” “us,” “our,” the “Company” and “Ingredion” mean Ingredion Incorporated and its consolidated subsidiaries.

Overview

We are a major supplier of high-quality food and industrial ingredient solutions to customers around the world. As of ~~June~~September 30, 2020, we have 4346 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, brewing, and animal nutrition industries, among others.

Our ~~new~~ strategic growth roadmap is based on five growth platforms and is designed to deliver shareholder value by accelerating customer co-creation and enabling consumer-preferred innovation. Our first platform is starch-based texturizers, the second platform is clean and simple ingredients, the third platform is plant-based proteins, the fourth platform is sugar reduction and specialty sweeteners, and finally, our fifth platform is value-added food systems.

For the three and nine months ended September 30, 2020, operating income, net income and diluted earnings per share decreased from the comparable 2019 period. The decreases for the respective periods were attributable primarily to reductions in volumes driven by government mandated shutdowns associated with coronavirus 19 (“COVID-19”), particularly in the Americas, increased restructuring/impairment costs primarily associated with our Cost Smart program, and the results of the acquired operations of PureCircle.

COVID-19: Our operations in recent periods have been adversely affected by impacts of COVID-19. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. Our global operations expose us to risks associated with public health crises, including pandemics such as COVID-19. Foreign governmental organizations and governmental organizations at the national, state and local levels in the United States have taken various actions to combat the spread of COVID-19, including imposing stay-at-home orders and closing “non-essential” businesses and their operations. As a manufacturer of food ingredients, our operations are considered “essential” under most current COVID-19 government regulations, and our facilities are operating globally. ~~During the three months ended June 30, 2020, we experienced volume declines throughout the reporting segments of our business.~~ We did not experience any material supply chain interruptions during the ~~period~~three months ended September 30, 2020, and were able to continue to operate and ship products from our global network of plants. We place top priority on our employees’ health and safety and continue to follow the advice and the guidelines of public health authorities for physical distancing and to make available personal protective equipment and sanitization supplies.

As it is difficult to predict the progression of the pandemic, including government responses and the timing of recovery, there is a range of potential outcomes for our financial performance in future periods. We anticipateThe Company anticipates continued ~~adverse~~ impacts from COVID-19 on net sales volume across our ~~reportable~~operating segments ~~during~~in the ~~second half of 2020,~~fourth quarter, with recovery in net sales generally correlated with ~~the easing of governmental restrictions and~~ increased consumer ~~mobility.~~activity. With ~~prevailing~~ pandemic case rates rising and falling across many ~~countries,~~geographies, we expect away-from-home consumption to continue to ~~be suppressed, reducing volumes~~fluctuate, suppressing volume demand for ingredients that are formulated ~~for~~in food and beverages consumed away-from-home. We anticipate modestly higher demand for food consumed in home, ~~to remain elevated,~~ increasing volumes for ingredients that are part of the recipes for these meals.

~~For the three months ended June 30, 2020, operating income, net income~~Restructuring and diluted earnings per share decreased from the comparable 2019 period. The decreases for the current quarter were attributable primarily to reductions in volumes driven by government mandated shutdowns associated with COVID-19, particularly in the Americas and increased restructuring costs associated with our Cost Smart program.

Impairment Costs: For the three and ~~six~~nine months ended ~~June~~September 30, 2020, we recorded a total of ~~$11~~$16 million and ~~$25~~$41 million of pre-tax restructuring and impairment charges, ~~respectively, as part of our Cost Smart program.~~respectively. For the three and nine months ended ~~June~~September 30, 2020, we recorded $6$2 million and $17 million, respectively, of pre-tax restructuring charges for our Cost Smart cost of sales ~~program, including $3 million of asset write-offs and~~program. During the three months ended September 30, 2020, we recorded $1 million of other restructuring costs in relation to the closure of the Lane Cove, Australia production ~~facility. During the three months ended June 30, 2020, we also recorded $1 million of accelerated depreciation~~facility and $1 million of ~~employee-related severance, primarily~~other costs related to ~~our potato~~the closure of the Stockton, California production ~~facilities in North America. For~~facility. During the ~~six~~nine months ended ~~June~~September 30, 2020, we recorded ~~$15~~$10 million of ~~pre-tax~~ restructuring charges ~~for our Cost Smart cost of sales program, including $6 million of asset write-offs, $2 million of other costs, and $1 million of accelerated depreciation~~ in relation to the closure of the Lane Cove, Australia production ~~facility. We expect~~facility, $6 million related to ~~incur $2~~the closure of the Stockton, California production facility and $1 million of ~~additional~~other restructuring costs. The Lane Cove, Australia restructuring costs ~~during the~~consist of $6 million of asset write-offs, $3 million of other costs, and $1 million of accelerated depreciation. The Stockton, California restructuring costs consist of $4 million of accelerated

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~~remainder of 2020 related to the Lane Cove production facility closure. During the six months ended June 30, 2020, we also recorded $4 million of accelerated~~ depreciation, $1 million of employee-related severance, and $1 million of other costs. We expect to incur $1 million of additional restructuring costs ~~primarily~~during the remainder of 2020 related to ~~our potato~~the Lane Cove production ~~facilities in North America.~~facility closure.

Additionally, ~~the Company~~we recorded pre-tax restructuring charges of $5$4 million and ~~$10~~$14 million during the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively, for ~~its~~our Cost Smart selling, general and administrative expense (“SG&A”) program. During the three months ended ~~June~~September 30, 2020, we recorded $5$4 million of pre-tax restructuring charges, consisting primarily of other costs, including professional services, in North America. During the ~~six~~nine months ended ~~June~~September 30, 2020, we recorded pre-tax restructuring costs of ~~$10~~$14 million primarily in North America, consisting of $8$12 million of other costs, including professional services, and $2 million of employee-related severance.

We also recognized an other-than-temporary impairment of $10 million on our equity method investment in Verdient Foods Inc. during the three months ended September 30, 2020. The other-than-temporary impairment was triggered by the decrease in the fair value of our investment, determined by the agreed upon price for our acquisition of the remaining 80% interest in Verdient Foods Inc.

Storm Damage Costs: During the three and nine months ended September 30, 2020, we incurred storm damage to the Cedar Rapids, Iowa manufacturing facility. The facility was shut down for 10 days, and the storm related damage resulted in $2 million of charges during the three months ended September 30, 2020. We recorded the storm damage costs within Other expense (income), net on the Condensed Consolidated Statements of Income included in this report.

Liquidity and Capital Resources: Our cash provided by operating activities increased to ~~$294~~$562 million for the ~~six~~nine months ended ~~June~~September 30, 2020, from ~~$253~~$490 million in the prior year, driven by our changes in working capital, partially offset by lower net income. Our cash provided by financing activities was ~~$683~~$202 million during the ~~six~~nine months ended ~~June~~September 30, 2020, compared to cash used by financing activities of ~~$75~~$86 million in the prior year. This increase was mainly driven by higher net borrowings during the period, including ~~as a result of~~ our issuance and sale of $1.0 billion of senior notes. The impact of these factors was partially offset by payments on outstanding debt, including payment in full of $394 million of borrowings under our Revolving Credit Facility and early redemption of $400 million of our 4.625% senior notes ~~in the three months ended June 30,~~due November 1, 2020.

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 U.S. dollars at the applicable average exchange rates for the period. Fluctuations in foreign currency exchange rates affect the U.S. dollar amounts of our foreign subsidiaries’ revenues and expenses. The impact of foreign currency translation to the reporting currency, where significant, is provided below.

We acquired PureCircle Limited (“PureCircle”) on July 1, 2020 and acquired Western Polymer LLC (“Western Polymer”) on March 1, 2019. The results of the acquired ~~business is~~businesses are included in our consolidated financial results from the respective acquisition ~~date forward.~~dates and affect the comparability of our results of operations discussed below.

Table of Contents

For the Three Months Ended ~~June~~September 30, 2020

With Comparatives for the Three Months Ended ~~June~~September 30, 2019


	Three Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Three Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales	$	1,349	$	1,550	$	(201)	(13)	%	$	1,502	$	1,574	$	(72)	(5)	%
Cost of sales		1,078		1,221		143	12	%		1,176		1,230		54	4	%
Gross profit		271		329		(58)	(18)	%		326		344		(18)	(5)	%

Operating expenses		147		154		7	5	%		155		153		(2)	(1)	%
Other income, net		—		(2)		(2)	100	%
Other expense (income), net										2		(2)		(4)	200	%
Restructuring/impairment charges		11		9		(2)	(22)	%		16		28		12	43	%

Operating income		113		168		(55)	(33)	%		153		165		(12)	(7)	%

Financing costs, net		19		16		(3)	(19)	%		22		24		2	8	%
Other, non-operating expense/(income), net		—		—		—	—	%		(2)		1		3	300	%

Income before income taxes		94		152		(58)	(38)	%		133		140		(7)	(5)	%
Provision for income taxes		27		45		18	40	%		40		38		(2)	(5)	%
Net income		67		107		(40)	(37)	%		93		102		(9)	(9)	%
Less: Net income attributable to non-controlling interests		1		2		1	50	%		1		3		2	67	%
Net income attributable to Ingredion	$	66	$	105	$	(39)	(37)	%	$	92	$	99	$	(7)	(7)	%

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Net income attributable to Ingredion. Net income attributable to Ingredion for the three months ended ~~June~~September 30, 2020 decreased by 377 percent to ~~$66~~$92 million from ~~$105~~$99 million for the three months ended ~~June~~September 30, 2019. The decrease in net income was ~~primarily due to decreases~~ largely attributable to ~~volume declines~~lower sales volumes in North America, the ~~Americas, driven by COVID-19, which~~other-than temporary impairment of our equity method investment in Verdient Foods Inc., and the inclusion of PureCircle’s results. These were partly offset by ~~improved price/product mix. Results for the second quarter of 2020 include after-tax net~~reduced restructuring costs ~~of $8 million primarily associated with our Cost Smart program. Results for~~compared to the ~~second quarter of 2019 include after-tax costs of $7 million of net restructuring costs primarily associated with the Cost Smart program.~~prior comparable period.

Net sales. Net sales were down $72 million or 5% for the three months ended ~~June~~September 30, 2020 as compared to the three months ended ~~June~~September 30, ~~2019, primarily~~2019. The decrease was driven by foreign exchange impacts in South America and sales volumes declines in North ~~and South~~ America.

Cost of sales. Cost of sales for the three months ended ~~June~~September 30, 2020 ~~were $1.1 billion~~declined by $54 million or 4% compared to ~~$1.2 billion for~~ the three months ended ~~June~~September 30, ~~2019, representing a decrease of $143 million.~~2019. Our gross profit margin ~~decreased from 21~~remained flat at 22 percent for the three months ended ~~June~~September 30, ~~2019~~2020 as compared to ~~20 percent for~~ the three months ended ~~June~~September 30, 2020. The change in gross margin was driven by higher unabsorbed fixed costs during the period and COVID-19 related expenditures, including personal protective equipment and interim appreciation pay to employees in our manufacturing facilities.2019.

Operating expenses. Our operating expenses ~~decreased 5~~increased 1 percent to ~~$147~~$155 million for the three months ended ~~June~~September 30, 2020 as compared to ~~$154~~$153 million for the three months ended ~~June~~September 30, 2019. The ~~decrease~~increase was primarily driven by ~~savings~~transaction costs associated with our acquisition and integration of PureCircle, which were partly offset by reduced travel costs and Cost Smart program ~~and reduced travel costs.~~savings. Operating expenses, as a percentage of net sales, was ~~11 percent for the three months ended June 30, 2020 and~~ 10 percent for the three months ended ~~June~~September 30, 2020 and the three months ended September 30, 2019. ~~The increase in this ratio was driven by the reduction in Net sales for the period.~~

Financing costs, net. Financing costs for the three months ended ~~June~~September 30, 2020 ~~increased~~decreased to ~~$19~~$22 million from ~~$16~~$24 million for the three months ended ~~June~~September 30, 2019. The ~~increase~~decrease was driven ~~by foreign exchange losses compared to gains in the comparable prior year period. These losses were partly offset~~ by lower net interest costs on long-term debt.

Provision for income taxes. Our effective tax rate for the three months ended ~~June~~September 30, 2020 was ~~28.7~~30.1 percent compared to ~~29.6~~27.1 percent for the three months ended ~~June~~September 30, 2019. The ~~decrease~~increase in the effective income tax rate was ~~primarily~~ driven by one-time items in the quarter over quarter results, a change in the mix of earnings including the consolidation of PureCircle, and a valuation allowance on U.S. foreign tax credits. These items were partially offset by a reduction in ~~our~~the Company’s U.S. global intangible low-taxed income (“GILTI”), based on newly issued final U.S. Treasury regulations relating thereto, an ~~adjustment for inflation~~increase in ~~Mexico~~the valuation of the Mexican peso against the U.S. dollar and utilization of ~~previously unbenefited~~ net operating

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losses for which a benefit had not previously been recognized compared to ~~an increase in~~a valuation allowance recorded in the 2019 period. ~~The decrease in the effective tax rate was partially offset by an increase in Argentine hyperinflation adjustments.~~

Segment Results

North America


	Three Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Three Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales to unaffiliated customers	$	848	$	977	$	(129)	(13)	%	$	928	$	984	$	(56)	(6)	%
Operating income		101		139		(38)	(27)	%		132		145		(13)	(9)	%

Net sales. Our decrease in net sales of 136 percent for the three months ended ~~June~~September 30, 2020, as compared to the three months ended ~~June~~September 30, 2019, was driven by a 153 percent reduction in volume ~~which was partly offset by a 2 improvement~~and 3 percent reduction in ~~price/product~~price mix.

Operating income. Our operating income decreased by ~~$38~~$13 million for the three months ended ~~June~~September 30, 2020, as compared to the three months ended ~~June~~September 30, 2019. The decrease was driven by ~~significantly~~ lower volumes as COVID-19 continued to impact away-from-home consumption across the region, and by unfavorable mix in the U.S. and ~~Canada and the shutdown of brewery customers in Mexico.~~Canada.

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South America


	Three Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Three Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales to unaffiliated customers	$	182	$	226	$	(44)	(19)	%	$	224	$	245	$	(21)	(9)	%
Operating income		13		16		(3)	(19)	%		29		27		2	7	%

Net sales. Our net sales decreased 199 percent for the three months ended ~~June~~September 30, 2020, as compared to the three months ended ~~June~~September 30, 2019, primarily due to an 1816 percent unfavorable foreign exchange impact and a 113 percent reduction in volume, partly offset by favorable ~~price/product~~price mix of 10 percent.

Operating income. Our ~~decrease~~increase in operating income of $3$2 million for the three months ended ~~June~~September 30, 2020, as compared to the three months ended ~~June~~September 30, 2019, was ~~largely attributable to~~driven by strong price mix, which was partially offset by unfavorable foreign currency impacts and ~~stay-at-home orders negatively impacting~~lower sales ~~volume, partially offset by favorable price/ product mix.~~volumes.

Asia-Pacific


	Three Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Three Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales to unaffiliated customers	$	187	$	203	$	(16)	(8)	%	$	207	$	205	$	2	1	%
Operating income		22		23		(1)	(4)	%		18		22		(4)	(18)	%

Net sales. Our net sales ~~decreased 8 percent~~increased $2 million for the three months ended ~~June~~September 30, 2020, as compared to the three months ended ~~June~~September 30, 2019. The ~~decrease~~increase was primarily ~~driven~~due to the inclusion of PureCircle results in the 2020 period, the effect of which was partly offset by unfavorable ~~volume, foreign exchange impacts, and price/product mix of 4 percent, 3 percent, and 1 percent, respectively.~~price mix.

Operating income. Our operating income decreased by $1$4 million for the three months ended ~~June~~September 30, 2020, as compared to the three months ended ~~June~~September 30, 2019. The decrease was ~~largely attributable to~~driven by the ~~impact~~$5 million of ~~stay-at-home orders on sales volume, partially offset by improved tapioca margins and lower~~ operating ~~expenses.~~losses of PureCircle recorded in the 2020 period.

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EMEA


	Three Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Three Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales to unaffiliated customers	$	132	$	144	$	(12)	(8)	%	$	143	$	140	$	3	2	%
Operating income		21		23		(2)	(9)	%		25		24		1	4	%

Net sales. Our net sales ~~decreased~~increased by 82 percent for the three months ended ~~June~~September 30, 2020, as compared to the three months ended ~~June~~September 30, 2019, primarily driven by ~~unfavorable foreign exchange impacts of 6~~favorable price mix and a 1 percent ~~and decreased volumes of 5 percent, partially offset by a 3 percent favorable price/product mix.~~increase in volume.

Operating income. Our operating income ~~decreased $2~~increased $1 million for the three months ended ~~June~~September 30, 2020, as compared to the ~~June~~September 30, 2019. The ~~decrease~~increase was largely attributable to ~~stay-at-home orders impacting production and sales~~favorable price mix in Pakistan ~~partially offset by strong pricing actions~~ and ~~strong EMEA specialty sales volume.~~lower operating expenses in Europe.

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For the ~~Six~~Nine Months Ended ~~June~~September 30, 2020

With Comparatives for the ~~Six~~Nine Months Ended ~~June~~September 30, 2019


	Six Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Nine Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales	$	2,892	$	3,086	$	(194)	(6)	%	$	4,394	$	4,660	$	(266)	(6)	%
Cost of sales		2,298		2,441		143	6	%		3,474		3,671		197	5	%
Gross profit		594		645		(51)	(8)	%		920		989		(69)	(7)	%

Operating expenses		301		304		3	1	%		456		457		1	—	%
Other income, net		2		(1)		(3)	300	%
Other expense (income), net										4		(3)		(7)	(233)	%
Restructuring/impairment charges		25		13		(12)	(92)	%		41		41		—	—	%

Operating income		266		329		(63)	(19)	%		419		494		(75)	(15)	%

Financing costs, net		37		38		1	3	%		59		62		3	5	%
Other, non-operating expense/(income), net		(1)		—		1	—	%		(3)		1		4	400	%

Income before income taxes		230		291		(61)	(21)	%		363		431		(68)	(16)	%
Provision for income taxes		85		82		(3)	(4)	%		125		120		(5)	(4)	%
Net income		145		209		(64)	(31)	%		238		311		(73)	(23)	%
Less: Net income attributable to non-controlling interests		4		4		—	—	%		5		7		2	29	%
Net income attributable to Ingredion	$	141	$	205	$	(64)	(31)	%	$	233	$	304	$	(71)	(23)	%

Net income attributable to Ingredion. Net income attributable to Ingredion for the ~~six~~nine months ended ~~June~~September 30, 2020 decreased by 3123 percent to ~~$141~~$233 million from ~~$205~~$304 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The decrease in net income was primarily due to decreases in volumes associated with the effects of COVID-19, ~~as well as~~ unfavorable impacts of foreign ~~exchange. Results for~~exchange, the ~~six months ended June 30, 2020 include after-tax net~~other-than temporary impairment of our equity method investment in Verdient Foods Inc., and the inclusion of the results of PureCircle. These were partly offset by reduced restructuring costs of $19 million primarily associated with our Cost Smart program. Results for the six months ended June 30, 2019 include after-tax costs of $10 million of net restructuring costs primarily associated with our Cost Smart program and $1 million of acquisition/integration costs relatedcompared to the ~~acquisition and integration of the business acquired from Western Polymer.~~prior comparable period.

Net sales. Net sales decreased by 6 percent for the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the ~~six~~nine months ended ~~June~~September 30, 2019, primarily driven by sales volumes declines in North America and foreign exchange impacts in South America.

Cost of sales. Cost of sales for the ~~six~~nine months ended ~~June~~September 30, 2020 ~~decrease~~decreased by 65 percent as compared to the ~~six~~nine months ended ~~June~~September 30, 2019. Our gross profit margin remained flat at 21 percent for the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the ~~six~~nine months ended ~~June~~September 30, 2019. ~~The gross margin was impacted by higher unabsorbed fixed costs during the period and COVID-19 related expenditures.~~

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Operating expenses. Our operating expenses ~~decreased 1 percent to $301 million~~remained flat for the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to ~~$304 million for~~ the ~~six~~nine months ended ~~June~~September 30, 2019. ~~The decrease was primarily driven by saving from our Cost Smart program in the current period and reduced travel expense.~~ Operating expenses, as a percentage of net sales, were 10 percent for the ~~six~~nine months ended ~~June~~September 30, 2020 and the ~~six~~nine months ended ~~June~~September 30, 2019.

Financing costs, net. Financing costs for the ~~six~~nine months ended ~~June~~September 30, 2020 decreased to ~~$37~~$59 million from ~~$38~~$62 million for the ~~six~~nine months ended ~~June~~September 30, 2019 primarily due to lower interest costs associated with long-term debt, partially offset by foreign exchange impacts.

Provision for income taxes. Our effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~37.0~~34.4 percent compared to ~~28.2~~27.8 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. The increase in the effective tax rate was driven by ~~the 22 percent~~a decrease in the valuation of the Mexican peso against the U.S. dollar, ~~during~~one-time items in the ~~six months ended June 30, 2020. Because we use~~quarter over quarter results, a change in the mix of earnings including the consolidation of PureCircle, and a valuation allowance on U.S. ~~dollar as~~foreign tax credits. These items were partially offset by a reduction in the ~~functional currency for our subsidiaries in Mexico, our effective tax rate is strongly influenced by the remeasurement~~Company’s GILTI based on newly issued final U.S. Treasury regulations relating thereto and utilization of ~~the Mexican peso financial statements into U.S. dollars. In addition, the decrease in~~

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~~valuation of the Mexican peso against the U.S. dollar produced substantial taxable translation gains on net-U.S.-dollar-monetary assets held in Mexico~~net operating losses for which ~~there was no corresponding gain in pre-tax income. Consequently, we recorded~~ a ~~discrete tax expense of $22 million in the six months ended June 30, 2020, as~~benefit had not previously been recognized compared to a ~~$1 million discrete tax benefit~~valuation allowance recorded in the ~~six months ended June 30, 2019.~~ 2019 period.

Segment Results

North America


	Six Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Nine Months Ended September 30,				Favorable (Unfavorable)			Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance			Percentage
Net sales to unaffiliated customers	$	1,811	$	1,928	$	(117)	(6)	%	$	2,739	$	2,912	$	(173)	��	(6)	%
Operating income		226		264		(38)	(14)	%		358		409		(51)		(12)	%

Net sales. Our decrease in net sales of 6 percent for the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to the ~~six~~nine months ended ~~June~~September 30, 2019, was driven by decreased volumes of ~~8 percent partly offset by improved price/product mix.~~6 percent.

Operating income. Our operating income decreased by ~~$38~~$51 million to ~~$226~~$358 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~$264~~$409 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The decrease was driven by significantly lower away-from-home consumption inacross the ~~U.S. and Canada~~region and the shutdown of brewery customers in ~~Mexico.~~Mexico in the second quarter.

South America


	Six Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Nine Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales to unaffiliated customers	$	419	$	454	$	(35)	(8)	%	$	643	$	699	$	(56)	(8)	%
Operating income		39		34		5	15	%		68		61		7	11	%

Net sales. Our net sales decreased 8 percent for the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to the ~~six~~nine months ended ~~June~~September 30, 2019, primarily due to unfavorable foreign exchange impacts of 15 percent and a reduction in volume of 3 percent, partially offset by favorable ~~price/product~~price mix of 10 percent.

Operating income. Our increase in operating income of $5$7 million for the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to the ~~six~~nine months ended ~~June~~September 30, 2019, was due to ~~favorable price/product~~strong price mix, partially offset by unfavorable foreign exchange ~~impacts.~~impacts and lower sales volume.

Asia-Pacific


	Six Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Nine Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales to unaffiliated customers	$	376	$	406	$	(30)	(7)	%	$	583	$	611	$	(28)	(5)	%
Operating income		42		43		(1)	(2)	%		60		65		(5)	(8)	%

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Net sales. Our net sales decreased 75 percent for the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to the ~~six~~nine months ended ~~June~~September 30, ~~2019,~~2019. The decrease was primarily driven by unfavorable foreign exchange impacts and volume and ~~price/product~~price mix impacts of 32 percent ~~3 percent and~~each, the effects of which were partially offset by a 1 percent ~~respectively.~~increase due to the inclusion of PureCircle results in the 2020 period.

Operating income. Our operating income decreased by $1$5 million for the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to the ~~six~~nine months ended ~~June~~September 30, 2019. The decrease was ~~largely attributable to~~driven by the ~~impact~~$5 million of ~~stay-at-home orders on sales volume, partially offset by improved tapioca margins and lower~~ operating ~~expenses.~~of losses of PureCircle recorded in the 2020 period.

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EMEA


	Six Months Ended June 30,				Favorable (Unfavorable)		Favorable (Unfavorable)		Nine Months Ended September 30,				Favorable (Unfavorable)		Favorable (Unfavorable)
(in millions)	2020		2019		Variance		Percentage		2020		2019		Variance		Percentage
Net sales to unaffiliated customers	$	286	$	298	$	(12)	(4)	%	$	429	$	438	$	(9)	(2)	%
Operating income		48		47		1	2	%		73		71		2	3	%

Net sales. Our net sales decreased 42 percent for the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to the ~~six~~nine months ended ~~June~~September 30, 2019. The decrease was driven by unfavorable foreign exchange impacts of ~~6 percent and reduced volume of 1~~4 percent, partially offset by favorable ~~price/product~~price mix of 32 percent.

Operating income. Our operating income increased $1$2 million for the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to the ~~six~~nine months ended ~~June~~September 30, 2019. The increase was largely attributable to Pakistan pricing ~~action~~actions and ~~strong~~solid EMEA specialty sales volume, and lower operating expense in Europe, partially offset by the impacts of stay-at-home orders on Pakistan production and sales volume in the first half of the year, and by negative foreign currency impacts.

Liquidity and Capital Resources

Cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~$294~~$562 million, as compared to ~~$253~~$490 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The increase in operating cash flow was primarily driven by our changes in working capital, partially offset by lower net income. Capital expenditures and mechanical stores purchases were ~~$175~~$250 million for the ~~six~~nine months ended ~~June~~September 30, 2020.

As of ~~June~~September 30, 2020, our total debt consists of the following:


(in millions)
2.900% senior notes due June 1, 2030	$	594	$	594
3.200% senior notes due October 1, 2026		497		497
3.900% senior notes due June 1, 2050		390		390
6.625% senior notes due April 15, 2037		253		253
5.62% senior notes due March 25, 2020		—
Term loan credit agreement due April 12, 2021		405		380
Revolving credit facility		—		—
Other long-term borrowings		1		1
Fair value adjustment related to hedged fixed rate debt instruments		—		—
Long-term debt		2,140		2,115
4.625% senior notes due November 1, 2020		400
Other short-term borrowings		70
Short-term debt		470
Short-term borrowings				62
Total debt	$	2,610	$	2,177

During the three months ended March 31, 2020, we used proceeds from the revolving credit facility (“Revolving Credit Facility”) to refinance $200 million of our 5.62% senior notes due March 25, 2020.

During the three months ended June 30, 2020, we sold our (i) 2.900% senior notes due 2030 in the principal amount of $600 million (the “2030 Notes”) and (ii) 3.900% senior notes due 2050 in the principal amount of $400 million (the “2050 Notes” and, together with the “2030 Notes,” the “Notes”). We recorded the aggregate discount of approximately $7 million at which the Notes were issued and capitalized debt issuance costs of approximately $9 million associated with the Notes.

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During the three months ended June 30, 2020, we applied the net proceeds from the sale of the Notes to pay in full the outstanding balance of $394 million under the Revolving Credit Facility and to set aside funds to repay our 4.625% senior notes due November 1, 2020 (the “2020 Notes”). On June 8, 2020, we issued a notice for the redemption in full of ~~all~~the $400 million principal amount of the 2020 Notes. The 2020 Notes were redeemed on July 9, 2020 for a total redemption price of $409 million, including $4 million of accrued interest and a $5 million “make-whole” premium as set forth in the indenture. These costs are recorded in Financing Costs, net in the Condensed Consolidated Statements of Income included in this report.

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The Company’s long-term debt as of ~~June~~September 30, 2020, includes the term loan credit agreement due April 12, 2021, as the Company has the ability and intent to refinance it on a long-term basis using our Revolving Credit Facility or other means prior to the maturity ~~date~~date.

As of ~~June~~September 30, 2020, in addition to the approximately $1.0 billion of borrowings availability under the Revolving Credit Facility, we have approximately ~~$660~~$723 million of unused operating lines of credit in the various foreign countries in which we operate. We are required under our credit facilities not to exceed a maximum leverage ratio and to maintain a minimum interest coverage ratio. As of ~~June~~September 30, 2020, we were in compliance with both of these financial covenants.

The weighted average interest rate on our total indebtedness was approximately 3.4 percent for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to ~~4.5~~4.4 percent for the ~~six~~nine months ended ~~June~~September 30, 2019.

On ~~May 20,~~September 16, 2020, our Board of Directors declared a quarterly cash dividend of ~~$0.63~~$0.64 per share of common stock. This dividend was paid on ~~July 27,~~October 26, 2020, to stockholders of record at the close of business on ~~July~~October 1, 2020.

We have not provided foreign withholding taxes, state income taxes, and federal and state taxes or foreign currency gains/losses 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 U.S. to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements. Approximately ~~$311~~$349 million of the total ~~$1,047~~$553 million of cash and cash equivalents and short-term investments at ~~June~~September 30, 2020 was held by our operations outside of the U.S.

We expect that available cash balances and borrowings expected to be available under the Revolving Credit Facility, together with cash generated from operations and our access to debt markets, will be sufficient to meet our operating and other cash needs for at least the next twelve months.

Hedging and Financial Risk

Hedging: We are 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, we actively manage our exposure to these market risks by entering into various hedging transactions, authorized under established policies that place 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-related futures, options and swap contracts, forward currency-related contracts and options, interest rate swap agreements, and Treasury lock agreements (“T-Locks”). See Note 6 of the Notes to the Condensed Consolidated Financial Statements included in this report 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 12 to 24 months, in order to hedge price risk associated with fluctuations in market prices. Unrealized gains and losses associated with marking our commodities-based cash flow hedge derivative instruments to market are recorded as a component of other comprehensive income (“OCI”). As of ~~June~~September 30, 2020, our Accumulated other comprehensive loss account (“AOCI”) included ~~$36~~$2 million of net ~~losses~~gains (net of ~~income tax benefit~~an insignificant amount of ~~$13 million)~~taxes) related to these derivative instruments. It is anticipated that ~~$36~~$1 million of net losses (net of ~~income tax benefit~~an insignificant amount of ~~$13 million)~~taxes) will be reclassified into earnings during the next 12 months. We expect the net losses to be offset by lower underlying commodities costs.

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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 U.S. dollars and to transactional foreign-exchange risk when transactions not denominated in the functional currency of the operating unit are revalued into U.S. dollars. We primarily use derivative financial instruments such as foreign-currency forward contracts, swaps and options to manage our foreign currency transactional exchange risk. We enter into foreign-currency derivative instruments that are designated as both cash flow hedging instruments as well as instruments not designated as hedging instruments as defined by Accounting Standards Codification 815, Derivatives and Hedging. As of ~~June~~September 30, 2020, we had foreign currency derivatives not designated as hedging instruments hedging certain asset and liability positions with aggregate notional amounts of ~~$590~~$648 million and ~~$478~~$457 million, respectively.

As of ~~June~~September 30, 2020, we had foreign currency derivatives designated as cash flow hedging instruments hedging certain asset and liability positions with aggregate notional amounts of ~~$325~~$495 million and ~~$460~~$619 million, respectively. The amount included in AOCI relating to these hedges at ~~June~~September 30, 2020, was ~~an insignificant amount~~$3 million of net losses (net of ~~an insignificant amount~~income tax benefit of ~~taxes)~~$1 million). It is anticipated that ~~an insignificant amount~~$2 million of net losses (net of ~~an insignificant amount~~income tax benefit of ~~taxes)~~$1 million) will be reclassified into earnings during the next 12 months.

Interest Rate Risk: We occasionally use interest rate swaps and 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 outstanding T-Locks as of ~~June~~September 30, 2020.

As of ~~June~~September 30, 2020, AOCI included $4 million of net losses (net of an income tax benefit of $1 million) related to previously settled T-Locks. Once T-Locks are settled, deferred losses are amortized to financing costs over the terms of the senior notes with which they are associated. It is anticipated that an insignificant amount of these net losses (net of an insignificant amount of taxes) will be reclassified into earnings during the next 12 months.

As of ~~June~~September 30, 2020, we did not have any interest rate swap agreements. As of December 31, 2019, we had an interest rate swap that effectively converted the interest rates on $200 million of our $400 million of 4.625% senior notes due November 1, 2020, to variable ~~rates.~~rates, which was paid in July 2020. This swap agreement called for us to receive interest at the fixed coupon rate of the notes and to pay interest at a variable rate based on the six-month U.S. dollar LIBOR plus a spread. As of December 31, 2019, we designated this interest rate swap agreement as a hedge of the changes in fair value of the underlying debt obligation attributable to changes in interest rates and accounted for it as a fair value hedge. The fair value of the interest rate swap agreement as of December 31, 2019 was a $4$1 million ~~gain,~~loss, and is reflected in the Condensed Consolidated Balance Sheets included in this report within Other assets, with an offsetting amount recorded in Long-term debt to adjust the carrying amount of the hedged debt obligations.

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 Annual Report on Form 10-K for the year ended December 31, 2019. See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for additional information regarding our significant accounting policies. There have been no other changes to our critical accounting policies and estimates during the ~~three and six~~nine months ended ~~June~~September 30, 2020.

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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 future financial condition, earnings, revenues, tax rates, capital expenditures, cash flows, 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,” “propels,” “opportunities,” “potential,” “provisional,” or other similar expressions or the negative thereof. All statements other than statements of historical facts in this report or referred to in 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, investors 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 as a result of the following risks and uncertainties, among others: changing consumption preferences and perceptions, including those relating to high fructose corn syrup; the effects of global economic conditions and the general political, economic, business, market conditions that affect customers and consumers in the various geographic regions and countries in which we buy our raw materials or manufacture or sell our products, including, particularly, economic, currency and political conditions in South America and economic and political conditions in Europe, and the impact these factors may have on our sales volumes, the pricing of our products, our access to credit markets and our ability to collect our receivables from customers; adverse changes in investment returns earned on our pension assets; future financial performance of major industries which we serve and from which we derive a significant portion of our sales, including the food, beverage, animal nutrition, and brewing industries; the uncertainty of acceptance of products developed through genetic modification and biotechnology; our ability to develop or acquire new products and services at rates or of qualities sufficient to meet expectations; changes in U.S. and foreign government policy, laws or regulations and costs of legal compliance; increased competitive and/or customer pressure in the corn-refining industry and related industries, including with respect to the markets and prices for our primary products and our co-products, particularly corn oil; the availability of raw materials, including potato starch, tapioca, gum Arabic and the specific varieties of corn upon which some of our products are based, and our ability to pass on potential increases in the cost of corn or other raw materials to customers; raw material and energy costs and availability; our ability to contain costs, achieve budgets and realize expected synergies, including with respect to our ability to complete planned maintenance and investment projects on time and on budget, and to achieve expected savings under our Cost Smart program as well as with respect to freight and shipping costs; the impact of financial and capital markets on our borrowing costs, including as a result of foreign currency fluctuations, fluctuations in interest and exchange rates and market volatility and the associated risks of hedging against such fluctuations; the potential effects of climate change; our ability to successfully identify and complete acquisitions or strategic alliances on favorable terms as well as our ability to successfully integrate acquired businesses or implement and maintain strategic alliances and achieve anticipated synergies with respect to all of the foregoing; operating difficulties at our manufacturing plants or with respect to boiler reliability; risks related to product safety and quality and compliance with environmental, health and safety, and food safety laws and regulations; economic, political and other risks inherent in operating in foreign countries with foreign currencies and shipping products between countries, including with respect to tariffs, quotas and duties; interruptions, security breaches or failures that might affect our information technology systems, processes and sites; our ability to maintain satisfactory labor relations; the impact that weather, natural disasters, war or similar acts of hostility, acts and threats of terrorism, the outbreak or continuation of pandemics such as COVID 19 and other significant events could have on our business; the potential recognition of impairment charges on goodwill or long lived assets; changes in our tax rates or exposure to additional income tax liabilities; and our ability to raise funds at reasonable rates to grow and expand our operations.

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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” and other information included in our Annual Report on Form 10-K for the year ended December 31, 2019, in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and in our 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 49 to 50 in our Annual Report on Form 10-K for the year ended December 31, 2019, 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, 2019 to ~~June~~September 30, 2020. For additional information, also see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Hedging and Financial Risk” in this report.

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 ~~June~~September 30, 2020. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of ~~June~~September 30, 2020, our disclosure controls and procedures (a) are effective in providing reasonable assurance that all information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, has been recorded, processed, summarized and reported within the time periods specified in the 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.

There have been no changes in our internal control over financial reporting during the three months ended ~~June~~September 30, 2020 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

WeIn 2015 and 2016, the Company self-reported certain monitoring and recordkeeping issues relating to environmental regulatory matters involving its Indianapolis, Indiana manufacturing facility. In September 2017, following inspections and the provision by the Company of requested information to the U.S. Environmental Protection Agency (the "EPA"), the EPA issued the Company a Notice of Violation, which included additional alleged violations beyond those self-reported by the Company. These additional alleged violations primarily relate to the results of stack testing at the facility. No individual allegation in the Notice of Violation, whether from the self-reported information, the inspections or the additional requested information, is material to us but, collectively, the exposure to the Company could be more than $100,000 in potential monetary sanctions. At this point in time, the Company is unable to provide a more specific estimate. The Company believes that the additional alleged violations are without merit and intends to vigorously defend its position. The EPA has referred the overall matter to the U.S. Department of Justice, Environment and Natural Resources Division (the "DOJ"). The DOJ and the Company began discussions with respect to this matter in September 2020. Negotiations between the Company and the DOJ with respect to the Notice of Violation are continuing and no litigation has been initiated with respect to the Notice of Violation.

In addition, we are currently subject to claims and suits arising in the ordinary course of business, including labor matters, certain environmental proceedings, and other commercial claims. We also routinely receive inquiries from regulators and other government authorities relating to various aspects of our business, including with respect to compliance with laws and regulations relating to the environment, and at any given time, we have matters at various stages of resolution with the applicable governmental authorities. The outcomes of these matters are not within our complete control and may not be known for prolonged periods of time. We do not believe that the results of currently known legal proceedings and inquires will be material to 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 business, financial condition, or ~~future~~ results of operations.

ITEM 1A

RISK FACTORS

During the ~~six~~nine months ended ~~June~~September 30, 2020, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the risk factor disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020. The risks discussed in those reports are not the only risks that could materially affect our business, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition, or ~~future~~ results of 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
~~April~~July 1 – ~~April 30, 2020~~	—	—	—	~~5,855 shares~~
~~May 1 – May~~July 31, 2020	—	—	—	5,855 shares
~~June~~August 1 – ~~June~~August 31, 2020	—	—	—	5,855 shares
September 1 – September 30, 2020	—	—	—	5,855 shares
Total	—	—	—

Table of Contents

On December 12, 2014, the Board of Directors authorized a stock repurchase program permitting us to purchase up to 5.0 million shares of our outstanding common stock from January 1, 2015, through December 31, 2019. On October 22, 2018, the Board of Directors authorized a new stock repurchase program permitting us to purchase up to an additional 8.0 million shares of our outstanding common stock from November 5, 2018, through December 31, 2023. As of ~~June~~September 30, 2020, we have 5.9 million shares available for repurchase under the stock repurchase programs.

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ITEM 6

EXHIBITS

a) Exhibits

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

EXHIBIT INDEX


Number		Description of Exhibit
~~4.1†~~		Tenth Supplemental Indenture, dated as of May 13, 2020, between Ingredion Incorporated (the “Company”) and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to The Bank of New York), as trustee, including the form of 2.900% Senior Note due 2030 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on May 13, 2020) (Commission File No. 1-13397).

~~4.2~~†10.1*		~~Eleventh Supplemental Indenture,~~Letter of Agreement, dated as of ~~May 13,~~June 30, 2020, between the Company and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to The Bank of New York), as trustee, including the form of 3.900% Senior Note due 2050 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 13, 2020) (Commission File No. 1-13397).Jorgen Kokke.

31.1†		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2†		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1††		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2††		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

101.INS†		XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH†		Inline XBRL Taxonomy Extension Schema Document.
101.CAL†		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF†		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB†		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE†		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104†		Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document, which is contained in Exhibit 101).

HIDDEN_ROW
†		Filed with this report.
††		Furnished with this report.
*		Management contract or compensatory plan or arrangement to be filed as an exhibit to this form pursuant to Item 6 of this report.

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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:	~~August 5,~~November 6, 2020	By	/s/ James D. Gray
		James D. Gray
		Executive Vice President and Chief Financial Officer


DATE:	~~August 5,~~November 6, 2020	By	/s/ Stephen K. Latreille
		Stephen K. Latreille
		Vice President and Corporate Controller

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		Page
Part I

Item 1	Financial Statements	3
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive ~~(Loss)~~ Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Equity and Redeemable Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2	Management’s discussion and analysis of financial condition and results of operations	2528
Item 3	Quantitative and qualitative disclosures about market risk	3538
Item 4	Controls and procedures	3538

Part II

Item 1	Legal proceedings	3639
Item 1A	Risk factors	3639
Item 2	Unregistered sales of equity securities and use of proceeds	3639
Item 6	Exhibits	3741
Signatures		3842


(in millions)	Cumulative Translation Adjustment		Deferred (Loss) Gain on Hedging Activities		Pension and Postretirement Adjustment		Accumulated Other Comprehensive Loss
Balance, December 31, 2019	$	(1,089)	$	(9)	$	(60)	$	(1,158)
Other comprehensive loss before reclassification adjustments		(118)		(66)		—		(184)
Amount reclassified from accumulated OCI		—		25		—		25
Tax benefit		—		10		—		10
Net other comprehensive loss		(118)		(31)		—		(149)
Balance, June 30, 2020	$	(1,207)	$	(40)	$	(60)	$	(1,307)


	Six Months Ended June 30, 2020					Six Months Ended June 30, 2019
(in millions, except per share amounts)	Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount		Net Income Available to Ingredion		Weighted Average Shares	Per Share Amount
Basic EPS	$	141	67.2	$	2.10	$	205	66.9	$	3.06

Effect of Dilutive Securities:
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards			0.5					0.5
Diluted EPS	$	141	67.7	$	2.08	$	205	67.4	$	3.04