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MarketScreener Homepage  >  Equities  >  Nyse  >  Ingredion Incorporated    INGR

INGREDION INCORPORATED

(INGR)
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Ingredion Incorporated : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

11/06/2020 | 04:30pm EST

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



Overview



We are a major supplier of high-quality food and industrial ingredient solutions
to customers around the world. As of September 30, 2020, we have 46
manufacturing plants located in North America, South America, Asia-Pacific and
Europe, the Middle East and Africa ("EMEA"), and we manage and operate our
businesses at a regional level. We believe this approach provides us with a
unique understanding of the cultures and product requirements in each of the
geographic markets in which we operate, bringing added value to our customers.
Our ingredients are used by customers in the food, beverage, brewing, and animal
nutrition industries, among others.



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



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



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



The Company anticipates continued impacts from COVID-19 on net sales volume
across our operating segments in the fourth quarter, with recovery in net sales
generally correlated with increased consumer activity. With pandemic case rates
rising and falling across many geographies, we expect away-from-home consumption
to continue to fluctuate, suppressing volume demand for ingredients that are
formulated in food and beverages consumed away-from-home. We anticipate modestly
higher demand for food consumed in home, increasing volumes for ingredients that
are part of the recipes for these meals.



Restructuring and Impairment Costs:  For the three and nine months ended
September 30, 2020, we recorded a total of $16 million and $41 million of
pre-tax restructuring and impairment charges, respectively. For the three and
nine months ended September 30, 2020, we recorded $2 million and $17 million,
respectively, of pre-tax restructuring charges for our Cost Smart cost of sales
program. During the three months ended September 30, 2020, we recorded $1
million of other restructuring costs in relation to the closure of the Lane
Cove, Australia production facility and $1 million of other costs related to the
closure of the Stockton, California production facility. During the nine months
ended September 30, 2020, we recorded $10 million of restructuring charges in
relation to the closure of the Lane Cove, Australia production facility, $6
million related to the closure of the Stockton, California production facility
and $1 million of other restructuring costs. The Lane Cove, Australia
restructuring costs consist of $6 million of asset write-offs, $3 million of
other costs, and $1 million of accelerated depreciation. The Stockton,
California restructuring costs consist of $4 million of accelerated

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depreciation, $1 million of employee-related severance, and $1 million of other
costs. We expect to incur $1 million of additional restructuring costs during
the remainder of 2020 related to the Lane Cove production facility closure.



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



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



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



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



Results of Operations



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


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



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                 For the Three Months Ended September 30, 2020

        With Comparatives for the Three Months Ended September 30, 2019




                                                                                         Favorable         Favorable
                                             Three Months Ended September 30,          (Unfavorable)     (Unfavorable)
(in millions)                                   2020                   2019              Variance         Percentage
Net sales                                 $          1,502       $          1,574    $            (72)             (5) %
Cost of sales                                        1,176                  1,230                   54               4 %
Gross profit                                           326                    344                 (18)             (5) %

Operating expenses                                     155                    153                  (2)             (1) %
Other expense (income), net                              2                    (2)                  (4)             200 %
Restructuring/impairment charges                        16                 
   28                   12              43 %

Operating income                                       153                    165                 (12)             (7) %

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

Income before income taxes                             133                    140                  (7)             (5) %
Provision for income taxes                              40                     38                  (2)             (5) %
Net income                                              93                    102                  (9)             (9) %
Less: Net income attributable to
non-controlling interests                                1                      3                    2              67 %
Net income attributable to Ingredion      $             92       $         
   99    $             (7)             (7) %



Net income attributable to Ingredion. Net income attributable to Ingredion for
the three months ended September 30, 2020 decreased by 7 percent to $92 million
from $99 million for the three months ended September 30, 2019.  The decrease in
net income was largely attributable to lower sales volumes in North America, the
other-than temporary impairment of our equity method investment in Verdient
Foods Inc., and the inclusion of PureCircle's results.  These were partly offset
by reduced restructuring costs compared to the prior comparable period.



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

Cost of sales. Cost of sales for the three months ended September 30, 2020
declined by $54 million or 4% compared to the three months ended September 30,
2019. Our gross profit margin remained flat at  22 percent for the three months
ended September 30, 2020 as compared to the three months ended September 30,
2019.



Operating expenses. Our operating expenses increased 1 percent to $155 million
for the three months ended September 30, 2020 as compared to $153 million for
the three months ended September 30, 2019. The increase was primarily driven by
transaction costs associated with our acquisition and integration of PureCircle,
which were partly offset by reduced travel costs and Cost Smart program savings.

Operating expenses, as a percentage of net sales, was 10 percent for the three months ended September 30, 2020 and the three months ended September 30, 2019.

Financing costs, net. Financing costs for the three months ended September 30, 2020 decreased to $22 million from $24 million for the three months ended September 30, 2019. The decrease was driven by lower net interest costs on long-term debt.




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

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losses for which a benefit had not previously been recognized compared to a valuation allowance recorded in the 2019 period.



Segment Results



North America




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




Net sales. Our decrease in net sales of 6 percent for the three months ended
September 30, 2020, as compared to the three months ended September 30, 2019,
was driven by a 3 percent reduction in volume and 3 percent reduction in price
mix.


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



South America




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



Net sales. Our net sales decreased 9 percent for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, primarily due to an 16 percent unfavorable foreign exchange impact and a 3 percent reduction in volume, partly offset by favorable price mix of 10 percent.





Operating income. Our increase in operating income of $2 million for the three
months ended September 30, 2020, as compared to the three months ended
September 30, 2019, was driven by strong price mix, which was partially offset
by unfavorable foreign currency impacts and lower sales volumes.



Asia-Pacific




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



Net sales. Our net sales increased $2 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

The increase was primarily due to the inclusion of PureCircle results in the 2020 period, the effect of which was partly offset by unfavorable price mix.

Operating income. Our operating income decreased by $4 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The decrease was driven by the $5 million of operating losses of PureCircle recorded in the 2020 period.

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EMEA




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



Net sales. Our net sales increased by 2 percent for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, primarily driven by favorable price mix and a 1 percent increase in volume.




Operating income. Our operating income increased $1 million for the three months
ended September 30, 2020, as compared to the September 30, 2019. The increase
was largely attributable to favorable price mix in Pakistan and lower operating
expenses in Europe.



                  For the Nine Months Ended September 30, 2020

         With Comparatives for the Nine Months Ended September 30, 2019




                                                                                        Favorable         Favorable
                                             Nine Months Ended September 30,          (Unfavorable)     (Unfavorable)
(in millions)                                   2020                   2019              Variance        Percentage
Net sales                                 $          4,394       $          4,660    $          (266)             (6) %
Cost of sales                                        3,474                  3,671                 197               5 %
Gross profit                                           920                    989                (69)             (7) %

Operating expenses                                     456                    457                   1               - %
Other expense (income), net                              4                    (3)                 (7)           (233) %
Restructuring/impairment charges                        41                 
   41                   -               - %

Operating income                                       419                    494                (75)            (15) %

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

Income before income taxes                             363                    431                (68)            (16) %
Provision for income taxes                             125                    120                 (5)             (4) %
Net income                                             238                    311                (73)            (23) %
Less: Net income attributable to
non-controlling interests                                5                      7                   2              29 %
Net income attributable to Ingredion      $            233       $         
  304    $           (71)            (23) %



Net income attributable to Ingredion. Net income attributable to Ingredion for
the nine months ended September 30, 2020 decreased by 23 percent to $233 million
from $304 million for the nine months ended September 30, 2019.  The decrease in
net income was primarily due to decreases in volumes associated with the effects
of COVID-19, unfavorable impacts of foreign exchange, the other-than temporary
impairment of our equity method investment in Verdient Foods Inc., and the
inclusion of the results of PureCircle. These were partly offset by reduced
restructuring costs compared to the prior comparable period.



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




Cost of sales. Cost of sales for the nine months ended September 30, 2020
decreased by 5 percent as compared to the nine months ended September 30, 2019.
Our gross profit margin remained flat at 21 percent for the nine months ended
September 30, 2020 as compared to the nine months ended September 30, 2019.


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Operating expenses. Our operating expenses remained flat for the nine months
ended September 30, 2020 as compared to the nine months ended
September 30, 2019.  Operating expenses, as a percentage of net sales, were 10
percent for the nine months ended September 30, 2020 and the nine months ended
September 30, 2019.



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



Provision for income taxes. Our effective tax rate for the nine months ended
September 30, 2020 was 34.4 percent compared to 27.8 percent for the nine months
ended September 30, 2019. The increase in the effective tax rate was driven by a
decrease in the valuation of the Mexican peso against the U.S. dollar, one-time
items in the quarter over quarter results, a change in the mix of earnings
including the consolidation of PureCircle, and a valuation allowance on U.S.
foreign tax credits.  These items were partially offset by a reduction in the
Company's GILTI based on newly issued final U.S.Treasury regulations relating
thereto and utilization of net operating losses for which a benefit had not
previously been recognized compared to a valuation allowance recorded in the
2019 period.



Segment Results



North America




                                                                                     Favorable          Favorable
                                          Nine Months Ended September 30,          (Unfavorable)      (Unfavorable)
(in millions)                                2020                   2019              Variance         Percentage
Net sales to unaffiliated customers    $          2,739       $          2,912    $          (173)              (6) %
Operating income                                    358                    409                (51)             (12) %



Net sales. Our decrease in net sales of 6 percent for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was driven by decreased volumes of 6 percent.




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



South America




                                                                                      Favorable          Favorable
                                          Nine Months Ended September 30,           (Unfavorable)      (Unfavorable)
(in millions)                               2020                    2019              Variance          Percentage
Net sales to unaffiliated customers    $           643         $          
699    $            (56)              (8) %
Operating income                                    68                      61                    7               11 %




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



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



Asia-Pacific




                                                                                      Favorable          Favorable
                                          Nine Months Ended September 30,           (Unfavorable)      (Unfavorable)
(in millions)                               2020                    2019              Variance          Percentage
Net sales to unaffiliated customers    $           583         $          
611    $            (28)              (5) %
Operating income                                    60                      65                  (5)              (8) %




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Net sales. Our net sales decreased 5 percent for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The decrease was primarily driven by unfavorable foreign exchange impacts and

volume and price mix impacts of 2 percent each, the effects of which were partially offset by a 1 percent increase due to the inclusion of PureCircle results in the 2020 period.

Operating income. Our operating income decreased by $5 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The decrease was driven by the $5 million of operating of losses of PureCircle recorded in the 2020 period.



EMEA




                                                                                      Favorable          Favorable
                                          Nine Months Ended September 30,           (Unfavorable)      (Unfavorable)
(in millions)                               2020                    2019              Variance          Percentage
Net sales to unaffiliated customers    $           429         $          
438    $             (9)              (2) %
Operating income                                    73                      71                    2                3 %



Net sales. Our net sales decreased 2 percent for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The decrease was driven by unfavorable foreign exchange impacts of 4 percent, partially offset by favorable price mix of 2 percent.




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



Liquidity and Capital Resources




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





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





(in millions)
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

Term loan credit agreement due April 12, 2021
380
Revolving credit facility                                                    -
Other long-term borrowings                                                   1

Fair value adjustment related to hedged fixed rate debt instruments

 -
Long-term debt                                                           2,115
Short-term borrowings                                                       62
Total debt                                                             $ 2,177

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

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

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



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



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



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




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



We have not provided foreign withholding taxes, state income taxes, and federal
and state taxes or foreign currency gains/losses on accumulated undistributed
earnings of certain foreign subsidiaries because these earnings are considered
to be permanently reinvested. It is not practicable to determine the amount of
the unrecognized deferred tax liability related to the undistributed earnings.
We do not anticipate the need to repatriate funds to the U.S. to satisfy
domestic liquidity needs arising in the ordinary course of business, including
liquidity needs associated with our domestic debt service requirements.
Approximately $349 million of the total $553 million of cash and cash
equivalents and short-term investments at September 30, 2020 was held by our
operations outside of the U.S.

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



Hedging and Financial Risk



Hedging: We are exposed to market risk stemming from changes in commodity prices
(primarily corn and natural gas), foreign-currency exchange rates, and interest
rates. In the normal course of business, we actively manage our exposure to
these market risks by entering into various hedging transactions, authorized
under established policies that place controls on these activities. These
transactions utilize exchange-traded derivatives or over-the-counter derivatives
with investment grade counterparties. Our hedging transactions may include, but
are not limited to, a variety of derivative financial instruments such as
commodity-related futures, options and swap contracts, forward currency-related
contracts and options, interest rate swap agreements, and Treasury lock
agreements ("T-Locks"). See Note 6 of the Notes to the Condensed Consolidated
Financial Statements included in this report for additional information.



Commodity Price Risk: Our principal use of derivative financial instruments is
to manage commodity price risk in North America relating to anticipated
purchases of corn and natural gas to be used in our manufacturing process. We
periodically enter into futures, options and swap contracts for a portion of our
anticipated corn and natural gas usage, generally over the following 12 to 24
months, in order to hedge price risk associated with fluctuations in market
prices. Unrealized gains and losses associated with marking our
commodities-based cash flow hedge derivative instruments to market are recorded
as a component of other comprehensive income ("OCI"). As of September 30, 2020,
our Accumulated other comprehensive loss account ("AOCI") included $2 million of
net gains (net of an insignificant amount of taxes) related to these derivative
instruments. It is anticipated that $1 million of net losses (net of an
insignificant amount of taxes) will be reclassified into earnings during the
next 12 months. We expect the net losses to be offset by lower underlying
commodities costs.



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Foreign-Currency Exchange Risk: Due to our global operations, including
operations in many emerging markets, we are exposed to fluctuations in
foreign-currency exchange rates. As a result, we have exposure to translational
foreign-exchange risk when our foreign operations' results are translated to
U.S. dollars and to transactional foreign-exchange risk when transactions not
denominated in the functional currency of the operating unit are revalued into
U.S. dollars. We primarily use derivative financial instruments such as
foreign-currency forward contracts, swaps and options to manage our foreign
currency transactional exchange risk. We enter into foreign-currency derivative
instruments that are designated as both cash flow hedging instruments as well as
instruments not designated as hedging instruments as defined by Accounting
Standards Codification 815, Derivatives and Hedging. As of September 30, 2020,
we had foreign currency derivatives not designated as hedging instruments
hedging certain asset and liability positions with aggregate notional amounts of
$648 million and $457 million, respectively.



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



Interest Rate Risk: We occasionally use interest rate swaps and T-Locks to hedge
our exposure to interest rate changes, to reduce the volatility of our financing
costs, or to achieve a desired proportion of fixed versus floating rate debt,
based on current and projected market conditions. We did not have outstanding
T-Locks as of September 30, 2020.



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



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





Critical Accounting Policies and Estimates




Our critical accounting policies and estimates are described in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended December 31, 2019.
See Note 2 of the Notes to the Condensed Consolidated Financial Statements
included in this report for additional information regarding our significant
accounting policies. There have been no other changes to our critical accounting
policies and estimates during the nine months ended September 30, 2020.



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  Table of Contents

FORWARD-LOOKING STATEMENTS


This Form 10-Q contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends these forward-looking statements to be covered by the safe harbor provisions for such statements.




Forward-looking statements include, among other things, any statements regarding
the Company's future financial condition, earnings, revenues, tax rates, capital
expenditures, cash flows, expenses or other financial items, any statements
concerning the Company's prospects or future operations, including management's
plans or strategies and objectives therefor, and any assumptions, expectations
or beliefs underlying the foregoing.



These statements can sometimes be identified by the use of forward-looking words
such as "may," "will," "should," "anticipate," "assume," "believe," "plan,"
"project," "estimate," "expect," "intend," "continue," "pro forma," "forecast,"
"outlook," "propels," "opportunities," "potential," "provisional," or other
similar expressions or the negative thereof. All statements other than
statements of historical facts in this report or referred to in this report are
"forward-looking statements."



These statements are based on current circumstances or expectations, but are
subject to certain inherent risks and uncertainties, many of which are difficult
to predict and are beyond our control. Although we believe our expectations
reflected in these forward-looking statements are based on reasonable
assumptions, investors are cautioned that no assurance can be given that our
expectations will prove correct.



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

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  Table of Contents
Our forward-looking statements speak only as of the date on which they are made
and we do not undertake any obligation to update any forward-looking statement
to reflect events or circumstances after the date of the statement as a result
of new information or future events or developments. If we do update or correct
one or more of these statements, investors and others should not conclude that
we will make additional updates or corrections. For a further description of
these and other risks, see "Risk Factors" and other information included in our
Annual Report on Form 10-K for the year ended December 31, 2019, in our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and
in our subsequent reports on Forms 10-Q and 8-K.



ITEM 3

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Financials (USD)
Sales 2020 5 955 M - -
Net income 2020 335 M - -
Net Debt 2020 1 735 M - -
P/E ratio 2020 16,0x
Yield 2020 3,29%
Capitalization 5 300 M 5 300 M -
EV / Sales 2020 1,18x
EV / Sales 2021 1,10x
Nbr of Employees 11 000
Free-Float 85,6%
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Mean consensus OUTPERFORM
Number of Analysts 6
Average target price 92,50 $
Last Close Price 79,11 $
Spread / Highest target 51,7%
Spread / Average Target 16,9%
Spread / Lowest Target -2,67%
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NameTitle
James P. Zallie President, Chief Executive Officer & Director
Gregory B. Kenny Executive Chairman
James Derek Gray Chief Financial Officer & Executive Vice President
Robert J. Stefansic Chief Supply Chain Officer
Robert O. Border Chief Information Officer
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