NOTE 12 – Equity

Preferred stock: The Company has authorized 25 million shares of $0.01 par value preferred stock, none of which were issued or outstanding at December 31, 2017 and 2016.

Treasury stock: On December 12, 2014, the Board of Directors authorized a new stock repurchase program permitting the Company to purchase up to 5 million of its outstanding common shares from January 1, 2015, through December 12, 2019. The Company’s previously authorized stock repurchase program permitting the purchase of up to 4 million shares has been fully utilized. The parameters of the Company’s stock repurchase program are not established solely with reference to the dilutive impact of shares issued under the Company’s stock incentive plan. However, the Company expects that, over time, share repurchases will offset the dilutive impact of shares issued under the stock incentive plan.

In 2017, the Company repurchased 1 million common shares in open market transactions at a cost of $123 million. In 2016, the Company had no repurchases of common shares in open market transactions.

Set forth below is a reconciliation of common stock share activity for the years ended December 31, 2017, 2016, and 2015:


(Shares of common stock, in thousands)	Issued	Held in Treasury	Outstanding
Balance at December 31, 2014	77,811	6,489	71,322
Issuance of restricted stock units as compensation	—	(102)	102
Performance shares and other share-based awards	—	(75)	75
Stock options exercised	—	(556)	556
Purchase/acquisition of treasury stock	—	439	(439)
Balance at December 31, 2015	77,811	6,195	71,616
Issuance of restricted stock units as compensation	—	(94)	94
Performance shares and other share-based awards	—	(70)	70
Stock options exercised	—	(636)	636
Purchase/acquisition of treasury stock	—	2	(2)
Balance at December 31, 2016	77,811	5,397	72,414
Issuance of restricted stock units as compensation	—	(103)	103
Performance shares and other share-based awards	—	(75)	75
Stock options exercised	—	(443)	443
Purchase/acquisition of treasury stock	—	1,039	(1,039)
Balance at December 31, 2017	77,811	5,815	71,996

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


(in millions)	2017		2016		2015
Stock options:
Pre-tax compensation expense	$	7	$	9	$	7
Income tax benefit		(2)		(3)		(3)
Stock option expense, net of income taxes		5		6		4

RSUs:
Pre-tax compensation expense		13		12		9
Income tax benefit		(4)		(5)		(3)
RSUs, net of income taxes		9		7		6

Performance shares and other share-based awards:
Pre-tax compensation expense		6		7		5
Income tax benefit		(2)		(3)		(2)
Performance shares and other share-based compensation expense, net of income taxes		4		4		3

Total share-based compensation:
Pre-tax compensation expense		26		28		21
Income tax benefit		(8)		(11)		(8)
Total share-based compensation expense, net of income taxes	$	18	$	17	$	13

The Company has a stock incentive plan (“SIP”) administered by the compensation committee of its Board of Directors that provides for the granting of stock options, restricted stock, restricted stock units, and other share-based awards to certain key employees. A maximum of 8 million shares were originally authorized for awards under the SIP. As of December 31, 2017, 3.7 million shares were available for future grants under the SIP. Shares covered by awards that expire, terminate or lapse will again be available for the grant of awards under the SIP.

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

The Company granted non-qualified options to purchase 278 thousand shares and 329 thousand shares for the years ended December 31, 2017 and 2016, respectively. The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following assumptions:



	For the Year Ended December 31,
	2017		2016		2015
Expected life (in years)	5.5		5.5		5.5
Risk-free interest rate	1.9	%	1.4	%	1.4	%
Expected volatility	22.5	%	23.4	%	25.2	%
Expected dividend yield	1.7	%	1.8	%	2.0	%

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

A summary of stock option transactions for the year follows:


		Weighted
		Average		Average	Aggregate
	Number of	Exercise		Remaining	Intrinsic
	Options	Price per		Contractual	Value
	(in thousands)	Share		Term (Years)	(in millions)
Outstanding as of December 31, 2016	2,281	$	61.39	5.93	$	145
Granted	278		117.65
Exercised	(443)		46.16
Cancelled	(21)		87.50
Outstanding as of December 31, 2017	2,095	$	71.81	5.87	$	142
Exercisable as of December 31, 2017	1,527	$	59.14	5.24	$	123

For the years ended December 31, 2017, 2016, and 2015, cash received from the exercise of stock options was $20 million, $29 million, and $21 million, respectively. As of December 31, 2017, the unrecognized compensation cost related to non-vested stock options totaled $3 million, which is expected to be amortized over the weighted-average period of approximately 1.5 years.

Additional information pertaining to stock option activity is as follows:



	Year Ended December 31,
(dollars in millions, except per share)	2017		2016		2015
Weighted average grant date fair value of stock options granted (per share)	$	23.90	$	18.73	$	16.04
Total intrinsic value of stock options exercised		35		46		27

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

The following table summarizes RSU activity for the year:


		Weighted
	Number of	Average
	Restricted	Fair Value
(shares in thousands)	Shares	per Share
Non-vested at December 31, 2016	429	$	81.04
Granted	125		119.54
Vested	(148)		65.03
Cancelled	(19)		95.17
Non-vested at December 31, 2017	387	$	100.13

The total fair value of RSUs that vested in 2017, 2016, and 2015 was $18 million, $15 million, and $13 million, respectively.

At December 31, 2017, the total remaining unrecognized compensation cost related to RSUs was $13 million which will be amortized on a weighted-average basis over approximately 1.7 years. Recognized compensation cost related to unvested RSUs is included in share-based payments subject to redemption in the Consolidated Balance Sheets and totaled $25 million and $21 million at December 31, 2017 and 2016, respectively.

Performance Shares: The Company has a long-term incentive plan for senior management in the form of performance shares. The ultimate payments for performance shares awarded and vested will be based solely on the Company’s stock performance as compared to the stock performance of its peer group. The number of shares that ultimately vest can range from zero to 200 percent of the awarded grant depending on the Company’s stock performance as compared to the stock performance of the peer group. The share award vesting will be calculated at the end of the three-year period and are subject to approval by management and the Compensation Committee. Compensation expense is based on the fair value of the performance shares at the grant date, established using a Monte Carlo simulation model. The total compensation expense for these awards is amortized over a three-year graded vesting schedule.

The Company awarded 38 thousand, 44 thousand, and 47 thousand performance shares in 2017, 2016, and 2015, respectively. The weighted average fair value of the shares granted during 2017, 2016, and 2015 was $114.08, $131.34, and $77.54, respectively.

The 2014 performance share award vested in February 2017, achieving a 200 percent pay out of the grant, or 115 thousand total vested shares. As of December 31, 2017, the performance awards granted in 2017, 2016, and 2015 are estimated to pay out at 127 percent, 175 percent, and 200 percent, respectively. There were three thousand shares cancelled during the year ended December 31, 2017.

As of December 31, 2017, the unrecognized compensation cost relating to these plans was $3 million, which will be amortized over the remaining requisite service periods of 1.7 years. Recognized compensation cost related to these unvested awards is included in share-based payments subject to redemption in the Consolidated Balance Sheets and totaled $11 million and $9 million at December 31, 2017 and 2016, respectively.

Other share-based awards under the SIP: Under the compensation agreement with the Board of Directors, $110,000 of a director’s annual retainer and 50 percent of the additional retainers paid to the Lead Director and the Chairmen of committees of the Board of Directors are awarded in shares of common stock or restricted units based on each director’s elections to receive his or her compensation or a portion thereof in the form of restricted units. These restricted units vest immediately, and the director is allowed to either receive these shares immediately or defer them. Deferred shares cannot be transferred until a date not less than six months after the director’s termination of service from the board at which time the restricted units will be settled by delivering shares of common stock. The compensation expense relating to this plan included in the Consolidated Statements of Income was approximately $1 million in 2017, 2016, and 2015. At December 31, 2017, there were approximately 182 thousand restricted units outstanding under this plan at a carrying value of approximately $11 million.

Accumulated Other Comprehensive Loss: A summary of accumulated other comprehensive income (loss) for the years ended December 31, 2015, 2016 and 2017 is presented below:


			Deferred				Unrealized		Accumulated
	Cumulative		(Loss) Gain		Pension and		(Loss)		Other
	Translation		on Hedging		Postretirement		Gain on		Comprehensive
(in millions)	Adjustment		Activities		Adjustment		Investment		(Loss) Gain
Balance, December 31, 2014	$	(701)	$	(19)	$	(61)	$	(1)	$	(782)
Other comprehensive (loss) income before reclassification adjustments		(324)		(61)		18		—		(367)
Amount reclassified from accumulated OCI		—		46		1		—		47
Tax benefit (provision)		—		5		(5)		—		—
Net other comprehensive (loss) income		(324)		(10)		14		—		(320)
Balance, December 31, 2015		(1,025)		(29)		(47)		(1)		(1,102)
Other comprehensive income (loss) before reclassification adjustments		17		(17)		(14)		1		(13)
Amount reclassified from accumulated OCI		—		49		1		—		50
Tax (provision) benefit		—		(10)		4		—		(6)
Net other comprehensive income (loss)		17		22		(9)		1		31
Balance, December 31, 2016		(1,008)		(7)		(56)		—		(1,071)
Other comprehensive income (loss) before reclassification adjustments		57		(16)		8		3		52
Amount reclassified from accumulated OCI		—		6		(2)		—		4
Tax benefit (provision)		—		4		(1)		(1)		2
Net other comprehensive income (loss)		57		(6)		5		2		58
Balance, December 31, 2017	$	(951)	$	(13)	$	(51)	$	2	$	(1,013)

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


							Affected Line Item in
	Amount Reclassified from AOCI						Consolidated
(in millions)	2017		2016		2015		Statements of Income
Gains (losses) on cash flow hedges:
Commodity contracts	$	(5)	$	(45)	$	(43)	Cost of sales
Foreign currency contracts		1		(2)		—	Net sales/Cost of sales
Interest rate contracts		(2)		(2)		(3)	Financing costs, net
Gains (losses) related to pension and other postretirement obligations		2		(1)		(1)	(a)
Total before-tax reclassifications		(4)		(50)		(47)
Tax benefit		1		16		14
Total after-tax reclassifications	$	(3)	$	(34)	$	(33)

(a)

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

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


	Year ended December 31,
	2017			2016			2015
	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	$ 519	72.0	$ 7.21	$ 485	72.3	$ 6.70	$ 402	71.6	$ 5.62

Effect of Dilutive Securities:
Incremental shares from assumed exercise of dilutive stock options and vesting of dilutive RSUs and other awards		1.5			1.8			1.4

Diluted EPS	$ 519	73.5	$ 7.06	$ 485	74.1	$ 6.55	$ 402	73.0	$ 5.51