Company: Mead Johnson Nutrition Co
CIK: 1452575
SIC: 2000
Filing Date: 2016-02-17 00:00:00

ITEM 1 - BUSINESS
Item 1. BUSINESS.
In this Annual Report on Form 10-K, we refer to Mead Johnson Nutrition Company and its subsidiaries as “the Company,” “MJN,” “Mead Johnson,” “we” or “us.”
Our Company
Mead Johnson Nutrition Company is a global leader in pediatric nutrition with approximately $4.1 billion in net sales for the year ended December 31, 2015. We are committed to being the world’s leading nutrition company for infants and children and to helping nourish the world’s children for the best start in life. Our Enfa family of brands, including Enfamil infant formula, is the world’s leading brand franchise in pediatric nutrition, based on retail sales, and accounted for approximately 80% of our net sales for the year ended December 31, 2015. Our comprehensive product portfolio addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. We have over 100 years of innovation experience during which we have developed or improved many breakthrough or category-defining products across our product portfolio. Our singular focus on pediatric nutrition and our implementation of a business model that integrates nutritional science with health care and consumer marketing expertise differentiate us from many of our competitors.
We market our portfolio of more than 70 products to mothers, health care professionals and retailers in more than 50 countries in Asia, North America, Latin America and Europe. Our three reportable segments are Asia, North America/Europe and Latin America, which comprised 50%, 31% and 19%, respectively, of our net sales for the year ended December 31, 2015. See “Item 8. Financial Statements - Note 5. Segment Information” for additional financial information by segment and geographical area. For the year ended December 31, 2015, 73% of our net sales were generated outside of the United States.
We believe parents and health care professionals associate the Mead Johnson name and our Enfa family of brands with quality, science-based pediatric nutrition products. Our products are marketed around the world through our global sales and marketing efforts. We believe that the strength of our brands allows us to create and maintain consumer loyalty across our product portfolio.
Our History
Mead Johnson was founded in 1905 and introduced Dextri-Maltose, our first infant feeding product, in 1911. Over the next several decades, we built upon our leadership in science-based nutrition, introducing many innovative infant feeding products while expanding into vitamins, pharmaceutical products and children’s nutrition. Some of our products, developed in cooperation with clinicians and leading nutrition researchers, established a partnership between Mead Johnson and the scientific community that continues to this day. During the course of our history, we expanded our operations into extensive geographies outside of the United States and now focus solely on pediatric nutrition. Throughout our history, our deeply-held commitments to support good nutrition early in life and to improve the health and development of infants and children around the world have been hallmarks of our organization.
In 1967, we became a wholly-owned subsidiary of Bristol-Myers Squibb Company (“BMS”). In February 2009, we completed our initial public offering of common stock, following which BMS retained a significant ownership interest in the Company. BMS then completed a split-off of its remaining interest in Mead Johnson in December 2009 making Mead Johnson an independent public company. The Company is currently headquartered near Chicago, Illinois.
Our Product Portfolio
Our product portfolio, which addresses a wide range of pediatric nutritional needs, consists of two principal product categories: infant formula and children’s nutrition, which represented 59% and 39%, respectively, of our net sales for the year ended December 31, 2015. Our product categories can be separated into the following five general product types: (i) routine infant, (ii) solutions, (iii) specialty, (iv) children’s nutrition and (v) other. Our routine infant formula is intended for healthy consumers while our solutions and specialty products are offered for infants with common feeding problems and special nutritional needs. Our children’s nutrition products are designed to meet the nutritional needs of children at different stages of development. Our other products (representing approximately 2% of net sales) include vitamins and supplements. We market products under different names in various regions across the world based on marketing strategies and brand recognition.
Routine Infant Formula. We design routine infant formula for healthy, full-term infants without special nutritional needs both for the use as the infant’s sole source of nutrition and as a supplement to breastfeeding. We endeavor to develop routine infant formula as close as possible to breast milk. Each product is referred to as a “formula,” as it is formulated for the specific nutritional needs of an infant at a given age. Generally, our routine infant formulas have the following four main components: (1) protein from cow’s milk that is processed to have a profile similar to human milk, (2) a blend of vegetable fats (including docosahexaenoic acid (“DHA”) and arachidonic acid (“ARA “)) to replace bovine milk fat in order to better resemble the composition of human milk, (3) a carbohydrate, generally lactose from cow’s milk and (4) a vitamin and mineral “micronutrient” pre-mix that is blended into the
product to meet the specific needs of the infant at a given age. Our key routine infant formula products include Enfamil Premium, Enfapro Premium, Enfalac A+ and Enfamil A+. Our products are available in a powdered mix form globally and in a ready-to-drink liquid form in certain regions. In addition, we have recently introduced non-GMO Enfamil formulas (newborn and infant) in an effort to provide parents with options that meet a variety of preferences.
Solutions Products. We design several solutions formulas to address common feeding tolerance problems, including spit-up, fussiness, gas and lactose intolerance. Our primary solutions products include Enfamil Gentlease (for fussiness and gas), Enfamil A.R. (to reduce spit-up), Enfamil ProSobee (a soy-based formula) and Enfamil LactoFree (for lactose intolerance).
Specialty Products. We design specialty formulas to address certain conditions or special medical needs, including Nutramigen (for cow’s milk protein allergies) and Puramino (an amino acid formula for severe cow’s milk protein allergies or multiple other food allergies). We design products such as Enfamil Premature to meet the unique needs of premature and low birth weight infants under the supervision of a doctor, most often in the hospital, and EnfaCare, a hypercaloric formula for premature babies at home. We also produce medical foods, or foods for special medical purposes, for nutritional management of individuals with rare, inborn errors of metabolism such as maple syrup urine disease (Mead Johnson BCAD) and phenylketonuria (Mead Johnson Phenyl-Free). Certain of these products are intended for infants and young children while others are suitable for children and adults.
Children’s Nutrition Products. We design our children’s products to meet the changing nutritional needs of children at different stages of development (i.e. toddlers and older children). Our primary children’s nutrition products include Enfagrow, Sustagen and Lactum. These products are not breast milk substitutes and are not designed as a sole source of nutrition but instead are designed to be a part of a child’s appropriate diet. We also offer “milk modifiers” (ChocoMilk and Cal-C-Tose) that, when added to a glass of milk, enhance the milk’s nutritional value.
Other Products. We also produce a range of other products, including pre-natal and post-natal nutritional supplements for expectant and nursing mothers, including Expecta and EnfaMama. Our pediatric vitamin products sold in some geographies, such as Enfamil Poly-Vi-Sol, provide a range of benefits for infants, including multivitamins and iron supplements.
The following table shows sales for each of the above-described product types as a percentage of our total net sales over each of the past three fiscal years.
% of Total Net Sales
Routine Infant Formula
%
%
%
Solutions Products*
%
%
%
Specialty Products*
%
%
%
Total Infant
%
%
%
Children’s Nutrition Products
%
%
%
Total Children’s
%
%
%
Other
%
2%
%
Total Other
%
2%
%
* These products can be consumed by children; however, a majority of such products are consumed by infants.
Sales and Marketing
We conduct regional marketing within a strategic framework focused on both parents and health care professionals in accordance with country-specific regulatory requirements. We maintain both a health care professional sales force and a retail sales organization throughout the world. Our marketing activities vary from region to region depending on our market position, consumer trends and the regulatory environment. Our marketing teams seek to anticipate market and consumer trends, and attempt to capture consumer insights to determine strategy for brand communication, product innovation and demand-creation programs. The marketing teams work with external agencies to create marketing campaigns for consumers, health care professionals and retail sales organizations, where permitted.
Consumers. Parental preference plays an important role in brand selection. We participate in a variety of evidence-based marketing activities that emphasize our superior nutritional science. We have invested significant resources to support the trend in
consumer preference for premium products in key markets, and we are developing new technology platforms to better support e-commerce and mobile commerce. In particular, we have invested in targeted digital marketing programs that allow us to attract new or prospective parents’ attention online, engage with potential consumers by connecting them to relevant content reflective of their needs and then provide targeted, specific information and product offers.
Health Care Professionals. Our sales force educates health care professionals about the benefits of our infant formula products in each of the countries where we market our infant formula products. We focus our product detailing efforts on neonatal intensive care units, physicians and other health care professionals, hospital group purchasing organizations and other integrated buying organizations. We also support health care professionals by organizing continuing medical education programs, symposia and other educational interfaces.
Retail Sales Organization. Our sales force markets our products to each of the retail channels where our products are purchased by consumers, including mass merchandisers, club stores, baby stores, grocery stores, drug stores and, to a limited extent, convenience stores. The size, role and purpose of our retail sales organization varies significantly from country to country depending on our market position, the consolidation of the retail trade, shopper trends and the regulatory environment. In North America, Latin America and Asia, we focus on all retail channels, while in Europe we focus primarily on specialty products sold through pharmacies.
Global Supply Chain
We manage sourcing, manufacturing and distribution through our global supply chain. We currently operate in-house production facilities at nine different locations around the world and additionally use third-party manufacturers for a portion of our requirements.
Locations. Our manufacturing and finishing facilities are located in the United States, the Netherlands, Mexico, Brazil, Singapore, Thailand, China and the Philippines. See “Item 2. Properties” for a description of our global manufacturing facilities. We also use third-party manufacturers for select production requirements. As the production process advances, regional or sub-regional teams support the global team, overseeing manufacturing activities such as the finishing of our products. Our four regional quality departments located in Singapore, the Netherlands (Nijmegen), the United States (Evansville) and Mexico (Mexico City) perform regional and manufacturing site quality control and assurance. The Quality Assurance work in the regions is supported by a Global Quality Assurance group which provides additional expertise for specific areas.
Suppliers. We source approximately 75% of our materials from approximately 50 suppliers. Through these suppliers, we obtain key raw materials and primary packaging materials on a global basis. These raw materials are subject to review and approval by our regional teams to ensure compliance with regulatory requirements and quality standards. Certain raw materials, while managed and contracted on a global basis, are subject to regional and local variations in price under the terms of these supply agreements. For example, the cost of dairy, agricultural oils, and packaging materials are affected by global commodity changes. As such, we are often exposed to price volatility related to market conditions outside of our control. Dairy products, consisting primarily of milk powders, non-fat dry milk, lactose and whey protein concentrates, accounted for approximately 43% of our global expenditures for raw materials and approximately 29% of our cost of goods sold for the year ended December 31, 2015.
Quality Standards. Our products undergo extensive quality and safety checks throughout the manufacturing process, from raw materials to finished product. As noted above, we have four regional quality departments which perform routine manufacturing site inspections, focused on regulatory requirements, food safety, continuous quality improvement, ingredient supplier quality and third-party compliance. Our products meet all local and nationally required regulatory, safety and nutrition requirements, meaning Codex standards where applicable, the U.S. Infant Formula Act in the United States and specific national, local and regional requirements elsewhere (See “ - Regulatory” below). Nevertheless, the Company is constantly driving improvement in quality and, as such, these regulations are seen as the minimum requirements; our internal rigorous standards and quality ambition meet and usually exceed such requirements.
Distribution. We manage our distribution networks locally with regional oversight. We generally enter into distribution agreements with third-party logistics providers and distributors and maintain a small staff at the local or regional level to track performance and implement initiatives.
Customers
Our products are sold principally to distributors and retail customers, both nationally and internationally. Sales to two of our customers, DKSH International Ltd., a distributor serving primarily Asia (including sales to its regional affiliates), and Wal-Mart Stores, Inc. (including sales to Sam’s Club), accounted for approximately 14%, 16% and 16%, and approximately 12%, 11% and 10%, of our gross sales for the years ended December 31, 2015, 2014, and 2013, respectively.
Research and Development
Investing in research and development (“R&D”) capabilities and projects is an important part of our business. Our R&D organization consists of professionals, many of who have extensive industry experience and advanced educational backgrounds. Our global R&D centers are located in the United States, Mexico, Thailand, China, the Netherlands and Singapore. Our four Pediatric Nutrition Institutes (“PNI”) are located in Evansville, Indiana (United States); Mexico City, Mexico; Guangzhou, China; and Singapore.
We organize our R&D on a global basis because our science-based products address nutritional needs that are broadly common around the world. We then rely on our regional R&D teams to incorporate any geographic-specific consumer behaviors and preferences. This is especially relevant when we make adjustments to our children’s product range and/or when we respond to local and regional changes in the regulatory landscape.
We also have external development relationships that complement our internal R&D capabilities. We manage our R&D activities in collaboration with leading scientists and institutes around the world and we have an active portfolio of projects involving commercial technology suppliers. We believe this approach allows us to be at the forefront of scientific and technological developments relevant for pediatric nutrition. R&D expense was $108.4 million, $115.1 million and $100.2 million in the years ended December 31, 2015, 2014, and 2013, respectively.
Intellectual Property
We own a substantial number of patents and patent applications both in the United States and in other countries of interest to Mead Johnson. Our patent rights relate primarily to ingredients (and combinations thereof) that we use in our products. We augment our portfolio as well by licensing technology from suppliers of a variety of ingredients used in our products. We believe that our patent portfolio is designed such that the expiration of any single patent would not be material to our business. We also hold an extensive portfolio of trademarks across our key geographies. Our trademark rights relate primarily to our Enfa family of brands and other important brands. We file and maintain trademarks in those countries in which we have, or desire to have, a business presence. In addition to patents, licenses and trademark protections, we rely on a combination of security measures, confidentiality policies, contractual arrangements and trade secret laws to protect our proprietary formulas and other valuable trade secrets.
Competition
We compete in two primary categories, infant formula and children’s nutrition. The competitive landscape in each category is similar around the world, as the majority of the large global players are active in these categories. Our main global competitors include Abbott Laboratories, Danone and Nestlé. We have local and regional competitors as well. Other companies, including manufacturers of branded products, private label and store brand products, manufacture and sell one or more products that are similar to those marketed by us. We believe sources of our competitive advantage include nutrition science and innovation behind our products, clinical claims for efficacy and product quality, brand image and associated value, broad sales force and distribution capabilities and consumer satisfaction. Significant expenditures for product development, advertising, promotion and marketing, where permitted, are generally required to achieve acceptance of products among consumers and health care professionals and to support the trend in consumer preferences for premium products in key markets.
Regulatory
We are subject to laws and regulations in each country in which we market our products. We have processes, systems and resources in place to manage compliance with current regulatory requirements and to participate proactively in the shaping of future country, regional and global policy, guidance and regulations. In the United States, infant formula manufacturers are governed by the rules and regulations of the U.S. Food and Drug Administration (“U.S. FDA”) and its Center for Food Safety and Applied Nutrition in connection with the Infant Formula Act of 1980. Outside of the United States, country-specific regulations address compositional criteria, quality criteria, labeling, requirements for placing new formulas on the market and other standards with which manufacturers must comply. Many country-specific requirements are comparable to or will refer to regulations, guidelines and policies promulgated by one or more of the following globally-recognized institutions: the U.S. FDA, the European Commission, the World Health Organization (“WHO”) and, in particular, its International Code of Marketing of Breastmilk Substitutes (the “WHO Code”) and the Codex Alimentarius. It is our policy to comply with all applicable laws and regulations in each country in which we do business.
Environmental, Health and Safety
Our facilities and operations are subject to various environmental, health and safety (“EHS”) laws and regulations in each of the jurisdictions in which we operate. We have programs that are designed to ensure that our operations and facilities meet or exceed standards established by applicable EHS rules and regulations globally. Each of our manufacturing facilities undergoes periodic
internal audits relating to EHS requirements and we incur operating and capital costs to enhance our facilities or maintain compliance with applicable requirements on an ongoing basis.
Employees
As of December 31, 2015, we employed approximately 7,660 people worldwide.
Available Information
Our internet website address is www.meadjohnson.com. On our website, we make available, free of charge, our annual, quarterly and current reports, including amendments to such reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the United States Securities and Exchange Commission (the “SEC”). Stockholders and other interested parties may request email notification of the posting of these documents through the section of our website captioned “Investors.” The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC.

ITEM 1A - RISK FACTORS
Item 1A. RISK FACTORS.
In addition to the other information in this Annual Report on Form 10-K, any of the factors described below could significantly and negatively affect our business, prospects, financial condition or operating results, which could cause the trading price of our securities to decline.
Risks Relating to Our Business
We operate in an intensely competitive business where many factors, including competitive price-based promotional activity, may impact demand for our products.
The infant formula and children’s nutrition business is intensely competitive. Our primary competitors have substantial financial, marketing and other resources. They have diversified portfolio products and may benefit from greater economies of scale due to their size and global footprint. In most product categories, we compete not only with other widely advertised branded products, but also with private label and store brand products that are generally sold at lower prices. We compete based on the following factors: brand recognition and loyalty; product quality; effectiveness of marketing, promotional activity and the ability to identify and satisfy consumer preferences; product innovation; price; distribution and availability of products. In China, continued price-based promotional activity has negatively impacted, and may continue to negatively impact, revenues and demand for our products. Competitive pressures may lead us to reduce product prices. Such pressures may also restrict our ability to increase prices in response to commodity, wage and other cost increases. We may also need to increase spending on marketing, advertising and new product innovation to maintain or increase market share. The success of these initiatives is subject to risk, including uncertainties about trade and consumer acceptance of our efforts, market share loss and inventory levels. If we are unable to compete effectively, our financial condition and operating results may suffer.
Our success depends upon our ability to predict, identify, interpret and react to changes in consumer preferences. In China, an ongoing shift in consumer demand towards fully imported products has negatively impacted, and may continue to negatively impact, demand for our locally manufactured products.
Our success depends on our ability to predict, identify and interpret the tastes, dietary habits and nutritional needs of our broad spectrum of global consumers and to offer products that appeal to those preferences (including preferences for super-high premium products). In China, the ongoing shift in consumer demand for fully imported product may continue to negatively impact our locally manufactured brands. Our recently introduced, fully imported product may or may not perform well enough to offset the impact of this shift in consumer demand. Our success also depends on our ability to define the benefits of our products and to effectively communicate these benefits to our consumers. Moreover, our success depends on our ability to effectively identify and accommodate our consumers’ preferred sales channels. If we do not succeed in offering innovative or premium products that consumers want to buy, if we are unable to effectively communicate our product benefits or if we are unable to sell through customers’ preferred channels, our sales and profitability or market share may deteriorate.
Our China operations subject us to risks that could negatively affect our business.
A significant portion of our revenue and profit is derived from operations in China (for purposes of this risk factor, the term China refers to the Company’s businesses in mainland China and Hong Kong). Consequently, our overall financial results are dependent on this market, and our business is exposed to risks there. Our success may be adversely affected by the need to comply with China’s continuously evolving laws and regulations, including those related to trade restrictions, product quality requirements, product labeling rules and advertising regulations. Risks associated with our China operations also include changes in economic conditions (including potential slowdowns in China’s economy, wage and cost inflation, currency exchange rates, consumer spending and employment levels), changes in tax rates, potential tariffs, duties and other trade barriers, increased competitive promotional activity and an ongoing shift in consumer demand for fully imported product through rapidly evolving sales channels. If we are unable to successfully keep pace with changes in consumer product
preferences or are unable to successfully access China’s rapidly evolving sales channels (e.g. baby stores and e-commerce channels), our business and financial results may suffer. Moreover, as we adapt to shifting consumer demand for fully imported products and expand direct shipments of such products into China, resulting sales channel shifts may negatively impact our Hong Kong business. See also “We are subject to extensive governmental regulations, and it can be costly to comply with these regulations. Changes in governmental regulations or other policies could harm our business.” There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China. There can be no assurance as to the future effect of any such risks and uncertainties on our results of operations, financial condition or cash flows.
Our global operations are subject to political and economic risks of developing countries, and special risks associated with doing business in developing markets.
We operate our business and market our products internationally in more than 50 countries. We focus on increasing our sales and operations in various regions throughout the world, which are less developed, have less stability in legal systems and financial markets, and are potentially more uncertain business environments than the United States, and therefore present greater political, economic and operational risks. We have in place controls, policies and procedures, which include ongoing training of employees with regard to business ethics and many key legal requirements, such as applicable anti-corruption laws (e.g. the United States Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act (“UKBA”)). However, there can be no assurance that our employees will adhere to our standards of business conduct and ethics or any of our other policies, applicable anti-corruption laws or other legal requirements. If we fail to enforce our policies and procedures, detect violations in a timely manner or maintain adequate record-keeping and internal accounting practices, we may be subject to regulatory sanctions and suffer damage to our reputation. If we believe or have reason to believe that our employees have or may have violated applicable anti-corruption laws or other laws or regulations, we investigate or have outside counsel investigate the relevant facts and circumstances. If violations are suspected or found, we could face civil and criminal penalties, and significant costs for investigations, litigation, fees, settlements and judgments, which in turn could have a material adverse effect on our business.
We may experience liabilities or negative effects on our reputation as a result of real or perceived quality issues, including product recalls, injuries or other claims.
We may be subject to liability if our products or operations violate, or are alleged to violate, applicable laws or regulations or in the event our products cause, or are alleged to cause, injury, illness or death. Powdered milk products are not sterile. A risk of contamination or deterioration exists at each stage of the production cycle, including the purchase and delivery of raw food materials, the processing and packaging of food products and upon handling and use by health care professionals, hospital personnel and consumers. In the event that our products are found, or are alleged, to have suffered contamination or deterioration, whether or not such products were under our control, our brand reputation and business could be materially adversely affected. Furthermore, whether real or perceived, contamination or spoilage, product mislabeling or product tampering could result in product recalls. No such recalls have been material to our global business. However, a future product recall could be material and have a negative impact on our sales and profitability.
Whether real or perceived, reports of inadequate quality control (with respect to either our products or those of other manufacturers in our segment) could adversely impact our business by contributing to a perceived safety risk throughout the industry. The risk of reputational harm is magnified through rapid, electronic dissemination of information through news reports, social media or otherwise. Federal, state and local governments and municipalities could also propose or pass legislation banning the use of our products.
We are subject to extensive governmental regulations, and it can be costly to comply with these regulations. Changes in governmental regulations or other policies could harm our business.
Our activities are subject to extensive regulation with respect to product manufacturing and labeling, the environment, employee health and safety, hygiene, quality control, advertising, marketing, privacy and tax laws. It can be costly to comply with these regulations. A failure to comply with such laws and regulations could subject us to product recalls, lawsuits, administrative penalties and other remedies. In addition, changes in laws or regulations could further restrict our actions and significantly increase our cost of doing business, causing our results of operations to be adversely affected. For example, government regulations impacting how and where we manufacture or source product (e.g. China’s food safety laws and related regulations) may cause unfavorable cost pressure, a significant change in our geographic earnings mix and/or an adverse effect on the related global tax liability. Barriers or sanctions imposed by countries or international organizations limiting international trade may limit our cross-border activities and sales. Governmental pricing actions may limit our ability to increase, or force us to reduce, prices in various jurisdictions throughout the world. Moreover, regulations, public policy or decisions that restrict marketing, promotion, availability and sale of our products, continued access to health care professionals, product content (including the regulations related to genetically modified organisms), as well as the manufacture and labeling of our products, could have a material adverse impact on our business. Certain advocates and governmental and non-governmental organizations have advocated for more stringent restrictions on the marketing of, and even the sale of, some pediatric nutrition products as well as trademark asset prohibitions and bans on claims for products covering children up to three years of age. Such effort could result in increased governmental restrictions on our activities.
Our sales and marketing practices may be challenged by consumers and competitors, which could harm our business.
We participate in a variety of marketing activities, where permitted, including digital, print and television advertising, direct mail, internet and promotional programs. We work with external agencies to create marketing campaigns for consumers, health care professionals and retail sales organizations. Although our marketing is evidence-based and emphasizes our nutritional science, consumers and competitors may challenge, and have challenged, certain of our practices by claiming, among other things, false and misleading advertising. A significant claim or judgment against us could result in monetary damages, limit our ability to maintain current sales and marketing practices and negatively impact our profitability. Even if such claim is unsuccessful or unwarranted, the negative publicity surrounding such assertions could negatively impact our business.
Our significant international operations are subject to extensive risk.
For the year ended December 31, 2015, 73% of our net sales were generated outside of the United States. Our significant international operations are subject to a number of risks related to doing business internationally, any of which could materially harm our business. These risks include:
•
foreign currency exchange rates (see “Our operations and financial results face significant foreign currency exchange exposure.”);
•
multiple regulatory requirements that could restrict our ability to manufacture, market or sell our products;
•
compliance with anti-corruption regulations (see “Our global operations are subject to political and economic risks of developing countries, and special risks associated with doing business in developing markets.”);
•
trade protection measures and exchange controls;
•
price controls;
•
unauthorized sales of our products through parallel markets;
•
restrictions on the transfer of funds to and from foreign countries, including potentially negative tax consequences;
•
programs intended to discourage the use of our products;
•
differing local product preferences and product requirements;
•
political and economic instability;
•
changes in foreign medical reimbursement policies and programs; and
•
diminished protection of intellectual property.
Our business is subject to the risks inherent in global manufacturing and sourcing activities.
We manufacture and source products and materials on a global scale; therefore, we are subject to risks inherent in these activities such as:
•
raw material, product quality or safety issues, and related shortages or recalls by either us or our third-party suppliers;
•
supply chain disruptions due to weather, natural disaster, fire, terrorism, strikes, various contagious diseases, changes in government regulations or other factors over which we have no control;
•
loss or impairment of key global manufacturing sites or a failure to maintain compliant manufacturing practices at either our sites or third-party manufacturing sites;
•
inability to successfully expand our production and manufacturing capacity due to regulatory or other constraints;
•
limits on manufacturing capabilities due to physical capacity limitations, regulatory requirements, or export / import restrictions associated with the transport of raw goods or material;
•
significant difficulties with the highly exacting and complex processes required to manufacture our products, including equipment malfunction, failure to follow specific protocols and the related need to discard product batches; and
•
strikes, labor disputes, industrial accidents or other occupational health and safety issues.
While we have business continuity plans in place for certain manufacturing sites and the supply of raw materials, significant disruption in global manufacturing and sourcing activities for any of the above reasons could interrupt our business and lead to increased costs, lost sales, reputational damage and expense. If not remedied, these factors could have a material adverse effect on our business. Moreover, such significant disruptions may limit our ability to introduce and distribute products, including our existing pipeline of new or improved products, or otherwise take advantage of opportunities in new and existing markets.
We are increasingly dependent on information technology. Increased IT security threats could pose a risk to our systems, networks, products, solutions, services and data integrity.
We rely on our information technology, administrative and outsourcing systems (including cloud or partner systems and third-party providers) to effectively manage our business data, communications, supply chain, order entry and fulfillment and other business processes. We also rely on such systems to protect employee and, at times, customer data, including personally identifiable information, which we may collect and retain. These systems may be susceptible to damage or interruption due to system failures, computer viruses, security breaches, telecommunication failures, user error, catastrophic events or other factors. If our information technology, administrative and outsourcing systems suffer severe damage or interruption or intrusion, and our business continuity plans do not effectively resolve the issue in a timely manner, our business could suffer as we could experience business disruption, transaction errors, processing inefficiencies, a loss of customer or employee data and a loss of sales or customers. Moreover, increasing global security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. We invest in security technology to protect our data and business processes against risk of data security breach and cyber attack. There can be no assurance, however, that our efforts will prevent breakdowns or breaches that could adversely affect our business. Such threats, if they materialize, could compromise confidential information or lead to the improper use of our systems and networks, the manipulation and destruction of data, defective products, production downtimes and operational disruptions. If we are unable to prevent security breaches or disclosure of confidential information, we may suffer financial and reputational damage.
Our operations and financial results face significant foreign currency exchange exposure.
Our financial performance measured on a U.S. dollar denominated basis is subject to fluctuations in currency exchange rates. A substantial portion of our sales are outside of the U.S. and the U.S. dollar remains strong in relation to many relevant currencies. These fluctuations could cause material variations in our results of operations, particularly as the U.S. dollar strengthens or does so at an accelerated pace. While we attempt to mitigate some of this risk with hedging and other activities, our business will nevertheless remain subject to substantial foreign exchange risk from foreign currency impacts on our financial statements. Currency rates in some markets, such as Venezuela and Argentina, could impact our results due to high exchange rate volatility, potentially or actually requiring us to apply inflationary accounting. For example, we apply highly inflationary accounting to our business in Venezuela, the impact of which on our consolidated financial statements is dependent upon movements in the exchange rate, including devaluations, between the Bolivares Fuertes and the U.S. dollar. Operating in high inflationary environments could subject us to additional government actions, devaluations and other business restrictions (see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk”).
Moreover, foreign governments may restrict our ability to exchange local currencies for more marketable currencies and may limit our ability to pay dividends, to pay non-local currency accounts payable or to obtain currencies (other than the local currency) which may be more desirable to hold. Foreign governments may simultaneously restrict our ability to increase prices in inflationary environments where local currencies are under significant pressure. Without the ability to increase prices to offset the impact of local currency devaluation, our ability to manage foreign exchange risk may be further limited.
Our current and historical effective tax rate may not be indicative of future rates.
In light of our global earnings mix, our current and historical effective tax rate may not be indicative of future rates due to changes in domestic and international tax laws, changes in our global earnings mix, the need to repatriate future earnings to the United States to satisfy U.S. cash needs, and changes to our tax positions by taxing authorities in the various jurisdictions in which we operate. For example, at the present time, the United States generally taxes a company’s foreign earnings upon the repatriation of such earnings, and these tax rules may change in the foreseeable future. Moreover, given the organization of our business and the locations of our manufacturing operations, cross border transactions among our affiliates are a significant part of the manner in which we operate. Although we believe that we transact intercompany business in accordance with arms-length principles, taxing authorities may not view such transactions as satisfying such arms-length principles and our tax positions may not be upheld by taxing authorities upon audit of our results. Additionally, the base erosion and profit shifting (“BEPS”) project currently being undertaken by the Organization for Economic Cooperation and Development (“OECD”) and the European Commission’s investigations into illegal state aid may result in changes to long-standing tax principles which could adversely impact our effective tax rate.
We rely on third parties to provide us with materials and services in connection with the manufacturing and distribution of our products.
Unaffiliated third-party suppliers provide us with materials necessary for commercial production of our products, including certain key raw materials and primary packaging materials (such as cans). We may be unable to manufacture our products in a timely manner, or at all, if any of our third-party suppliers should cease or interrupt production or otherwise fail to supply us or if the supply agreements are suspended, terminated or otherwise expire without renewal, resulting in a material adverse effect on our business. We also use third-party distributors in many countries throughout the world, including in developing countries. We could experience disruptions that lead to a loss of sales or claims against the Company and irreparable damage to our reputation if any of our third-party distributors either fail to deliver on their commitments in a timely manner or at all (whether due to financial instability, non-compliance with applicable regulations, disruptions in local infrastructure or otherwise) or purport to represent the Company in an unauthorized manner. While we utilize a third-party due diligence process, in light of our global distributor network and the related risks of doing business in developing countries, it is possible that our due
diligence process may not successfully identify all relevant risks. See also “Our global operations are subject to political and economic risks of developing countries, and special risks associated with doing business in developing markets.” Moreover, if our distribution agreements are suspended, terminated or otherwise expire without renewal, our sales and profitability could be materially adversely affected.
Commodity price increases raise our operating costs and may reduce our profitability.
Our business is particularly vulnerable to commodity price increases in the cost of raw materials used to make our products (e.g. skim milk powder, whole milk powder, lactose and whey protein concentrate), the cost of inputs used to manufacture and ship our products (such as crude oil and energy) and the amount we pay to produce or purchase packaging for our products. Commodity price volatility is caused by conditions such as fluctuating commodities markets, currency fluctuations, availability of supply, weather, consumer demand and changes in governmental agricultural programs. Dairy costs are the largest component of our cost of goods sold. Increases in commodity costs generally impact our gross margins if we are unable to offset such increases by raising prices, changing our product mix or other efforts. Price increases, in turn, could weaken demand for our product. We monitor our exposure to commodity prices as part of our risk management program and attempt to mitigate risk with commodity hedging activities or contractual agreements; however, continued commodity price volatility and ineffective commodity risk management could lead to lower profitability.
Resources devoted to research and development may not yield new products that achieve commercial success.
Our ability to develop new pediatric nutrition products depends on, among other factors, our ability to understand the composition and variation of breast milk and our ability to translate these insights into commercially viable new products. This requires significant investment in research and development and testing of new ingredients, formulas and new production processes. The R&D process is expensive, prolonged and entails considerable uncertainty. Products may appear promising in development but fail to reach market within the expected time frame, or at all. We may face significant challenges with regard to a key product launch. Further, products also may fail to achieve commercial viability. Finally, there is no guarantee that that our development teams will be able to successfully respond to competitive products that could render our products obsolete. Development of a new product, from discovery through testing and registration to initial product launch, typically takes between five and seven years, but may require an even longer timeline. Each of these time periods varies considerably from product to product and country to country. Because of the complexities, uncertainties and cost associated with R&D, products that we are currently developing may not complete the development process or obtain the regulatory approvals required for us to market such products successfully. In addition, new regulations or changes to existing regulations may have a negative effect on innovations in our pipeline, especially late-stage pipeline products.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.
Given the importance of brand recognition to our business, we have invested considerable effort in trademark protection for our brands, including the Enfa family of brands. In addition, we rely on a combination of security measures, confidentiality policies, contractual arrangements and trade secret laws to protect our proprietary formulas and other valuable trade secrets. We also rely on patent, copyright and trademark laws to further protect our intellectual property rights. Uncertainties inherent in enforcing our intellectual property rights make the outcome and associated costs difficult to predict. A failure to obtain or adequately protect intellectual property rights, or any change in law or other change that serves to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially harm our business. In addition, some of the countries in which we operate offer less protection for these rights, and may subject these rights to higher risks than is the case in Europe or North America. Despite our efforts to enforce our intellectual property rights on a global basis, counterfeit product or product associated with the illegal use of our intellectual property could cause significant reputational harm.
There can be no assurance that third parties will not assert infringement claims against us or that any infringement claim will not result in costly litigation, substantial damages, the need to refrain from selling our products or the need to obtain a license to use third-party intellectual property (which license we may be unable to obtain on favorable terms, or at all). Even if we prevail against such claims, intellectual property litigation could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations.
If we are not able to successfully implement our productivity program referred to as “Fuel for Growth,” our consolidated results of operations could be negatively affected.
We have implemented a productivity program referred to as “Fuel for Growth” targeting reductions in the Company’s non-advertising and promotional expenses, with emphasis on generating productivity in our external and internal infrastructure costs. While we expect this program to generate significant savings or operating efficiencies over the next three years, there are no assurances that such measures will prove to be successful or that the results we achieve through Fuel for Growth will be consistent with our expectations. We cannot provide assurance that we will realize cost savings, earnings growth or operating efficiencies in connection with Fuel for Growth. As a result, our results of operations could be negatively impacted. Finally, the timing and implementation of these plans require compliance with numerous laws and regulations, including local labor laws, and the failure to comply with such requirements may result in damages, fines and penalties which could adversely affect our business.
We derive a significant percentage of our sales from two key customers, the loss of which could negatively impact our business.
Our products are sold principally to distributors and retail customers, both nationally and internationally. Sales to two customers, DKSH International Ltd. (including sales to its regional affiliates) and Wal-Mart Stores, Inc. (including sales to Sam’s Club), accounted for approximately 14% and 12%, respectively, of our gross sales for the year ended December 31, 2015. If either of these customers ceases doing business with us or if we encounter any difficulties in our relationship with either of them, our business could be materially adversely affected.
The consolidation of our retail customers and their reduction of inventory levels may put pressures on our profitability.
Our retail customers, such as mass merchandisers, club stores, baby stores, grocery stores, drug stores and convenience stores, may further consolidate, resulting in fewer customers for our business. Such consolidation produces large retail customers with increased buying power that are more capable of operating with reduced inventories, resisting price increases and demanding price concessions, promotional programs and specifically tailored products. These large customers may also reallocate shelf space to favor their private label or store brand products. Meeting demands from these customers may adversely affect our profitability.
Economic downturns could limit consumer demand for our products.
The willingness of consumers to purchase premium brand pediatric nutrition products depends in part on local economic conditions. In periods of economic uncertainty, consumers may shift their purchases from our higher-priced premium products to lower-priced products or delay having children. During economic downturns, a decrease in the number of working mothers could constrict our customer base, further reducing our sales.
Our growth depends on certain demographic trends as well as scientific opinion regarding our products.
Our growth plan relies on favorable demographic trends in various markets, including birth rates, rising incomes in emerging markets, increasing number of working mothers and increasing consumer global awareness of the importance of pediatric nutrition. If any of these demographic trends change in an adverse way (due to macroeconomic factors, epidemics or other factors beyond our control), our business could be materially impacted. In addition, an adverse change in scientific opinion regarding our products, such as the health benefits of DHA, could materially adversely affect our business.
Changes in the Special Supplemental Nutrition Program for Women, Infants and Children (“WIC”), or our participation in it, could materially adversely affect our business.
The WIC program is a U.S. Department of Agriculture (“USDA”) program created to provide nutritious foods, nutrition education and referrals to health care professionals and other social services to those considered to be at nutritional risk, including low-income pregnant, postpartum and breastfeeding women and infants and children up to age five. It is estimated that approximately 47% of all infants born in the United States during the 12-month period ended December 31, 2015 benefited from the WIC program. The USDA program is administered individually by each state. WIC contracts are generally three years in duration with some contracts providing for extensions; specific contract provisions can vary significantly from state to state. Participation in WIC involves a competitive bidding process and is an important part of our U.S. business based on the volume of infant formula sold under the program. As of December 31, 2015, we held the contracts that supply approximately 44% of WIC births in the United States. Our business strategy includes bidding for new WIC contracts and maintaining current WIC relationships. Our failure to win bids for new contracts pursuant to the WIC program or our inability to maintain current WIC relationships could have a material adverse effect on our business. In addition, any changes to how the WIC program is administered and any changes to the eligibility requirements and/or overall participation in the WIC program could also have a material adverse effect on our business.
Labor disputes may cause work stoppages, strikes and disruptions.
Our manufacturing workforces in Zeeland, Michigan (U.S.); Evansville, Indiana (U.S.); Chonburi, Thailand and Singapore are not unionized. The manufacturing workforces in Guangzhou, China are unionized, but operate without a collective bargaining agreement. The manufacturing workforces in Delicias, Mexico, and São Bernardo do Campo, Brazil, are unionized and covered by collective bargaining agreements that are negotiated annually. The manufacturing workforce and non-supervisory sales force in Makati, Philippines are unionized and covered by a three-year collective bargaining agreement that was renewed effective January 2014. In addition, European Works Councils represent the manufacturing workforce in Nijmegen, the Netherlands, and the commercial organizations in France and Spain. Any labor disputes, including work stoppages, strikes and disruptions, could have a material adverse impact on our business.
Failure to comply with our debt covenants could have an adverse effect on our ability to obtain future financing at competitive rates and/or our ability to refinance our existing indebtedness.
There are various financial covenants and other restrictions in our debt instruments. If we fail to comply with any of these requirements, the related indebtedness could become due and payable prior to its stated maturity and our ability to obtain additional or alternative financing
may be adversely affected. Further, we could incur an adverse impact on our effective tax rate if we need to repatriate earnings to the United States in order to repay such debt.
We may not successfully identify or complete acquisitions, joint ventures or other strategic initiatives.
From time to time, we evaluate potential acquisitions, joint ventures and other strategic initiatives. We may consider divesting businesses that do not meet our strategic objectives or growth / profitability targets. We may also consider expanding our product portfolio by adding new product categories. These activities may present financial, managerial, and operational risk including diversion of management’s attention from our existing business, business integration challenges, effective control implementation across a diverse employee population, the failure to achieve anticipated synergies, unanticipated liabilities and potential disputes. These activities may also include inherent risks associated with entering a geographic area which has less political, social or economic stability, less developed infrastructure and legal systems and in which we have no or limited prior operating experience. In addition, we may not be able to complete desirable transactions or initiatives for various financial, regulatory, technological or other reasons. Any of these factors could materially and adversely affect our financial condition and operating results.
Risks Related to Our Relationship with Our Former Parent
If our split-off from BMS fails to qualify for non-recognition of gain and loss, we may in certain circumstances be required to indemnify BMS for any resulting taxes and related expenses.
In connection with our split-off from BMS on December 23, 2009, BMS and its counsel have relied on certain assumptions and representations as to factual matters from us, as well as certain covenants by us regarding the future conduct of our business and other matters, the incorrectness or violation of which could affect the qualification for non-recognition of gain and loss of our split-off from BMS. As a result, we agreed, generally, to indemnify BMS for taxes and certain related expenses resulting from the failure of our split-off from BMS to qualify for non-recognition of gain and loss to the extent attributable to (i) the failure of any of our representations to be true or the breach by us of any of our covenants, (ii) the application of Section 355(e) or Section 355(f) of the Internal Revenue Code to any acquisition of our stock or assets or any of our affiliates or (iii) certain other acts or omissions by us or our affiliates. To the extent we become obligated to make an indemnification payment to BMS through the relevant audit years, we believe that such payment could be material and could have a material adverse effect on our financial condition and operating results.

ITEM 1B - UNRESOLVED STAFF COMMENTS
Item 1B. UNRESOLVED STAFF COMMENTS.
None.

ITEM 2 - PROPERTIES
Item 2. PROPERTIES.
Our corporate headquarters are located in Glenview, Illinois, where we lease office space. We have committed to a long-term lease obligation related to a planned relocation of our corporate headquarters to Chicago, Illinois in 2017.
We maintain our global supply chain and R&D headquarters in Evansville, Indiana, where we own office, operations and laboratory buildings comprising approximately 1,239,000 square feet. We also own or lease the manufacturing facilities identified in the table below. For additional information related to our manufacturing facilities around the world, see “Item 1. Business - Global Supply Chain.” We lease the vast majority of our office facilities worldwide.
The following table illustrates our global manufacturing locations, the approximate square footage of the facilities, the reportable segment served by such locations and whether the facility is owned or leased:
Location
Square Feet
Segment(s) Served
Owned / Leased
Zeeland, Michigan, United States(1)
698,773
All segments
Owned
Evansville, Indiana, United States(1)(2)
458,595
All segments
Owned
Nijmegen, The Netherlands(1)
291,745
All segments
Owned
Delicias, Mexico(1)
134,549
North America / Europe
Latin America
Owned
São Bernardo do Campo, Brazil(1)
64,583
Latin America
Leased
Singapore(1)
466,077
Asia
Owned(3)
Chonburi, Thailand(1)
158,456
Asia
Owned
Guangzhou, China(1)
149,944
Asia
Owned(3)
Makati, Philippines(1)
85,487
Asia
Owned(3)
(1) Powder manufacturing facility.
(2) Liquid manufacturing facility.
(3) The land on which this facility is built is subject to a long-term lease.

ITEM 3 - LEGAL PROCEEDINGS
Item 3. LEGAL PROCEEDINGS.
In the ordinary course of business, we are subject to lawsuits, investigations, government inquiries and claims, including, but not limited to, product liability claims, advertising disputes and inquiries, consumer fraud suits, other commercial disputes, premises claims and employment and environmental, health and safety matters.
From time to time, we may be responsible under various state, federal and foreign laws, including CERCLA, for certain costs of investigating and/or remediating substances at our current or former sites, and/or at waste disposal or reprocessing facilities operated by third parties. Liability under CERCLA and analogous state or foreign laws may be imposed without regard to knowledge, fault or ownership at the time of the disposal or release. Most of our facilities have a history of production operations in the food and drug industry, and some substances used in such production require proper controls in their storage and disposal. As of December 31, 2015, we were still named as a “potentially responsible party,” or were involved in investigation and remediation, at one third-party disposal site. With regard to such matter, the substantive issues have been resolved, and management believes that any actual or expected additional remediation cost related to such matter, individually or in the aggregate, would be immaterial.
We record accruals for contingencies when it is probable that a liability will be incurred and the loss can be reasonably estimated. Although we cannot predict with certainty the final resolution of lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material impact on our business or financial condition, results of operations or cash flows.

ITEM 4 - RESERVED
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Executive Officers of the Registrant
Set forth below are the names each of the Company's executive officers and their ages and positions as of February 17, 2016. Also included below is biographical information relating to each of the Company's executive officers. Each of the executive officers is elected by and serves at the pleasure of the board of directors.
Name
Position(s)
Peter Kasper Jakobsen
President and Chief Executive Officer; Director
Michel Cup
Executive Vice President and Chief Financial Officer
Charles M. Urbain
Executive Vice President and Chief Operating Officer
Patrick M. Sheller
Senior Vice President, General Counsel and Secretary
James Jeffrey Jobe
Senior Vice President, Technical Operations
Dirk Hondmann, Ph.D.
Chief Scientific Officer
Graciela Monteagudo
Senior Vice President and President for the Americas and Global Marketing
Christopher R. Stratton
Senior Vice President and President, Asia
Ian E. Ormesher
Senior Vice President, Global Human Resources
James E. Shiah
Senior Vice President and Corporate Controller
Peter Kasper Jakobsen
Age 53
Mr. Jakobsen has been our President and Chief Executive Officer since April 2013, prior to which he served as the Company’s executive vice president and chief operating officer since January 2012. Mr. Jakobsen previously had been our president, Americas from January 2009 through December 2011 and has been employed continuously by Mead Johnson since March 1998 in various capacities. From October 2006 to January 2009, he served as senior vice president, Asia Pacific. From February 2004 to October 2006, Mr. Jakobsen served as vice president, South Asia, and from June 2001 to June 2004, he served as general manager, Philippines.
Michel Cup
Age 46
Mr. Cup has been our Executive Vice President and Chief Financial Officer since September 2015. Before joining the Company, through January 2015, Mr. Cup was the Chief Financial Officer (CFO) of D.E Master Blenders 1753, an international coffee and tea business headquartered in the Netherlands. Prior to joining D.E. Master Blenders 1753, Mr. Cup served as Chief Financial Officer of Provimi from 2010-2011 and as Finance Director of Akzonobel’s Decorative Paints business in Europe from 2009-2010. Mr. Cup has also held senior finance roles in Numico’s Baby and Medical Nutrition business from 1999-2008, including CFO Baby Nutrition Asia Pacific. Mr. Cup began his career with Deloitte where he held various audit and accounting roles from 1993-1999.
Charles M. Urbain
Age 61
Mr. Urbain has been the Company’s Executive Vice President and Chief Operating Officer since September 2015. He previously served as the Interim Chief Financial Officer from March 2015 through August 2015, as well as the serving as the Interim Controller and Treasurer from May 2015 through August 2015. Before holding these positions, Mr. Urbain had served as our Senior Vice President, Stakeholder Relations and Chief Development Officer since January 2012, which role included leadership of the Company's global human resources function. Mr. Urbain previously had been our President, Asia and Europe from January 2009 through December 2011 and has been employed continuously by Mead Johnson or BMS since February 1987 in various capacities. From June 2008 to January 2009, he served as Senior Vice President, North America, Latin America and Europe. From June 2007 to June 2008, Mr. Urbain served as Senior Vice President, North America and Europe. From January 2004 to June 2007, Mr. Urbain served as Senior Vice President, International, and from January 2001 to January 2004, he served as Senior Vice President, Latin America, Canada and Europe. From January 1999 to December 2000, Mr. Urbain served as Chief Financial Officer of the Mead Johnson division of BMS.
Patrick M. Sheller
Age 54
Mr. Sheller has been our Senior Vice President, General Counsel and Secretary since January 2015. Prior to joining the Company, Mr. Sheller served as Senior Vice President, General Counsel, Secretary and Chief Administrative Officer of Eastman Kodak Company (‘‘Kodak’’). He served as Kodak’s General Counsel since 2011, as its Chief Administrative Officer since 2012 and as Secretary to Kodak’s Board of Directors since 2009. In 2011, Mr. Sheller was named Kodak’s Deputy General Counsel, and from 2005 to 2011, he served as their Chief Compliance Officer. Prior to that time, Mr. Sheller held various senior counsel roles with Kodak, including Chief Antitrust Counsel and division counsel to the Health Group and international commercial counsel to the Europe, Africa & Middle East Region. He also held
operational roles in Kodak’s Health Group as Director of Strategic Planning and Business Development of the Health Care Information Systems business and Director of Operations for the Health Informatics business.
James Jeffrey Jobe
Age 56
Mr. Jobe has been our Senior Vice President, Technical Operations since October 2014, prior to which time he served as our Senior Vice President, Global Supply Chain since November 2005. Mr. Jobe has been continuously employed by Mead Johnson since 1988. From May 2003 to November 2005, Mr. Jobe served as Senior Director, North America Supply Chain. From March 2000 to May 2003, Mr. Jobe served as Senior Director, International Supply Chain.
Dirk Hondmann, Ph.D.
Age 52
Dr. Hondmann has been our Chief Scientific Officer since October 2014, prior to which time he served as our Senior Vice President, Global Research and Development since joining Mead Johnson in October 2005. From October 2002 to October 2005, Mr. Hondmann served as vice president, research and development of Slimfast, an affiliate of the Unilever Group, an international manufacturer of food, home care, and personal care products.
Graciela Monteagudo
Age 49
Ms. Monteagudo has been our Senior Vice President and President for the Americas and Global Marketing since June 2015. Before assuming this role, Ms. Monteagudo served as the Company’s Senior Vice President and General Manager, North America and Global Marketing from May 2012 to June 2015. Ms. Monteagudo originally joined the Company in 2001, and between 2001 and 2008 served as Vice President, Latin America, and General Manager, Mexico. Outside of Mead Johnson, Ms. Monteagudo served as the Senior Vice President and Business Unit Head for Superama/Sam’s Club at Walmart Mexico from June 2008 to April 2012, after which she rejoined the Company.
Christopher R. Stratton
Age 62
Mr. Stratton has been our Senior Vice President and President, Asia since October 2013. Prior to this time, he served as our Senior Vice President and General Manager, Latin America since May 2010 when he joined the Company. Before joining the Company, Mr. Stratton spent 13 years with EAC/Dumex and Numico managing infant and children nutrition businesses.
Ian E. Ormesher
Age 53
Mr. Ormesher has been our Senior Vice President, Global Human Resources since September 2014. Before joining the Company, Mr. Ormesher served as the Vice President, Human Resources - Western Europe at Carlsberg Breweries A/S from October 2012 to September 2014. From January 2011 to September 2012, he was the Vice President, Human Resources - Asia at Carlsberg Breweries. Prior to that time, Mr. Ormesher spent 12 years with SABMiller, where he served in a variety of HR and organizational development roles of increasing responsibility, including as HR Director of its business in China, and ultimately as its Group Marketing Capability Director from October 2008 to January 2011.
James E. Shiah
Age 56
Mr. Shiah has been our Senior Vice President and Corporate Controller since December 2015, prior to which he served as the Company’s Senior Vice President, Finance since June 2015. Before holding this position, Mr. Shiah served as the Senior Vice President, Chief Accounting and Compliance Officer of Coty Inc. from 2011 to 2014. In this position, Mr. Shiah was the Coty’s principal accounting officer responsible for overseeing various activities including financial reporting, systems of internal control and other compliance programs. Mr. Shiah was Coty’s Senior Vice President Finance and Global Controller from 2006 to 2011 and its Vice President and Corporate Controller from 2001 to 2006. Mr. Shiah began his career at Deloitte & Touche and is a Certified Public Accountant.
PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.
MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Prices and Dividend Information
Mead Johnson Nutrition Company common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “MJN.” The following table describes the per share range of high and low sales prices, as reported by the NYSE, for shares of our common stock and dividends declared per share of our common stock for the quarterly periods indicated.
Market Price for
MJN Common Stock
Dividends
Declared
Per Share
High
Low
First Quarter
$
85.00
$
73.23
$
0.375
Second Quarter
$
93.43
$
81.23
$
0.375
Third Quarter
$
98.50
$
91.15
$
0.375
Fourth Quarter
$
104.89
$
89.34
$
0.375
First Quarter
$
105.45
$
97.09
$
0.4125
Second Quarter
$
104.34
$
89.26
$
0.4125
Third Quarter
$
91.89
$
69.20
$
0.4125
Fourth Quarter
$
84.49
$
69.31
$
0.4125
Holders of Common Stock
The number of record holders of our common stock at December 31, 2015 was 1,155. The number of record holders is based upon the actual number of holders registered on our books at such date and does not include holders of shares held in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.
Issuer Purchases of Equity Securities
The following table includes information about our stock repurchases during the three-month period ended December 31, 2015:
(Dollars in millions, except per share data)
Period
Total Number of
Shares Purchased
(1)
Average Price
Paid per Share
(2)
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Programs
(3)
October 1, 2015 through October 31, 2015
10,725,552
$
79.25
10,725,552
$
500.4
November 1, 2015 through November 30, 2015
-
-
-
500.4
December 1, 2015 through December 31, 2015
-
-
-
500.4
10,725,552
$
79.25
10,725,552
$
500.4
(1)
On October 22, 2015, the Company announced that, on October 20, 2015, its board of directors approved a new share repurchase authorization of an additional $1,500.0 million of the Company’s common stock (the “2015 Authorization”). Pursuant to the 2015 Authorization, on October 22, 2015, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Goldman, Sachs & Co. (“Goldman”) to repurchase $1,000.0 million (the “Repurchase Price”) of our common stock. Under the terms of the ASR Agreement, 10,725,552 shares of our common stock were received by the Company on October 27, 2015 (which shares are equivalent to approximately 85% of the number of shares of our common stock that could be purchased with an amount of cash equal to the Repurchase Price based on the closing price of our common stock on October 22, 2015). At final settlement, which is expected to occur between March and June 2016, Goldman may be required to deliver additional shares of common stock to the Company, or, under certain circumstances, the Company may be required to deliver shares of our common stock or may elect to make a cash payment to Goldman, based generally on the average of the daily volume-weighted average prices of our common stock during the term of the ASR Agreement, subject, in part, to certain maximum and minimum prices.
The total number of shares purchased does not include shares surrendered to the Company to pay the exercise price in connection with the exercise of employee stock options or shares surrendered to the Company to satisfy tax withholding obligations in connection with the exercise of employee stock options or the vesting of restricted stock units and performance share awards.
(2)
The average per share price paid for these shares was determined pursuant to the ASR Agreement.
(3)
On September 11, 2013, the Company announced that its board of directors approved a share repurchase authorization of up to $500.0 million of Company common stock (the “2013 Authorization”). The 2013 Authorization does not have an expiration date. As of December 31, 2015, the Company had $0.4 million remaining available under the 2013 Authorization.
The 2015 Authorization described in Footnote 1, above, does not have an expiration date. On October 22, 2015, the Company entered into the ASR Agreement pursuant to the 2015 Authorization. As of December 31, 2015, the Company had $500 million remaining available under the 2015 Authorization.
Performance Graph
Comparison of Cumulative Total Return
The following graph compares the cumulative total return on an investment in our common stock with the cumulative total return on an investment in each of the Standard & Poor’s 500 (S&P 500) Stock Index and the S&P 500 Packaged Foods Index. The graph assumes that the value of the investment in our common stock and in each index was $100 and that all dividends were reinvested.
Comparison of 5-Years Cumulative Total Return
Among Mead Johnson Nutrition Company, the S&P 500 Index
and the S&P 500 Packaged Foods Index
Assumes Initial Investment of $100
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
Mead Johnson Nutrition Company
100.00
112.16
109.23
141.32
172.42
138.03
S&P 500 Stock Index
100.00
102.11
118.45
156.82
178.28
180.75
S&P 500 Packaged Foods Index
100.00
117.19
129.37
169.26
188.75
221.57

ITEM 6 - SELECTED FINANCIAL DATA
Item 6. SELECTED FINANCIAL DATA.
For additional information on the impact of recently adopted accounting principles on total assets and long-term debt, see “Item 8. Financial Statements - Note 2. Accounting Policies.”

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. See “Item 1A. Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with those statements. The following discussion should be read in conjunction with our audited financial statements and the notes to our audited financial statements. Our results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those in “Risk Factors.”
Overview of Our Business
We are a global leader in pediatric nutrition. We are committed to being the world’s leading nutrition company for infants and children and to helping nourish the world’s children for the best start in life. Our comprehensive product portfolio addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. We have over 100 years of innovation experience during which we have developed or improved many breakthrough or category-defining products across our product portfolio. We operate in four geographies which represent our operating segments: Asia, North America, Latin America and Europe. Due to similarities between North America and Europe, we aggregated these two operating segments into one reportable segment. As a result, the Company has three reportable segments: Asia, North America/Europe and Latin America.
Executive Summary
The 2015 results reflect the various challenges that we faced as a global company with a strong presence in emerging markets, especially challenges related to the adverse impacts of foreign exchange. We delivered growth both in price and volume within North America/Europe, but the increases were partially offset by adverse foreign currency translation, notably in Canada. In Latin America, the economic challenges in Venezuela and the devaluation of local currencies, particularly the Mexican peso, negatively impacted our business. Likewise, the weakening of Chinese renminbi had a negative effect on our business in Asia. Price-based promotional activities led to reduced sales in China, Thailand and Malaysia. China and Hong Kong were further impacted by a shift in customer demand to new channels where the Company currently has lower representation. Gross margin benefited from lower dairy costs in each reporting segment. We continued to invest in demand-creation activities and innovation, including the launch of a fully-imported product line in China and high-value product offerings in the U.S. We implemented the Fuel for Growth program during the fourth quarter of 2015 to improve operational efficiencies and reduce costs over the next several years. Earnings Before Interest and Income Taxes (“EBIT”) was lower than it was in 2014; however, as a percentage of sales, EBIT was higher than 2014. Earnings per share in 2015 decreased primarily due to lower sales.
Results of Operations
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Summary of Results:
The results for the years ended December 31, 2015 and 2014 included several items that affected the comparability of our results. These items include significant expenses/(income) not indicative of underlying operating results (“Specified Items”) and are listed in the table below:
For the year ended December 31, 2015, Specified Items included charges related to the Company’s business productivity program referred to as “Fuel for Growth” (see “ - Fuel for Growth” below for further discussion), payments made in connection with the SEC settlement disclosed by the Company in July 2015 and a marketable securities gain (see “Item 8. Financial Statements - Note 18. Marketable Securities” for further additional information regarding the marketable securities gain).
Specified Items consistently include the re-measurement of defined benefit pension and post-employment benefit plans. Such re-measurement reflects changes in the pension assets and liabilities above what was estimated and included in periodic costs. Factors beyond our control such as changes in discount rates, market volatility and mortality assumptions drive the re-measurement amount. Additionally, the majority of our pension and post-employment plans are frozen, and, therefore the benefit provided to such employees is not related to our underlying operations. In 2015, the re-measurement loss was driven by returns on plan assets that were lower than anticipated. In 2014, the re-measurement loss was primarily driven by a change in mortality assumptions and discount rate movements.
Net Sales
We recognize revenue net of various sales adjustments to arrive at net sales as reported on the statements of earnings. These adjustments are referred to as gross-to-net sales adjustments. The reconciliation of our gross sales to net sales is as follows:
The total gross-to-net sales adjustments increased as a percentage of gross sales in 2015 compared with 2014, largely due to price-based promotional activity in 2015 in China.
Our net sales by reportable segment are shown in the table below:
Asia sales decreased 11% in 2015 compared to 2014 and accounted for 50% of our net sales. Volume decreased in China as consumer demand shifted to digital purchasing channels and faster-growing imported products in which the Company has historically had lower representation. Increased price-based promotional activity enabled by lower dairy costs and adverse foreign translation also contributed to lower sales in China, Thailand and Malaysia. In the second quarter of 2015, the Company launched a range of fully-imported products in China, available through all channels, which has shown positive results. Sales in the Philippines and Vietnam were higher in 2015 than 2014 primarily as a result of favorable product mix.
Latin America sales decreased 13% in 2015 compared to 2014 and accounted for 19% of our net sales. Foreign currency adversely impacted sales by 16% primarily due to the strengthening of the U.S. dollar against the Mexican peso, Venezuelan bolivar and Brazilian real. Strategic price increases in Argentina and Colombia fully offset sales volume decline of 4% which was due in part to the increase in competition within the milk modifier category in Mexico. Sales volume decline was mainly from intentionally reduced shipments to Venezuela during the latter part of 2015 as a result of the constraints placed by the Venezuelan government on the release of U.S. dollars. Share gains were seen following select strategic investments.
For the year ended December 31, 2015, Venezuela sales represented 1.5% of our total net sales. At this time, we are unable to predict how ongoing developments in Venezuela will affect our sales growth or operations. See “

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to certain market risks which exist as part of our ongoing business operations. In addition to our costs for materials, compensation, media, distribution and other purchased services being subject to inflationary pressures, we are exposed to changes in currency exchange rates, price volatility for certain commodities and changes in interest rates. To reduce our exposure to these risks, we use a variety of contract techniques and financial instruments as described below. As a policy, we do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes.
Foreign Exchange Risk
We are exposed to market risk due to changes in currency exchange rates. Our primary net foreign currency exposures are the Chinese renminbi, the Mexican peso, the Philippine peso, the Thai baht, the Euro, the Malaysian ringitt and the Canadian dollar. In addition to these primary exposures, as a global business, we are exposed to foreign currency translation risk in all countries in which we do business whose local reporting currency is not the U.S. dollar. Currency rates in smaller markets, such as Venezuela and Argentina, could also impact our results due to high volatility in exchange rates in such markets. While we attempt to mitigate some of this risk with hedging and other activities, our business will nevertheless remain subject to substantial foreign exchange risk from foreign currency translation exposures that we will not be able to manage through effective hedging or the use of other financial instruments.
We use foreign currency contracts to hedge anticipated transactions in certain foreign currencies and designate these derivative instruments as foreign currency cash flow hedges. Changes in the fair value of the derivative for cash flow hedges are initially recorded in accumulated other comprehensive income (loss) and then recognized in our statement of earnings when the corresponding hedged item impacts our earnings. The foreign currency derivatives resulted in income of $23.8 million, income of $2.0 million and a loss of $5.4 million in the years ended December 31, 2015, 2014 and 2013, respectively. Ineffectiveness related to the Company’s foreign exchange hedges on earnings was $0.9 million for the year ended December 31, 2015, and insignificant for the years ended December 31, 2014 and 2013.
We use foreign exchange forward contracts to hedge exposures, and the total notional amount of these contracts was $174.8 million at December 31, 2015, with a fair value in a net asset position of $5.5 million.
The following table summarizes the foreign exchange forward contracts outstanding and the related weighted-average contract exchange rates as of December 31, 2015:
All of these derivatives were hedges of anticipated transactions and the majority mature within 12 months. Assuming a 10% strengthening or weakening of the U.S. dollar (“USD”) at year-end, the fair value would have increased by $15.0 million or decreased by $19.3 million, respectively. A 10% weakening of the USD would switch our asset to be in a payable position. The unfavorable changes would generally have been offset by favorable changes in the values of the underlying exposures.
Venezuela Risk
Discussion of Venezuela Exchange Rates
As prescribed by U.S. GAAP for high inflation economies, we account for the results of our Venezuelan subsidiary using the U.S. dollar as the functional currency. Accordingly, exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings rather than accumulated other comprehensive loss on the balance sheet.
In January 2014, the Venezuelan government enacted changes affecting the country’s currency exchange and other controls, and established a new foreign currency administration, the National Center for Foreign Commerce (“CENCOEX”). CENCOEX assumed control of the sale and purchase of foreign currency in Venezuela, and has maintained the official exchange rate of 6.3 Bolivares Fuertes (“VEF”) to 1.0 U.S. dollar (“USD”) (the “Official Rate”). Additionally, the government expanded the types of transactions that may be subject to the weekly auction mechanism under the Complimentary Currency Administration System (“SICAD I”). For a period of time, the Venezuelan government announced plans for the Alternative Foreign Exchange System, also known as SICAD II, which was intended to more closely resemble a market-driven exchange.
In February 2015, the Venezuelan government combined the SICAD I and SICAD II (“SICAD”) exchange rate mechanisms and created a new market based SIMADI rate, which was generally based on supply and demand. The changes created a three tiered system. As of December 31, 2015, CENCOEX traded at 6.3 VEF to 1.0 USD, the SICAD auction markets traded at 13.5 VEF to 1.0 USD and the SIMADI
traded at 198.7 VEF to 1.0 USD. The Company continues to assess the impact, if any, of these changes as the Venezuelan government issues regulations to implement them. Changes to exchange systems would impact the rate used by us to remeasure the net monetary assets of our Venezuelan subsidiary.
Effect on the Company’s Results
In 2014, MJN concluded that, among other items, future inter-company dividend remittances qualify for the purchase of foreign currency at the SICAD rate under the revised law. As such, MJN adopted the SICAD rate for purposes of remeasuring its Venezuelan subsidiary effective February 28, 2014. The remeasurement impact of this adoption was a loss of $6.1 million, which was recognized in MJN’s Statement of Earnings as a component of other (income)/expense - net.
During the years ended December 31, 2015 and 2014, the Company received U.S. dollars to make payments for intercompany purchases of inventory at the CENCOEX Official Rate that is more favorable than the SICAD rate used to remeasure net monetary assets of MJN’s Venezuelan subsidiary, which resulted in recognized gains of $2.4 million and $14.0 million, respectively.
For the years ended December 31, 2015 and 2014, the Venezuelan subsidiary’s net sales represented approximately 1.5% and 2.2% of total Company net sales. The Venezuelan subsidiary’s EBIT was not a material component of MJN consolidated results.
Access to Currency and Related Asset Exposures
Availability of U.S. dollars at the CENCOEX official rate have become more limited during 2015, and while we were able to secure U.S. dollars at the CENCOEX official rate through the first three quarters of 2015, we were not able to secure U.S. dollars during the fourth quarter of 2015. Based on recent discussions with the Venezuelan government, the Company expects to be able to continue to access U.S. dollars at the CENCOEX official rate. However, it is possible that the Venezuelan government will refine, alter or limit exchange mechanisms through which the Company is able to access USD, which would impact the ability of the Venezuelan subsidiary to remit dividends and satisfy its outstanding inter-company balances.
In light of the ongoing and challenging macroeconomic and political environment in Venezuela, we continue to actively monitor and manage our investments and exposures. We do not have any current plans to exit the business, and have taken certain protective measures against currency devaluation, government restrictions (i.e., pricing controls, distribution) and other operational risks. However, such measures may not offset further currency devaluation or other operational risks that may occur.
The following sets forth selected information of our Venezuelan subsidiary as of December 31, 2015:
Net Monetary Assets $44 Million (591.0 million Venezuelan Bolivares; SICAD of 13.5 VEF to 1.0 USD)
Net Non-Monetary Assets $46 Million (621.0 million Venezuelan Bolivares; based on a SICAD rate of 13.5 VEF to 1.0 USD)
MJN Intercompany Payables $51 Million (U.S Dollar denominated)
The intercompany payable represents amounts owed by our Venezuelan subsidiary to our subsidiaries in Mexico and the U.S. for purchases of inventory.
Commodity Risk
We purchase certain products in the normal course of business, including dairy, agricultural oils, and packaging materials, the costs of which are affected by global commodity changes. Therefore, we are exposed to price volatility related to market conditions outside of our control.
We employ various purchasing and pricing contract techniques in an effort to reduce volatility. Generally, these techniques include unit pricing that is based on an average of commodity prices over a contractually defined period of time, timing of purchases and setting fixed prices or ranges of prices with suppliers. Our intent is to utilize supplier volatility management tools when available. However, when such tools are unavailable or financially prohibitive through a supplier, we will utilize financial instruments. As of December 31, 2015, the fair value of the commodity contracts outstanding was immaterial.
Interest Rate Risk
We are exposed to changes in interest rates primarily as a result of our borrowing and investing activities used to maintain liquidity and fund business operations. Primary exposures include movements in U.S Treasury rates, LIBOR, and commercial paper rates. The nature and amount of our short-term and long-term debt can be expected to vary as a result of future business requirements, market conditions and other
factors. Our debt obligations totaled approximately $3.0 billion as of December 31, 2015. For information on our debt obligations, see “

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consolidated Financial Statements of Mead Johnson Nutrition Company:
Consolidated Statements of Earnings for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Equity/(Deficit) and Redeemable Noncontrolling Interest for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013
Notes to Financial Statements
Schedule II-Valuation and Qualifying Accounts
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Mead Johnson Nutrition Company
Glenview, Illinois
We have audited the accompanying consolidated balance sheets of Mead Johnson Nutrition Company and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive income, equity/(deficit) and redeemable noncontrolling interest, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Mead Johnson Nutrition Company and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 17, 2016
CONSOLIDATED FINANCIAL STATEMENTS
OF MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars and shares in millions, except per share data)
The accompanying notes are an integral part of these financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
The accompanying notes are an integral part of these financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in millions, except per share data)
The accompanying notes are an integral part of these financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT) AND REDEEMABLE NONCONTROLLING INTEREST
(Dollars in millions)
The accompanying notes are an integral part of these financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
The accompanying notes are an integral part of these financial statements.
MEAD JOHNSON NUTRITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2015 AND 2014 AND FOR THE YEARS ENDED
DECEMBER 31, 2015, 2014 AND 2013
1. ORGANIZATION
Mead Johnson Nutrition Company (“MJN” or the “Company”) manufactures, distributes and sells infant formula, children’s nutrition and other nutritional products. MJN has a broad product portfolio, which extends across routine and specialty infant formulas, children’s milks and milk modifiers, dietary supplements for pregnant and breastfeeding mothers, pediatric vitamins, and products for pediatric metabolic disorders. These products are generally sold to distributors and retailers and are promoted to healthcare professionals, and, where permitted by regulation and policy, directly to consumers.
2. ACCOUNTING POLICIES
Basis of Presentation-The financial statements present the results of operations, financial position and cash flows of MJN and its majority-owned and controlled subsidiaries. Inter-company balances and transactions have been eliminated. The Company prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). These financial statements consider subsequent events through the date of filing with the Securities and Exchange Commission.
Use of Estimates-The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in revenue recognition, including sales rebate and return accruals, impairment testing of goodwill and other indefinite-lived intangible assets, income tax assets and liabilities, income tax expense and legal liabilities, as well as the accounting for stock-based compensation and retirement and post-employment benefits, including the actuarial assumptions. Actual results may or may not differ from estimated results.
Fair Value Measurements-The fair value of financial assets and liabilities are classified in the fair value hierarchy as follows: Level 1- unadjusted quoted prices in active markets for identical assets or liabilities, Level 2-observable prices that are based on inputs not quoted on active markets and Level 3-unobservable inputs that reflect estimates about the assumptions market participants would use in pricing the asset or liability.
Revenue Recognition-MJN recognizes revenue when substantially all the risks and rewards of ownership have transferred to the customer. Revenue is recognized on the date MJN’s products are received by the purchaser. Revenues are reduced at the time of recognition to reflect expected returns that are estimated based on historical experience and business trends. Additionally, provisions are made at the time of revenue recognition for discounts, Women, Infants and Children (“WIC”) and other rebates and estimated sales allowances based on historical experience, updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction of revenue. The Company offers sales incentives to customers and consumers through various programs consisting primarily of customer pricing allowances, merchandising funds and consumer coupons. Provisions are made at the time of revenue recognition for these items based on historical experience, updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction of revenue.
WIC rebate accruals were $205.1 million and $214.3 million at December 31, 2015 and 2014, respectively, and are included in accrued rebates and returns on the Company’s balance sheet. MJN participates on a competitive bidding basis in nutrition programs sponsored by states, tribal governments, the Commonwealth of Puerto Rico, and U.S. territories for WIC. Under these programs, MJN reimburses these entities for the difference between the list price and the contract price on eligible products. The Company accounts for WIC rebates by establishing an accrual in an amount equal to the Company’s estimate of WIC rebate claims attributable to a sale. MJN determines its estimate of the WIC rebate accrual primarily based on historical experience regarding WIC rebates and current contract prices under the WIC programs. The Company considers levels of inventory in the distribution channel, new WIC contracts, terminated WIC contracts, changes in existing WIC contracts and WIC participation, and adjusts the accrual periodically throughout the year to reflect actual expense. Rebates under the WIC program reduced revenues by $763.0 million, $790.0 million, and $702.3 million in the years ended December 31, 2015, 2014, and 2013, respectively.
Sales return accruals were $52.6 million and $47.0 million at December 31, 2015 and 2014, respectively, and are included in accrued rebates and returns on the Company’s balance sheet. The Company accounts for sales returns by establishing an accrual in an amount equal to its estimate of sales recorded for which the related products are expected to be returned. The Company determines its estimate of the sales return accrual primarily based on historical experience regarding sales returns, but also considers other factors that could impact sales returns
such as discontinuations and new product introductions. Returns reduced sales by $89.8 million, $86.1 million, and $81.0 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Income Taxes-The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable earnings in effect for the years in which those tax attributes are expected to be recovered or paid, and are adjusted for changes in tax rates and tax laws when changes are enacted. The ultimate liability incurred by the Company may differ from the provision estimates based on a number of factors, including interpretations of tax laws and the resolution of examinations by the taxing authorities. United States federal income taxes are provided on foreign earnings that are not permanently invested offshore.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgment including the long-range forecast of future taxable earnings and the evaluation of tax planning initiatives. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are made.
Uncertain tax positions that relate to deferred tax assets are recorded against deferred tax assets; otherwise, uncertain tax positions are recorded as either a current or noncurrent liability.
Cash and Cash Equivalents-Cash and cash equivalents consist of bank deposits, time deposits and money market funds. The Company maintains cash and cash equivalent balances in U.S. dollars and foreign currencies, which are subject to currency rate risk. Cash equivalents are primarily highly liquid investments with original maturities of 3 months or less at the time of purchase and are recorded at cost, which approximates fair value. Money market funds, which totaled $510.1 million and $395.4 million at December 31, 2015 and 2014, respectively, are classified as Level 2 in the fair value hierarchy.
Inventory Valuation-Inventories are valued at the lower of cost or market. The Company determines cost on the basis of the average cost or first-in, first-out methods.
Property, Plant and Equipment-Expenditures for additions and improvements, including capitalized interest, are recorded at cost. Depreciation is computed on a straight-line method based on the estimated useful lives of the related assets. The estimated useful lives of the major classes of depreciable assets are up to 50 years for buildings and 3 to 40 years for machinery, equipment and fixtures. Maintenance and repair costs are expensed as incurred.
Capitalized Software-Certain costs to obtain internal-use software for significant systems projects are reflected in Other Intangible Assets - Net, and are amortized on a straight-line basis over the estimated useful life of the software, which ranges from 3 to 7 years. Costs to obtain software for projects that are not significant are expensed as incurred.
Impairment of Long-Lived Assets-The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its cost less accumulated depreciation or its estimated net realizable value.
Goodwill and Other Intangible Assets-The Company’s policy is to test goodwill for impairment on an annual basis or when current facts or circumstances indicate that a potential impairment may exist. The Company compares the carrying value of a reporting unit, including goodwill, to the fair value of the unit. If the carrying amount of a reporting unit exceeds its fair value, the Company revalues all assets and liabilities of the reporting unit, excluding goodwill, to determine if the fair value of the net assets is greater than the net assets including goodwill. If the fair value of the net assets is less than the carrying amount of net assets including goodwill, impairment has occurred. The Company’s estimates of fair value are primarily determined based on a discounted cash flow model. Growth rates for sales and profits are determined using inputs from the Company’s annual long-range planning process. The Company also makes estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors. The Company completed its most recent annual goodwill impairment assessment during the third quarter of 2015. No impairment of goodwill was required in 2015, 2014 or 2013.
The Company evaluates the useful lives of its other intangible assets to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand,
competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures and the expected lives of other related groups of assets. Intangible assets that are deemed to have definite lives are amortized on a straight-line basis over their useful lives.
Contingencies-In the ordinary course of business, the Company is subject to loss contingencies such as lawsuits, investigations, government inquiries and claims including, but not limited to, product liability claims, advertising disputes and inquiries, consumer fraud suits, other commercial disputes, premises claims and employment and environmental, health, and safety matters. The Company records accruals for such loss contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Company does not recognize gain contingencies until realized. Legal costs are expensed as incurred.
Derivatives-Derivatives are used by the Company principally in the management of its foreign currency, interest rate and commodity pricing exposures. The Company records all derivatives on the balance sheet at fair value. The Company does not hold or issue derivatives for speculative purposes.
The Company designates and assigns derivatives as hedges of forecasted transactions, specific assets or specific liabilities. When the hedged assets or liabilities are sold, extinguished or the forecasted transactions being hedged are no longer expected to occur, the Company immediately recognizes the gain or loss on the designated hedging financial instruments in the consolidated statements of earnings. The Company has elected to classify the cash flows from derivative instruments in the same category as the cash flows from the underlying hedged items.
If derivatives are designated as a cash flow hedge, the effective portion of changes in the fair value is temporarily reported in accumulated other comprehensive loss and is recognized in earnings when the hedged item affects earnings or is deemed ineffective; cash flows are classified consistent with the underlying hedged item. The Company assesses hedge effectiveness at inception and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of the change in fair value is included in current period earnings. The Company will discontinue cash flow hedge accounting when the forecasted transaction is no longer probable of occurring on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective.
If derivatives are designated as a fair value hedge, both the changes in the fair value of the derivatives and of the hedged item attributable to the hedged risk are recognized in the consolidated statements of earnings; cash flows are classified consistent with the underlying hedged item.
Pension and Other Post-employment Benefits-The funded status of the Company’s defined pension and other post-employment benefit plans is measured as the difference between the fair value of the plan assets and the benefit obligation. For the defined benefit plans, the benefit obligation is the projected benefit obligation; for any other defined benefit post-employment plans, the benefit obligation is the accumulated post-employment benefit obligation. The net over- or under-funded status is recognized as an asset or a liability on the balance sheet.
Changes in assets or liabilities are recognized in the consolidated statements of earnings upon plan remeasurement in the fourth quarter of each year, or more frequently if a remeasurement occurs. Certain of the Company’s pension plans allow participants the option of settling their vested benefits through the receipt of a lump-sum payment. In the period in which lump-sum payments exceed annual service and interest costs, the Company applies settlement accounting and remeasures the pension obligation, with the resulting gain or loss being recognized immediately.
During 2015, the Company changed the method used to estimate the interest cost components of net periodic benefit cost for defined benefit pension and other post-retirement benefit plans. Historically, the interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The Company has elected to use a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve used in the determination of the projected benefit obligation to the relevant projected cash flows. The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of interest costs. This change does not affect the measurement of total benefit obligations as the change in interest cost is completely offset in the actuarial loss reported in the period. The Company has accounted for this change as a change in estimate and, accordingly, has accounted for it prospectively starting in the third quarter of 2015. The reduction in interest cost for the year ended December 31, 2015 associated with this change in estimate is approximately $2.0 million.
Shipping and Handling Costs-The Company typically does not charge customers for shipping and handling costs. Shipping and handling costs, including warehousing expenses, were $114.1 million, $118.2 million, and $119.1 million in the years ended December 31, 2015, 2014, and 2013, respectively, and are included in selling, general and administrative expenses.
Advertising Costs-Advertising costs are expensed as incurred and were $218.7 million, $206.2 million, and $226.7 million in the years ended December 31, 2015, 2014, and 2013, respectively.
Research and Development-Research and development costs are expensed as incurred.
Foreign Currency Translation-The statements of earnings of the Company’s foreign subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using average exchange rates for the period. The net assets of the Company’s foreign subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using exchange rates as of the balance sheet date. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in accumulated other comprehensive loss.
Recently Adopted Accounting Standards-In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (Topics 205 and 360). ASU 2014-08 changes the criteria for determining whether disposals are reported as discontinued operations and modifies related disclosure requirements. ASU 2014-08 was effective for the Company in the period beginning January 1, 2015 and adopted on a prospective basis. The adoption of this standard did not have a material impact on the consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30). This update amends the existing guidance to require that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. ASU 2015-03 was adopted by the Company in the period ended December 31, 2015 with retrospective application. The adoption of this update resulted in a reclassification from Other Assets to Long-Term Debt on the balance sheet of $11.1 million and $7.1 million, for the years ended December 31, 2014 and 2013, respectively.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). This update requires deferred tax liabilities and assets to be classified as noncurrent in the Consolidated Balance Sheet. The Company adopted this ASU in the period ended December 31, 2015 on a retrospective basis. The adoption of this update resulted in a reclassification from Current Deferred Income Taxes to Deferred Income Taxes - noncurrent on the balance sheet of $85.6 million and $74.9 million, for the years ended December 31, 2014 and 2013, respectively. Deferred tax liabilities and assets, however, continue to be netted by jurisdiction in accordance with ASC 740.
Recently Issued Accounting Standards-In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The updated standard will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The updated standard becomes effective for MJN in the first quarter of 2018. The Company is currently evaluating the effect, if any, that the updated standard will have on its consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330). This update simplifies the guidance on the subsequent measurement of inventory. GAAP currently requires an entity to measure inventory at the lower of cost or market. Previously, market could be replacement cost, net realizable value or net realizable value less an approximate normal profit margin. Under the new standard, inventory should be valued at the lower of cost or net realizable value. The ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the effect, if any, that the updated standard will have on its consolidated financial statements and related disclosures.
3. EARNINGS PER SHARE
The Company uses the two-class method to calculate earnings per share. The numerator for basic and diluted earnings per share is net earnings attributable to shareholders reduced by dividends and undistributed earnings attributable to unvested shares. The denominator for basic earnings per share is the weighted-average number of shares outstanding during the period. The denominator for diluted earnings per share is the weighted-average shares outstanding adjusted for the effect of dilutive stock options and performance share awards.
The following table presents the calculation of basic and diluted earnings per share:
Potential shares outstanding from all stock-based awards were 2.5 million, 2.5 million and 2.8 million as of December 31, 2015, 2014 and 2013, respectively, of which 2.1 million, 1.9 million and 2.1 million were not included in the diluted earnings per share calculation for the years ended December 31, 2015, 2014 and 2013, respectively.
4. INCOME TAXES
The components of earnings before income taxes were:
The above amounts are categorized based on the applicable taxing authorities.
The provision/(benefit) for income taxes consisted of:
Effective Tax Rate-MJN’s provision for income taxes in the years ended December 31, 2015, 2014 and 2013 was different from the amount computed by applying the statutory U.S. federal income tax rate to earnings before income taxes as a result of the following:
The Company negotiated a tax ruling effective from January 1, 2010, under which certain profits in the Netherlands are exempt from taxation through the year ending December 31, 2019. This ruling was superseded by a subsequent tax agreement effective July 26, 2012, whereby the Company and the Dutch tax authorities agreed to the appropriate remuneration attributable to Dutch manufacturing activities through the year ending December 31, 2019.
In addition, the Company negotiated a tax ruling effective from January 1, 2013, under which certain profits in Singapore are eligible for favorable taxation through the year ending December 31, 2027.
Deferred Taxes and Valuation Allowance-The components of deferred income tax assets/(liabilities) were:
As of December 31, 2015, the Company had definite-lived and indefinite-lived gross foreign net operating loss (“NOL”) carryforwards of $59.0 million. Indefinite-lived NOL carryforwards totaled $36.5 million with the remainder being definite-lived. An immaterial amount of these definite-lived NOL carryforwards will begin to expire in 2016, with the remainder of the definite-lived NOL carryforwards to expire no later than 2025. The valuation allowance recorded for NOL carryforwards is $4.2 million as of December 31, 2015.
As of December 31, 2015, the Company had various definite-lived U.S. state tax credit carryforwards of $8.8 million net of the federal tax benefit. An immaterial amount of these state tax credit carryforwards will begin to expire in 2016, with the remainder of the state tax
credit carryforwards to expire no later than 2025. The valuation allowance recorded for state tax credit carryforwards is $5.6 million, net of the federal tax benefit, as of December 31, 2015.
As of December 31, 2015, the Company incurred a statutory loss on the investment in its Russian business of $26.5 million. This loss will be tax deductible in the Netherlands when the Russian entity is liquidated, and a deferred tax asset of $6.6 million has been recorded as of December 31, 2015. The Company expects to utilize $1.6 million of this deferred tax asset, and a valuation allowance of $5.0 million has been recorded for the remainder.
Income taxes paid net of refunds were $134.2 million, $183.7 million, and $159.3 million in the years ended December 31, 2015, 2014 and 2013, respectively. The income taxes were paid to or received from federal, state and foreign taxing authorities and Bristol-Myers Squibb Company (“BMS”) pursuant to the terms of the Amended and Restated Tax Matters Agreement, described below.
As of December 31, 2015, U.S. taxes have not been provided on approximately $2,300.0 million of foreign earnings as these undistributed earnings have been indefinitely invested offshore. If, in the future, these earnings were to be repatriated to the U.S. additional tax provisions would be required. It is impracticable to determine a precise estimate of the additional provision required. However, the maximum potential estimated U.S. tax liability would be $795.0 million if these earnings were to be repatriated to the United States in such a manner that the entire amount of foreign earnings would be subject to the U.S. statutory tax rate with no U.S. tax relief for foreign taxes already paid. However, the Company has no plans to repatriate these foreign earnings.
The Company’s tax returns are routinely audited by federal, state and foreign tax authorities and these tax audits are at various stages of completion at any given time. The Internal Revenue Service (“IRS”) has completed examinations of the Company’s U.S. income tax filings through December 31, 2007. At December 31, 2015, the Company’s 2011 and 2012 income tax returns were under IRS examination. The Company was also recently notified that the China tax authorities will commence an audit of tax years 2008 through 2014 in early 2016. At December 31, 2015, tax years remaining open to examination outside the U.S. include 2006 and forward.
A reconciliation of the Company’s changes in gross uncertain tax positions is as follows:
Uncertain tax positions have been recorded as part of other liabilities with a reversal of up to $7 million reasonably possible in the next 12 months primarily due to the running of statutes of limitations, of which an immaterial amount would impact the effective tax rate. The amounts of recorded uncertain tax positions that impacted the effective tax rate were $88.3 million, $69.8 million and $48.6 million as of December 31, 2015, 2014 and 2013, respectively. The Company believes that it has provided adequately for all uncertain tax positions. It is reasonably possible that new issues may be raised by tax authorities and that these issues may require increases in the balance of uncertain tax positions.
Interest and penalties related to uncertain tax positions were $25.8 million and $19.5 million, as of December 31, 2015, and 2014, respectively, and are included as a component of other liabilities. The Company classifies interest and penalties related to uncertain tax positions as a component of provision for income taxes. The amount of interest and penalties included as a component of provision for income taxes was $7.0 million, $4.8 million and $3.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.
On December 18, 2009, the Company and BMS entered into an Amended and Restated Tax Matters Agreement in anticipation of the separation from BMS. Under the Amended and Restated Tax Matters Agreement, BMS agreed to indemnify the Company for (i) any tax attributable to a MJN legal entity for any taxable period ending on or before December 31, 2008, (ii) any tax arising solely as a result of MJN’s 2009 initial public offering (“IPO”) and the restructuring preceding the IPO, and (iii) any transaction tax associated with the separation transaction. The Company agreed to indemnify BMS for (i) any tax payable with respect to any separate return that the Company is required to file or cause to be filed, (ii) any tax incurred as a result of any gain which may be recognized by a member of the BMS affiliated group with respect to a transfer of certain foreign affiliates by the Company in preparation for the IPO, and (iii) any tax arising from the failure or breach of any representation or covenant made by the Company which failure or breach results in the intended tax
consequences of the separation transaction not being achieved. Additionally, under the Amended and Restated Tax Matters Agreement, the Company continues to maintain responsibility for any tax positions which may exist for any taxable period ending after December 31, 2008.
5. SEGMENT INFORMATION
MJN operates in four geographic operating segments: Asia, Europe, Latin America and North America. Based on this operating segmentation, the chief operating decision maker regularly assesses information for decision making purposes, including allocation of resources. Due to similarities between North America and Europe, the Company aggregated these two operating segments into one reportable segment. As a result, the Company has three reportable segments: Asia, Latin America and North America/Europe.
Corporate and Other consists of unallocated global business support activities, including research and development, marketing, supply chain costs, and general and administrative expenses; net actuarial gains and losses related to defined benefit pension and other post-employment plans; and income or expenses incurred within the operating segments that are not reflective of underlying operations and affect the comparability of the operating segments’ results.
The Company’s products are sold principally to distributors and retailers. Wal-Mart Stores, Inc. (including Sam’s Club) accounted for 12%, 11% and 10% of the Company’s consolidated gross sales for the years ended December 31, 2015, 2014, and 2013, respectively, primarily in the North America / Europe segment. DKSH International Ltd., a distributor serving primarily Asia, accounted for 14%, 16%, and 16% of the Company’s consolidated gross sales for the years ended December 31, 2015, 2014, and 2013, respectively.
The Company's segment, product and geographic results consisted of:
* For purposes of this disclosure, the term China refers to the Company’s businesses in mainland China and Hong Kong.
6. RESTRUCTURING
During the third quarter of 2015, the Company approved a plan to implement a business productivity program referred to as “Fuel for Growth.” Fuel for Growth, expected to be implemented over a three-year period, is designed to improve operating efficiencies and reduce costs. Fuel for Growth is expected to improve profitability and create additional investments behind brand building and growth initiatives. Fuel for Growth focuses on the optimization of resources within various support functions, integration activities within the supply chain network, and certain third party discretionary costs across the business. In 2015, approximately 150 positions were eliminated as a result of Fuel for Growth.
A summary of restructuring charges and related reserves associated with Fuel for Growth at December 31, 2015 is as follows:
Restructuring charges are included in “Corporate and Other,” and the remainder of severance pay and benefits will be paid out in 2016. The contract termination costs will be paid over the next three years, starting in 2016.
7. EMPLOYEE STOCK BENEFIT PLANS
Long Term Incentive Plan-The Company’s Long Term Incentive Plan (“LTIP”) provides for the grant of stock options, performance share awards, restricted stock units and other stock-based awards. Executive officers and other key employees of MJN, and non-employee directors and others who provide substantial services to MJN, are eligible to be granted awards under the LTIP. Twenty-five million shares of stock were approved and registered with the Securities and Exchange Commission (the “SEC”) for grants to participants under the LTIP. The shares reserved may be used for any type of award under the LTIP. Stock-based compensation expense is based on awards ultimately expected to vest. Forfeitures are estimated based on the historical experience of participants in the LTIP since its inception in February 2009.
MJN may grant options to purchase common stock at no less than 100% of the closing market price on the date the option is granted. Stock options generally become exercisable in installments of either 25% per year on each of the first through the fourth anniversaries of the grant date or 33% per year on each of the first through the third anniversaries of the grant date. Stock options have a maximum term of 10 years. Generally, MJN will issue shares for the stock option exercises from treasury stock, if available, or will issue new shares.
MJN may also grant performance share awards, which are granted in the form of a target number of performance shares to be earned and have a three-year performance cycle consisting of three one-year performance periods. The performance share awards have annual goals set at the beginning of each performance period, at which time the awards are considered granted. The maximum payout is 200%. If a certain threshold is not met for a performance period, no payment is made under the plan for that annual period.
MJN may also grant restricted stock units under the LTIP. Restrictions generally expire over a 1 to 4-year period from the date of grant. Stock-based compensation expense is recognized over the restricted period. A restricted stock unit is a right to receive stock at the end of the specified vesting period. A restricted stock unit has non-forfeitable rights to dividend equivalent payments and has no voting rights.
Stock Options-The fair value of stock options granted in 2015, 2014, and 2013 was estimated on the date of grant using the Black-Scholes option pricing model. No stock options with market conditions were granted in 2015, 2014, or 2013. The following assumptions were used in the valuations:
The expected volatility assumption required in the Black-Scholes model was calculated based principally on the Company’s historical volatility, and to a lesser extent, on implied volatility from publicly-traded options on the Company’s stock. The historical volatility was calculated over a period of time commensurate with the expected term of the options being valued.
The risk-free interest rate assumption in the Black-Scholes model is based upon the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on MJN’s expectation of dividend payouts. The Company has determined that it has enough historical option exercise information to be able to accurately compute an expected term for use as an assumption in the Black-Scholes option pricing model. As such, its computation of expected term was calculated using the Company’s historical data.
Stock option activities were as follows:
The weighted-average grant date fair value of stock options granted is $20.21, $17.71 and $15.08 for 2015, 2014 and 2013 respectively.
Cash proceeds received from options exercised during the years ended December 31, 2015, 2014 and 2013 were $16.2 million, $37.0 million and $13.6 million, respectively. The tax benefit realized from stock options exercised was $3.4 million in 2015, $8.3 million in 2014 and $5.9 million in 2013.
At December 31, 2015, total unrecognized compensation cost related to stock options of $7.4 million is expected to be recognized over a weighted average period of 1.7 years.
Performance Share Awards-The fair value of performance share awards is based on the closing market price of MJN’s stock on the date of the grant, discounted using the risk-free interest rate as the awards do not participate in dividends. Information related to performance share awards activity is summarized as follows:
Shares granted and earned in the table above assumes 100% plan performance adjusted for forfeitures. Performance shares outstanding at December 31, 2015 is adjusted for actual plan achievement level for each completed performance period. Company performance in 2015 was below the minimum threshhold for shares to be earned. At December 31, 2015, total unrecognized compensation cost related to the performance share awards outstanding of $1.2 million is expected to be recognized over a weighted average period of 1.0 years.
Restricted Stock Units-The fair value of restricted stock units is determined based on the closing market price of MJN’s common stock on the grant date. A summary of restricted stock unit activity is as follows:
At December 31, 2015, total unrecognized compensation cost related to nonvested restricted stock units was $24.3 million and is expected to be recognized over a weighted average period of 2.2 years.
Stock-Based Compensation Expense-The following table summarizes stock-based compensation expense related to stock options, performance share awards and restricted stock units for the years ended December 31, 2015, 2014 and 2013:
Stock-based compensation expense was recognized in the consolidated statements of earnings as follows:
There were no costs related to stock-based compensation that were capitalized.
8. EMPLOYEE BENEFITS
Pension and Other Post-employment Benefits
Pension and Other post-employment benefits-The principal pension plan is the Mead Johnson & Company Retirement Plan in the United States (“U.S. Pension Plan”) which represents approximately 88% and 73% of the Company’s total pension and other post-employment assets and obligations, respectively. The benefits of this plan are frozen as of February 9, 2014. The Company also provides comprehensive medical and group life benefits for substantially all U.S. and Canadian retirees who elect to participate. The retiree medical plan is contributory and participation is limited to those employees who participate in their respective country’s pension plan. Contributions are adjusted periodically and vary by date of retirement. The retiree life insurance plan is non-contributory.
Changes in benefit obligations, plan assets, funded status and amounts recognized in the balance sheet were as follows:
The Company’s defined benefit pension and other post-employment benefit plans with an accumulated benefit obligation in excess of plan assets were as follows:
The net periodic benefit cost of the Company’s defined benefit pension and other post-employment benefit plans includes:
Actuarial Assumptions
Weighted-average assumptions used to determine benefit obligations are established as of the balance sheet date and were as follows:
The discount rate was determined based on the yield to maturity of high-quality corporate bonds and considering the duration of the pension plan obligations. The Aon Hewitt AA Above Median yield curve is used in developing the discount rate for the U.S. Pension Plan. Compensation rate increases represent the weighted average of plans that are not frozen and therefore excludes the U.S. Pension Plan.
Weighted-average assumptions used to determine net periodic benefit cost are established at the beginning of the plan year and were as follows:
The discount rate used to determine periodic service cost and interest costs of the overall benefit costs for the year ending December 31, 2016 will be based on spot rates derived from the same high-quality corporate bond yield curve used to determine the December 31, 2015
benefit obligation matched with separate cash flows for each future year.
The expected long-term return on plan assets was determined based on the target asset allocation, expected rate of return by each asset class and estimated future inflation. For the U.S. Pension Plan, the expected long-term return on plan assets assumption to be used to determine net periodic benefit costs for the year ending December 31, 2016 is 6.20%.
Assumed health care cost trend rates were as follows:
Assumed health care cost trend rates affect the amounts reported for the retiree medical plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
Plan Assets
The Company’s investment strategy for the U.S. Pension Plan assets consists of a mix of equities and fixed income in order to achieve returns over a market cycle which reduces contribution and expense at an acceptable level of risk. The target asset allocation as of December 31, 2015 was 50% public equity and 50% fixed income. Cash flow (i.e., cash contributions, benefit payments) is used to rebalance back to the targets as necessary. Investments are well diversified within each of the two major asset categories. All of the U.S. equity investments are actively managed. Investment strategies for international pension plans are typically similar, although the asset allocations are usually more conservative.
The fair values of the Company’s pension plan assets by asset category were as follows:
Level 1 cash and cash equivalents, which excluded money market funds, are recorded at closing prices in active markets. Level 2 money market, equity, and fixed income funds are recorded at the net asset values per share, which were determined based on quoted market prices of the underlying assets contained within the funds. The Level 2 hedge fund is recorded at the net asset value per share, which was derived from the underlying funds’ net asset values per share; this diversified hedge fund may be redeemed quarterly with 60 days notice.
Contributions
The Company is not required to make contributions to its U.S. Pension Plan in 2016. However, the intention is to fund the plan to avoid potential benefit restrictions and penalties, therefore, an estimated $15.0 million is expected to be contributed in 2016 to the U.S. Pension Plan. Furthermore, the Company plans to fund current service and past service liabilities for other pension plans. There is not expected to be any cash funding for other post-employment benefit plans in 2016, except funding to cover benefit payments. MJN contributed $90.1 million, $5.2 million and $19.4 million to its pension and other post-employment benefit plans in 2015, 2014 and 2013, respectively.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Defined Contribution Benefits
Employees who meet certain eligibility requirements may participate in various defined contribution plans. Total cost recognized for all defined contribution benefit plans was $23.4 million, $22.5 million and $19.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.
9. REDEEMABLE NONCONTROLLING INTEREST
On March 15, 2012, the Company acquired 80% of the outstanding capital stock of Nutricion para el Conosur S.A. (“Nutricion”) which manufactures, distributes and sells infant formula and children’s nutrition products in Argentina under the SanCor Bebé and Bebé Plus brands (the “Argentine Acquisition”). Under the terms of an agreement related to the Argentine Acquisition, the noncontrolling interest owner had the right to require MJN to purchase (the “Put Right”) its remaining 20% interest or to sell (the “Call Right”) up to an additional 20% of the outstanding capital stock of Nutricion. The Put Right was to be exercisable once from September 15, 2015 to September 15, 2018 and the decision to exercise was not within the control of MJN. The price paid upon exercise was to be determined based on established multiples of sales and earnings of the acquired business. As a result of the Put Right, the noncontrolling interest was presented as redeemable noncontrolling interest outside of equity on the balance sheet. Accretion to the redemption value of the Put Right was being recognized through equity using an interest method over the period from March 2012 to June 2015.
On June 30, 2015, the Company acquired an additional 10% of the outstanding capital stock of Nutricion, thereby increasing MJN’s ownership interest to 90%. The agreed upon purchase price paid to the noncontrolling interest owner was $24.4 million as of June 30, 2015 (based upon the agreed local currency price). In agreeing the purchase price for the incremental 10%, consideration was given to the previously agreed formula included in the Put Right as well as the fair value of the Nutricion business. The purchase price was settled during the second and third quarters of 2015. Following the impact of foreign exchange, the cash outflow associated with the acquisition was $24.2 million.
As a result of the transaction, the noncontrolling interest owner no longer has a Put Right and the Call Right was amended. The amended Call Right gives the noncontrolling interest owner the right to require MJN to sell up to 10% of the outstanding capital stock of Nutricion, exercisable from June 30, 2015 to June 30, 2022. Due to the termination of the Put Right, the remaining noncontrolling interest was recharacterized from redeemable noncontrolling interest outside of equity to noncontrolling interests within equity on the balance sheet beginning on June 30, 2015.
10. NONCONTROLLING INTERESTS
Net earnings attributable to noncontrolling interests consists of approximately 11%, 10% and 10% interests held by third parties in operating entities in China, Argentina and Indonesia, respectively.
See Note 9 for further discussion of Argentinian noncontrolling interest.
11. OTHER (INCOME)/EXPENSES-NET
The components of other (income)/expenses-net were:
For the year ended December 31, 2015, the severance and other costs included $13.7 million of restructuring costs in association with Fuel for Growth. See Note 6 for additional information. Additionally the Company recognized in other (income)/expense payments made in connection with the SEC settlement disclosed by the Company in July 2015. The marketable securities gain is described further in Note 18.
Foreign exchange (gains)/losses losses-net for the year ended December 31, 2014 included a gain of $14.0 million, as a result of the Company’s exchange of Bolivares Fuertes for U.S. dollars through a Venezuelan government exchange at a rate more favorable than the rate used to remeasure net monetary assets of is Venezuelan subsidiary. In addition, foreign exchange (gains)/losses - net included a $6.1 million loss related to the Company’s February 2014 adoption of a new exchange rate for purposes of remeasuring the monetary assets and liabilities of its Venezuelan subsidiary. See Note 21 for additional information.
12. RECEIVABLES
The major categories of receivables were as follows:
13. INVENTORIES
The major categories of inventories were as follows:
14. LONG-LIVED ASSETS
Property, Plant and Equipment - net
The major categories of property, plant and equipment - net were as follows:
For the year ended December 31, 2015, buildings and machinery, equipment and fixtures increased primarily due to the Company’s investments in North America and Asia manufacturing sites. Depreciation expense was $83.7 million, $75.9 million and $63.7 million for the years ended December 31, 2015, 2014 and 2013, respectively, and is primarily included in costs of products sold. Interest capitalized during the year was $0.5 million, $1.5 million and $5.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
The Company’s liability for asset retirement obligations was $7.3 million and $6.5 million at December 31, 2015 and 2014, respectively.
Other Intangible Assets - net
The gross carrying value and accumulated amortization by class of other intangible assets-net were as follows:
(1) Changes in balances result from currency translation.
(2) Changes in balances result from currency translation and amortization.
Amortization expense for other intangible assets was $15.4 million, $15.7 million and $19.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Expected amortization expense related to intangible assets is as follows:
Non-Cash Activity
Additions to long-lived assets not yet paid were $57.2 million, $51.9 million and $89.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.
15. GOODWILL
For the years ended December 31, 2015 and 2014, the change in the carrying amount of goodwill by reportable segment was as follows:
As of December 31, 2015 and 2014, the Company had no accumulated impairment loss.
16. DEBT
Short-Term Borrowings
As of December 31, 2015 and 2014, the Company’s short-term borrowings were $3.0 million and $4.1 million, respectively and consisted primarily of borrowings made by the Company’s subsidiary in Argentina. The short-term borrowings in Argentina had a weighted-average interest rate of 34.0% as of December 31, 2015. The Company intends to repay these borrowings within 12 months and has the ability to do so.
Term Loan Agreement
During the year ended December 31, 2015, the Company entered into a $1,000.0 million short-term loan agreement (the “Term Loan Agreement”) with various financial institutions, including Citibank, N.A., as Syndication Agent, and JPMorgan Chase Bank, N.A. (“JPMCB”), as Administrative Agent. The Loan Agreement was unsecured and all loans thereunder were payable at maturity in April 2016. Such borrowings were used to fund the Company’s accelerated share repurchase agreement described in Note 19. Following the offering of the 2020 Notes and the 2025 Notes, described below, the Company voluntarily paid off and terminated the Term Loan Agreement. The payoff amount of $1,000.3 million included principal, accrued and unpaid interest and a facility fee.
Five-Year Revolving Credit Facility Agreement
During the year ended December 31, 2015, the Company amended its five-year revolving credit facility agreement (the “Revolving Credit Facility”) to, among other things, change the manner of calculating the leverage ratio covenant contained in the Revolving Credit Facility. Previously, such covenant measured consolidated total debt to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”). Pursuant to the amendment, such covenant will measure consolidated adjusted total debt to consolidated EBITDA, with adjusted total debt determined by reducing total debt by an amount equal to the lesser of (a) $500.0 million or (b) the sum of (i) 100% of the unrestricted cash and cash equivalents of the Company and its domestic consolidated subsidiaries and (ii) 65% of the unrestricted cash and cash equivalents of the Company’s foreign subsidiaries.
The Revolving Credit Facility is unsecured and repayable at maturity in June 2019, subject to annual extensions if a sufficient number of lenders agree. The maximum amount of outstanding borrowings and letters of credit permitted at any one time under the Revolving Credit Facility is $750.0 million, which may be increased from time to time up to $1,000.0 million at the Company’s request, subject to obtaining additional commitments and other customary conditions. The Revolving Credit Facility contains financial covenants, whereby the ratio of consolidated adjusted total debt to consolidated EBITDA cannot exceed 3.50 to 1.00, and the ratio of consolidated EBITDA to consolidated interest expense cannot be less than 3.00 to 1.00. The Company was in compliance with these financial covenants as of December 31, 2015.
Borrowings under the Revolving Credit Facility bear interest at a rate that is determined as a base rate plus a margin. The base rate is either (a) LIBOR for a specified interest period or (b) a floating rate based upon JPMorgan Chase Bank’s prime rate, the Federal Funds rate or LIBOR. The margin is determined by reference to the Company’s credit rating. The margin can range from 0.0% to 1.375% over the base rate. In addition, the Company incurs an annual 0.125% facility fee on the entire facility commitment of $750.0 million.
During the year ended December 31, 2015, the Company had gross borrowings and repayments of $446.0 million under the Revolving Credit Facility. Such borrowings were used to repurchase shares of the Company’s stock and for general corporate purposes, and were repaid following the issuance of the 2020 Notes and 2025 Notes, described below. As of December 31, 2015 and 2014, the Company had no borrowings under the Revolving Credit Facility and the Company had $750.0 million available at December 31, 2015 and 2014.
Long-Term Debt
As of December 31, 2015 and 2014, respectively, the components of long-term debt were as follows:
Year Ended December 31, 2015
During the year ended December 31, 2015, the Company issued and sold $750.0 million of 3.0% Senior Notes due November 15, 2020 (“2020 Notes”) and $750.0 million of 4.125% Senior Notes due November 15, 2025 (“2025 Notes”) at a public offering price of 99.902% and 99.958%, respectively. The Company received net proceeds of $1,487.7 million from the sale of both the 2020 Notes and 2025 Notes, after deducting underwriters' discounts and offering costs. Interest is payable on each of the 2020 Notes and 2025 Notes on May 15 and November 15 of each year. Proceeds from the 2020 Notes and 2025 Notes were used to repay the Company’s Term Loan Agreement and borrowings under the Revolving Credit Facility.
During the year ended December 31, 2015, the Company entered into a series of fair value interest rate swaps that effectively convert the Company’s 2020 Notes from a fixed rate structure to a floating rate structure. These swaps have resulted in a fair value adjustment of $3.5 million at December 31, 2015 which reduces long-term debt and is offset by a long-term derivative liability. For the year ended December 31, 2015 the swaps reduced interest expense by $1.1 million. See Note 17 for a discussion of the fair value swaps.
Year Ended December 31, 2014
During the year ended December 31, 2014, the Company issued and sold $500.0 million of 4.60% Senior Notes due June 1, 2044 at a public offering price of 99.465% (the “2044 Notes”). Net proceeds from the sale of the 2044 Notes, after deducting underwriters' discounts and offering expenses, were $492.0 million. Interest on the 2044 Notes is payable semi-annually on June 1 and December 1 of each year. Proceeds from the 2044 Notes, together with cash on hand, were used to redeem the 2014 Notes, as described below. In addition, the Company settled a series of cash flow interest rate forward swaps into which it originally entered during the fourth quarter of 2013. These swaps mitigated interest rate exposure associated with the Company’s offering of the 2044 Notes. See Note 17 for discussion of the Company’s interest rate forward swaps.
During the year ended December 31, 2014, the Company entered into a series of fair value interest rate swaps that effectively convert the Company’s 4.90% Notes due 2019 (the “2019 Notes”) from a fixed rate structure to a floating rate structure. These swaps have resulted in a fair value adjustment of $3.9 million at December 31, 2015 to increase long-term debt, which is offset by a long-term derivative asset. For the years ended December 31, 2015 and 2014 the swaps reduced interest expense by $10.0 million and $6.0 million respectively. See Note 17 for a discussion of the fair value swaps.
During the year ended December 31, 2014, the Company redeemed all of its $500.0 million of 3.50% Notes due in 2014 (the “2014 Notes”). The redemption price, which was calculated in accordance with the terms of the 2014 Notes and included principal plus a make-whole premium, was $503.5 million.
Using quoted prices in markets that are not active, the Company determined that the fair value of its long-term debt was $3,050.2 million (Level 2) as of December 31, 2015.
Our long-term debt may be prepaid at any time, in whole or in part, at a redemption price equal to the greater of par value or an amount calculated based upon the sum of the present values of the remaining scheduled payments. Upon a change of control, we may be required to
repurchase the notes for an amount equal to 101% of the then-outstanding principal amount plus accrued and unpaid interest. Interest on the notes are due semi-annually and the notes are not subject to amortization.
The components of interest expense-net were as follows:
17. DERIVATIVES
The Company is exposed to market risk due to changes in foreign currency exchange rates, commodities pricing and interest rates. To manage that risk, the Company enters into certain derivative financial instruments, when available on a cost-effective basis, to hedge its underlying economic exposure. The Company does not enter into derivatives for speculative purposes. These financial instruments are classified as Level 2 in the fair value hierarchy at December 31, 2015 and 2014, and there were no transfers between levels in the fair value hierarchy during the periods then ended.
The following table summarizes the fair value of the Company’s outstanding derivatives:
While certain derivatives are subject to netting arrangements with the Company’s counterparties, the Company does not offset derivative assets and liabilities within the consolidated balance sheets presented herein.
The Company’s derivative financial instruments present certain market and counterparty risks; however, concentration of counterparty risk is mitigated as the Company deals with a variety of major banks worldwide whose long-term debt at hedge inception is rated A- or higher by Standard & Poor’s Rating Service, Fitch Ratings, or Moody’s Investors Service, Inc. In addition, only conventional derivative financial instruments are used. The Company would not be materially impacted if any of the counterparties to the derivative financial instruments outstanding at December 31, 2015 failed to perform according to the terms of its agreement. Based upon the risk profile of the Company’s portfolio, MJN does not require collateral or any other form of securitization to be furnished by the counterparties to its derivative financial instruments.
Cash Flow Hedges
As of December 31, 2015 and 2014, all of the Company’s cash flow hedges qualify as hedges of forecasted cash flows, and the effective portion of changes in fair value are temporarily reported in accumulated other comprehensive income (loss). During the period that the underlying hedged transaction impacts earnings, the effective portion of the changes in the fair value of the cash flow hedges is recognized within earnings. The Company assesses effectiveness at inception and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of the change in fair value is included in current period earnings.
The Company will discontinue cash flow hedge accounting when the forecasted transaction is no longer probable of occurring on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective. For the years ended December 31, 2015, 2014, and 2013, the Company did not discontinue any cash flow hedges.
Foreign Exchange Contracts
The Company uses foreign exchange contracts to hedge forecasted transactions, primarily foreign currency denominated inter-company purchases anticipated in the next 18 months and designates these derivative instruments as foreign currency cash flow hedges when appropriate. When the underlying inter-company purchases impact the Company’s consolidated earnings, the effective portion of the hedge is recognized within cost of products sold. Ineffectiveness related to the Company’s foreign exchange hedges on earnings was $0.9 million for the year ended December 31, 2015, and insignificant for the years ended December 31, 2014, and 2013 respectively.
The table below summarizes the Company’s outstanding foreign exchange forward contracts at December 31, 2015. The fair value of foreign exchange forward contracts should be viewed in relation to the fair value of the underlying hedged transactions and the overall reduction in exposure to fluctuations in foreign currency exchange rates.
The change in accumulated other comprehensive income (loss) and the impact on earnings from foreign exchange contracts that qualified as cash flow hedges for the years ended December 31, 2015 and 2014, were as follows:
At December 31, 2015, the balance of the effective portion of changes in fair value on foreign exchange forward contracts that qualified for cash flow hedge accounting included in accumulated other comprehensive income was $10.1 million, all of which is expected to be reclassified into earnings within the next 12 months.
Interest Rate Forward Swaps
During 2013, the Company entered into interest rate forward starting swaps with a combined notional value of $500.0 million. The forward starting rates of the swaps ranged from 3.79% to 3.94% and had an effective date of October 31, 2014. The forward starting swaps effectively mitigated the interest rate exposure associated with the Company’s offering of the 2044 Notes, the proceeds of which were used to redeem all of the Company’s 2014 Notes. These derivative instruments were designated as cash flow hedges at inception and were highly effective in offsetting fluctuations in the benchmark interest rate. During 2014, and around the time of the issuance of the 2044 Notes, the Company paid $45.0 million to settle the outstanding forward swaps. This payment was recognized in accumulated other comprehensive loss and will be amortized over the life of the 2044 Notes. There was $0.5 million of ineffectiveness related to the forward swaps through the date of settlement, which was recognized as a loss within other (income)/expenses-net during the year ended December 31, 2014 . During the years ended December 31, 2015 and 2014, $1.4 million and $0.9 million of amortization of the settlement amount was recognized as incremental interest expense within interest expense-net, respectively.
Commodity Hedges
The Company utilizes commodity hedges to minimize the variability in cash flows due to fluctuations in market prices of the Company’s non-fat dry milk purchases for North America. The maturities of the commodity contracts are scheduled to match the pricing terms of the Company’s existing bulk purchase agreements. When the underlying non-fat dry milk purchases impact the Company’s consolidated earnings, the effective portion of the hedge is recognized within cost of products sold.
As of December 31, 2015, the Company had commodity contracts outstanding which committed the Company to approximately $2.0 million of forecasted non-fat dry milk purchases. The ineffective portion recognized within other (income)/expenses-net was insignificant for
each of the years ended December 31, 2015, 2014, and 2013. Commodity derivatives qualifying as cash flow hedges deferred in accumulated other comprehensive loss at December 31, 2015 and 2014 was $0.7 million and $1.3 million, respectively.
Fair Value Hedges
Interest Rate Swaps
In November 2009, the Company executed several interest rate swaps to convert $700.0 million of the Company’s then newly-issued fixed rate debt to be paid in 2014 and 2019 to variable rate debt. In November 2010, the Company terminated $200.0 million notional amount of fixed-to-floating interest rate swaps in exchange for cash of $15.6 million. In July 2011, the Company terminated the remaining $500.0 million notional amount of fixed-to-floating interest rate swaps for cash of $23.5 million. The related basis adjustments of the underlying hedged items are being recognized as a reduction of interest expense over the remaining life of the underlying debt. For each of the years ended December 31, 2015 and 2014, the amortization of the settled swaps related to the 2019 Notes resulted in a $1.9 million reduction in interest expense. Because the Company redeemed the 2014 Notes in the third quarter of 2014, the amortization of the related swaps was completed at that time, and there was no amortization related to these swaps in the year ended December 31, 2015. See Note 16 for information related to the 2014 Notes and 2019 Notes.
During the second quarter of 2014 the Company entered into eight interest rate swaps with multiple counterparties, which have an aggregate notional amount of $700.0 million of outstanding principal. This series of swaps effectively converts the $700.0 million of 2019 Notes from fixed to floating rate debt for the remainder of their term. These interest rate swaps were outstanding as of December 31, 2015, and the conversion of fixed to floating rate resulted in a reduction in interest expense of $10.0 million for the year ended December 31, 2015. During the year ended December 31, 2014, the conversion of fixed to floating rate resulted in a reduction in interest expense of $6.0 million. See Note 16 for information related to the 2019 Notes.
In the fourth quarter of 2015, the Company entered into six interest rate swaps with multiple counterparties to mitigate interest rate exposure associated with the 2020 Notes. The swaps have an aggregate notional amount of $750.0 million of outstanding principal. This series of swaps effectively converts the $750.0 million of 2020 Notes from fixed to floating rate debt for the remainder of their term. These interest rate swaps were outstanding as of December 31, 2015, and the conversion of fixed to floating rate resulted in a reduction in interest expense of $1.1 million for the year ended December 31, 2015. See Note 16 for information related to the offering of the 2020 Notes.
The following table summarizes the interest rate swaps outstanding as of December 31, 2015. The interest rate swaps for the 2019 Notes have a hedge inception date of May 2014 with a maturity date of November 2019 and the interest rate swaps for the 2020 Notes have an inception date of November 2015 and a maturity date of November 2020:
(Dollars in millions)
Notional Amount of Underlying
Fixed Rate Received
Variable Rate Paid
(U.S. 3 Month LIBOR +)
Fair Value
Asset/(Liability)
Swaps associated with the 2019 Notes
$
700.0
4.9
%
3.14
%
$
3.9
Swaps associated with the 2020 Notes
$
750.0
3.0
%
1.38
%
$
(3.5
)
See Note 16 for discussion on the Company’s debt.
Other Financial Instruments
The Company does not hedge the interest rate risk associated with money market funds, which totaled $510.1 million and $395.4 million as of December 31, 2015 and 2014, respectively. Money market funds are classified as Level 2 in the fair value hierarchy and are included in cash and cash equivalents on the balance sheet. The money market funds have quoted market prices that are generally equivalent to par.
18. MARKETABLE SECURITIES
As of December 31, 2015 and 2014, the Company held no investments in debt securities. During the year ended December 31, 2015, the Company sold debt securities prior to maturity for $21.7 million, which had been classified as trading securities and included in prepaid expenses and other assets in the consolidated balance sheets. These investments were also purchased during 2015 and were carried at fair value based on quoted market prices and classified as Level 1 in the fair value hierarchy. The cost basis for the Company’s debt securities is determined by the specific identification method. Realized and unrealized gains and losses on trading securities are included in other (income)/expenses - net in the Company’s consolidated statements of earnings.
During the year ended December 31, 2015, the Company recognized a net gain on trading securities of $5.6 million, resulting from fluctuations in fair value and foreign exchange.
19. EQUITY
The Company may use either authorized and unissued shares or treasury shares to meet share requirements resulting from the exercise of stock options and vesting of performance share awards and restricted stock units. Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized using the first-in first-out method.
For the year ended December 31, 2014, the change in the carrying amount of treasury stock and treasury stock - at cost was driven by repurchases of the Company’s common stock, offset by the impact of a constructive retirement of treasury stock related to stock-based compensation. The constructive share retirement had the impact of decreasing the Company’s total value of treasury stock - at cost and decreasing retained earnings.
On September 10, 2013, MJN’s board of directors approved a share repurchase authorization of up to $500.0 million of the Company’s common stock (the “2013 Authorization”). During the year ended December 31, 2015, the Company repurchased $437.0 million of treasury shares under the 2013 Authorization. The purchase of these shares and the subsequent retirement of those shares impacted equity for the year ended December 31, 2015.
On October 20, 2015, MJN’s board of directors approved a new share repurchase authorization of an additional $1,500.0 million of the Company’s common stock (the “2015 Authorization”). On October 22, 2015, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Goldman, Sachs & Co. (“Goldman”) to repurchase $1,000.0 million (the “Repurchase Price”) of the Company’s common stock. Under the terms of the ASR Agreement, 10,725,552 shares of common stock were received and retired by the Company on October 27, 2015 (which shares are equivalent to 85% of the number of shares of Company common stock that could be purchased with an amount of cash equal to the Repurchase Price based on the closing price of the Company’s common stock on October 22, 2015). The payments to Goldman were recorded as a reduction to shareholders’ equity consisting of a $1,000.0 million reduction to retained earnings, reflecting the value of the 10,725,552 shares received upon initial settlement and a $150.0 million decrease reflecting the value of the stock held back by Goldman pending final settlement of the ASR Agreement. At final settlement, which is expected to occur between March and June 2016, Goldman may be required to deliver additional shares of common stock to the Company, or, under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to Goldman, based generally on the average of the daily volume-weighted average prices of the Company’s common stock during the term of the ASR Agreement, subject, in part, to certain maximum and minimum prices. The ASR Agreement was primarily funded by the 2020 Notes and 2025 Notes issuance. See Note 16 for discussion on the Company’s debt.
Changes in common shares and treasury stock, including the impact of the retirement described above, were as follows:
Changes in accumulated other comprehensive loss by component were as follows:
(1) Represents foreign currency translation adjustments.
Deferred losses on derivatives qualifying as hedges for the year ended December 31, 2014 included $64.4 million related to the change in the underlying position of the Company’s interest rate forward swaps intended to mitigate interest rate exposure associated with the 2044 Notes. These interest rate forward swaps were in a gain position with a fair value of $19.4 million at December 31, 2013. From December 31, 2013 through the Company’s settlement in May 2014, the fair value of these interest rate forward swaps declined $64.4 million, resulting in a loss position with a fair value of $45.0 million upon settlement.
Reclassification adjustments out of accumulated other comprehensive loss were as follows:
20. LEASES
Minimum rental commitments under all non-cancelable operating leases, primarily real estate leases for offices, manufacturing-related leases and vehicle leases, in effect at December 31, 2015, were:
Operating lease rental expenses were $37.4 million, $39.5 million and $39.7 million in the years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015 and 2014, MJN had capital lease obligations outstanding in the amount of $2.0 million and $2.5 million, respectively.
21. VENEZUELA CURRENCY MATTERS
Discussion of Venezuela Exchange Rates
In January 2014, the Venezuelan government enacted changes affecting the country’s currency exchange and other controls, and established a new foreign currency administration, the National Center for Foreign Commerce (“CENCOEX”). CENCOEX assumed control of the sale and purchase of foreign currency in Venezuela, and has maintained the official exchange rate of 6.3 Bolivares Fuertes (“VEF”) to 1.0 U.S. dollar (“USD”) (the “Official Rate”). Additionally, the government expanded the types of transactions that may be subject to the weekly auction mechanism under the Complimentary Currency Administration System (“SICAD I”). For a period of time, the Venezuelan government announced plans for the Alternative Foreign Exchange System, also known as SICAD II, which was intended to more closely resemble a market-driven exchange.
In February 2015, the Venezuelan government combined the SICAD I and SICAD II (“SICAD”) exchange rate mechanisms and created a new market based SIMADI rate, which was generally based on supply and demand. The changes created a three tiered system. As of December 31, 2015, CENCOEX traded at 6.3 VEF to 1.0 USD, the SICAD auction markets traded at 13.5 VEF to 1.0 USD and the SIMADI traded at 198.7 VEF to 1.0 USD. The Company continues to assess the impact, if any, of these changes as the Venezuelan government issues regulations to implement them. Changes to exchange systems would impact the rate used by the Company to remeasure the net monetary assets of its Venezuelan subsidiary.
Effect on the Company’s Results
In 2014, MJN concluded that, among other items, future inter-company dividend remittances qualify for the purchase of foreign currency at the SICAD rate under the revised law. As such, MJN adopted the SICAD rate for purposes of remeasuring its Venezuelan subsidiary effective February 28, 2014. The remeasurement impact of this adoption was a loss of $6.1 million, which was recognized in MJN’s Statement of Earnings as a component of other (income)/expense - net.
During the years ended December 31, 2015 and 2014, the Company received U.S. dollars to make payments for intercompany purchases of inventory at the CENCOEX Official Rate that is more favorable than the SICAD rate used to remeasure net monetary assets of MJN’s Venezuelan subsidiary, which resulted in recognized gains of $2.4 million and $14.0 million, respectively.
For the years ended December 31, 2015 and 2014, the Venezuelan subsidiary’s net sales represented approximately 1.5% and 2.2% of total Company net sales. The Venezuelan subsidiary’s EBIT was not a material component of MJN consolidated results.
Access to Currency and Related Asset Exposures
Availability of U.S. dollars at the CENCOEX official rate have become more limited during 2015, and while we were able to secure U.S. dollars at the CENCOEX official rate through the first three quarters of 2015, we were not able to secure U.S. dollars during the fourth quarter of 2015.
The following sets forth selected information of our Venezuelan subsidiary as of December 31, 2015:
Net Monetary Assets $44 million (591.0 million Venezuelan Bolivares; SICAD of 13.5 VEF to 1.0 USD)
Net Non-Monetary Assets $46 million (621.0 million Venezuelan Bolivares; based on a SICAD rate of 13.5 VEF to 1.0 USD)
MJN Intercompany Payables $51 million (U.S Dollar denominated)
The intercompany payable represents amounts owed by our Venezuelan subsidiary to our subsidiaries in Mexico and the U.S. for purchases of inventory.
22. CONTINGENCIES
In the ordinary course of business, the Company is subject to lawsuits, investigations, government inquiries and claims, including, but not limited to, product liability claims, advertising disputes and inquiries, consumer fraud suits, other commercial disputes, premises claims and employment and environmental, health and safety matters.
The Company records accruals for contingencies when it is probable that a liability will be incurred and the loss can be reasonably estimated. Although the Company cannot predict with certainty the final resolution of lawsuits, investigations and claims asserted against the Company, MJN does not believe any currently pending legal proceeding to which the Company is a party will have a material impact on the Company’s business or financial condition, results of operations or cash flows.
23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(a) During the fourth quarter of 2015 the Company recognized expenses of $25.1 million associated with Fuel for Growth.
(b)When aggregated, EPS for the four quarters of 2015 does not equal the full year EPS figure due to the variability of quarterly earnings and the timing of share repurchases.
SCHEDULE II
MEAD JOHNSON NUTRITION COMPANY
VALUATION AND QUALIFYING ACCOUNTS

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

ITEM 9A - CONTROLS AND PROCEDURES
Item 9A. CONTROLS AND PROCEDURES.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and the Chief Financial Officer (our principal executive officer and principal financial officer, respectively), we have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2015. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2015, the Company’s disclosure controls and procedures were effective in ensuring information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of internal control over financial reporting as of December 31, 2015 based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management has concluded that our internal control over financial reporting was effective at December 31, 2015, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Deloitte & Touche LLP, our independent registered public accounting firm, has audited our financial statements included in this Annual Report on Form 10-K and has issued its attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2015, which appears below.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Mead Johnson Nutrition Company
Glenview, Illinois
We have audited the internal control over financial reporting of Mead Johnson Nutrition Company and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2015 of the Company and our report dated February 17, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 17, 2016
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B - OTHER INFORMATION
Item 9B. OTHER INFORMATION.
None.
PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item 10 is set forth under the headings “Board of Directors and Corporate Governance - Board of Directors,” “Board of Directors and Corporate Governance - Code of Ethics,” “Board of Directors and Corporate Governance - Committees of the Board of Directors,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2016 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our 2016 Annual Meeting of Stockholders (the “2016 Proxy Statement”) and is incorporated herein by reference. The 2016 Proxy Statement will be filed with the SEC within 120 days after the end of our 2015 fiscal year. See Part I, “Executive Officers of the Registrant” of this annual report for information regarding executive officers of the Company.

ITEM 11 - EXECUTIVE COMPENSATION
Item 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is set forth under the headings “Board of Directors and Corporate Governance - Compensation Committee Interlocks and Insider Participation,” “Executive Compensation - Compensation and Management Development Committee Report,” “Executive Compensation” and “Board of Directors and Corporate Governance - Compensation of Directors” in our 2016 Proxy Statement and is incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this Item 12 is set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” in our 2016 Proxy Statement and is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item 13 is set forth under the headings “Certain Relationships and Related Transactions” and “Board of Directors and Corporate Governance - Board of Directors - Director Independence” in our 2016 Proxy Statement and is incorporated herein by reference.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item is set forth under the headings “Audit Related Matters - Fees Paid to Independent Registered Public Accounting Firm” and “Audit Related Matters - Pre-approval of Audit and Permissible Non-Audit Services” in our 2016 Proxy Statement and is incorporated herein by reference.
PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The financial statements and schedule filed as part of this Annual Report on Form 10-K are listed in the accompanying Index to Financial Statements in “Item 8. Financial Statements and Supplementary Data.” The exhibits filed as a part of this Annual Report on Form 10-K are listed in the Exhibit Index immediately following the signature page to this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MEAD JOHNSON NUTRITION COMPANY
Date:
February 17, 2016
By:
/s/ Michel Cup
Michel Cup
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Date:
February 17, 2016
By:
/s/ Peter Kasper Jakobsen
Peter Kasper Jakobsen
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date:
February 17, 2016
By:
/s/ Michel Cup
Michel Cup
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date:
February 17, 2016
By:
/s/ James E. Shiah
James E. Shiah
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
Date:
February 17, 2016
By:
/s/ James M. Cornelius
James M. Cornelius
Chairman of the Board of Directors
Date:
February 17, 2016
By:
/s/ Steven M. Altschuler, M.D.
Steven M. Altschuler, M.D.
Director
Date:
February 17, 2016
By:
/s/ Howard B. Bernick
Howard B. Bernick
Director
Date:
February 17, 2016
By:
/s/ Kimberly A. Casiano
Kimberly A. Casiano
Director
Date:
February 17, 2016
By:
/s/ Anna C. Catalano
Anna C. Catalano
Director
Date:
February 17, 2016
By:
/s/ Celeste A. Clark, Ph.D.
Celeste A. Clark, Ph.D.
Director
Date:
February 17, 2016
By:
/s/ Stephen W. Golsby
Stephen W. Golsby
Director
Date:
February 17, 2016
By:
/s/ Michael Grobstein
Michael Grobstein
Director
Date:
February 17, 2016
By:
/s/ Peter G. Ratcliffe
Peter G. Ratcliffe
Director
Date:
February 17, 2016
By:
/s/ Michael A. Sherman
Michael A. Sherman
Director
Date:
February 17, 2016
By:
/s/ Elliott Sigal, M.D., Ph.D.
Elliott Sigal, M.D., Ph.D.
Director
Date:
February 17, 2016
By:
/s/ Robert S. Singer
Robert S. Singer
Director
EXHIBIT INDEX
Exhibit
Number
Description
Articles of Incorporation and Bylaws
3.1
Second Amended and Restated Certificate of Incorporation of Mead Johnson Nutrition Company (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on January 8, 2010)
3.2
Amended and Restated By-laws of Mead Johnson Nutrition Company (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on January 30, 2012)
Instruments defining the rights of the security holders, including indentures
4.1
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to Registration Statement on Form S-1 (Registration No. 333-156298) filed on January 14, 2009)
4.2
Indenture, dated as of November 1, 2009, by and between Mead Johnson Nutrition Company and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on November 12, 2009)
4.3
First Supplemental Indenture, dated as of November 5, 2009, by and among Mead Johnson Nutrition Company, Mead Johnson & Company and The Bank of New York Mellon Trust Company, N.A., as trustee (including forms of the 4.90% Notes due 2019 and 5.90% Notes due 2039 Notes) (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on November 12, 2009)
4.4
Second Supplemental Indenture, dated as of May 13, 2014, between Mead Johnson Nutrition Company and The Bank of New York Mellon Trust Company, N.A., as trustee (including form of the 4.60% Senior Notes due June 1, 2044) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 13, 2014)
4.5
Third Supplemental Indenture, dated as of November 3, 2015, between Mead Johnson Nutrition Company and The Bank of New York Mellon Trust Company, N.A., as trustee (including forms of the 3.000% Senior Notes due 2020 and 4.125% Senior Notes due 2025) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 3, 2015)
Material Contracts
10.1
Separation Agreement by and between Bristol-Myers Squibb Company and Mead Johnson Nutrition Company, dated January 31, 2009 (incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.2
Employee Matters Agreement between Bristol-Myers Squibb Company and Mead Johnson Nutrition Company, dated January 31, 2009 (incorporated by reference to Exhibit 10.2 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.3
Second Amended and Restated Transitional Services Agreement between Bristol-Myers Squibb Company and Mead Johnson Nutrition, dated December 18, 2009 (incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed on February 25, 2010)
10.4
Amended and Restated Tax Matters Agreement between Bristol-Myers Squibb Company and Mead Johnson Nutrition Company dated December 18, 2009 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 23, 2009)
10.5
First Amendment, dated June 27, 2014, to Five Year Revolving Credit Facility Agreement among Mead Johnson Nutrition Company, Mead Johnson & Company, LLC, various subsidiaries of the Company party thereto from time to time, various financial institutions and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014)
10.6
Amendment No. 2 to Five Year Revolving Credit Facility Agreement, dated as of November 5, 2015, among Mead Johnson Nutrition Company, various financial institutions and JPMorgan Chase Bank, N.A., as Administrative Agent
10.7
Six-Month $1,000,000,000,000 Term Loan Agreement, dated as of October 21, 2015, among Mead Johnson Nutrition Company, Mead Johnson & Company, LLC, Citibank, N.A.(as Syndication Agent) and JPMorgan Chase Bank, N.A. (as Administrative Agent)
10.8
Master Confirmation (ASR) Agreement, dated October 22, 2015, between Mead Johnson Nutrition Company and Goldman, Sachs & Co.
10.9
Supplemental Confirmation to Master Confirmation (ASR) Agreement, dated October 22, 2015, between Mead Johnson Nutrition Company and Goldman, Sachs & Co.
10.10*
Mead Johnson Nutrition Company Long Term Incentive Plan (incorporated by reference to Addendum A to Definitive Proxy Statement on Schedule 14A filed on March 23, 2015)
10.11*
Mead Johnson Nutrition Company Senior Executive Performance Incentive Plan (As Amended and Restated Effective as of January 1, 2015) (incorporated by reference to Exhibit 10.7 to Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed on February 27, 2015)
10.12*
Mead Johnson & Company Benefit Equalization Plan-Retirement Plan (incorporated by reference to Exhibit 10.31 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.13*
Mead Johnson & Company Benefit Equalization Plan-Retirement Savings Plan (incorporated by reference to Exhibit 10.32 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.14*
Mead Johnson & Company Key International Pension Plan (incorporated by reference to Exhibit 10.33 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.15*
Second Amended and Restated Mead Johnson & Company, LLC Senior Executive Severance Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 5, 2014)
10.16*
Third Amended and Restated Mead Johnson & Company, LLC Executive Change in Control Severance Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 13, 2014)
10.17*
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.34 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.18*
Form of Performance Shares Agreement (incorporated by reference to Exhibit 10.35 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.19*
Form of Director Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.36 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.20*
Form of Employee Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.37 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 27, 2009)
10.21*
Form of Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on December 23, 2009)
10.22*
Form of 2013 Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 filed on April 25, 2013)
10.23*
Form of 2013 Employee Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 filed on April 25, 2013)
10.24*
Form of 2013 Non-Employee Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 filed on April 25, 2013)
10.25*
Form of 2013 Performance Share Award Agreement (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 filed on April 25, 2013)
10.26*
Form of Performance Share Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2014)
10.27*
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015 filed on July 23, 2015)
10.28*
Form of Employee Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015 filed on July 23, 2015)
10.29*
Form of Non-Employee Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015 filed on July 23, 2015)
10.30*
Form of Performance Share Award Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015 filed on July 23, 2015)
10.31*
Letter Agreement between the Company and Mr. William C. P’Pool (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 16, 2014)
10.32*
Letter Agreement between the Company and Mr. Peter G. Leemputte (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 5, 2015
10.33*
Amendment No. 1 to Letter Agreement, dated May 20, 2015, between the Company and Mr. Peter G. Leemputte (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015 filed on July 23, 2015)
10.34*
Employment Letter, dated June 30, 2015, between the Company and Mr. Michel Cup (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 2, 2015
10.35*
Employment Letter, dated September 1, 2015, between the Company and Mr. Charles Urbain (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 1, 2015)
10.36*
Employment Letter, dated December 8, 2014, between the Company and Mr. Patrick M. Sheller
Subsidiaries of the Registrant
21.1
Subsidiaries of the Registrant
Consents of Experts and Counsel
23.1
Consent of Deloitte & Touche LLP
Rule 13a-14(a)/15d-14(a) Certifications
31.1
Certification of the Chief Executive Officer
31.2
Certification of the Chief Financial Officer
Section 1350 Certifications
32.1
Certification of the Chief Executive Officer
32.2
Certification of the Chief Financial Officer
Interactive Data File
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
*
Compensatory plan or arrangement.

Market Capitalization: 13978135.60180664
1-Year Return: 0.03391698747873306
252-Day Return: $252_day_return