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| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2023
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Common Stock, par value $0.01 per share | INGR |
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Securities registered pursuant to Section 12(g) of the Act: None
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Emerging growth company | o |
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The aggregate market value of the registrant's voting stock held by non-affiliatesnon-affiliates of the registrant on the last day of the most recently completed second fiscal quarter (based upon the per share closing price of $83.00$105.95 as reported on the New York Stock Exchange on June 30, 2020,2023, and, for the purpose of this calculation only, the assumption that all of the registrant's directors and executive officers are affiliates) was approximately $5,551,000,000.
$6,990,000,000.
The number of shares outstanding of the registrant's common stock, par value $0.01 per share,share, as of February 19, 2021,15, 2024 was 67,110,523.
65,563,650.
2023.
PART I.
ITEM 1. BUSINESS
Our Company
Ingredion Incorporated (“Ingredion”) is a leading global ingredients solutions provider. We turn corn, tapioca, potatoes, plant-based stevia,provider that transforms grains, fruits, vegetables and vegetablesother plant-based materials into value-added ingredients and biomaterialsingredient solutions for the food, beverage, animal nutrition, brewing and industrial markets. Our innovative ingredient solutions help customers stay on trend with simple ingredients and other industries. Ingredion’s common stockin-demand ingredients.
potential of people, nature and technology together to make life better. We are principally engaged in the productiondevelop, produce and salesell a variety of food and beverage ingredients, primarily starches and sweeteners, for a wide range of industries, and are managedindustries. Currently, we manage our operations geographically on a regional basis. Our operations arebasis, with our businesses and investments classified into fourthe following reportable business segments:
Poland
We supply
tapioca, potato and rice. Our product lines include starches and sweeteners, animal feed products and edible corn oil. Our starch-based products include both food-grade and industrial starches, andas well as biomaterials. Our sweetener products include glucose syrups, high maltose syrups, high fructose corn syrup, caramel color, dextrose, polyols, maltodextrins, and glucose and syrup solids. Our products are derived primarily from the processing
We continue to expand our product portfolio through capital investments and acquisitions. We are making investments through our plant-based protein product lines, including pulse-based concentrates, flours and isolates. Capital investment commitments for 2021 are anticipated to be between $330 million and $350 million.
On July 1, 2020,December 31, 2023, we completed our acquisition of 75% ownership of PureCircle Limited (“PureCircle”), the remaining 25% of which is owned by former PureCircle shareholders. PureCircle is one of the leading producers and innovators of plant-based stevia sweeteners and flavors for the food and beverage industry. The acquisition brought global innovation and manufacturing expertise, which we are leveraging withutilized our global go-to-market model, formulation capabilitiesnetwork of 47 manufacturing facilities and broad ingredient portfolio. PureCircle is consolidated by Ingredion for financial reporting purposes.
On November 3, 2020, we acquired the remaining 80% of the outstanding shares of Verdient Foods, Inc (“Verdient”). We had previously acquired a 20% equity method investment in Verdient in 2018. Verdient is a Canada-based producer of pulse-based protein concentrates and flours from peas, lentils, and fava beans for human food applications.
joint venture partnerships to support key global product lines. Our manufacturing process is based on a capital-intensive, two-step process that involves the wet-milling and processing of starch-based materials, primarily corn. During the front-end process, the starch-based materials are steeped in a water-based solution and separated into starch and co-products such as animal feedprotein, fiber and germ used to produce corn oil. The starch is then either dried for sale or further processed to make starches, sweeteners and other ingredients that serve the particular needs of various industries.
3
We believe our approach to production and service, which focuses on local management and production improvements of our worldwide operations, provides us with a unique understanding of the cultures and product requirements in each of the geographic markets in which we operate, bringing added value to our customers through innovative solutions. At the same time, we believe that our corporate functions allow us to identify synergies and maximize the benefits of our global presence.
Geographic Scope and Operations
Our North America segment consists of operations in the U.S., Mexico, and Canada. The region’s facilities includeregion includes 22 manufacturing facilities producingthat produce a wide range of starches, sweeteners, gum acacia, peas,pea protein, and fruit and vegetable concentrates. We have focused our recent investment on expanding plant-based protein product lines, including pulse-based concentrates, flours and isolates.
sorbitol. We also own 49 percent of Ingrear Holding S.A., which operates five manufacturing facilities in Argentina to produce value-added ingredients for sale to customers in the food, beverage, pharmaceutical and other industries in Argentina, Chile and Uruguay (the “Argentina joint venture”). Ingredion and Grupo Arcor, an Argentine food company, jointly appoint a team of executives to manage the Argentina joint venture.
pharmaceutical-grade polyols.
Additionally, Through our German-headquartered subsidiary KaTech, we offer advanced texture and stabilization solutions to the food and beverage industry.
We utilize
presence.
ingredients.
Starch Products: products: Our starch products represented approximately 47 percent, 46 percent and 45 percent of our net sales for each of 2020, 20192023, 2022 and 2018.2021, respectively. Starches are an important component in a wide range of processed foods, where they are used for adhesion, clouding, dusting, expansion, fat replacement, freshness, gelling, glazing, mouthfeel, stabilization and texture. Cornstarch is sold to cornstarch packers for sale to consumers. Starches are also used in paper production to create a smooth surface for printed communications and to improve strength in recycled papers. Specialty paper starches are used for enhanced drainage, fiber retention, oil and grease resistance, improved printability and biochemical oxygen demand control. The textile industry uses starches and specialty starches for sizing (abrasion resistance) to provide size and finishes for manufactured products. Industrial starches are used in the production of construction materials, textiles, adhesives, pharmaceuticals and cosmetics, as well as in mining and water filtration, and oil and gas drilling.filtration. Specialty industrial starches are used for biomaterial applications, including biodegradable plastics, fabric softeners and detergents, hair and skin care applications, dusting powders for surgical gloves, and in the production of glass fiber and insulation.
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Sweetener Products: products: Our sweetener products represented approximately 3534 percent, 3633 percent and 3633 percent of our net sales for 2020, 20192023, 2022 and 2018,2021, respectively. Sweeteners include products such as glucose syrups, high maltose syrup, high fructose corn syrup, dextrose, polyols, maltodextrin, glucose syrup solids and non-GMO (genetically modified organism) syrups. Our sweeteners are used in a wide variety of food and beverage products, such as baked goods, snack foods, canned fruits, condiments, candy and other sweets, dairy products, ice cream, jams and jellies, prepared mixes, table syrups, soft drinks, fruit-flavored drinks, beer, and many others.beverages. These sweetener products also offer functionality in addition to sweetness, such as texture, body and viscosity; help control freezing points, crystallization and browning; add humectancy (ability to add moisture) and flavor; and act as binders. Our high maltose syrups speed the fermentation process, allowing brewers to increase capacity without adding capital. Dextrose has a wide range of applications in the food and confection industries, in solutions for intravenous (“IV”) and other pharmaceutical applications, and in numerous industrial applications like wallboard, biodegradable surface
Co-products and others: Co-products and others accounted forrepresented approximately 19 percent, 1821 percent and 1822 percent of our net sales for 2020, 20192023, 2022 and 2018,2021, respectively. RefinedWe sell refined corn oil (from germ) is sold to packers of cooking oil and to producers of margarine, salad dressings, shortening, mayonnaise and other foods. CornWe also sell corn gluten feed is sold as animal feed. Cornfeed and corn gluten meal is sold as high-protein feed for chickens, pet food and aquaculture. Our other products include fruit and vegetable products, such as concentrates, purees and essences, as well as pulse proteins and hydrocolloids systems and blends.
Specialty Ingredientsingredients within the product portfolio: WeWithin our three product portfolios, we consider certain of our products to be specialty ingredients. Specialty ingredients accounted forrepresented approximately 3234 percent, 34 percent and 33 percent of our net sales for 2020, up from 30 percent2023, 2022 and 29 percent in 2019 and 2018,2021, respectively. These ingredients deliver more functionality than our other products and add additional customer value. Our specialty ingredients are aligned with growing market and consumer trends such as health and wellness, clean-label, simple ingredients, affordability, indulgence and sustainability.
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Plant-based Proteins: These specialty pulse-based protein ingredients bring solutions made from lentils, chickpeas, fava beans and peas. They add protein, dietary fiber, micronutrients and texture to food and beverages.
: We refer to the remainder of our starch products, sweetener products and co-products that do not fall into specialty ingredients, as defined above, as core ingredients. Core ingredients represented approximately 66 percent, 66 percent and 67 percent of our net sales for 2023, 2022 and 2021, respectively.
Several
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Food | | 54 | % | 50 | % | 46 | % | 64 | % | 71 | % |
Beverage | | 10 | | 13 | | 7 | | 5 | | 1 | |
Brewing | | 7 | | 8 | | 16 | | 3 | | — | |
Food and Beverage Ingredients | | 71 | | 71 | | 69 | | 72 | | 72 | |
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Animal Nutrition | | 10 | | 10 | | 16 | | 5 | | 7 | |
Other | | 19 | | 19 | | 15 | | 23 | | 21 | |
Total Net sales | | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
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Food | 54 | % | 50 | % | 52 | % | 66 | % | 71 | % | ||||||||||||||||||||||
Beverage | 9 | 12 | 1 | 6 | 1 | |||||||||||||||||||||||||||
Brewing | 7 | 7 | 16 | 3 | — | |||||||||||||||||||||||||||
Food and Beverage Ingredients | 70 | 69 | 69 | 75 | 72 | |||||||||||||||||||||||||||
Animal Nutrition | 10 | 11 | 13 | 4 | 6 | |||||||||||||||||||||||||||
Other | 20 | 20 | 18 | 21 | 22 | |||||||||||||||||||||||||||
Total Net Sales | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
2021.
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Corn is also grown in other areas of the world, including China, Brazil, Europe, Argentina, Mexico, South Africa, Canada and Pakistan. Our subsidiaries outside the U.S. utilize both local supplies of corn and corn imported from other geographic areas, including the U.S. The, and we generally expect the supply of corn for these subsidiaries is also generally expected to be adequate for our needs. Corn prices for our non-U.S. affiliates generallysubsidiaries fluctuate as a result of the same factors that affect U.S. corn prices.
corn during that period.
We use derivative hedging contracts to protect the gross margin of our fixed (“firm”) priced business, primarily in North America, and we follow a policy of hedging our exposure to commodity price fluctuations with commodities futures and options contracts, primarily for certain of our North American corn purchases. We use derivative hedging contracts to protect the gross margin of our firm-priced business primarily in North America. Other operations may or may not be hedged at any given time based on our management’s judgment as to the need to fix the costs of our raw materials to protect our profitability. Outside of North America and Europe, we generally enter into short-term commercial sales contracts and adjust our selling prices based upon the local raw material costs. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the section entitled “Commodity Costs” for additional information.
Other raw materials used in our manufacturing processes include starch from potato processors as the primary raw material to manufacture ingredients derived from potato-based starches. In addition, we use tapioca, particularly in certain of our production processes in the Asia-Pacific region. While the price of tapioca fluctuates from time-to-time as a result of growing conditions, the supply of tapioca has been, and is anticipated to continue to be, adequate for our production needs in the various markets in which we operate. In addition to corn, potato, and tapioca, we use pulses, gums, rice, plant-based stevia, peas, and sugar as raw materials, among others.
We have a
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Sales and Distribution
Patents, Trademarks, and Technical License Agreements
WeDecember 31, 2023, we owned more than 1,750 and 7501,900 patents and patents pending, as of December 31, 2020 and 2019, respectively, which relate to a variety of products and processes, andas well as a number of established trademarks under which we market our products. We also have the right to use other patents and trademarks pursuant to patent and trademark licenses. We do not believe that any individual patent or group of related patents or any trademark is material to our business. There is no currently pending challenge to
our success and help us drive financial performance.
Human Capital Resources
expires in 2024.
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North America | | 5,000 | | 78 | | 22 | |
South America | | 3,000 | | 36 | | 64 | |
Asia-Pacific | | 2,500 | | 94 | | 6 | |
EMEA | | 1,500 | | 63 | | 37 | |
Total Company | | 12,000 | | 68 | | 32 | |
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North America | 5,200 | |||||||||||||||||||
South America | 2,250 | |||||||||||||||||||
Asia-Pacific | 2,650 | |||||||||||||||||||
EMEA | 1,500 | |||||||||||||||||||
Total Ingredion | 11,600 |
select Business Resource Group (“BRG”) leaders.
In addition, we have joinedinform our strategies for a broad consumer marketplace.
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To continue to attract, develop, and retain top talent, the Company employs a variety of tools and strategies to assess capabilities, identify skills gaps and provide growth and advancement opportunities based on the needs of the business and our employees. Our total approach to compensation and benefits rewards our employees based on the overall contribution to the business. In addition, we regularly assess employee engagement levels and proactively seek continuous improvement in the workplace.
Government Regulation
During 2020,2023, we spent approximately $12$36 million for environmental control and wastewater treatment equipment to be incorporated into existing facilities and in planned construction projects. We currently anticipate that we will invest approximately $26$36 million for environmental facilities and programs in 2021.
2024.
Other
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Information about our Executive Officers
Set forth below, as
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Rob Ritchie | 54 | Senior Vice President, Food & Industrial Ingredients, LATAM and U.S./Canada, as of January 2024. Senior Vice President,
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cash flows.
The spread
In December 2019,Developments relating to geopolitical conflicts might result in a novel straincontinuation of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 100 countries, including every state in the United States. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the U.S. declared a national emergency with respect to COVID-19.
Our global operations expose us to risks associated with COVID-19. We continue to monitor the health of the employees in each of our 46 manufacturing facilities, domestically and outside the U.S., as COVID-19 related illness at a particular location could impact continued manufacturing operations at that location.
Foreign governmental organizations and governmental organizations at the national, state and local levels in the U.S. have taken various actions to combat the spread of COVID-19, including imposing stay-at-home orders that effectively close “non-essential” businesses and their operations. Because we manufacture food ingredients, our operations are currently considered “essential” under most current COVID-19 government regulations, thus permitting us to continue operations at our facilities and sales activities consistent with those regulations.
Certain of our customers, however, are deemed to be “non-essential” industries and businesses under governmental regulations. The industries and businesses deemed “non-essential” vary by country and region. For example, Mexico declared one or more brewing producers as “non-essential” industries for a period of time during the pandemic. Our customers in affected industries are not able to produce goods during the government-mandated closures, which adversely affects customer demand for our products. Further, government-enacted stay-at-home orders have significantly limited the end-consumers’ ability in the U.S. and foreign markets to purchase certain food or beverage products due to limitations on the operations of restaurants, bars and regionally specific sales channels. We expect that these limitations over time will continue to negatively affect customer demand for our products, further impacting our revenues and our operating results. Further, any inability by our customers to produce goods may delay our customers’ ability to pay outstanding receivables, which would adversely impact our cash flow from operations and working capital.
In addition, COVID-19 has impacted and may further impact the broader economies of affected countries, including negatively affecting economic growth, the proper functioning of financial and capital markets, foreigncurrency exchange rates, and interest rates. Such risks include, in addition to those described above, negative impacts on our cost of and access to capital, pressure to extend our customers’ payment terms, insolvency of our customers resulting in increased provisions for credit losses, and counterparty failures in our supply chain, customer network or otherwise that would negatively impact our operations. These risks individually and in the aggregateother impacts that could have a material adverse effect onadversely affect our operatingbusiness or results financial condition, cash flows and prospects.
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Changes in consumer practices, preferences and perceptions may lessen the demand for our products, which could reduce our sales and profitability and harm our business.
Current economic Similarly, the increasing availability, use and acceptance of weight loss medications, including the expanded use of medications designed for weight loss in people without diabetes, may reduce sales of food and beverage products that contain our ingredients since the medications regulate appetite and may reduce the overall amount of food and beverages consumed.
Economic conditions in South America, the European Union, and many other countries and regions in which we do business have experienced various levels of weakness over the last few years and may continue to do so for the foreseeable future.
There could be a number of other effects from these
failures.
In addition, volatile
Approximately
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The uncertainty of acceptance of products developed through biotechnology could affect our profitability.
Increasing capabilities from generative artificial intelligence may increase the ability of competitors or customers to identify or develop new solutions that could compete with or reduce demand for our products and services.
profitability, or to supply product quantities and meet shipment delivery requirements that our customers demand.
Raw
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EnergyOur business in the past has been adversely affected by fluctuations in our energy costs, representwhich represented approximately 98 percent of our finished product costs.costs in 2023; and could be negatively affected by such fluctuations in future periods. We use energy primarily to create steam required for our production processes and to dry products. We consume coal, natural gas, electricity, coal, fuel oil, wood and fuel oilother biomass sources to generate energy.
contain costs and working capital could adversely affect our future profitability, cash flows, and growth.
An inability to contain costs could adversely affect In addition, our future profitability and growth.
Our future profitability and growth depends on our ability to contain operating costs and per unit product costs and to maintain and implement effectivehedging activities may not be fully successful in limiting the effect of volatility in the cost control programs, while at the same time maintaining competitive pricing and superior quality products, customer service, and support. Our ability to maintain a competitive cost structure depends on continued containment of manufacturing, delivery, freight, and administrative costs, as well as the implementation of cost-effective purchasing programs for raw materials, energy, and related manufacturing requirements.
corn.
Climate change and future costs of environmental compliance may be material.
Our business could be affected in the future by national and global regulation or taxation of greenhouse gas emissions, as well as the potential effects of climate change. Changes in precipitation extremes, droughts and water availability have the potential to impact Ingredion's agricultural supply as well as the availability of water for our manufacturing operations. Globally, a number of countries have instituted or are considering climate change legislation and regulations. Ingredion continues to assess the impact of climate change, regulatory pressures and changing consumer behaviors on our business strategy. It is difficult at this time to estimate the likelihood of passage or predict the potential impact of any additional legislation. Potential consequences could include increased energy, transportation, and raw materials costs, and we may be required to make additional investments in our facilities and equipment.
We may not successfully identify and complete acquisitions or strategic alliances on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances, and such transactions could result in unforeseen operating difficulties and expenditures and require significant management resources.
We regularly review potential acquisitions of complementary businesses, technologies, services, or products, as well as potential strategic alliances. We may be unable to find suitable acquisition candidates or appropriate partners with which to form partnerships or strategic alliances. Even if we identify appropriate acquisition or alliance candidates, we may be unable to complete such acquisitions or alliances on favorable terms, if at all. In addition, the process of integrating an acquired business, technology, service, or product into our existing business and operations may result in unforeseen operating difficulties and expenditures. Integration of an acquired company also may require significant management resources that otherwise would be available for ongoing development of our business. Moreover, we may not realize the anticipated benefits of any acquisition or strategic alliance, and such transactions may not generate anticipated financial
20
results. Future acquisitions could also require us to issue equity securities, incur debt, assume contingent liabilities, or amortize expenses related to intangible assets, any of which could harm our business.
Operating difficulties at our manufacturing facilities and liabilities relating to product safety and quality could adversely affect our operating results.
We have operated in foreign countries and with foreign currencies for many years. Ouryears, and our results are subject to foreign currency exchange fluctuations. Our operations are subject to political, economic, and other risks. There has been and continues to be significant political uncertainty in some countries in which we operate. Economic changes, terrorist activity, and political unrest may result in business interruption or decreased demand for our products. Protectionist trade measures and import and export licensing requirements could also adversely affect our results of operations.
We primarily sell products derived from world commodities. Historically, we have been able to adjust local prices relatively quickly to offset the effect of local currency devaluationsdepreciation versus the U.S. dollar, although we cannot guarantee our ability to do this in the future. For example, due to pricing controls on many consumer products imposed in the recent past by the Argentine government, it currently takes longer than previously to achieve pricing improvement in response to currency devaluations versus the U.S. dollar in Argentina. The anticipated strength in the U.S. dollar may continue to involve risks, as it could take us an extended period of time to fully recapture the impact of a loss of foreign currency devaluationsvalue versus the U.S. dollar, particularly in South America.
dollar. We may hedge transactions that are denominated in a currency other than the currency of the operating unit entering into the underlying transaction. Our hedging activities may not be fully successful in limiting the adverse impacts of our currency risks.
As of December 31, 2020, approximately 31 percent of our
Even if we succeed in hiring new personnel to fill vacancies, lengthy training and orientation periods might be required before new employees are able to achieve acceptable productivity levels. Any failure by us to attract, develop, retain, motivate and maintain good relationships with qualified individuals could adversely affect our business and results of operations.
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weather conditions; war, acts of war or terrorism; or the outbreak of an epidemic or pandemic.terrorism. Any such natural disasterevent could result in disruptions to operations, asset write-offs, decreased sales and overall reduceda negative impact on our cash flows.
position.
2023.
In addition, during the fourth quarter of 2020, we recorded an impairment of $35 million related to our indefinite-lived intangible asset associated with the TIC Gums tradename. During the first quarter of 2021, we will record an impairment affecting South American net assets contributed to a joint venture. See Note 15 of the Notes to the Consolidated Financial Statements for additional information.
2024.
Our profitability may be affected by other factors beyond our control.
Our operating income and ability to increase profitability depend to a large extent upon our ability to price finished products at a level that will cover manufacturing and raw material costs and provide an acceptable profit margin. Our ability to maintain appropriate price levels is determined by a numberTable of factors largely beyond our control, such as aggregate industry supply and market demand, which may vary from time to time, and the economic conditions of the geographic regions in which we conduct our operations.
Contents
Furthermore, the national and global regulation or taxation of greenhouse gas emissions could negatively affect our business, operations and financial results.
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Changes in our tax rates or exposure to additional income tax liabilities could impact our profitability.
The Tax Cuts and Jobs Act (“TCJA”), which was enacted in December 2017, significantly altered existing U.S. tax law and includes numerous and complex provisions that substantially affect our business. The U.S. Treasury Department and the Internal Revenue Service continue to interpret and issue guidance on provisions of the TCJA that could differ from the way in which we interpret some of the provisions. Consequently, we may make adjustments to our provision for income taxes based on differences in interpretation in the periods in which guidance is issued.
Significant changes in the tax laws of the U.S. and numerous foreignjurisdictions in which we do business could result from the base erosion and profit shifting (“BEPS”) project undertaken by the Organization for Economic Cooperation and Development (“OECD”). AnOECD-led coalition of 44 countries is contemplating changes to long-standing international tax norms that determine each country’s right to tax cross-border transactions. These contemplated changes, as adopted bycountries in which we do business, could increase tax uncertainty and the riskof double taxation, thereby adversely affecting our provision forincome taxes.
Increased interest rates could increase our borrowing costs.
We may continue to issue debt securities to finance acquisitions, capital expenditures, and working capital, or for other general corporate purposes. An increase in interest rates in the general economy could result in an increase in our borrowing costs for these financings, as well as under our credit facility debt that bears interest at an unhedged floating rate.
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Risks Related to Our Information Technology Systems
business and cause significant damage to our reputation.
Theus directly or on third-party vendors upon which we rely, the costs to address the foregoing security problems and security vulnerabilities before or after a cybercybersecurity incident could be significant. Remediation efforts may not be successful or timely and could result in interruptions, delays or cessation of service and loss of existing or potential customers that may impede our sales, manufacturing or other critical functions. Breaches of our security measures and the unapproved dissemination of proprietary information or sensitive or confidential data about us, orour employees, our customers or other third parties could expose us, our employees, our customers or other affected third parties to a risk of loss or misuse of this information, result in regulatory enforcement, litigation and potential liability for us, damage our brand and reputation or otherwise harm our business. We rely in certain limited capacities on third-party data management providers and other vendors whose possible security problems and security vulnerabilities may have similar effects on us.
information.
No assurance can be given that we will
Thehave paid in our most recent fiscal quarters.
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We identified a material weakness in our internal controls relatedAny failure by us to ineffective information technology general controls which, if not remediated appropriately or timely,maintain effective control over financial reporting could result in loss of investor confidence and adversely impact our stock price.
Internal controls related to the operation of information technology (“IT”) systems are critical to maintaining adequate internal control over financial reporting. As disclosed
For example, we previously reported a material weakness in our internal control over financial reporting, which we fully remediated in fiscal 2021, related to ineffective information technology controls related to user access over certain information technology systems.
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The following list provides information aboutJersey; and shared service centers in Tulsa, Oklahoma; Guadalajara, Mexico; and Kuala Lumpur, Malaysia.
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South Sioux City, Nebraska, U.S. |
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Winston-Salem, North Carolina, U.S. |
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Salem, Oregon, U.S. |
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Charleston, South Carolina, U.S. |
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Richland, Washington, U.S. |
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Moses Lake, Washington, U.S. |
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Plover, Wisconsin, U.S. | |||||||||||||||||||||||||
South America | ||||||||||||||||||||
Balsa Nova, Brazil | ||||||||||||||||||||
Cabo, Brazil | ||||||||||||||||||||
Mogi-Guacu, Brazil | ||||||||||||||||||||
Barranquilla, Colombia | Owned | |||||||||||||||||||
Cali, Colombia | Owned | |||||||||||||||||||
Lima, Peru | Owned | |||||||||||||||||||
Asia-Pacific | ||||||||||||||||||||
Ganzhou, China | Owned | |||||||||||||||||||
Shandong Province, China | Owned | |||||||||||||||||||
Shanghai, China | Owned | |||||||||||||||||||
Ahmedabad, Gujarat, India | Owned | |||||||||||||||||||
Malegaon, Nashik, Maharashtra, India | Owned | |||||||||||||||||||
Enstek, Malaysia | Owned | |||||||||||||||||||
Ban Kao Dien, Thailand | Owned | |||||||||||||||||||
Kalasin, Thailand | Owned | |||||||||||||||||||
Sikhiu, Thailand | Owned | |||||||||||||||||||
Banglen, Thailand | Leased | |||||||||||||||||||
EMEA | ||||||||||||||||||||
Hamburg, Germany | Owned | |||||||||||||||||||
Wesenberg, Germany | Owned | |||||||||||||||||||
Cornwala, Jaranwala, Pakistan | Owned | |||||||||||||||||||
Mehran, Jamshoro, Pakistan | Owned | |||||||||||||||||||
Rakh Canal, Faisalabad, Pakistan | Owned | |||||||||||||||||||
Goole, United Kingdom | Partially leased |
Furthermore, we intend to continue capital investments to support updates, modifications, improvements and efficient operations of our facilities for the foreseeable future.
In recent years, we have made significant capital expenditures to update, expand and improve our facilities. Total cash paid for capital expenditures and mechanical stores was $340 million in 2020. We expect that these capital expenditures will allow us to operate efficient facilities for the foreseeable future.
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Weforegoing matters, we are currently subject to claims and suits arising in the ordinary course of business, including those relating to labor matters, certain environmental proceedings and 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 financial condition or results of operations.
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Trading: Shares of our Our common stock are tradedis listed on the New York Stock Exchange under the ticker symbol “INGR.”
Holders: The number of active stockholders At February 15, 2024, there were 2,979 holders of record of our common stock was 3,491 at January 31, 2021.
stock.
Dividends: We have a history of paying quarterly dividends. The amount and timing of the dividend payment, if any, is based on a number of factors, including our future estimated earnings, financial position and cash flow. The payment of a dividend, as well as the amount of any dividend, is solely at the discretion of our Board of Directors. Future dividend payments will be subject to our financial results and the availability of funds and statutory surplus to pay dividends.
Issuer Purchases of Equity Securities: The following provides information about our stock repurchase program.
program during the fourth quarter of 2023:
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October 1 – October 31, | — | — | — |
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ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is provided below.
| | | | | | | | | | | | | | | | |
(in millions, except per share amounts) |
| 2020 (a) |
| 2019 (b) |
| 2018 |
| 2017 |
| 2016 (c) |
| |||||
Summary of operations: | | | | | | | | | | | | | | | | |
Net sales | | $ | 5,987 | | $ | 6,209 | | $ | 6,289 | | $ | 6,244 | | $ | 6,022 | |
Net income attributable to Ingredion | | | 348 | (d) | | 413 | (e) | | 443 | (f) | | 519 | (g) | | 485 | (h) |
Net earnings per common share of Ingredion: | | | | | | | | | | | | | | | | |
Basic | | | 5.18 | (d) | | 6.17 | (e) | | 6.25 | (f) | | 7.21 | (g) | | 6.70 | (h) |
Diluted | | | 5.15 | (d) | | 6.13 | (e) | | 6.17 | (f) | | 7.06 | (g) | | 6.55 | (h) |
Cash dividends declared per common share of Ingredion | | | 2.54 | | | 2.51 | | | 2.45 | | | 2.20 | | | 1.90 | |
Balance sheet data: | | | | | | | | | | | | | | | | |
Working capital | | $ | 1,189 | | $ | 1,193 | | $ | 1,192 | | $ | 1,458 | | $ | 1,274 | |
Property, plant and equipment, net | | | 2,455 | | | 2,306 | | | 2,198 | | | 2,217 | | | 2,116 | |
Total assets | | | 6,858 | | | 6,040 | | | 5,728 | | | 6,080 | | | 5,782 | |
Long-term debt | | | 1,748 | | | 1,766 | | | 1,931 | | | 1,744 | | | 1,850 | |
Total debt | | | 2,186 | | | 1,848 | | | 2,100 | | | 1,864 | | | 1,956 | |
Total equity (i) | | $ | 2,972 | | $ | 2,741 | | $ | 2,408 | | $ | 2,917 | | $ | 2,595 | |
Shares outstanding, year end | | | 67.0 | | | 66.8 | | | 66.5 | | | 72.0 | | | 72.4 | |
Additional data: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | $ | 213 | | $ | 220 | | $ | 247 | | $ | 209 | | $ | 196 | |
Mechanical stores expense | | | 54 | | | 57 | | | 57 | | | 57 | | | 57 | |
Capital expenditures and mechanical stores purchases | | | 340 | | | 328 | | | 350 | | | 314 | | | 284 | |
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Our strategic growth roadmap is based
Critical success factors in our business include managing our manufacturing costs, including costs for corn, other raw materials, and utilities. In addition, our global operations expose us to fluctuations in foreign currency exchange rates. We use derivative financial instruments, when appropriate, for the purpose of minimizing the risks and costs associated with fluctuations in certain raw material and energy costs, foreign exchange rates, and interest rates.beverage industry, on April 1, 2021. The capital intensive nature of our business requires that we generate significant cash flow over time in order to selectively reinvest in our operations and grow organically, as well as to expand through strategic acquisitions and alliances. We utilize certain key financial metrics relating to return on invested capital and financial leverage to monitor our progress toward achieving our strategic business objectives (see section entitled “Key Financial Performance Metrics”).
For the year ended December 31, 2020, operating income, net income, and diluted earnings per common share declined from 2019 levels. The decreases were attributable primarily to reductions in volumes driven by government-mandated shutdowns associated with COVID-19, particularly in the Americas, increased restructuring and impairment charges associated with the impairments of an indefinite-lived intangible asset and an equity method investment, and the results of the acquired operations of PureCircle Limited (“PureCircle”). The declines were partially offset by the benefit from Brazilian tax matters.
COVID-19: Our operationsbusinesses are included 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. We did not experience any material supply chain interruptions during the twelve months ended December 31, 2020 and were able to continue to operate and ship products from our global network of manufacturing facilities without material interruptions. We experienced sales volume decline in the second and third quarters of 2020 due to COVID-19 impacts on consumer mobility and consumption. 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.
The Company anticipates continued impacts from COVID-19 on net sales volume across our operating segments in the first quarter of 2021. We are monitoring COVID-19 infection rates as well as the pace and effectiveness of vaccination rollouts, as the net sales volume is generally correlated with increased consumer activity and availability of food and beverages consumed away from home.
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Restructuring and Impairment Charges: In July 2018, we announced a $125 million savings target for our Cost Smart program, designed to improve profitability, further streamline our global business, and deliver increased value to stockholders. We set Cost Smart savings targets to include an anticipated $75 million in Cost of sales savings, including freight, and $50 million in anticipated SG&A savings by year-end 2021. Since the program’s inception, we have periodically updated our savings targets and we now expect to deliver $170 million in total savings by year-end 2021.
Our Cost Smart program and other initiatives resulted in restructuring charges in 2020. For the year ended December 31, 2020, we recorded a total of $48 million of pre-tax restructuring charges related to these programs, a decrease of $9 million from the restructuring charges recorded for 2019. We recorded $25 million of restructuring charges for our Cost Smart SG&A program, primarily related to professional service costs in North America during the year, and $23 million of restructuring charges for our Cost Smart Cost of sales program, primarily related to facility and product line closures during the year.
During the year ended December 31, 2020, we also recorded $45 million of pre-tax impairment charges, including a $35 million charge related to an impairment of our indefinite-lived intangible asset associated with the TIC Gums tradename and a $10 million other-than-temporary impairment of our equity method investment in Verdient Foods Inc (“Verdient).
Storm Damage Costs: We incurred storm damage to the Cedar Rapids, Iowa manufacturing facility, which was shut down for ten days in August 2020. The storm-related damage resulted in $3 million of charges during the twelve months ended December 31, 2020. We recorded the storm damage costs within Other expense (income), netconsolidated financial results beginning on the Condensedrespective acquisition dates, which affects the comparability of results between years.
LiquidityIncome in Other operating (income) expense, and Capital Resources: Our cash providedcomparability between years and between financial statement line items is affected by operating activities increased to $829 million for the year ended December 31, 2020, from $680 million in the prior year primarily due to changes in working capital. Our cash used by investing activities increased to $571 million for the year ended December 31, 2020, from $374 million in the prior year primarily due to the acquisition of a controlling interest in PureCircle. Our cash provided by financing activities was $143 million during the year ended December 31, 2020, while our cash used for financing activities was $364 million for the year ended December 31, 2019. This change was primarily due to our sale of $1 billion of senior notes during the year ended December 31, 2020, offset by payments on debt maturities during the year.
We currently expect that our available cash balances, future cash flow from operations, access to debt markets, and borrowing capacity under our credit facilities will provide us with sufficient liquidity to fund our anticipated capital expenditures, dividends, and other investing and financing activities for at least the next 12 months and for the foreseeable future thereafter. Our future cash flow needs will depend on many factors, including our rate of revenue growth, the timing and extent of our expansion into new markets, the timing of introductionsand consideration provided to the investments.
meaningful analysis.
We acquired a controlling interestdiluted earnings per share in PureCircle on July 1, 2020, acquired Verdient on November 3, 2020, and Western Polymer LLC (“Western Polymer”) on March 1, 2019.2023. The results of the acquired businesses are includedincrease in our consolidated financial results fromnet sales and operating income was driven by price and customer mix, partially offset by lower volumes and impacts of foreign exchange rates. The increase in net income was driven by the respective acquisition dates forward. While we identify fluctuationsabove factors in addition to a more favorable effective tax rate primarily due to recent action by the acquisitions,Internal Revenue Service increasing our discussion below also addresses resultsability to claim certain foreign tax credits against U.S. taxes.
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2020 Compared to 2019 – Consolidated
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2020 |
| 2019 |
| Variance | | Percentage | | |||
Net sales | | $ | 5,987 | | $ | 6,209 | | $ | (222) | | (4) | % |
Cost of sales | | | 4,715 | | | 4,897 | | | 182 | | 4 | % |
Gross profit | | | 1,272 | | | 1,312 | | | (40) | | (3) | % |
| | | | | | | | | | | | |
Operating expenses | | | 628 | | | 610 | | | (18) | | (3) | % |
Other income, net | | | (31) | | | (19) | | | 12 | | 63 | % |
Restructuring/impairment charges | | | 93 | | | 57 | | | (36) | | (63) | % |
| | | | | | | | | | | | |
Operating income | | | 582 | | | 664 | | | (82) | | (12) | % |
| | | | | | | | | | | | |
Financing costs, net | | | 81 | | | 81 | | | — | | — | % |
Other, non-operating expense/(income), net | | | (5) | | | 1 | | | 6 | | 600 | % |
| | | | | | | | | | | | |
Income before income taxes | | | 506 | | | 582 | | | (76) | | (13) | % |
Provision for income taxes | | | 152 | | | 158 | | | 6 | | 4 | % |
Net income | | | 354 | | | 424 | | | (70) | | (17) | % |
Less: Net income attributable to non-controlling interests | | | 6 | | | 11 | | | 5 | | 45 | % |
Net income attributable to Ingredion | | $ | 348 | | $ | 413 | | $ | (65) | | (16) | % |
Net Income attributable to Ingredion.$762 million for 2022. Net income attributable to Ingredion for 2020 decreased2023 was $643 million, or $9.60 diluted earnings per share, which represented an increase of 31 percent from $492 million, or $7.34 diluted earnings per share, for 2022. The increases in net sales and operating income were primarily due to $348 million from $413 million in 2019.favorable price mix, partially offset by volume declines and foreign exchange impacts. The decreaseincrease in net income was largely attributabledriven by these factors in addition to lower sales volumes in North America, increased restructuring and impairment charges primarily related to impairmentsa more favorable effective tax rate.
Year Ended December 31, 2022
Net sales. Net sales were down 4increased 3 percent to $8.2 billion for the year ended December 31, 2020 as2023 compared to the year ended December 31, 2019.$7.9 billion for 2022. The decreaseincrease in full-year net sales was driven by sales volume declines in North Americaprice and South America, related primarily to COVID-19 shutdowns in the secondcustomer mix, partially offset by lower volumes and third quarters.
unfavorable foreign exchange impacts.
Cost of sales. Cost of sales decreased 1 percent to $6.4 billion for the year ended December 31, 2020 was down 4 percent when2023 compared to 2019,$6.5 billion for 2022. The decrease in cost of sales primarily due to the reduction in net sales.reflected lower volumes, partially offset by higher input costs. Our gross profit margin was flat atincreased to 21 percent for the years ended December 31, 2020, and 2019.
in 2023 compared to 19 percent in 2022. The increase in gross profit margin was driven by higher net sales in addition to a decrease in cost of sales.
Operating expenses. Operating expenses increased 310 percent to $789 million for the year ended December 31, 2020 as2023 compared to the year ended December 31, 2019.$715 million for 2022. The increase in operating expenses during 2023 was primarily driven byattributable to higher corporatecompensation costs dueand spending to continued investments to drive business and digital transformations.build long-term capabilities. Operating expenses as a percentage of gross profit,net sales was 10 percent in 2023 and 9 percent in 2022.
2022.
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Other income, net. Our change in other income, net for the year ended December 31, 2020, as compared to the year ended December 31, 2019, was as follows:
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| | Year Ended December 31, | | Favorable (Unfavorable) | |||||
(in millions) |
| 2020 |
| 2019 |
| Variance | |||
Brazil tax matters | | $ | (36) | | $ | (22) | | $ | 14 |
Other | | | 5 | | | 3 | | | (2) |
Other (income) expense, net | | $ | (31) | | $ | (19) | | $ | 12 |
In 2019 the Company received a favorable judgment from the Federal Court of Appeals in Brazil related to certain indirect taxes collected in prior years. To account for the judgment, the Company recorded a $22 million pre-tax benefit, in accordance with ASC 450, Contingencies, for the three and twelve months ended December 31, 2019. In 2020, the Company received another favorable court judgment that further clarifies the calculation of the Company's benefit, resulting in a larger indirect tax claim against the government. As a result, the Company recorded an additional $35 million in pre-tax benefits during the three and twelve months ended December 31, 2020. The Company expects to be entitled to credits against its Brazilian federal tax payments in 2021 and future years. The total benefit recorded represents the Company's current estimate of the credits and interest due from the favorable decisions in accordance with ASC 450, Contingencies.
Additionally, during the twelve months ended December 31, 2020, the Company recorded a pre-tax benefit of $1 million related to the reversal of a tax decision on a government subsidy on which the Company had previously paid taxes. The Company also recorded a $3 million tax provision benefit related to this decision.
Financing costs, net. Our financing costs, net for the year ended December 31, 2020 were flat compared to the year ended December 31, 2019, driven by a reduction in interest expense, partly offset by foreign currency losses.
Provision for income taxes. Our effective income tax rates for the years ended December 31, 2020,2023 and 20192022 were 30.022.4 percent and 27.124.9 percent, respectively.
The increasedecrease in the effective income tax rate was primarily driven by a change in the mix of earnings, including the consolidation of PureCircle, certain one-time items in the year-over-year results and, a decline in the value of the Mexican peso against the U.S. dollar. These itemsdollar, IRS Notice 2023-55, which increased our ability to claim certain foreign tax credits against U.S. taxes, a favorable country earnings mix primarily due to Brazil tax law developments, and a related increase in our foreign-derived intangible income deduction. The effects of these factors were partially offset by the impact of a reductionchange in our U.S. global intangible low-taxed income (“GILTI”) in accordance with final regulations issued by the U.S. Treasury Department under the TCJA and utilization of previously unbenefited net operating losses compared to a valuation allowance buildBrazilian law that became effective in the year-ago period.fourth quarter of 2022 related to non-taxable Brazilian ICMS incentives granted during fiscal years 2018 to 2022.
Net income attributable to non-controlling interests. Net income attributable to non-controlling interests for the year ended December 31, 2020, decreased by 45 percent compared to the year ended December 31, 2019. The decrease was attributable to net losses associated with the acquisition of a controlling interest in PureCircle.
2020 Compared to 2019 – North America
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2020 |
| 2019 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 3,662 | | $ | 3,834 | | $ | (172) | | (4) | % |
Operating income | | | 487 | | | 522 | | | (35) | | (7) | % |
Net sales. Our decrease in net sales of 4 percent for the year ended December 31, 2020, as compared to the year ended December 31, 2019, was driven by a 5 percent decrease in volume, partially offset by a 1 percent improvement in price/product mix.
Operating income. Our operating income decreased $35$8 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The decrease was driven by significantly lower away-from-home food and beverage consumption across the region and a government-mandated shutdown of brewery customers in Mexico in
34
the second quarter related to COVID-19 impacts, partially offset by lower net corn costs and favorable price mix in the fourth quarter.
2020 Compared to 2019 – South America
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| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2020 |
| 2019 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 919 | | $ | 960 | | $ | (41) | | (4) | % |
Operating income | | | 112 | | | 96 | | | 16 | | 17 | % |
Net sales. Our decrease in net sales of 4 percent for the year ended December 31, 2020, as compared to the year ended December 31, 2019, was driven by a decrease in foreign currency values against the U.S. dollar of 15 percent and a 1 percent decrease in volume, partially offset by a 12 percent increase in price/product mix.
Operating income. Our increase in operating income of $162023 from $10 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019, was due to strong price mix, which was partially offset by unfavorable foreign currency impacts and lower sales volumes.
2022.
2020 Compared to 2019 – Asia-Pacific
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2020 |
| 2019 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 813 | | $ | 823 | | $ | (10) | | (1) | % |
Operating income | | | 80 | | | 87 | | | (7) | | (8) | % |
Net sales. Our decrease in net sales of 1 percent for the year ended December 31, 2020, as compared to the year ended December 31, 2019, was driven by unfavorable volumes of 2 percent and unfavorable price/ product mix of 2 percent, partially offset by inclusion of PureCircle results.
Operating income. Our decrease in operating income of $7 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019, was driven by inclusion of PureCircle results, which reduced full-year operating income by $11 million.
2020 Compared to 2019 – EMEA
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2020 |
| 2019 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 593 | | $ | 592 | | $ | 1 | | — | % |
Operating income | | | 102 | | | 99 | | | 3 | | 3 | % |
Net sales. Our net sales were essentially flat for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as favorable price/ product mix and volumes were offset by unfavorable foreign exchange impacts.
Operating income. Operating income increased by $3 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The increase was largely attributable to Pakistan pricing actions, strong EMEA specialty sales, and lower operating expenses in Europe. These effects were partially offset by the impacts of stay-at-home orders on Pakistan sales volume in the first half of the year and negative Pakistan foreign currency impacts
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2019 Compared to 2018 – Consolidated
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2019 |
| 2018 |
| Variance | | Percentage | | |||
Net sales | | $ | 6,209 | | $ | 6,289 | | $ | (80) | | (1) | % |
Cost of sales | | | 4,897 | | ��� | 4,921 | | | 24 | | — | % |
Gross profit | | | 1,312 | | | 1,368 | | | (56) | | (4) | % |
| | | | | | | | | | | | |
Operating expenses | | | 610 | | | 611 | | | 1 | | — | % |
Other income, net | | | (19) | | | (10) | | | 9 | | 90 | % |
Restructuring/impairment charges | | | 57 | | | 64 | | | 7 | | 11 | % |
| | | | | | | | | | | | |
Operating income | | | 664 | | | 703 | | | (39) | | (6) | % |
| | | | | | | | | | | | |
Financing costs, net | | | 81 | | | 86 | | | 5 | | 6 | % |
Other, non-operating income | | | 1 | | | (4) | | | (5) | | (125) | % |
| | | | | | | | | | | | |
Income before income taxes | | | 582 | | | 621 | | | (39) | | (6) | % |
Provision for income taxes | | | 158 | | | 167 | | | 9 | | 5 | % |
Net income | | | 424 | | | 454 | | | (30) | | (7) | % |
Less: Net income attributable to non-controlling interests | | | 11 | | | 11 | | | — | | — | % |
Net income attributable to Ingredion | | $ | 413 | | $ | 443 | | $ | (30) | | (7) | % |
Net Income attributable to Ingredion. Net income attributable to Ingredion for the year ended December 31, 2019 decreased2023 increased to $413$643 million from $443$492 million for the year ended December 31, 2018. Our results for the year ended December 31, 2019 included $32 million of one-time after-tax2022. The increase in net costs, drivenincome was primarily by after-tax restructuring costs of $44 million. The restructuring charges consist of costs associated with our Cost Smart Cost of sales program in relation to the closure of the Lane Cove, Australia production facility, and costs related to the Cost Smart SG&A program, including professional services and employee-related severance primarily in the North America and South America segments.
Our results for 2018 included $54 million of one-time after-tax net costs, driven primarily by after-tax restructuring costs of $51 million. The restructuring charges consist of costs associated with our Cost Smart Cost of sales program in relation to the cessation of wet-milling at the Stockton, California manufacturing facility, costs related to the Cost Smart SG&A program, including employee-related severance and other costs for restructuring projects in the South America, Asia-Pacific, and North America segments, costs related to the Latin America and North America Finance Transformation initiatives, and costs related to the cessation of our leaf extraction process in Brazil. During the year ended December 31, 2018, we adjusted our provisional amounts related enactment of the TCJA and recognized an incremental $3 million of tax expense related to the TCJA.
Net sales. Net sales were slightly down for the year ended December 31, 2019 as compared to the year ended December 31, 2018. Changes in foreign currency exchange rates and volume reduction due to the cessation of Stockton wet milling wereprice and customer mix and a more favorable effective tax rate, which was partially offset by favorable price/product mix.
Cost of sales. Cost of sales for year ended December 31, 2019 was flat as compared to the year ended December 31, 2018 primarily due to higher net corn costs that were offset by lower volume. Our gross profit margin was 21 percent and 22 percent for the years ended December 31, 2019, and 2018, respectively. The gross profit margin decrease primarily reflected higher costs for raw materials.
volumes.
Operating expenses. Operating expenses for the year ended December 31, 2019, were flat as compared to the year ended December 31, 2018. This was primarily driven by lower selling costs, offset by higher general and administrative costs. Operating expenses, as a percentage of gross profit, were 46 percent for the year ended December 31, 2019, as compared to 45 percent for the year ended December 31, 2018.
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Other income, net. Our change in other income, net for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was as follows:
| | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2019 |
| 2018 |
| Variance | | |||
Brazil tax matters | | $ | (22) | | $ | — | | $ | 22 | |
Value-added tax recovery | | | — | | | (5) | | | (5) | |
Other | | | 3 | | | (5) | | | (8) | |
Other (income) expense, net | | $ | (19) | | $ | (10) | | $ | 9 | |
In January 2019, the Company’s Brazilian subsidiary received a favorable decision from the Federal Court of Appeals in Sao Paulo, Brazil, related to certain indirect taxes collected in prior years. As a result of the decision, the Company expects to be entitled to indirect tax credits against its Brazilian federal tax payments in 2020 and future years. The Company finalized its calculation of the amount of the credits and interest due from the favorable decision, concluding that the Company could be entitled to approximately $86 million of credits spanning a period from 2005 to 2018. The Department of Federal Revenue of Brazil, however, issued an Internal Ruling in which it charged that the Company is entitled to only $22 million of the calculated indirect tax credits and interest for the period from 2005 to 2014. The Brazil National Treasury has filed a motion for clarification with the Brazilian Supreme Court, asking the Court, among other things, to modify the lower court’s decision to approve the Internal Ruling, which could impact the decision in favor of the Company. Due to the uncertainty arising from the issuance of the Internal Ruling, the Company recorded $22 million of credits in 2019 in accordance with ASC 450, Contingencies. The $22 million of future tax credits, which was recorded in the Consolidated Income Statement in Other income, resulted in additional deferred income taxes of $8 million. The income taxes will be paid as and when the tax credits are utilized. The Company received further clarification from the court in 2020 regarding the calculation of the Company’s benefits and recorded additional credits, as described above in the discussion of the Company’s 2020 results.
Financing costs, net. Our financing costs, net for the year ended December 31, 2019 decreased $5 million from the year ended December 31, 2018, driven by a reduction in foreign currency losses, partly offset by higher interest expense.
Provision for income taxes. Our effective income tax rates for the years ended December 31, 2019 and 2018 were 27.1 percent and 26.9 percent, respectively.
The increase in the effective tax rate was primarily driven by a reduction in the excess tax benefit related to share-based payment awards. This was offset by the revaluation of the Mexican Peso versus the U.S. dollar which impacted the U.S. dollar denominated balances held in Mexico compared to the devaluation of the Mexican Peso versus the U.S. dollar, in the prior year. Additionally, the effective tax rate was reduced from the prior year due to relatively lower valuation allowances on Argentine net operating losses.
Net income attributable to non-controlling interests. Net income attributable to non-controlling interests for the year ended December 31, 2019, was flat when compared to the year ended December 31, 2018.
2019 Compared to 2018 – North America
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2019 |
| 2018 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 3,834 | | $ | 3,857 | | $ | (23) | | (1) | % |
Operating income | | | 522 | | | 545 | | | (23) | | (4) | % |
Net sales. Our decrease inNorth America’s net sales of 1increased 5 percent for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was driven by a 2 percent decrease in volume, partially offset by a 1 percent improvement in price/product mix.
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Operating income. Our operating income decreased $23$5,188 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018, due to higher net cost of corn and production costs, which were partially offset by favorable pricing.
2019 Compared to 2018 – South America
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2019 |
| 2018 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 960 | | $ | 988 | | $ | (28) | | (3) | % |
Operating income | | | 96 | | | 99 | | | (3) | | (3) | % |
Net sales. Our decrease in net sales of 3 percent for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was driven by currency devaluations of 20 percent in Argentina and Brazil versus the U.S. dollar, partly offset by a 15 percent increase in price/product mix and 2 percent increase in volume.
Operating income. Our decrease in operating income of $32023 from $4,934 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was primarily driven by foreign exchange impacts and higher net corn costs, which were partially offset by favorable pricing actions.
2019 Compared to 2018 – Asia-Pacific
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2019 |
| 2018 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 823 | | $ | 837 | | $ | (14) | | (2) | % |
Operating income | | | 87 | | | 104 | | | (17) | | (16) | % |
Net sales. Our decrease in net sales of 2 percent for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was driven by unfavorable currency translation.
Operating income. Our decrease in operating income of $17 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was driven by higher regional input costs, increased net corn cost in Australia, and foreign exchange impacts.
2019 Compared to 2018 – EMEA
| | | | | | | | | | | | |
| | Year Ended December 31, | | Favorable (Unfavorable) | | Favorable (Unfavorable) | | |||||
(in millions) |
| 2019 |
| 2018 |
| Variance |
| Percentage | | |||
Net sales to unaffiliated customers | | $ | 592 | | $ | 607 | | $ | (15) | | (2) | % |
Operating income | | | 99 | | | 116 | | | (17) | | (15) | % |
Net sales. Our decrease in net sales of 2 percent for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was driven by unfavorable foreign exchange of 11 percent, partially offset by volume growth of 2 percent and improved price/product mix of 7 percent.
Operating income. Our decrease in operating income of $17 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was driven by higher raw material costs and unfavorable foreign exchange impacts, driven primarily by the Pakistan rupee, which were partially offset by improved price mix.
Liquidity and Capital Resources
At December 31, 2020, our total assets were approximately $6.9 billion, as compared to approximately $6.0 billion at December 31, 2019.2022. The increase was primarily driven by cash on hand afterprice mix, partially offset by volume and unfavorable foreign exchange impacts.
38
During the year-over-year comparison of results for 2022 and 2021 is not included in this report and can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Ingredion’s annual report on Form 10-K for the fiscal year ended December 31, 2020, we sold two tranches of senior notes (the “Notes”), consisting of our 2.900% senior notes due 2030 in the principal amount of $600 million2022.
We applied the net proceeds from the sale of the Notes to pay in full the outstanding balance of $394 million under our revolving credit facility described below (“Revolving Credit Facility”) and set aside funds to repay our 4.625% senior notes due November 1, 2020 (the “November 2020 Notes”). On June 8, 2020, we issued a notice for the redemption in full of all $400 million principal amount of the November 2020 Notes. The November 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 governing the November 2020 Notes.
During the year ended December 31, 2020, we used proceeds from the Revolving Credit Facility to repay $200 million of our 5.62% senior notes due March 25, 2020.
On April 12, 2019, we amended and restated the Term Loan Credit Agreement for a $165 million senior unsecured term loan credit facility that was set to mature on April 25, 2019 (“Term Loan”) to establish a 24-month senior unsecured term loan credit facility in an amount up to $500 million that matures on April 12, 2021. We used the $500 million of borrowings under the new facility to pay down the amounts outstanding under the Revolving Credit Facility and to pay off the Term Loan balance. The balance of the amended and restated term loan credit agreement for the new facility (“Amended Term Loan Credit Agreement”) was $380 million as of December 31, 2020 and matures on April 12, 2021.
All borrowings under the Amended Term Loan Credit Agreement bear interest at a variable annual rate based on the specified London Interbank Offered Rate (“LIBOR”) or a base rate, at our election, subject to the terms and conditions thereof, plus, in each case, an applicable margin. We are required to pay a fee on the unused availability under the Amended Term Loan Credit Agreement. The Amended Term Loan Credit Agreement contains customary representations, warranties, covenants and events of default, including covenants restricting the incurrence of liens, the incurrence of indebtedness by our subsidiaries and certain fundamental changes involving the Company and our subsidiaries, subject to certain exceptions in each case. We must also maintain a specified consolidated leverage ratio and consolidated interest coverage ratio. Capital Resources
On October 11, 2016, we entered into a five-year senior, unsecured $1 billion revolving credit agreement (the “Revolving Credit Agreement”) for the Revolving Credit Facility, which replaced a $1 billion senior, unsecured revolving credit facility. All committed pro rata borrowings under the Revolving Credit Facility will bear interest at a variable annual rate based on LIBOR or a base rate, at our election, subject to the terms and conditions thereof, plus, in each case, an applicable margin based on our leverage ratio (as reported in the financial statements delivered pursuant to the Revolving Credit Agreement) or our credit rating. Subject to specified conditions, we may designate one or more of our subsidiaries as additional borrowers under the Revolving Credit Agreement provided that we guarantee all borrowings and other obligations of any such subsidiaries thereunder.
The Revolving Credit Agreement contains customary representations, warranties, covenants, events of default and other terms and conditions, including covenants restricting liens, subsidiary debt and mergers, subject to certain exceptions in each case. We must also comply with a leverage ratio covenant and an interest coverage ratio covenant. entered on June 30, 2021 as described below.
As of December 31, 2020, there were no borrowings outstanding under the Revolving Credit Agreement. The Revolving Credit Agreement expires on October 10, 2021. In addition to borrowing availability under its Revolving Credit
39
Agreement, the Company has approximately $1.2 billionU.S., as well as $652 million of unused operating lines of credit in the various foreign countries in which it operates.
As of December 31, 2020,where we had total debt outstanding of $2.2 billion.operate. As of December 31, 2020, our total debt consisted of the following:
| | | | |
| | As of | | |
(in millions) |
| December 31, 2020 |
| |
2.900% senior notes due June 1, 2030 | | $ | 594 | |
3.200% senior notes due October 1, 2026 |
| | 497 | |
3.900% senior notes due June 1, 2050 | | | 390 | |
6.625% senior notes due April 15, 2037 | | | 253 | |
Other long-term borrowings | | | 14 | |
Total long-term debt | | | 1,748 | |
Term loan credit agreement due April 12, 2021 | | | 380 | |
Other short-term borrowings | | | 58 | |
Total short-term borrowings | | | 438 | |
Total debt | | $ | 2,186 | |
We, as the parent company, we guarantee certain obligations of our consolidated subsidiaries. As of December 31, 2020, such2023, our guarantees aggregated to $58$49 million. We believe that suchthose consolidated subsidiaries will be able to meet their financial obligations as they become due.
The weighted average interest We currently expect that our available cash balances, future cash flow from operations, proceeds from divestitures, access to debt markets and borrowing capacity under our revolving credit facility and commercial paper program will provide us with sufficient liquidity to fund our anticipated capital expenditures, dividends and other operating, investing and financing activities for at least the next twelve months and for the foreseeable future thereafter. Our future cash flow needs will depend on many factors, including our rate onof revenue growth, cost of raw materials, changing working capital requirements, the timing and extent of our totalexpansion into new markets, the timing of introductions of new products, potential or agreed acquisitions of or investments in complementary businesses and technologies, continuing market acceptance of our new products, and general economic and market conditions. We may need to raise additional capital or incur indebtedness was approximately 3.4 percent and 4.3 percentto fund our needs for 2020 and 2019, respectively.
less predictable strategic initiatives, such as acquisitions.
A summary of operating
| | | | | | | | | | |
| | Year Ended December 31, | | |||||||
(in millions) |
| 2020 |
| 2019 |
| 2018 | | |||
Net income | | $ | 354 | | $ | 424 | | $ | 454 | |
Depreciation and amortization | | | 213 | |
| 220 | |
| 247 | |
Mechanical stores expense | | | 54 | | | 57 | | | 57 | |
Charge for fair value mark-up of acquired inventory | | | 6 | |
| — | |
| — | |
Deferred income taxes | | | (7) | |
| 3 | |
| (23) | |
Changes in working capital | | | 150 | |
| (54) | |
| (118) | |
Other | | | 59 | |
| 30 | |
| 86 | |
Cash provided by operations | | $ | 829 | | $ | 680 | | $ | 703 | |
Cash provided by operations was $829operating activities increased to $1,057 million in 2020 as compared with $6802023 from $152 million for the year ended December 31, 2019.in 2022. The increase for the year ended December 31, 2020in cash provided by operating activities was primarily dueattributable to changes in working capital versusand current period net income, which excluded net assets and net liabilities we classified as held for sale for the prior year, partly offset by lower net income.February 1, 2024 sale of our South Korea business. Cash provided by operations for the year ended December 31, 2019 decreasedworking capital increased to $77 million in 2023, as compared to the year ended December 31, 2018cash used for working capital of $664 million in 2022. This increase in cash provided by working capital was primarily due to lower net incomedecreases in the year ended December 31, 2019.
To manage price risk relatedinventory and trade accounts receivable, which was partially offset by decreases in accounts payable and accrued liabilities during 2023.
40
derivative instruments to hedge such price risk and, accordingly, we will be required to make cash deposits to or be entitled to receive cash from our margin accounts depending on the movement in the market price of the underlying commodities.
Listed below are our primary investing and financing activities for the years ended December 31, 2020, 2019, and 2018:
| | | | | | | | | | |
| | Year Ended December 31, | | |||||||
(in millions) | | 2020 |
| 2019 | | 2018 | | |||
Capital expenditures and mechanical stores purchases | | $ | (340) | | $ | (328) | | $ | (350) | |
Payments for acquisitions, net of cash acquired | | | (236) | |
| (42) | |
| — | |
Payments on debt | | | (1,224) | |
| (1,465) | |
| (738) | |
Proceeds from borrowings | | | 1,550 | |
| 1,209 | |
| 987 | |
Dividends paid (including to non-controlling interests) | | | (178) | |
| (174) | |
| (182) | |
Repurchases of common stock | | | — | |
| 63 | |
| (657) | |
On December 11, 2020, our Board of Directors declared a quarterly cash dividend of $0.64 per share of common stock. This dividend was paid on January 28, 2021, to stockholders of record at the close of business on January 4, 2021.
We paid $340 million of capital expenditures and mechanical stores purchases to update, expand and improve our facilities, compared to $300 million we paid in 2020. In July 2020, we acquired a controlling interest in PureCircle2022 for $208the same purposes. Capital investment commitments for 2024 are anticipated to be approximately $340 million.
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 Consolidated Financial Statements for additional information.
Commodity Price Risk: Our principal use of derivative financial instruments is to manage commodity price risk in North America relating to anticipated purchases of corn and natural gas to be used in our manufacturing process. We periodically enter into futures, options and swap contracts for a portion of our anticipated corn and natural gas usage, generally over the following 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 December 31, 2020, our Accumulated other comprehensive loss account (“AOCI”) included $47 million of net gains (net of income tax expense of $16 million) related to these derivative instruments. It is anticipated that $44 million of net gains (net of income tax expense of $15 million) will be reclassified into earnings during the next 12 months. We expect the net gains to be offset by changes in the underlying commodities costs.
41
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 ASC 815, Derivatives and Hedging. As of December 31, 2020, we had foreign currency forward sales contracts with an aggregate notional amount of $410 million and foreign currency forward purchase contracts with an aggregate notional amount of $224 million not designated as hedging instruments.
As of December 31, 2020, we had foreign-currency forward sales contracts with an aggregate notional amount of $401 million and foreign-currency forward purchase contracts with an aggregate notional amount of $542 million designated as cash flow hedging instruments. The amount included in AOCI relating to these hedges at December 31, 2020, was $1 million of net losses (net of an insignificant amount of income tax benefit). The net losses reclassified into earnings during the next 12 months are not anticipated to be significant.
We have significant operations in Argentina. In the second quarter of 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation in that country exceeded 100 percent as of June 30, 2018. As a result, we elected to adopt hyperinflation accounting as of July 1, 2018 for our affiliate, Ingredion Argentina S.A. Under hyperinflation accounting, our affiliate’s functional currency is the U.S. dollar, and its income statement and balance sheet are measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on Argentine-peso-denominated monetary assets and liabilities is reflected in earnings in financing costs.
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 any T-Locks outstanding as of December 31, 2020.
As of December 31, 2020, our AOCI account included $4 million of net losses (net of $1 million tax benefit) related to settled T-Locks. These deferred losses are being amortized to financing costs over the term of the senior notes with which they are associated. The net losses reclassified into earnings during the next 12 months are not anticipated to be significant.
As of December 31, 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.
42
Contractual Obligations
The table below summarizes our significant contractual obligations as of December 31, 2020.
| | | | | | | | | | | | | | | | | | |
| | | | Payments due by period |
| |||||||||||||
| | | | | | | Less | | | | | | | | More |
| ||
|
| Note |
| | |
| than 1 |
| 2 – 3 |
| 4 – 5 |
| than 5 |
| ||||
Contractual Obligations (in millions) | | reference | | Total | | year | | years | | years | | years |
| |||||
Long-term debt (inclusive of Short-term borrowings) |
| 7 | | $ | 2,186 | | $ | 438 | | $ | 11 | | $ | 1 | | $ | 1,736 | |
Interest on long-term debt |
| 7 | |
| 1,001 | |
| 72 | | | 131 | | | 131 | | | 667 | |
Operating lease obligations |
| 8 | |
| 202 | |
| 51 | |
| 76 | |
| 38 | |
| 37 | |
Pension and other postretirement obligations |
| 10 | |
| 141 | |
| 4 | |
| 13 | |
| 14 | |
| 110 | |
Purchase obligations (a) | | | |
| 730 | |
| 311 | | | 234 | | | 72 | | | 113 | |
Total (b) | | | | $ | 4,260 | | $ | 876 | | $ | 465 | | $ | 256 | | $ | 2,663 | |
Off-Balance Sheet Arrangements
As of December 31, 2020, we were not subject to any obligations pursuant to any off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, results of operations, or liquidity.
43
In accordance with our long-term objectives,strategy, we set certain objectives relating to these key financial performance metrics that we strive to meet. However, no assurance can be given that we will continue to meet our financial performance metric targets. See Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Risk for a discussion of factors that could affect our ability to meet those targets. The objectives reflect our current aspirations in light of our present plans and existing circumstances. We may change these objectives from time to time in the future to address new opportunities or changing circumstances as appropriate to meet our long-term needs and those of our stockholders.
44
| | | | | | | |
| | Year ended December 31, | | ||||
Return on Invested Capital (dollars in millions) | | 2020 | | 2019 | | ||
Net income (a) | | $ | 354 | | $ | 424 | |
Adjusted for: | | | | | | | |
Provision for income taxes (iii) | | | 152 | | | 158 | |
Other, non-operating (income) expense, net | | | (5) | | | 1 | |
Financing cost, net | | | 81 | | | 81 | |
Restructuring/impairment charges (i) | | | 93 | | | 57 | |
Acquisition/integration costs | | | 11 | | | 3 | |
Charge for fair value markup of acquired inventory | | | 6 | | | — | |
North America storm damage | | | 3 | | | — | |
Other matters (ii) | | | (36) | | | (19) | |
Income taxes (at effective rates of 26.9% and 26.8%, respectively) (iii) | | | (177) | | | (189) | |
Adjusted operating income, net of tax (b) | | | 482 | | | 516 | |
| | | | | | | |
Short-term debt | | | 438 | | | 82 | |
Long-term debt | | | 1,748 | | | 1,766 | |
Less: Cash and cash equivalents | | | (665) | | | (264) | |
Short-term investments | | | — | | | (4) | |
Total net debt | | | 1,521 | | | 1,580 | |
Share-based payments subject to redemption | | | 30 | | | 31 | |
Total redeemable non-controlling interests | | | 70 | | | — | |
Total equity | | | 2,972 | | | 2,741 | |
Total net debt and equity | | $ | 4,593 | | $ | 4,352 | |
| | | | | | | |
Average current and prior year Total net debt and equity (c) | | $ | 4,473 | | $ | 4,282 | |
| | | | | | | |
Return on Invested Capital (a ÷ c) | | | 7.9% | | | 9.9% | |
Adjusted Return on Invested Capital (b ÷ c) | | | 10.8% | | | 12.1% | |
45
Year Ended December 31, | ||||||||||||||
Return on Invested Capital ratio (dollars in millions) | 2023 | 2022 | ||||||||||||
Net income (a) | $ | 651 | $ | 502 | ||||||||||
Adjusted for: | ||||||||||||||
Provision for income taxes | 188 | 166 | ||||||||||||
Other non-operating expense (income) | 4 | (5) | ||||||||||||
Financing costs | 114 | 99 | ||||||||||||
Restructuring/impairment charges (i) | 11 | 4 | ||||||||||||
Acquisition/integration costs (ii) | — | 1 | ||||||||||||
Other matters (iii) | 1 | 20 | ||||||||||||
Income taxes (at effective rates of 24.9% and 27.0%, respectively) (iv) | (241) | (212) | ||||||||||||
Adjusted operating income, net of tax (b) | 728 | 575 | ||||||||||||
Short-term debt | 448 | 543 | ||||||||||||
Long-term debt | 1,740 | 1,940 | ||||||||||||
Less: Cash and cash equivalents | (401) | (236) | ||||||||||||
Short-term investments | (8) | (3) | ||||||||||||
Total net debt | 1,779 | 2,244 | ||||||||||||
Share-based payments subject to redemption | 55 | 48 | ||||||||||||
Total redeemable non-controlling interests | 43 | 51 | ||||||||||||
Total equity | 3,552 | 3,163 | ||||||||||||
Total net debt and equity | $ | 5,429 | $ | 5,506 | ||||||||||
Average current and prior year Total net debt and equity (c) | $ | 5,468 | $ | 5,223 | ||||||||||
Return on Invested Capital (a ÷ c) | 11.9 | % | 9.6 | % | ||||||||||
Adjusted Return on Invested Capital (b ÷ c) | 13.3 | % | 11.0 | % |
(iv)
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 | | Year Ended December 31, 2019 | ||||||||||||
(dollars in millions) |
| Income before Income Taxes |
| Provision for Income Taxes | | Effective Income Tax Rate | | Income before Income Taxes |
| Provision for Income Taxes | | Effective Income Tax Rate | ||||
As reported | | $ | 506 | | $ | 152 | | 30.0% | | $ | 582 | | $ | 158 | | 27.1% |
Add back (deduct): | | | | | | | | | | | | | | | | |
Impairment/restructuring charges | | | 93 | | | 18 | | | | | 57 | | | 13 | | |
Acquisition/integration costs | |
| 11 | |
| 2 | | | |
| 3 | |
| 1 | | |
Charge for fair value mark-up of acquired inventory | |
| 6 | |
| — | | | |
| — | |
| — | | |
Charge for early extinguishment of debt | |
| 5 | |
| 1 | | | |
| — | |
| — | | |
North America storm damage | |
| 3 | |
| — | | | |
| — | |
| — | | |
Other matters | |
| (36) | |
| (9) | | | |
| (19) | |
| (8) | | |
Tax item - Mexico | |
| — | |
| (3) | | | |
| — | |
| 3 | | |
Other tax matters | |
| — | | | (3) | | | |
| — | | | — | | |
Adjusted non-GAAP | | $ | 588 | | $ | 158 | | 26.9% | | $ | 623 | | $ | 167 | | 26.8% |
The effective income tax rate was 24.9 percent for 2023 and 27.0 percent for 2022.
Year Ended | Year Ended | |||||||||||||||||||||||||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
(dollars in millions) | Income before Income Taxes | Provision for Income Taxes | Effective Income Tax Rate | Income before Income Taxes | Provision for Income Taxes | Effective Income Tax Rate | ||||||||||||||||||||||||||||||||
As reported | $ | 839 | $ | 188 | 22.4 | % | $ | 668 | $ | 166 | 24.9 | % | ||||||||||||||||||||||||||
Add back: | ||||||||||||||||||||||||||||||||||||||
Acquisition/integration costs | — | — | 5 | — | ||||||||||||||||||||||||||||||||||
Restructuring/impairment charges | 11 | 3 | 4 | 1 | ||||||||||||||||||||||||||||||||||
Other matters | 1 | — | 20 | 5 | ||||||||||||||||||||||||||||||||||
Other tax matters | — | 6 | — | 12 | ||||||||||||||||||||||||||||||||||
Tax item-Mexico | — | 15 | — | 4 | ||||||||||||||||||||||||||||||||||
Adjusted non-GAAP | $ | 851 | $ | 212 | 24.9 | % | $ | 697 | $ | 188 | 27.0 | % |
2022.
46
calculations for the ratio of Total net debt to Income before income taxes, and for the ratio of Total net debt to Adjusted EBITDA as of the dates indicated are providedshown in the table below.
| | | | | | | |
| | As of December 31, | | ||||
Net Debt to Adjusted EBITDA ratio | | 2020 | | 2019 | | ||
Short-term debt | | $ | 438 | | $ | 82 | |
Long-term debt | | | 1,748 | | | 1,766 | |
Less: Cash and cash equivalents | | | (665) | | | (264) | |
Short-term investments | | | — | | | (4) | |
Total net debt (a) | | | 1,521 | | | 1,580 | |
| | | | | | | |
Income before income taxes (b) | | | 506 | | | 582 | |
Adjusted for: | | | | | | | |
Depreciation and amortization | | | 213 | | | 220 | |
Financing cost, net | | | 81 | | | 81 | |
Restructuring/impairment (i) | | | 85 | | | 44 | |
Acquisition/integration costs | | | 11 | | | 3 | |
Charge for fair value markup of acquired inventory | | | 6 | | | — | |
Charge for early extinguishment of debt | | | 5 | | | — | |
North America storm damage | | | 3 | | | — | |
Other matters (ii) | | | (36) | | | (19) | |
Adjusted EBITDA (c) | | $ | 874 | | $ | 911 | |
| | | | | | | |
Net Debt to Income before income tax ratio (a ÷ b) | | | 3.0 | | | 2.7 | |
Net Debt to Adjusted EBITDA ratio (a ÷ c) | | | 1.7 | | | 1.7 | |
As of December 31, | ||||||||||||||
Net Debt to Adjusted EBITDA ratio (dollars in millions) | 2023 | 2022 | ||||||||||||
Short-term debt | $ | 448 | $ | 543 | ||||||||||
Long-term debt | 1,740 | 1,940 | ||||||||||||
Less: Cash and cash equivalents | (401) | (236) | ||||||||||||
Short-term investments | (8) | (3) | ||||||||||||
Total net debt (a) | 1,779 | 2,244 | ||||||||||||
Income before income taxes (b) | 839 | 668 | ||||||||||||
Adjusted for: | ||||||||||||||
Depreciation and amortization | 219 | 215 | ||||||||||||
Financing costs | 114 | 99 | ||||||||||||
Other non-operating expense (income) | 4 | (5) | ||||||||||||
Restructuring/impairment charges (i) | 12 | 4 | ||||||||||||
Acquisition/integration costs (ii) | — | 1 | ||||||||||||
Other matters (iii) | 1 | 20 | ||||||||||||
Adjusted EBITDA (c) | $ | 1,189 | $ | 1,002 | ||||||||||
Net Debt to Income before income tax ratio (a ÷ b) | 2.1 | 3.4 | ||||||||||||
Net Debt to Adjusted EBITDA ratio (a ÷ c) | 1.5 | 2.2 |
During 2023, we recorded $11 million of pre-tax net restructuring/impairment charges primarily related to an other-than-temporary impairment on our equity method investments. This was increased by $1 million as it included a depreciation benefit that was already included in depreciation and amortization line. In 2022, we recorded $4 million of pre-tax restructuring charges primarily related to the Cost Smart programs.
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Net Debt to Capitalization percentage: The Company defines Net Debt to Capitalization percentage as Total net debt, defined as Short-term and Long-term debt less Cash and cash equivalents and Short-term investments, divided by Total net debt and capital, defined as the sum of Deferred income tax liabilities, Share-based payments subject to redemption, Total equity, and Total net debt. The calculations for Net Debt to Capitalization percentage as of the dates indicated are provided in the table below.
| | | | | | |
| | As of December 31, | ||||
Net Debt to Capitalization percentage (dollars in millions) |
| 2020 |
| 2019 | ||
Short-term debt | | $ | 438 | | $ | 82 |
Long-term debt | |
| 1,748 | |
| 1,766 |
Less: Cash and cash equivalents | |
| (665) | |
| (264) |
Short-term investments | |
| — | |
| (4) |
Total net debt (a) | | | 1,521 | | | 1,580 |
Deferred income tax liabilities | | | 217 | | | 195 |
Share-based payments subject to redemption | | | 30 | | | 31 |
Redeemable non-controlling interests | | | 70 | | | — |
Total equity | | | 2,972 | | | 2,741 |
Total capital | | | 3,289 | | | 2,967 |
Total net debt and capital (b) | | $ | 4,810 | | $ | 4,547 |
| | | | | | |
Net Debt to Capitalization percentage (a ÷ b) | |
| 31.6% | |
| 34.7% |
Our long-term objective is to maintain a Net Debt to Capitalization percentage in the range of 30 to 35 percent. As of December 31, 2020, our Net Debt to Capitalization percentage was 31.6 percent, down from 34.7 percent as of December 31, 2019, primarily reflecting our increase in total capital in 2020.
Critical Accounting Policies and Estimates
additional information.
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Property, Plant and Equipment and Definite-Lived Intangible Assets:Assets
Through our continual assessment to
Even though it was determined that there was no long-lived asset impairment as of December 31, 2020, thefacility.
2022.
Subsequent to the Company’s annual assessment, the Company identified an impairment indicator and recorded an impairment of $35 million for its indefinite-lived intangible asset associated with the TIC Gums tradename. The impairment event was the result of management’s decision to rebrand the TIC Gums products using the broader Ingredion
49
name and the Ingredient Solutions sub-branding beginning in 2021. There is no change to the projected revenue or operating income from the legacy brands.
In testing goodwill for impairment, we first assess qualitative factors in determining whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. After assessing the qualitative factors, if we determine that it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, then we do not perform an impairment test. If we conclude otherwise, then we perform the impairment test as described in ASC Topic 350.test. Under this impairment test, the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired, and no further testing is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, then an impairment exists for the difference between the fair value and carrying value of the reporting unit. This difference ismay not to exceed the goodwill recorded at the reporting unit.
In performing our
Income Taxes: We recognize the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities and provide a valuation allowance when deferred tax assets are not more likely than not to be realized. We have considered forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future, we would increase the valuation allowance and make a corresponding charge to earnings in the period in which we make such a determination. Likewise, if we later determine that we are more likely than not to realize the deferred tax assets, we would reverse the applicable portion of the previously provided valuation allowance. We had a valuation allowance of $30 million and $29 million at December 31, 2020 and 2019, respectively.
We are regularly audited by various taxing authorities, and sometimes these audits result in proposed assessments where the ultimate resolution may result in our owing additional taxes. We establish reserves when, despite our belief that our tax return positions are appropriate and supportable under local tax law, we believe there is uncertainty with respect to certain positions and we may not succeed in realizing the tax benefits. We evaluate these unrecognized tax benefits and related reserves each quarter and adjust the reserves and the related interest and penalties in light of changing facts and circumstances regarding the probability of realizing tax benefits, such as the settlement of a tax audit or the expiration of a statute of limitations. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are reasonable. However, final determinations of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income or cash flows in the period in which that determination is made. We believe our tax positions comply with applicable tax law and that we have adequately provided for any known tax contingencies. Our liability for unrecognized tax benefits, excluding interest and penalties at December 31, 2020, and 2019 was $46 million and $22 million, respectively. The increase in the unrecognized tax benefits from 2020 to 2019 is primarily attributable to the acquisition of a controlling interest in PureCircle.
The Company recorded a $31 million liability for foreign withholding and state income taxes on certain unremitted earnings from foreign subsidiaries. No foreign withholding taxes, state income taxes and federal and state taxes on foreign currency gains and losses have been provided on approximately $2.2 billion of undistributed earnings of
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foreign earnings that are considered indefinitely reinvested. If future events, including changes in tax law, material changes in estimates of cash, working capital, and long-term investment requirements, necessitate that these earnings be distributed, an additional provision for income taxes may apply, which could materially affect our future effective tax rate and cash flows.
Retirement Benefits:We and our subsidiaries sponsor noncontributory defined benefit pension plans (qualified and non-qualified) covering a substantial portion of employees in the U.S. and Canada, and certain employees in other foreign countries. We also provide healthcare and life insurance benefits for retired employees in the U.S., Canada and Brazil. In order to measure the expense and obligations associated with these benefits, our management must make a variety of estimates and assumptions, including discount rates, expected long-term rates of return, rate of compensation increases, employee turnover rates, retirement rates, mortality rates and other factors. We review our actuarial assumptions on an annual basis as of December 31 (or more frequently if a significant event requiring remeasurement occurs) and modify our assumptions based on current rates and trends when it is appropriate to do so. The effects of modifications are recognized immediately on the balance sheet,Consolidated Balance Sheets but are generally amortized into operating earnings over future periods, with the deferred amount recorded in accumulated other comprehensive income.loss (“AOCL”). We believe the assumptions utilized in recording our obligations under our plans, which are based on our experience, market conditions and input from our actuaries, are reasonable. We use third-party specialists to assist management in evaluating our assumptions and estimates, as well as to appropriately measure the costs and obligations associated with our retirement benefit plans. Had we used different estimates and assumptions with respect tofor these plans, our retirement benefit obligations and related expense could vary from the actual amounts recorded and such differences could be material. Additionally, adverse changes in investment returns earned on pension assets and discount rates used to calculate pension and postretirement benefit related liabilities or changes in required funding levels may have an unfavorable impact on future expense and cash flow. Net periodic pension and postretirement benefit cost for all of our plans was $4$12 million in 20202023 and $10$6 million in 2019.
2022.
| | | | |
U.S. Pension Plans | | | |
|
Accumulated benefit obligation | | $ | 47 | |
Projected benefit obligation | | | 48 | |
| | | | |
Non-U.S. Pension Plans | | | | |
Accumulated benefit obligation | | $ | 34 | |
Projected benefit obligation | | | 38 | |
| | | | |
Postretirement Plans | | | | |
Accumulated benefit obligation | | $ | 10 | |
U.S. Pension Plans | ||||||||
Accumulated benefit obligation | $ | 27 | ||||||
Projected benefit obligation | 27 | |||||||
Non-U.S. Pension Plans | ||||||||
Accumulated benefit obligation | $ | 19 | ||||||
Projected benefit obligation | 22 | |||||||
Postretirement Plans | ||||||||
Accumulated benefit obligation | $ | 9 |
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Our current investment policy for our pension plans is to balance risk and return through diversified portfolios of actively-managedactively managed equity index instruments, fixed income index securities and short-term investments. Maturities for fixed income securities are managed suchso that sufficient liquidity exists to meet near-term benefit payment obligations. The asset allocation is reviewed regularly, and portfolio investments are rebalanced to the targeted allocation when considered appropriate or to raise sufficient liquidity when necessary to meet near-term benefit payment obligations. For 20202023, net periodic pension cost, we assumed an expected long-term rate of return on assets, which is based on the fair value of plan assets, of 5.305.50 percent for U.S. plans and approximately 3.814.66 percent for Canadian plans. In developing the expected long-term rate of return assumption on plan assets, which consist mainly of U.S. and Canadian debt and equity securities, management evaluated historical rates of return achieved on plan assets and the asset allocation of the plans, input from our independent actuaries and investment consultants, and historical trends in long-term inflation rates. Projected return estimates made by such consultants are based upon broad equity and bond indices. We also maintain several funded pension plans in other international locations. The expected returns on plan assets for these plans are determined based on each plan’s investment approach and asset allocations. A hypothetical 25 basis point decrease in the expected long-term rate of return assumption would increase 20212024 net periodic pension cost for the U.S. and CanadaCanadian plans by approximately $1 million each.
additional information.
New Accounting Standards
See Note 2 of the Notes to the Consolidated Financial Statements for a summary of recently adopted accounting standards that are applicable to our Consolidated Financial Statements.
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Forward-Looking Statements
This Form 10-K contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends these forward-looking statements to be covered by the safe harbor provisions for such statements.
Forward-looking statements include, among others, any statements regarding the Company’s prospects or 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 or incorporated by reference into this report are “forward-looking statements.”
These statements are based on current circumstances or expectations, but are subject to certain inherent risks and uncertainties, many of which are difficult to predict and 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, based on various factors, including the impact of COVID-19 on the demand for our products and our financial results; changing consumption preferences relating to high fructose corn syrup and other products we make; the effects of global economic conditions and the general political, economic, business, and 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 and our ability to collect our receivables from customers; future financial performance of major industries which we serve and from which we derive a significant portion of our sales, including, without limitation, 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 gain market acceptance; 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 along potential increases in the cost of corn or other raw materials to customers; energy costs and availability, including energy issues in Pakistan; 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 behavior of financial and capital markets, including with respect to foreign currency fluctuations, fluctuations in interest and exchange rates and market volatility and the associated risks of hedging against such fluctuations; 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 facilities; the impact of impairment charges on our goodwill or long-lived assets; changes in our tax rates or exposure to additional income tax liability; our ability to maintain satisfactory labor relations; the impact on our business of natural disasters, war or similar acts of hostility, threats or acts of terrorism, the outbreak or continuation of pandemics such as COVID-19, or the occurrence of other significant events beyond our control; changes in government policy, law, or regulation and costs of legal compliance, including compliance with environmental regulation; potential effects of climate change; security breaches with respect to information technology systems, processes, and sites; our ability to raise funds at reasonable rates and other factors affecting our access to sufficient funds for future growth and expansion; volatility in the stock market and other factors that could adversely affect our stock price; risks affecting the continuation of our dividend policy; and our ability to remediate in a timely manner a material weakness in our internal control over financial reporting.
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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 Item 1A. Risk Factors above and our subsequent reports on Form 10-Q and Form 8-K.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Exposure:We are exposed to interest rate risk on our variable rate debt and price risk on our fixed rate debt. As of December 31, 2020, approximately 79 percent or $1.7 billion of our total debt is fixed rate debt and 21 percent or approximately $451 million of our total debt is variable rate debt subject to changes in short-term rates, which could affect our interest costs. We assess market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential change in earnings, fair values and cash flows based on a hypothetical 1 percentage point change in interest rates at December 31, 2020. A hypothetical increase of 1 percentage point in the weighted average floating interest rate would increase our annual interest expense by approximately $5 million. See Note 7 of the Notes to the Consolidated Financial Statements for further information.
As of December 31, 2020 and 2019, the carrying and fair values of long-term debt were as follows:
| | | | | | | | | | | | | |
| | As of December 31, | | ||||||||||
| | 2020 | | 2019 |
| ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||
(in millions) | | amount | | value | | amount | | value |
| ||||
2.900% senior notes due June 1, 2030 | | $ | 594 | | $ | 596 | | $ | — | | $ | — | |
3.200% senior notes due October 1, 2026 | | | 497 | | | 500 | | | 497 | | | 491 | |
3.900% senior notes due June 1, 2050 | | | 390 | | | 395 | | | — | | | — | |
4.625% senior notes, due November 1, 2020 | | | — | | | — | | | 400 | | | 399 | |
6.625% senior notes, due April 15, 2037 | |
| 253 | |
| 246 | |
| 253 | |
| 246 | |
5.620% senior notes, due March 25, 2020 | |
| — | |
| — | |
| 200 | |
| 200 | |
Term loan credit agreement due April 12, 2021 | | | — | | | — | | | 405 | | | 405 | |
Other long-term borrowings | | | 14 | | | 14 | | | — | | | — | |
U.S. revolving credit facility | |
| — | |
| — | |
| 10 | |
| 10 | |
Fair value adjustment related to hedged fixed rate debt instruments | |
| — | |
| — | |
| 1 | |
| — | |
Total long-term debt | | $ | 1,748 | | $ | 1,751 | | $ | 1,766 | | $ | 1,751 | |
A hypothetical change of 1 percentage point in interest rates would change the fair value of our fixed rate debt at December 31, 2020, by approximately $212 million. Since we have no current plans to repurchase our outstanding fixed rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt is not expected to have a significant effect on our Consolidated Financial Statements.
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 also recognized in earnings. As of December 31, 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.
Raw Material, Energy and Other Commodity Exposure:Our principal use of derivative financial instruments is to manage commodity price risk primarily in North America relating to anticipated purchases of corn and natural gas to be used in our manufacturing process. Our finished products are made primarily from corn. InPrimarily in North America, we sell a large portion of finished products at firm prices established in supply contracts typically lasting for periods of up to one year. In order to minimize the effect of volatility in the cost of corn related to these firm-priced supply contracts, we enter into corn futures contracts or take other hedging positions in the corn futures market. These contracts typically mature within one year. At expiration, we settle the derivative contracts at a net amount equal to the difference between the then-current price of corn and the futures contract price. WhileAlthough these hedging instruments are subject to fluctuations in value, changes in the value of the underlying exposures we are hedging generally offset such fluctuations. While the corn futures contracts or other hedging positions are intended to minimize the volatility of corn costs on operating profits, occasionally the hedging activitycontracts can result inincur losses, some of which may be material. Outside of North America, sales of finished products under long-term, firm-priced supply contracts are not material.
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Energy costs represent approximately 98 percent of our cost of sales. The primary use of energy is to create steam in the production process and to dry product. We consume coal, natural gas, electricity, coal, fuel oil, wood and fuel oilother biomass sources to generate energy. The market prices for these commodities vary depending on supply and demand, world economies and other factors. We purchase these commodities based on our anticipated usage and the future outlook for these costs. We cannot assure that we will be able to purchase these commodities at prices that we can adequately pass onthrough to customers to sustain or increase profitability. We use derivative financial instruments, such as over-the-counter natural gas swaps, to hedge portions of our natural gas costs generally over the following 12 to 24 months, primarily in our North AmericanAmerica operations.
We are exposed to interest rate risk on our variable rate debt and price risk on our fixed rate debt. As of December 31, 2023, approximately 80 percent, or $1.7 billion principal amount, of our total debt is fixed rate debt and 20 percent, or approximately $450 million principal amount, of our total debt is variable rate debt subject to changes in short-term rates, which could affect our interest costs. We assess market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential change in earnings, fair values and cash flows based on a hypothetical 1 percentage point change in interest rates at December 31, 2023. A hypothetical increase of 1 percentage point in the weighted average floating interest rate would increase our annual interest expense by approximately $4 million and would change the fair value of our fixed rate debt at December 31, 2023 by approximately $105 million. See Note 8 of the Notes to the Consolidated Financial Statements for additional information.
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Ingredion Incorporated |
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Report of Independent Registered Public Accounting Firm (KPMG LLP, Chicago, IL, Auditor Firm ID: 185) |
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Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases effective January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and its subsequent amendments.
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Critical Audit Matters
Matter
•
Evaluationunderstanding and assessing the appropriateness of the fair value of acquired intangible assets of PureCircle Limited
As discussed in Note 3 to the consolidated financial statements,actuarial models and methodology used by the Company determinedto determine the estimated fair values of the intangible assets acquired using certain unobservable inputs in situations where observable inputs were not available. During the year ended December 31, 2020, the Company acquired a controlling interest in PureCircle Limited (PureCircle) and accounted for the transaction as a business combination. The acquisition resulted in the recognition of $68 million in intangible assets other than goodwill, which pertains to customer relationships, tradename, and proprietary technology intangible assets relating to existing products and solutions (collectively, the intangible assets).obligations;
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The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain controls related to the Company’s process for determining the fair value of the acquired intangible assets, including controls related to the selection of certain assumptions used. We evaluated growth rates for certain future expected cash flows by comparing them to PureCircle’s historical performance and to industry data. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating:
/s/ KPMG LLP
60
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(in millions, except per share amounts) | | 2020 |
| 2019 |
| 2018 | |||
Net sales | | $ | 5,987 |
| $ | 6,209 |
| $ | 6,289 |
Cost of sales | | | 4,715 | | | 4,897 | | | 4,921 |
Gross profit | | | 1,272 | | | 1,312 | | | 1,368 |
| | | | | | | | | |
Operating expenses | | | 628 | | | 610 | | | 611 |
Other income, net | | | (31) | | | (19) | | | (10) |
Restructuring/impairment charges | | | 93 | | | 57 | | | 64 |
| | | | | | | | | |
Operating income | | | 582 | | | 664 | | | 703 |
| | | | | | | | | |
Financing costs, net | | | 81 | | | 81 | | | 86 |
Other, non-operating (income) expense, net | | | (5) | | | 1 | | | (4) |
| | | | | | | | | |
Income before income taxes | | | 506 | | | 582 | | | 621 |
Provision for income taxes | | | 152 | | | 158 | | | 167 |
Net income | | | 354 | | | 424 | | | 454 |
Less: Net income attributable to non-controlling interests | | | 6 | | | 11 | | | 11 |
Net income attributable to Ingredion | | $ | 348 | | $ | 413 | | $ | 443 |
| | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | |
Basic | | | 67.2 | | | 66.9 | | | 70.9 |
Diluted | | | 67.6 | | | 67.4 | | | 71.8 |
| | | | | | | | | |
Earnings per common share of Ingredion: | | | | | | | | | |
Basic | | $ | 5.18 | | $ | 6.17 | | $ | 6.25 |
Diluted | | | 5.15 | | | 6.13 | | | 6.17 |
Income
Year Ended December 31, | ||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||
Net sales | $ | 8,160 | $ | 7,946 | $ | 6,894 | ||||||||||||||
Cost of sales | 6,411 | 6,452 | 5,563 | |||||||||||||||||
Gross profit | 1,749 | 1,494 | 1,331 | |||||||||||||||||
Operating expenses | 789 | 715 | 668 | |||||||||||||||||
Other operating (income) expense | (8) | 13 | (34) | |||||||||||||||||
Restructuring/impairment charges | 11 | 4 | 387 | |||||||||||||||||
Operating income | 957 | 762 | 310 | |||||||||||||||||
Financing costs | 114 | 99 | 74 | |||||||||||||||||
Other non-operating expense (income) | 4 | (5) | (12) | |||||||||||||||||
Income before income taxes | 839 | 668 | 248 | |||||||||||||||||
Provision for income taxes | 188 | 166 | 123 | |||||||||||||||||
Net income | 651 | 502 | 125 | |||||||||||||||||
Less: Net income attributable to non-controlling interests | 8 | 10 | 8 | |||||||||||||||||
Net income attributable to Ingredion | $ | 643 | $ | 492 | $ | 117 | ||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 66.0 | 66.2 | 67.1 | |||||||||||||||||
Diluted | 67.0 | 67.0 | 67.8 | |||||||||||||||||
Earnings per common share of Ingredion: | ||||||||||||||||||||
Basic | $ | 9.74 | $ | 7.43 | $ | 1.74 | ||||||||||||||
Diluted | $ | 9.60 | $ | 7.34 | $ | 1.73 |
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| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(in millions) |
| 2020 |
| 2019 |
| 2018 | |||
Net income | | $ | 354 |
| $ | 424 |
| $ | 454 |
Other comprehensive income: | | | | | | | | | |
Gains (losses) on cash flow hedges, net of income tax effect of $2, $5, and $2, respectively | | | 3 | | | (14) | | | 6 |
Losses on cash flow hedges reclassified to earnings, net of income tax effect of $17, $4, and $2, respectively | | | 48 | | | 10 | | | 4 |
Actuarial (losses) gains on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $1, $2, and $5, respectively | | | (1) | | | 9 | | | (15) |
Currency translation adjustment | | | (25) | | | (9) | | | (129) |
Comprehensive income | | | 379 | | | 420 | | | 320 |
Less: Comprehensive income attributable to non-controlling interests | | | 5 | | | 9 | | | 3 |
Comprehensive income attributable to Ingredion | | $ | 374 | | $ | 411 | | $ | 317 |
Year Ended December 31, | ||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||
Net income | $ | 651 | $ | 502 | $ | 125 | ||||||||||||||
Other comprehensive income: | ||||||||||||||||||||
(Losses) gains on cash flow hedges, net of income tax effect of $40, $53 and $58, respectively | (111) | 157 | 160 | |||||||||||||||||
Losses (gains) on cash flow hedges reclassified to earnings, net of income tax effect of $21, $69 and $55, respectively | 57 | (199) | (154) | |||||||||||||||||
Actuarial (losses) gains on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $—, $1 and $9, respectively | (2) | (4) | 19 | |||||||||||||||||
Losses on pension and other postretirement obligations reclassified to earnings, net of income tax effect of $— | 1 | — | — | |||||||||||||||||
Currency translation adjustment | 47 | (105) | 211 | |||||||||||||||||
Comprehensive income | 643 | 351 | 361 | |||||||||||||||||
Less: Comprehensive income attributable to non-controlling interests | 2 | — | 9 | |||||||||||||||||
Comprehensive income attributable to Ingredion | $ | 641 | $ | 351 | $ | 352 |
62
| | | | | | | |
| | As of December 31, | | ||||
(in millions, except share and per share amounts) |
| 2020 |
| 2019 |
| ||
Assets | | | |
| | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 665 | | $ | 264 | |
Short-term investments | | | — | | | 4 | |
Accounts receivable, net | | | 1,011 | | | 977 | |
Inventories | | | 917 | | | 861 | |
Prepaid expenses | | | 54 | | | 54 | |
Total current assets | | | 2,647 | | | 2,160 | |
| | | | | | | |
Property, plant and equipment, net of accumulated depreciation of $3,175 and $3,056, respectively | | | 2,455 | | | 2,306 | |
Goodwill | | | 902 | | | 801 | |
Other intangible assets, net of accumulated amortization of $229 and $197, respectively | | | 444 | | | 437 | |
Operating lease assets | | | 173 | | | 151 | |
Deferred income tax assets | | | 23 | | | 13 | |
Other assets | | | 214 | | | 172 | |
Total assets | | $ | 6,858 | | $ | 6,040 | |
| | | | | | | |
Liabilities and equity | | | | | | | |
Current liabilities: | | | | | | | |
Short-term borrowings | | $ | 438 | | $ | 82 | |
Accounts payable | | | 599 | | | 504 | |
Accrued liabilities | | | 421 | | | 381 | |
Total current liabilities | | | 1,458 | | | 967 | |
| | | | | | | |
Non-current liabilities | | | 227 | | | 220 | |
Long-term debt | | | 1,748 | | | 1,766 | |
Non-current operating lease liabilities | | | 136 | | | 120 | |
Deferred income tax liabilities | | | 217 | | | 195 | |
Total liabilities | | | 3,786 | | | 3,268 | |
| | | | | | | |
Share-based payments subject to redemption | | | 30 | | | 31 | |
Redeemable non-controlling interests | | | 70 | | | — | |
| | | | | | | |
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 December 31, 2020 and 2019, respectively | | | 1 | | | 1 | |
Additional paid-in capital | | | 1,150 | | | 1,137 | |
Less: Treasury stock (common stock: 10,795,346 and 10,993,388 shares at December 31, 2020 and 2019, respectively) at cost | | | (1,024) | | | (1,040) | |
Accumulated other comprehensive loss | | | (1,133) | | | (1,158) | |
Retained earnings | | | 3,957 | | | 3,780 | |
Total Ingredion stockholders’ equity | | | 2,951 | | | 2,720 | |
Non-redeemable non-controlling interests | | | 21 | | | 21 | |
Total equity | | | 2,972 | | | 2,741 | |
Total liabilities and equity | | $ | 6,858 | | $ | 6,040 | |
Sheets
As of December 31, | ||||||||||||||
2023 | 2022 | |||||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 401 | $ | 236 | ||||||||||
Short-term investments | 8 | 3 | ||||||||||||
Accounts receivable, net | 1,279 | 1,411 | ||||||||||||
Inventories | 1,450 | 1,597 | ||||||||||||
Prepaid expenses and assets held for sale | 261 | 62 | ||||||||||||
Total current assets | 3,399 | 3,309 | ||||||||||||
Property, plant and equipment, net | 2,370 | 2,407 | ||||||||||||
Intangible assets, net | 1,303 | 1,301 | ||||||||||||
Other assets | 570 | 544 | ||||||||||||
Total assets | $ | 7,642 | $ | 7,561 | ||||||||||
Liabilities and stockholders' equity | ||||||||||||||
Current liabilities: | ||||||||||||||
Short-term borrowings | $ | 448 | $ | 543 | ||||||||||
Accounts payable | 778 | 873 | ||||||||||||
Accrued liabilities and liabilities held for sale | 546 | 466 | ||||||||||||
Total current liabilities | 1,772 | 1,882 | ||||||||||||
Long-term debt | 1,740 | 1,940 | ||||||||||||
Other non-current liabilities | 480 | 477 | ||||||||||||
Total liabilities | 3,992 | 4,299 | ||||||||||||
Share-based payments subject to redemption | 55 | 48 | ||||||||||||
Redeemable non-controlling interests | 43 | 51 | ||||||||||||
Ingredion stockholders’ equity: | ||||||||||||||
Preferred stock — authorized 25.0 shares — $0.01 par value, none issued | — | — | ||||||||||||
Common stock — authorized 200.0 shares — $0.01 par value, 77.8 issued at December 31, 2023 and 2022 | 1 | 1 | ||||||||||||
Additional paid-in capital | 1,146 | 1,132 | ||||||||||||
Less: Treasury stock (common stock: 12.6 and 12.1 shares at December 31, 2023 and 2022, respectively) at cost | (1,207) | (1,148) | ||||||||||||
Accumulated other comprehensive loss | (1,056) | (1,048) | ||||||||||||
Retained earnings | 4,654 | 4,210 | ||||||||||||
Total Ingredion stockholders’ equity | 3,538 | 3,147 | ||||||||||||
Non-redeemable non-controlling interests | 14 | 16 | ||||||||||||
Total stockholders' equity | 3,552 | 3,163 | ||||||||||||
Total liabilities and stockholders' equity | $ | 7,642 | $ | 7,561 |
63
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2017 | | $ | — | | $ | 1 |
| $ | 1,138 |
| $ | (494) |
| $ | (1,013) |
| $ | 3,259 |
| $ | 26 |
| $ | 36 | | $ | — | |
Net income attributable to Ingredion | | | | | | | | | | | | | | | | | | 443 | | | | | | | | | | |
Net income attributable to non-controlling interests | | | | | | | | | | | | | | | | | | | | | 11 | | | | | | | |
Dividends declared | | | | | | | | | | | | | | | | | | (173) | | | (9) | | | | | | | |
Repurchases of common stock | | | | | | | | | (33) | | | (624) | | | | | | | | | | | | | | | | |
Share-based compensation, net of issuance | | | | | | | | | (5) | | | 27 | | | | | | | | | | | | 1 | | | | |
Other comprehensive income (loss) | | | | | | | | | | | | | | | (134) | | | | | | (7) | | | | | | | |
Other | | | | | | | | | (4) | | | | | | (7) | | | 7 | | | (1) | | | | | | | |
Balance, December 31, 2018 | | | — | | | 1 |
| | 1,096 |
| | (1,091) |
| | (1,154) |
| | 3,536 |
| | 20 |
| | 37 | | | — | |
Net income attributable to Ingredion | | | | | | | | | | | | | | | | | | 413 | | | | | | | | | | |
Net income attributable to non-controlling interests | | | | | | | | | | | | | | | | | | | | | 11 | | | | | | | |
Dividends declared | | | | | | | | | | | | | | | | | | (169) | | | (8) | | | | | | | |
Repurchases of common stock | | | | | | | | | 32 | | | 31 | | | | | | | | | | | | | | | | |
Share-based compensation, net of issuance | | | | | | | | | 9 | | | 20 | | | | | | | | | | | | (6) | | | | |
Other comprehensive loss | | | | | | | | | | | | | | | (4) | | | | | | (2) | | | | | | | |
Balance, December 31, 2019 | | | — | | | 1 | | | 1,137 | | | (1,040) | | | (1,158) | | | 3,780 | | | 21 | | | 31 | | | — | |
Net income attributable to Ingredion | | | | | | | | | | | | | | | | | | 348 | | | | | | | | | | |
Net income attributable to non-controlling interests | | | | | | | | | | | | | | | | | | | | | 10 | | | | | | (4) | |
Dividends declared | | | | | | | | | | | | | | | | | | (171) | | | (8) | | | | | | | |
Share-based compensation, net of issuance | | | | | | | | | 13 | | | 16 | | | | | | | | | | | | (1) | | | | |
Acquisition of redeemable non-controlling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | 74 | |
Other comprehensive loss | | | | | | | | | | | | | | | 25 | | | | | | (1) | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | (1) | | | | | | | |
Balance, December 31, 2020 | | $ | — | | $ | 1 | | $ | 1,150 | | $ | (1,024) | | $ | (1,133) | | $ | 3,957 | | $ | 21 | | $ | 30 | | $ | 70 | |
Total Equity | Share-based Payments Subject to Redemption | Redeemable Non- Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Retained Earnings | Non- Redeemable Non- Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | — | $ | 1 | $ | 1,150 | $ | (1,024) | $ | (1,133) | $ | 3,957 | $ | 21 | $ | 30 | $ | 70 | ||||||||||||||||||||||||||||||||||||||
Net income attributable to Ingredion | — | — | — | — | — | 117 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to non-controlling interests | — | — | — | — | — | — | 11 | — | (3) | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | (175) | (11) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock, net | — | — | — | (68) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation, net of issuance | — | — | 8 | 31 | — | — | — | 6 | — | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 236 | — | (3) | — | 4 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | — | 1 | 1,158 | (1,061) | (897) | 3,899 | 18 | 36 | 71 | |||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to Ingredion | — | — | — | — | — | 492 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interests | — | — | — | — | — | — | 9 | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | (181) | (5) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock, net | — | — | — | (112) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation, net of issuance | — | — | 3 | 25 | — | — | — | 12 | — | |||||||||||||||||||||||||||||||||||||||||||||||
Fair market value adjustment to non-controlling interests | — | — | (29) | — | — | — | — | — | 29 | |||||||||||||||||||||||||||||||||||||||||||||||
Non-controlling interest purchases | — | — | — | — | — | — | — | — | (46) | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) | — | — | — | — | (151) | — | (6) | — | (4) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | — | 1 | 1,132 | (1,148) | (1,048) | 4,210 | 16 | 48 | 51 | |||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to Ingredion | — | — | — | — | — | 643 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interests | — | — | — | — | — | — | 7 | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | (199) | (3) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock, net | — | — | — | (101) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation, net of issuance | — | — | 7 | 42 | — | — | — | 7 | — | |||||||||||||||||||||||||||||||||||||||||||||||
Fair market value adjustment to non-controlling interests | — | — | 7 | — | — | — | — | — | (7) | |||||||||||||||||||||||||||||||||||||||||||||||
Non-controlling interest purchases | — | — | — | — | — | — | — | — | (2) | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) | — | — | — | — | (8) | — | (6) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2023 | $ | — | $ | 1 | $ | 1,146 | $ | (1,207) | $ | (1,056) | $ | 4,654 | $ | 14 | $ | 55 | $ | 43 |
64
| | | | | | | | | | |
| | | | | | | | | | |
| | Year Ended December 31, | | |||||||
(in millions) | | 2020 |
| 2019 |
| 2018 |
| |||
Cash provided by operating activities | | | | | | | | | | |
Net income | | $ | 354 | | $ | 424 | | $ | 454 | |
Non-cash charges to net income: | | | | | | | | | | |
Depreciation and amortization | | | 213 | | | 220 | | | 247 | |
Mechanical stores expense | | | 54 | | | 57 | | | 57 | |
Deferred income taxes | | | (7) | | | 3 | | | (23) | |
Charge for fair value markup of acquired inventory | | | 6 | | | — | | | — | |
Other | | | 99 | | | 33 | | | 39 | |
Changes in working capital: | | | | | | | | | | |
Accounts receivable and prepaid expenses | | | (3) | | | (61) | | | (70) | |
Inventories | | | (14) | | | (43) | | | (50) | |
Accounts payable and accrued liabilities | | | 124 | | | 51 | | | (3) | |
Margin accounts | | | 43 | | | (1) | | | 5 | |
Other | | | (40) | | | (3) | | | 47 | |
Cash provided by operating activities | | | 829 | | | 680 | | | 703 | |
| | | | | | | | | | |
Cash used for investing activities | | | | | | | | | | |
Capital expenditures and mechanical stores purchases | | | (340) | | | (328) | | | (350) | |
Payments for acquisitions, net of cash acquired of $14, $4 , and $ — , respectively | | | (236) | | | (42) | | | — | |
Investment in non-consolidated affiliates | | | (6) | | | (10) | | | (15) | |
Short-term investments | | | 4 | | | 3 | | | 1 | |
Proceeds from disposal of manufacturing facilities and properties | | | 7 | | | 2 | | | 1 | |
Other | | | — | | | 1 | | | 2 | |
Cash used for investing activities | | | (571) | | | (374) | | | (361) | |
| | | | | | | | | | |
Cash used for financing activities | | | | | | | | | | |
Proceeds from borrowings | | | 1,550 | | | 1,209 | | | 987 | |
Payments on debt | | | (1,224) | | | (1,465) | | | (738) | |
Debt issuance costs | | | (9) | | | — | | | — | |
Repurchases of common stock, net | | | — | | | 63 | | | (657) | |
Issuances of common stock for share-based compensation, net of settlements | | | 4 | | | 3 | | | 1 | |
Dividends paid, including to non-controlling interests | | | (178) |
| | (174) |
| | (182) | |
Cash provided by (used for) financing activities | | | 143 | | | (364) | | | (589) | |
| | | | | | | | | | |
Effects of foreign exchange rate changes on cash | | | — | | | (5) | | | (21) | |
| | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 401 | | | (63) | | | (268) | |
| | | | | | | | | | |
Cash and cash equivalents, beginning of period | | | 264 | | | 327 | | | 595 | |
| | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 665 | | $ | 264 | | $ | 327 | |
Flows
Year Ended December 31, | ||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||
Cash from operating activities | ||||||||||||||||||||
Net income | $ | 651 | $ | 502 | $ | 125 | ||||||||||||||
Non-cash charges to net income: | ||||||||||||||||||||
Depreciation and amortization | 219 | 215 | 220 | |||||||||||||||||
Mechanical stores expense | 62 | 55 | 55 | |||||||||||||||||
Impairment on disposition of assets | — | — | 340 | |||||||||||||||||
Deferred income taxes | (6) | (3) | (61) | |||||||||||||||||
Other non-cash charges | 69 | 57 | 8 | |||||||||||||||||
Changes in working capital: | ||||||||||||||||||||
Accounts receivable and prepaid expenses | 77 | (310) | (162) | |||||||||||||||||
Inventories | 69 | (468) | (312) | |||||||||||||||||
Accounts payable and accrued liabilities | (79) | 158 | 226 | |||||||||||||||||
Margin accounts | 10 | (44) | (32) | |||||||||||||||||
Other | (15) | (10) | (15) | |||||||||||||||||
Cash provided by operating activities | 1,057 | 152 | 392 | |||||||||||||||||
Cash from investing activities | ||||||||||||||||||||
Capital expenditures and mechanical stores purchases | (316) | (300) | (300) | |||||||||||||||||
Proceeds from disposal of manufacturing facilities and properties | 2 | 7 | 18 | |||||||||||||||||
Payments for acquisitions, net of cash acquired | — | (29) | (40) | |||||||||||||||||
Other | (15) | 2 | (13) | |||||||||||||||||
Cash used for investing activities | (329) | (320) | (335) | |||||||||||||||||
Cash from financing activities | ||||||||||||||||||||
Proceeds from borrowings | 720 | 825 | 1,300 | |||||||||||||||||
Payments on debt | (949) | (532) | (1,690) | |||||||||||||||||
Commercial paper (repayments) borrowings, net | (63) | 140 | 250 | |||||||||||||||||
Repurchases of common stock, net | (101) | (112) | (68) | |||||||||||||||||
Issuances of common stock for share-based compensation, net | 20 | 9 | 19 | |||||||||||||||||
Purchases of non-controlling interests | (2) | (46) | — | |||||||||||||||||
Dividends paid, including to non-controlling interests | (194) | (181) | (184) | |||||||||||||||||
Cash (used for) provided by financing activities | (569) | 103 | (373) | |||||||||||||||||
Effects of foreign exchange rate changes on cash | 6 | (27) | (21) | |||||||||||||||||
Increase (decrease) in cash and cash equivalents | 165 | (92) | (337) | |||||||||||||||||
Cash and cash equivalents, beginning of period | 236 | 328 | 665 | |||||||||||||||||
Cash and cash equivalents, end of period | $ | 401 | $ | 236 | $ | 328 |
65
NOTE 1 –
and Summary of Significant Accounting Policies
NOTE 2 – Summary of Significant Accounting Policies
Basis of presentation: The Consolidated Financial Statements consist of the accounts of the Company,Ingredion, including all significant subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.
: The preparation of the accompanying Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates includeand assumptions impact the value of purchase consideration, valuation of accounts receivable, inventories, certain investments, goodwill, intangible assets and other long-lived assets, legal contingencies, guarantee obligations, and assumptions used in the calculation of income taxes, and pension and other postretirement benefits, among others. These estimates and assumptions are based on management’sour best estimates and judgment. Management evaluates itsWe evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believeswe believe to be reasonable under the circumstances. ManagementWe will adjust such estimates and assumptions when facts and circumstances dictate. Foreign currency devaluations versus the U.S. dollar, cornCorn price volatility, access to credit markets, and adverse changes in the global economic environment, have combinedforeign currency devaluations versus the U.S. dollar, and access to credit markets increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the financial statements in future periods.
Assets and liabilities of foreign subsidiaries, other than those whose functional currency is the U.S. dollar, are translated at current exchange rates with the related translation adjustments reported in equity as a component of accumulatedAccumulated other comprehensive loss (“AOCL”), and income (loss). Income statement accounts are translated at the average exchange rate during the period. However, significant non-recurring items related to a specific event are recognized at the exchange rate on the date of the significant event. The U.S. dollar is the functional currency for the Company’sour subsidiaries in Mexico and as of July 1, 2018, in Argentina. In the second quarter of the year ended December 31, 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, resulted in a three-year cumulative inflation that exceeded 100 percent, as of June 30, 2018. As a result, the Company elected to adopt hyperinflation accounting as of July 1, 2018, for its Argentina, affiliate in accordance with GAAP. Under hyperinflation accounting, the Argentina affiliate’s functional currency becomes the U.S. dollar. For foreign subsidiaries where the U.S. dollar is the functional currency,and we translate their monetary assets and liabilities are translated at current exchange rates with the related adjustment included in net income.financing costs in our Consolidated Statements of Income. Non-monetary assets and liabilities are translated at historical exchange rates.
Cash and cash equivalents: Cash equivalents consist of all instruments purchasedrates with an original maturity of three months or less, and which have virtually no risk of loss in value.
Accounts receivable, net: Accounts receivable, net, consist of trade and other receivables carried at approximate fair value, net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined using the Company’s best estimate of expected credit losses using historical experience and current and future economic conditions.
Inventories: Inventories are stated at the lower of cost or net realizable value. Costs are predominantly determined using the weighted average method.
Investments: Investments arerelated translation adjustments included in Other assetsAOCL in theour Consolidated Balance Sheets. The Company holds equity and cost method investments, and marketable securities as of December 31, 2020. Investments in which the Company is able to exercise significant influence, but do not represent a controlling interest, are accounted for under the equity method; such investments are carried at cost, adjusted to reflect the Company’s proportionate share of income or
66
loss, less dividends received. Investments in the common stock of affiliated companies over which the Company does not exercise significant influence are accounted for under the cost method. The marketable securities are carried at fair value with unrealized gains and losses recorded to Other income, net in accordance with Accounting Standards Codification (“ASC”) 825.
Leases: The Company leases rail cars, office space, and certain machinery and equipment. The Company determines if an arrangement is a lease at inception of the agreement and classifies its leases based on the terms of the related lease agreement and the criteria contained in Financial Accounting Standards Board (“FASB”) ASC Topic 842, Leases, and related interpretations. See also Note 8 of the Notes to the Consolidated Financial Statements for additional information.
Property, plant and equipment and depreciation:Property, plant and equipment (“PP&E”) are stated at cost less accumulated depreciation. Depreciation is generally computed on the straight-line basis over the estimated useful lives of depreciable assets, which range from 25 to 50 years for buildings and from two to 25 years for all other assets. Where permitted by law, accelerated depreciation methods are used for tax purposes. The Company recognized depreciation expense of $183 million, $191 million, and $217 million for the years ended December 31, 2020, 2019, and 2018, respectively. The Company reviews the recoverability of the net book value of PP&E for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If this review indicates that the carrying values will not be recovered, the carrying values would be reduced to fair value and an impairment loss would be recognized. As required under GAAP, the impairment analysis for long-lived assets occurs before the goodwill impairment assessment described below. NaN PP&E impairment was recognized in the year ended December 31, 2020.
The following table summarizes the Company’s PP&E and accumulated depreciation as of the dates presented:
| | | | | | | |
| | As of December 31, | | ||||
(in millions) | | 2020 |
| 2019 | | ||
Property, plant and equipment: | | | | | | | |
Land | | $ | 207 | | $ | 202 | |
Buildings | | | 802 | | | 748 | |
Machinery and equipment | | | 4,621 | | | 4,412 | |
Property, plant and equipment, at cost | | | 5,630 | | | 5,362 | |
Accumulated depreciation | | | (3,175) | | | (3,056) | |
Property, plant and equipment, net | | $ | 2,455 | | $ | 2,306 | |
Goodwill and other intangible assets:Goodwill ($902 million and $801 million at December 31, 2020 and 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 Company also has other intangible assets of $444 million and $437 million at December 31, 2020 and 2019, respectively. The original carrying value of goodwill and accumulated impairment charges by reportable business segment at December 31, 2020 was as follows:
| | | | | | | | | | | | | | | | |
| | North | | South | | Asia- | | | | | | | | |||
(in millions) |
| America |
| America |
| Pacific |
| EMEA |
| Total |
| |||||
Goodwill before impairment charges | | $ | 601 | | $ | 55 | | $ | 225 | | $ | 65 | | $ | 946 | |
Accumulated impairment charges | | | (1) | | | (33) | | | (121) | | | — | | | (155) | |
Balance at January 1, 2019 | | | 600 | | | 22 | | | 104 | | | 65 | | | 791 | |
Acquisitions | | | 7 | | | — | | | — | | | — | | | 7 | |
Currency translation | | | — | | | (1) | | | 4 | | | — | | | 3 | |
Balance at December 31, 2019 | | | 607 | | | 21 | | | 108 | | | 65 | | | 801 | |
Acquisitions | | | 14 | | | — | | | 85 | | | — | | | 99 | |
Currency translation | | | — | | | (4) | | | 2 | | | 4 | | | 2 | |
Balance at December 31, 2020 | | $ | 621 | | $ | 17 | | $ | 195 | | $ | 69 | | $ | 902 | |
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The following table summarizes the Company’s other intangible assets as of the dates presented:
| | | | | | | | | | | |
| | As of December 31, 2020 | |||||||||
(in millions) |
| Gross |
| Accumulated Amortization |
| Net |
| Weighted Average Useful Life (years) | |||
Trademarks/tradenames (indefinite-lived) |
| $ | 143 |
| $ | — |
| $ | 143 |
| — |
Patents | | | 33 | | | (2) | | | 31 | | 12 |
Customer relationships | | | 356 | | | (115) | | | 241 | | 20 |
Technology | | | 103 | | | (101) | | | 2 | | 9 |
Other | | | 38 | | | (11) | | | 27 | | 19 |
Total other intangible assets | | $ | 673 | | $ | (229) | | $ | 444 | | 17 |
| | | | | | | | | | | |
| | As of December 31, 2019 | |||||||||
(in millions) | | Gross |
| Accumulated Amortization |
| Net |
| Weighted Average Useful Life (years) | |||
Trademarks/tradenames (indefinite-lived) | | $ | 178 |
| $ | — |
| $ | 178 |
| — |
Customer relationships | | | 333 | | | (93) | | | 240 | | 20 |
Technology | | | 103 | | | (91) | | | 12 | | 9 |
Other | | | 20 | | | (13) | | | 7 | | 15 |
Total other intangible assets | | $ | 634 | | $ | (197) | | $ | 437 | | 17 |
Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization is computed on the straight-line basis over the estimated useful lives of definite-lived intangible assets. Amortization expense related to intangible assets was $30 million, $29 million, and $30 million for the years ended December 31, 2020, 2019, and 2018, respectively. The Company reviews the recoverability of the net book value of definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If this review indicates that the carrying values will not be recovered, the carrying values would be reduced to fair value and an impairment loss would be recognized.
Based on acquisitions completed through December 31, 2020, intangible asset amortization expense for the next five years is shown below.
| | | |
(in millions) | | | |
Year | | Amortization Expense | |
2021 | | $ | 20 |
2022 | | | 19 |
2023 | | | 19 |
2024 | | | 19 |
2025 | | | 18 |
Balance thereafter | | | 206 |
The Company assesses indefinite-lived intangible assets and goodwill for impairment annually (or more frequently if impairment indicators arise). The Company has chosen to perform this annual impairment assessment as of July 1 of 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 impaired. 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 ASC Topic 350-30, General Intangibles Other than Goodwill. 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.
Subsequent to the Company’s annual assessment, the Company identified an impairment indicator and recorded an impairment of $35 million for its indefinite-lived intangible asset associated with the TIC Gums tradename. The
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impairment event was the result of management’s decision to rebrand the TIC Gums products using the broader Ingredion name and the Ingredient Solutions sub-branding beginning in 2021. There is no change to the projected revenue or operating income from the legacy brands.
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 the Company performs the impairment test as described in ASC Topic 350. Under this impairment test, the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, then an impairment exists for the difference between the fair value and carrying value of the reporting unit. This difference is not to exceed the goodwill recorded at the reporting unit. Based on the results of the annual assessment, the Company concluded that as of July 1, 2020, there were no impairments in its reporting units.
Revenue recognition: The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which is more fully described in Note 4 of the Notes to the Consolidated Financial Statements.
recognition:
Hedging instruments: Derivative financial instruments used by the Company consist of commodity futures and option contracts, forward currency contracts and options, interest rate swap agreements and Treasury lock agreements (“T-Locks”). See also Note 6 of the Notes to the Consolidated Financial Statements for additional information.
On the date a derivative contract is entered into, the Company designates the derivative as a hedge of variable cash flows to be paid related certain forecasted transactions (“a cash flow hedge”), as a hedge of the fair value of certain firm commitments (“a fair value hedge”), or as a non-designated hedging instrument as defined by ASC 815, Derivatives and Hedging. This process includes linking all derivatives that are designated as cash flow or fair value hedges to specific assets and liabilities on the Consolidated Balance Sheets, or to specific firm commitments or forecasted transactions. These hedges are accounted for using ASC Topic 815. For all hedging relationships, the Company documents the hedging relationships and its risk-management objective and strategy for undertaking the hedge transactions, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed and a description of the method of measuring ineffectiveness. The Company also formally assesses both, at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows or fair values of hedged items. When it is determined that a derivative is not highly effective as a hedge or has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows or fair value of the hedged item, the derivative is de-designated as a hedging instrument because it is unlikely that a forecasted transaction will occur, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the Company continues to carry the derivative on the Consolidated Balance Sheets at its fair value, and gains and losses that were included in AOCI are recognized in 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.
Share-based compensation: The Company has a stock incentive plan that provides for share-based employee compensation, including the granting of stock options, shares of restricted stock, restricted stock units, and performance shares to certain key employees. Compensation expense is recognized in the Consolidated Statements of Income for the Company’s share-based employee compensation plan. The plan is more fully described in Note 11 of the Notes to the Consolidated Financial Statements.
Earnings per common share: Basic earnings per common share (“EPS”) is computed by dividing net income attributable to the Company by the weighted average number of shares outstanding. Diluted EPS is calculated using the treasury stock method, computed by dividing net income attributable to the Company by the weighted average number of shares outstanding, including the dilutive effect of outstanding stock options and other instruments associated with long-term incentive compensation plans.
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Risks and uncertainties: The Company operates domestically and internationally. In each country, the business and assets are subject to varying degrees of risk and uncertainty. The Company insures its business and assets in each country against insurable risks in a manner that it deems appropriate. Because of this geographic dispersion, the Company believes that a loss from non-insurable events in any one country would not have a material adverse effect on the Company’s operations as a whole. Additionally, the Company believes there is no significant concentration of risk with any single customer or supplier whose failure or non-performance would materially affect the Company’s results.
Recently Adopted Accounting Standards
ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350)
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the subsequent measurement of goodwill as this ASU eliminates Step 2 from the goodwill impairment test. Under 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 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. 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 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 this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements upon adoption.
ASU No. 2016-02, Leases (Topic 842)
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes Topic 840, Leases. The Company adopted this updated standard as of January 1, 2019, using the modified retrospective approach and the effective date as its date of initial application. The Company elected the package of three practical expedients permitted under the transition guidance, which among other things allowed the Company to carry forward the historical lease classification of existing leases and to not reassess expired contracts for leases. The practical expedient for hindsight to determine lease term was not elected by the Company. The standard resulted in the initial recognition of $170 million of total operating lease liabilities and $161 million of operating lease assets on the Consolidated Balance Sheet on January 1, 2019. The standard did not have a material impact on the Consolidated Statement of Income or Consolidated Statement of Cash Flows upon adoption. The disclosures required by the recently adopted accounting standard are included in Note 8 of the Notes to the Consolidated Financial Statements.
ASU No. 2017-12 and ASU 2018-16, Derivatives and Hedging (Topic 815)
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815):Targeted Improvements to Accounting for Hedging Activities. This Update modifies accounting guidance for hedge accounting by making more hedge strategies eligible for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess ineffectiveness. The intent is to simplify the application of hedge accounting and increase transparency of information about an entity’s risk management activities. The amended guidance is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company completed its assessment of these updates adopted on January 1, 2019, including potential changes to existing hedging arrangements, and determined the adoption of the guidance did not have a material impact on the Company’s Consolidated Financial Statements.
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ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.
In August 2018, the FASB issued ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. This Update modifies the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance requires disclosure changes to be presented on a retrospective basis. The Company adopted ASU 2018-14 at the beginning of its 2020 fiscal year. The Company has presented the disclosure requirements in accordance with the Update in the Consolidated Financial Statements.
NOTE 3 – Acquisitions
On July 1, 2020, the Company completed its acquisition of a controlling interest in PureCircle Limited (“PureCircle”). PureCircle is one of the leading producers and innovators of plant-based 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. After the closing, the Company owned 75% of PureCircle, while the remaining 25% is 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 at the time of acquisition. The results of PureCircle are 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.
The Company has completed its allocation of the purchase price to the assets acquired and liabilities assumed, except for goodwill, contingent liabilities, and taxes, which were preliminarily recorded based on information and incorporating management’s best estimates. Contingent liabilities and taxes remain preliminary pending receipt of certain information required to finalize the determination of fair value. 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 results from synergies and other operational benefits expected to be derived from the acquisition. 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 December 31, 2020:
| | | | |
(in millions) |
| | PureCircle | |
Working capital (excluding cash) | | $ | 60 | |
Property, plant and equipment | |
| 91 | |
Other, net | | | (22) | |
Identifiable intangible assets | |
| 68 | |
Goodwill | |
| 85 | |
Total fair value, net of cash | | | 282 | |
Less: Non-redeemable non-controlling interests | | | 74 | |
Total purchase price, net of cash |
| $ | 208 | |
The identifiable intangible assets for the acquisition of a controlling interest in PureCircle includes customer relationships, tradenames, 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 of the Notes to the Consolidated Financial Statements.
During the 12 months ended December 31, 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
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pulse-based protein concentrates and flours from peas, lentils, and fava beans for human food applications. On November 3, 2020, the Company acquired the remaining 80% of the outstanding shares, as well as the leased land and buildings not owned by Verdient. To complete the closing, the Company made a total cash payment of CAD $33 million (USD $26 million), which it funded from cash on hand. The results of the acquired operation are included in the Company’s consolidated results from the acquisition date within the North America business segment. 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 acquisition of Verdient added $14 million of goodwill and $15 million of tangible assets as of the acquisition date. Pro-forma results of operations for the acquisition made in the year ended December 31, 2020 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.
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 expanded the Company's potato starch manufacturing capacity, enhanced its processing capabilities, and 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 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 tangible assets as of the acquisition date. Pro-forma results of operations for the acquisition made in the year ended December 31, 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 $11 million, $3 million, and $0 of pre-tax acquisition and integration costs in the years ended December 31, 2020, 2019, and 2018, respectively, associated with its acquisitions.
NOTE 4 – Revenue Recognition
The Company applies the provisions of ASC 606-10, Revenue from Contracts with Customers. The Company recognizes revenue under the core principle to depict theour transfer of products and solutions to customers in an amount reflectingamounts that reflect the consideration the Company expectswe expect to receive. In order toTo achieve that core principle, the Company applieswe apply 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
Revenue is recognizedConsolidated Financial Statements
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determining whether control has transferred, the Company considerswe consider if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer.
revenue.
The Companylease liability calculation when we have sole discretion to exercise the option and it is principally engagedreasonably certain we will. We do not separate lease and non-lease components for our leases when it is impracticable to separate them, such as leases with variable payment arrangements. We have certain leases that have variable payments based solely on output or usage of the leased asset, which we do not record in our Consolidated Balance Sheets, but expense as incurred. Lease expense is recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets.
| | | | | | | | | | |
(in millions) |
| 2020 |
| 2019 |
| 2018 | | |||
Net sales to unaffiliated customers: | | | | | | | | | | |
North America | | $ | 3,662 | | $ | 3,834 | | $ | 3,857 | |
South America | | | 919 | | | 960 | | | 988 | |
Asia-Pacific | | | 813 | | | 823 | | | 837 | |
EMEA | | | 593 | | | 592 | | | 607 | |
Total | | $ | 5,987 | | $ | 6,209 | | $ | 6,289 | |
NOTE 5 – Restructuring and Impairment Charges
For the year ended December 31, 2020, the Company recorded a total of $93 million of pre-tax restructuring and impairment charges, including $48 million of pre-tax restructuring costs and $45 million of pre-tax impairment charges. The Company recorded pre-tax restructuring charges of $25 million for its Cost Smart selling, general and administrative expense (“SG&A”) program. These costs include $18 million of other costs, including professional services, and $7 million of employee-related severance for the year ended December 31, 2020. The professional services costs were recorded primarily in the Company’s North America operations, while the employee-related severance were primarily recorded in the Company’s North America and EMEA operations.
The Company also recorded $23 million of pre-tax restructuring charges for its Cost Smart Cost of sales program. These costs included $10 million of restructuring chargesreasonable in relation to the closure of the Lane Cove, Australia production facility, including $5 million of inventoryits current fair value, and mechanical store write-offs, $4 million of other costs, and $1 million of accelerated depreciation. Additionally, the Company recorded $13 million of restructuring charges related to facility and product line closures in North America during the year, including the closure of the Berwick, Pennsylvania manufacturing facility and the cessation of ethanol production at the Cedar Rapids, Iowa facility. These restructuring charges included $7 million of accelerated depreciation, $2 million of employee severance, and $4 million of other restructuring-related charges.
During the year ended December 31, 2020, the Company recorded a $35 million impairment charge with respect to its indefinite-lived intangible asset associated with the TIC Gums tradename, dueit is unlikely that significant changes to the Company's decision to change its marketing strategy related toplan will be made or that the brand. Additionally, the Company recorded a $10 million other-than-temporary impairment of its equity method investment in Verdient for the year ended December 31, 2020, triggered by decrease in fair value on its equity method investment from the agreed upon purchase price to acquire the remaining 80% interest in Verdient.
plan will be withdrawn.
For the year ended December 31, 2019, the Company recorded $57 million of pre-tax restructuring charges. Pre-tax restructuring charges of $28 million were recorded for the year ended December 31, 2019 for the Cost Smart SG&A
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program. These costs included $15 million of other costs, including professional services, and $13 million of employee-related severance for the year ended December 31, 2019. These charges were recorded primarily in the Company’s North America and South America operations, and include $2 million of other costs associated with the Finance Transformation initiative in Latin America for the year ended December 31, 2019.
Additionally, for the year ended December 31, 2019, the Company recorded $29 million for its Cost Smart Cost of sales program. For the year ended December 31, 2019, the Company recorded $15 million of restructuring charges in relation to the closure of the Lane Cove, Australia production facility, consisting of $10 million of accelerated depreciation, $4 million of employee-related severance, and $1 million of other costs. Additionally, for the year ended December 31, 2019, the Company recorded $3 million of employee-related expenses primarily related to South America operations restructuring. The Company also recorded $11 million of other costs, including professional services, for the year ended December 31, 2019, primarily in North America, including other costs of $2 million in relation to the prior year cessation of wet-milling at the Stockton, California manufacturing facility.
A summary of the Company’s severance accrual at December 31, 2020, is as follows (in millions):
| | | | |
Balance in severance accrual as of December 31, 2019 |
| $ | 15 | |
Cost Smart Cost of sales and SG&A | | | 9 | |
Acquisition related | | | 1 | |
Payments made to terminated employees | | | (12) | |
Foreign exchange translation | | | (1) | |
Balance in severance accrual as of December 31, 2020 |
| $ | 12 | |
Of the $12 million severance accrual at December 31, 2020, $11 million is expected to be paid within the next 12 months.
As of December 31, 2020, the Company identified certain assets within the Stockton, California and Lane Cove, Australia locations that metWhen all the held for sale criteria. The Company expects to sell these assets atcriteria are met, we initially measure a fair value equal tolong-lived asset or greater than the carrying value as of December 31, 2020, and did not record a gain or loss associated with the reclassification of these assets to held for sale for the year ended December 31, 2020. The assetsdisposal group that is classified as held for sale at the lower of its carrying value or the fair value less any costs to sell, recognize any resulting losses, and cease depreciation and amortization of the long-lived asset or assets within a disposal group. Until the date of sale or until the asset or disposal group are reflectedno longer classified as held for sale, we assess fair value less any costs to sell and recognize any resulting losses at each reporting period. Gains are not recognized until the date of the sale.
| | | | | | |
(in millions) | | | December 31, 2020 | | December 31, 2019 | |
Other assets |
| $ | 8 | | $ | — |
NOTE 6 – Financial Instruments, Derivativesor to specific firm commitments or forecasted transactions. For all hedging relationships, we document the hedging relationships and Hedging Activities
The Companyour risk-management objective and strategy for undertaking the hedge transactions, the hedging instrument, the hedged item, the nature of the risk being hedged, how we will assess the hedging instrument’s effectiveness in offsetting the hedged risk, and a description of the method to measure ineffectiveness. We also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative that is exposed to market risk stemming fromused in a hedging transaction is highly effective in offsetting changes in commodity prices (primarily corn and natural gas), foreign currency exchange rates and interest rates. In the normal coursecash flows or fair values of business, the Company actively manages its exposure to these market risks by entering into varioushedged items.
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. 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 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.
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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 commoditycash flow hedging contracts to market (fair value) are recorded as a component of other comprehensive incomeloss (“OCI”OCL”) and included in the equity section of the Consolidated Balance Sheetssheets as part of AOCI.AOCL. These amounts, as well as their related tax effects, 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 monthperiod 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 AOCIAOCL to earnings are reported as Cash provided by operating activities on the Consolidated Statements of Cash Flows.
: All U.S. pension and postretirement benefit plans and most non-U.S. pension and postretirement benefit plans value the vested benefit obligation based on the actuarial present value of the vested benefits to which employees are currently entitled based on their expected date of separation or retirement.
December 31, 2023 | |||||
Accounts receivable, net | 38 | ||||
Inventories | 69 | ||||
Property, plant and equipment, net | 100 | ||||
Other assets | 4 | ||||
Assets held for sale | $ | 211 | |||
Short-term borrowings | $ | 2 | |||
Accounts payable | 30 | ||||
Accrued liabilities | 14 | ||||
Non-current liabilities | 5 | ||||
Liabilities held for sale | $ | 51 |
North America | South America | Asia- Pacific | EMEA | Total | ||||||||||||||||||||||||||||
Goodwill before impairment charges | $ | 623 | $ | 49 | $ | 311 | $ | 72 | $ | 1,055 | ||||||||||||||||||||||
Accumulated impairment charges | (1) | (33) | (121) | — | (155) | |||||||||||||||||||||||||||
Balance at January 1, 2023 | 622 | 16 | 190 | 72 | 900 | |||||||||||||||||||||||||||
Acquisitions | — | — | 19 | — | 19 | |||||||||||||||||||||||||||
Currency translation | — | 2 | (5) | 2 | (1) | |||||||||||||||||||||||||||
Balance at December 31, 2023 | $ | 622 | $ | 18 | $ | 204 | $ | 74 | $ | 918 |
December 31, 2023 | Gross | Accumulated Amortization | Net | Weighted Average Useful Life (years) | ||||||||||||||||||||||
Trademarks/tradenames (indefinite-lived) | $ | 143 | $ | — | $ | 143 | — | |||||||||||||||||||
Patents | 31 | (9) | 22 | 12 | ||||||||||||||||||||||
Customer relationships | 358 | (170) | 188 | 19 | ||||||||||||||||||||||
Technology | 111 | (103) | 8 | 9 | ||||||||||||||||||||||
Other | 41 | (17) | 24 | 15 | ||||||||||||||||||||||
Total other intangible assets | $ | 684 | $ | (299) | $ | 385 | 17 |
December 31, 2022 | Gross | Accumulated Amortization | Net | Weighted Average Useful Life (years) | ||||||||||||||||||||||
Trademarks/tradenames (indefinite-lived) | $ | 143 | $ | — | $ | 143 | — | |||||||||||||||||||
Patents | 32 | (7) | 25 | 12 | ||||||||||||||||||||||
Customer relationships | 356 | (150) | 206 | 19 | ||||||||||||||||||||||
Technology | 102 | (101) | 1 | 9 | ||||||||||||||||||||||
Other | 43 | (17) | 26 | 15 | ||||||||||||||||||||||
Total other intangible assets | $ | 676 | $ | (275) | $ | 401 | 17 |
Years ending December 31, | Estimated Future Amortization Expense | |||||||
2024 | $ | 26 | ||||||
2025 | 26 | |||||||
2026 | 26 | |||||||
2027 | 26 | |||||||
2028 | 26 |
2023 | 2022 | |||||||||||||
Equity investments | $ | 27 | $ | 23 | ||||||||||
Equity method investments | 112 | 113 | ||||||||||||
Marketable securities | 4 | 3 | ||||||||||||
Total investments | $ | 143 | $ | 139 |
gas as of December 31, 2023 and 2022, respectively.
Foreign currency hedging: Due to the itsour global operations, including operations in many emerging markets, the Company iswe are exposed to fluctuations in foreign currency exchange rates. As a result, the Company haswe have exposure to translational foreign-exchange risk when the results of itsour foreign net assets and 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’sOur foreign-exchange risk management strategy uses derivative financial instruments such as foreign currency forward contracts, swaps and options to manage itsour transactional foreign exchange risk. The Company entersWe 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 ASC 815, Derivatives and Hedging,for accounting purposes 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
The Company hedges
Interest rate hedging: The Company assesses itsWe assess our 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’sOur risk management strategy is to monitor interest rate risk attributable to both the Company’sour outstanding and forecasted debt obligations as well as the Company’sour offsetting hedge positions. Derivative financial instruments that we have been used by the Company to manage itsour interest rate risk consist of interest rate swaps and T-Locks.
The Company
75
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. During the year ended December 31, 2020, the Company entered into and settled T-Locks associated with the issuance of our senior notes.notes due in 2030 and 2050. The realized loss upon settlement of thethese T-Locks was recorded in AOCIAOCL and is amortized into earnings over the lifeterm of the senior notes. The CompanyWe did not have outstandingopen T-Locks as of December 31, 20192023 and December 31, 2020.
2022.
| | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Amount of Gains | | ||||
(in millions) | | 2020 | | 2019 | | ||
Commodity contracts, net of income tax effect of $16 and $5, respectively | | $ | 47 | | $ | (11) | |
Foreign currency contracts, net of income tax effect of $— and $1, respectively | | | (1) | | | 3 | |
Interest rate contracts, net of income tax effect of $1 and $ —, respectively | | | (4) | | | (1) | |
Total | | $ | 42 | | $ | (9) | |
The fair value and balance sheet location of the Company’s derivative instruments, presented gross in the Consolidated Balance Sheets, are reflected below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value of Hedging Instruments as of December 31, 2020 | | ||||||||||||||||||||||
| | 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 | | $ | 50 | | $ | 7 | | $ | — | | $ | 57 | | $ | 3 | | $ | 4 | | $ | — | | $ | 7 | |
Other assets | | | 4 | | | — | | | — | | | 4 | | | — | | | 1 | | | — | | | 1 | |
Assets | | | 54 | | | 7 | | | — | | | 61 | | | 3 | | | 5 | | | — | | | 8 | |
Accounts payable and accrued liabilities | | | 4 | | | 12 | | | — | | | 16 | | | 1 | | | 8 | | | — | | | 9 | |
Non-current liabilities | | | 2 | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | 2 | |
Liabilities | | | 6 | | | 12 | | | — | | | 18 | | | 1 | | | 10 | | | — | | | 11 | |
Net (Liabilities)/Assets | | $ | 48 | | $ | (5) | | $ | — | | $ | 43 | | $ | 2 | | $ | (5) | | $ | — | | $ | (3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) | |
76
Derivatives in Cash Flow Hedging Relationships | Gains (Losses) included in AOCL as of December 31, | |||||||||||||
2023 | 2022 | |||||||||||||
Commodity contracts, net of income tax effect of $17 and $3, respectively | $ | (46) | $ | 8 | ||||||||||
Foreign currency contracts, net of income tax effect of $ 1 and $—, respectively | — | 1 | ||||||||||||
Interest rate contracts, net of income tax effect of $1 | (2) | (3) | ||||||||||||
Total | $ | (48) | $ | 6 |
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) | | ||||||||
Balance sheet date as of | | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | December 31, 2019 | | ||||
Interest Rate Contracts: | | | | | | | | | | | | | |
Long-Term Debt | | $ | — | | $ | (201) | | $ | — | | $ | (1) | |
Additional information relating to the Company’s derivative instruments is presented below:
| | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships | | Gains (Losses) Recognized in OCI on Derivatives | | Income Statement | | Gains (Losses) | | ||||||||||||||
(in millions) | | Year Ended December 31, | | Location | | Year Ended December 31, | | ||||||||||||||
| | 2020 | | 2019 | | 2018 | | | | 2020 | | 2019 | | 2018 | | ||||||
Commodity contracts | | $ | 17 | | $ | (24) | | $ | 8 | | Cost of sales | | $ | (62) | | $ | (12) | | $ | (6) | |
Foreign currency contracts | | | (7) | | | 5 | | | — | | Net sales/cost of sales | | | (2) | | | — | | | 1 | |
Interest rate contracts | | | (5) | | | — | | | — | | Financing costs, net | | | (1) | | | (2) | | | (1) | |
Total | | $ | 5 | | $ | (19) | | $ | 8 | | | | $ | (65) | | $ | (14) | | $ | (6) | |
| | | | | | | | | | | | | | | | | | | | | |
Derivatives in Fair Value Hedging Relationships | Income Statement Location of Derivatives Designated as | Gains (Losses) Recognized in Income | | Income Statement Location | | Gains (Losses) Recognized in Income | | ||||||||||||||
(in millions) | Hedging Instruments | Year Ended December 31, | | of Hedged Items | | Year Ended December 31, | | ||||||||||||||
| | 2020 | | 2019 | | 2018 | | | | 2020 | | 2019 | | 2018 | | ||||||
Interest rate contracts | Financing costs, net | $ | (1) | | $ | 2 | | $ | (2) | | Financing costs, net | | $ | 1 | | $ | (2) | | $ | 2 | |
As of December 31, 2020, AOCI2023, AOCL included $44$46 million of net gainslosses (net of income taxes of $15$16 million) on commodities-related derivative instruments, T-Locks and foreign currency hedges and commodities-related derivative instruments designated as cash flow hedges that are expected to be reclassified into earnings during the next 12twelve months.
Fair Value of Hedging Instruments as of December 31, 2023 | ||||||||||||||||||||||||||||||||||||||
Designated Hedging Instruments | Non-Designated Hedging Instruments | |||||||||||||||||||||||||||||||||||||
Balance Sheet Location | Commodity Contracts | Foreign Currency Contracts | Total | Commodity Contracts | Foreign Currency Contracts | Total | ||||||||||||||||||||||||||||||||
Accounts receivable, net | $ | 6 | $ | 11 | $ | 17 | $ | — | $ | 5 | $ | 5 | ||||||||||||||||||||||||||
Other assets | — | 4 | 4 | — | — | — | ||||||||||||||||||||||||||||||||
Assets | 6 | 15 | 21 | — | 5 | 5 | ||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | 44 | 14 | 58 | 2 | 12 | 14 | ||||||||||||||||||||||||||||||||
Non-current liabilities | 2 | 2 | 4 | — | — | — | ||||||||||||||||||||||||||||||||
Liabilities | 46 | 16 | 62 | 2 | 12 | 14 | ||||||||||||||||||||||||||||||||
Net Assets/(Liabilities) | $ | (40) | $ | (1) | $ | (41) | $ | (2) | $ | (7) | $ | (9) |
Fair Value of Hedging Instruments as of December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
Designated Hedging Instruments | Non-Designated Hedging Instruments | |||||||||||||||||||||||||||||||||||||
Balance Sheet Location | Commodity Contracts | Foreign Currency Contracts | Total | Commodity Contracts | Foreign Currency Contracts | Total | ||||||||||||||||||||||||||||||||
Accounts receivable, net | $ | 28 | $ | 20 | $ | 48 | $ | — | $ | 5 | $ | 5 | ||||||||||||||||||||||||||
Other assets | 1 | 6 | 7 | — | — | — | ||||||||||||||||||||||||||||||||
Assets | 29 | 26 | 55 | — | 5 | 5 | ||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | 22 | 23 | 45 | 1 | 6 | 7 | ||||||||||||||||||||||||||||||||
Non-current liabilities | 3 | 9 | 12 | — | — | — | ||||||||||||||||||||||||||||||||
Liabilities | 25 | 32 | 57 | 1 | 6 | 7 | ||||||||||||||||||||||||||||||||
Net Assets/(Liabilities) | $ | 4 | $ | (6) | $ | (2) | $ | (1) | $ | (1) | $ | (2) |
Derivatives in Cash Flow Hedging Relationships | Gains (Losses) Recognized in OCL on Derivatives | Income Statement Location | Gains (Losses) Reclassified from AOCL into Income | |||||||||||||||||||||||||||||||||||||||||
2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||
Commodity contracts | $ | (161) | $ | 202 | $ | 218 | Cost of sales | $ | (87) | $ | 261 | $ | 211 | |||||||||||||||||||||||||||||||
Foreign currency contracts | 10 | 8 | — | Net sales/Cost of sales | 10 | 7 | (1) | |||||||||||||||||||||||||||||||||||||
Interest rate contracts | — | — | — | Financing costs | (1) | — | (1) | |||||||||||||||||||||||||||||||||||||
Total | $ | (151) | $ | 210 | $ | 218 | $ | (78) | $ | 268 | $ | 209 |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 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) |
| ||||||||
Available for sale securities | | $ | 11 | | $ | 11 | | $ | — | | $ | — | | $ | 13 | | $ | 13 | | $ | — | | $ | — | |
Derivative assets | | | 69 | | | 53 | | | 16 | | | — | | | 24 | | | 7 | | | 17 | | | — | |
Derivative liabilities | | | 29 | | | 3 | | | 26 | | | — | | | 36 | | | 5 | | | 31 | | | — | |
Long-term debt | | | 1,751 | | | — | | | 1,751 | | | — | | | 1,751 | | | — | | | 1,751 | | | — | |
As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||||
Marketable securities | $ | 4 | $ | 4 | $ | — | $ | — | $ | 3 | $ | 3 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Derivative assets | 26 | 26 | — | — | 60 | 49 | 11 | — | ||||||||||||||||||||||||||||||||||||||||||
Derivative liabilities | 76 | 43 | 33 | — | 64 | 51 | 13 | — | ||||||||||||||||||||||||||||||||||||||||||
Long-term debt | 1,591 | — | 1,591 | — | 1,733 | — | 1,733 | — |
77
NOTE 7 –Ingredion Incorporated
The Company
During In 2023, we paid the year ended December 31, 2020, the Company sold its (i) 2.900% senior notes due 2030 in theoutstanding 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.
The Company applied the net proceeds from the sale of the Notes to pay in full the outstanding balance of $394 millionand without penalty under the revolving credit facility described below (the “Revolving Credit Facility”) and set aside funds to repay its 4.625% senior notes due November 1, 2020 (the “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 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 governing the November 2020 Notes.
During the year ended December 31, 2020, the Company used proceeds from the Revolving Credit Facility to repay $200 million of its 5.62% senior notes due March 25, 2020.
On April 12, 2019, the Company amended and restated the Term Loan Credit Agreement for a $165 million senior unsecured term loan credit facility that was set to mature on April 25, 2019 (“Term Loan”) to establish a 24-month senior unsecured term loan credit facility in an amount up to $500 million that matures on April 12, 2021. The Company used the $500 million of borrowings under the new facility to pay down amounts outstanding under the Revolving Credit Facility and to pay off the Term Loan balance. The balance of the amended and restatedour term loan credit agreement that was due on December 16, 2024.
All borrowings under2021, the Amended Term Loan Credit Agreement bearaverage amount of commercial paper outstanding was $670 million with an average interest atrate of 0.27 percent and a variable annualweighted average maturity of 48 days. During 2022, the average amount of commercial paper outstanding was $522 million with an average interest rate based on the specified London Interbank Offered Rate (“LIBOR”) orof 1.97 percent and a base rate, at the Company’s election, subject to the terms and conditions thereof, plus, in each case, an applicable margin. The Company is required to pay a fee on the unused availability under the Amended Term Loan Credit Agreement. The Amended Term Loan Credit Agreement contains customary representations, warranties, covenants and eventsweighted average maturity of default, including covenants restricting the incurrence of liens, the incurrence of indebtedness by the Company’s subsidiaries and certain fundamental changes involving the Company and its subsidiaries, subject to certain exceptions in each case. The Company must also maintain a specified consolidated leverage ratio and consolidated interest coverage ratio.16 days. As of December 31, 2020,2022, $390 million of commercial paper was outstanding with an average interest rate of 4.75 percent and a weighted average maturity of 7 days. During 2023, the Companyaverage amount of commercial paper outstanding was in compliance$397 million with these financial covenants. The occurrencean average interest rate of an event5.30 percent and a weighted average maturity of default under the Amended Term Loan Credit Agreement could result in all loans and other obligations being declared due and payable and the term loan credit facility being terminated.
On October 11 2016, the Company entered into a new five-year, senior, unsecured $1 billion revolving credit agreement (the “Revolving Credit Agreement”) to establish the Revolving Credit Facility, which replaced its previously existing $1 billion senior unsecured revolving credit facility. All committed pro rata borrowings under the Revolving Credit Facility bear interest at a variable annual rate based on LIBOR or a base rate, at the Company’s election, subject to the terms and conditions thereof, plus, in each case, an applicable margin based on the Company’s leverage ratio (as reported in the financial statements delivered pursuant to the Revolving Credit Agreement) or the Company’s credit rating. Subject to specified conditions, the Company may designate one or more of its subsidiaries as additional borrowers under the Revolving Credit Agreement provided that the Company guarantees all borrowings and other obligations of any such subsidiaries thereunder.
The Revolving Credit Agreement contains customary representations, warranties, covenants, events of default, terms and conditions, including covenants restricting on liens, subsidiary debt and mergers, subject to certain exceptions in each case. The Company must also comply with a leverage ratio covenant and an interest coverage ratio covenant.days. As of December 31, 2020, the Company2023, $327 million of commercial paper was in complianceoutstanding with these financial covenants.an average interest rate of 5.50 percent and a weighted average maturity of 11 days. The occurrenceamount of an event of default under the Revolving Credit Agreement could result in all loans and other obligations under the agreement being declared due and payable and the Revolving Credit Facility being terminated.
78
As of December 31, 2020, there were 0 borrowingscommercial paper outstanding under the Revolving Credit Agreement. The Revolving Credit Agreement expires on October 10, 2021. In additionthis program in 2024 is expected to borrowing availability under its Revolving Credit Agreement, the Company has approximately $1.2 billion of unused operating lines of credit in the various foreign countries in which it operates.
fluctuate.
| | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 | | ||||||||
| | Carrying | | Fair | | Carrying | | Fair | | ||||
(in millions) |
| Amount |
| Value |
| Amount |
| Value |
| ||||
2.900% senior notes due June 1, 2030 | | $ | 594 | | $ | 596 | | $ | — | | $ | — | |
3.200% senior notes due October 1, 2026 | | | 497 | | | 500 | | | 497 | | | 491 | |
3.900% senior notes due June 1, 2050 | | | 390 | | | 395 | | | — | | | — | |
4.625% senior notes due November 1, 2020 | | | — | | | — | | | 400 | | | 399 | |
6.625% senior notes due April 15, 2037 | | | 253 | | | 246 | | | 253 | | | 246 | |
5.620% senior notes due March 25, 2020 | | | — | | | — | | | 200 | | | 200 | |
Term loan credit agreement due April 12, 2021 | | | — | | | — | | | 405 | | | 405 | |
Other long-term borrowings | | | 14 | | | 14 | | | — | | | — | |
Revolving credit facility | | | — | | | — | | | 10 | | | 10 | |
Fair value adjustment related to hedged fixed rate debt instrument | | | — | | | — | | | 1 | | | — | |
Total long-term debt | | | 1,748 | | | 1,751 | | | 1,766 | | | 1,751 | |
Term loan credit agreement due April 12, 2021 | | | 380 | | | 380 | | | — | | | — | |
Other short-term borrowings | | | 58 | | | 58 | | | 82 | | | 82 | |
Total short-term borrowings | | | 438 | | | 438 | | | 82 | | | 82 | |
Total debt | | $ | 2,186 | | $ | 2,189 | | $ | 1,848 | | $ | 1,833 | |
The Company’s long-term debt matures as follows: $500 million in 2026, $600 million in 2030, $250 million in 2037, and $400 million in 2050.
The Company guarantees2022:
2023 | 2022 | |||||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||
2.900% senior notes due June 1, 2030 | $ | 596 | $ | 536 | $ | 595 | $ | 510 | ||||||||||||||||||
3.200% senior notes due October 1, 2026 | 499 | 479 | 498 | 470 | ||||||||||||||||||||||
3.900% senior notes due June 1, 2050 | 391 | 300 | 390 | 293 | ||||||||||||||||||||||
6.625% senior notes due April 15, 2037 | 253 | 275 | 253 | 256 | ||||||||||||||||||||||
Term loan credit agreement due December 16, 2024 | — | — | 200 | 200 | ||||||||||||||||||||||
Revolving credit agreement | — | — | — | — | ||||||||||||||||||||||
Other long-term borrowings | 1 | 1 | 4 | 4 | ||||||||||||||||||||||
Total long-term debt | 1,740 | 1,591 | 1,940 | 1,733 | ||||||||||||||||||||||
Commercial paper | 327 | 327 | 390 | 390 | ||||||||||||||||||||||
Other short-term borrowings | 121 | 121 | 153 | 153 | ||||||||||||||||||||||
Total short-term borrowings | 448 | 448 | 543 | 543 | ||||||||||||||||||||||
Total debt | $ | 2,188 | $ | 2,039 | $ | 2,483 | $ | 2,276 |
NOTE 8 –
2023 | 2022 | 2021 | ||||||||||||||||||
Operating lease expense | $ | 63 | $ | 59 | $ | 58 | ||||||||||||||
Variable operating lease expense | 26 | 27 | 26 | |||||||||||||||||
Short term lease expense | 3 | 3 | 4 | |||||||||||||||||
Lease expense | $ | 92 | $ | 89 | $ | 88 |
The Company hasmillions, except per share data, unless otherwise noted)
79
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows:
| | | | | | | |
Lease Cost | | Year Ended December 31, | | Year Ended December 31, | | ||
(in millions) |
| 2020 | | 2019 | | ||
Operating lease cost | | $ | 58 | | $ | 55 | |
Variable operating lease cost | | | 29 | | | 24 | |
Short term lease cost | | | 4 | | | 3 | |
Lease cost | | $ | 91 | | $ | 82 | |
The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities and the related operating lease assets as presented within Other non-current liabilities and Other assets, respectively, on the Company’sour Consolidated Balance SheetSheets as of December 31, 2020.
| | | | |
Operating Leases | | As of | | |
(in millions) | | December 31, 2020 | | |
2021 | | $ | 51 | |
2022 | | | 43 | |
2023 | | | 33 | |
2024 | | | 23 | |
2025 | | | 15 | |
Thereafter | | | 37 | |
Total future lease payments | | | 202 | |
Less imputed interest | | | 20 | |
Present value of future lease payments | | | 182 | |
Less current lease liabilities | | | 46 | |
Non-current operating lease liabilities | | $ | 136 | |
Operating lease assets | | $ | 173 | |
Additional2023:
2024 | $ | 63 | |||
2025 | 52 | ||||
2026 | 45 | ||||
2027 | 29 | ||||
2028 | 14 | ||||
Thereafter | 31 | ||||
Total future lease payments | 234 | ||||
Less imputed interest | 21 | ||||
Present value of future lease payments | 213 | ||||
Less current lease liabilities | 56 | ||||
Non-current operating lease liabilities | $ | 157 | |||
Operating lease assets | $ | 208 |
| | | | | | | |
Other Information | | Year Ended December 31, | | Year Ended December 31, | | ||
($ in millions) | | 2020 |
| 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | | $ | 60 | | $ | 55 | |
Right-of-use assets obtained in exchange for lease liabilities: | | | | | | | |
Operating leases | | $ | 76 | | $ | 212 | |
| | As of | | As of | | ||
| | December 31, 2020 | | December 31, 2019 | | ||
Weighted average remaining lease term: | | | | | | | |
Operating leases | | | 5.5 years | | | 5.5 years | |
Weighted average discount rate: | | | | | | | |
Operating leases | | | 4.9 | % | | 5.7 | % |
Year Ended December 31, | ||||||||||||||
2023 | 2022 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
Operating cash flows from operating leases | $ | 64 | $ | 60 | ||||||||||
Right-of-use assets obtained in exchange for lease liabilities: | ||||||||||||||
Operating leases | $ | 72 | $ | 52 |
Year Ended December 31, | ||||||||||||||
Lease term and discount rate | 2023 | 2022 | ||||||||||||
Weighted average remaining lease term | 5.3 years | 5.9 years | ||||||||||||
Weighted average discount rate | 4.6 | % | 4.4 | % |
80
2023 | 2022 | 2021 | ||||||||||||||||||
Income before income taxes: | ||||||||||||||||||||
U.S. | $ | 244 | $ | 111 | $ | 39 | ||||||||||||||
Foreign | 595 | 557 | 209 | |||||||||||||||||
Total income before income taxes | 839 | 668 | 248 | |||||||||||||||||
Provision for income taxes: | ||||||||||||||||||||
Current tax expense: | ||||||||||||||||||||
U.S. federal | 6 | 8 | 2 | |||||||||||||||||
State and local | 5 | 2 | 2 | |||||||||||||||||
Foreign | 183 | 159 | 180 | |||||||||||||||||
Total current tax expense | 194 | 169 | 184 | |||||||||||||||||
Deferred tax expense (benefit): | ||||||||||||||||||||
U.S. federal | — | 5 | (57) | |||||||||||||||||
State and local | 1 | (1) | (2) | |||||||||||||||||
Foreign | (7) | (7) | (2) | |||||||||||||||||
Total deferred tax (benefit) | (6) | (3) | (61) | |||||||||||||||||
Total provision for income taxes | $ | 188 | $ | 166 | $ | 123 |
| | | | | | | | | | |
| | Year Ended December 31, | | |||||||
(in millions) |
| 2020 |
| 2019 |
| 2018 |
| |||
Income (loss) before income taxes: | | | | | | | | | | |
U.S. | | $ | (15) | | $ | 74 | | $ | 121 | |
Foreign | | | 521 | | | 508 | | | 500 | |
Total income before income taxes | | | 506 | | | 582 | | | 621 | |
Provision for income taxes: | | | | | | | | | | |
Current tax expense: | | | | | | | | | | |
U.S. federal | | | 1 | | | 6 | | | 17 | |
State and local | | | 2 | | | 2 | | | 1 | |
Foreign | | | 156 | | | 147 | | | 172 | |
Total current tax expense | | | 159 | | | 155 | | | 190 | |
Deferred tax expense (benefit): | | | | | | | | | | |
U.S. federal | | | (18) | | | (8) | | | (14) | |
State and local | | | (1) | | | — | | | (2) | |
Foreign | | | 12 | | | 11 | | | (7) | |
Total deferred tax expense (benefit) | | | (7) | | | 3 | | | (23) | |
Total provision for income taxes | | $ | 152 | | $ | 158 | | $ | 167 | |
| | | | | | | |
| | As of December 31, | | ||||
(in millions) |
| 2020 |
| 2019 |
| ||
Deferred tax assets attributable to: | | | | | | | |
Employee benefit accruals | | $ | 20 | | $ | 23 | |
Pensions and postretirement plans | | | 21 | | | 22 | |
Lease liabilities | | | 44 | | | 39 | |
Derivative contracts | | | — | | | 2 | |
Other | | | 60 | | | 46 | |
Net operating loss carryforwards | | | 32 | | | 24 | |
Foreign tax credit carryforwards | | | 5 | | | 1 | |
Total deferred tax assets | | | 182 | | | 157 | |
Valuation allowances | | | (30) | | | (29) | |
Total deferred tax assets (net of valuation allowance) | | | 152 | | | 128 | |
Deferred tax liabilities attributable to: | | | | | | | |
Property, plant and equipment | | | 173 | | | 175 | |
Identified intangibles | | | 46 | | | 41 | |
Right-of-use lease assets | | | 42 | | | 37 | |
Foreign withholding and state taxes on unremitted earnings | | | 31 | | | 32 | |
Goodwill | | | 20 | | | 17 | |
Brazilian indirect tax credits | | | 18 | | | 8 | |
Derivative contracts | | | 16 | | | — | |
Total deferred tax liabilities | | | 346 | | | 310 | |
Net deferred tax liabilities | | $ | 194 | | $ | 182 | |
81
2023 | 2022 | |||||||||||||
Deferred tax assets attributable to: | ||||||||||||||
Employee benefit accruals | $ | 32 | $ | 30 | ||||||||||
Pensions and postretirement plans | 16 | 14 | ||||||||||||
Lease liabilities | 54 | 49 | ||||||||||||
Bad debt | 5 | 6 | ||||||||||||
Inventory reserve | 16 | 22 | ||||||||||||
Net operating loss carryforwards | 58 | 59 | ||||||||||||
Tax credit carryforwards | 5 | 5 | ||||||||||||
Derivative contracts | 16 | — | ||||||||||||
Uniform capitalization | 12 | 9 | ||||||||||||
Other | 35 | 33 | ||||||||||||
Total deferred tax assets | 249 | 227 | ||||||||||||
Valuation allowances | (46) | (51) | ||||||||||||
Net deferred tax assets | 203 | 176 | ||||||||||||
Deferred tax liabilities attributable to: | ||||||||||||||
Property, plant and equipment | 184 | 175 | ||||||||||||
Identified intangibles | 33 | 48 | ||||||||||||
Right-of-use lease assets | 51 | 46 | ||||||||||||
Foreign withholding and state taxes on unremitted earnings | 1 | 1 | ||||||||||||
Goodwill | 35 | 31 | ||||||||||||
Brazilian indirect tax credits | — | 4 | ||||||||||||
Derivative contracts | — | 3 | ||||||||||||
Total deferred tax liabilities | 304 | 308 | ||||||||||||
Net deferred tax liabilities | $ | 101 | $ | 132 |
Of the $32$58 million of tax-effected net operating loss carryforwards as of December 31, 2020, approximately $122023, $42 million are for foreign loss carryforwards, $14 million for state loss carryforwards, and approximately $20$2 million are for foreignU.S. federal loss carryforwards. Of the $42 million of foreign loss carryforwards, $24 million are related to Canada, $5 million to Australia, $4 million to Brazil, $3 million to Argentina, and $3 million to Malaysia with carryforward periods of tax-effected net operating loss carryforwards as of December 31, 2019, approximately $9 million are for20 years, indefinite, indefinite, 5 years and 10 years, respectively. U.S. federal and state loss carryforwards and approximately $15 million are for foreign loss carryforwards. Income tax accounting requires that ahave various expiration periods beginning in 2025.
| | | | | | | |
| | Year Ended December 31, | | ||||
|
| 2020 |
| 2019 |
| 2018 |
|
Provision for tax at U.S. statutory rate | | 21.0 | % | 21.0 | % | 21.0 | % |
Tax rate difference on foreign income | | 7.9 | | 5.8 | | 5.2 | |
Net impact of tax benefit of intercompany financings | | (0.8) | | (1.2) | | (0.8) | |
Net impact of global intangible low-taxed income (“GILTI”) | | (1.0) | | 1.2 | | 1.0 | |
Net impact of U.S. foreign tax credits | | 1.6 | | 1.0 | | 0.5 | |
Net impact of valuation allowance in Argentina | | (0.6) | | 0.3 | | 1.0 | |
Other items, net | | 1.9 | | (1.0) | | (1.0) | |
Provision at effective tax rate | | 30.0 | % | 27.1 | % | 26.9 | % |
2023 | 2022 | 2021 | |||||||||||||||
Provision for tax at U.S. statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
Tax rate difference on foreign income | 6.1 | 7.2 | 13.3 | ||||||||||||||
Foreign currency foreign exchange | (1.8) | (0.3) | 3.2 | ||||||||||||||
Inflation adjustments | (0.5) | (0.6) | (4.0) | ||||||||||||||
Tax benefit of intercompany financing | (0.4) | (0.4) | (1.6) | ||||||||||||||
U.S. international tax implications | 1.0 | 2.2 | 0.8 | ||||||||||||||
Valuation allowance in Argentina | — | — | (0.4) | ||||||||||||||
Favorable judgment on the treatment of credits and interest on indirect taxes | (0.2) | (0.3) | (4.8) | ||||||||||||||
Unremitted earnings | — | — | (12.1) | ||||||||||||||
Impairment charge related to Argentina joint venture | — | — | 35.5 | ||||||||||||||
Foreign-derived intangible income (FDII) | (1.5) | (1.0) | — | ||||||||||||||
Brazil exclusion of certain tax incentives | (1.2) | (4.0) | — | ||||||||||||||
Other items, net | (0.1) | 1.1 | (1.3) | ||||||||||||||
Provision at effective tax rate | 22.4 | % | 24.9 | % | 49.6 | % |
During the year ended December 31, 2020, the Company utilized previously unbenefited net operating losses in Argentina and recorded a benefit of $3 million, or 0.6 percentage points on the effective rate. The Company recorded valuation allowances in the amount of $2 million, or 0.3 percentage points on the effective tax rate, and $6 million, or 1.0 percentage points on the effective tax rate for the years ended December 31, 2019 and 2018, respectively.
our foreign-derived intangible income.
82
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for 20202023 and 20192022 is as follows:
2023 | 2022 | |||||||||||||
Balance at January 1 | $ | 30 | $ | 29 | ||||||||||
Additions for tax positions related to prior years | 1 | 5 | ||||||||||||
Reductions for tax positions related to prior years | (1) | (1) | ||||||||||||
Additions based on tax positions related to the current year | 1 | 1 | ||||||||||||
Reductions related to a lapse in the statute of limitations | — | (4) | ||||||||||||
Balance at December 31 | $ | 31 | $ | 30 |
| | | | | | | |
| | Year Ended December 31, | | ||||
(in millions) | | 2020 |
| 2019 |
| ||
Balance at January 1 | | $ | 22 | | $ | 30 | |
Additions for tax positions related to prior years | | | 33 | | | — | |
Reductions related to a lapse in the statute of limitations | | | (9) | | | (8) | |
Balance at December 31 | | $ | 46 | | $ | 22 | |
The Company accountsbenefits.
The Company is2023.
NOTE 10 – Benefit Plans
The Companylapse and its subsidiariespotential settlement.
The Companyparticipants. We also providesprovide healthcare and/or life insurance benefits for retired employees in the U.S., Canada and Brazil. Healthcare benefits for retirees outside of the U.S., Canada and Brazil are generally covered through local government plans.
83
| | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans | | ||||||||
(in millions) | | 2020 | | 2019 | | 2020 | | 2019 |
| ||||
Benefit obligation | | | | | | | | | | | | | |
At January 1 | | $ | 387 | | $ | 357 | | $ | 254 | | $ | 223 | |
Service cost | | | 5 | | | 5 | | | 4 | | | 3 | |
Interest cost | | | 11 | | | 14 | | | 10 | | | 10 | |
Benefits paid | | | (23) | | | (28) | | | (12) | | | (11) | |
Actuarial loss (gain) | | | 29 | | | 39 | | | 14 | | | 24 | |
Curtailment/settlement/amendments | | | — | | | — | | | — | | | (2) | |
Foreign currency translation | | | — | | | — | | | 5 | | | 7 | |
Benefit obligation at December 31 | | $ | 409 | | $ | 387 | | $ | 275 | | $ | 254 | |
| | | | | | | | | | | | | |
Fair value of plan assets | | | | | | | | | | | | | |
At January 1 | | $ | 408 | | $ | 353 | | $ | 231 | | $ | 207 | |
Actual return on plan assets | | | 53 | | | 82 | | | 22 | | | 24 | |
Employer contributions | | | 1 | | | 1 | | | 4 | | | 7 | |
Benefits paid | | | (23) | | | (28) | | | (12) | | | (11) | |
Plan settlements | | | — | | | — | | | — | | | (3) | |
Foreign currency translation | | | — | | | — | | | 4 | | | 7 | |
Fair value of plan assets at December 31 | | $ | 439 | | $ | 408 | | $ | 249 | | $ | 231 | |
| | | | | | | | | | | | | |
Funded status | | $ | 30 | | $ | 21 | | $ | (26) | | $ | (23) | |
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Benefit obligation | ||||||||||||||||||||||||||
At January 1 | $ | 300 | $ | 383 | $ | 188 | $ | 254 | ||||||||||||||||||
Service cost | 3 | 4 | 4 | 3 | ||||||||||||||||||||||
Interest cost | 15 | 9 | 10 | 9 | ||||||||||||||||||||||
Benefits paid | (18) | (25) | (13) | (13) | ||||||||||||||||||||||
Actuarial loss (gain) | 5 | (71) | 8 | (49) | ||||||||||||||||||||||
Curtailment/settlement/amendments | — | — | (1) | (2) | ||||||||||||||||||||||
Foreign currency translation | — | — | 4 | (14) | ||||||||||||||||||||||
Benefit obligation at December 31 | $ | 305 | $ | 300 | $ | 200 | $ | 188 | ||||||||||||||||||
Fair value of plan assets | ||||||||||||||||||||||||||
At January 1 | $ | 317 | $ | 420 | $ | 189 | $ | 244 | ||||||||||||||||||
Actual return on plan assets | 25 | (79) | 17 | (30) | ||||||||||||||||||||||
Employer contributions | 1 | 1 | 6 | 5 | ||||||||||||||||||||||
Benefits paid | (18) | (25) | (13) | (13) | ||||||||||||||||||||||
Plan settlements | — | — | (1) | (2) | ||||||||||||||||||||||
Foreign currency translation | — | — | 2 | (15) | ||||||||||||||||||||||
Fair value of plan assets at December 31 | $ | 325 | $ | 317 | $ | 200 | $ | 189 | ||||||||||||||||||
Funded status | $ | 20 | $ | 17 | $ | — | $ | 1 |
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Non-current asset | $ | 28 | $ | 25 | $ | 47 | $ | 43 | ||||||||||||||||||
Current liabilities | (1) | (1) | (2) | (1) | ||||||||||||||||||||||
Non-current liabilities | (7) | (7) | (45) | (41) | ||||||||||||||||||||||
Net asset (liability) recognized | $ | 20 | $ | 17 | $ | — | $ | 1 |
| | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans | | ||||||||
(in millions) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Non-current asset | | $ | 41 | | $ | 32 | | $ | 36 | | $ | 31 | |
Current liabilities | | | (1) | | | (1) | | | (1) | | | (2) | |
Non-current liabilities | | | (10) | | | (10) | | | (61) | | | (52) | |
Net asset (liability) recognized | | $ | 30 | | $ | 21 | | $ | (26) | | $ | (23) | |
| | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans | | ||||||||
(in millions) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Net actuarial loss | | $ | 12 | | $ | 15 | | $ | 61 | | $ | 62 | |
Transition obligation | | | — | | | — | | | 1 | | | 1 | |
Prior service credit | | | (5) | | | (6) | | | — | | | — | |
Net amount recognized | | $ | 7 | | $ | 9 | | $ | 62 | | $ | 63 | |
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Net actuarial loss | $ | 32 | $ | 36 | $ | 24 | $ | 24 | ||||||||||||||||||
Prior service (credit) cost | (2) | (3) | — | — | ||||||||||||||||||||||
Net amount recognized | $ | 30 | $ | 33 | $ | 24 | $ | 24 |
84
pension. The decrease in the net amount recognized in accumulated comprehensive lossAOCL at December 31, 2020,2023 for the non-U.S. pension plans as compared to December 31, 2019, is mainly2022 was flat primarily due to the actual return on assets exceeding the expected return on assets. This is partiallyactuarial loss amortization, which was offset by the effect of the decrease in discount rates used to measure the Company’s obligations under its non-U.S. pension plans.
foreign currency translation.
Information for pension plans with a projected benefit obligation in excess of plan assets and an accumulated benefit obligation in excess of plan assets wasis as follows:
| | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans | | ||||||||
(in millions) | | 2020 | | 2019 | | 2020 | | 2019 |
| ||||
Projected benefit obligation | | $ | (11) | | $ | (11) | | $ | (81) | | $ | (56) | |
Accumulated benefit obligation | | | (10) | | | (10) | | | (70) | | | (45) | |
Fair value of plan assets | | | — | | | — | | | 19 | | | 2 | |
All U.S. plans and most non-U.S. plans value the vested benefit obligation based on the actuarial present value of the vested benefits to which employees are currently entitled based on employees’ expected date of separation or retirement.
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Projected benefit obligation | $ | (8) | $ | (8) | $ | (51) | $ | (45) | ||||||||||||||||||
Accumulated benefit obligation | (8) | (8) | (40) | (35) | ||||||||||||||||||||||
Fair value of plan assets | — | — | 4 | 3 |
2021:
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||||||||||||||
2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
Service cost | $ | 3 | $ | 4 | $ | 4 | $ | 4 | $ | 3 | $ | 4 | ||||||||||||||||||||||||||
Interest cost | 15 | 9 | 8 | 10 | 9 | 9 | ||||||||||||||||||||||||||||||||
Expected return on plan assets | (17) | (16) | (17) | (9) | (7) | (8) | ||||||||||||||||||||||||||||||||
Amortization of actuarial loss | 1 | — | — | 1 | 1 | 2 | ||||||||||||||||||||||||||||||||
Amortization of prior service credit | (1) | (1) | (1) | — | — | — | ||||||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 1 | $ | (4) | $ | (6) | $ | 6 | $ | 6 | $ | 7 |
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | ||||||||||||||||
| | | U.S. Plans | | Non-U.S. Plans | | ||||||||||||||
(in millions) |
|
| 2020 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2018 |
| ||||||
Service cost | | | $ | 5 | | $ | 5 | | $ | 6 | | $ | 4 | | $ | 3 | | $ | 3 | |
Interest cost | | | | 11 | | | 14 | | | 13 | | | 10 | | | 10 | | | 10 | |
Expected return on plan assets | | | | (21) | | | (18) | | | (21) | | | (8) | | | (8) | | | (9) | |
Amortization of actuarial loss | | | | — | | | 1 | | | — | | | 2 | | | 2 | | | 2 | |
Amortization of prior service credit | | | | (1) | | | (1) | | | — | | | — | | | — | | | — | |
Net periodic benefit cost | | | $ | (6) | | $ | 1 | | $ | (2) | | $ | 8 | | $ | 7 | | $ | 6 | |
The service cost componentTable of net periodic benefit cost is presented within either cost of sales or operating expenses on theContents
Actuarial gains and losses
millions, except per share data, unless otherwise noted)
| | | | | | | | | | | | | | | | | | | |
(in millions, pre-tax) |
| U.S. Plans |
| Non-U.S. Plans | | ||||||||||||||
| | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | ||||||
Net actuarial (gain) loss | | $ | (3) | | $ | (25) | | $ | 19 | | $ | 1 | | $ | 7 | | $ | 4 | |
Prior service cost | | | — | | | — | | | — | | | — | | | 1 | | | — | |
Amortization of actuarial loss | | | — | | | (1) | | | — | | | (2) | | | (2) | | | (2) | |
Amortization of prior service credit | | | 1 | | | 1 | | | — | | | — | | | — | | | — | |
Total recorded in other comprehensive income | | | (2) | | | (25) | | | 19 | | | (1) | | | 6 | | | 2 | |
Net periodic benefit cost | | | (6) | | | 1 | | | (2) | | | 8 | | | 7 | | | 6 | |
Total recorded in other comprehensive income and net periodic benefit cost | | $ | (8) | | $ | (24) | | $ | 17 | | $ | 7 | | $ | 13 | | $ | 8 | |
85
(pre-tax) | U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||||
2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
Net actuarial (gain) loss | $ | (3) | $ | 25 | $ | (1) | $ | — | $ | (11) | $ | (11) | ||||||||||||||||||||||||||
Prior service cost | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Amortization of actuarial loss | (1) | — | — | (1) | (1) | (2) | ||||||||||||||||||||||||||||||||
Amortization of prior service credit | 1 | 1 | 1 | — | — | — | ||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | 1 | (2) | (11) | ||||||||||||||||||||||||||||||||
Total recorded in other comprehensive (income) loss | (3) | 26 | — | — | (14) | (24) | ||||||||||||||||||||||||||||||||
Net periodic benefit cost | 1 | (4) | (6) | 6 | 6 | 7 | ||||||||||||||||||||||||||||||||
Total recorded in other comprehensive (income) loss and net periodic benefit cost | $ | (2) | $ | 22 | $ | (6) | $ | 6 | $ | (8) | $ | (17) |
The following weighted average assumptions were used to determine the Company’sour obligations underfor the pension plans:
| | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans | | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
Discount rate | | 2.58 | % | 3.34 | % | 2.84 | % | 3.55 | % |
Rate of compensation increase | | 4.26 | | 4.21 | | 3.54 | | 3.75 | |
Cash balance interest crediting rate | | 3.76 | | 4.16 | | — | | — | |
plans are as follows:
U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Discount rate | 5.00 | % | 5.19 | % | 5.24 | % | 5.66 | % | |||||||||||||||
Rate of compensation increase | 3.83 | 3.92 | 3.76 | 3.83 | |||||||||||||||||||
Cash balance interest credit rate | 4.53 | 4.21 | — | — |
| | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans | | ||||||||
|
| 2020 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2018 |
|
Discount rate | | 3.34 | % | 4.38 | % | 3.70 | % | 3.55 | % | 4.33 | % | 4.02 | % |
Expected long-term return on plan assets | | 5.30 | | 5.30 | | 5.30 | | 3.81 | | 4.37 | | 4.31 | |
Rate of compensation increase | | 4.21 | | 4.31 | | 4.42 | | 3.68 | | 3.63 | | 3.58 | |
Cash balance interest crediting rate | | 4.16 | | 4.49 | | 4.56 | | — | | — | | — | |
plans are as follows:
U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||
2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
Discount rate | 5.19 | % | 2.91 | % | 2.58 | % | 5.67 | % | 3.66 | % | 2.84 | % | |||||||||||||||||||||||
Expected long-term return on plan assets | 5.50 | 4.10 | 4.10 | 5.05 | 3.50 | 3.37 | |||||||||||||||||||||||||||||
Rate of compensation increase | 3.92 | 4.18 | 4.26 | 3.83 | 3.77 | 3.54 | |||||||||||||||||||||||||||||
Cash balance interest crediting rate | 4.21 | 4.11 | 3.76 | — | — | — |
Plan Assets: The Company’s Our investment policy for itsour pension plans is to balance risk and return through diversified portfolios of fixed income securities, equity instruments and short-term investments. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. For U.S. pension plans, the weighted average target range allocation of assets was 15-259 to 19 percent in equities and 75-8581 to 91 percent in fixed income inclusive of other short-term investments. The asset allocation is reviewed regularly, and portfolio investments are rebalanced to the targeted allocation when considered appropriate.
The Company’s
| | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans | | ||||
Asset Category | | 2020 | | 2019 | | 2020 | | 2019 |
|
Equity securities | | 20 | % | 21 | % | 18 | % | 17 | % |
Debt securities | | 79 | | 78 | | 58 | | 63 | |
Cash and other | | 1 | | 1 | | 24 | | 20 | |
Total | | 100 | % | 100 | % | 100 | % | 100 | % |
86
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||
Asset Category | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Equity securities | 12 | % | 11 | % | 8 | % | 8 | % | ||||||||||||||||||
Debt securities | 86 | 87 | 78 | 77 | ||||||||||||||||||||||
Cash and other | 2 | 2 | 14 | 15 | ||||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
The fair values of the Company’s plan assets by asset category and levelcash, which is considered Level 1 in the fair value hierarchy, are as follows:
| | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2020 | | ||||||||||
(in millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
U.S. Plans: | | | | | | | | | | | | | |
Equity index: | | | | | | | | | | | | | |
U.S. (a) | | $ | — | | $ | 45 | | $ | — | | $ | 45 | |
International (b) | | | — | | | 44 | | | — | | | 44 | |
Fixed income index: | | | | | | | | | | | | | |
Long bond (c) | | | — | | | 276 | | | — | | | 276 | |
Long government bond (d) | | | — | | | 69 | | | — | | | 69 | |
Cash (e) | | | — | | | 5 | | | — | | | 5 | |
Total U.S. Plans | | $ | — | | $ | 439 | | $ | — | | $ | 439 | |
Non-U.S. Plans: | | | | | | | | | | | | | |
Equity index: | | | | | | | | | | | | | |
U.S. (a) | | $ | — | | $ | 26 | | $ | — | | $ | 26 | |
International (b) | | | — | | | 19 | | | — | | | 19 | |
Fixed income index: | | | | | | | | | | | | | |
Short bond (f) | | | — | | | 31 | | | — | | | 31 | |
Intermediate bond (g) | | | — | | | 38 | | | — | | | 38 | |
Long bond (h) | | | — | | | 106 | | | — | | | 106 | |
Other (i) | | | — | | | 26 | | | — | | | 26 | |
Cash (e) | | | 3 | | | — | | | — | | | 3 | |
Total Non-U.S. Plans | | $ | 3 | | $ | 246 | | $ | — | | $ | 249 | |
| | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2019 | | ||||||||||
(in millions) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | | ||||
U.S. Plans: | | | | | | �� | | | | | | | |
Equity index: | | | | | | | | | | | | | |
U.S. (a) | | $ | — | | $ | 43 | | $ | — | | $ | 43 | |
International (b) | | | — | | | 42 | | | — | | | 42 | |
Fixed income index: | | | | | | | | | | | | | |
Long bond (c) | | | — | | | 295 | | | — | | | 295 | |
Long govt bond (d) | | | — | | | 25 | | | — | | | 25 | |
Cash (e) | | | — | | | 3 | | | — | | | 3 | |
Total U.S. Plans | | $ | — | | $ | 408 | | $ | — | | $ | 408 | |
Non-U.S. Plans: | | | | | | | | | | | | | |
Equity index: | | | | | | | | | | | | | |
U.S. (a) | | $ | — | | $ | 22 | | $ | — | | $ | 22 | |
International (b) | | | — | | | 17 | | | — | | | 17 | |
Fixed income index: | | | | | | | | | | | | | |
Intermediate bond (g) | | | — | | | 52 | | | — | | | 52 | |
Long bond (h) | | | — | | | 95 | | | — | | | 95 | |
Other (i) | | | — | | | 24 | | | — | | | 24 | |
Cash (e) | | | 2 | | | 19 | | | — | | | 21 | |
Total Non-U.S. Plans | | $ | 2 | | $ | 229 | | $ | — | | $ | 231 | |
87
Allall significant pension plan assets are held in collective trusts by the Company’sour U.S. and non-U.S. plans. The fair valuesvalue of shares of collective trusts are based upon the net asset valuesvalue (“NAV”) of the fundsfund reported by the fund managers based on quoted market prices of the underlying securities as of the balance sheet date and are considered to be Level 2 fair value measurements. Investments measured at NAV as a practical expedient for fair value, are excluded from the fair value hierarchy. This may produce a fair value measurement that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes itswe believe our valuation methods are appropriate and consistent with those of other market participants, the use of different methodologiesmethods could result in different fair value measurements at the reporting date.
Fair Value Measurements at December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
NAV | Level 1 | Level 2 | Total | |||||||||||||||||||||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||
U.S. Plans: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Equity index: | ||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. (a) | $ | — | $ | — | $ | — | $ | — | $ | 24 | $ | 22 | $ | 24 | $ | 22 | ||||||||||||||||||||||||||||||||||
International (b) | — | — | — | — | 16 | 14 | 16 | 14 | ||||||||||||||||||||||||||||||||||||||||||
Fixed income index: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Long bond (c) | — | — | — | — | 133 | 127 | 133 | 127 | ||||||||||||||||||||||||||||||||||||||||||
Government bond (d) | — | — | — | — | 89 | 89 | 89 | 89 | ||||||||||||||||||||||||||||||||||||||||||
Other fixed income (e) | 57 | 59 | — | — | — | — | 57 | 59 | ||||||||||||||||||||||||||||||||||||||||||
Cash & Short-term Investments (f) | — | — | — | — | 6 | 6 | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Total U.S. Plans | $ | 57 | $ | 59 | $ | — | $ | — | $ | 268 | $ | 258 | $ | 325 | $ | 317 | ||||||||||||||||||||||||||||||||||
Non-U.S. Plans: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Equity index: | ||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. (a) | $ | — | $ | — | $ | — | $ | — | $ | 10 | $ | 9 | $ | 10 | $ | 9 | ||||||||||||||||||||||||||||||||||
International (b) | — | — | — | — | 6 | 6 | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Fixed income index: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Government bond (g) | — | — | — | — | 78 | 99 | 78 | 99 | ||||||||||||||||||||||||||||||||||||||||||
Corporate bond (h) | — | — | — | — | 79 | 46 | 79 | 46 | ||||||||||||||||||||||||||||||||||||||||||
Other (i) | — | — | — | — | 25 | 22 | 25 | 22 | ||||||||||||||||||||||||||||||||||||||||||
Cash & Short-term Investments (f) | — | — | 2 | 2 | — | 5 | 2 | 7 | ||||||||||||||||||||||||||||||||||||||||||
Total Non-U.S. Plans | $ | — | $ | — | $ | 2 | $ | 2 | $ | 198 | $ | 187 | $ | 200 | $ | 189 |
(a) | This category consists of both passively and actively managed equity index funds that track the return of large capitalization U.S. equities. |
(b) | This category consists of both passively and actively managed equity index funds that track an index of returns on international developed and emerging market equities. |
In the year ended December 31, 2020, the Company
(c) | This category consists of an actively managed fixed-income index fund that invests in a diversified portfolio of fixed-income securities with maturities generally exceeding 10 years. |
(d) | This category consists of both passively and actively managed fixed-income index funds that invest in a diversified portfolio of fixed income government debt securities with varying maturities. |
(e) | This category consists of an actively managed common collective fund that invests in government bonds, collateralized mortgage obligations, investment grade private credit and real estate debt. This fund is priced monthly at the aggregated market value of the underlying investments and may be fully redeemed with 95 days notice. |
(f) | This category represents cash, cash equivalents, or highly liquid short-term investments. |
(g) | This category consists of both passively and actively managed fixed income index funds that track the return of government bonds with varying maturities. |
(h) | This category consists of actively managed fixed income index funds that track the return of investment grade corporate bonds with varying maturities. |
(i) | This category mainly consists of investment products provided by insurance companies that offer returns that are subject to a minimum guarantee and mutual funds. |
The
| | | | | | | |
(in millions) | | U.S. Plans | | Non-U.S. Plans |
| ||
2021 | | $ | 23 | | $ | 11 | |
2022 | | | 24 | | | 12 | |
2023 | | | 24 | | | 13 | |
2024 | | | 24 | | | 13 | |
2025 | | | 24 | | | 13 | |
Years 2026 - 2030 | | | 126 | | | 70 | |
The Company and certain subsidiariesappropriate:
U.S. Plans | Non-U.S. Plans | |||||||||||||
2024 | $ | 26 | $ | 12 | ||||||||||
2025 | 26 | 12 | ||||||||||||
2026 | 26 | 12 | ||||||||||||
2027 | 27 | 13 | ||||||||||||
2028 | 24 | 38 | ||||||||||||
Thereafter | 114 | 73 |
2021.
| | | | | | | |
(in millions) |
| 2020 |
| 2019 |
| ||
Accumulated postretirement benefit obligation | | | | | | | |
At January 1 | | $ | 69 | | $ | 64 | |
Service cost | | | — | | | 1 | |
Interest cost | | | 3 | | | 3 | |
Actuarial loss (gain) | | | 4 | | | 6 | |
Benefits paid | | | (5) | | | (5) | |
Foreign currency translation | | | (3) | | | — | |
At December 31 | | | 68 | | | 69 | |
Fair value of plan assets | | | — | | | — | |
Funded status | | $ | (68) | | $ | (69) | |
2023 | 2022 | |||||||||||||
Accumulated postretirement benefit obligation | ||||||||||||||
At January 1 | $ | 58 | $ | 65 | ||||||||||
Service cost | 1 | 1 | ||||||||||||
Interest cost | 4 | 3 | ||||||||||||
Amendments | 2 | — | ||||||||||||
Actuarial (gain) loss | 1 | (7) | ||||||||||||
Benefits paid | (4) | (4) | ||||||||||||
Foreign currency translation | 2 | — | ||||||||||||
At December 31 | 64 | 58 | ||||||||||||
Fair value of plan assets | — | — | ||||||||||||
Funded status | $ | (64) | $ | (58) |
88
the increase in the postretirement benefit obligation was driven by actuarial losses, which mainly resulted from a decline in discount rates due to the fall in bond yields compared to the prior year.
Amounts recognizedrecorded in the Consolidated Balance Sheets at December 31, 2023 and 2022 consist of:
| | | | | | | |
(in millions) | | 2020 | | 2019 |
| ||
Current liabilities | | $ | (4) | | $ | (4) | |
Non-current liabilities | | | (64) | | | (65) | |
Net liability recognized | | $ | (68) | | $ | (69) | |
2023 | 2022 | |||||||||||||
Current liabilities | $ | (4) | $ | (5) | ||||||||||
Non-current liabilities | (60) | (53) | ||||||||||||
Net liability recognized | $ | (64) | $ | (58) |
| | | | | | | |
(in millions) |
| 2020 |
| 2019 |
| ||
Net actuarial loss | | $ | 17 | | $ | 14 | |
Prior service credit | | | — | | | (2) | |
Net amount recognized | | $ | 17 | | $ | 12 | |
2023 | 2022 | |||||||||||||
Net actuarial loss | $ | 4 | $ | 1 | ||||||||||
Prior service cost | 6 | 5 | ||||||||||||
Net amount recognized | $ | 10 | $ | 6 |
2021:
2023 | 2022 | 2021 | ||||||||||||||||||
Service cost | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||
Interest cost | 4 | 3 | 2 | |||||||||||||||||
Amortization of actuarial (gain) loss | (1) | — | 1 | |||||||||||||||||
Amortization of prior service cost (credit) | 1 | — | (2) | |||||||||||||||||
Net periodic benefit cost | $ | 5 | $ | 4 | $ | 2 |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(in millions) | | 2020 |
| 2019 |
| 2018 | |||
Service cost | | $ | — | | $ | 1 | | $ | 1 |
Interest cost | | | 3 | | | 3 | | | 3 |
Amortization of actuarial loss | | | 1 | | | — | | | — |
Amortization of prior service credit | | | (2) | | | (2) | | | (2) |
Net periodic benefit cost | | $ | 2 | | $ | 2 | | $ | 2 |
The service cost componentTable of net periodic benefit cost is presented within either cost of sales or operating expenses on theContents
| | | | | | | | | | |
(in millions, pre-tax) |
| 2020 |
| 2019 | | 2018 | | |||
Net actuarial loss (gain) | | $ | 4 | | $ | 6 | | $ | (3) | |
Amortization of prior service credit | | | 2 | | | 2 | | | 2 | |
Amortization of actuarial loss | | | (1) | | | — | | | — | |
Total recorded in other comprehensive income | | | 5 | | | 8 | | | (1) | |
Net periodic benefit cost | | | 2 | | | 2 | | | 2 | |
Total recorded in other comprehensive income and net periodic benefit cost | | $ | 7 | | $ | 10 | | $ | 1 | |
(pre-tax) | 2023 | 2022 | 2021 | |||||||||||||||||
Net actuarial loss (gain) | $ | 1 | $ | (7) | $ | (5) | ||||||||||||||
Prior service cost | 2 | — | 4 | |||||||||||||||||
Amortization of prior service (cost) credit | (1) | — | 2 | |||||||||||||||||
Amortization of actuarial gain (loss) | 1 | — | (1) | |||||||||||||||||
Foreign currency translation | 1 | — | (4) | |||||||||||||||||
Total recorded in other comprehensive loss (income) | 4 | (7) | (4) | |||||||||||||||||
Net periodic benefit cost | 5 | 4 | 2 | |||||||||||||||||
Total recorded in other comprehensive loss (income) and net periodic benefit cost | $ | 9 | $ | (3) | $ | (2) |
2023 | 2022 | ||||||||||
Discount rate | 7.37 | % | 7.30 | % |
| | | | | |
| | 2020 | | 2019 | |
Discount rate | | 3.69 | % | 4.18 | % |
The following weighted average assumptions were used to determine the Company’sour net postretirement benefit cost:
| | | | | | | |
| | 2020 | | 2019 | | 2018 | |
Discount rate | | 4.42 | % | 5.49 | % | 4.93 | % |
2023 | 2022 | 2021 | |||||||||||||||
Discount rate | 7.30 | % | 4.22 | % | 3.69 | % |
89
The healthcare cost trend rates used in valuing the Company’sour postretirement benefit obligations are established based upon actual healthcare trends and consultation with actuaries and benefit providers. TheWe used the following assumptions were used as of December 31, 2020:
| | | | | | | |
| | U.S. | | Canada | | Brazil | |
2020 increase in per capita cost | | 5.90 | % | 5.83 | % | 7.07 | % |
Ultimate trend | | 4.50 | % | 4.00 | % | 7.07 | % |
Year ultimate trend reached | | 2028 | | 2040 | | 2020 | |
The2023:
U.S. | Canada | Brazil | |||||||||||||||
2023 increase in per capita cost | 7.80 | % | 5.04 | % | 8.94 | % | |||||||||||
Ultimate trend | 4.50 | % | 4.05 | % | 8.94 | % | |||||||||||
Year ultimate trend reached | 2033 | 2040 | 2023 |
2024 | $ | 4 | |||
2025 | 4 | ||||
2026 | 4 | ||||
2027 | 4 | ||||
2028 | 4 | ||||
Thereafter | 22 |
| | | | |
(in millions) | | | |
|
2021 | | $ | 4 | |
2022 | | | 4 | |
2023 | | | 4 | |
2024 | | | 4 | |
2025 | | | 4 | |
Years 2026 - 2030 | | | 19 | |
Consolidated Financial Statements
The risks of participating in this multi-employer plan are different from risk of participating in single-employer plans. This plan receives contributions from two or more unrelated employers pursuant to one or more collective bargaining agreements, and the assets contributed by one employer may be used to fund the benefits of all employees covered within the plan.
The Company is
2027.
NOTE 11 – Equity
Preferred stock: The Company hasWe have authorized 25 million shares of $0.01 par value preferred stock, NaNnone of which were issued or outstanding at December 31, 20202023 and 2019.
2022.
Treasury stock: On October 22, 2018,September 26, 2022, the Board of Directors authorizedapproved a stock repurchase program permitting the Companyauthorizing us to purchase up to 86.0 million of its outstanding shares of our outstanding common stock from November 5, 2018 throughuntil December 31, 2023.2025. We may repurchase shares from time to time in the open market, in privately negotiated transactions, or otherwise, at prices we deem appropriate. We are not obligated to repurchase any shares under the authorization, and the repurchase program may be suspended, discontinued or modified at any time, for any reason and without notice. The parameters of the Company’sour stock repurchase program are not established solely with reference to the dilutive impact of shares issued under the Company’sour stock incentive plan. However, the Company expectswe expect 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
90
shares of common stock to $392 million. The Company adjusted Additional paid-in capital and Treasury stock by $32 million and $31 million, respectively, during the first quarter of 2019 for this inflow of cash.
The Company did 0t repurchaseoutstanding shares of common stock in the year ended December 31, 2020
Set forth below isopen market transactions at a reconciliationnet cost of $101 million. During 2022, pursuant to our previous stock repurchase program which has since been terminated, we repurchased 1.3 million shares of common stock in open market transactions at a net cost of $112 million.
2021 is as follows:
(Shares of common stock, in thousands) | Issued | Held in Treasury | Outstanding | |||||||||||||||||
Balance at December 31, 2020 | 77,811 | 10,795 | 67,016 | |||||||||||||||||
Issuance of restricted stock units as compensation | — | (69) | 69 | |||||||||||||||||
Performance shares and other share-based awards | — | (6) | 6 | |||||||||||||||||
Stock options exercised | — | (331) | 331 | |||||||||||||||||
Purchase/acquisition of treasury stock | — | 765 | (765) | |||||||||||||||||
Balance at December 31, 2021 | 77,811 | 11,154 | 66,657 | |||||||||||||||||
Issuance of restricted stock units as compensation | — | (95) | 95 | |||||||||||||||||
Performance shares and other share-based awards | — | (43) | 43 | |||||||||||||||||
Stock options exercised | — | (182) | 182 | |||||||||||||||||
Purchase/acquisition of treasury stock | — | 1,283 | (1,283) | |||||||||||||||||
Balance at December 31, 2022 | 77,811 | 12,117 | 65,694 | |||||||||||||||||
Issuance of restricted stock units as compensation | — | (108) | 108 | |||||||||||||||||
Performance shares and other share-based awards | — | (51) | 51 | |||||||||||||||||
Stock options exercised | — | (386) | 386 | |||||||||||||||||
Purchase/acquisition of treasury stock | — | 1,000 | (1,000) | |||||||||||||||||
Balance at December 31, 2023 | 77,811 | 12,572 | 65,239 |
| | | | | | | |
(Shares of common stock, in thousands) | | Issued | | Held in Treasury | | Outstanding |
|
Balance at December 31, 2017 | | 77,811 | | 5,815 | | 71,996 | |
Issuance of restricted stock units as compensation | | — | | (100) | | 100 | |
Performance shares and other share-based awards | | — | | (68) | | 68 | |
Stock options exercised | | — | | (209) | | 209 | |
Purchase/acquisition of treasury stock | | — | | 5,847 | | (5,847) | |
Balance at December 31, 2018 | | 77,811 | | 11,285 | | 66,526 | |
Issuance of restricted stock units as compensation | | — | | (105) | | 105 | |
Performance shares and other share-based awards | | — | | (5) | | 5 | |
Stock options exercised | | — | | (182) | | 182 | |
Purchase/acquisition of treasury stock | | — | | — | | — | |
Balance at December 31, 2019 | | 77,811 | | 10,993 | | 66,818 | |
Issuance of restricted stock units as compensation | | — | | (69) | | 69 | |
Performance shares and other share-based awards | | — | | (5) | | 5 | |
Stock options exercised | | — | | (124) | | 124 | |
Purchase/acquisition of treasury stock | | — | | — | | — | |
Balance at December 31, 2020 | | 77,811 | | 10,795 | | 67,016 | |
Share-based payments: The following table summarizes the components of the Company’s share-basedShare-based compensation expense for the years ended December 31, 2020, 20192023, 2022 and 2018:
2021 is as follows:
| | | | | | | | | | |
(in millions) |
| 2020 |
| 2019 |
| 2018 |
| |||
Stock options: | | | | | | | | | | |
Pre-tax compensation expense | | $ | 4 |
| $ | 3 |
| $ | 5 | |
Income tax benefit | |
| — | |
| — | |
| (1) | |
Stock option expense, net of income taxes | |
| 4 | |
| 3 | |
| 4 | |
| | | | | | | | | | |
Restricted stock units ("RSUs"): | | | | | | | | | | |
Pre-tax compensation expense | |
| 12 | |
| 10 | |
| 12 | |
Income tax benefit | |
| (1) | |
| (2) | |
| (2) | |
RSUs, net of income taxes | |
| 11 | |
| 8 | |
| 10 | |
| | | | | | | | | | |
Performance shares and other share-based awards: | | | | | | | | | | |
Pre-tax compensation expense | |
| 7 | |
| 5 | |
| 4 | |
Income tax benefit | |
| (1) | |
| — | |
| — | |
Performance shares and other share-based compensation expense, net of income taxes | |
| 6 | |
| 5 | |
| 4 | |
| | | | | | | | | | |
Total share-based compensation: | | | | | | | | | | |
Pre-tax compensation expense | |
| 23 | |
| 18 | |
| 21 | |
Income tax benefit | |
| (2) | |
| (2) | |
| (3) | |
Total share-based compensation expense, net of income taxes | | $ | 21 |
| $ | 16 |
| $ | 18 | |
The Company has
2023 | 2022 | 2021 | ||||||||||||||||||
Stock options: | ||||||||||||||||||||
Pre-tax compensation expense | $ | 4 | $ | 4 | $ | 3 | ||||||||||||||
Income tax benefit | — | — | — | |||||||||||||||||
Stock option expense, net of income taxes | 4 | 4 | 3 | |||||||||||||||||
Restricted stock units (“RSUs”): | ||||||||||||||||||||
Pre-tax compensation expense | 15 | 13 | 12 | |||||||||||||||||
Income tax benefit | (2) | (1) | (1) | |||||||||||||||||
RSUs, net of income taxes | 13 | 12 | 11 | |||||||||||||||||
Performance shares and other share-based awards: | ||||||||||||||||||||
Pre-tax compensation expense | 14 | 12 | 8 | |||||||||||||||||
Income tax benefit | (1) | (1) | (1) | |||||||||||||||||
Performance shares and other share-based compensation expense, net of income taxes | 13 | 11 | 7 | |||||||||||||||||
Total share-based compensation: | ||||||||||||||||||||
Pre-tax compensation expense | 33 | 29 | 23 | |||||||||||||||||
Income tax benefit | (3) | (2) | (2) | |||||||||||||||||
Total share-based compensation expense, net of income taxes | $ | 30 | $ | 27 | $ | 21 |
91
Stock Options: Under the Company’s SIP, stock options are granted at exercise prices that equal the market value of the underlying common stock on the date of grant. The options have a 10-year term and are exercisable upon vesting, which occurs over a three-year period at the anniversary dates of the date of grant. Compensation expense is generally recognized on a straight-line basis for all awards over the employee’s vesting period or over a one-year required service period for certain retirement eligible executive level employees. The Company estimates a forfeiture rate at the time of grant and updates the estimate throughout the vesting of the stock options within the amount of compensation costs recognized in each period.
The Company
| | | | | | | | | |
| | For the Year Ended December 31, | |||||||
| | 2020 | | 2019 | | 2018 | |||
Expected life (in years) | | 5.5 | | | 5.5 | | | 5.5 | |
Risk-free interest rate | | 1.4 | % | | 2.5 | % | | 2.5 | % |
Expected volatility | | 19.8 | % | | 19.7 | % | | 19.8 | % |
Expected dividend yield | | 2.9 | % | | 2.7 | % | | 1.8 | % |
For the Year Ended December 31, | ||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||
Expected life (in years) | 5.5 | 5.5 | 5.5 | |||||||||||||||||
Risk-free interest rate | 4.0 | % | 2.0 | % | 0.6 | % | ||||||||||||||
Expected volatility | 28.3 | % | 23.8 | % | 23.2 | % | ||||||||||||||
Expected dividend yield | 2.9 | % | 2.9 | % | 2.9 | % |
A summaryyield at the date of stockissuance.
| | | | | | | | | | | |
|
| 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 | |
Granted |
| 336 | | | 88.35 | | | | | | |
Exercised |
| (124) | | | 47.12 | | | | | | |
Cancelled |
| (29) | | | 103.57 | | | | | | |
Outstanding as of December 31, 2020 |
| 2,238 | | $ | 86.55 |
| 5.15 |
| $ | 14 | |
Exercisable as of December 31, 2020 |
| 1,709 | | $ | 84.38 |
| 4.11 |
| $ | 14 | |
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, 2022 | 2,222 | $ | 92.32 | 5.16 | $ | 24 | ||||||||||||||||||||
Granted | 197 | 98.69 | ||||||||||||||||||||||||
Exercised | (386) | 71.76 | ||||||||||||||||||||||||
Cancelled | (80) | 102.66 | ||||||||||||||||||||||||
Outstanding as of December 31, 2023 | 1,953 | $ | 96.61 | 4.97 | $ | 29 | ||||||||||||||||||||
Exercisable as of December 31, 2023 | 1,523 | $ | 97.80 | 4.03 | $ | 22 |
Year Ended December 31, | ||||||||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||
Weighted average grant date fair value of stock options granted (per share) | $ | 23.80 | $ | 15.04 | $ | 12.31 | ||||||||||||||
Total intrinsic value of stock options exercised | 13 | 6 | 10 |
| | | | | | | | | |
| | | | | | ||||
| | Year Ended December 31, | |||||||
(dollars in millions, except per share) |
| 2020 |
| 2019 | | 2018 | |||
Weighted average grant date fair value of stock options granted (per share) | | $ | 11.48 | | $ | 14.02 | | $ | 24.01 |
Total intrinsic value of stock options exercised | | | 5 | | | 10 | | | 15 |
Restricted Stock Units: The Company has We have granted restricted stock units (“RSUs”) to certain key employees. The RSUs are primarily subject to cliff vesting, generally after three years, provided the employee remains in the service of the Company. Compensation expense is generally recognized on a straight-line basis for all awards over the employee’s vesting period or over a one-year required service period for certain retirement eligible executive level employees. The Company estimates a forfeiture rate at the time of grant and updates the estimate throughout the vesting of the RSUs within the amount of compensation costs recognized in each period.our service. The fair value of the RSUs is determined based upon the number of shares granted and the quoted market price of the Company’sour common stock at the date of the grant.
grant date.
92
The following table summarizes RSU activity for the year:
| | | | | |
| | | | Weighted | |
| | Number of | | Average | |
| | Restricted | | Fair Value | |
(shares in thousands) | | Shares | | per Share | |
Non-vested at December 31, 2019 | | 339 | | $ | 108.02 |
Granted | | 196 | | | 87.01 |
Vested | | (94) | | | 117.33 |
Cancelled | | (23) | | | 101.72 |
Non-vested at December 31, 2020 | | 418 | | $ | 96.45 |
in 2023 is as follows:
(shares in thousands) | Number of Restricted Shares | Weighted Average Fair Value per Share | ||||||||||||
Non-vested at December 31, 2022 | 517 | $ | 88.04 | |||||||||||
Granted | 222 | 98.15 | ||||||||||||
Vested | (154) | 87.91 | ||||||||||||
Cancelled | (33) | 91.30 | ||||||||||||
Non-vested at December 31, 2023 | 552 | $ | 92.05 |
$12 million.
Performance Shares:The Company has We have a long-term incentive plan for senior management in the form of performance shares. Historically theseThe vesting of the performance shares vestedis generally based solely on two performance metrics. Fifty percent of the Company’sperformance shares awarded vest based on our total shareholder return as compared to the total shareholder return of its peer group over the three-year vesting period. Beginning with the performance share grants in the year ended December 31, 2019, the vesting of the performance shares will be based on 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 itsour peer group and the remaining 50fifty percent will vest based on the calculation of the Company’sour three-year average Adjusted Return on Invested Capital (“ROIC”) against an established ROIC target.
The 2021 performance shares were granted in two tranches. Vesting for the first tranche was split evenly between our total shareholder return and Adjusted ROIC against the applicable target. The second tranche of performance share awards vest 100 percent based on the calculation of Adjusted ROIC against the applicable target.
The Company
The performance share awards granted in the year ended December 31, 2017that vested in the first quarter of 2020, achievingduring 2023 achieved a 077 percent payout of the granted performance shares. As of December 31, 2020,2023, the 2021 performance share awards granted in the year ended December 31, 2018 are estimated to pay out at 0200 percent. ThereAdditionally, there were 734 thousand shares cancelled during the year ended December 31, 2020.
2023.
93
unvested awards is included in share-basedShare-based payments subject to redemption in the Consolidated Balance Sheets and totaled $7$27 million and $9$20 million at December 31, 20202023 and 2019,2022, respectively.
Other share-based awards under the SIP: Under the compensation agreement with the Board of Directors, $120,000$150,000 of a non-employee director’s annual retainer and 50 percent of the additional retainersis paid to the Lead Director and the Chairs of committees of the Board of Directors are awarded in shares ofCompany common stock or, if astock. A director electsmay elect to defer all or a portion of his or herthe director's common stock or cash compensation, in shares of restricted stock units. These restricted units may not be transferred until a date not less than six months and no more than ten years and six months after the director’s termination of service from the Board of Directors, at which time the restricted units will be settled by delivering shares of common stock with fractional shares to be paid in cash. The compensation expense relating to this plan included in the Consolidated Statements of Income was approximately $2 million for the year ended December 31, 2020in each of 2023, 2022 and $1 million for the years ended December 31, 2019 and 2018.2021. At December 31, 2020,2023, there were approximately 232235 thousand restricted stock units outstanding under this plan at a carrying value of approximately $15 million.
Accumulated Other Comprehensive Loss: A summary of accumulatedAccumulated other comprehensive income (loss)loss for the years ended December 31, 2018, 2019,2023, 2022 and 2020,2021 is presented below:
| | | | | | | | | | | | | | | | |
(in millions) |
| Cumulative Translation Adjustment |
| Deferred (Loss) Gain on Hedging Activities |
| Pension and Postretirement Adjustment |
| Unrealized (Loss) Gain on Investment |
| Accumulated Other Comprehensive Loss |
| |||||
Balance, December 31, 2017 | | $ | (951) | | $ | (13) | | $ | (51) | | $ | 2 | | $ | (1,013) | |
Other comprehensive income (loss) before reclassification adjustments | | | (129) | | | 8 | | | (20) | | | — | | | (141) | |
Amount reclassified from accumulated OCI | | | — | | | 6 | | | — | | | — | | | 6 | |
Tax benefit (provision) | | | — | | | (4) | | | 5 | | | — | | | 1 | |
Net other comprehensive income (loss) | | | (129) | | | 10 | | | (15) | | | — | | | (134) | |
Adoption of ASU 2016-01 | | | — | | | — | | | — | | | (2) | | | (2) | |
Adoption of ASU 2018-02 | | | — | | | (2) | | | (3) | | | — | | | (5) | |
Other | | | — | | | (2) | | | (3) | | | (2) | | | (7) | |
Balance, December 31, 2018 | | | (1,080) | | | (5) | | | (69) | | | — | | | (1,154) | |
Other comprehensive (loss) income before reclassification adjustments | | | (9) | | | (19) | | | 11 | | | — | | | (17) | |
Amount reclassified from accumulated OCI | | | — | | | 14 | | | — | | | — | | | 14 | |
Tax benefit (provision) | | | — | | | 1 | | | (2) | | | — | | | (1) | |
Net other comprehensive (loss) income | | | (9) | | | (4) | | | 9 | | | — | | | (4) | |
Balance, December 31, 2019 | | $ | (1,089) | | $ | (9) | | $ | (60) | | $ | — | | $ | (1,158) | |
Other comprehensive loss before reclassification adjustments | | | (25) | | | 5 | | | (2) | | | — | | | (22) | |
Amount reclassified from accumulated OCI | | | — | | | 65 | | | — | | | — | | | 65 | |
Tax benefit (provision) | | | — | | | (19) | | | 1 | | | — | | | (18) | |
Net other comprehensive loss | | | (25) | | | 51 | | | (1) | | | — | | | 25 | |
Balance, December 31, 2020 | | $ | (1,114) | | $ | 42 | | $ | (61) | | $ | — | | $ | (1,133) | |
Cumulative Translation Adjustment | Hedging Activities | Pension and Postretirement Adjustment | AOCL | |||||||||||||||||||||||
Balance, December 31, 2020 | $ | (1,114) | $ | 42 | $ | (61) | $ | (1,133) | ||||||||||||||||||
Other comprehensive (loss) income before reclassification adjustments | (100) | 218 | 28 | 146 | ||||||||||||||||||||||
Loss (income) reclassified from accumulated other comprehensive loss | 311 | (209) | — | 102 | ||||||||||||||||||||||
Tax (provision) | — | (3) | (9) | (12) | ||||||||||||||||||||||
Net other comprehensive income | 211 | 6 | 19 | 236 | ||||||||||||||||||||||
Balance, December 31, 2021 | (903) | 48 | (42) | (897) | ||||||||||||||||||||||
Other comprehensive (loss) income before reclassification adjustments | (105) | 210 | (5) | 100 | ||||||||||||||||||||||
(Income) reclassified from accumulated other comprehensive loss | — | (268) | — | (268) | ||||||||||||||||||||||
Tax benefit | — | 16 | 1 | 17 | ||||||||||||||||||||||
Net other comprehensive (loss) | (105) | (42) | (4) | (151) | ||||||||||||||||||||||
Balance, December 31, 2022 | (1,008) | 6 | (46) | (1,048) | ||||||||||||||||||||||
Other comprehensive income (loss) before reclassification adjustments | 47 | (151) | (2) | (106) | ||||||||||||||||||||||
Loss reclassified from accumulated other comprehensive loss | — | 78 | 1 | 79 | ||||||||||||||||||||||
Tax benefit | — | 19 | — | 19 | ||||||||||||||||||||||
Net other comprehensive income (loss) | 47 | (54) | (1) | (8) | ||||||||||||||||||||||
Balance, December 31, 2023 | $ | (961) | $ | (48) | $ | (47) | $ | (1,056) |
94
.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | | 2019 | | | 2018 | | ||||||||||||||||||
| | | Net Income | | | Weighted | | | Per | | | Net Income | | | Weighted | | | Per | | | Net Income | | | Weighted | | | Per | |
| | | Available | | | Average | | | Share | | | Available | | | Average | | | Share | | | Available | | | Average | | | Share | |
(in millions, except per share amounts) |
| | to Ingredion | |
| Shares |
| | Amount | |
| to Ingredion | |
| Shares |
| | Amount |
| | to Ingredion | |
| Shares | |
| Amount | |
Basic EPS | | $ | 348 | |
| 67.2 | | $ | 5.18 | | $ | 413 | |
| 66.9 | | $ | 6.17 | | $ | 443 | |
| 70.9 | | $ | 6.25 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | | | | | |
| 0.9 | | | | |
Diluted EPS | | $ | 348 | |
| 67.6 | | $ | 5.15 | | $ | 413 | |
| 67.4 | | $ | 6.13 | | $ | 443 | |
| 71.8 | | $ | 6.17 | |
2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 643 | 66.0 | $ | 9.74 | $ | 492 | 66.2 | $ | 7.43 | $ | 117 | 67.1 | $ | 1.74 | |||||||||||||||||||||||||||||||||||||||||
Effect of Dilutive Securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards | 1.0 | 0.8 | 0.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted EPS | $ | 643 | 67.0 | $ | 9.60 | $ | 492 | 67.0 | $ | 7.34 | $ | 117 | 67.8 | $ | 1.73 |
NOTE 12 –
The Company is
Presented below are the Company’s netour Chief Operating Decision Maker.
| | | | | | | | | | |
(in millions) |
| 2020 |
| 2019 |
| 2018 | | |||
Net sales to unaffiliated customers: | | | | | | | | | | |
North America | | $ | 3,662 | | $ | 3,834 | | $ | 3,857 | |
South America | | | 919 | | | 960 | | | 988 | |
Asia-Pacific | | | 813 | | | 823 | | | 837 | |
EMEA | | | 593 | | | 592 | | | 607 | |
Total | | $ | 5,987 | | $ | 6,209 | | $ | 6,289 | |
2023 | 2022 | 2021 | ||||||||||||||||||
Net sales to unaffiliated customers: | ||||||||||||||||||||
North America | $ | 5,188 | $ | 4,934 | $ | 4,137 | ||||||||||||||
South America | 1,062 | 1,124 | 1,057 | |||||||||||||||||
Asia-Pacific | 1,089 | 1,107 | 997 | |||||||||||||||||
EMEA | 821 | 781 | 703 | |||||||||||||||||
Total net sales | $ | 8,160 | $ | 7,946 | $ | 6,894 |
95
| | | | | | | | | | |
(in millions) | | | 2020 | |
| 2019 |
| 2018 | ||
Operating income: | | | | | | | | | | |
North America | | $ | 487 | | $ | 522 | | $ | 545 | |
South America | | | 112 | | | 96 | | | 99 | |
Asia-Pacific | | | 80 | | | 87 | | | 104 | |
EMEA | | | 102 | | | 99 | | | 116 | |
Corporate | | | (122) | | | (99) | | | (97) | |
Subtotal | | | 659 | | | 705 | | | 767 | |
Restructuring/impairment charges (a) | | | (93) | | | (57) | | | (64) | |
Acquisition/integration costs | | | (11) | | | (3) | | | — | |
Brazil tax matter (b) | | | 36 | | | 22 | | | — | |
Charge for fair value markup of acquired inventory | | | (6) | | | — | | | — | |
North America storm damage | | | (3) | | | — | | | — | |
Other | | | — | | | (3) | | | — | |
Total operating income | | $ | 582 | | $ | 664 | | $ | 703 | |
2023 | 2022 | 2021 | ||||||||||||||||||
Operating income: | ||||||||||||||||||||
North America | $ | 718 | $ | 565 | $ | 487 | ||||||||||||||
South America | 142 | 169 | 138 | |||||||||||||||||
Asia-Pacific | 126 | 93 | 87 | |||||||||||||||||
EMEA | 156 | 110 | 106 | |||||||||||||||||
Corporate | (173) | (150) | (133) | |||||||||||||||||
Subtotal | 969 | 787 | 685 | |||||||||||||||||
Acquisition/integration costs | — | (1) | (3) | |||||||||||||||||
Restructuring/impairment charges | (11) | (4) | (47) | |||||||||||||||||
Impairment on disposition of assets | — | — | (340) | |||||||||||||||||
Other matters | (1) | (20) | 15 | |||||||||||||||||
Total operating income | $ | 957 | $ | 762 | $ | 310 |
Presented below are the Company’s totalTotal assets by reportable segment as of December 31, 20202023 and 2019.
| | | | | | | |
| | As of December 31, | | ||||
(in millions) | | 2020 |
| 2019 | | ||
Total assets: | | | | | | | |
North America (a) | | $ | 4,231 | | $ | 3,924 | |
South America | | | 818 | | | 774 | |
Asia-Pacific | | | 1,255 | | | 843 | |
EMEA | | | 554 | | | 499 | |
Total | | $ | 6,858 | | $ | 6,040 | |
As of December 31, | ||||||||||||||
2023 | 2022 | |||||||||||||
Assets: | ||||||||||||||
North America (a) | $ | 4,485 | $ | 4,499 | ||||||||||
South America | 980 | 949 | ||||||||||||
Asia-Pacific | 1,479 | 1,467 | ||||||||||||
EMEA | 698 | 646 | ||||||||||||
Total assets | $ | 7,642 | $ | 7,561 |
For purposes of presentation, North America includes Corporate assets.
96
2023 | 2022 | 2021 | ||||||||||||||||||
Depreciation and amortization: | ||||||||||||||||||||
North America (a) | $ | 146 | $ | 145 | $ | 146 | ||||||||||||||
South America | 19 | 18 | 18 | |||||||||||||||||
Asia-Pacific | 39 | 37 | 40 | |||||||||||||||||
EMEA | 15 | 15 | 16 | |||||||||||||||||
Total | $ | 219 | $ | 215 | $ | 220 | ||||||||||||||
Mechanical stores expense (b): | ||||||||||||||||||||
North America (a) | $ | 47 | $ | 43 | $ | 43 | ||||||||||||||
South America | 6 | 4 | 6 | |||||||||||||||||
Asia-Pacific | 5 | 4 | 3 | |||||||||||||||||
EMEA | 4 | 4 | 3 | |||||||||||||||||
Total | $ | 62 | $ | 55 | $ | 55 | ||||||||||||||
Capital expenditures and mechanical stores purchases: | ||||||||||||||||||||
North America (a) | $ | 183 | $ | 178 | $ | 166 | ||||||||||||||
South America | 42 | 31 | 38 | |||||||||||||||||
Asia-Pacific | 68 | 72 | 81 | |||||||||||||||||
EMEA | 23 | 19 | 15 | |||||||||||||||||
Total | $ | 316 | $ | 300 | $ | 300 |
equipment until they are utilized in the manufacturing process and expensed as a period cost.
| | | | | | | | | |
(in millions) | | 2020 |
| 2019 |
| 2018 | |||
Depreciation and amortization: | | | | | | | | | |
North America (a) | | $ | 147 | | $ | 146 | | $ | 180 |
South America | | | 19 | | | 22 | | | 24 |
Asia-Pacific | | | 32 | | | 37 | | | 27 |
EMEA | | | 15 | | | 15 | | | 16 |
Total | | $ | 213 | | $ | 220 | | $ | 247 |
Mechanical stores expense (b): | | | | | | | | | |
North America (a) | | $ | 39 | | $ | 40 | | $ | 38 |
South America | | | 7 | | | 10 | | | 11 |
Asia-Pacific | | | 4 | | | 4 | | | 5 |
EMEA | | | 4 | | | 3 | | | 3 |
Total | | $ | 54 | | $ | 57 | | $ | 57 |
Capital expenditures and mechanical stores purchases: | | | | | | | | | |
North America (a) | | $ | 243 | | $ | 226 | | $ | 232 |
South America | | | 39 | | | 45 | | | 61 |
Asia-Pacific | | | 46 | | | 40 | | | 39 |
EMEA | | | 12 | | | 17 | | | 18 |
Total | | $ | 340 | | $ | 328 | | $ | 350 |
The following table presents netNet sales to unaffiliated customers by country of origin for the years ended December 31, 2020, 2019, and 2018:
are as follows:
2023 | 2022 | 2021 | ||||||||||||||||||
U.S. | $ | 3,069 | $ | 2,978 | $ | 2,509 | ||||||||||||||
Mexico | 1,571 | 1,444 | 1,170 | |||||||||||||||||
Brazil | 669 | 720 | 586 | |||||||||||||||||
Canada | 548 | 512 | 459 | |||||||||||||||||
Germany | 413 | 342 | 309 | |||||||||||||||||
Colombia | 332 | 333 | 260 | |||||||||||||||||
South Korea | 325 | 356 | 323 | |||||||||||||||||
Others | 1,233 | 1,261 | 1,278 | |||||||||||||||||
Total | $ | 8,160 | $ | 7,946 | $ | 6,894 |
| | | | | | | | | | |
| | Net Sales | | |||||||
(in millions) | | 2020 | | 2019 | | 2018 |
| |||
U.S. | | $ | 2,284 | | $ | 2,368 | | $ | 2,386 | |
Mexico | | | 984 | | | 1,075 | | | 1,067 | |
Brazil | | | 447 | | | 479 | | | 478 | |
Canada | | | 393 | | | 390 | | | 404 | |
Korea | | | 268 | | | 270 | | | 296 | |
Others | | | 1,611 | | | 1,627 | | | 1,658 | |
Total | | $ | 5,987 | | $ | 6,209 | | $ | 6,289 | |
The following table presents long-lived
| | | | | | |
| | Long-lived Assets | ||||
(in millions) |
| 2020 |
| 2019 | ||
U.S. | | $ | 1,276 | | $ | 1,239 |
Mexico | | | 342 | | | 343 |
Canada | | | 245 | | | 187 |
Brazil | | | 202 | | | 205 |
Thailand | | | 165 | | | 156 |
Germany | | | 137 | | | 129 |
Korea | | | 116 | | | 110 |
Others | | | 359 | | | 260 |
Total | | $ | 2,842 | | $ | 2,629 |
97
2023 | 2022 | |||||||||||||
U.S. | $ | 1,312 | $ | 1,289 | ||||||||||
Mexico | 294 | 309 | ||||||||||||
Canada | 288 | 273 | ||||||||||||
Brazil | 235 | 209 | ||||||||||||
China | 164 | 144 | ||||||||||||
Thailand | 162 | 153 | ||||||||||||
Germany | 133 | 126 | ||||||||||||
Others | 338 | 435 | ||||||||||||
Total | $ | 2,926 | $ | 2,938 |
During the year ended December 31, 2020, the Company received another favorable court judgment that clarified the calculation of the Company’s benefit, allowing the Company to claim the gross treatment within the indirect tax claim calculation and a larger indirect tax claim against the government. As a result of the decision, the Company recorded an additional $35 million pre-tax benefit in the Consolidated Income Statement in Other income for the year ended December 31, 2020, related to the open period of 2005 to 2014. The total benefit recorded represents the Company’s current estimate of the credits and interest due from the favorable decisions in accordance with ASC 450, Contingencies. The Company is awaiting final court ruling for the period of 2015 to 2018 that would allowwas previously unrecorded pending a final Court ruling. We recorded the Company to record an$15 million of additional $9credits in 2021 within Other operating (income) expense in the Consolidated Statements of Income. As of December 31, 2023 and 2022, we had $5 million in pre-tax benefits.
The Company expects to use theand $17 million, respectively, of remaining indirect tax credits of $57 million (from the period of 2005 to 2014) to offset its Brazilian federal tax payments beginning in 2021. The $57 million of future tax credits are recorded in Other assets and Prepaid expenses and assets held for sale on theour Consolidated Balance Sheets, and resultSheets. We will use the income tax offsets to eliminate our Brazilian federal tax payments in deferred2024, including the income tax payable for the indirect taxes of $18 million. The income taxes will be paid as and when the tax creditsrecovered.
Additionally, during the twelve months ended December 31, 2020, the Company recorded a pre-tax benefit of $1 million related to the reversal of a tax decision on a government subsidy on which the Company had previously paid taxes. The Company also recorded a $3 million tax provision benefit related to this decision.
The Company is currently subject to claims and suits arising in the ordinary course of business, including labor matters, certain environmental proceedings and other commercial claims. The CompanyWe also routinely receivesreceive inquiries from regulators and other government authorities relating to various aspects of itsour business, including with respect to compliance with laws and regulations relating to the environment, and at any given time the Company haswe have matters at various stages of resolution with the applicable governmental authorities. The outcomes of these matters are not within the Company’sour complete control and may not be known for prolonged periods of time. The Company doesWe do not believe that the results of currently known legal proceedings and inquires will be material to it.us. There can be no assurance, however, that such proceedings, matters, 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 the Company’sour financial condition or results of operations.
98
2023 | 2022 | |||||||||||||
Accounts receivable — trade | $ | 1,145 | $ | 1,200 | ||||||||||
Accounts receivable — other | 154 | 228 | ||||||||||||
Allowance for credit losses | (20) | (17) | ||||||||||||
Total accounts receivable, net | $ | 1,279 | $ | 1,411 |
immaterial in 2023 and 2022. There were no significant contract assets associated with customers as of December 31, 2023 or 2022.
2023 | 2022 | |||||||||||||
Finished and in process | $ | 926 | $ | 962 | ||||||||||
Raw materials | 434 | 539 | ||||||||||||
Manufacturing supplies | 90 | 96 | ||||||||||||
Total inventories | $ | 1,450 | $ | 1,597 |
2023 | 2022 | |||||||||||||
Land | $ | 178 | $ | 199 | ||||||||||
Buildings | 853 | 854 | ||||||||||||
Machinery and equipment | 4,767 | 4,680 | ||||||||||||
Property, plant and equipment, at cost | 5,798 | 5,733 | ||||||||||||
Accumulated depreciation | (3,428) | (3,326) | ||||||||||||
Property, plant and equipment, net | $ | 2,370 | $ | 2,407 |
Sheets. As of December 31, 2023, supply chain finance programs existed for operations in Brazil, China, Thailand, Mexico, Colombia and Peru.
2023 | 2022 | |||||||||||||
Compensation-related costs | $ | 121 | $ | 112 | ||||||||||
Current lease liabilities | 56 | 48 | ||||||||||||
Dividends payable | 51 | 47 | ||||||||||||
Taxes payable other than income taxes | 46 | 45 | ||||||||||||
Liabilities held for sale | 51 | — | ||||||||||||
Other accrued liabilities | 221 | 214 | ||||||||||||
Total accrued liabilities and liabilities held for sale | $ | 546 | $ | 466 |
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(in millions) |
| 2020 |
| 2019 |
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Accounts receivable, net: | | | | | | | |
Accounts receivable — trade | | $ | 855 | | $ | 830 | |
Accounts receivable — other | | | 170 | | | 157 | |
Allowance for doubtful accounts | | | (14) | | | (10) | |
Total accounts receivable, net | | $ | 1,011 | | $ | 977 | |
Inventories: | | | | | | | |
Finished and in process | | $ | 584 | | $ | 565 | |
Raw materials | | | 236 | | | 237 | |
Manufacturing supplies | | | 97 | | | 59 | |
Total inventories | | $ | 917 | | $ | 861 | |
Accrued liabilities: | | | | | | | |
Compensation-related costs | | $ | 96 | | $ | 93 | |
Income taxes payable | | | 26 | | | 16 | |
Current lease liabilities | | | 46 | | | 41 | |
Dividends payable | | | 43 | | | 42 | |
Accrued interest | | | 11 | | | 15 | |
Taxes payable other than income taxes | | | 44 | | | 36 | |
Other | | | 155 | | | 138 | |
Total accrued liabilities | | $ | 421 | | $ | 381 | |
Non-current liabilities: | | | | | | | |
Employees’ pension, indemnity, and postretirement | | | 139 | | | 132 | |
Other | | | 88 | | | 88 | |
Total non-current liabilities | | $ | 227 | | $ | 220 | |
e no s
ignificant contract liabilities associated with our customers as of December 31, 2023 and 2022. Liabilities for volume discounts and incentives were also not significant as of December 31, 2023 and 2022.
2023 | 2022 | |||||||||||||
Non-current operating lease liabilities | $ | 157 | $ | 146 | ||||||||||
Pension and postretirement liabilities | 117 | 101 | ||||||||||||
Deferred tax liabilities | 116 | 145 | ||||||||||||
Other | 90 | 85 | ||||||||||||
Total other non-current liabilities | $ | 480 | $ | 477 |
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(in millions) |
| 2020 |
| 2019 |
| 2018 |
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Other income, net: | | | | | | | | | | |
Brazil tax matter | | $ | 36 | | $ | 22 | | $ | — | |
Value-added tax recovery | | | — | | | — | | | 5 | |
Other | | | (5) | | | (3) | | | 5 | |
Other income, net | | $ | 31 | | $ | 19 | | $ | 10 | |
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(in millions) |
| 2020 |
| 2019 |
| 2018 | |||
Financing costs, net: |
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Interest expense, net of amounts capitalized (a) | | $ | 68 | | $ | 84 | | $ | 81 |
Debt extinguishment costs | | | 5 | | | — | | | — |
Interest income | | | (6) | | | (7) | | | (9) |
Foreign currency transaction losses | | | 14 | | | 4 | | | 14 |
Financing costs, net | | $ | 81 | | $ | 81 | | $ | 86 |
Consolidated Statements ofSupplemental Cash Flow
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(in millions) |
| 2020 |
| 2019 |
| 2018 |
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Other non-cash charges to net income: | | | | | | | | | | |
Share-based compensation expense | | $ | 22 | | $ | 18 | | $ | 21 | |
Indefinite-lived asset impairment | | | 35 | | | — | | | — | |
Other | |
| 42 | |
| 15 | |
| 18 | |
Total other non-cash charges to net income | | $ | 99 | | $ | 33 | | $ | 39 | |
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Interest paid | $ | 96 | $ | 82 | $ | 72 | ||||||||||||||
Income taxes paid | 157 | 187 | 168 |
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(in millions) |
| 2020 |
| 2019 |
| 2018 |
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Interest paid | | $ | 78 | | $ | 80 | | $ | 73 | |
Income taxes paid | | | 120 | | | 145 | | | 231 | |
Ingredion Incorporated
1st QTR | 2nd QTR | 3rd QTR | 4th QTR | |||||||||||||||||||||||
2023 | ||||||||||||||||||||||||||
Net sales | $ | 2,137 | $ | 2,069 | $ | 2,033 | $ | 1,921 | ||||||||||||||||||
Gross profit | 487 | 441 | 421 | 400 | ||||||||||||||||||||||
Net income attributable to Ingredion | 191 | 163 | 158 | 131 | ||||||||||||||||||||||
Basic earnings per common share of Ingredion | 2.89 | 2.46 | 2.39 | 2.00 | ||||||||||||||||||||||
Diluted earnings per common share of Ingredion | 2.85 | 2.42 | 2.36 | 1.97 | ||||||||||||||||||||||
Per share dividends declared | $ | 0.71 | $ | 0.71 | $ | 0.78 | $ | 0.78 |
1st QTR | 2nd QTR | 3rd QTR | 4th QTR | |||||||||||||||||||||||
2022 | ||||||||||||||||||||||||||
Net sales | $ | 1,892 | $ | 2,044 | $ | 2,023 | $ | 1,987 | ||||||||||||||||||
Gross profit | 379 | 390 | 374 | 351 | ||||||||||||||||||||||
Net income attributable to Ingredion | 130 | 142 | 106 | 114 | ||||||||||||||||||||||
Basic earnings per common share of Ingredion | 1.94 | 2.14 | 1.61 | 1.73 | ||||||||||||||||||||||
Diluted earnings per common share of Ingredion | 1.92 | 2.12 | 1.59 | 1.71 | ||||||||||||||||||||||
Per share dividends declared | $ | 0.65 | $ | 0.65 | $ | 0.71 | $ | 0.71 |
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| 1st QTR (a) |
| 2nd QTR (b) |
| 3rd QTR (c) |
| 4th QTR (d) |
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2020 | | | | | | | | | | | | | |
Net sales | | $ | 1,543 | | $ | 1,349 | | $ | 1,502 | | $ | 1,593 | |
Gross profit | | | 323 | | | 271 | | | 326 | | | 352 | |
Net income attributable to Ingredion | | | 75 | | | 66 | | | 92 | | | 115 | |
Basic earnings per common share of Ingredion | | | 1.12 | | | 0.98 | | | 1.37 | | | 1.71 | |
Diluted earnings per common share of Ingredion | | | 1.11 | | | 0.98 | | | 1.36 | | | 1.70 | |
Per share dividends declared | | $ | 0.63 | | $ | 0.63 | | $ | 0.64 | | $ | 0.64 | |
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| 1st QTR (e) |
| 2nd QTR (f) |
| 3rd QTR (g) |
| 4th QTR (h) |
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2019 | | | | | | | | | | | | | |
Net sales | | $ | 1,536 | | $ | 1,550 | | $ | 1,574 | | $ | 1,549 | |
Gross profit | | | 316 | | | 329 | | | 344 | | | 323 | |
Net income attributable to Ingredion | | | 100 | | | 105 | | | 99 | | | 109 | |
Basic earnings per common share of Ingredion | | | 1.50 | | | 1.57 | | | 1.48 | | | 1.63 | |
Diluted earnings per common share of Ingredion | | | 1.48 | | | 1.56 | | | 1.47 | | | 1.61 | |
Per share dividends declared | | $ | 0.625 | | $ | 0.625 | | $ | 0.63 | | $ | 0.63 | |
100
NOTE 15 – Subsequent Events (Unaudited)
On February 12, 2021, the Company signed an agreement with an affiliate of Grupo Arcor, an Argentine food company, to establish a joint venture to combine manufacturing operations in Argentina in order to sell value-added ingredients to customers in Argentina, Chile and Uruguay. The joint venture will be 51% owned by an affiliate of Grupo Arcor and 49% owned by an affiliate of Ingredion. The joint venture will operate 5 manufacturing facilities located in the districts of Chacabuco and Baradero (Province of Buenos Aires), in Lules (Province of Tucumán), and in the Industrial Complex Arroyito (Province of Córdoba), of which the 2 manufacturing facilities located in Chacabuco and Baradero are being contributed by Ingredion Argentina and the remaining 3 manufacturing facilities are being contributed by an affiliate of Grupo Arcor. The manufacturing facilities collectively produce value-added ingredients including glucose syrups, maltose, fructose, starch, and maltodextrins, among others, that are marketed to the food, beverage, pharmaceutical and other industries. The joint venture will be managed by a jointly-appointed team of executives. Subject to the satisfaction of regulatory approvals and other closing conditions, the joint venture transaction is expected to close in the second quarter of 2021.
On February 9, 2021, the Company’s Board of Directors approved the contribution by 3 of Ingredion’s South American subsidiaries of their net assets to the joint venture. The Board’s approval results in held-for-sale treatment of these net assets and an impairment charge in the estimated range of $350 million to $370 million, of which $310 million related to the write-off of cumulative translation adjustment in the Consolidated Balance Sheets and $40 million to $60 million related to the write-down of the contributed net assets, consisting primarily of plant, property and equipment, including 2 manufacturing facilities, and related operating assets. The impairment charge is subject to finalization of ending balances and foreign exchange impacts. The impairment charge will not result in any cash expenditures. The impairment will be recorded in the Company’s Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets as of and for the quarter ending March 31, 2021.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.
Management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer and the oversight of the Board of Directors, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20202023 based upon the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). The scope of the assessment included all of the subsidiaries of Ingredion. Based on the evaluation, we identified a material weakness in internal control over financial reporting related to ineffective information technology general controls (“ITGCs”) related to user access over certain information technology (“IT”) systems. As a result, our business process automated and manual controls that rely on information derived from the affected IT systems are dependent on the effective design and operation of ITGCs and are therefore also considered ineffective because they could have been adversely impacted. These control deficiencies were the result of insufficient development of IT personnel as the control owners did not adequately understand the control objectives or the design of the control activity, as well as the result of ineffective timely communication of the control objective to these IT personnel by management.
The material weakness did not result in any identified misstatements to the consolidated financial statements and there were no changes to previously released financial results. However, because the material weakness creates a reasonable possibility that a material misstatement to our financial statements would not be prevented or detected on a timely basis, wemanagement concluded that as December 31, 2020, theour internal control over financial reporting was not effective.
Under guidelines established by the U.S. Securities and Exchange Commission, companies are allowed to exclude acquisitions from their first assessmenteffective as of December 31, 2023. The effectiveness of our internal control over financial reporting following the date of the acquisition. Ingredion management excluded the acquisitions of PureCircle Limited, which was completed on July 1, 2020, and Verdient Foods, which was completed on November 1, 2020, from the assessment of the effectiveness of internal control over financial reporting. Total assets of $417 million and total net sales of $28 million associated with the acquisitions are included in the consolidated financial statements of Ingredion as of and for the year ended December 31, 2020.
Ourhas been audited by KPMG LLP, an independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this annual report, issued an adverse report on the effectiveness of Ingredion’s internal control over financial reporting as of December 31, 2020, as stated in their report on page 104 ofincluded in the Consolidated Financial Statements filed with this report.
Management's Remediation Plan
To remediate the material weakness described above, Ingredion has been and will be implementing revised controls and processes that will include the following, among others: (1) develop personnel by enhancing training for ITGC owners regarding their roles and responsibilities within the control objectives and activities; and (2) improve the documentation of the user access review control objective and related control activities, to more clearly communicate management’s expectation of the required responsibilities for the control activity. The Audit Committee of the Board of Directors and the Board of Directors have reviewed and discussed these matters with management. The Audit Committee will oversee management's efforts to remediate the identified material weakness.
The material weakness will be considered remediated when management concludes that, through testing, the applicable remediated controls are designed, implemented and operating effectively. We expect remediation of this material weakness will be completed during fiscal year 2021.
102
Changes in Internal Control Over Financial Reporting
Other than the matters described above under “Management’s Annual Report on Internal Control Over Financial Reporting – Management’s Remediation Plan,” there have been
103
Report of Independent Registered Public Accounting Firm
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the ineffective information technology general controls (“ITGCs”) related to user access over certain information technology (“IT”) systems has been identified and included in management’s assessment. As a result, the business process automated and manual controls that rely on information derived from the affected IT systems are dependent on the effective design and operation of ITGCs and are therefore also considered ineffective because they could have been adversely impacted. These control deficiencies were the result of insufficient development of IT personnel as the control owners did not adequately understand the control objectives or the design of the control activity, as well as, the result of ineffective timely communication of the control objective to these IT personnel by management. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
The Company acquired a controlling interest in PureCircle Limited and Verdient Foods during 2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, PureCircle Limited’s and Verdient Foods’ internal control over financial reporting associated with total assets of $417 million and total net sales of $28 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2020. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of PureCircle Limited and Verdient Foods.
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understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
105
None.
The Company
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Financial Statements (see the Index to the Consolidated Financial Statements on page 5740 of this report).
Exhibit No. | Description | ||||
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| Amended and Restated Certificate of Incorporation of Ingredion Incorporated (“Ingredion”), as amended (incorporated by reference to Exhibit 3.1 to | ||||
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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). | ||||
*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(b) of this report.
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Date: February | By: | /s/ James P. Zallie | ||||||||
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* Jorge A. Uribe |
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