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Management's Discussion of Results of Operations (Excerpts)

For purposes of readability, Zenith attempts to strip out all tables in excerpts from the Management Discussion. That information is contained elsewhere in our articles. The idea of this summary is simply to review how well we believe Management does its reporting. Also, this highlights what Management believes is important.

In our Decision Matrix at the end of each article, a company with 0 to 2 gets a "-1", and 3 to 5 gets a "+1."

On a scale of 0 to 5, 5 being best, Zenith rates this company's Management's Discussion as a 5.


Acquisitions


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

On December 29, 2016, the Company completed its acquisition of TIC Gums 
Incorporated (“TIC Gums”), a privately held, U.S.-based company that provides 
advanced texture systems to the food and beverage industry, for $396 million, 
net of cash acquired. The acquisition adds a manufacturing facility to both the 
U.S. and China. The Company funded the acquisition with proceeds from 
borrowings under its revolving credit agreement. The results of the acquired 
operations are included in the Company’s consolidated results from the 
respective acquisition dates forward within the North America and Asia Pacific 
business segments.

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

A preliminary allocation of the purchase price to the assets acquired and 
liabilities assumed was made based on available information and incorporating 
management’s best estimates. The assets acquired and liabilities assumed in the 
transactions are generally recorded at their estimated acquisition date fair 
values, while transaction costs associated with the acquisitions 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 
acquisitions. The goodwill related to TIC Gums and Shandong Huanong is tax 
deductible due to the structure of the acquisitions. The goodwill related to 
Sun Flour is not tax deductible.



The acquisitions of Sun Flour and Shandong Huanong added $21 million to 
goodwill and identifiable intangible assets and $9 million to net tangible 
assets as of their respective acquisition dates.

The purchase accounting for TIC Gums is still open, pending finalization of 
property, plant and equipment (“PP&E”), identifiable intangible assets, 
goodwill, and taxes. All of the recorded assets and liabilities, including 
working capital, PP&E, goodwill, and intangibles, are open for performing 
purchase accounting adjustments for Sun Flour. Purchase accounting adjustments 
for Shandong Huanong remains open to finalize the valuation of intangible 
assets.

Included in the results of the acquired businesses for the three and six months 
ended June 30, 2017 were increases in cost of sales of $4 million and $9 
million, respectively, relating to the sale of inventory that was adjusted to 
fair value at the acquisition dates for each acquired business in accordance 
with business combination accounting rules.

Pro-forma results of operations for the acquisitions made in 2017 and 2016 have 
not been presented as the effect of each acquisition individually and in 
aggregate would not be material to the Company’s results of operations for any 
periods presented.

The Company incurred $2 million of pre-tax acquisition and integration costs 
for the six months ended June 30, 2017, associated with its recent 
acquisitions. In 2016, the Company incurred $1 million of pre-tax acquisition 
and integration costs for the six months ended June 30, 2016 associated with 
the 2015 acquisitions of Kerr Concentrates, Inc. and Penford Corporation. 
Pre-tax acquisition and integration costs incurred for the three months ended 
June 30, 2017 and 2016 were not significant.



Impairment and Restructuring Charges



For the three and six months ended June 30, 2017, the Company recorded $6 
million and $16 million, respectively, of net restructuring charges. During the 
first quarter of 2017, the Company implemented an organizational restructuring 
effort in Argentina in order to achieve a more competitive cost position. We 
notified the local labor union of a planned reduction in workforce, which 
resulted in a strike by the labor union and an interruption of manufacturing 
activities during the second quarter of 2017. We finalized a new labor 
agreement with the labor union in the second quarter, ending the strike on June 
1, 2017. For the three and six months ended June 30, 2017, the Company recorded 
total pre-tax restructuring-related charges in Argentina of $6 million and $17 
million, respectively, for employee-related severance and other costs. The 
Company has nearly completed this important organizational restructuring of the 
Argentina business.



During the second quarter of 2017, the Company announced a Finance 
Transformation initiative in North America to strengthen organizational 
capabilities and drive efficiencies to support the growth strategy of the 
Company. The Company recorded $1 million of non-employee-related restructuring 
charges during the second quarter of 2017 related to this initiative. The 
Company expects to incur between $8 million and $10 million of employee-related 
severance and other costs in the second half of 2017 and between $1 million and 
$2 million in 2018 related to this initiative. Additionally, for the three and 
six months ended June 30, 2017, the Company recorded a reduction in employee 
severance costs of $1 million and $2 million, respectively, related to 
refinement of estimates for prior year restructuring activities.



During the second quarter of 2016, the Company recorded $13 million of 
restructuring charges consisting of $8 million of employee-related severance 
and other costs due to the execution of global IT outsourcing contracts, $3 
million of employee-related severance costs associated with the Company’s 
optimization initiative in South America and $2 million of costs attributable 
to the 2015 Port Colborne plant sale.

The Company is principally engaged in the production and sale of starches and 
sweeteners for a wide range of industries, and is managed geographically on a 
regional basis. The Company’s operations are classified into four reportable 
business segments: North America, South America, Asia Pacific and Europe, 
Middle East and Africa (“EMEA”). Its North America segment includes businesses 
in the U.S., Canada and Mexico. The Company’s South America segment includes 
businesses in Brazil, Colombia, Ecuador and the Southern Cone of South America, 
which includes Argentina, Chile, Peru and Uruguay. Its Asia Pacific segment 
includes businesses in South Korea, Thailand, China, Japan, Indonesia, the 
Philippines, Singapore, Malaysia, India, Australia and New Zealand. The 
Company’s EMEA segment includes businesses in Germany, the United Kingdom, 
Pakistan, South Africa and Kenya. The Company does not aggregate its operating 
segments when determining its reportable segments. Net sales by product are not 
presented because to do so would be impracticable.



Financial Instruments, Derivatives and Hedging Activities



The Company is exposed to market risk stemming from changes in commodity prices 
(primarily corn and natural gas), foreign currency exchange rates and interest 
rates. In the normal course of business, the Company actively manages its 
exposure to these market risks by entering into various hedging transactions, 
authorized under established policies that place clear controls on these 
activities. These transactions utilize exchange-traded derivatives or 
over-the-counter derivatives with investment grade counterparties. Derivative 
financial instruments currently used by the Company consist of 
commodity-related futures, options and swap contracts, foreign currency-related 
forward contracts, interest rate swaps and treasury lock agreements 
(“T-Locks”).



Commodity price hedging: The Company’s principal use of derivative financial 
instruments is to manage commodity price risk in North America relating to 
anticipated purchases of corn and natural gas to be used in the manufacturing 
process, generally over the next twelve to twenty-four months. To manage price 
risk related to corn purchases in North America, the Company uses corn futures 
and options contracts that trade on regulated commodity exchanges to lock-in 
its corn costs associated with firm-priced customer sales contracts. The 
Company uses over-the-counter natural gas swaps to hedge a portion of its 
natural gas usage in North America. These derivative financial instruments 
limit the impact that volatility resulting from fluctuations in market prices 
will have on corn and natural gas purchases and have been designated as 
cash-flow hedges. The Company also enters into futures contracts to hedge price 
risk associated with fluctuations in the market price of ethanol. Unrealized 
gains and losses associated with marking the commodity hedging contracts to 
market (fair value) are recorded as a component of other comprehensive income 
(“OCI”) and included in the equity section of the Condensed Consolidated 
Balance Sheets as part of accumulated other comprehensive income/loss (“AOCI”). 
These amounts are subsequently reclassified into earnings in the same line item 
affected by the hedged transaction and in the same period or periods during 
which the hedged transaction affects earnings, or in the month a hedge is 
determined to be ineffective. The Company assesses the effectiveness of a 
commodity hedge contract based on changes in the contract’s fair value. The 
changes in the market value of such contracts have historically been, and are 
expected to continue to be, highly effective at offsetting changes in the price 
of the hedged items. The amounts representing the ineffectiveness of these 
cash-flow hedges are not significant.



At June 30, 2017, AOCI included $7 million of gains (net of income taxes of $2 
million), pertaining to commodities-related derivative instruments designated 
as cash-flow hedges. At December 31, 2016, the amount included in AOCI 
pertaining to these commodities-related derivative instruments designated as 
cash-flow hedges was not significant.



Interest rate hedging: Derivative financial instruments that have been used by 
the Company to manage its interest rate risk consist of interest rate swaps and 
T-Locks. The Company has interest rate swap agreements that effectively convert 
the interest rates on its $300 million of 1.8 percent senior notes due 
September 25, 2017 and on $200 million of its $400 million of 4.625 percent 
senior notes due November 1, 2020, to variable rates. These swap agreements 
call for the Company to receive interest at the fixed coupon rate of the 
respective notes and to pay interest at a variable rate based on the six-month 
U.S. Dollar LIBOR rate plus a spread. The Company has designated these interest 
rate swap agreements as hedges of the changes in fair value of the underlying 
debt obligations attributable to changes in interest rates and accounts for 
them as fair-value hedges. Changes in the fair value of interest rate swaps 
designated as hedging instruments that effectively offset the variability in 
the fair value of outstanding debt obligations are reported in earnings. These 
amounts offset the gain or loss (the change in fair value) of the hedged debt 
instrument that is attributable to changes in interest rates (the hedged risk), 
which is also recognized in earnings. The fair value of these interest rate 
swap agreements at June 30, 2017 and December 31, 2016 was $4 million and $3 
million, respectively, and is reflected in the Condensed Consolidated Balance 
Sheets within other assets, with an offsetting amount recorded in long-term 
debt to adjust the carrying amount of the hedged debt obligations. The Company 
did not have any T-Locks outstanding at June 30, 2017 or December 31, 2016.



At June 30, 2017, AOCI included $3 million of losses (net of income taxes of $2 
million), related to settled T-Locks. At December 31, 2016, AOCI included $4 
million of losses (net of income taxes of $2 million), related to settled 
T-Locks. These deferred losses are being amortized to financing costs over the 
terms of the senior notes with which they are associated.



Foreign currency hedging: Due to the Company’s global operations, including 
operations in many emerging markets, it is exposed to fluctuations in foreign 
currency exchange rates. As a result, the Company has exposure to translational 
foreign exchange risk when the results of its foreign operations are translated 
to U.S. Dollars and to transactional foreign exchange risk when transactions 
not denominated in the functional currency are revalued. The Company primarily 
uses derivative financial instruments such as foreign currency forward 
contracts, swaps and options to manage its transactional foreign exchange risk. 
At June 30, 2017, the Company had foreign currency forward sales contracts that 
are designated as fair value hedges with an aggregate notional amount of $464 
million and foreign currency forward purchase contracts with an aggregate 
notional amount of $227 million that hedged transactional exposures. At 
December 31, 2016, the Company had foreign currency forward sales contracts 
with an aggregate notional amount of $432 million and foreign currency forward 
purchase contracts with an aggregate notional amount of $227 million that 
hedged transactional exposures.



The Company also has foreign currency derivative instruments that hedge certain 
foreign currency transactional exposures and are designated as cash-flow 
hedges. At June 30, 2017, AOCI included $2 million of losses, net of tax, 
relating to these hedges. At December 31, 2016, AOCI included $3 million of 
losses, net of tax, relating to these hedges.



At June 30, 2017, the Company had outstanding futures and option contracts that 
hedged the forecasted purchase of approximately 68 million bushels of corn and 
46 million pounds of soybean oil. The Company is unable to directly hedge price 
risk related to co-product sales; however, it occasionally enters into hedges 
of soybean oil (a competing product to corn oil) in order to mitigate the price 
risk of corn oil sales. The Company also had outstanding swap and option 
contracts that hedged the forecasted purchase of approximately 23 million 
mmbtu’s of natural gas at June 30, 2017. Additionally at June 30, 2017, the 
Company had outstanding ethanol futures contracts that hedged the forecasted 
sale of approximately 13 million gallons of ethanol.

At June 30, 2017, AOCI included $7 million of gains (net of income taxes of $2 
million) on commodities-related derivative instruments designated as cash-flow 
hedges that are expected to be reclassified into earnings during the next 
twelve months. The Company expects the gains to be offset by changes in the 
underlying commodities costs. The Company also has $1 million of losses on 
settled T-Locks (net of income taxes of $1 million) recorded in AOCI at June 
30, 2017, which are expected to be reclassified into earnings during the next 
twelve months. Additionally, at June 30, 2017, AOCI included an insignificant 
amount of losses related to foreign currency hedges that are expected to be 
reclassified into earnings during the next twelve months.



The carrying values of cash equivalents, short-term investments, accounts 
receivable, accounts payable and short-term borrowings approximate fair values. 
Commodity futures, options and swap contracts are recognized at fair value. 
Foreign currency forward contracts, swaps and options are also recognized at 
fair value. The fair value of the Company’s long-term debt is estimated based 
on quotations of major securities dealers who are market makers in the 
securities. At June 30, 2017, the carrying value and fair value of the 
Company’s long-term debt were $1,838 million and $1,927 million, respectively.



Share-Based Compensation



Stock Options: Under the Company’s stock incentive plan, stock options are 
granted at exercise prices that equal the market value of the underlying common 
stock on the date of grant. The options have a 10-year term and are exercisable 
upon vesting, which occurs over a three-year period at the anniversary dates of 
the date of grant. Compensation expense is generally recognized on a 
straight-line basis for all awards 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. As of June 30, 2017, 
certain of these non-qualified options have been forfeited due to the 
termination of employees.



Overview



We are a major supplier of high-quality food and industrial ingredients to 
customers around the world. We have 45 manufacturing plants located in North 
America, South America, Asia Pacific and Europe, the Middle East and Africa 
(“EMEA”), and we manage and operate our businesses at a regional level. We 
believe this approach provides us with a unique understanding of the cultures 
and product requirements in each of the geographic markets in which we operate, 
bringing added value to our customers. Our ingredients are used by customers in 
the food, beverage, animal feed, paper and corrugating, and brewing industries, 
among others.



Our Strategic Blueprint continues to guide our decision-making and strategic 
choices with an emphasis on value-added ingredients for our customers. The 
foundation of our Strategic Blueprint is operating excellence, which includes 
our focus on safety, quality and continuous improvement. We see growth 
opportunities in three areas. First is organic growth as we work to expand our 
current business. Second, we are focused on broadening our ingredient portfolio 
with on-trend products through internal and external business development. 
Finally, we look for growth from geographic expansion as we pursue extension of 
our reach to new locations. The ultimate goal of these strategies and actions 
is to deliver increased shareholder value.



We had a strong second quarter and first six months of 2017 as net sales, 
operating income, net income and diluted earnings per common share grew from 
the comparable 2016 periods. Our North America segment earnings grew as a 
result of continued strong operating results during the year, however these 
results were partially offset by lower earnings in our South America segment 
due to continued difficult macroeconomic conditions and increased costs in 
Argentina. The Company implemented an organizational restructuring effort in 
Argentina during the first quarter of 2017 to achieve a more competitive cost 
position in the region. We notified the local labor union of a planned 
reduction in workforce, which resulted in a strike by the labor union and an 
interruption of manufacturing activities during the second quarter of 2017. We 
finalized a new labor agreement with the labor union in the second quarter, 
ending the strike on June 1, 2017. The Company recorded total pre-tax 
employee-related severance and other costs in Argentina of $6 million and $17 
million for the three and six months ended June 30, 2017, respectively, related 
to the workforce reduction.



During the second quarter of 2017, the Company announced a Finance 
Transformation initiative in North America to strengthen organizational 
capabilities to support the growth strategy of the Company. The Company 
recorded $1 million of non-employee-related restructuring charges during the 
second quarter of 2017 related to this initiative. We expect to incur between 
$8 million and $10 million of employee-related severance and other costs in the 
second half of 2017 and between $1 million and $2 million in 2018 related to 
this initiative.



Our cash provided by operating activities rose to $302 million for the second 
quarter of 2017 from $266 million in the year-earlier period, driven by our 
earnings and improvement in working capital. During the first quarter of 2017, 
we repurchased approximately 1 million shares of our common stock in open 
market transactions for $123 million. We also repaid $200 million of senior 
notes with borrowings under our revolving credit facility in the second quarter 
of 2017.



On March 9, 2017, the Company completed its acquisition of Sun Flour Industry 
Co., Ltd. (“Sun Flour”) in Thailand for $18 million. Upon closing, the Company 
paid $13 million in cash and recorded $5 million in accrued liabilities for 
deferred payments due to the previous owner. The acquisition of Sun Flour adds 
a fourth manufacturing facility to our operations in Thailand. It produces 
rice-based ingredients used primarily in the food industry. This transaction 
will enhance our global supply chain and leverage other capital investments 
that we have made in Thailand to grow our specialty ingredients and service 
customers around the world. The acquisition did not have a material impact on 
our financial condition, results of operations or cash flows in the second 
quarter of 2017.



Looking ahead, we anticipate that our full year 2017 operating income and net 
income will grow compared to 2016. In North America, we expect full year 
operating income to increase driven by improved product mix and margins. In 
South America, we believe that full year operating income will be flat to down 
compared to 2016 driven by continued slow economic activity and temporary 
higher than normal costs related to the interruption of manufacturing 
activities in Argentina. We will continue to focus on network optimization and 
cost improvement in this segment for the remainder of the year. In the longer 
term, we believe that the underlying business demographics for our South 
American segment are positive. We expect full-year operating income to grow in 
EMEA principally driven by improved price/product mix from our specialty 
ingredient product portfolio, volume growth and effective cost control. In Asia 
Pacific, we expect full-year operating income to increase driven by volume 
growth and effective cost control.



Results of Operations



We have significant operations in four reporting segments: North America, South 
America, Asia Pacific and EMEA. For most of our foreign subsidiaries, the local 
foreign currency is the functional currency. Accordingly, revenues and expenses 
denominated in the functional currencies of these subsidiaries are translated 
into U.S. Dollars at the applicable average exchange rates for the period. 
Fluctuations in foreign currency exchange rates affect the U.S. Dollar amounts 
of our foreign subsidiaries’ revenues and expenses. The impact of foreign 
currency exchange rate changes, where significant, is provided below.



We acquired Shandong Huanong Specialty Corn Development Co., Ltd. (“Shandong 
Huanong”), TIC Gums Incorporated (“TIC Gums”) and Sun Flour on November 29, 
2016, December 29, 2016 and March 9, 2017, respectively. The results of the 
acquired businesses are included in our consolidated financial results from the 
respective acquisition dates forward. While we identify fluctuations due to the 
acquisitions, our discussion below also addresses results of operations absent 
the impact of the acquisitions and the results of the acquired businesses, 
where appropriate, to provide a more comparable and meaningful analysis.



For the Three and Six Months Ended June 30, 2017

With Comparatives for the Three and Six Months Ended June 30, 2016



Net Income attributable to Ingredion. Net income for the second quarter of 2017 
increased by 11 percent to $130 million, or $1.78 per diluted common share, 
from $117 million, or $1.58 per diluted common share, a year ago. Net income 
for the six months ended June 30, 2017 increased by 2 percent to $254 million, 
or $3.46 per diluted common share, from $248 million, or $3.36 per diluted 
common share, in the six months ended June 30, 2016.



Results for the second quarter of 2017 include after-tax costs of $5 million 
($0.07 per diluted common share) of net restructuring costs primarily 
associated with our restructuring effort in Argentina and $3 million ($0.04 per 
diluted common share) related to the flow-through of costs primarily associated 
with the sale of TIC Gums inventory that was adjusted to fair value at the 
acquisition date in accordance with business combination accounting rules. 
Results for the second quarter of 2016 include after-tax costs of $10 million 
($0.14 per diluted common share) consisting of employee-related severance and 
other costs associated with the execution of IT outsourcing contracts, 
employee-related severance costs associated with our optimization initiative in 
South America, and costs attributable to the 2015 sale of the Port Colborne 
plant.



Results for the six months ended June 30, 2017 include after-tax costs of $16 
million ($0.22 per diluted common share) of net restructuring costs primarily 
associated with our restructuring effort in Argentina, $6 million ($0.08 per 
diluted common share) related to the flow-through of costs primarily associated 
with the sale of TIC Gums inventory that was adjusted to fair value at the 
acquisition date in accordance with business combination accounting rules, and 
$1 million ($0.01 per diluted common share) associated with the integration of 
acquired operations. Results for the six months ended June 30, 2016 include 
after-tax costs of $10 million ($0.14 per diluted common share) consisting of 
employee-related severance and other costs associated with the execution of IT 
outsourcing contracts, employee-related severance costs associated with our 
optimization initiative in South America, and costs attributable to the 2015 
sale of the Port Colborne plant sale, and $1 million ($0.01 per diluted common 
share) associated with the integration of acquired operations.



Without the acquisition and integration, restructuring, and inventory markup 
charges, net income for the three and six months ended June 30, 2017 would have 
grown 8 percent and 7 percent, respectively, from the comparable prior periods, 
while diluted earnings per share would have grown 9 percent and 7 percent, 
respectively, from the comparable prior periods. These increases for the three 
and six months ended June 30, 2017 primarily reflect continued improvements in 
operating income in North America, partially offset by reduced operating income 
in South America due to difficult macroeconomic conditions in the region, as 
well as the interruption of manufacturing activities in Argentina and the 
resulting temporary higher operating costs, as compared to the same periods in 
2016. The increase for the six months ended June 30, 2017 was partially offset 
by higher net financing costs.



Net Sales. Net sales for the second quarter of 2017 of $1.46 billion were flat 
compared to the year ago period. Volume growth of 1 percent, which was 
comprised of 2 percent growth from recent acquisitions and 1 percent decline in 
organic volume, was offset by a 1 percent decrease in price/product mix. Net 
sales for the six months ended June 30, 2017 increased 3 percent to $2.91 
billion from $2.82 billion for the six months ended June 30, 2016. The increase 
was driven by volume growth of 3 percent, which was comprised of 2 percent 
growth from recent acquisitions and 1 percent increase in organic volume 
growth.



North America’s net sales for the second quarter of 2017 increased 1 percent to 
$905 million from $895 million a year ago. This increase was driven by volume 
growth of 2 percent, which was comprised of 3 percent growth from the TIC Gums 
acquisition and a 1 percent decline in organic volume, partially offset by 
unfavorable currency translation of 1 percent, reflecting a stronger Canadian 
Dollar. North America’s net sales for the six months ended June 30, 2017 
increased 3 percent to $1.79 billion from $1.74 billion for the six months 
ended June 30, 2016. This increase was driven by volume growth of 4 percent 
primarily from the TIC Gums acquisition, partially offset by a 1 percent 
decrease in price/product mix.



South America’s net sales for the second quarter of 2017 decreased 5 percent to 
$228 million from $240 million a year ago. This decrease was primarily driven 
by a volume decrease of 5 percent due to difficult macroeconomic conditions and 
the interruption of manufacturing activities in Argentina. Additionally, the 
segment had a 3 percent decrease in price/product mix, partially offset by 
favorable currency translation of 3 percent reflecting a stronger Brazilian 
Real. South America’s net sales for the six months ended June 30, 2017 
increased 6 percent to $483 million from $455 million for the six months ended 
June 30, 2016. This increase was driven by favorable currency translation of 12 
percent primarily reflecting a stronger Brazilian Real, partially offset by a 4 
percent decrease in price/product mix and a volume decrease of 2 percent, 
primarily due to difficult macroeconomic conditions and the interruption of 
manufacturing activities in Argentina.



Asia Pacific’s net sales for the second quarter of 2017 increased 4 percent to 
$187 million from $180 million a year ago. This increase was driven by volume 
growth of 10 percent, which was comprised of 9 percent organic volume growth 
and 1 percent growth from our recent acquisitions in the region, and a 
favorable currency translation of 1 percent primarily reflecting a stronger 
Korean Won, partially offset by a 7 percent decrease in price/product mix due 
to core customer mix diversification and pass through of lower raw material 
costs. Asia Pacific’s net sales for the six months ended June 30, 2017 
increased 5 percent to $366 million from $349 million for the six months ended 
June 30, 2016. This increase was driven by a volume growth of 11 percent, which 
was comprised of 10 percent organic volume growth and 1 percent volume increase 
from our recent acquisitions in the region, and favorable currency translation 
of 1 percent primarily reflecting a stronger Korean Won. The increase in volume 
was partially offset by a 7 percent decrease in price/product mix due to core 
customer mix diversification and pass through of lower raw material costs.



EMEA’s net sales for the second quarter of 2017 decreased 2 percent to $137 
million from $140 million a year ago. This decrease was driven by a volume 
decrease of 3 percent and unfavorable currency translation of 2 percent 
primarily reflecting a weaker British Pound Sterling, partially offset by a 3 
percent increase in price/product mix. EMEA’s net sales for the six months 
ended June 30, 2017 was $276 million, remaining nearly flat from $275 million 
for the prior year comparable period. Volume growth of 1 percent and a 2 
percent increase in price/product mix were offset by unfavorable currency 
translation of 3 percent, primarily reflecting a weaker British Pound Sterling.



Cost of Sales and Operating Expenses. Cost of sales for the second quarter of 
2017 decreased 1 percent to $1.08 billion from $1.10 billion a year ago. Our 
gross profit margin was 26 percent for the second quarter of 2017, up from 24 
percent last year. The decline in cost of sales and improvement in gross profit 
margin are primarily driven by operational efficiencies, overall lower raw 
material cost and lapping plant maintenance in North America from the prior 
year, partially offset by higher operating costs as a result of the temporary 
manufacturing interruption in Argentina. Operating expenses for the second 
quarter of 2017 increased to $157 million from $144 million last year. This 
increase was primarily driven by the incremental operating expenses of acquired 
operations. Operating expenses, as a percentage of gross profit, were 42 
percent for the second quarter of 2017 as compared to 41 percent a year ago.



Cost of sales for the six months ended June 30, 2017 increased 3 percent to 
$2.19 billion from $2.12 billion a year ago. This increase was primarily driven 
by an increase of 3 percent in net sales volume. Our gross profit margin was 25 
percent for the six months ended June 30, 2017, which was flat compared to last 
year. The gross profit margin remained flat due to higher operating costs as a 
result of the temporary manufacturing interruption in Argentina offset by 
overall lower raw material cost and operational efficiencies in North America. 
Operating expenses for the six months ended June 30, 2017 increased to $306 
million from $282 million last year. This increase was primarily driven by the 
incremental operating expenses of acquired operations. Operating expenses, as a 
percentage of gross profit, were 42 percent for the second quarter of 2017 as 
compared to 41 percent a year ago.



Operating Income. Second quarter of 2017 operating income increased 7 percent 
to $211 million from $198 million a year ago. Operating income for the second 
quarter of 2017 includes pre-tax net restructuring costs of $6 million 
consisting of $6 million of employee-related severance and other costs 
associated with our restructuring effort in Argentina, $1 million of other 
restructuring costs associated with a Finance Transformation initiative in 
North America, and a $1 million reduction in employee-related severance costs 
related to refinement of estimates for prior year restructuring activities. 
Additionally, the second quarter results include $4 million of costs primarily 
associated with the TIC Gums inventory that was adjusted to fair value at the 
acquisition date in accordance with business combination accounting rules. 
Operating income for the second quarter of 2016 includes pre-tax costs of $13 
million consisting of employee-related severance and other costs associated 
with the execution of IT outsourcing contracts, employee-related severance 
costs associated with our optimization initiative in South America, and costs 
attributable to the 2015 Port Colborne plant sale. Without the restructuring 
and acquisition-related charges, our second quarter of 2017 operating income 
would have grown 5 percent from the second quarter of 2016. The increase 
primarily reflects operating income growth in North America, offset by an 
operating income decrease in South America. Currency translation had a net 
favorable impact of $1 million, reflecting stronger South American currencies 
that offset the weakening Canadian Dollar and British Pound Sterling.



Operating income for the six months ended June 30, 2017 increased 2 percent to 
$406 million from $398 million for the six months ended June 30, 2016. 
Operating income for the six months ended June 30, 2017 includes pre-tax net 
restructuring costs of $16 million consisting of $17 million of 
employee-related severance and other costs associated with our restructuring 
effort in Argentina, $1 million of other restructuring costs associated with a 
Finance Transformation initiative in North America, and a $2 million reduction 
in employee-related severance costs related to refinement of estimates for 
prior year restructuring activities. Additionally, the six month results 
include $9 million of costs primarily associated with the TIC Gums inventory 
that was adjusted to fair value at the acquisition date, and $2 million of 
costs associated with the integration of acquired operations. Operating income 
for the six months ended June 30, 2016 includes pre-tax costs of $13 million 
consisting of employee-related severance and other costs associated with the 
execution of IT outsourcing contracts, employee-related severance costs 
associated with our optimization initiative in South America, and costs 
attributable to the Port Colborne plant sale. Additionally, it includes pre-tax 
costs of $1 million associated with the integration of acquired operations. 
Without the restructuring and acquisition-related charges, our operating income 
for the first six months of 2017 would have grown 5 percent from the prior year 
period. The increase primarily reflects operating income growth in North 
America, offset by an operating income decrease in South America. Currency 
translation had a net favorable impact of $5 million, reflecting stronger South 
American currencies that offset the weakening British Pound Sterling.



North America’s second quarter 2017 operating income increased 13 percent to 
$181 million from $160 million a year ago. This increase was primarily driven 
by net margin improvement from favorable raw material costs and operational 
efficiencies, in addition to net sales volume growth from the acquisition of 
TIC Gums. North America’s operating income for the six months ended June 30, 
2017 increased 10 percent to $341 million from $309 million for the six months 
ended June 30, 2016. This increase was primarily driven by net margin 
improvement from favorable raw material costs and operational efficiencies, in 
addition to net sales organic and acquisition-related volume growth compared to 
the prior period.



South America’s second quarter 2017 operating income decreased 71 percent to $4 
million from $14 million a year ago. This decrease was primarily driven by 
difficult macroeconomic conditions in the region, interruption of manufacturing 
activities in Argentina and the resulting temporary higher operating costs, and 
unfavorable price/product mix. These operating income decreases were partially 
offset by favorable raw material costs. Currency translation had a favorable 
impact of $3 million in the segment, primarily reflecting the effect of a 
stronger Argentine Peso and Brazilian Real during the period. South America’s 
operating income for the six months ended June 30, 2017 decreased 44 percent to 
$18 million from $32 million for the six months ended June 30, 2016. This 
decrease was primarily driven by higher operating costs incurred in Argentina 
and unfavorable raw material costs, offset by a $6 million favorable currency 
translation impact reflecting the effect of a stronger Brazilian Real during 
the period.



Asia Pacific’s second quarter 2017 operating income decreased 3 percent to $29 
million from $30 million a year ago. This decrease was primarily driven by a 
decrease in price/product mix due to core customer mix diversification, 
partially offset by volume growth, and favorable raw material costs. Asia 
Pacific’s operating income for the six months ended June 30, 2017 increased 2 
percent to $59 million from $58 million for the six months ended June 30, 2016. 
This increase was driven by volume growth and margin expansion due to lower raw 
material prices and operational efficiencies, offset by a decrease in 
price/product mix due to core customer mix diversification.



EMEA’s second quarter 2017 operating income was flat to a year ago at $29 
million. The improvement in price/product mix during the period was offset by 
unfavorable raw material costs and unfavorable currency translation of $1 
million reflecting a weaker British Pound Sterling. EMEA’s operating income for 
the six months ended June 30, 2017 increased 4 percent to $57 million from $55 
million for the six months ended June 30, 2016. This increase was primarily 
driven by improvement in price/product mix and volume growth, partially offset 
by unfavorable raw material costs and unfavorable currency translation of $2 
million primarily reflecting a weaker British Pound Sterling.



Financing Costs, net. Financing costs for the second quarter of 2017 increased 
to $20 million from $19 million in the prior-year period. This increase was 
primarily driven by higher weighted average short-term borrowing costs and an 
increase in short-term borrowings.



Financing costs for the six months ended June 30, 2017 increased to $41 million 
from $33 million for the six months ended June 30, 2016. This increase was due 
to higher weighted average short-term borrowing costs. Additionally, an 
increase in foreign currency transaction losses contributed to the increase.



Provision for Income Taxes. Our effective income tax rate for the second 
quarter of 2017 decreased to 30.4 percent from 32.8 percent a year ago. The 
effective income tax rate for the six months ended June 30, 2017 was 28.8 
percent compared to 30.6 percent a year ago.



We use the U.S. Dollar as the functional currency for our subsidiaries in 
Mexico. In the three and six months ended June 30, 2017, the effective tax rate 
was reduced by 0.9 percent and 2.0 percent, respectively, due to the 
revaluation of the Mexican Peso versus the U.S. Dollar.



In addition, we increased the valuation allowance on the net deferred tax 
assets of a foreign subsidiary. As a result, in the three and six months ended 
June 30, 2017, the effective tax rate was increased by 2.8 percent and 1.7 
percent, respectively.



The above discrete tax items were offset by individually insignificant discrete 
items. Without these items, the rate for both the three and six months ended 
June 30, 2017 would have been approximately 29.0 percent.



Our effective income tax rate for the three and six months ended June 30, 2016 
was increased by 5.2 percent and 2.6 percent, respectively, due to the 
devaluation of the Mexican Peso versus the U.S. Dollar. The impact of the 
Mexican Peso was offset by individually insignificant discrete items. Without 
these items, the rate for both the three and six months ended June 30, 2016 
would have been approximately 29.0 percent.



We have been pursuing relief from double taxation under the U.S. and Canadian 
tax treaty for the years 2007-2013. During the fourth quarter of 2016, a 
tentative settlement was reached between the U.S. and Canada and, consequently, 
we established a net reserve of $24 million, including interest thereon, 
recorded as a $70 million liability and a $46 million benefit. Recently, the 
two countries have provided us with additional details of their settlement, 
including details about a payment to be made from our Canadian affiliate. As a 
result, we now believe that the settlement will create a tax-deductible, 
foreign exchange loss in the U.S. for tax purposes. Therefore, we anticipate a 
reduction of tax expense between $13 million and $14 million will be recorded 
in the third quarter of 2017. We do not expect an impact to income before 
income taxes.



Comprehensive Income Attributable to Ingredion. We recorded comprehensive 
income of $124 million for the second quarter of 2017, as compared to 
comprehensive income of $155 million a year ago. The decrease reflects 
unfavorable variances due to gains resulting from cash-flow hedging activities 
and unfavorable currency translation adjustments, offset by an increase in net 
income.



Comprehensive income for the six months ended June 30, 2017 decreased to $296 
million from $321 million for the six months ended June 30, 2016. This decrease 
reflects gains resulting from cash-flow hedging activities and unfavorable 
currency translation adjustments, offset by an increase in net income for the 
period.



Liquidity and Capital Resources



Cash provided by operating activities for the six months ended June 30, 2017 
was $302 million, as compared to $266 million a year ago. The increase in 
operating cash flow primarily reflects an increase in net income and 
improvement in working capital.



Capital expenditures of $144 million for the six months ended June 30, 2017 are 
in line with our capital spending plan for the year. We anticipate that our 
capital expenditures will be approximately $300 million to $325 million for 
2017. During the first quarter of 2017, we repurchased approximately 1 million 
shares of our common stock in open market transactions for $123 million.



As of June 30, 2017, there were borrowings of $186 million outstanding under 
the Revolving Credit Agreement, as compared to no borrowings outstanding as of 
December 31, 2016. In addition to borrowing availability under our Revolving 
Credit Agreement, we have approximately $440 million of unused operating lines 
of credit in the various foreign countries in which we operate.



As of June 30, 2017, we had total debt outstanding of $1,954 million, compared 
to $1,956 million at December 31, 2016. ebtedness was approximately 4.3 percent 
for the six months ended June 30, 2017, compared to 3.9 percent in the 
comparable prior-year period.


As noted above, as of June 30, 2017, we have $300 million of 1.8 percent senior 
notes that mature on September 25, 2017. These borrowings are included in 
long-term debt in our Condensed Consolidated Balance Sheet as we have the 
ability and intent to refinance them on a long-term basis prior to the maturity 
date. We refinanced $200 million of senior notes during the second quarter of 
2017 through use of the revolving credit facility.



On May 17, 2017, our Board of Directors declared a quarterly cash dividend of 
$0.50 per share of common stock. This dividend was paid on July 25, 2017 to 
stockholders of record at the close of business on June 30, 2017.



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 the foreseeable future.



We have not provided federal and state income taxes on accumulated 
undistributed earnings of certain foreign subsidiaries because these earnings 
are considered to be permanently reinvested. It is not practicable to determine 
the amount of the unrecognized deferred tax liability related to the 
undistributed earnings. We do not anticipate the need to repatriate funds to 
the U.S. to satisfy domestic liquidity needs arising in the ordinary course of 
business, including liquidity needs associated with our domestic debt service 
requirements. Approximately $445 million of the total $454 million of cash and 
cash equivalents and short-term investments at June 30, 2017 was held by our 
operations outside of the U.S. We expect that available cash balances and 
credit facilities in the U.S., along with cash generated from operations and 
access to debt markets, will be sufficient to meet our operating and other cash 
needs for the foreseeable future.


Hedging



We are exposed to market risk stemming from changes in commodity prices 
(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 clear controls on these activities. These 
transactions utilize exchange-traded derivatives or over-the-counter 
derivatives with investment grade counterparties. Our hedging transactions may 
include, but are not limited to, a variety of derivative financial instruments 
such as commodity-related futures, options and swap contracts, forward 
currency-related contracts and options, interest rate swap agreements and 
treasury lock agreements (“T-Locks”). See Note 6 of the Notes to the Condensed 
Consolidated Financial Statements for additional information.



Commodity Price Risk: Our principal use of derivative financial instruments is 
to manage commodity price risk in North America relating to anticipated 
purchases of corn and natural gas to be used in our manufacturing process. We 
periodically enter into futures, options and swap contracts for a portion of 
our anticipated corn and natural gas usage, generally over the following twelve 
to twenty-four months, in order to hedge price risk associated with 
fluctuations in market prices. We also enter into futures contracts to hedge 
price risk associated with fluctuations in the market price of ethanol. We are 
unable to directly hedge price risk related to co-product sales; however, we 
occasionally enter into hedges of soybean oil (a competing product to corn oil) 
in order to mitigate the price risk of corn oil sales. Unrealized gains and 
losses associated with marking our commodities-based derivative instruments to 
market are recorded as a component of other comprehensive income (“OCI”). At 
June 30, 2017, our accumulated other comprehensive loss account (“AOCI”) 
included $7 million of gains, net of income taxes of $2 million, related to 
these derivative instruments. It is anticipated that these gains will be 
reclassified into earnings during the next twelve months. We expect the gains 
to be offset by changes in the underlying commodities costs.



Foreign Currency Exchange Risk: Due to our global operations, including 
operations in many emerging markets, we are exposed to fluctuations in foreign 
currency exchange rates. As a result, we have exposure to translational foreign 
exchange risk when our foreign operations’ results are translated to U.S. 
Dollars and to transactional foreign exchange risk when transactions not 
denominated in the functional currency of the operating unit are revalued. We 
primarily use derivative financial instruments such as foreign currency forward 
contracts, swaps and options to manage our foreign currency transactional 
exchange risk. At June 30, 2017, we had foreign currency forward sales 
contracts that are designated as fair value hedges with an aggregate notional 
amount of $464 million and foreign currency forward purchase contracts with an 
aggregate notional amount of $227 million that hedged transactional exposures.



We also have foreign currency derivative instruments that hedge certain foreign 
currency transactional exposures and are designated as cash-flow hedges. At 
June 30, 2017, AOCI included $2 million of losses, net of income taxes, 
relating to these hedges.



We have significant operations in Argentina. We utilize the official exchange 
rate published by the Argentine government for re-measurement purposes. Due to 
exchange controls put in place by the Argentine government, a parallel market 
exists for exchanging Argentine Pesos to U.S. Dollars at rates less favorable 
than the official rate, although the difference in rates has decreased from 
past levels.



Interest Rate Risk: We occasionally use interest rate swaps and 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 June 30, 2017.



As of June 30, 2017, AOCI included $3 million of losses (net of income taxes of 
$2 million) related to settled T-Locks. These deferred losses are being 
amortized to financing costs over the terms of the senior notes with which they 
are associated. It is anticipated that $1 million of these losses (net of 
income taxes of $1 million) will be reclassified into earnings during the next 
twelve months.



As of June 30, 2017, we have interest rate swap agreements that effectively 
convert the interest rates on our $300 million of 1.8 percent senior notes due 
September 25, 2017 and on $200 million of our $400 million of 4.625 percent 
senior notes due November 1, 2020, to variable rates. These swap agreements 
call for us to receive interest at the fixed coupon rate of the respective 
notes and to pay interest at a variable rate based on the six-month U.S. Dollar 
LIBOR rate plus a spread. We have designated these interest rate swap 
agreements as hedges of the changes in fair value of the underlying debt 
obligations attributable to changes in interest rates and account for them as 
fair-value hedges. The fair value of these interest rate swap agreements was $4 
million at June 30, 2017 and is reflected in the Condensed Consolidated Balance 
Sheets within other assets, with an offsetting amount recorded in long-term 
debt to adjust the carrying amount of the hedged debt obligations.