UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
Commission File Number: 001-34251
MEAD JOHNSON NUTRITION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
|
| | |
Delaware | | 80-0318351 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
2701 Patriot Blvd.
Glenview, Illinois 60026
(Address of Principal Executive Offices and Zip Code)
Registrant’s Telephone Number, Including Area Code: (847) 832-2420
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| | | |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No ý
As of July 20, 2015, there were 202,739,249 shares of the registrant’s common stock outstanding.
MEAD JOHNSON NUTRITION COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2015
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
NET SALES | $ | 1,032.4 |
| | $ | 1,111.1 |
| | $ | 2,126.8 |
| | $ | 2,224.4 |
|
Cost of Products Sold | 356.4 |
| | 426.8 |
| | 749.9 |
| | 832.5 |
|
GROSS PROFIT | 676.0 |
| | 684.3 |
| | 1,376.9 |
| | 1,391.9 |
|
Operating Expenses: | |
| | |
| | |
| | |
|
Selling, General and Administrative | 230.2 |
| | 242.3 |
| | 463.4 |
| | 475.2 |
|
Advertising and Promotion | 190.2 |
| | 174.6 |
| | 334.6 |
| | 330.3 |
|
Research and Development | 27.7 |
| | 26.7 |
| | 53.6 |
| | 53.8 |
|
Other (Income)/Expenses – net | (1.3 | ) | | (4.2 | ) | | 10.9 |
| | (3.5 | ) |
EARNINGS BEFORE INTEREST AND INCOME TAXES | 229.2 |
| | 244.9 |
| | 514.4 |
| | 536.1 |
|
| | | | | | | |
Interest Expense – net | 13.9 |
| | 15.3 |
| | 27.7 |
| | 27.7 |
|
EARNINGS BEFORE INCOME TAXES | 215.3 |
| | 229.6 |
| | 486.7 |
| | 508.4 |
|
| | | | | | | |
Provision for Income Taxes | 52.7 |
| | 53.5 |
| | 117.0 |
| | 124.5 |
|
NET EARNINGS | 162.6 |
| | 176.1 |
| | 369.7 |
| | 383.9 |
|
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests | (0.3 | ) | | 4.7 |
| | (0.6 | ) | | 10.1 |
|
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS | $ | 162.9 |
| | $ | 171.4 |
| | $ | 370.3 |
| | $ | 373.8 |
|
Earnings per Share – Basic | |
| | |
| | | | |
Net Earnings Attributable to Shareholders | $ | 0.80 |
| | $ | 0.85 |
| | $ | 1.83 |
| | $ | 1.85 |
|
Earnings per Share – Diluted | |
| | |
| | | | |
Net Earnings Attributable to Shareholders | $ | 0.80 |
| | $ | 0.84 |
| | $ | 1.82 |
| | $ | 1.84 |
|
| | | | | | | |
Weighted Average Shares - Basic | 202.7 |
| | 202.2 |
| | 202.5 |
| | 202.0 |
|
Weighted Average Shares – Diluted | 203.1 |
| | 202.7 |
| | 203.1 |
| | 202.5 |
|
Dividends Declared per Share | $ | 0.4125 |
| | $ | 0.3750 |
| | $ | 0.8250 |
| | $ | 0.7500 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
(UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
NET EARNINGS | $ | 162.6 |
| | $ | 176.1 |
| | $ | 369.7 |
| | $ | 383.9 |
|
| | | | | | | |
OTHER COMPREHENSIVE INCOME/(LOSS) | |
| | |
| | | | |
Foreign Currency Translation Adjustments | |
| | |
| | | | |
Translation Adjustments | (11.9 | ) | | 5.4 |
| | (49.6 | ) | | (27.9 | ) |
Tax Benefit | (0.1 | ) | | 0.3 |
| | 0.1 |
| | 2.7 |
|
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges | |
| | |
| | |
| | |
|
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges for the Period | 1.9 |
| | (28.5 | ) | | 9.3 |
| | (70.3 | ) |
Reclassification Adjustment for Gains Included in Net Earnings | (5.9 | ) | | (1.9 | ) | | (7.8 | ) | | (3.3 | ) |
Tax Benefit | 2.6 |
| | 10.6 |
| | 1.1 |
| | 26.4 |
|
Pension and Other Post-employment Benefits | |
| | |
| | |
| | |
|
Reclassification Adjustment for Losses Included in Net Earnings | — |
| | 0.1 |
| | — |
| | 0.2 |
|
OTHER COMPREHENSIVE LOSS | (13.4 | ) | | (14.0 | ) | | (46.9 | ) | | (72.2 | ) |
| | | | | | | |
COMPREHENSIVE INCOME | 149.2 |
| | 162.1 |
| | 322.8 |
| | 311.7 |
|
| | | | | | | |
Less Comprehensive Income Attributable to Noncontrolling Interests | 10.5 |
| | 4.4 |
| | 9.6 |
| | 3.8 |
|
| | | | | | | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAREHOLDERS | $ | 138.7 |
| | $ | 157.7 |
| | $ | 313.2 |
| | $ | 307.9 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in millions, except per share data)
(UNAUDITED)
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
ASSETS | |
| | |
|
CURRENT ASSETS: | |
| | |
|
Cash and Cash Equivalents | $ | 1,475.1 |
| | $ | 1,297.7 |
|
Receivables—net of allowances of $6.9 and $9.6 respectively | 367.3 |
| | 387.8 |
|
Inventories | 573.3 |
| | 555.5 |
|
Deferred Income Taxes – net of valuation allowance | 77.4 |
| | 86.8 |
|
Income Taxes Receivable | 23.5 |
| | 7.7 |
|
Prepaid Expenses and Other Assets | 100.1 |
| | 82.6 |
|
Total Current Assets | 2,616.7 |
| | 2,418.1 |
|
Property, Plant and Equipment – net | 908.2 |
| | 912.7 |
|
Goodwill | 154.9 |
| | 162.7 |
|
Other Intangible Assets – net | 68.3 |
| | 75.4 |
|
Deferred Income Taxes – net of valuation allowance | 67.8 |
| | 65.1 |
|
Other Assets | 143.2 |
| | 142.5 |
|
TOTAL | $ | 3,959.1 |
| | $ | 3,776.5 |
|
LIABILITIES AND EQUITY | |
| | |
|
CURRENT LIABILITIES: | |
| | |
|
Short-term Borrowings | $ | 1.0 |
| | $ | 4.1 |
|
Accounts Payable | 521.7 |
| | 512.3 |
|
Dividends Payable | 84.4 |
| | 76.6 |
|
Accrued Expenses and Other Liabilities | 209.8 |
| | 203.7 |
|
Accrued Rebates and Returns | 351.9 |
| | 329.1 |
|
Deferred Income – current | 13.2 |
| | 34.3 |
|
Income Taxes – payable and deferred | 47.7 |
| | 46.4 |
|
Total Current Liabilities | 1,229.7 |
| | 1,206.5 |
|
Long-Term Debt | 1,506.2 |
| | 1,503.9 |
|
Deferred Income Taxes – noncurrent | 10.8 |
| | 12.4 |
|
Pension and Other Post-employment Liabilities | 209.7 |
| | 211.1 |
|
Other Liabilities – noncurrent | 204.6 |
| | 192.8 |
|
Total Liabilities | 3,161.0 |
| | 3,126.7 |
|
COMMITMENTS AND CONTINGENCIES |
|
| |
|
|
| | | |
REDEEMABLE NONCONTROLLING INTEREST | — |
| | 66.0 |
|
| | | |
EQUITY | |
| | |
|
Shareholders’ Equity | |
| | |
|
Common Stock, $0.01 par value: 3,000 authorized, 207.7 and 207.2 issued, respectively | 2.1 |
| | 2.1 |
|
Additional Paid-in/(Distributed) Capital | (580.9 | ) | | (641.3 | ) |
Retained Earnings | 1,954.6 |
| | 1,775.0 |
|
Treasury Stock – at cost | (362.6 | ) | | (362.6 | ) |
Accumulated Other Comprehensive Loss | (256.1 | ) | | (198.9 | ) |
Total Shareholders’ Equity | 757.1 |
| | 574.3 |
|
Noncontrolling Interests | 41.0 |
| | 9.5 |
|
Total Equity | 798.1 |
| | 583.8 |
|
TOTAL | $ | 3,959.1 |
| | $ | 3,776.5 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in millions)
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in (Distributed) Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Non- controlling Interests | | Total Equity | | Redeemable Non- controlling Interest |
Balance as of January 1, 2015 | $ | 2.1 |
| | $ | (641.3 | ) | | $ | 1,775.0 |
| | $ | (362.6 | ) | | $ | (198.9 | ) | | $ | 9.5 |
| | $ | 583.8 |
| | $ | 66.0 |
|
Stock-based Compensation Awards | |
| | 34.9 |
| | (10.3 | ) | | — |
| | |
| | |
| | 24.6 |
| | |
|
Distributions to Noncontrolling Interests | |
| | |
| | |
| | |
| | |
| | (6.1 | ) | | (6.1 | ) | | (0.8 | ) |
Cash Dividends Declared | |
| | |
| | (167.6 | ) | | |
| | |
| | |
| | (167.6 | ) | | |
|
Net Earnings | |
| | |
| | 370.3 |
| | |
| | |
| | (1.1 | ) | | 369.2 |
| | 0.5 |
|
Redeemable Noncontrolling Interest Accretion | |
| | |
| | (12.8 | ) | | |
| | |
| | |
| | (12.8 | ) | | 12.8 |
|
Other Comprehensive Income/(Loss) | |
| | 0 |
| | |
| | |
| | (46.4 | ) | | 0.1 |
| | (46.3 | ) | | (1.3 | ) |
Acquisition of Redeemable Noncontrolling Interest | | | 25.5 |
| | | | | | (10.8 | ) | | 38.6 |
| | 53.3 |
| | (77.2 | ) |
Balance as of June 30, 2015 | $ | 2.1 |
| | $ | (580.9 | ) | | $ | 1,954.6 |
| | $ | (362.6 | ) | | $ | (256.1 | ) | | $ | 41.0 |
| | $ | 798.1 |
| | $ | — |
|
| | | | | | | | | | | | | | | |
Balance as of January 1, 2014 | $ | 2.1 |
| | $ | (721.5 | ) | | $ | 1,432.3 |
| | $ | (351.9 | ) | | $ | (69.2 | ) | | $ | 8.7 |
| | $ | 300.5 |
| | $ | 49.7 |
|
Stock-based Compensation Awards | | | 35.4 |
| | |
| | (7.8 | ) | | |
| | |
| | 27.6 |
| | |
|
Treasury Stock Acquired | | |
|
| | |
| | (29.0 | ) | | |
| | |
| | (29.0 | ) | | |
|
Distributions to Noncontrolling Interests | | |
|
| | |
| | |
| | |
| | (4.4 | ) | | (4.4 | ) | | |
Cash Dividends Declared | | |
|
| | (151.9 | ) | | |
| | |
| | |
| | (151.9 | ) | | |
|
Net Earnings | | |
|
| | 373.8 |
| | |
| | |
| | 9.6 |
| | 383.4 |
| | 0.5 |
|
Redeemable Noncontrolling Interest Accretion | | | | | (12.3 | ) | | | | | | | | (12.3 | ) | | 12.3 |
|
Other Comprehensive Loss | | |
|
| | |
| | |
| | (65.9 | ) | | (0.3 | ) | | (66.2 | ) | | (6.0 | ) |
Balance as of June 30, 2014 | $ | 2.1 |
| | $ | (686.1 | ) | | $ | 1,641.9 |
| | $ | (388.7 | ) | | $ | (135.1 | ) | | $ | 13.6 |
| | $ | 447.7 |
| | $ | 56.5 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MEAD JOHNSON NUTRITION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(UNAUDITED)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2015 | | 2014 |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
|
Net Earnings | $ | 369.7 |
| | $ | 383.9 |
|
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: | |
| | |
|
Depreciation and Amortization | 48.8 |
| | 44.2 |
|
Other | 26.3 |
| | 26.7 |
|
Changes in Assets and Liabilities | 14.2 |
| | (103.7 | ) |
Payments for Settlement of Interest Rate Forward Swaps | — |
| | (45.0 | ) |
Pension and Other Post-employment Benefits Contributions | (2.5 | ) | | (2.1 | ) |
Net Cash Provided by Operating Activities | 456.5 |
| | 304.0 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
|
Capital Expenditures | (80.0 | ) | | (94.8 | ) |
Sale of Property, Plant and Equipment | 0.4 |
| | 0.3 |
|
Proceeds from/(Investment in) Other Companies | — |
| | 4.0 |
|
Net Cash Used in Investing Activities | (79.6 | ) | | (90.5 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
|
Proceeds from Short-term Borrowings | 1.0 |
| | 3.2 |
|
Repayments of Short-term Borrowings | (4.0 | ) | | (1.3 | ) |
Payments of Dividends | (159.8 | ) | | (144.7 | ) |
Stock-based Compensation related Proceeds and Excess Tax Benefits | 19.7 |
| | 20.3 |
|
Purchases of Treasury Stock | — |
| | (26.8 | ) |
Stock-based Compensation Tax Withholdings | (10.3 | ) | | (7.8 | ) |
Long-term Debt Borrowings, net of original issue discount and expenses paid | — |
| | 492.3 |
|
Purchase of Trading Security | (16.2 | ) | | — |
|
Purchase of Redeemable Shares | (5.1 | ) | | — |
|
Distributions to Noncontrolling Interests | (6.9 | ) | | (4.4 | ) |
Net Cash Used in Financing Activities | (181.6 | ) | | 330.8 |
|
Effects of Changes in Exchange Rates on Cash and Cash Equivalents | (17.9 | ) | | (8.8 | ) |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 177.4 |
| | 535.5 |
|
CASH AND CASH EQUIVALENTS: | |
| | |
|
Beginning of Period | 1,297.7 |
| | 1,050.8 |
|
End of Period | $ | 1,475.1 |
| | $ | 1,586.3 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MEAD JOHNSON NUTRITION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Mead Johnson Nutrition Company (“MJN”, “we” or the “Company”) is a global leader in pediatric nutrition. The Company’s comprehensive product portfolio addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. MJN’s product portfolio consists of two principal product categories: infant formula and children’s nutrition. These 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. MJN’s routine infant formula is intended for healthy consumers while its solutions and specialty products are offered for infants with mild to severe nutritional needs. The Company’s children’s nutrition products are designed to meet the nutritional needs of children at different stages of development. MJN’s other products include vitamins and supplements. MJN markets products under different names in various regions across the world, based on regional marketing strategies and regional brand recognition.
2. ACCOUNTING POLICIES
Basis of Presentation—The Company prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Under those rules, certain footnotes and other financial information that are normally required by GAAP for annual financial statements have been condensed or omitted. The Company is responsible for the financial statements and the related notes included in this Form 10-Q.
The condensed consolidated financial statements include all of the normal and recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2015 and December 31, 2014, and results of operations and cash flows for the six months ended June 30, 2015 and 2014. Intercompany balances and transactions have been eliminated. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited condensed consolidated financial statements may not be indicative of full-year operating results or future performance.
The accounting policies used in preparing these condensed consolidated financial statements are the same as those used to prepare the Company’s annual report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”). These unaudited condensed consolidated financial statements and the related notes should be read in conjunction with the audited year-end financial statements and accompanying notes included in the Company’s 2014 Form 10-K.
In the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014, financing cash flow amounts reflected as purchases of treasury stock and stock-based-compensation tax withholdings have been separated to conform to the presentation for the six months ended June 30, 2015. These amounts were previously combined and classified as purchases of treasury stock.
Recently Adopted Accounting Standards—In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The adoption of this standard did not have a material impact on the condensed consolidated financial statements.
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. For MJN, ASU No. 2014-09 becomes effective in the first quarter of 2018. The Company is currently evaluating the effect, if any, that the updated standard will have on its condensed consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard 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 No. 2015-03 is effective on a retrospective basis for
annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company does not expect the adoption of this update to have a material effect on the condensed consolidated financial statements.
3. 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 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:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | | 2015 | | 2014 | | 2015 | | 2014 |
Basic earnings per share: | | |
| | |
| | |
| | |
|
Weighted-average shares outstanding | | 202.7 |
| | 202.2 |
| | 202.5 |
| | 202.0 |
|
Net earnings attributable to shareholders | | $ | 162.9 |
| | $ | 171.4 |
| | $ | 370.3 |
| | $ | 373.8 |
|
Dividends and undistributed earnings attributable to unvested shares | | (0.3 | ) | | (0.3 | ) | | (0.7 | ) | | (0.7 | ) |
Net earnings attributable to shareholders used for basic earnings per share calculation | | $ | 162.6 |
| | $ | 171.1 |
| | $ | 369.6 |
| | $ | 373.1 |
|
Net earnings attributable to shareholders per share | | $ | 0.80 |
| | $ | 0.85 |
| | $ | 1.83 |
| | $ | 1.85 |
|
Diluted earnings per share: | | |
| | |
| | |
| | |
|
Weighted-average shares outstanding | | 202.7 |
| | 202.2 |
| | 202.5 |
| | 202.0 |
|
Incremental shares outstanding assuming the exercise/vesting of dilutive stock options/performance shares | | 0.4 |
| | 0.5 |
| | 0.6 |
| | 0.5 |
|
Weighted-average shares — diluted | | 203.1 |
| | 202.7 |
| | 203.1 |
| | 202.5 |
|
Net earnings attributable to shareholders | | $ | 162.9 |
| | $ | 171.4 |
| | $ | 370.3 |
| | $ | 373.8 |
|
Dividends and undistributed earnings attributable to unvested shares | | (0.3 | ) | | (0.3 | ) | | (0.7 | ) | | (0.7 | ) |
Net earnings attributable to shareholders used for diluted earnings per share calculation | | $ | 162.6 |
| | $ | 171.1 |
| | $ | 369.6 |
| | $ | 373.1 |
|
Net earnings attributable to shareholders per share | | $ | 0.80 |
| | $ | 0.84 |
| | $ | 1.82 |
| | $ | 1.84 |
|
Potential shares outstanding from all stock-based awards were 2.6 million and 2.9 million as of June 30, 2015 and 2014, respectively. Of these shares, 2.2 million and 2.4 million were not included in the diluted earnings per share calculation for the three months ended June 30, 2015 and 2014, respectively, and 2.0 million and 2.4 million were not included in the diluted earnings per share calculation for the six months ended June 30, 2015 and 2014, respectively.
4. INCOME TAXES
For the three and six months ended June 30, 2015, the effective tax rate (“ETR”) was 24.5% and 24.0%, respectively, compared with 23.3% and 24.5%, for the same periods in 2014. The ETR increase for the three months ended June 30, 2015 was primarily due to a change in the geographic earnings mix partially offset by changes in the reserves for uncertain tax positions.
The Company’s gross reserve for uncertain tax positions including penalties and interest, as of June 30, 2015 and December 31, 2014, was $157.2 million and $146.8 million, respectively. The Company believes that it has adequately provided for all uncertain tax positions. The Company is currently under examination by taxing authorities in various jurisdictions in which it operates, including the United States. It is reasonably possible that new issues may be raised by tax authorities and that these issues may require increases in the balance of the reserve for uncertain tax positions.
Pursuant to the Amended and Restated Tax Matters Agreement dated December 18, 2009, Bristol-Myers Squibb Company (“BMS”), the Company’s former parent, maintains responsibility for all uncertain tax positions which may exist in the pre-initial public offering period or which may exist as a result of the initial public offering transaction. The Company has a receivable from BMS for uncertain tax positions, including penalties and interest, of $10.0 million and $9.7 million as of June 30, 2015 and December 31, 2014, respectively.
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 following table summarizes net sales and earnings before interest and income taxes for each of the reportable segments:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Net Sales | | Earnings Before Interest and Income Taxes | | Net Sales | | Earnings Before Interest and Income Taxes |
(In millions) | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Asia | | $ | 513.2 |
| | $ | 575.6 |
| | $ | 156.4 |
| | $ | 195.9 |
| | $ | 1,094.2 |
| | $ | 1,168.3 |
| | $ | 387.9 |
| | $ | 437.2 |
|
Latin America | | 198.4 |
| | 224.4 |
| | 44.8 |
| | 53.4 |
| | 402.8 |
| | 436.8 |
| | 102.1 |
| | 100.0 |
|
North America/Europe | | 320.8 |
| | 311.1 |
| | 85.3 |
| | 68.0 |
| | 629.8 |
| | 619.3 |
| | 163.6 |
| | 134.1 |
|
Total reportable segments | | 1,032.4 |
| | 1,111.1 |
| | 286.5 |
| | 317.3 |
| | 2,126.8 |
| | 2,224.4 |
| | 653.6 |
| | 671.3 |
|
Corporate and Other | | — |
| | — |
| | (57.3 | ) | | (72.4 | ) | | — |
| | — |
| | (139.2 | ) | | (135.2 | ) |
Total | | $ | 1,032.4 |
| | $ | 1,111.1 |
| | $ | 229.2 |
| | $ | 244.9 |
| | $ | 2,126.8 |
| | $ | 2,224.4 |
| | $ | 514.4 |
| | $ | 536.1 |
|
6. EMPLOYEE STOCK BENEFIT PLANS
The following table summarizes stock-based compensation expense related to stock options, performance share awards and restricted stock units.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2015 | | 2014 | | 2015 | | 2014 |
Stock options | | $ | 2.0 |
| | $ | 1.8 |
| | $ | 3.9 |
| | $ | 3.5 |
|
Performance share awards | | 1.1 |
| | 3.6 |
| | 5.5 |
| | 6.8 |
|
Restricted stock units | | 3.4 |
| | 2.6 |
| | 6.1 |
| | 5.0 |
|
Total pre-tax stock-based compensation expense | | $ | 6.5 |
| | $ | 8.0 |
| | $ | 15.5 |
| | $ | 15.3 |
|
Net tax benefit related to stock-based compensation expense | | $ | (2.1 | ) | | $ | (2.7 | ) | | $ | (5.2 | ) | | $ | (5.3 | ) |
During the six months ended June 30, 2015, the Company granted the following awards:
|
| | | | | | | |
(Shares in millions) | | Shares Granted | | Weighted- Average Grant Date Fair Value |
Stock options | | 0.4 |
| | $ | 20.61 |
|
Performance share awards | | 0.2 |
| | $ | 99.18 |
|
Restricted stock units | | 0.2 |
| | $ | 103.27 |
|
As of June 30, 2015, the Company had the following award expense yet to be recognized:
|
| | | | | | |
(Dollars in millions) | | Unrecognized Compensation Expense | | Expected Weighted-Average Period to be Recognized (years) |
Stock options | | $ | 11.3 |
| | 1.9 |
Performance share awards | | $ | 8.7 |
| | 1.4 |
Restricted stock units | | $ | 32.0 |
| | 2.5 |
7. PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS
The net periodic benefit cost of the Company’s defined benefit pension and post-employment benefit plans includes:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
(In millions) | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Service cost – benefits earned during the period | | $ | 0.7 |
| | $ | 1.5 |
| | $ | 0.3 |
| | $ | 0.2 |
| | $ | 1.5 |
| | $ | 2.8 |
| | $ | 0.6 |
| | $ | 0.4 |
|
Interest cost on projected benefit obligations | | 3.7 |
| | 3.6 |
| | 0.5 |
| | 0.4 |
| | 7.4 |
| | 7.6 |
| | 1.0 |
| | 0.8 |
|
Amortization of transition cost | | — |
| | 0.1 |
| | — |
| | — |
| | — |
| | 0.2 |
| | — |
| | — |
|
Expected return on plan assets | | (3.4 | ) | | (3.8 | ) | | — |
| | — |
| | (6.9 | ) | | (7.8 | ) | | — |
| | — |
|
Net periodic benefit cost | | $ | 1.0 |
| | $ | 1.4 |
| | $ | 0.8 |
| | $ | 0.6 |
| | $ | 2.0 |
| | $ | 2.8 |
| | $ | 1.6 |
| | $ | 1.2 |
|
Net Actuarial (Gains)/Losses | | (1.5 | ) | | 7.1 |
| | — |
| | — |
| | (1.5 | ) | | 7.1 |
| | — |
| | — |
|
Total net periodic expense/(benefit) | | $ | (0.5 | ) | | $ | 8.5 |
| | $ | 0.8 |
| | $ | 0.6 |
| | $ | 0.5 |
| | $ | 9.9 |
| | $ | 1.6 |
| | $ | 1.2 |
|
For the six months ended June 30, 2015 and 2014, the Company contributed $2.5 million and $2.1 million, respectively, primarily to non-U.S. pension plans.
8. OTHER (INCOME)/EXPENSES - NET
The components of other (income)/expenses - net were:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2015 | | 2014 | | 2015 | | 2014 |
Accrual related to the China investigation | | $ | — |
| | $ | — |
| | $ | 12.0 |
| | $ | — |
|
Foreign exchange (gains)/losses - net | | 4.7 |
| | (4.2 | ) | | 1.9 |
| | 2.2 |
|
Severance and other costs | | 1.1 |
| | 0.2 |
| | 3.7 |
| | 0.2 |
|
Gain on sale of investment | | — |
| | — |
| | — |
| | (4.0 | ) |
Marketable Securities Gain | | (6.4 | ) | | — |
| | (6.4 | ) | | — |
|
Other - net | | (0.7 | ) | | (0.2 | ) | | (0.3 | ) | | (1.9 | ) |
Other (income)/expenses - net | | $ | (1.3 | ) | | $ | (4.2 | ) | | $ | 10.9 |
| | $ | (3.5 | ) |
Accrual related to the China investigation for the six months ended June 30, 2015 is described further in Note 20. Commitments and Contingencies.
Foreign exchange (gains)/losses - net for the six months ended June 30, 2014 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 19. Venezuela Currency Matters for additional information.
Marketable Securities Gain for the three and six months ended June 30, 2015 included a $6.4 million gain related to marketable securities. See Note 17. Marketable Securities for additional information.
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 purchase price, from the noncontrolling interest owner, was $24.4 million as of June 30, 2015 and consisted of $5.1 million in cash and $19.3 million recorded in accrued expenses and other liabilities (paid July 17, 2015). 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. The amended Call Right is 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 as of June 30, 2015.
10. NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Net earnings attributable to noncontrolling interests consists of a 11% , 10% and 10% interest held by third parties in operating entities in China, Argentina and Indonesia, respectively. See Note 9. Redeemable Noncontrolling Interest for additional information related to Argentina.
11. INVENTORIES
The major categories of inventories were as follows:
|
| | | | | | | | |
(In millions) | | June 30, 2015 | | December 31, 2014 |
Finished goods | | $ | 287.6 |
| | $ | 286.9 |
|
Work in process | | 92.4 |
| | 88.9 |
|
Raw and packaging materials | | 193.3 |
| | 179.7 |
|
Inventories | | $ | 573.3 |
| | $ | 555.5 |
|
12. PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment were as follows:
|
| | | | | | | | |
(In millions) | | June 30, 2015 | | December 31, 2014 |
Land | | $ | 12.5 |
| | $ | 12.5 |
|
Buildings and Improvements | | 724.9 |
| | 719.8 |
|
Machinery, equipment and fixtures | | 762.9 |
| | 736.6 |
|
Construction in progress | | 85.3 |
| | 93.3 |
|
Accumulated depreciation | | (677.4 | ) | | (649.5 | ) |
Property, plant and equipment — net | | $ | 908.2 |
| | $ | 912.7 |
|
13. GOODWILL
The Company tests goodwill for impairment as of July 1 of each year and whenever an event occurs or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying amount.
For the six months ended June 30, 2015 and 2014, the change in the carrying amount of goodwill by reportable segment was as follows:
|
| | | | | | | | | | | | | | | |
(In millions) | Asia | |
Latin America | | North America/ Europe | | Total |
Balance as of January 1, 2015 | $ | — |
| | $ | 143.7 |
| | $ | 19.0 |
| | $ | 162.7 |
|
Translation adjustments | — |
| | (7.8 | ) | | — |
| | (7.8 | ) |
Balance as of June 30, 2015 | $ | — |
| | $ | 135.9 |
| | $ | 19.0 |
| | $ | 154.9 |
|
| | | | | | | |
Balance as of January 1, 2014 | $ | — |
| | $ | 177.8 |
| | $ | 19.0 |
| | $ | 196.8 |
|
Translation adjustments | — |
| | (21.4 | ) | | — |
| | (21.4 | ) |
Balance as of June 30, 2014 | $ | — |
| | $ | 156.4 |
| | $ | 19.0 |
| | $ | 175.4 |
|
As of June 30, 2015, the Company had no accumulated impairment loss.
14. OTHER INTANGIBLE ASSETS
The Company tests intangible assets not subject to amortization for impairment in the third quarter of each year and whenever an event occurs or circumstances change that indicate that it is more likely than not that the asset is impaired.
The gross carrying value and accumulated amortization by class of intangible assets as of June 30, 2015 and December 31, 2014 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2015 | | As of December 31, 2014 |
(In millions) | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
Indefinite-lived intangible assets: | | |
| | |
| | |
| | |
| | |
| | |
|
Trademark(1) . | | $ | 24.4 |
| | $ | — |
| | $ | 24.4 |
| | $ | 26.0 |
| | $ | — |
| | $ | 26.0 |
|
Non-compete agreement(1) . | | 4.8 |
| | — |
| | 4.8 |
| | 5.1 |
| | — |
| | 5.1 |
|
Sub-total | | 29.2 |
| | — |
| | 29.2 |
| | 31.1 |
| | — |
| | 31.1 |
|
Amortizable intangible assets: | | |
| | |
| | |
| | |
| | |
| | |
|
Computer software | | 133.1 |
| | (95.5 | ) | | 37.6 |
| | 130.3 |
| | (87.8 | ) | | 42.5 |
|
Distributor-customer relationship(1) . | | 2.3 |
| | (0.8 | ) | | 1.5 |
| | 2.5 |
| | (0.7 | ) | | 1.8 |
|
Sub-total | | 135.4 |
| | (96.3 | ) | | 39.1 |
| | 132.8 |
| | (88.5 | ) | | 44.3 |
|
Total other intangible assets | | $ | 164.6 |
| | $ | (96.3 | ) | | $ | 68.3 |
| | $ | 163.9 |
| | $ | (88.5 | ) | | $ | 75.4 |
|
(1) Changes in balances result from currency translation and amortization.
15. DEBT
Short-Term Borrowings and Five-Year Revolving Credit Facility Agreement
As of June 30, 2015 and December 31, 2014, the Company’s short-term borrowings totaled $1.0 million and $4.1 million, respectively, and consisted of borrowings made by the Company’s subsidiary in Argentina.
Borrowings from the Company’s five-year revolving credit facility agreement (“Credit Facility”) are used for working capital and other general corporate purposes. The Credit Facility is unsecured and repayable on 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 Credit Facility is $750.0 million, which may be increased from time to time up to $1.0 billion at the Company’s request, subject to obtaining additional commitments and other customary conditions. The Credit Facility contains financial covenants, whereby the ratio of consolidated total debt to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”) cannot exceed 3.50 to 1.0, and the ratio of consolidated EBITDA to consolidated interest expense cannot be less than 3.0 to 1.0. The Company was in compliance with these financial covenants as of June 30, 2015. As of June 30, 2015 and December 31, 2014, the Company had no borrowings under the Credit Facility and the Company had $750.0 million available at June 30, 2015.
Borrowings under the 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% 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.
Long-Term Debt
The components of long-term debt were as follows:
|
| | | | | | | | |
(Dollars in millions) | | June 30, 2015 | | December 31, 2014 |
Principal Value: | | |
| | |
|
4.90% Notes due 2019 | | $ | 700.0 |
| | $ | 700.0 |
|
5.90% Notes due 2039 | | 300.0 |
| | 300.0 |
|
4.60% Notes due 2044 | | 500.0 |
| | 500.0 |
|
Sub-total | | 1,500.0 |
| | 1,500.0 |
|
Adjustments to Principal Value: | | |
| | |
|
Unamortized basis adjustment for settled interest rate swaps | | 7.9 |
| | 8.8 |
|
Unamortized bond discount | | (3.9 | ) | | (4.0 | ) |
Fair-value interest rate swaps | | 2.2 |
| | (0.9 | ) |
Long-term debt | | $ | 1,506.2 |
| | $ | 1,503.9 |
|
Using quoted prices in markets that are not active, the Company determined that the fair value of its long-term debt was $1,581.6 million (Level 2) as of June 30, 2015.
The components of interest expense-net were as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2015 | | 2014 | | 2015 | | 2014 |
Interest expense | | $ | 16.5 |
| | $ | 17.8 |
| | $ | 32.9 |
| | $ | 32.6 |
|
Interest income | | (2.6 | ) | | (2.5 | ) | | (5.2 | ) | | (4.9 | ) |
Interest expense-net | | $ | 13.9 |
| | $ | 15.3 |
| | $ | 27.7 |
| | $ | 27.7 |
|
16. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
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 June 30, 2015 and December 31, 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: |
| | | | | | | | | | |
(In millions) | Hedge Designation | Balance Sheet Location | | June 30, 2015 | | December 31, 2014 |
Foreign exchange contracts | Cash Flow | Prepaid expenses and other assets | | $ | 9.7 |
| | $ | 13.0 |
|
Interest rate forward swaps | Fair Value | Other assets | | 2.2 |
| | — |
|
Foreign exchange contracts | Cash Flow | Accrued expenses | | — |
| | (0.2 | ) |
Commodity contracts | Cash Flow | Accrued expenses | | (0.6 | ) | | (0.8 | ) |
Interest rate forward swaps | Fair Value | Other liabilities | | — |
| | (0.9 | ) |
Net asset/(liability) of derivatives designated as hedging items | | | | $ | 11.3 |
| | $ | 11.1 |
|
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 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 June 30, 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 June 30, 2015 and December 31, 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 three and six months ended June 30, 2015 and 2014, 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 $0.6 million and $1.4 million for the six months ended June 30, 2015, and 2014, respectively.
As of June 30, 2015, the notional value of the Company’s outstanding foreign exchange forward contracts designated as hedging instruments was $183.6 million, with a fair value of $9.7 million in net assets. As of December 31, 2014, the notional value of the Company’s outstanding foreign exchange forward contracts designated as hedging instruments was $247.9 million, with a fair value of $12.8 million in net assets. The fair value of all foreign exchange forward contracts is based on quarter-end forward currency rates. 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 were as follows:
|
| | | | | | | | |
(In millions) | | 2015 | | 2014 |
Balance—January 1 | | $ | 10.4 |
| | $ | 3.2 |
|
Derivatives qualifying as cash flow hedges deferred in other comprehensive income | | 10.2 |
| | (6.5 | ) |
Derivatives qualifying as cash flow hedges reclassified to cost of products sold (effective portion) | | (9.2 | ) | | (3.5 | ) |
Change in deferred taxes | | 1.3 |
| | 2.8 |
|
Balance—June 30 | | $ | 12.7 |
| | $ | (4.0 | ) |
At June 30, 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 $12.7 million, $12.1 million 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 4.60% Notes due in 2044 (the “2044 Notes”), the proceeds of which were used to redeem all of the Company’s $500.0 million of 3.5% Notes due in 2014 (the “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 six month period ended June 30, 2014. During the three and six months ended June 30, 2015, $0.4 million and $0.7 million of amortization of the settlement amount was recognized as incremental interest expense within interest expense-net.
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 June 30, 2015, the Company had commodity contracts outstanding which committed the Company to approximately $2.0 million of forecasted non-fat dry milk purchases. The effective portion of the hedges, which was recorded at fair value in a net liability position as a component of accumulated other comprehensive income (loss), was $0.6 million as of June 30, 2015 and $0.8 million as of December 31, 2014. The ineffective portion recognized within other (income)/expenses-net was insignificant for the three and six month periods ended June 30, 2015, and June 30, 2014.
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 in exchange 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 the three and six months ended June 30, 2015, the amortization of the settled swaps resulted in a $0.5 million and $0.9 million reduction in interest expense, respectively, compared to a $2.3 million and $4.6 million reduction for the same periods in 2014. 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 three and six months ended June 30, 2015.
In May 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 4.90% Notes due in 2019 (the “2019 Notes”) from fixed to floating rate debt for the remainder of their term. These interest rate swaps were outstanding as of June 30, 2015, and the conversion of fixed to floating rate resulted in a reduction in interest expense of $2.5 million and $5.2 million for the three and six months ended June 30, 2015. During the three and six months ended June 30, 2014, the Company recorded a $1.0 million gain on impact of the fair value swaps for the 2019 notes.
The following table summarizes the interest rate swaps outstanding as of June 30, 2015, all of which have a hedge inception date of May 2014 and will mature in November 2019:
|
| | | | | | | | | | | | | | |
(Dollars in millions) | | Notional Amount of Underlying | | Fixed Rate Received | | Variable Rate Paid (U.S. 3 Month LIBOR +) | | Fair Value Asset |
Swaps associated with the 2019 Notes | | $ | 700.0 |
| | 4.9 | % | | 3.14 | % | | $ | 2.2 |
|
See Note 15. Debt for additional information related to the Company’s long-term debt.
Other Financial Instruments
The Company does not hedge the interest rate risk associated with money market funds which totaled $443.1 million and $395.4 million as of June 30, 2015 and December 31, 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. See Note 17. Marketable Securities for additional information related to the Company’s marketable securities.
17. MARKETABLE SECURITIES
As of June 30, 2015, the Company held investments in debt securities of $22.5 million classified as trading securities and included in prepaid expenses and other assets in the condensed consolidated balance sheets. These investments are carried at fair value based on quoted market prices and classified as Level 1 in the fair value hierarchy. 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 condensed consolidated statements of earnings.
The Company did not hold any investments classified as trading securities as of December 31, 2014. During the three months and six months ended June 30, 2015, the Company recognized gains on trading securities of $6.4 million resulting from fluctuation in fair value and foreign exchange.
18. EQUITY
Changes in common shares and treasury stock were as follows:
|
| | | | | | | | | | |
(In millions) | | Common Shares Issued | | Treasury Stock | | Cost of Treasury Stock |
Balance as of January 1, 2015 | | 207.2 |
| | 4.9 |
| | $ | 362.6 |
|
Stock-based compensation | | 0.5 |
| | — |
| | — |
|
Balance as of June 30, 2015 | | 207.7 |
| | 4.9 |
| | $ | 362.6 |
|
| | | | | | |
Balance as of January 1, 2014 | | 206.8 |
| | 4.8 |
| | $ | 351.9 |
|
Stock-based compensation | | 0.7 |
| | 0.1 |
| | 7.8 |
|
Treasury stock purchases | | — |
| | 0.4 |
| | 29.0 |
|
Balance as of June 30, 2014 | | 207.5 |
| | 5.3 |
| | $ | 388.7 |
|
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.
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. As of June 30, 2015, the Company had $437.4 million available under this authorization.
Changes in accumulated other comprehensive loss by component were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | Foreign Currency Translation Adjustments | | Deferred Gains/(Losses) on Derivatives Qualifying as Hedges | | Pension and Other Post-employment Benefits | | Total | | Noncontrolling Interest | | Redeemable Noncontrolling Interest | |
Balance as of January 1, 2015 | | $ | (180.4 | ) | | $ | (17.8 | ) | | $ | (0.7 | ) | | $ | (198.9 | ) | | $ | 1.9 |
| | $ | (21.6 | ) | |
| | | | | | | | | | | | | |
Deferred Gains/(Losses) | | (48.4 | ) | | 9.3 |
| | | | (39.1 | ) | | 0.1 |
| (1 | ) | (1.3 | ) | (1 | ) |
Reclassification Adjustment for (Gains)/Losses Included in Net Earnings | | | | (7.8 | ) | | | | (7.8 | ) | | | | | |
Tax Benefit/(Expense) | | 0.1 |
| | 1.1 |
| | | | 1.2 |
| | | | | |
Acquisition of Noncontrolling Interest | | (11.5 | ) | | | | | | (11.5 | ) | | (11.4 | ) | | 22.9 |
| |
| | | | | | | | | | | | | |
Balance as of June 30, 2015 | | $ | (240.2 | ) | | $ | (15.2 | ) | | $ | (0.7 | ) | | $ | (256.1 | ) | | $ | (9.4 | ) | | $ | — |
| |
| | | | | | | | | | | | | |
Balance as of January 1, 2014 | | $ | (83.6 | ) | | $ | 15.4 |
| | $ | (1.0 | ) | | $ | (69.2 | ) | | $ | 1.9 |
| | $ | (14.4 | ) | |
| | | | | | | | | | | | | |
Deferred Gains/(Losses) | | (21.5 | ) | | (70.3 | ) | (2) | | | (91.8 | ) | | (0.4 | ) | (1 | ) | (6.0 | ) | (1 | ) |
Reclassification Adjustment for (Gains)/Losses Included in Net Earnings | | | | (3.3 | ) | | 0.2 |
| | (3.1 | ) | | | | | |
Tax Benefit/(Expense) | | 2.6 |
| | 26.4 |
| | | | 29.0 |
| | 0.1 |
| | | |
| | | | | | | | | | | | | |
Balance as of June 30, 2014 | | $ | (102.5 | ) | | $ | (31.8 | ) | | $ | (0.8 | ) | | $ | (135.1 | ) | | $ | 1.6 |
| | $ | (20.4 | ) | |
(1) Represents foreign currency translation adjustments.
(2) See Note 16. Derivatives and Other Financial Instruments for additional information related to interest rate forward swaps.
Reclassification adjustments out of accumulated other comprehensive loss were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2015 |
| Affected Statement of Earnings Lines | | | | |
(In millions) | Cost of Products Sold | | Tax Benefit/(Expense) | | Net |
| 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges: | | | | | | | | | | | |
Forward Exchange Contracts | $ | 6.8 |
| | $ | 1.9 |
| | $ | (3.4 | ) | | $ | (0.6 | ) | | $ | 3.4 |
| | $ | 1.3 |
|
Commodity Contracts | (0.6 | ) | | | | 0.2 |
| | | | (0.4 | ) | | |
Interest Rate Forward Swap | (0.3 | ) | | | | 0.2 |
| | | | (0.1 | ) | | |
| | | | | | | | | | | |
Pension and Other Post-employment Benefit Plans: | | | | | | | | | | | |
Prior Service Benefits | | | (0.1 | ) | | | | | |
|
| | (0.1 | ) |
Total Reclassifications | $ | 5.9 |
| | $ | 1.8 |
| | $ | (3.0 | ) | | $ | (0.6 | ) | | $ | 2.9 |
| | $ | 1.2 |
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
| Affected Statement of Earnings Lines | | | | |
(In millions) | Cost of Products Sold | | Tax Benefit/(Expense) | | Net |
| 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges: | | | | | | | | | | | |
Forward Exchange Contracts | $ | 9.2 |
| | $ | 3.3 |
| | $ | (4.0 | ) | | $ | (1.0 | ) | | $ | 5.2 |
| | $ | 2.3 |
|
Commodity Contracts | (0.7 | ) | | | | 0.3 |
| | | | (0.4 | ) | | |
Interest Rate Forward Swap | (0.7 | ) | | | | 0.3 |
| | | | (0.4 | ) | | |
| | | | | | | | | | | |
Pension and Other Post-employment Benefit Plans: | | | | | | | | | | | |
Prior Service Benefits | | | (0.2 | ) | | | | | | | | (0.2 | ) |
Total Reclassifications | $ | 7.8 |
| | $ | 3.1 |
| | $ | (3.4 | ) | | $ | (1.0 | ) | | $ | 4.4 |
| | $ | 2.1 |
|
19. VENEZUELA CURRENCY MATTERS
During the first quarter of 2014, the Venezuelan government enacted changes affecting the country’s currency exchange and other controls. In late January 2014, the government announced the replacement of the Commission for the Administration of Foreign Exchange (“CADIVI”) with a new foreign currency administration, the National Center for Foreign Commerce (“CENCOEX”). In conjunction with this replacement, 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”). Entities can continue to seek approval to transact through the CENCOEX mechanism at the Official Rate, which is honored for certain priority transactions.
Additional changes in January 2014 expanded the types of transactions that may be subject to the weekly auction mechanism under the Complimentary Currency Administration System (“SICAD I”). MJN concluded that among other items, future inter-company dividend remittances qualify for the purchase of foreign currency at the SICAD I rate under the revised law. As such, MJN adopted the SICAD I rate for purposes of remeasuring the net monetary assets of 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)/expenses - net. Because the SICAD I auction rate is a floating rate, the potential exists for additional financial impacts if the auction rate changes significantly.
In February 2015, the Venezuelan government enacted additional changes to its foreign exchange regime. The changes maintain a three-tiered system, including the Official Rate determined by CENCOEX. A new, alternative currency market, the Marginal Foreign Exchange System (“SIMADI”), was created with a floating exchange rate generally based on supply and demand. In connection with the establishment of SIMADI, SICAD I became known as SICAD. As of June 30, 2015, CENCOEX traded 6.3 VEF to 1.0 USD, the SICAD auction market traded 12.8 VEF to 1.0 USD and the SIMADI market traded at 197.3 VEF to 1.0 USD. The Company continues to assess the impact, if any, of these changes as the government of
Venezuela issues regulations to implement them, but does not currently expect these recent changes to impact the rate it uses to remeasure the net monetary assets of its Venezuelan subsidiary.
It is possible that the Venezuelan government will further refine or alter mechanisms through which companies are able to access USD, which could change the rate at which MJN can access USD and the rate used by the Company to remeasure the net monetary assets of its Venezuelan subsidiary. This could have an unfavorable impact on MJN’s operating results and future business operations. In addition, the foreign exchange controls in Venezuela may limit the ability to repatriate earnings and MJN’s Venezuelan subsidiary’s ability to remit dividends and pay inter-company balances at any official exchange rate or at all.
For both the year ended December 31, 2014 and the six months ended June 30, 2015, MJN’s Venezuelan subsidiary had net sales that represented approximately 2%, of total Company net sales. As of June 30, 2015, the Venezuelan subsidiary had approximately $41 million of net monetary assets.
20. COMMITMENTS AND 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 effect on the Company’s business or financial condition, although an unfavorable outcome in excess of amounts recognized as of June 30, 2015, with respect to one or more of these proceedings could have a material effect on the Company’s results of operations and cash flows for the periods in which a loss is recognized.
The Company is in discussions with SEC regional office staff on a potential settlement agreement which would result in a resolution of the SEC’s investigation of whether certain promotional expenditures by the Company’s China subsidiary may have been made in violation of applicable U.S. law, including the U.S. Foreign Corrupt Practices Act (the ‘‘FCPA’’). The findings of the Company’s internal investigation of this matter are being discussed with the SEC and the Department of Justice (the ‘‘DOJ’’), both of which are responsible for FCPA enforcement. During the six months ended June 30, 2015, the Company has accrued an approximately $12.0 million charge to other (income)/expenses-net which amount represents the Company’s best estimate of potential disgorgement, penalties and fines to be imposed by the SEC in this matter. The Company will continue to evaluate the accrual pending final resolution of the investigation and related discussions with the SEC and DOJ. There can be no assurance that the ultimate amount paid by the Company to resolve this matter will not exceed the amount accrued to date or that other sanctions may not be imposed.
During March 2015, the Company committed to a long-term lease obligation related to a planned relocation of its corporate offices in 2017. The lease commitment approximates $45 million with payments commencing in 2018.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Business Overview
MJN is a global leader in pediatric nutrition. The Company’s comprehensive product portfolio addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. With over 100 years of innovation experience, MJN has developed or improved many breakthrough or industry-defining products across each of its product categories. MJN’s product portfolio consists of two principal product categories: infant formula and children’s nutrition. These 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. MJN’s routine infant formula is intended for healthy consumers while its solutions and specialty products are offered for infants with mild to severe nutritional needs. The Company’s children’s nutrition products are designed to meet the nutritional needs of children at different stages of development. MJN’s other products include vitamins and supplements. MJN markets products under different names in various regions across the world, based on regional marketing strategies and regional brand recognition.
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.
Three Months Results of Operations
Below is a summary of comparative results of operations for the three months ended June 30, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | % of Net Sales |
(Dollars in millions, except per share data) | | 2015 | | 2014 | | % Change | | 2015 | | 2014 |
Net Sales | | $ | 1,032.4 |
| | $ | 1,111.1 |
| | (7 | )% | | | | |
Gross Profit | | 676.0 |
| | 684.3 |
| | (1 | )% | | 65.5 | % | | 61.6 | % |
Operating Expenses | | 446.8 |
| | 439.4 |
| | (2 | )% | | 43 | % | | 40 | % |
Earnings before Interest and Income Taxes | | 229.2 |
| | 244.9 |
| | (6 | )% | | 22 | % | | 22 | % |
Interest Expense—net | | 13.9 |
| | 15.3 |
| | (9 | )% | | 1 | % | | 1 | % |
Earnings before Income Taxes | | 215.3 |
| | 229.6 |
| | (6 | )% | | 21 | % | | 21 | % |
Provision for Income Taxes | | 52.7 |
| | 53.5 |
| | (2 | )% | | 5 | % | | 5 | % |
Effective Tax Rate | | 24.5 | % | | 23.3 | % | | | | | | |
Net Earnings | | 162.6 |
| | 176.1 |
| | (8 | )% | | 16 | % | | 16 | % |
Less: Net Earnings/(Loss) Attributable to Noncontrolling Interests | | (0.3 | ) | | 4.7 |
| | (106 | )% | | — | % | | 1 | % |
Net Earnings Attributable to Shareholders | | $ | 162.9 |
| | $ | 171.4 |
| | (5 | )% | | 16 | % | | 15 | % |
Weighted-Average Common Shares— Diluted | | 203.1 |
| | 202.7 |
| | | | | | |
Earnings per Common Share—Diluted | | $ | 0.80 |
| | $ | 0.84 |
| | (5 | )% | | | | |
The results for the three months ended June 30, 2015 and 2014 include several items that affect the comparability of MJN’s results. These items include significant expenses/(income) not indicative of on-going results (“Specified Items”) and are listed in the table below.
|
| | | | | | | | |
| | Three Months Ended June 30, |
(In millions) | | 2015 | | 2014 |
Pension and other post-employment mark-to-market adjustment | | $ | (1.5 | ) | | $ | 7.1 |
|
Legal, settlements and related costs | | 0.4 |
| | 4.4 |
|
Severance and other expenses | | 0.2 |
| | 0.2 |
|
Marketable Securities Gain | | (6.3 | ) | | — |
|
Specified Items | | $ | (7.2 | ) | | $ | 11.7 |
|
Income tax impact on Specified Items | | (0.6 | ) | | (3.9 | ) |
Specified Items - net | | $ | (7.8 | ) | | $ | 7.8 |
|
See “Item 1. Financial Statements - Note 17. Marketable Securities” for further additional information regarding the marketable securities gain.
Net Sales
Net sales by reportable segments are shown in the table below:
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | % Change Due to |
(Dollars in millions) | | 2015 | | 2014 | | % Change | | Volume | | Price/Mix | | Foreign Exchange |
Asia | | $ | 513.2 |
| | $ | 575.6 |
| | (11 | )% | | (9 | )% | | (1 | )% | | (1 | )% |
Latin America | | 198.4 |
| | 224.4 |
| | (12 | )% | | (5 | )% | | 6 | % | | (13 | )% |
North America/Europe | | 320.8 |
| | 311.1 |
| | 3 | % | | 1 | % | | 5 | % | | (3 | )% |
Net Sales | | $ | 1,032.4 |
| | $ | 1,111.1 |
| | (7 | )% | | (5 | )% | | 2 | % | | (4 | )% |
Supplemental disclosure of net sales by product category appears in the table below:
|
| | | | | | | | | | | |
| | Three Months Ended June 30, | | |
(Dollars in millions) | | 2015 | | 2014 | | % Change |
Infant formula | | $ | 606.9 |
| | $ | 637.4 |
| | (5 | )% |
Children’s nutrition | | 408.4 |
| | 450.8 |
| | (9 | )% |
Other | | 17.1 |
| | 22.9 |
| | (25 | )% |
Net Sales | | $ | 1,032.4 |
| | $ | 1,111.1 |
| | (7 | )% |
Asia sales decreased 11% compared to the prior year period. In China, sales declined due to the market’s rapid evolution towards the fast growing e-commerce channel, where the Company has lower representation. Additionally, prices were impacted by competitors' price-based promotional activity and shifting consumer preferences for import-based product continued to impact the quarter. During the second quarter, MJN launched an import-based product into the China market. In Hong Kong, sales were below the prior year due to challenges related to cross-border trade. In Thailand, sales were negatively impacted by competitive promotional activities. In Malaysia, consumption was impacted negatively by the local government’s levy of a new sales related tax.
Latin America sales decreased 12% compared to the prior year period. A 1% increase in constant dollar sales was more than offset by the adverse impact of foreign currency translation. In Mexico, sales volume was impacted by prevalent competitor's price-based promotional activity on the children’s nutrition business and the Mexico government’s new sales tax targeting children’s milk modifiers. For the rest of Latin America, sales increased primarily due to higher prices and volume gains. In Venezuela, MJN reduced shipments to distribution channels due to ongoing economic uncertainties. See “Item 1. Financial Statements - Note 19. Venezuela Currency Matters” for additional information regarding Venezuela.
North America/Europe sales increased 3% compared to the prior year period. The impact of improved pricing, predominately in the United States, was partially offset by the adverse impact of foreign currency translation in other markets.
MJN recognizes 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 gross sales to net sales is as follows:
|
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | % of Gross Sales |
(Dollars in millions) | | 2015 | | 2014 | | 2015 | | 2014 |
Gross Sales | | $ | 1,366.2 |
| | $ | 1,425.0 |
| | 100 | % | | 100 | % |
Gross-to-Net Sales Adjustments | | |
| | |
| | |
| | |
|
WIC Rebates | | 192.9 |
| | 199.1 |
| | 14 | % | | 14 | % |
Sales Discounts | | 77.5 |
| | 58.4 |
| | 6 | % | | 4 | % |
Returns | | 21.2 |
| | 18.9 |
| | 1 | % | | 1 | % |
Other (including Cash Discounts, Coupons) | | 42.2 |
| | 37.5 |
| | 3 | % | | 3 | % |
Total Gross-to-Net Sales Adjustments | | 333.8 |
| | 313.9 |
| | 24 | % | | 22 | % |
Total Net Sales | | $ | 1,032.4 |
| | $ | 1,111.1 |
| | 76 | % | | 78 | % |
The gross-to-net sales adjustments increased as a percentage of gross sales compared with the prior year period, mainly due to sales discounts in China reflecting the market’s price competitiveness.
Gross Profit
|
| | | | | | | | | | | |
| | Three Months Ended June 30, | | |
(Dollars in millions) | | 2015 | | 2014 | | % Change |
Net Sales | | $ | 1,032.4 |
| | $ | 1,111.1 |
| | (7 | )% |
Cost of Products Sold | | 356.4 |
| | 426.8 |
| | (16 | )% |
Gross Profit | | $ | 676.0 |
| | $ | 684.3 |
| | (1 | )% |
Gross Margin | | 65.5 | % | | 61.6 | % | | |
|
The increase in gross margin resulted primarily from lower dairy input costs across all segments.
Operating Expenses
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | % of Net Sales |
(Dollars in millions) | | 2015 | | 2014 | | % Change | | 2015 | | 2014 |
Selling, General and Administrative | | $ | 230.2 |
| | $ | 242.3 |
| | (5 | )% | | 22 | % | | 22 | % |
Advertising and Promotion | | 190.2 |
| | 174.6 |
| | 9 | % | | 18 | % | | 16 | % |
Research and Development | | 27.7 |
| | 26.7 |
| | 4 | % | | 3 | % | | 2 | % |
Other (Income)/Expenses—net | | (1.3 | ) | | (4.2 | ) | | n/a |
| | — | % | | — | % |
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased compared to the prior year period primarily due to current year actuarial gains as compared to prior year actuarial losses related to one of the Company’s defined benefit pension plans and lower legal and related costs.
Advertising and Promotion Expenses
The increase in advertising and promotion expenses reflected demand-creation investments in support of strategic growth initiatives, mainly in China.
Other (Income)/Expenses—net
|
| | | | | | | | |
| | Three Months Ended June 30, |
(In millions) | | 2015 | | 2014 |
Foreign exchange (gains)/losses - net | | $ | 4.7 |
| | $ | (4.2 | ) |
Severance and other costs | | 1.1 |
| | 0.2 |
|
Marketable Securities Gain | | (6.4 | ) | | — |
|
Other - net | | (0.7 | ) | | (0.2 | ) |
Other (income)/expenses - net | | $ | (1.3 | ) | | $ | (4.2 | ) |
See “Item 1. Financial Statements - Note 8. Other (Income)/Expenses - net” for additional information related to foreign exchange (gains)/losses - net and “Item 1. Financial Statements - Note 17. Marketable Securities” for additional information regarding marketable securities.
Earnings before Interest and Income Taxes
Earnings before interest and income taxes (“EBIT”) from the Company’s three reportable segments is reduced by Corporate and Other expenses. 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 Company’s operating segments that are not reflective of ongoing operations and affect the comparability of the operating segments’ results.
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | % of Net Sales |
(Dollars in millions) | | 2015 | | 2014 | | % Change | | 2015 | | 2014 |
Asia | | $ | 156.4 |
| | $ | 195.9 |
| | (20 | )% | | 30 | % | | 34 | % |
Latin America | | 44.8 |
| | 53.4 |
| | (16 | )% | | 23 | % | | 24 | % |
North America/Europe | | 85.3 |
| | 68.0 |
| | 25 | % | | 27 | % | | 22 | % |
Corporate and Other | | (57.3 | ) | | (72.4 | ) | | 21 | % | | n/a |
| | n/a |
|
EBIT | | $ | 229.2 |
| | $ | 244.9 |
| | (6 | )% | | 22 | % | | 22 | % |
EBIT in Asia decreased primarily due to lower sales and increased demand-creation investments which were partially offset by higher gross margin as compared to the prior year period.
EBIT in Latin America decreased primarily due to the adverse impact of foreign currency translation, partially offset by higher gross margin as compared to the prior year period. See “Item 1. Financial Statements - Note 19. Venezuela Currency Matters” for further additional information regarding exchange rate variability in Venezuela.
EBIT in North America/Europe increased primarily due to higher gross margin and sales as compared to the prior year period.
Corporate and Other expenses decreased primarily as a result of current year actuarial gains as compared to prior year actuarial losses related to one of the Company’s defined benefit pension plans and a current year gain on trading securities. See “Item 1. Financial Statements - Note 17. Marketable Securities” for further additional information regarding marketable securities.
Income Taxes
The ETR for the three months ended June 30, 2015 and 2014 was 24.5% and 23.3%, respectively. The ETR increase was primarily due to a change in the geographic earnings mix partially offset by changes in the reserves for uncertain tax positions.
Net Earnings Attributable to Noncontrolling Interests
Net earnings attributable to noncontrolling interests consists of a 11%, 10% and 10% interest held by third parties in the Company’s operating entities in China, Argentina and Indonesia, respectively. See “Item 1. Financial Statements - Note 9. Redeemable Noncontrolling Interest” for additional information related to Argentina.
Net Earnings Attributable to Shareholders
For the foregoing reasons, net earnings attributable to shareholders for the three months ended June 30, 2015 decreased 5% to $162.9 million compared with the three months ended June 30, 2014.
Six Months Results of Operations
Below is a summary of comparative results of operations for the six months ended June 30, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | % of Net Sales |
(Dollars in millions, except per share data) | | 2015 | | 2014 | | % Change | | 2015 | | 2014 |
Net Sales | | $ | 2,126.8 |
| | $ | 2,224.4 |
| | (4 | )% | | | | |
Gross Profit | | 1,376.9 |
| | 1,391.9 |
| | (1 | )% | | 64.7 | % | | 62.6 | % |
Operating Expenses | | 862.5 |
| | 855.8 |
| | (1 | )% | | 41 | % | | 38 | % |
Earnings before Interest and Income Taxes | | 514.4 |
| | 536.1 |
| | (4 | )% | | 24 | % | | 24 | % |
Interest Expense—net | | 27.7 |
| | 27.7 |
| | — | % | | 1 | % | | 1 | % |
Earnings before Income Taxes | | 486.7 |
| | 508.4 |
| | (4 | )% | | 23 | % | | 23 | % |
Provision for Income Taxes | | 117.0 |
| | 124.5 |
| | (6 | )% | | 6 | % | | 6 | % |
Effective Tax Rate | | 24.0 | % | | 24.5 | % | | | | | | |
Net Earnings | | 369.7 |
| | 383.9 |
| | (4 | )% | | 17 | % | | 17 | % |
Less: Net Earnings/(Loss) Attributable to Noncontrolling Interests | | (0.6 | ) | | 10.1 |
| | (106 | )% | | — | % | | — | % |
Net Earnings Attributable to Shareholders | | $ | 370.3 |
| | $ | 373.8 |
| | (1 | )% | | 17 | % | | 17 | % |
Weighted-Average Common Shares— Diluted | | 203.1 |
| | 202.5 |
| | | | | | |
Earnings per Common Share—Diluted | | $ | 1.82 |
| | $ | 1.84 |
| | (1 | )% | | | | |
The results for the six months ended June 30, 2015 and 2014 include several items that affect the comparability of MJN’s results. These items include significant expenses/(income) not indicative of on-going results (“Specified Items”) and are listed in the table below.
|
| | | | | | | | |
| | Six Months Ended June 30, |
(In millions) | | 2015 | | 2014 |
Pension and other post-employment mark-to-market adjustment | | $ | (1.5 | ) | | $ | 7.1 |
|
Accrual related to the China investigation | | 12.0 |
| | — |
|
Legal, settlements and related costs | | 1.1 |
| | 10.1 |
|
Severance and other expenses | | 2.5 |
| | 0.3 |
|
Marketable Securities Gain | | (6.3 | ) | | — |
|
Specified Items | | $ | 7.8 |
| | $ | 17.5 |
|
Income tax impact on Specified Items | | (0.8 | ) | | (6.0 | ) |
Specified Items - net | | $ | 7.0 |
| | $ | 11.5 |
|
See “Item 1. Financial Statements - Note 20. Commitments and Contingencies” for further discussion of the accrual related to the China investigation and “Item 1. Financial Statements - Note 17. Marketable Securities” for further additional information regarding the marketable securities gain.
Net Sales
Net sales by reportable segments are shown in the table below:
|
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | % Change Due to |
(Dollars in millions) | | 2015 | | 2014 | | % Change | | Volume | | Price/Mix | | Foreign Exchange |
Asia | | $ | 1,094.2 |
| | $ | 1,168.3 |
| | (6 | )% | | (5 | )% | | — | % | | (1 | )% |
Latin America | | 402.8 |
| | 436.8 |
| | (8 | )% | | (1 | )% | | 8 | % | | (15 | )% |
North America/Europe | | 629.8 |
| | 619.3 |
| | 2 | % | | 1 | % | | 4 | % | | (3 | )% |
Net Sales | | $ | 2,126.8 |
| | $ | 2,224.4 |
| | (4 | )% | | (3 | )% | | 3 | % | | (4 | )% |
Supplemental disclosure of net sales by product category appears in the table below:
|
| | | | | | | | | | | |
| | Six Months Ended June 30, | | |
(Dollars in millions) | | 2015 | | 2014 | | % Change |
Infant formula | | $ | 1,246.1 |
| | $ | 1,278.1 |
| | (3 | )% |
Children’s nutrition | | 843.4 |
| | 902.0 |
| | (6 | )% |
Other | | 37.3 |
| | 44.3 |
| | (16 | )% |
Net Sales | | $ | 2,126.8 |
| | $ | 2,224.4 |
| | (4 | )% |
Asia sales decreased 6% compared to the prior year period. In China, sales declined due to the market’s rapid evolution towards the fast growing e-commerce channel, where the Company has lower representation. Additionally, prices were impacted by competitors’ price-based promotional activity and shifting consumer preferences for import-based product continued to impact the quarter. During the second quarter, MJN launched an import-based product into the China market. In Hong Kong, sales were lower due to challenges related to cross-border trade. In Thailand, sales were negatively impacted by competitive promotional activities.
Latin America sales decreased 8% compared to the prior year period. The adverse impact of foreign currency translation decreased Latin America sales by 15% for the segment. Higher prices in Latin America increased sales 8% for the segment (or 2% for the segment excluding Venezuela and Argentina). In Venezuela, MJN reduced shipments to distribution channels due to ongoing economic uncertainties. See “Item 1. Financial Statements - Note 19. Venezuela Currency Matters” for additional information regarding Venezuela.
North America/Europe sales increased 2% compared to the prior year period. In the United States, the growth in the Company’s children’s nutrition business offset prior year increases derived primarily from the timing of retailer purchases. The impact of improved pricing, predominately in the United States, was partially offset by the adverse impact of foreign currency translation in other markets.
MJN recognizes 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 gross sales to net sales is as follows:
|
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | % of Gross Sales |
(Dollars in millions) | | 2015 | | 2014 | | 2015 | | 2014 |
Gross Sales | | $ | 2,781.0 |
| | $ | 2,841.9 |
| | 100 | % | | 100 | % |
Gross-to-Net Sales Adjustments | | |
| | |
| | |
| | |
|
WIC Rebates | | 386.5 |
| | 386.4 |
| | 14 | % | | 14 | % |
Sales Discounts | | 141.3 |
| | 113.5 |
| | 5 | % | | 4 | % |
Returns | | 42.9 |
| | 39.4 |
| | 2 | % | | 1 | % |
Other (including Cash Discounts, Coupons) | | 83.5 |
| | 78.2 |
| | 3 | % | | 3 | % |
Total Gross-to-Net Sales Adjustments | | 654.2 |
| | 617.5 |
| | 24 | % | | 22 | % |
Total Net Sales | | $ | 2,126.8 |
| | $ | 2,224.4 |
| | 76 | % | | 78 | % |
The gross-to-net sales adjustments increased as a percentage of gross sales compared with the prior year period, mainly due to sales discounts in China reflecting the market’s price competitiveness.
Gross Profit
|
| | | | | | | | | | | |
| | Six Months Ended June 30, | | |
(Dollars in millions) | | 2015 | | 2014 | | % Change |
Net Sales | | $ | 2,126.8 |
| | $ | 2,224.4 |
| | (4 | )% |
Cost of Products Sold | | 749.9 |
| | 832.5 |
| | (10 | )% |
Gross Profit | | $ | 1,376.9 |
| | $ | 1,391.9 |
| | (1 | )% |
Gross Margin | | 64.7 | % | | 62.6 | % | | |
|
The increase in gross margin resulted primarily from lower dairy input costs across all segments.
Operating Expenses
|
| | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | % of Net Sales |
(Dollars in millions) | | 2015 | | 2014 | | % Change | | 2015 | | 2014 |
Selling, General and Administrative | | $ | 463.4 |
| | $ | 475.2 |
| | (2 | )% | | 22 | % | | 21 | % |
Advertising and Promotion | | 334.6 |
| | 330.3 |
| | 1 | % | | 16 | % | | 15 | % |
Research and Development | | 53.6 |
| | 53.8 |
| | — | % | | 3 | % | | 2 | % |
Other Expenses—net | | 10.9 |
| | (3.5 | ) | | n/a |
| | 1 | % | | — | % |
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased compared to the prior year period as cost increases were more than offset by the impact of foreign currency translation.
Advertising and Promotion Expenses
The increase in advertising and promotion expenses reflected demand-creation investments in support of strategic growth initiatives, mainly in China.
Other (Income)/Expenses—net
|
| | | | | | | | |
| | Six Months Ended June 30, |
(In millions) | | 2015 | | 2014 |
Accrual related to the China investigation | | $ | 12.0 |
| | $ | — |
|
Foreign exchange (gains)/losses - net | | 1.9 |
| | 2.2 |
|
Severance and other costs | | 3.7 |
| | 0.2 |
|
Gain on sale of investment | | — |
| | (4.0 | ) |
Marketable Securities Gain | | (6.4 | ) | | — |
|
Other - net | | (0.3 | ) | | (1.9 | ) |
Other (income)/expenses - net | | $ | 10.9 |
| | $ | (3.5 | ) |
See Item 1. Financial Statements - Note 20. Commitments and Contingencies” for additional information regarding the accrual related to the China investigation, “Item 1. Financial Statements - Note 8. Other (Income)/Expenses - net” for additional information related to Foreign exchange (gains)/losses - net and “Item 1. Financial Statements - Note 17. Marketable Securities” for additional information regarding marketable securities.
Earnings before Interest and Income Taxes
EBIT from the Company’s three reportable segments is reduced by Corporate and Other expenses. 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 Company’s operating segments that are not reflective of ongoing operations and affect the comparability of the operating segments’ results.
|
| | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | % of Net Sales |
(Dollars in millions) | | 2015 | | 2014 | | % Change | | 2015 | | 2014 |
Asia | | $ | 387.9 |
| | $ | 437.2 |
| | (11 | )% | | 35 | % | | 37 | % |
Latin America | | 102.1 |
| | 100.0 |
| | 2 | % | | 25 | % | | 23 | % |
North America/Europe | | 163.6 |
| | 134.1 |
| | 22 | % | | 26 | % | | 22 | % |
Corporate and Other | | (139.2 | ) | | (135.2 | ) | | (3 | )% | | n/a |
| | n/a |
|
EBIT | | $ | 514.4 |
| | $ | 536.1 |
| | (4 | )% | | 24 | % | | 24 | % |
EBIT in Asia decreased primarily due to lower sales and increased demand-creation investments partially offset by higher gross margin compared to the prior year period.
EBIT in Latin America increased compared to the prior year period primarily reflecting negative foreign currency impacts which were more than offset by improved higher gross margin and operating expense management. See “Item 1. Financial Statements - Note 19. Venezuela Currency Matters” for further additional information regarding exchange rate variability in Venezuela.
EBIT in North America/Europe increased primarily due to higher gross margin, lower demand-generation investments and increased sales as compared to the prior year period.
Corporate and Other expenses increased compared to the prior year period primarily as a result of the accrual related to the China investigation, partially offset by current year actuarial gains as compared to prior year actuarial losses related to one of the Company’s defined benefit pension plans. See “Item 1. Financial Statements - Note 20. Commitments and Contingencies” for further discussion regarding the accrual related to the China investigation.
Income Taxes
The ETR for the six months ended June 30, 2015 and 2014 was 24.0% and 24.5%, respectively.
Net Earnings Attributable to Noncontrolling Interests
Net earnings attributable to noncontrolling interests consists of a 11%, 10% and 10% interest held by third parties in the Company’s operating entities in China, Argentina and Indonesia, respectively. See “Item 1. Financial Statements - Note 9. Redeemable Noncontrolling Interest” for additional information related to Argentina.
Net Earnings Attributable to Shareholders
For the foregoing reasons, net earnings attributable to shareholders for the six months ended June 30, 2015 decreased 1% to $370.3 million compared with the six months ended June 30, 2014.
Liquidity and Capital Resources
Overview
The Company’s primary sources of liquidity are cash on hand, cash from operations and available borrowings under its $750.0 million revolving Credit Facility. Cash flows from operating activities represent the inflow of cash from customers net of the outflow of cash for raw material purchases, manufacturing, operating expenses, interest and taxes. Cash flows used in investing activities primarily represent capital expenditures, for equipment, buildings and computer software, and acquisitions. Cash flows used in financing activities primarily represent proceeds and repayments of long-term and short-term borrowings, dividend payments and share repurchases.
Cash and cash equivalents totaled $1,475.1 million at June 30, 2015, of which $1,259.0 million was held outside of the United States. Cash and cash equivalents totaled $1,297.7 million as of December 31, 2014, of which $1,083.8 million was held outside of the United States.
During the six months ended June 30, 2015 and 2014, approximately $54 million and $33 million of cash, respectively, was repatriated to the United States from multiple jurisdictions whose earnings and profits are not permanently invested abroad.
As a result of the Company’s evaluation of its global cash position, management has asserted that earnings and profits in certain foreign jurisdictions are permanently invested abroad. MJN will continue to evaluate its global cash position and whether earnings and profits of certain other foreign jurisdictions are permanently invested abroad. As of June 30, 2015, approximately $1,077 million of cash and cash equivalents were held by foreign subsidiaries whose undistributed earnings, either partially or entirely, are considered permanently invested. MJN’s intent is to invest these earnings in its foreign operations and its current plans do not demonstrate a need to repatriate them to fund the Company’s U.S. operations. If MJN decides at a later date to repatriate these earnings to the United States, the Company would be required to provide U.S. taxes on these amounts.
In September 2013, the Company’s board of directors approved a share repurchase authorization of up to $500.0 million of the Company’s common stock. This authorization is intended to offset the dilutive effect on earnings per share from stock-based compensation and allow for opportunistic stock purchases to return capital to stockholders. The authorization does not have an expiration date. As of June 30, 2015, $437.4 million was available under the authorization.
Cash Flows
The Company believes that cash on hand and cash from operations will be sufficient to support its working capital needs, pay its operating expenses, satisfy debt obligations, fund capital expenditures and make dividend payments.
|
| | | | | | | | |
| | Six Months Ended June 30, |
(Dollars in millions) | | 2015 | | 2014 |
Cash flow provided by/(used in): | | |
| | |
|
Operating Activities | | |
| | |
|
Net Earnings | | $ | 369.7 |
| | $ | 383.9 |
|
Depreciation and Amortization | | 48.8 |
| | 44.2 |
|
Other | | 26.3 |
| | 26.7 |
|
Changes in Assets and Liabilities | | 14.2 |
| | (103.7 | ) |
Payments for Settlement of Interest Rate Forward Swaps | | — |
| | (45.0 | ) |
Pension and Other Post-employment Benefits Contributions | | (2.5 | ) | | (2.1 | ) |
Total Operating Activities | | 456.5 |
| | 304.0 |
|
Investing Activities | | (79.6 | ) | | (90.5 | ) |
Financing Activities | | (181.6 | ) | | 330.8 |
|
Effects of Changes in Exchange Rates on Cash and Cash Equivalents | | (17.9 | ) | | (8.8 | ) |
Net Increase in Cash and Cash Equivalents | | $ | 177.4 |
| | $ | 535.5 |
|
For the six months ended June 30, 2015, cash flow from operating activities was $456.5 million and primarily driven by net earnings. For the six months ended June 30, 2014, cash flow from operating activities was $304.0 million driven by net earnings, partially offset by an increase in working capital, defined as accounts receivable plus inventory less accounts payable (excluding capital related items), and $45.0 million of payments related to the settlement of interest rate forward swaps.
Cash flow used in investing activities was $10.9 million million less than the prior year period. The decrease was largely the result of lower capital expenditures in 2015 as compared to 2014.
Cash flow used in financing activities was $181.6 million for the six months ended June 30, 2015, and primarily driven by $159.8 million of dividend payments. For the six months ended June 30, 2014, cash flow provided by financing activities was $330.8 million and included $492.3 million of net proceeds related to the offering of the Company’s 2044 Notes, after deducting underwriters’ discounts and offering expenses paid to date, partially offset by $144.7 million of dividend payments and $26.8 million of treasury stock purchases, partially offset by $20.3 million inflow related to stock-based compensation.
Capital Expenditures
Capital expenditures and the cash outflow for capital expenditures were as follows:
|
| | | | | | | | |
(In millions) | | Capital Expenditures | | Cash Outflow for Capital
Expenditures |
Six Months Ended June 30, 2015 | | $ | 52.1 |
| | $ | 80.0 |
|
| | | | |
Six Months Ended June 30, 2014 | | $ | 57.1 |
| | $ | 94.8 |
|
Contractual Obligations
During March 2015, the Company committed to a 15-year lease obligation related to a planned relocation of its corporate offices in 2017. As of June 30, 2015, MJN’s contractual operating lease obligation is $1.3 million in 2018, $2.7 million in 2019 and $40.5 million, in the aggregate, for the years thereafter.
Short-Term Borrowings and Note Payable
See “Item 1. Financial Statements - Note 15. Debt” for additional information regarding Short-Term Borrowings.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and other written and oral statements that the Company makes from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression. Such statements are likely to relate to, among other things, a discussion of goals, plans and projections regarding financial position, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, capital expenditures, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings and financial results. Forward-looking statements can also be identified by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations that involve inherent risks, uncertainties and assumptions that may cause actual results to differ materially from expectations as of the date of this filing. These risks include, but are not limited to: (1) the ability to sustain brand strength, particularly the Enfa family of brands; (2) the effect on the Company’s reputation of real or perceived quality issues; (3) the effect of regulatory restrictions related to the Company’s products; (4) the adverse effect of commodity costs; (5) increased competition from branded, private label, store and economy-branded products; (6) the effect of an economic downturn on consumers’ purchasing behavior and customers’ ability to pay for product; (7) inventory reductions by customers; (8) the adverse effect of changes in foreign currency exchange rates; (9) the effect of changes in economic, political and social conditions in the markets where the Company operates; (10) changing consumer preferences; (11) the possibility of changes in the Women, Infant and Children (“WIC”) program, or participation in WIC; (12) legislative, regulatory or judicial action that may adversely affect the Company’s ability to advertise its products, maintain product margins, or negatively impact the Company’s reputation or result in fines or penalties that decrease earnings; and (13) the ability to develop and market new, innovative products. For additional information regarding these and other factors, see the Company’s filings with the SEC, including the 2014 Form 10-K, which filings are available upon request from the SEC or at www.meadjohnson.com. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Other than as stated below, there have been no material changes in the information reported under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” contained in the 2014 Form 10-K and under Item 3 to Part I of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015.
Venezuela Risk
As of June 30, 2015, CENCOEX traded 6.3 VEF to 1.0 USD, the SICAD auction market traded 12.8 VEF to 1.0 USD and the SIMADI market traded at approximately 197.3 VEF to 1.0 USD. The Company continues to assess the impact, if any, of these changes as the government of Venezuela issues regulations to implement them, but does not currently expect these recent changes to impact the rate it uses to remeasure the net monetary assets of its Venezuelan subsidiary. As of June 30, 2015, the Company’s Venezuelan subsidiary had approximately $41 million of net monetary assets.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Interim 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 June 30, 2015. Based upon that evaluation, the Chief Executive Officer and the Interim Chief Financial Officer have concluded that, as of June 30, 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 Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There has been no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Information pertaining to legal proceedings can be found in Part I of this report under “Item 1. Financial Statements - Note 20. Commitments and Contingencies” and is incorporated by reference herein.
ITEM 1A. RISK FACTORS.
There is no material change in the information reported under “Item 1A. Risk Factors” contained in the Company’s 2014 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer Purchases of Equity Securities
On September 11, 2013, the Company announced that its board of directors approved a share repurchase authorization of up to $500.0 million of the Company’s common stock. This authorization does not have an expiration date. During the second quarter of 2015, the Company did not repurchase any shares pursuant to this authorization. As of June 30, 2015, the Company had $437.4 million available under this authorization.
ITEM 6. EXHIBITS.
|
| | |
Exhibit Number | | Exhibit Description |
| | |
10.1 | | Mead Johnson Nutrition Company Long Term Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 23, 2015) |
| | |
10.2 | | Amendment No. 1 to Letter Agreement, dated May 20, 2015, between the Company and Mr. Peter G. Leemputte |
| | |
10.3 | | Form of Nonqualified Stock Option Agreement |
| | |
10.4 | | Form of Employee Restricted Stock Unit Agreement |
| | |
10.5 | | Form of Non-Employee Director Restricted Stock Unit Agreement |
| | |
10.6 | | Form of Performance Share Award Agreement |
| | |
31.1 | | Rule 13a-14(a) and 15d-14(a) Certification of the Chief Executive Officer |
| | |
31.2 | | Rule 13a-14(a) and 15d-14(a) Certification of the Chief Financial Officer |
| | |
32.1 | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
32.2 | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
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 |
SIGNATURES
Pursuant to the requirements 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: | July 23, 2015 | By: | /s/ Charles M. Urbain |
| | | Charles M. Urbain |
| | | Senior Vice President and Interim Chief Financial Officer |
| | | (Authorized Officer and Principal Financial Officer) |
Exhibit 10.2
[MJN Letterhead]
May 15, 2015
Peter G. Leemputte
1565 Kathryn Lane
Lake Forest, IL 60045
Dear Pete:
Based on our recent discussions, we have mutually agreed to amend the letter agreement between you and the company dated March 4, 2015 (the “Original Letter”). This letter will confirm the terms of the amendment of the Original Letter. Capitalized terms used herein and not otherwise defined will have the meaning given to such terms in the Original Letter.
We have agreed that that the Separation Date will be May 31, 2015 except as described below. Your employment with MJN and its affiliates will not be terminated by MJN (or any of its affiliates) prior to May 31, 2015 without Cause.
We will continue to pay you your Salary Continuation Severance in the amount of $177,042 ($50,583.33 per month, pro rated for partial months) over the period ending on June 30, 2015 even though the Separation Date has been changed to May 31, 2015. In addition, there shall be no changes to the commencement date or the payment timing for any payments or benefits under the Original Letter as a result of the change to the Separation Date if, or to the extent that, such payments or benefits are subject to Section 409A of the Internal Revenue Code of 1986, as amended.
Attached are revised Attachments I, IV, V and VI which replace the corresponding attachments to the Original Letter to reflect the change to the Separation Date.
As required by the Original Letter, you will be required to re-sign the general release (Attachment II of the Original Letter).
Except as described herein, all other provisions of the Original Letter, including all Attachments thereto, will remain in effect.
If you have any questions concerning this letter or any of the arrangements surrounding your separation from the company, please feel free to contact me directly. Please indicate your agreement with the terms of this letter as an amendment of the Original Letter (including amendments to the applicable Attachments thereto) by signing below and returning a signed copy of this letter to me prior to May 31, 2015.
Sincerely,
/s/ Ian Ormesher
Ian Ormesher
Agreed by:
Peter G. Leemputte Date: May 20, 2015
/s/ Peter G. Leemputte
ATTACHMENT I
CASH SEVERANCE PAY WORKSHEET
NAME OF EMPLOYEE: Peter G. Leemputte
HR ID: 5000371
I. SEVERANCE PAY CALCULATION OF SERVICE:
SEPARATION DATE: May 31, 2015
DATE OF HIRE: September 22, 2008
YEARS OF SERVICE: 6.8 YEARS
| |
II. | BASE SALARY UPON WHICH SEVERANCE PAY IS CALCULATED: $ 607,000 PER YEAR |
| |
III. | SALARY CONTINUATION SEVERANCE $177,042 |
IV. BASIC SEVERANCE PAY: $46,692
| |
V. | EXECUTIVE SEVERANCE PAY: |
18 MONTHS BASE SALARY AND TARGET BONUS $1,684,425
| |
VI. | ADDITIONAL CASH SEVERANCE PAY: $384,433 |
| |
VII. | TOTAL SEVERANCE PAY: BASIC, EXECUTIVE AND ADDITIONAL SEVERANCE PAY – $2,292,592 |
PAYMENTS OF YOUR BASIC SEVERANCE PAY WILL BEGIN IMMEDIATELY FOLLOWING YOUR SEPARATION DATE AND ARE NOT SUBJECT TO YOUR EXECUTION OF A GENERAL RELEASE. YOUR EXECUTIVE SEVERANCE PAY AND YOUR ADDITIONAL CASH SEVERANCE PAY WILL BEGIN AS OF THE DATE THAT IS 60 DAYS AFTER JUNE 30, 2015 (THE “PAYMENT START DATE”) PROVIDED THAT, AS OF THE PAYMENT START DATE, YOU HAVE EXECUTED A GENERAL RELEASE AND THE APPLICABLE REVOCATION PERIOD HAS EXPIRED AND YOU HAVE NOT REVOKED THE RELEASE. OTHERWISE, YOU WILL NOT BE ENTITLED TO ANY CASH SEVERANCE PAY OTHER THAN THE BASIC SEVERANCE PAY. ONCE SEVERANCE PAY (OTHER THAN THE BASIC SEVERANCE PAY) COMMENCES, IT WILL BE PAID IN REGULAR PAYROLL INTERVALS OVER 18 MONTHS IN ACCORDANCE WITH YOUR PAY SCHEDULE THAT WAS IN EFFECT PRIOR TO SEPARATION. YOUR EXECUTIVE SEVERANCE PAY WILL CONTINUE TO THE END OF YOUR SEVERANCE PAY PERIOD; PROVIDED, HOWEVER, THAT IF YOU OBTAIN OTHER EMPLOYMENT PRIOR TO THE END OF YOUR SEVERANCE PAY PERIOD, ANY REMAINING PORTION OF YOUR EXECUTIVE SEVERANCE PAY (BUT NOT ANY REMAINING PORTION OF YOUR ADDITIONAL CASH SEVERANCE PAY) WILL BE PAID TO YOU AS A LUMP SUM (PLEASE SEE ATTACHMENT III- “CERTIFICATION OF EMPLOYMENT FORM”) TO THE EXTENT PERMITTED BY APPLICABLE LAW. YOUR ADDITIONAL CASH SEVERANCE PAY WILL NOT BE ACCELERATED AND WILL CONTINUE TO BE PAID OVER THE REMAINDER OF THE 18 MONTH PERIOD. ALL PAYMENTS SHALL BE MADE IN ACCORDANCE WITH SECTION 409A OF THE CODE. NOTWITHSTANDING THE FOREGOING, YOUR EXECUTIVE SEVERANCE PAY WILL BE SUBJECT TO THE TERMS AND CONDITIONS OF THE SEVERANCE PLAN.
YOU ARE REQUIRED TO REVIEW AND SIGN THE GENERAL RELEASE FORM (ATTACHMENT II) AND RETURN IT TO THE COMPANY AS ONE OF THE REQUIREMENTS TO BECOME ELIGIBLE FOR EXECUTIVE SEVERANCE PAY AND ADDITIONAL CASH SEVERANCE PAY AS WELL AS CERTAIN OTHER BENEFITS UPON SEPARATION.
ATTACHMENT IV
SUMMARY OF WELFARE BENEFIT COVERAGES
Name of employee: Peter G. Leemputte
HR ID: 5000371
Date of separation from service: May 31, 2015
The following information is provided to assist you in making certain benefit choices following your separation from the Mead Johnson & Company, LLC (the “Company”) and its affiliates. Detailed information and the forms to continue your health care coverage will be sent to your home address in the near future. Should you have any questions, contact the MJN Service Center at 1-877-500-0909.
While you are receiving severance pay in accordance with the Second Amended and Restated Mead Johnson & Company, LLC Senior Executive Severance Plan (the “Severance Plan”), life insurance equal to one times your salary will be continued at the Company’s expense.
*Detailed information concerning health care continuation options that are available to you as a result of your severance under the Severance Plan will be mailed to your home. You will have the opportunity to select Company-subsidized benefits continuation (Option I) or you may choose to pay for the full cost of benefits continuation via COBRA (Option II). If you are married, your spouse must also make this election. Please note that in order to select Company-subsidized benefits continuation, you are required to execute (and not revoke) the General Release (Attachment II). In addition, the package will also contain information about how you can convert your group life insurance coverage to individual policies at the conclusion of your severance period.
ATTACHMENT V
VACATION PAY SUMMARY
Name of employee: Peter G. Leemputte
HR ID: 5000371
Our records indicate that you are eligible for vacation pay as follows (as of May 31, 2015):
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| | |
Banked vacation | - | Hours |
Accrued vacation | 120 | Hours |
Unused vacation | 120 | Hours |
Total | 120 | Hours |
ATTACHMENT VI
SUMMARY OF OUTSTANDING EQUITY AWARDS
Name of employee: Peter G. Leemputte
HR ID: 5000371
ATTACHED IS A CHART OF AWARDS AND VESTING AND EXERCISE PROVISIONS
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | LTI Summary for Separation(1) - Pete Leemputte | | | | |
| | Assumed Separation Date: May 31, 2015 | | | | | | | | | |
| | DISCLAIMER: This summary has been prepared for informational purposes only. Actual and binding award details will be available via the Morgan Stanley Smith Barney website following separation. In addition, the employee should refer to the Plan and relevant Grant/Award Agreements for official provisions and specific language regarding termination treatment. This summary assumes the employee has read the Plan and Award Agreements and has accepted the terms and conditions therein. The language contained in the Plan and Grant/Award Agreements is controlling and will govern how equity awards are handled upon termination of employment; if there is a discrepancy between the Grant/Award Agreements and the Plan documents, the Plan documents prevail.
|
| | Restricted Stock Units ("RSUs") |
| | Grant Date | | | | Initial Award (#) | | Units Vested Prior to Separation (#) | | Estimated Shares Vesting upon Separation(2) (#) | | Notes: Restricted stock unit awards generally vest in full on the fourth anniversary of the grant date. Participants terminated involuntarily (without cause) prior to full award vest are entitled to a proportionate (prorated) number of the total number of RSUs granted. Vested awards will be processed and distributed upon an involuntary termination of employment. |
| | March 2, 2012 | | 4,510 |
| | — |
| | 3,658 |
| |
| | February 27, 2013 | | 5,043 |
| | — |
| | 2,841 |
| |
| | February 28, 2014 | | 4,328 |
| | — |
| | 1,354 |
| |
| | | | | | Total |
| | — |
| | 7,853 |
| |
| | | | | | | | | | | | | | | | | | | | |
| | Performance Share Awards ("PSUs") |
| | Grant Date | | | | Initial Award (#) | | Units Fixed - Prior to Separation (#) | | Estimated Shares Vesting After Separation(2)(3) (#) | | Notes: These performance share awards are earned over a three-year performance cycle. The actual earned award will be based on the achievement of the performance goal(s) established for each year of the performance period, subject to performance criteria being met, and with continued employment through the end of the vesting period. Participants terminated involuntarily (without cause) prior to full vest will retain any shares that have become fixed for completed annual performance periods and will be entitled to a proportionate (prorated) portion of the total number of shares for the performance period (year) in which employment terminates. Vested awards will be processed and distributed during the first quarter after the end of the three-year performance cycle. |
| | February 27, 2013 | | 10,086 |
| | 7,820 |
| | 9,221 |
| |
| | February 28, 2014 | | 8,656 |
| | 3,269 |
| | 4,471 |
| |
| | | | | | Total |
| | 11,089 |
| | 13,692 |
| |
| | | | | | | | | | | | | | | | | | | | |
| | Stock Options |
| | Grant Date | | Grant Price ($) | | Initial Grant (#) | | Exercisable Options (as of April 1, 2015) (#) | | Estimated Options Exercisable Upon Separation(2) (#) | | Notes: One-third of these stock option awards vest on each of the first, second and third anniversaries of their grant date. Participants terminated involuntarily (without cause) prior to full grant vest are entitled to a proportionate (prorated) number of the total number of unvested options granted and have three months from the date of termination to exercise all vested options. Vested options unexercised following the end of this three month period will expire. |
| | February 27, 2013 | | $ | 74.65 |
| | 25,746 |
| | 17,162 |
| | 19,351 |
| |
| | February 28, 2014 | | $ | 81.55 |
| | 22,095 |
| | 7,358 |
| | 9,213 |
| |
| | | | | | Total |
| | 24,520 |
| | 28,564 |
| |
| | | | | | | | | | | |
| | (1)For the purposes of this document "Separation" is defined as involuntary termination with severance. |
| | |
| | (2)The final number of shares delivered upon settlement may be reduced by shares withheld/sold to cover taxes. Please consult your tax advisor for individual tax advice; as always, it remains the responsibility of the participant to ensure proper individual tax reporting. |
| |
| | |
| | (3)Achievement of 2015 performance goals is assumed to be 100% (at target). The actual number of Performance Shares earned for the 2015 Performance Year will be determined in 2016 based on the actual performance in 2015. |
Exhibit 10.3
Annual Grant Form
MEAD JOHNSON NUTRITION COMPANY
LONG-TERM INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
The Participant has been granted a Nonqualified Stock Option under the terms of the Mead Johnson Nutrition Company Long-Term Incentive Plan (the “Plan”), subject to the terms and conditions set forth in this Agreement, including all exhibits and appendices hereto which are incorporated herein (the “Agreement”) and the summary of the grant (the “Grant Summary”) on the Morgan Stanley website at www.StockPlanConnect.com. To the extent applicable, the terms of the Option are modified as described in Exhibits I and II (relating to non-U.S. Participants). Capitalized terms not defined herein shall have the meaning specified in the Plan or in the Grant Summary.
1.Vesting and Exercisability. The Option awarded hereunder shall become vested and exercisable with respect to one-third (1/3) of the number of shares of Stock subject thereto cumulatively on the first, second and third anniversaries of the Grant Date if the Participant’s Termination Date has not occurred before such date. Except as otherwise provided by the Committee and in this Agreement, any portion of the Option that is not vested upon the Participant’s Termination Date shall immediately expire and shall be forfeited and the Participant shall have no further rights with respect thereto. Notwithstanding the foregoing:
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(a) | Death or Retirement. If the Participant’s Termination Date occurs due to death or Retirement one (1) year or more after the Grant Date and prior to full vesting of the Option, then the Option will become fully vested upon the Participant’s Termination Date. |
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(b) | Termination by Company other than for Cause; Termination by Participant for Good Reason. If the Participant’s Termination Date occurs by reason of termination by the Company or an Affiliate or Subsidiary for reasons other than for Cause or by Participant for Good Reason and prior to full vesting of the Option, then, as of the Participant’s Termination Date: |
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(i) | if the Termination Date occurs other than during the Protected Period, a pro rata portion of the Option (taking into account any portion that had previously become vested and exercisable) shall become vested and exercisable; provided, however, that if the Termination Date occurs by reason of termination by the Company other than for Cause, the provisions of this paragraph (i) shall apply only if the Participant executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company. The formula for determining the pro rata portion of the Option to become vested and nonforfeitable upon the Participant’s Termination Date in accordance with the preceding sentence is available by request from the Company’s human resources department or the stock plan administrator at the Company’s corporate headquarters; and |
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(ii) | if the Termination Date occurs during the Protected Period, the Option shall become fully vested and exercisable as of the Participant’s Termination Date; provided, however, that if the Termination Date occurs by reason of termination by the Company other than for Cause, the provisions of this paragraph (ii) shall apply only if the Participant executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company; and provided further that, if, in connection with a Change in Control, the Option would be cancelled or otherwise cease to be outstanding as the result of the Change in Control, the provisions of this paragraph (ii) shall apply as of the date of the Change in Control without regard to whether the Participant has a Termination Date in connection with the Change in Control and the Committee may, in its sole discretion, determine the terms and conditions under which the Option shall be exercisable in connection with a Change in Control and/or such other terms and conditions that may apply to the Option in connection with the Change in Control.. |
2. Expiration Date. The Option shall expire and shall no longer be exercisable after the earliest to occur of the following (the “Expiration Date”):
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(a) | the ten (10)-year anniversary of the Grant Date; |
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(b) | if the Participant’s Termination Date occurs by reason of termination by the Company for reasons other than for Cause or by the Participant for Good Reason (and other than Retirement or death), the three (3)-month anniversary of such Termination Date; provided, however that if the Participant dies after the Termination Date and during the three (3)-month post-termination exercise period, the Expiration Date will be the first anniversary of the Termination Date; |
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(c) | if the Participant’s Termination Date occurs by reasons of Cause, the Termination Date; |
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(d) | if the Participant’s Termination Date occurs due to the Participant’s voluntary termination, the Termination Date. |
No portion of the Option shall be exercisable after the Participant’s Termination Date except to the extent that it is vested and exercisable as of the Participant’s Termination Date.
3. Method of Option Exercise. The Participant (or, in the event of his death, his estate or personal representative) may exercise any portion of the Option that is exercisable by notifying the Company’s designated broker/agent in a manner specified by the Committee or its designate and such notification will be effective on receipt. Payment for the shares of Stock to be purchased on exercise shall be made in the form of a wire transfer, personal check, or money order, payable in U.S. dollars and on a U.S. bank to the order of the Company’s designated broker/agent (“cash”) or by authorizing the Company’s designated broker/agent to sell the shares of Stock acquired upon the exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price, applicable brokerage fees, and any withholding and/or taxes and applicable fees resulting from such exercise (“sale to cover”). If, on the date of exercise, the Participant is an “executive officer” of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (“executive officer”), payment for the shares of Stock to be purchased on exercise shall be made in the form of cash, by Stock withholding or, solely in connection with any 10b5-1 plan approved by the Company, a sale to cover. Any notice of exercise must be delivered prior to the Expiration Date of the Option and, if the specified Expiration Date falls on a day that is not a regular business day at the Company’s executive office or broker/agent’s office, then the exercise notification must be received, and the Option must be exercised, on or before the last regular business day prior to the Expiration Date. Non-U.S. Participants see applicable Non-U.S. Participant Exhibit for special rules.
4. Withholding. The Participant must pay the Company upon its demand the amount equal to its liability, if any, for the withholding of federal, state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by a delay in making such payment) incurred by reason of the Participant’s exercise of the Option or otherwise in connection with the Option. The Participant must pay these withholding obligations in cash or by a sale to cover. If, on the date of exercise, the Participant is an executive officer, the Participant must pay these withholding tax obligations in cash, by Stock withholding, or, solely in connection with any 10b5-1 plan approved by the company or as required by local law, a sale to cover. Non-U.S. Participants see applicable Non-U.S. Participant Exhibit for special rules.
5. Forfeiture Provisions. The Participant acknowledges that the Participant’s continued employment with the Company, its Affiliates and its Subsidiaries, and the grant of this Option, are sufficient consideration for the Agreement, including, without limitation, the restrictions imposed upon the Participant by this Section 5.
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(a) | In consideration of the Option granted hereby, the Participant expressly agrees and covenants that, during the Restricted Period, the Participant shall not, without the prior consent of the Company, permit any Forfeiture Event to exist, directly or indirectly. |
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(b) | If the Committee determines that a Forfeiture Event has occurred or is ongoing, then the Participant covenants and agrees that the following forfeitures and related actions will occur: |
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(i) | Any portion of the Option (whether or not vested) that has not been exercised as of the date of such determination shall be immediately canceled and forfeited and the Participant shall automatically forfeit any rights the Participant may have with respect to the Option as of the date of such determination; and |
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(ii) | If the Participant has exercised all or any part of the Option within the twelve (12)-month period immediately preceding the occurrence of a Forfeiture Event (or following the date of the earliest Forfeiture Event), then, upon the Company’s demand, the Participant shall immediately deliver to |
the Company certificate(s) for the number of shares of Stock received upon such exercise or, if the shares have been sold, the Participant shall immediately remit to the Company, in cash, the proceeds of any such sale(s), reduced (but not below zero), in each case, by the exercise price (or shares having a Fair Market Value equal to the exercise price) of the Option. Any shares surrendered pursuant to this provision shall be treated as treasury shares and shall be added to the authorized and unissued shares available for issuance under the Plan.
6. Option Not Contract of Employment or Service; No Rights as Stockholder. The grant of the Option does not constitute a contract of employment or continued service, and the grant of the Option shall not give the Participant the right to be retained in the employ or service of the Company or any Affiliate or Subsidiary, nor any right or claim to any benefit under the Plan or the Agreement, unless such right or claim has specifically accrued under the terms of the Plan and the Agreement. The Participant and the Participant’s beneficiary shall not have any rights with respect to Stock (including voting rights) purchasable upon exercise of the Option prior to the valid exercise of the Option.
7. Administration. The authority to administer and interpret the Agreement shall be vested in the Committee, and the Committee shall have all the powers with respect to the Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement are final and binding on all persons.
8. Transferability. This Option is not transferable except as designated by the Participant by will or by the laws of descent and distribution and is exercisable during the lifetime of the Participant only by the Participant unless otherwise provided by the Committee in accordance with the terms of the Plan.
9. Adjustment of Award. The number and type of Stock awarded pursuant to this Option, the exercise price thereof, and other related terms shall be adjusted by the Committee in accordance with the terms of the Plan.
10. Waiver. The waiver by the Company or an Affiliate or Subsidiary of any provision of the Agreement shall not operate as or be construed to be a subsequent waiver of the same provision or waiver of any other provision hereof.
11. Governing Law. The grant of the Option and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this grant or this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of Illinois and agree that such litigation shall be conducted in the courts of Cook County, Illinois, or the federal courts for the United States for the Northern District of Illinois, where this grant is made and/or to be performed.
12. Amendment; Entire Agreement; Successors. This Agreement shall be subject to the terms of the Plan, as amended from time to time, except that the Award that is the subject of this Agreement may not be materially adversely affected by any amendment or termination of the Plan approved after the Grant Date without the Participant’s written consent. This Agreement and the Plan contain the entire understanding of the parties with respect to the Option and supersede any prior agreements or documents with respect to the Option. This Agreement shall be binding up and inure to the benefit of the heirs, executors, administrators and successors of the parties.
Mead Johnson Nutrition Company
By: __________________________
Senior Vice President, General Counsel and Secretary
PARTICIPANT ACKNOWLEDGEMENT AND ACCEPTANCE
I have read this Agreement in its entirety. I understand that this Option has been granted to provide a means for me to acquire and/or expand an ownership position in Mead Johnson Nutrition Company, and it is expected that I will retain the Stock I receive upon the exercise of this Option consistent with the Company’s Stock retention guidelines in effect at the time of exercise of the Option. I acknowledge and agree that (i) the Option is nontransferable, except as provided herein and in the Plan, (ii) the Option is subject to forfeiture in the event of my Termination Date in certain circumstances, as specified in the Agreement, and (iii) sales of Stock will be subject to the Company’s policy regulating trading by employees. In accepting this grant, I hereby agree that Morgan Stanley Smith Barney, or such other vendor as the Company may choose to administer the Plan, may provide the Company with any and all account information necessary to monitor my compliance with the Company’s Stock retention guidelines and other applicable policies.
I hereby agree to all the terms and conditions set forth in this Agreement and accept the grant of the Option subject thereto. Where electronic acceptance is permitted under applicable law, electronic acceptance of the Option shall be binding on the Participant.
By: ___________________________________
Participant Signature
APPENDIX A
SPECIAL DEFINITIONS
The following capitalized terms shall have the meaning specified for purposes of the Agreement.
1. Cause. The term “Cause” means:
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(a) | with respect to a Termination Date that occurs other than during the Protected Period: |
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(i) | Failure or refusal by the Participant to substantially perform his duties with the Company or its Subsidiaries or Affiliates (except where the failure results from incapacity due to Disability); or |
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(ii) | Severe misconduct or activity deemed detrimental to the interests of the Company or a Subsidiary or Affiliate. This may include, but is not limited to, the following: acts involving dishonesty, violation of the Company’s or a Subsidiary’s or an Affiliate’s written policies (such as those related to alcohol or drugs, etc.), violation of safety rules, disorderly conduct, discrimination and/or discriminatory harassment, unauthorized disclosure of the Company’s or a Subsidiary’s or an Affiliate’s confidential information, or the entry of a plea of nolo contendere to, or the conviction of, a crime; and |
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(b) | with respect to a Termination Date that occurs during the Protected Period: |
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(i) | The Participant’s willful and continued failure to substantially perform the Participant’s duties with the Company or its Subsidiaries or Affiliates (except where the failure results from incapacity due to Disability) for a period of thirty (30) consecutive days after a written demand for substantial performance is delivered to the Participant by the Committee, which demand specifically identifies the manner in which the Committee believes that the Participant has not substantially performed the Participant’s duties; |
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(ii) | Willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries or Affiliates, monetarily or otherwise; or |
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(iii) | The Participant is convicted of, or has entered a plea of nolo contendere to, a felony. |
For purposes of paragraphs (1)(b)(i) and (ii) above, no act, or failure to act, on the Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s act, or failure to act, was in the best interest of the Company.
For all purposes, “Cause” will be interpreted by the Committee in its sole discretion, and the Committee’s interpretation will be conclusive and binding on all parties.
2. Competitive Business. The term “Competitive Business” means any person or entity that engages in any business activity that competes with the Company’s or an Affiliate’s or Subsidiary’s business in any way, in any geographic area in which the Company or an Affiliate or Subsidiary engages in business, including, without limitation, any state in the United States in which the Company or an Affiliate or Subsidiary sells or offers to sell its products from time to time.
3. Disability Benefits. The term “Disability Benefits” means income replacement benefits payable to the Participant under an accident and health plan of the Company or any Subsidiary or Affiliate, either in the United States or in a jurisdiction outside of the United States. In a jurisdiction outside of the United States, “Disability Benefits” shall also include payments under a mandatory or universal disability plan or program managed or maintained by the government.
4. Forfeiture Event. A “Forfeiture Event” occurs if any of the following occur:
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(a) | The Participant owns or has any financial interest in a Competitive Business or is actively connected with a Competitive Business by managing, operating, controlling, being an employee or consultant of (or accepting an offer to be an employee or consultant) or otherwise advising or assisting a Competitive Business in such |
a way that such connection might result in an increase in value or worth of any product, technology or service that competes with any product, technology or service upon which the Participant worked or about which the Participant became familiar as a result of the Participant’s employment with the Company or an Affiliate or Subsidiary; provided, however, that nothing in this clause shall prevent the Participant from owning one percent or less of the outstanding securities of any entity whose securities are traded on a U.S. national securities exchange (including NASDAQ) or an equivalent foreign exchange; and provided, further that, for periods after a Participant’s Termination Date, the Participant may be actively connected with a Competitive Business so long as the Participant’s connection to the business does not involve any product, technology or service that competes with any product, technology or service upon which the Participant worked or about which the Participant became familiar as a result of the Participant’s employment with the Company or an Affiliate or Subsidiary and the Company is provided written assurance of this fact from the Competitive Business prior to the Participant’s beginning such connection;
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(b) | The Participant takes any action that might divert any opportunity from the Company or any Affiliate or Subsidiary, or any of their respective successors or assigns (the “Related Parties”) that is within the scope of the present or future operations or business of any of the Related Parties; |
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(c) | The Participant employs, solicits for employment, advises or recommends to any other person that they employ or solicit for employment or form an association with any person who is employed by the Company or an Affiliate or Subsidiary or who has been employed by the Company or an Affiliate or Subsidiary within one (1) year of the date the Participant’s Termination Date occurs for any reason; |
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(d) | The Participant contacts, calls upon or solicits any (A) customer or (B) prospective customer of the Company or an Affiliate or Subsidiary that the Participant became aware of or was introduced to in the course of the Participant’s duties for the Company or an Affiliate or Subsidiary, or, in any case, otherwise attempts to divert or take away from the Company or an Affiliate or Subsidiary the business of any customer or prospective customer of the Company or an Affiliate or Subsidiary; or |
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(e) | The Participant engages in any activity that is harmful to the interests of the Company or an Affiliate or Subsidiary, including, without limitation, any conduct during the term of the Participant’s employment that violates the Company’s standards of business conduct and ethics, securities trading policy and other policies. |
5. Good Reason. The term “Good Reason” means:
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(a) | with respect to a Termination Date that occurs other than during the Protected Period, the occurrence of any one or more of the following events that occur without the Participant’s written consent: |
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(i) | A material reduction in the Participant’s base salary; |
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(ii) | A reduction in grade level, resulting in a material diminution of the Participant’s authority, duties, or responsibilities; or |
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(iii) | A change in the principal location of the Participant’s job or office, such that the Participant will be based at a location that is 50 miles or more further (determined in accordance with the Company’s relocation policy) from the Participant’s principal job or office location immediately prior to the proposed change in the Participant’s job or office. |
For a termination to qualify as a termination for Good Reason under this provision, the Participant must notify the Company in writing of termination for Good Reason, specifying the event constituting Good Reason, within ten (10) business days after the occurrence of the event that the Participant believes constitutes Good Reason. Failure for any reason to give written notice of termination for Good Reason in accordance with the foregoing will be deemed a waiver of the right to voluntarily terminate employment for that Good Reason event. The Company will have a period of thirty (30) days after receipt of the Participant’s notice in which to cure the Good Reason. If the Good Reason is cured within this period, the Participant will not be entitled to terminate employment for Good Reason. If the Company waives its right to cure or does not, within the thirty (30)-day period, cure the Good Reason, the Participant will be entitled to terminate employment for Good Reason, and the actual termination date will be determined in the sole discretion of the Company, but in no
event will it be later than thirty (30) calendar days from the date the Company waives its right to cure or the end of the thirty (30)-day period in which to cure the Good Reason, whichever is earlier.
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(b) | with respect to a Termination Date that occurs during the Protected Period, the occurrence of any one or more of the following events that occur without the Participant’s express written consent: |
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(i) | if applicable, the assignment to the Participant of any duties materially inconsistent with the Participant’s status as an officer of the Company (e.g., no longer reporting to the CEO) or a substantial adverse alteration in the nature or status of the Participant’s authorities, duties or responsibilities from those in effect immediately prior to the Change in Control (e.g., reduction in signing authority); |
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(ii) | a material adverse change in the Participant’s reporting relationships; |
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(iii) | a material reduction by the Company, its Subsidiaries or its Affiliates in the Participant’s base salary or bonus from the levels in effect immediately prior to a Change in Control or as the same may be increased from time to time after a Change in Control; |
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(iv) | the relocation of the Participant’s principal place of employment to a location more than 50 miles from the location of such place of employment immediately prior to a Change in Control, except for required travel on the Company’s business to an extent substantially consistent with the Participant’s business travel obligations prior to the Change in Control or, if the Participant has consented to a relocation, the failure by the Company to provide the Participant with all of the benefits of the Company’s relocation policy as in operation immediately prior to a Change in Control; |
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(v) | the failure of the Company, its Subsidiaries or its Affiliates to pay the Participant any material amount or portion of the Participant’s compensation or to pay the Participant any portion of an installment of deferred compensation under any deferred compensation program of the Company, its Subsidiaries or its Affiliates within seven (7) days of the date on which such compensation was due; or |
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(vi) | the failure by the Company, its Subsidiaries or its Affiliates to continue in effect any compensation or benefit plan which is material to the Participant’s compensation and in which the Participant participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company, its Subsidiaries or its Affiliates to continue the Participant’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of the Participant’s participation relative to other participants, as existed at the time of the Change in Control. |
For a termination to qualify as a termination for Good Reason under this provision, the Participant must notify the Company in writing of termination for Good Reason, specifying the event constituting Good Reason, within ninety (90) days after the Participant first becomes aware of the event that the Participant believes constitutes Good Reason. Failure for any reason to give written notice of termination of employment for Good Reason in accordance with the foregoing will be deemed a waiver of the right to terminate the Participant’s employment for that Good Reason event. The Company will have a period of thirty (30) days after receipt of the Participant’s notice in which to cure the Good Reason. If the Good Reason event is cured within this period, the Participant will not be entitled to terminate the Participant’s employment for Good Reason. If the Company waives its right to cure or does not, within the thirty (30)-day period, cure the Good Reason event, the Participant may terminate the Participant’s employment for Good Reason within thirty (30) days following the earlier of the date on which the Company waives its right to cure or the end of the cure period. If the Participant does not terminate the Participant’s employment within such thirty (30)-day period, the Participant will waive the Participant’s right to terminate the Participant’s employment for that Good Reason event.
6. Protected Period. The term “Protected Period” means the two (2)-year period following a Change in Control.
7. Restricted Period. The term “Restricted Period” means the period during which the Participant is employed by the Company or an Affiliate or Subsidiary and twelve (12) months following the date that the Participant ceases to be employed by the Company or an Affiliate or Subsidiary for any reason whatsoever.
8. Termination Date. The term “Termination Date” means the date on which the Participant’s employment with the Company and any Affiliates and Subsidiaries terminates for any reason. The Participant’s Termination Date shall not occur solely as a result of the following:
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(a) | A transfer of the Participant’s employment from the Company to a Subsidiary or Affiliate, or vice versa, or from one Subsidiary or Affiliate to another; |
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(b) | A leave of absence, duly authorized in writing by the Company, for military service or sickness or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days; |
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(c) | A leave of absence in excess of ninety (90) days, duly authorized in writing, by the Company, provided the Participant’s right to reemployment is guaranteed either by a statute or by contract; or |
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(d) | Any period that the Participant is receiving Disability Benefits due to the incurrence of a Disability prior to the date that would otherwise be the Participant’s Termination Date. |
However, the Participant’s Termination Date shall be deemed to occur upon the date that the Participant fails to return to active service with the Company or an Affiliate or Subsidiary at the end of an approved leave of absence or, if applicable, upon cessation of Disability Benefits.
During a leave of absence as defined in paragraph (b) or (c), although the Participant will be considered to have been continuously employed by the Company or an Affiliate or Subsidiary and not to have incurred a Termination Date solely as a result thereof, the Committee may specify such leave period shall not be counted in determining the period of employment for purposes of the vesting of the Option. In such case, the vesting dates for the unvested portion of the Option shall be extended by the length of any such leave of absence.
Upon the Participant’s Termination Date as determined hereunder, continued exercisability of the Option shall be based on the Participant’s circumstances at the time of such termination.
Exhibit 10.4
Annual Grant Form
Employees
MEAD JOHNSON NUTRITION COMPANY
LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
The Participant has been granted Restricted Stock Units (“RSUs”) under the terms of the Mead Johnson Nutrition Company Long-Term Incentive Plan (the “Plan”), subject to the terms and conditions set forth in this Agreement, including all exhibits and appendices hereto which are incorporated herein (the “Agreement”) and the summary of the grant (the “Grant Summary”) on the Morgan Stanley website at www.StockPlanConnect.com. To the extent applicable, the terms of the RSUs are modified as described in Exhibits I and II (relating to non-U.S. Participants). Capitalized terms not defined herein shall have the meaning specified in the Plan or in the Grant Summary.
1.Award. Each RSU awarded to the Participant hereunder represents the conditional right to receive, upon settlement in accordance with the terms of this Agreement, one share of Stock. The RSUs include the right to receive Dividend Equivalent Units in accordance with Section 2.
2. Dividend Equivalents. Dividend Equivalents shall be paid or credited on RSUs (other than RSUs that, at the relevant record date, previously have been settled or forfeited) as follows unless the Committee specifies alternative treatment:
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(a) | If the Company declares and pays a dividend or distribution on Stock in the form of cash, then a cash amount shall be paid to the Participant as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Participant as of the record date for such dividend or distribution multiplied by the amount of cash actually paid as a dividend or distribution on each outstanding share of Stock at such payment date. |
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(b) | If the Company declares and pays a dividend or distribution on Stock in the form of property other than shares of Stock, then a number of additional RSUs shall be credited to the Participant as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Participant as of the record date for such dividend or distribution multiplied by the Fair Market Value of such property actually paid as a dividend or distribution on each outstanding share of Stock at such payment date, divided by the Fair Market Value of a share of Stock at such payment date, which additional RSUs shall be subject to the same terms and conditions as the RSUs awarded pursuant to this Agreement. |
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(c) | If the Company declares and pays a dividend or distribution on Stock in the form of additional shares of Stock, or there occurs a forward split of Stock, then a number of additional RSUs shall be credited to the Participant as of the payment date for such dividend or distribution or forward split equal to the number of RSUs credited to the Participant as of the record date for such dividend or distribution or split multiplied by the number of additional shares actually paid as a dividend or distribution or issued in such split in respect of each outstanding share of Stock, which additional RSUs shall be subject to the same terms and conditions as the RSUs awarded pursuant to this Agreement. |
3. Vesting. The RSUs awarded hereunder shall vest on the fourth anniversary of the Grant Date if the Participant’s Termination Date has not occurred before such date. Except as otherwise provided by the Committee and in this Agreement, any portion of the RSUs that are not vested upon the Participant’s Termination Date shall immediately expire and shall be forfeited and the Participant shall have no further rights with respect thereto, including the right to acquire any shares of Stock hereunder with respect to such RSU. Notwithstanding the foregoing:
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(a) | Age 65. If the Participant’s Termination Date does not occur prior to the first anniversary of the Grant Date and if the Participant attains age 65 prior to his Termination Date and prior to full vesting of the RSUs, then all RSUs granted hereunder shall be fully vested upon the later of (i) the first anniversary of the Grant Date or (ii) the date on which the Participant attains age 65. |
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(b) | Death or Retirement. If the Participant’s Termination Date occurs due to death or Retirement one (1) year or more after the Grant Date and prior to the date on which the RSUs are otherwise fully vested, a pro rata portion of the RSUs (taking into account any of the RSUs that had previously vested) will vest on the Termination Date. |
The formula for determining the pro rata portion of the RSUs to become vested upon the Participant’s Termination Date in accordance with the preceding sentence is available by request from the Company’s human resources department or the stock plan administrator at the Company’s corporate headquarters.
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(c) | Termination by Company other than for Cause; Termination by Participant for Good Reason. If the Participant’s Termination Date occurs by reason of termination by the Company or an Affiliate or Subsidiary for reasons other than for Cause or by Participant for Good Reason and prior to full vesting of the RSUs, then, as of the Participant’s Termination Date: |
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(i) | if the Termination Date occurs other than during the Protected Period, a pro rata portion of the RSUs (taking into account any portion that had previously vested) will vest on the Termination Date; provided, however, that if the Termination Date occurs by reason of termination by the Company other than for Cause, the provisions of this paragraph (i) shall apply only if the Participant executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company. The formula for determining the pro rata portion of the RSUs to become vested and nonforfeitable upon the Participant’s Termination Date in accordance with the preceding sentence is available by request from the Company’s human resources department or the stock plan administrator at the Company’s corporate headquarters; and |
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(ii) | if the Termination Date occurs during the Protected Period, the RSUs will fully vest as of the Participant’s Termination Date; provided, however, that if, in connection with a Change in Control, the RSUs would be cancelled or otherwise cease to be outstanding as the result of the Change in Control, the provisions of this paragraph (ii) shall apply as of the date of the Change in Control without regard to whether the Participant has a Termination Date in connection with the Change in Control; and provided further that if the Termination Date occurs by reason of termination by the Company other than for Cause, the provisions of this paragraph (ii) shall apply only if the Participant executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company. |
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(d) | Termination for Cause; Voluntary Termination Other than for Good Reason. If the Participant’s Termination Date occurs by reason of termination by the Company or an Affiliate or Subsidiary for Cause or by Participant other than for Good Reason and, in either case, prior to full vesting of the RSUs, then, as of the Participant’s Termination Date all of the unvested RSUs shall expire and shall be forfeited and the Participant shall have no further rights with respect thereto, including the right to acquire any shares of Stock hereunder with respect to such RSUs. |
4. Settlement. An RSU shall be settled promptly upon (but not more than sixty (60) days after) the date on which the RSU vests by delivery of one share of Stock for each such RSU being settled either in certificated form or in such other manner as the Company may reasonably determine. Settlement of RSUs that directly or indirectly result from non-cash Dividend Equivalents on RSUs or adjustments to RSUs shall occur at the time of settlement of the granted RSU.
5. Withholding. At such time as the Company or any Affiliate or Subsidiary is required to withhold taxes with respect to the RSUs or Dividend Equivalents, or at an earlier date as determined by the Company, the Participant shall make cash remittance to the Company or the Affiliate or Subsidiary that is the Participant’s employer the amount of the federal, state or local income tax or earnings tax or any other applicable tax or assessment (plus interest and penalties thereon, if any, caused by a delay in making such payment) incurred by reason of vesting or settlement of the RSUs or payment of the Dividend Equivalents. The Company and its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct such amount from any payment of any kind otherwise due to the Participant, including by means of mandatory withholding of shares deliverable in settlement of the RSUs or payments of Dividend Equivalents, to satisfy the mandatory tax withholding requirements or to require the Participant to authorize the Company’s designated broker/agent to sell the shares of Stock acquired upon settlement of the RSUs and remit to the Company a sufficient portion of the sale proceeds to pay the applicable brokerage fees and any withholding and/or taxes and applicable fees resulting from such settlement (“sale to cover”). In all cases, the Company shall determine the method by which payment of withholding taxes shall be satisfied. Non-U.S. Participants see applicable Non-U.S. Participant Exhibit for special rules.
6. Forfeiture Provisions. The Participant acknowledges that the Participant’s continued employment with the Company, its Affiliates and its Subsidiaries, and the grant of the RSUs is sufficient consideration for the Agreement, including, without limitation, the restrictions imposed upon the Participant by this Section 6.
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(a) | In consideration of the RSUs awarded hereby, the Participant expressly agrees and covenants that, during the Restricted Period, the Participant shall not, without the prior consent of the Company, permit any Forfeiture Event to exist, directly or indirectly. |
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(b) | If the Committee determines that a Forfeiture Event has occurred or is ongoing, then the Participant covenants and agrees that the following forfeitures and related actions will occur: |
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(i) | Any unvested portion of the RSUs shall be immediately canceled and forfeited and the Participant shall automatically forfeit any rights the Participant may have with respect to the RSUs as of the date of such determination; and |
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(ii) | If any of the RSUs vested within the twelve (12)-month period immediately preceding the occurrence of a Forfeiture Event (or following the date of the earliest Forfeiture Event), then, upon the Company’s demand, the Participant shall immediately deliver to the Company certificate(s) for the number of shares of Stock issued upon settlement of the RSUs or, if the shares have been sold, the Participant shall immediately remit to the Company, in cash, the proceeds of any such sale(s). Any shares surrendered pursuant to this provision shall be treated as treasury shares and shall be added to the authorized and unissued shares available for issuance under the Plan. |
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(c) | In the event that the Participant fails to promptly pay or make satisfactory arrangements as to the withholding taxes as provided in Section 5, all RSUs shall be forfeited and shall be deemed to be reacquired by the Company. |
7. RSU Not Contract of Employment or Service; No Rights as Stockholder. The grant of the RSUs (including the right to Dividend Equivalents) does not constitute a contract of employment or continued service, and the grant of the RSUs shall not give the Participant the right to be retained in the employ or service of the Company or any Affiliate or Subsidiary, nor any right or claim to any benefit under the Plan or the Agreement, unless such right or claim has specifically accrued under the terms of the Plan and the Agreement. The Participant and the Participant’s beneficiary shall not have any rights with respect to Stock (including voting rights) issuable upon settlement of the RSUs prior to the date on which the RSUs are settled.
8. Administration. The authority to administer and interpret the Agreement shall be vested in the Committee, and the Committee shall have all the powers with respect to the Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement are final and binding on all persons.
9. Transferability. The RSUs (and the right to Dividend Equivalents) are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
10. Adjustment of Award. The number of RSUs, the number and type of Stock subject to the RSUs and other related terms shall be adjusted by the Committee in accordance with the terms of the Plan.
11. Waiver. The waiver by the Company or an Affiliate or Subsidiary of any provision of the Agreement shall not operate as or be construed to be a subsequent waiver of the same provision or waiver of any other provision hereof.
12. Governing Law. The grant of the RSUs and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this grant or this Agreement the parties hereby submit to and consent to the exclusive jurisdiction of the State of Illinois and agree that such litigation shall be conducted in the courts of Cook County, Illinois, or the federal courts for the United States for the Northern District of Illinois, where this grant is made and/or to be performed.
13. Amendment; Entire Agreement; Successors. This Agreement shall be subject to the terms of the Plan, as amended from time to time, except that the Award that is the subject of this Agreement may not be materially adversely affected by any amendment or termination of the Plan approved after the Grant Date without the Participant’s written consent. This Agreement and the Plan contain the entire understanding of the parties with respect to the RSUs and supersede any prior agreements or documents with respect to the RSUs. This Agreement shall be binding up and inure to the benefit of the heirs, executors, administrators and successors of the parties.
14. Code Section 409A. Notwithstanding anything in the Plan or this Agreement to the contrary, if any payment with respect to any RSUs (including any Dividend Equivalents) is subject to Code Section 409A and if such payment is to be paid or provided on account of Participant’s Termination Date (or other separation from service or termination of employment, other than death):
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(a) | and if Participant is a specified employee (within the meaning of Code Section 409A) and if any such payment or benefit is required to be made or provided prior to the date which is six (6) months following Participant’s Termination Date, such payment or benefit shall be delayed until the date which is six (6) months and one (1) day following Participant’s Termination Date; provided, however, that if Participant dies prior to such six (6)-month anniversary, all remaining payments shall be paid to his estate within ninety (90) days following his death; and |
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(b) | the determination as to whether Participant has had a Termination Date (or other termination of employment or separation from service) shall be made in accordance with the provisions of Code Section 409A and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder. |
It is the intent of this Agreement to comply with the requirements of Code Section 409A so that none of the RSUs provided under this Agreement or Stock issuable hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities herein will be interpreted to so comply. None of the Company, any Affiliate or any Subsidiary, however, makes any representation regarding the tax consequences of this Award.
Mead Johnson Nutrition Company
By: __________________________
Senior Vice President, General Counsel and Secretary
PARTICIPANT ACKNOWLEDGEMENT AND ACCEPTANCE
I have read this Agreement in its entirety. I understand that the RSUs have been granted to provide a means for me to acquire and/or expand an ownership position in Mead Johnson Nutrition Company, and it is expected that I will retain the Stock I receive upon the settlement of the RSUs consistent with the Company’s Stock retention guidelines in effect at the time of settlement of the RSUs. I acknowledge and agree that (i) the RSUs are nontransferable, except as provided herein and in the Plan, (ii) the RSUs are subject to forfeiture in the event of my Termination Date in certain circumstances, as specified in the Agreement, and (iii) sales of Stock will be subject to the Company’s policy regulating trading by employees. In accepting this grant, I hereby agree that Morgan Stanley Smith Barney, or such other vendor as the Company may choose to administer the Plan, may provide the Company with any and all account information necessary to monitor my compliance with the Company’s Stock retention guidelines and other applicable policies.
I hereby agree to all the terms and conditions set forth in this Agreement and accept the grant of the RSUs subject thereto. Where electronic acceptance is permitted under applicable law, electronic acceptance of the RSUs shall be binding on the Participant.
By: ___________________________________
Participant Signature
APPENDIX A
SPECIAL DEFINITIONS
The following capitalized terms shall have the meaning specified for purposes of the Agreement.
1. Cause. The term “Cause” means:
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(a) | with respect to a Termination Date that occurs other than during the Protected Period: |
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(i) | Failure or refusal by the Participant to substantially perform his duties with the Company or its Subsidiaries or Affiliates (except where the failure results from incapacity due to Disability); or |
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(ii) | Severe misconduct or activity deemed detrimental to the interests of the Company or a Subsidiary or Affiliate. This may include, but is not limited to, the following: acts involving dishonesty, violation of the Company’s or a Subsidiary’s or an Affiliate’s written policies (such as those related to alcohol or drugs, etc.), violation of safety rules, disorderly conduct, discrimination and/or discriminatory harassment, unauthorized disclosure of the Company’s or a Subsidiary’s or an Affiliate’s confidential information, or the entry of a plea of nolo contendere to, or the conviction of, a crime; and |
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(b) | with respect to a Termination Date that occurs during the Protected Period: |
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(i) | The Participant’s willful and continued failure to substantially perform the Participant’s duties with the Company or its Subsidiaries or Affiliates (except where the failure results from incapacity due to Disability) for a period of thirty (30) consecutive days after a written demand for substantial performance is delivered to the Participant by the Committee, which demand specifically identifies the manner in which the Committee believes that the Participant has not substantially performed the Participant’s duties; |
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(ii) | Willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries or Affiliates, monetarily or otherwise; or |
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(iii) | The Participant is convicted of, or has entered a plea of nolo contendere to, a felony. |
For purposes of paragraphs (1)(b)(i) and (ii) above, no act, or failure to act, on the Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s act, or failure to act, was in the best interest of the Company.
For all purposes, “Cause” will be interpreted by the Committee in its sole discretion, and the Committee’s interpretation will be conclusive and binding on all parties.
2. Competitive Business. The term “Competitive Business” means any person or entity that engages in any business activity that competes with the Company’s or an Affiliate’s or Subsidiary’s business in any way, in any geographic area in which the Company or an Affiliate or Subsidiary engages in business, including, without limitation, any state in the United States in which the Company or an Affiliate or Subsidiary sells or offers to sell its products from time to time.
3. Disability Benefits. The term “Disability Benefits” means income replacement benefits payable to the Participant under an accident and health plan of the Company or any Subsidiary or Affiliate, either in the United States or in a jurisdiction outside of the United States. In a jurisdiction outside of the United States, “Disability Benefits” shall also include payments under a mandatory or universal disability plan or program managed or maintained by the government.
4. Forfeiture Event. A “Forfeiture Event” occurs if any of the following occur:
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(a) | The Participant owns or has any financial interest in a Competitive Business or is actively connected with a Competitive Business by managing, operating, controlling, being an employee or consultant of (or accepting an offer to be an employee or consultant) or otherwise advising or assisting a Competitive Business in such a way that such connection might result in an increase in value or worth of any product, technology or service that competes with any product, technology or service upon which the Participant worked or about which the Participant became familiar as a result of the Participant’s employment with the Company or an Affiliate or Subsidiary; provided, however, that nothing in this clause shall prevent the Participant from owning one percent or less of the outstanding securities of any entity whose securities are traded on a U.S. national securities exchange (including NASDAQ) or an equivalent foreign exchange; and provided, further that, for periods after a Participant’s Termination Date, the Participant may be actively connected with a Competitive Business so long as the Participant’s connection to the business does not involve any product, technology or service that competes with any product, technology or service upon which the Participant worked or about which the |
Participant became familiar as a result of the Participant’s employment with the Company or an Affiliate or Subsidiary and the Company is provided written assurance of this fact from the Competitive Business prior to the Participant’s beginning such connection;
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(b) | The Participant takes any action that might divert any opportunity from the Company or any Affiliate or Subsidiary, or any of their respective successors or assigns (the “Related Parties”) that is within the scope of the present or future operations or business of any of the Related Parties; |
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(c) | The Participant employs, solicits for employment, advises or recommends to any other person that they employ or solicit for employment or form an association with any person who is employed by the Company or an Affiliate or Subsidiary or who has been employed by the Company or an Affiliate or Subsidiary within one (1) year of the date the Participant’s Termination Date occurs for any reason; |
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(d) | The Participant contacts, calls upon or solicits any (A) customer or (B) prospective customer of the Company or an Affiliate or Subsidiary that the Participant became aware of or was introduced to in the course of the Participant’s duties for the Company or an Affiliate or Subsidiary, or, in any case, otherwise attempts to divert or take away from the Company or an Affiliate or Subsidiary the business of any customer or prospective customer of the Company or an Affiliate or Subsidiary; or |
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(e) | The Participant engages in any activity that is harmful to the interests of the Company or an Affiliate or Subsidiary, including, without limitation, any conduct during the term of the Participant’s employment that violates the Company’s standards of business conduct and ethics, securities trading policy and other policies. |
5. Good Reason. The term “Good Reason” means:
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(a) | with respect to a Termination Date that occurs other than during the Protected Period, the occurrence of any one or more of the following events that occur without the Participant’s written consent: |
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(i) | A material reduction in the Participant’s base salary; |
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(ii) | A reduction in grade level, resulting in a material diminution of the Participant’s authority, duties, or responsibilities; or |
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(iii) | A change in the principal location of the Participant’s job or office, such that the Participant will be based at a location that is 50 miles or more further (determined in accordance with the Company’s relocation policy) from the Participant’s principal job or office location immediately prior to the proposed change in the Participant’s job or office. |
For a termination to qualify as a termination for Good Reason under this provision, the Participant must notify the Company in writing of termination for Good Reason, specifying the event constituting Good Reason, within ten (10) business days after the occurrence of the event that the Participant believes constitutes Good Reason. Failure for any reason to give written notice of termination for Good Reason in accordance with the foregoing will be deemed a waiver of the right to voluntarily terminate employment for that Good Reason event. The Company will have a period of thirty (30) days after receipt of the Participant’s notice in which to cure the Good Reason. If the Good Reason is cured within this period, the Participant will not be entitled to terminate employment for Good Reason. If the Company waives its right to cure or does not, within the thirty (30)-day period, cure the Good Reason, the Participant will be entitled to terminate employment for Good Reason, and the actual termination date will be determined in the sole discretion of the Company, but in no event will it be later than thirty (30) calendar days from the date the Company waives its right to cure or the end of the thirty (30)-day period in which to cure the Good Reason, whichever is earlier.
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(b) | with respect to a Termination Date that occurs during the Protected Period, the occurrence of any one or more of the following events that occur without the Participant’s express written consent: |
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(i) | if applicable, the assignment to the Participant of any duties materially inconsistent with the Participant’s status as an officer of the Company (e.g., no longer reporting to the CEO) or a substantial adverse alteration in the nature or status of the Participant’s authorities, duties or responsibilities from those in effect immediately prior to the Change in Control (e.g., reduction in signing authority); |
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(ii) | a material adverse change in the Participant’s reporting relationships; |
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(iii) | a material reduction by the Company, its Subsidiaries or its Affiliates in the Participant’s base salary or bonus from the levels in effect immediately prior to a Change in Control or as the same may be increased from time to time after a Change in Control; |
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(iv) | the relocation of the Participant’s principal place of employment to a location more than 50 miles from the location of such place of employment immediately prior to a Change in Control, except for required travel on the Company’s business to an extent substantially consistent with the Participant’s business travel obligations prior to the Change in Control or, if the Participant has consented to a relocation, the failure by the Company to provide the Participant with all of the benefits of the Company’s relocation policy as in operation immediately prior to a Change in Control; |
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(v) | the failure of the Company, its Subsidiaries or its Affiliates to pay the Participant any material amount or portion of the Participant’s compensation or to pay the Participant any portion of an installment of deferred compensation under any deferred compensation program of the Company, its Subsidiaries or its Affiliates within seven (7) days of the date on which such compensation was due; or |
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(vi) | the failure by the Company, its Subsidiaries or its Affiliates to continue in effect any compensation or benefit plan which is material to the Participant’s compensation and in which the Participant participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company, its Subsidiaries or its Affiliates to continue the Participant’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of the Participant’s participation relative to other participants, as existed at the time of the Change in Control. |
For a termination to qualify as a termination for Good Reason under this provision, the Participant must notify the Company in writing of termination for Good Reason, specifying the event constituting Good Reason, within ninety (90) days after the Participant first becomes aware of the event that the Participant believes constitutes Good Reason. Failure for any reason to give written notice of termination of employment for Good Reason in accordance with the foregoing will be deemed a waiver of the right to terminate the Participant’s employment for that Good Reason event. The Company will have a period of thirty (30) days after receipt of the Participant’s notice in which to cure the Good Reason. If the Good Reason event is cured within this period, the Participant will not be entitled to terminate the Participant’s employment for Good Reason. If the Company waives its right to cure or does not, within the thirty (30)-day period, cure the Good Reason event, the Participant may terminate the Participant’s employment for Good Reason within thirty (30) days following the earlier of the date on which the Company waives its right to cure or the end of the cure period. If the Participant does not terminate the Participant’s employment within such thirty (30)-day period, the Participant will waive the Participant’s right to terminate the Participant’s employment for that Good Reason event.
6. Protected Period. The term “Protected Period” means the two (2)-year period following a Change in Control.
7. Restricted Period. The term “Restricted Period” means the period during which the Participant is employed by the Company or an Affiliate or Subsidiary and twelve (12) months following the date that the Participant ceases to be employed by the Company or an Affiliate or Subsidiary for any reason whatsoever.
8. Termination Date. The term “Termination Date” means the date on which the Participant’s employment with the Company and any Affiliates and Subsidiaries terminates for any reason. The Participant’s Termination Date shall not occur solely as a result of the following:
(a) A transfer of the Participant’s employment from the Company to a Subsidiary or Affiliate, or vice versa, or from one Subsidiary or Affiliate to another;
(b) A leave of absence, duly authorized in writing by the Company, for military service or sickness or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days;
(c) A leave of absence in excess of ninety (90) days, duly authorized in writing, by the Company, provided the Participant’s right to reemployment is guaranteed either by a statute or by contract; or
(d) Any period that the Participant is receiving Disability Benefits due to the incurrence of a Disability prior to the date that would otherwise be the Participant’s Termination Date.
However, the Participant’s Termination Date shall be deemed to occur upon the date that the Participant fails to return to active service with the Company or an Affiliate or Subsidiary at the end of an approved leave of absence or, if applicable, upon cessation of Disability Benefits.
During a leave of absence as defined in paragraph (b) or (c), although the Participant will be considered to have been continuously employed by the Company or an Affiliate or Subsidiary and not to have incurred a Termination Date solely as a result thereof, the Committee may specify such leave period shall not be counted in determining the period of employment for purposes of the vesting of the RSUs. In such case, the vesting dates for the unvested portion of the RSUs shall be extended by the length of any such leave of absence.
Upon the Participant’s Termination Date as determined hereunder, vesting of the RSUs shall be based on the Participant’s circumstances at the time of such termination.
.
Exhibit 10.5
Annual Grant Form
Non-Employee Directors
MEAD JOHNSON NUTRITION COMPANY
LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
The Participant has been granted Restricted Stock Units (“RSUs”) under the terms of the Mead Johnson Nutrition Company Long-Term Incentive Plan (the “Plan”), subject to the terms and conditions set forth in this Agreement, including all exhibits and appendices hereto which are incorporated herein (the “Agreement”) and the summary of the grant (the “Grant Summary”) on the Morgan Stanley website at www.StockPlanConnect.com. To the extent applicable, the terms of the RSUs are modified as described in Exhibits I and II (relating to non-U.S. Participants). Capitalized terms not defined herein shall have the meaning specified in the Plan or in the Grant Summary.
1.Award. Each RSU awarded to the Participant hereunder represents the conditional right to receive, upon settlement in accordance with the terms of this Agreement, one share of Stock. The RSUs include the right to receive Dividend Equivalent Units in accordance with Section 2.
2. Dividend Equivalents. Dividend Equivalents shall be paid or credited on RSUs (other than RSUs that, at the relevant record date, previously have been settled or forfeited) as follows unless the Committee specifies alternative treatment:
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(a) | If the Company declares and pays a dividend or distribution on Stock in the form of cash, then a cash amount shall be paid to the Participant as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Participant as of the record date for such dividend or distribution multiplied by the amount of cash actually paid as a dividend or distribution on each outstanding share of Stock at such payment date. |
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(b) | If the Company declares and pays a dividend or distribution on Stock in the form of property other than shares of Stock, then a number of additional RSUs shall be credited to the Participant as of the payment date for such dividend or distribution equal to the number of RSUs credited to the Participant as of the record date for such dividend or distribution multiplied by the Fair Market Value of such property actually paid as a dividend or distribution on each outstanding share of Stock at such payment date, divided by the Fair Market Value of a share of Stock at such payment date, which additional RSUs shall be subject to the same terms and conditions as the RSUs awarded pursuant to this Agreement. |
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(c) | If the Company declares and pays a dividend or distribution on Stock in the form of additional shares of Stock, or there occurs a forward split of Stock, then a number of additional RSUs shall be credited to the Participant as of the payment date for such dividend or distribution or forward split equal to the number of RSUs credited to the Participant as of the record date for such dividend or distribution or split multiplied by the number of additional shares actually paid as a dividend or distribution or issued in such split in respect of each outstanding share of Stock, which additional RSUs shall be subject to the same terms and conditions as the RSUs awarded pursuant to this Agreement. |
3. Vesting. The RSUs awarded hereunder shall become vested in accordance with the following:
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(a) | If this grant of RSUs is the first such grant made to the Participant for service as a non-employee director, the RSUs awarded hereunder are shall vest on the first anniversary of the Grant Date (the “Initial Anniversary”) if the Participant’s Termination Date (as defined below) has not occurred prior to the Initial Anniversary. |
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(b) | If this grant of RSUs is not the first such grant made to the Participant for service as a non-employee director, the RSUs awarded hereunder shall be irrevocable and shall vest for purposes of this Agreement on the first anniversary of the Grant Date (the “First Anniversary”) regardless of whether the Participant’s Termination Date has occurred prior to the First Anniversary. |
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(c) | For purposes of this Agreement, the term “Termination Date” means the date on which the Participant’s service on the Board ceases for any reason. |
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(d) | Except as otherwise provided in this Agreement (including Section 3(b) above), any portion of the RSUs that are not vested upon the Participant’s Termination Date shall immediately expire and shall be forfeited and the Participant shall have no further rights with respect thereto, including the right to acquire any shares of Stock hereunder with respect to such RSU. |
4. Settlement. An RSU shall be settled promptly upon (but not more than sixty (60) days after) the date on which the RSU vests (as determined in accordance with Section 3) by delivery of one share of Stock for each such RSU being settled either in certificated form or in such other manner as the Company may reasonably determine. Settlement of RSUs that directly or indirectly result from non-cash Dividend Equivalents on RSUs or adjustments to RSUs shall occur at the time of settlement of the granted RSU.
5. RSUs Not Contract of Service; No Rights as Stockholder. The grant of the RSUs (including the right to Dividend Equivalents) does not constitute a contract of continued service, and the grant of the RSUs shall not give the Participant the right to be retained in the service of the Company or any Affiliate or Subsidiary, nor any right or claim to any benefit under the Plan or the Agreement, unless such right or claim has specifically accrued under the terms of the Plan and the Agreement. The Participant and the Participant’s beneficiary shall not have any rights with respect to Stock (including voting rights) issuable upon settlement of the RSUs prior to the date on which the RSUs are settled.
6. Administration. The authority to administer and interpret the Agreement shall be vested in the Committee, and the Committee shall have all the powers with respect to the Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement are final and binding on all persons.
7. Transferability. The RSUs (and the right to Dividend Equivalents) are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
8. Adjustment of Award. The number of RSUs, the number and type of Stock subject to the RSUs and other related terms shall be adjusted by the Committee in accordance with the terms of the Plan.
9. Waiver. The waiver by the Company or an Affiliate or Subsidiary of any provision of the Agreement shall not operate as or be construed to be a subsequent waiver of the same provision or waiver of any other provision hereof.
10. Governing Law. The grant of the RSUs and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this grant or this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of Illinois and agree that such litigation shall be conducted in the courts of Cook County, Illinois, or the federal courts for the United States for the Northern District of Illinois, where this grant is made and/or to be performed.
11. Amendment; Entire Agreement; Successors. This Agreement shall be subject to the terms of the Plan, as amended from time to time, except that the Award that is the subject of this Agreement may not be materially adversely affected by any amendment or termination of the Plan approved after the Grant Date without the Participant’s written
consent. This Agreement and the Plan contain the entire understanding of the parties with respect to the RSUs and supersede any prior agreements or documents with respect to the RSUs. This Agreement shall be binding up and inure to the benefit of the heirs, executors, administrators and successors of the parties.
12. Code Section 409A. Notwithstanding anything in the Plan or this Agreement to the contrary, if any payment with respect to any RSUs (including any Dividend Equivalents) is subject to Code Section 409A and if such payment is to be paid or provided on account of Participant’s Termination Date (or other separation from service or termination of employment, other than death):
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(a) | and if Participant is a specified employee (within the meaning of Code Section 409A) and if any such payment or benefit is required to be made or provided prior to the date which is six (6) months following Participant’s Termination Date, such payment or benefit shall be delayed until the date which is six (6) months and one (1) day following Participant’s Termination Date; provided, however, that if Participant dies prior to such six (6) month anniversary, all remaining payments shall be paid to his estate within ninety (90) days following his death; and |
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(b) | the determination as to whether Participant has had a Termination Date (or other termination of employment or separation from service) shall be made in accordance with the provisions of Code Section 409A and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder. |
It is the intent of this Agreement to comply with the requirements of Code Section 409A so that none of the RSUs provided under this Agreement or Stock issuable hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities herein will be interpreted to so comply. None of the Company, any Affiliate or any Subsidiary, however, makes any representation regarding the tax consequences of this Award.
Mead Johnson Nutrition Company
By: __________________________
Senior Vice President, General Counsel and Secretary
PARTICIPANT ACKNOWLEDGEMENT AND ACCEPTANCE
I have read this Agreement in its entirety. I understand that the RSUs have been granted to provide a means for me to acquire and/or expand an ownership position in Mead Johnson Nutrition Company, and it is expected that I will retain the Stock I receive upon the settlement of the RSUs consistent with the Company’s Stock retention guidelines in effect at the time of settlement of the RSUs. I acknowledge and agree that (i) the RSUs are nontransferable, except as provided herein and in the Plan, (ii) the RSUs are subject to forfeiture in the event of my Termination Date in certain circumstances, as specified in the Agreement, and (iii) sales of Stock will be subject to the Company’s policy regulating trading in the Company’s Stock. In accepting this grant, I hereby agree that Morgan Stanley Smith Barney, or such other vendor as the Company may choose to administer the Plan, may provide the Company with any and all account information necessary to monitor my compliance with the Company’s Stock retention guidelines and other applicable policies.
I hereby agree to all the terms and conditions set forth in this Agreement and accept the grant of the RSUs subject thereto. Where electronic acceptance is permitted under applicable law, electronic acceptance of the RSUs shall be binding on the Participant.
By: ________________________________________
Participant Signature
FINAL – Off-Cycle 4 PacID 2003X
RSU – NED / Global – 1yr cliff
effective starting April 30, 2015
EXHIBIT I
TERMS APPLICABLE TO ALL NON-U.S. PARTICIPANTS
The additional terms and conditions set forth below are specifically incorporated into the Agreement. These terms and conditions govern the RSUs granted under the Mead Johnson Long-Term Incentive Plan if the Participant resides outside the United States. Due to the complexities of legal, regulatory and tax issues, the Participant should seek appropriate professional advice as to how the relevant laws in the applicable country may apply to the Participant’s individual situation. Certain capitalized terms used but not defined in this Exhibit I have the meanings set forth in the Plan and/or the Agreement.
1.Responsibility for Taxes. The Participant acknowledges that, regardless of any action taken by the Company or a Subsidiary or Affiliate, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Participant’s participation in the Plan and legally applicable to the Participant (“Tax-Related Items”) is and remains the Participant’s responsibility and may exceed the amount (if any) withheld by the Company or a Subsidiary or Affiliate. The Participant further acknowledges that the Company (a) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSU, including, but not limited to, the grant, vesting or settlement of the RSU, the subsequent sale of shares of Stock acquired pursuant to such settlement and the receipt of any dividends and/or any Dividend Equivalents; and (b) does not commit to and is under no obligation to structure the terms of the grant or any aspect of the RSU to reduce or eliminate the Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Participant is subject to Tax-Related Items in more than one jurisdiction, the Participant acknowledges that the Company and/or a Subsidiary or Affiliate may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the relevant taxable or tax withholding event, as applicable, the Participant agrees to make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items. In this regard, the Participant authorizes the Company and/or a Subsidiary or Affiliate, or their respective agents, at their discretion, to satisfy any withholding obligations with regard to all Tax-Related Items by one or a combination of the following:
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(a) | withholding from the Participant’s wages or other cash compensation paid to the Participant by the Company, its Affiliates or Subsidiaries and/or a Subsidiary or Affiliate; or |
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(b) | withholding from proceeds of the sale of shares of Stock acquired upon settlement of the RSU either through a voluntary sale or through a mandatory sale arranged by the Company (on the Participant’s behalf pursuant to this authorization without further consent); or |
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(c) | withholding in shares of Stock to be issued upon settlement of the RSU; or |
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(d) | any other withholding method determined by the Company. |
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Participant will receive a refund of any over-withheld amount in cash and will have no entitlement to the Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Participant is deemed to have been issued the full number of shares of Stock subject to the vested RSU, notwithstanding that a number of the shares of Stock are held back solely for the purpose of paying the Tax-Related Items.
The Participant agrees to pay to the Company or a Subsidiary or Affiliate any amount of Tax-Related Items that the Company or a Subsidiary or Affiliate may be required to withhold or account for as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares Stock or the proceeds of the sale of shares of Stock, if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items.
Finally, notwithstanding any of the foregoing, the Participant understands that he or she may be solely responsible for reporting and paying any Tax-Related Items and that nothing stated herein is intended or written to be used, and cannot be used, for the purpose of avoiding any taxpayer penalties that could apply to the Participant if he or she does not comply with his or her obligations in connection with the Tax-Related Items.
2.Nature of Grant. In accepting the grant, the Participant acknowledges, understands and agrees that:
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(a) | the Plan is established voluntarily by the Company, it is discretionary in nature and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan; |
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(b) | the grant of the RSU is voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past; |
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(c) | all decisions with respect to future RSU or other grants, if any, will be at the sole discretion of the Company; |
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(d) | the Participant is voluntarily participating in the Plan; |
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(e) | the future value of the underlying shares of Stock is unknown, indeterminable and cannot be predicted with certainty; |
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(f) | no claim or entitlement to compensation or damages shall arise from forfeiture of the RSU resulting from the termination of the Participant’s service relationship and in consideration of the grant of the RSU to which the Participant is otherwise not entitled, the Participant irrevocably agrees never to institute any claim against the Company, or any of its Subsidiaries or Affiliates, waives his or her ability, if any, to bring any such claim, and releases the Company, and its Subsidiaries and Affiliates from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim; |
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(g) | unless otherwise provided in the Plan or by the Company in its discretion, the RSU and the benefits evidenced by the Agreement do not create any entitlement to have the RSU or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of the Company; and |
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(h) | neither the Company nor any Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the RSU or of any amounts due to the Participant pursuant to the settlement of the RSU or the subsequent sale of any shares of Stock acquired upon settlement. |
3.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Participant’s participation in the Plan, or the Participant’s acquisition or sale of the underlying shares of Stock. The Participant should consult with his or her own personal tax, legal and financial advisors regarding the Participant’s participation in the Plan before taking any action related to the Plan.
4.Data Privacy. The Participant hereby voluntarily consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in the Agreement and any other RSU grant materials (“Data”) by and among the Company and its Subsidiaries and Affiliates for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan.
The Participant understands that the Company may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number (e.g., resident registration number), salary, nationality, job title, any shares of stock or directorships held in the Company, details of all RSUs or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the exclusive purpose of implementing, administering and managing the Plan.
The Participant understands that Data will be transferred to Morgan Stanley Smith Barney, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Participant’s country. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting the Company’s Stock Plan Administration and Shareholder Services. The Participant authorizes the Company, Morgan Stanley Smith Barney and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan. The Participant understands that he or she may, at any time, request access to Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Company’s Stock Plan Administration and Shareholder Services.. Further, the Participant understands that he or she is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if he or she later seeks to revoke his or her consent, his or her status or service with the Company will not be adversely affected; the only consequence of refusing or withdrawing his or her consent is that the Company would not be able to grant the Participant RSUs or other equity awards or administer or maintain such awards. Therefore, the Participant understands that refusing or withdrawing his or her consent may affect his or her ability to participate in the Plan. For more information on the consequences of the Participant’s refusal to consent or withdrawal of consent, the Participant understands that he or she may contact the Company’s Stock Plan Administration and Shareholder Services.
5.Compliance with Law. Notwithstanding any other provision of the Plan or the Agreement, unless there is an available exemption from any registration, qualification or other legal requirement applicable to the Stock, the Company shall not be required to deliver any shares issuable upon settlement of the RSU prior to the completion of any registration or qualification of the shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. The Participant understands that the Company is under no obligation to register or qualify the Stock with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Stock Further, the Participant agrees that the Company shall have unilateral authority to amend the Plan and the Agreement without the Participant’s consent to the extent necessary to comply with securities or other laws applicable to issuance of Stock.
6.Insider Trading/Market Abuse Laws. The Participant acknowledges that, depending on his or her country of residence, the Participant may be subject to insider trading restrictions and/or market abuse laws which may affect the Participant’s ability to acquire or sell shares of Stock or rights to shares of Stock (e.g., RSUs) under the Plan during such times the Participant is considered to have “inside information” regarding the Company (as defined in the laws in the Participant’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that my be imposed under any applicable Company insider trading policy. The Participant acknowledges that it is his or her responsibility to comply with any applicable restrictions and should speak to his or her personal advisor on this matter.
7.Foreign Asset/Account Reporting; Exchange Controls. The Participant’s country may have certain foreign asset and/or account reporting requirements and/or exchange controls which may affect the Participant's ability to acquire or
hold shares of Stock under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of shares of Stock) in a brokerage or bank account outside the Participant’s country. The Participant may be required to report such accounts, assets or transactions to the tax or other authorities in his or her country. The Participant also may be required to repatriate sale proceeds or other funds received as a result of the Participant’s participation in the Plan to his or her country through a designated bank or broker and/or within a certain time after receipt. The Participant acknowledges that it is his or her responsibility to be compliant with such regulations, and the Participant should consult his or her personal legal advisor for any details
8.Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
9.Language. If the Participant has received the Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
10.Exhibit II. Notwithstanding any provisions in the Agreement, the RSU grant shall be subject to any special terms and conditions set forth in Exhibit II to the Agreement for the Participant’s country. Moreover, if the Participant relocates to one of the countries included in Exhibit II, the special terms and conditions for such country will apply to the Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Exhibit II constitutes part of the Agreement.
11.Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the RSU and on any Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
EXHIBIT II
COUNTRY SPECIFIC TERMS APPLICABLE TO NON-U.S. PARTICIPANTS
The additional terms and conditions set forth below are specifically incorporated into the Agreement. These terms and conditions govern the RSUs granted under the Mead Johnson Long-Term Incentive Plan if the Participant resides in one of the countries listed below. Due to the complexities of legal, regulatory and tax issues, the Participant should seek appropriate professional advice as to how the relevant laws in the applicable country may apply to the Participant’s individual situation. Certain capitalized terms used but not defined in this Exhibit II have the meanings set forth in the Plan and/or the Agreement.
This Exhibit II also includes information of which the Participant should be aware with respect to his or her participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of January 2015 and is provided for informational purposes. Such laws are often complex and change frequently, certain individual exchange control reporting requirements may apply upon vesting of the RSU and/or sale of Stock and results may be different based on the particular facts and circumstances. As a result, the Company strongly recommends that the Participant does not rely on the information noted herein as the only source of information relating to the consequences of his or her participation in the Plan because the information may be out of date at the time the RSU vests, or the Participant sells shares of Stock acquired under the Plan.
In addition, the information is general in nature and may not apply to the Participant’s particular situation, and the Company is not in a position to assure the Participant of any particular result. Accordingly, the Participant should seek appropriate professional advice as to how the relevant laws in his or her country may apply to his or her situation.
Finally, if the Participant is a citizen of a country other than the one in which he or she currently resides, transfers residency after the RSU is granted to him or her, or is considered a resident of another country for local law purposes, the information contained herein may not be applicable to him or her, and the Company shall, in its discretion, determine to what extent the terms and conditions contained herein shall be applicable to the Participant. If the Participant transfers residency to another country listed in this Exhibit II after the RSU is granted to him or her, the information contained for that new country may be applicable to him or her.
Italy
Data Privacy. The following provision replaces in its entirety Section 4 of Exhibit I to the Agreement:
The Participant understands that the Company and (or a Subsidiary or Affiliate) are the privacy representatives of the Company in Italy and may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of Stock or directorships held in the Company or any Subsidiaries or Affiliates, details of all RSUs or any other entitlement to Stock awarded, canceled, vested, unvested or outstanding in the Participant’s favor, and that the Company (or a Subsidiary or Affiliate) will process said data and other data lawfully received from third parties (“Personal Data”) for the exclusive purpose of managing and administering the Plan and complying with applicable laws, regulations and Community legislation.
The Participant also understands that providing the Company with Personal Data is mandatory for compliance with laws and is necessary for the performance of the Plan and that the Participant’s denial to provide Personal Data would make it impossible for the Company to perform its contractual obligations and may affect the Participant’s ability to participate in the Plan.
The Controller of personal data processing is Mead Johnson Nutrition Company, with registered offices at 2701 Patriot Boulevard, Glenview, Illinois 60026, U.S.A., and pursuant to Legislative Decree no. 196/2003, its representative in Italy is Mead Johnson Nutrition (Italia) S.r.l., Via V. Maroso n. 50, Rome, RM 00142.
The Participant understands that Personal Data will not be publicized, but it may be accessible by a Subsidiary or Affiliate as the privacy representative of the Company and within the Company’s organization by its internal and external personnel in charge of processing, and by Morgan Stanley Smith Barney or any other data processor appointed by the Company. The updated list of processors and of the subjects to which Data are communicated will remain available upon request from the Company. Furthermore, Personal Data may be transferred to banks, other financial institutions or brokers involved in the management and administration of the Plan.
The Participant understands that Personal Data may also be transferred to the independent registered public accounting firm engaged by the Company, and also to the legitimate addressees under applicable laws. The Participant further understands that the Company and its Subsidiaries or Affiliates will transfer Personal Data amongst themselves as necessary for the purpose of implementation, administration and management of the Participant’s participation in the Plan, and that the Company and its Subsidiaries or Affiliates may each further transfer Personal Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer of Personal Data to Morgan Stanley Smith Barney or other third party with whom the Participant may elect to deposit any shares of Stock acquired under the Plan or any proceeds from the sale of such shares of Stock. Such recipients may receive, possess, use, retain and transfer Personal Data in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that these recipients may be acting as controllers, processors or persons in charge of processing, as the case may be, according to applicable privacy laws, and that they may be located in or outside the European Economic Area, such as in the United States or elsewhere, in countries that do not provide an adequate level of data protection as intended under Italian privacy law.
Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Personal Data as soon as it has accomplished all the necessary legal obligations connected with the management and administration of the Plan.
The Participant understands that Personal Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Personal Data is collected and with confidentiality and security provisions as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.
The processing activity, including communication, the transfer of Personal Data abroad, including outside of the European Economic Area, as specified herein and pursuant to applicable laws and regulations, does not require the Participant’s consent thereto as the processing is necessary to performance of law and contractual obligations related to implementation, administration and management of the Plan. The Participant understands that, pursuant to section 7 of the Legislative Decree no. 196/2003, the Participant has the right at any moment to, including, but not limited to, obtain confirmation that Personal Data exists or not, access, verify its contents, origin and accuracy, delete, update, integrate, correct, blocked or stop, for legitimate reason, the Personal Data processing. To exercise privacy rights, the Participant should contact the Company.
Plan Document Acknowledgment. In accepting the RSUs, the Participant acknowledges that the Participant has received a copy of the Plan and the Agreement and has reviewed the Plan and the Agreement, including Exhibits I and II, in their entirety and fully understand and accept all provisions of the Plan and the Agreement, including Exhibits I and II. The Participant further acknowledges that he or she has read and specifically and expressly approves the following sections of the Agreement: Section 1 (Award); Section 9 (Waiver); and Section 10 (Governing Law); and the following sections of Exhibit I to the Agreement: Section 1 (Responsibility for Taxes); Section 2 (Nature of Grant); Section 3 (No Advice Regarding Grant); Section 5 (Compliance with Law); Section 6 (Insider Trading/Market Abuse Laws); Section 8 (Electronic Delivery and Acceptance); Section 9 (Language); Section 10 (Exhibit II); and Section 11 (Imposition of Other Requirements).
Foreign Asset/Account Reporting Information. If the Participant is an Italian resident who, at any time during the fiscal year, holds foreign financial assets (including cash and shares of Stock) which may generate income taxable in Italy, the Participant is required to report these assets on his or her annual tax return for the year during which the assets are held, or on a special form
if no tax return is due. These reporting obligations also apply if the Participant is the beneficial owner of foreign financial assets under Italian money laundering provisions.
Foreign Financial Asset Tax Information. Italian residents may be subject to tax on the value of financial assets held outside of Italy (e.g., shares of Stock acquired under the Plan). The taxable amount will be the fair market value of the financial assets, assessed at the end of the calendar year or on the last day within the year that the assets were held (if shares of Stock are acquired or sold during the year, the taxable amount is reduced by reference to the proportion of the year the shares of Stock were held). For the purposes of the market value assessment, the documentation issued by the Plan broker may be used.
Puerto Rico
There are no country-specific provisions.
Thailand
Exchange Control Information. If the proceeds from the sale of shares of Stock or the receipt of dividends are equal to or greater than US$50,000 or more in a single transaction, Thai resident Participants must repatriate the proceeds to Thailand immediately upon receipt and convert the funds to Thai Baht or deposit the proceeds in a foreign currency deposit account maintained by a bank in Thailand within three hundred and sixty (360) days of remitting the proceeds to Thailand. In addition, Thai resident Participants must report the inward remittance to the Bank of Thailand on a foreign exchange transaction form.
If a Thai resident Participant does not comply with the above obligations, such resident Participant may be subject to penalties assessed by the Bank of Thailand. Because exchange control regulations change frequently and without notice, the Participant should consult his or her legal advisor before selling shares of Stock to ensure compliance with current regulations. It is the Participant’s responsibility to comply with exchange control laws in Thailand, and the Company will not be liable for any fines or penalties resulting from failure the Participant to comply with applicable laws.
Exhibit 10.6
Annual Grant Form
MEAD JOHNSON NUTRITION COMPANY
LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE AWARD AGREEMENT
_____ – _____ Performance Share Award
The Participant has been granted a Performance Share Award under the terms of the Mead Johnson Nutrition Company Long-Term Incentive Plan (the “Plan”), subject to the terms and conditions set forth in this Agreement, including all exhibits and appendices hereto which are incorporated herein (the “Agreement”) and the summary of the grant (the “Grant Summary”) on the Morgan Stanley website at www.StockPlanConnect.com. To the extent applicable, the terms of the Performance Shares are modified as described in Exhibits I and II (relating to non-U.S. Participants). Capitalized terms not defined herein shall have the meaning specified in the Plan or in the Grant Summary.
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Summary – General
Performance Period: The three (3) year period commencing on January 1 of the calendar year in which the Performance Share Award is made (Y1) and ending on December 31 of the third calendar year (Y3) thereafter.
Performance Year(s): The three calendar years which, together, comprise the Performance Period (Y1, Year 2 (Y2) and Y3).
Performance Shares: The number of shares of Stock that may be accumulated for the Performance Period, subject to achievement of certain Performance Goal(s).
Total Target Performance Share Award: The target number of Performance Shares that may be accumulated for the Performance Period, which target number shall be detailed in the Grant Summary.
Target Number of Performance Shares That May Be Accumulated for Each Performance Year: Y1 Target Performance Shares: One-third of Total Target Performance Share Award Y2 Target Performance Shares: One-third of Total Target Performance Share Award Y3 Target Performance Shares: One-third of Total Target Performance Share Award
Range at Which Performance Shares May be Accumulated in Each of Y1, Y2 and Y3: Threshold: 40% Target: 100% Maximum: 200% Performance Goal(s): Separate Performance Goal(s) will be set for each Performance Year within the Performance Period. Such Performance Goal(s) shall be set by a date on or prior to March 15 of the applicable Performance Year (the “Performance Goal(s) Specification Date”), specifying the number of Performance Shares that may be accumulated for that Performance Year based on specified levels of performance.
Summary – Key Terms: See Page 2, below, for a summary of key terms. |
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Summary – Key Terms This table is intended to summarize the key legal provisions set forth in this Agreement
Please see the full agreement for the applicable legal terms. | Section Reference for Complete Legal Terms |
Award | Performance Shares are an opportunity to receive shares of stock after the end of a three-year performance cycle based on the Company’s performance during each year of that cycle and continued employment (with certain exceptions). | Section 1 |
Accumulation of Performance Shares | Performance Shares accumulate each year over the three-year performance cycle and generally vest upon certification after full completion of the three-year period, subject to continued employment (with certain exceptions). The number of shares that accumulate each year of the performance cycle are directly linked to achievement of performance goals set for the specific year. | Section 3 |
Payment of Award | Performance Shares accumulated during the three-year performance cycle generally are paid following certification after the end of the three-year performance cycle. | Section 4 |
Dividend Equivalent | Dividend Equivalents do not apply to Performance Shares. | Section 2 |
Termination Scenarios |
Disability | Participant will receive a pro-rata portion of accumulated shares for the relevant year in the performance cycle if Participant is disabled more than 26 weeks during such year. | Section 3(a) |
Retirement | If the termination occurs one or more years after the first day of the three-year performance cycle, Participant will receive any full years accumulated, and will receive a pro rata portion of the Performance Shares for the year in which termination occurs. Shares will be paid following certification after the end of the three-year performance cycle. Retirement is defined in the MJN Long-Term Incentive Plan. | Section 3(b)
Section 4(a) |
Death | If the termination occurs one or more years after the first day of the three-year performance cycle, Participant will receive any full years accumulated, and will receive a pro rata portion of the Performance Shares for the year in which the termination occurs. Shares accumulated at death will be paid at death, and other shares will be paid as soon as possible based on when performance targets for a particular year are certified. | Section 3(b)
Section 4(b) |
By Participant with Good Reason | Participant will receive any full years accumulated, and will receive a pro rata portion of the Performance Shares for the year in which the termination occurs. Shares will be paid following certification after the end of the three-year performance cycle. Good Reason is defined in Appendix A and generally refers to a material reduction in salary or job responsibilities or a material relocation. | Section 3(c)
Section 4(c) |
By the Company Without Cause (and with Signed Release) | Participant will receive any full years accumulated, and will receive a pro rata portion of the Performance Shares for the year in which the termination occurs. Shares will be paid following certification after the end of the three-year performance cycle. Termination by the Company without Cause occurs when Company does not have valid “Cause” to terminate a Participant’s employment (as defined in Appendix A). | Section 3(c)
Section 4(c) |
Voluntary Termination by Participant | All Performance Shares in the Award are forfeited. Voluntary termination by a Participant occurs when the Participant resigns and does not have a “Good Reason” for terminating employment and is not eligible for Retirement. | Section 3(e)
Section 4(d) |
By Company For Cause | All Performance Shares in the Award are forfeited. Cause is defined in Appendix A and generally refers to severe misconduct or a failure to perform duties with the Company. | Section 3(e)
Section 4(d) |
Change in Control | If Participant is still employed following a Change in Control, the Participant will continue to accumulate Performance Shares based on relevant performance goals. If Participant is terminated by the Company without cause or terminates with Good Reason within two years following a Change in Control, Performance Shares will accelerate and vest in full based on actual results for completed Performance Years and target awards for not-yet-completed or not-yet-commenced Performance Years. A special definition of Good Reason applies for periods after a Change in Control and is defined in Appendix A. | Section 3(d) |
1. Award. The Performance Shares granted to the Participant hereunder represent the opportunity for the Participant to accumulate the Performance Shares for each of Y1, Y2 and Y3 in accordance with the following:
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(a) | Except as otherwise provided herein, (i) Performance Shares for any Performance Year shall be accumulated only if the Participant’s Termination Date has not occurred prior to the Performance Goal(s) Specification Date for that Performance Year and (ii) the Performance Shares that are accumulated for any Performance Year in accordance with this Agreement (“Accumulated Performance Shares”) shall become vested and nonforfeitable only if the Participant’s Termination Date has not occurred prior to the Settlement Date (as described in Section 4). |
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(b) | Notwithstanding the provisions of subparagraph (a), in the event of a Change in Control during the Performance Period, the Performance Shares for any Performance Year in which or following the date on which the Change in Control occurs shall be accumulated only if the Participant’s Termination Date has not occurred prior to the Change in Control and in accordance with the following: |
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(i) | if the Change in Control occurs prior to the Performance Goal(s) Specification Date for the Performance Year in progress on the date on which the Change in Control occurs, the Performance Goal(s) Specification Date will be deemed to occur on the date of the Change in Control; |
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(ii) | in the case of any Performance Year beginning after the year in which the Change in Control occurs, the Performance Goal(s) Specification Date shall be deemed to occur as of the beginning of such Performance Year; and |
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(iii) | the Performance Goal(s) for any Performance Year occurring after a Change in Control shall be reasonably achievable and not more difficult to achieve in relation to the Company’s budget for the applicable Performance Year than the Performance Goal(s) for any earlier Performance Year was in relation to the budget for that earlier Performance Year. |
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(c) | If a Participant’s Termination Date occurs on or after the date of a Change in Control and during the Protected Period, the Performance Shares for any Performance Year in which or following the date of the Change in Control shall be accumulated in accordance with the provisions of subparagraph 3(d). |
2. Dividend Equivalents. No Dividend Equivalents will accumulate or be payable in connection with Performance Shares.
3. Accumulation of Performance Shares. For each Performance Year, the Committee shall determine and certify in writing in accordance with the terms of the Plan the extent to which the Performance Shares for that Performance Year have been accumulated on the basis of the Company’s actual performance in relation to the applicable established Performance Goal(s), which determination and certification shall occur as of the date, not later than March 15 of the year following the applicable Performance Year, specified by the Committee (which date shall be referred to as the “Accumulation Date”). Any Performance Shares for a particular Performance Year which have not become Accumulated Performance Shares as determined by the Committee as of the Accumulation Date shall immediately expire and be forfeited and the Participant shall have no further rights with respect thereto. If the Participant’s Termination Date occurs prior to the Accumulation Date for any Performance Year, all Performance Shares for such Performance Year (and any prior or future Performance Years during the Performance Period) shall immediately expire and be forfeited and the Participant shall have no further rights with respect thereto. Notwithstanding the foregoing:
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(a) | Disability. If the Participant incurs a Disability and if the period of Disability exceeds 26 weeks in the aggregate during one or more Performance Years, only a Pro Rata Portion of the Performance Shares that would otherwise have actually been accumulated for such affected Performance Year(s) shall be accumulated and become Accumulated Performance Shares for such Performance Year. |
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(b) | Death or Retirement. If the Participant’s Termination Date occurs due to death or Retirement one (1) year or more after the first day of the Performance Period and prior to the Accumulation Date for any Performance Year, a Pro Rata Portion of the Performance Shares that would otherwise have been accumulated for such Performance Year shall be accumulated and become Accumulated Performance Shares for such Performance Year. For these purposes, if the Participant’s Termination Date occurs before the Performance Goal(s) Specification Date for the Performance Year in progress on the Termination Date, the Performance Shares for that Performance Year shall have the same performance terms as those applicable to participants whose Termination Date has not yet occurred and shall be accumulated in accordance with the foregoing and the other terms and conditions of this Agreement. |
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(c) | Termination by Company other than for Cause; Termination by Participant for Good Reason—Other than During Protected Period. If the Participant’s Termination Date occurs by reason of termination by the Company or an Affiliate or Subsidiary for reasons other than for Cause or by Participant for Good Reason other than during the Protected Period and prior to the Accumulation Date for any Performance Year, a Pro Rata Portion of the Performance Shares that would otherwise have been accumulated for such Performance Year shall be accumulated and become Accumulated Performance Shares for such Performance Year. For these purposes, if the Participant’s Termination Date occurs before the Performance Goal(s) Specification Date for the Performance Year in progress on the Termination Date, the Performance Shares for that Performance Year shall have the same performance terms as those applicable to participants whose Termination Date has not yet occurred and shall be accumulated in accordance with the foregoing and the other terms and conditions of this Agreement. Notwithstanding the foregoing, if the Termination Date occurs by reason of termination by the Company other than for Cause, the provisions of this paragraph 3(c) shall apply only if the Participant executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company. |
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(d) | Termination by Company other than for Cause; Termination by Participant for Good Reason—During Protected Period. If the Participant’s Termination Date occurs by reason of termination by the Company or an Affiliate or Subsidiary for reasons other than for Cause or by Participant for Good Reason during the Protected Period and prior to the Accumulation Date for any Performance Year, the following Performance Shares shall be accumulated with respect to any such Performance Year: |
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(i) | in the case of Performance Shares relating to a Performance Year beginning after the Change in Control and completed prior to the Participant’s Termination Date, the number of shares that would otherwise be accumulated and become Accumulated Performance Shares for such Performance Year had the Participant’s Termination Date not occurred; |
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(ii) | in the case of Performance Shares relating to a Performance Year in progress on the date of the Change in Control and on the Participant’s Termination Date, the Target Level Performance Share Accumulation; |
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(iii) | in the case of Performance Shares relating to a Performance Year beginning after the date of the Change in Control and in progress on the Participant’s Termination Date, the Target Level of Performance Share Accumulation; and |
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(iv) | in the case of Performance Shares relating to a Performance Year beginning after the date of the Change in Control and after the Participant’s Termination Date, the Target Level of Performance Share Accumulation. |
If the provisions of this paragraph 3(d) apply and if the Change in Control is a Section 409A Change in Control, the “Accumulation Date” shall be the Participant’s Termination Date. Notwithstanding the foregoing, if the Termination Date occurs by reason of termination by the Company other than for Cause, the provisions of this paragraph 3(d) shall apply only if the Participant executes a general release and, where applicable, a non-solicitation and/or non-compete agreement with the Company.
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(e) | Termination for Cause; Voluntary Termination Other than for Good Reason. If the Participant’s Termination Date occurs by reason of termination by the Company or an Affiliate or Subsidiary for Cause or by Participant other than for Good Reason and, in either case, prior to the Settlement Date, then, as of the Participant’s Termination Date, all of the Performance Shares (including any Accumulated Performance Shares for prior Performance Years and any Performance Shares relating to in-progress and future Performance Years during the Performance Period) shall be immediately forfeited and the Participant shall have no further rights with respect thereto, including any rights to vesting or settlement pursuant to Section 4. |
4. Vesting and Settlement of Accumulated Performance Shares. Except as otherwise provided herein, Accumulated Performance Shares for any Performance Year will be vested and nonforfeitable from and after the Settlement Date and will be settled on or Promptly following the Settlement Date by delivery of one share of Stock for each Performance Share being settled either in certificated form or in such other manner as the Company may reasonably determine, unless validly deferred in accordance with deferral terms then authorized by the Committee. The number of Accumulated Performance Shares that will become vested and nonforfeitable for the Performance Period shall be rounded to the nearest whole number, unless otherwise determined by the Company officers responsible for the day-to-day administration of the Plan. Except as set forth below, if the Participant’s Termination Date occurs for any reason prior to the Settlement Date, all Performance Shares for all Performance Years (including any Accumulated Performance Shares for prior Performance Years during the Performance Period) shall immediately expire and shall be forfeited and the Participant shall have no further rights with respect thereto. Notwithstanding the foregoing:
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(a) | Retirement. If the Participant’s Termination Date occurs due to Retirement, the Accumulated Performance Shares determined as of the Participant’s Termination Date will be vested and nonforfeitable upon the Participant’s Termination Date and will be settled on or Promptly following the earliest of the following dates or events: |
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(ii) | if a Section 409A Change in Control occurs prior to the Settlement Date: |
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(1) | as to any Performance Shares accumulated prior to the Section 409A Change in Control, the date of the Section 409A Change in Control; and |
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(2) | as to any Performance Shares that were not accumulated prior to the Section 409A Change in Control, the Accumulation Date with respect thereto; or |
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(iii) | in the event of the Participant’s death following the Participant’s Termination Date, the Participant’s death or, with respect to any Performance Shares that were not accumulated as of the Participant’s death, the Accumulation Date with respect thereto. |
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(b) | Death. If the Participant’s Termination Date occurs due to death, the Accumulated Performance Shares determined as of the Participant’s Termination Date will be vested and nonforfeitable upon the Participant’s Termination Date and will be settled Promptly following the date or event determined in accordance with the following: |
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(i) | as to any Performance Shares accumulated for the Performance Year in progress at the time of the Participant’s death, the Accumulation Date with respect thereto; and |
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(ii) | as to any Performance Shares accumulated for any Performance Year completed prior to the Participant’s death, the date of death. |
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(c) | Termination by Company other than for Cause; Termination by Participant for Good Reason. If the Participant’s Termination Date occurs due to termination by the Company other than for Cause or termination by the Participant for Good Reason (whether during the Protected Period or otherwise), any Accumulated Performance Shares determined as of the Participant’s Termination Date will be vested and nonforfeitable as of the Termination Date and will be settled on or Promptly following the earliest of the following dates or events: |
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(ii) | if a Section 409A Change in Control occurs prior to the Settlement Date: |
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(1) | as to any Performance Shares accumulated prior to the Section 409A Change in Control, the date of the Section 409A Change in Control; and |
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(2) | as to any Performance Shares that were not accumulated prior to the Section 409A Change in Control, the Accumulation Date with respect thereto; or |
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(iii) | in the event of the Participant’s death following the Participant’s Termination Date, the Participant’s death or, with respect to any Performance Shares that were not accumulated as of the Participant’s death, the Accumulation Date with respect thereto. |
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(d) | Termination for Cause; Voluntary Termination Other than for Good Reason. If the Participant’s Termination Date occurs by reason of termination by the Company or an Affiliate or Subsidiary for Cause or by Participant other than for Good Reason then none of the Performance Shares shall become vested and nonforfeitable and, as of the Participant’s Termination Date, all of the Performance Shares (including any Accumulated Performance Shares for prior Performance Years and any Performance Shares relating to in-progress and future Performance Years during the Performance Period) shall be immediately forfeited and Participant shall have no further rights with respect thereto. |
5. Withholding. At such time as the Company or any Affiliate or Subsidiary is required to withhold taxes with respect to the Performance Shares, or at an earlier date as determined by the Company, the Participant shall make cash remittance to the Company or the Affiliate or Subsidiary that is the Participant’s employer the amount of the federal, state or local income tax or earnings tax or any other applicable tax or assessment (plus interest and penalties thereon, if any, caused by a delay in making such payment) incurred by reason of vesting or settlement of the Performance Shares. The Company and its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct such amount from any payment of any kind otherwise due to the Participant, including by means of mandatory withholding of shares deliverable in settlement of the Performance Shares, to satisfy the mandatory tax withholding requirements or to require the Participant to authorize the
Company’s designated broker/agent to sell the shares of Stock acquired upon settlement of the Performance Shares and remit to the Company a sufficient portion of the sale proceeds to pay the applicable brokerage fees and any withholding and/or taxes and applicable fees resulting from such settlement (“sale to cover”). In all cases, the Company shall determine the method by which payment of withholding taxes shall be satisfied. Non-U.S. Participants see applicable Non-U.S. Participant Exhibit for special rules.
6. Forfeiture Provisions. The Participant acknowledges that the Participant’s continued employment with the Company, its Affiliates and its Subsidiaries, and the grant of the Performance Shares is sufficient consideration for the Agreement, including, without limitation, the restrictions imposed upon the Participant by this Section 6.
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(a) | In consideration of the Performance Shares awarded hereby, the Participant expressly agrees and covenants that, during the Restricted Period, the Participant shall not, without the prior consent of the Company, permit any Forfeiture Event to exist, directly or indirectly. |
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(b) | If the Committee determines that a Forfeiture Event has occurred or is ongoing, then the Participant covenants and agrees that the following forfeitures and related actions will occur: |
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(i) | Any portion of the Performance Shares that have not been settled shall be immediately forfeited and the Participant shall automatically forfeit any rights the Participant may have with respect to the Performance Shares as of the date of such determination; and |
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(ii) | If any of the Performance Shares vested within the twelve (12) month period immediately preceding the occurrence of a Forfeiture Event (or following the date of the earliest Forfeiture Event), then, upon the Company’s demand, the Participant shall immediately deliver to the Company certificate(s) for the number of shares of Stock issued upon settlement of the Performance Shares or, if the shares have been sold, the Participant shall immediately remit to the Company, in cash, the proceeds of any such sale(s). Any shares surrendered pursuant to this provision shall be treated as treasury shares and shall be added to the authorized and unissued shares available for issuance under the Plan. |
7. Performance Shares Not Contract of Employment or Service; No Rights as Stockholder. Neither the grant nor the accumulation of the Performance Shares constitutes a contract of employment or continued service, and neither the grant nor the accumulation of the Performance Shares shall give the Participant the right to be retained in the employ or service of the Company or any Affiliate or Subsidiary, nor any right or claim to any benefit under the Plan or the Agreement, unless such right or claim has specifically accumulated under the terms of the Plan and the Agreement. The Participant and the Participant’s beneficiary shall not have any rights with respect to Stock (including voting rights) issuable upon settlement of the Performance Shares prior to the date on which the Performance Shares are settled.
8. Administration. The authority to administer and interpret the Agreement shall be vested in the Committee, and the Committee shall have all the powers with respect to the Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement are final and binding on all persons.
9. Transferability. The Performance Shares are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
10. Adjustment of Award. The number of Performance Shares, the number and type of Stock subject to the Performance Shares and other related terms shall be adjusted by the Committee in accordance with the terms of the Plan.
11. Waiver. The waiver by the Company or an Affiliate or Subsidiary of any provision of the Agreement shall not operate as or be construed to be a subsequent waiver of the same provision or waiver of any other provision hereof.
12. Governing Law. The grant of the Performance Shares and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this grant or this Agreement the parties hereby submit to and consent to the exclusive jurisdiction of the State of Illinois and agree that such litigation shall be conducted in the courts of Cook County, Illinois, or the federal courts for the United States for the Northern District of Illinois, where this grant is made and/or to be performed.
13. Amendment; Entire Agreement; Successors. This Agreement shall be subject to the terms of the Plan, as amended from time to time, except that the Award that is the subject of this Agreement may not be materially adversely affected by any amendment or termination of the Plan approved after the Grant Date without the Participant’s written consent. This Agreement and the Plan contain the entire understanding of the parties with respect to the Performance Shares and supersede any prior agreements or documents with respect to the Performance Shares. This Agreement shall be binding up and inure to the benefit of the heirs, executors, administrators and successors of the parties.
14. Code Section 409A. Notwithstanding anything in the Plan or this Agreement to the contrary, if any payment with respect to any Performance Shares is subject to Code Section 409A and if such payment is to be paid or provided on account of Participant’s Termination Date (or other separation from service or termination of employment, other than death):
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(a) | and if Participant is a specified employee (within the meaning of Code Section 409A) and if any such payment or benefit is required to be made or provided prior to the date which is six (6) months following Participant’s Termination Date, such payment or benefit shall be delayed until the date which is six (6) months and one (1) day following Participant’s Termination Date; provided, however, that if Participant dies prior to such six (6)-month anniversary, all remaining payments shall be paid to his estate within ninety (90) days following his death; and |
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(b) | the determination as to whether Participant has had a Termination Date (or other termination of employment or separation from service) shall be made in accordance with the provisions of Code Section 409A and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder. |
It is the intent of this Agreement to comply with the requirements of Code Section 409A so that none of the Performance Shares provided under this Agreement or Stock issuable hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities herein will be interpreted to so comply. None of the Company, any Affiliate or any Subsidiary, however, makes any representation regarding the tax consequences of this Award.
Mead Johnson Nutrition Company
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By: | __________________________ |
Senior Vice President, General Counsel and Secretary
PARTICIPANT ACKNOWLEDGEMENT AND ACCEPTANCE
I have read this Agreement in its entirety. I understand that the Performance Shares have been or will be granted to provide a means for me to acquire and/or expand an ownership position in Mead Johnson Nutrition Company, and it is expected that I will retain the Stock I receive upon the settlement of the Performance Shares consistent with the Company’s Stock retention guidelines in effect at the time of settlement of the Performance Shares. I acknowledge and agree that (i) the Performance Shares are nontransferable, except as provided herein and in the Plan, (ii) the Performance Shares are subject to forfeiture in the event of my Termination Date in certain circumstances, as specified in the Agreement, and (iii) sales of Stock will be subject to the Company’s policy regulating trading by employees. In accepting this grant, I hereby agree that Morgan Stanley Smith Barney, or such other vendor as the Company may choose to administer the Plan, may provide the Company with any and all account information necessary to monitor my compliance with the Company’s Stock retention guidelines and other applicable policies.
I hereby agree to all the terms and conditions set forth in this Agreement and accept the grant of the Performance Shares subject thereto. Where electronic acceptance is permitted under applicable law, electronic acceptance of the Performance Shares shall be binding on the Participant.
By: _______________________________________
Participant Signature
APPENDIX A
SPECIAL DEFINITIONS
The following capitalized terms shall have the meaning specified for purposes of the Agreement.
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1. | Cause. The term “Cause” means: |
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(a) | with respect to a Termination Date that occurs other than during the Protected Period: |
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(i) | Failure or refusal by the Participant to substantially perform his duties with the Company or its Subsidiaries or Affiliates (except where the failure results from incapacity due to Disability); or |
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(ii) | Severe misconduct or activity deemed detrimental to the interests of the Company or a Subsidiary or Affiliate. This may include, but is not limited to, the following: acts involving dishonesty, violation of the Company’s or a Subsidiary’s or an Affiliate’s written policies (such as those related to alcohol or drugs, etc.), violation of safety rules, disorderly conduct, discrimination and/or discriminatory harassment, unauthorized disclosure of the Company’s or a Subsidiary’s or an Affiliate’s confidential information, or the entry of a plea of nolo contendere to, or the conviction of, a crime; and |
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(b) | with respect to a Termination Date that occurs during the Protected Period: |
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(i) | The Participant’s willful and continued failure to substantially perform the Participant’s duties with the Company or its Subsidiaries or Affiliates (except where the failure results from incapacity due to Disability) for a period of thirty (30) consecutive days after a written demand for substantial performance is delivered to the Participant by the Committee, which demand specifically identifies the manner in which the Committee believes that the Participant has not substantially performed the Participant’s duties; |
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(ii) | Willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries or Affiliates, monetarily or otherwise; or |
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(iii) | The Participant is convicted of, or has entered a plea of nolo contendere to, a felony. |
For purposes of paragraphs (1)(b)(i) and (ii) above, no act, or failure to act, on the Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s act, or failure to act, was in the best interest of the Company.
For all purposes, “Cause” will be interpreted by the Committee in its sole discretion, and the Committee’s interpretation will be conclusive and binding on all parties.
2.Competitive Business. The term “Competitive Business” means any person or entity that engages in any business activity that competes with the Company’s or an Affiliate’s or Subsidiary’s business in any way, in any geographic area in which the Company or an Affiliate or Subsidiary engages in business, including,
without limitation, any state in the United States in which the Company or an Affiliate or Subsidiary sells or offers to sell its products from time to time.
3.Disability Benefits. The term “Disability Benefits” means income replacement benefits payable to the Participant under an accident and health plan of the Company or any Subsidiary or Affiliate, either in the United States or in a jurisdiction outside of the United States. In a jurisdiction outside of the United States, “Disability Benefits” shall also include payments under a mandatory or universal disability plan or program managed or maintained by the government.
4.Forfeiture Event. A “Forfeiture Event” occurs if any of the following occur:
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(a) | The Participant owns or has any financial interest in a Competitive Business or is actively connected with a Competitive Business by managing, operating, controlling, being an employee or consultant of (or accepting an offer to be an employee or consultant) or otherwise advising or assisting a Competitive Business in such a way that such connection might result in an increase in value or worth of any product, technology or service that competes with any product, technology or service upon which the Participant worked or about which the Participant became familiar as a result of the Participant’s employment with the Company or an Affiliate or Subsidiary; provided, however, that nothing in this clause shall prevent the Participant from owning one percent or less of the outstanding securities of any entity whose securities are traded on a U.S. national securities exchange (including NASDAQ) or an equivalent foreign exchange; and provided, further that, for periods after a Participant’s Termination Date, the Participant may be actively connected with a Competitive Business so long as the Participant’s connection to the business does not involve any product, technology or service that competes with any product, technology or service upon which the Participant worked or about which the Participant became familiar as a result of the Participant’s employment with the Company or an Affiliate or Subsidiary and the Company is provided written assurance of this fact from the Competitive Business prior to the Participant’s beginning such connection; |
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(b) | The Participant takes any action that might divert any opportunity from the Company or any Affiliate or Subsidiary, or any of their respective successors or assigns (the “Related Parties”) that is within the scope of the present or future operations or business of any of the Related Parties; |
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(c) | The Participant employs, solicits for employment, advises or recommends to any other person that they employ or solicit for employment or form an association with any person who is employed by the Company or an Affiliate or Subsidiary or who has been employed by the Company or an Affiliate or Subsidiary within one (1) year of the date the Participant’s Termination Date occurs for any reason; |
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(d) | The Participant contacts, calls upon or solicits any (A) customer or (B) prospective customer of the Company or an Affiliate or Subsidiary that the Participant became aware of or was introduced to in the course of the Participant’s duties for the Company or an Affiliate or Subsidiary, or, in any case, otherwise attempts to divert or take away from the Company or an Affiliate or Subsidiary the business of any customer or prospective customer of the Company or an Affiliate or Subsidiary; or |
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(e) | The Participant engages in any activity that is harmful to the interests of the Company or an Affiliate or Subsidiary, including, without limitation, any conduct during the term of the |
Participant’s employment that violates the Company’s standards of business conduct and ethics, securities trading policy and other policies.
5.Good Reason. The term “Good Reason” means:
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(a) | with respect to a Termination Date that occurs other than during the Protected Period, the occurrence of any one or more of the following events that occur without the Participant’s written consent: |
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(i) | A material reduction in the Participant’s base salary; |
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(ii) | A reduction in grade level, resulting in a material diminution of the Participant’s authority, duties, or responsibilities; or |
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(iii) | A change in the principal location of the Participant’s job or office, such that the Participant will be based at a location that is 50 miles or more further (determined in accordance with the Company’s relocation policy) from the Participant’s principal job or office location immediately prior to the proposed change in the Participant’s job or office. |
For a termination to qualify as a termination for Good Reason under this provision, the Participant must notify the Company in writing of termination for Good Reason, specifying the event constituting Good Reason, within ten (10) business days after the occurrence of the event that the Participant believes constitutes Good Reason. Failure for any reason to give written notice of termination for Good Reason in accordance with the foregoing will be deemed a waiver of the right to voluntarily terminate employment for that Good Reason event. The Company will have a period of thirty (30) days after receipt of the Participant’s notice in which to cure the Good Reason. If the Good Reason is cured within this period, the Participant will not be entitled to terminate employment for Good Reason. If the Company waives its right to cure or does not, within the thirty (30)-day period, cure the Good Reason, the Participant will be entitled to terminate employment for Good Reason, and the actual termination date will be determined in the sole discretion of the Company, but in no event will it be later than thirty (30) calendar days from the date the Company waives its right to cure or the end of the thirty (30)-day period in which to cure the Good Reason, whichever is earlier.
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(b) | with respect to a Termination Date that occurs during the Protected Period, the occurrence of any one or more of the following events that occur without the Participant’s express written consent: |
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(i) | if applicable, the assignment to the Participant of any duties materially inconsistent with the Participant’s status as an officer of the Company (e.g., no longer reporting to the CEO) or a substantial adverse alteration in the nature or status of the Participant’s authorities, duties or responsibilities from those in effect immediately prior to the Change in Control (e.g., reduction in signing authority); |
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(ii) | a material adverse change in the Participant’s reporting relationships; |
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(iii) | a material reduction by the Company, its Subsidiaries or its Affiliates in the Participant’s base salary or bonus from the levels in effect immediately prior to a Change in Control or as the same may be increased from time to time after a Change in Control; |
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(iv) | the relocation of the Participant’s principal place of employment to a location more than 50 miles from the location of such place of employment immediately prior to a Change in Control, except for required travel on the Company’s business to an extent substantially consistent with the Participant’s business travel obligations prior to the Change in Control or, if the Participant has consented to a relocation, the failure by the Company to provide the Participant with all of the benefits of the Company’s relocation policy as in operation immediately prior to a Change in Control; |
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(v) | the failure of the Company, its Subsidiaries or its Affiliates to pay the Participant any material amount or portion of the Participant’s compensation or to pay the Participant any portion of an installment of deferred compensation under any deferred compensation program of the Company, its Subsidiaries or its Affiliates within seven (7) days of the date on which such compensation was due; or |
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(vi) | the failure by the Company, its Subsidiaries or its Affiliates to continue in effect any compensation or benefit plan which is material to the Participant’s compensation and in which the Participant participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company, its Subsidiaries or its Affiliates to continue the Participant’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of the Participant’s participation relative to other participants, as existed at the time of the Change in Control. |
For a termination to qualify as a termination for Good Reason under this provision, the Participant must notify the Company in writing of termination for Good Reason, specifying the event constituting Good Reason, within ninety (90) days after the Participant first becomes aware of the event that the Participant believes constitutes Good Reason. Failure for any reason to give written notice of termination of employment for Good Reason in accordance with the foregoing will be deemed a waiver of the right to terminate the Participant’s employment for that Good Reason event. The Company will have a period of thirty (30) days after receipt of the Participant’s notice in which to cure the Good Reason. If the Good Reason event is cured within this period, the Participant will not be entitled to terminate the Participant’s employment for Good Reason. If the Company waives its right to cure or does not, within the thirty (30)-day period, cure the Good Reason event, the Participant may terminate the Participant’s employment for Good Reason within thirty (30) days following the earlier of the date on which the Company waives its right to cure or the end of the cure period. If the Participant does not terminate the Participant’s employment within such thirty (30) day period, the Participant will waive the Participant’s right to terminate the Participant’s employment for that Good Reason event.
6.Pro Rata Performance Share Payout. The term “Pro Rata Performance Share Payout” means a Pro Rata Portion of the Performance Shares that the Participant would otherwise have actually accumulated for that Performance Year if his Termination Date had not occurred prior to the Accumulation Date for that Performance Year.
7.Pro Rata Portion. The “Pro Rata Portion” for any Performance Year is calculated as follows:
Pro Rata Portion = P x [M / 12]
Where:
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P = | Number of Performance Shares relating to such Performance Year; and |
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M = | Number of Months that the Participant was employed from the commencement of that Performance Year through the end of the month in which the Participant’s Termination Date occurred (but not more than 12). |
For purposes of the foregoing calculation, the number of months that the Participant was employed during a Performance Year shall be reduced by the number of months of any period of Disability during such Performance Year in excess of 26 weeks since the commencement of the Disability. In the case of a Disability extending longer than 26 weeks, the “Pro Rata Portion” for any Performance Year is calculated as follows:
Pro Rata Portion = A x [ (12 – D) / 12]
Where:
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A = | Number of Performance Shares relating to a given Performance Year; and |
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D = | Number of months of Disability in excess of 26 weeks since the commencement of the Disability. |
For purposes of the foregoing calculations, one (1) or more days worked in a given month is counted as a full month of active employment; and one or more days on Disability in a given month in which the duration of Disability has not yet exceeded 26 weeks is also counted as a full month of active employment.
8.Promptly. With respect to any date or event, the term “Promptly” means within thirty (30) days after such date or event; provided, however, that with respect to any settlement of Performance Shares that is to occur as of the Settlement Date, “Promptly” means no later than March 15 of the year following the last year of the Performance Period.
9.Protected Period. The term “Protected Period” means the two (2)-year period following a Change in Control.
10.Restricted Period. The term “Restricted Period” means the period during which the Participant is employed by the Company or an Affiliate or Subsidiary and twelve (12) months following the date that the Participant ceases to be employed by the Company or an Affiliate or Subsidiary for any reason whatsoever.
11.Section 409A Change in Control. The term “Section 409A Change in Control” means a Change in Control which also constitutes a change in control event within the meaning of Code Section 409A.
12.Settlement Date. The term “Settlement Date” is the Accumulation Date for Y3 of the Performance Period.
13.Target Level Performance Share Accumulation. The term “Target Level Performance Share Accumulation” means, with respect to any Performance Year, the number of Performance Shares that would otherwise have actually accumulated for that Performance Year with respect to a Participant if his Termination Date had not occurred prior to the Accumulation Date for that Performance Year and had the Performance Goal(s) for that Performance Year been achieved at the target level.
14.Termination Date. The term “Termination Date” means the date on which the Participant’s employment with the Company and any Affiliates and Subsidiaries terminates for any reason. The Participant’s Termination Date shall not occur solely as a result of the following:
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(a) | A transfer of the Participant’s employment from the Company to a Subsidiary or Affiliate, or vice versa, or from one Subsidiary or Affiliate to another; |
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(b) | A leave of absence, duly authorized in writing by the Company, for military service or sickness or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days; |
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(c) | A leave of absence in excess of ninety (90) days, duly authorized in writing, by the Company, provided the Participant’s right to reemployment is guaranteed either by a statute or by contract; or |
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(d) | Any period that the Participant is receiving Disability Benefits due to the incurrence of a Disability prior to the date that would otherwise be the Participant’s Termination Date. |
However, the Participant’s Termination Date shall be deemed to occur upon the date that the Participant fails to return to active service with the Company or an Affiliate or Subsidiary at the end of an approved leave of absence or, if applicable, upon cessation of Disability Benefits.
During a leave of absence as defined in paragraph (b) or (c), although the Participant will be considered to have been continuously employed by the Company or an Affiliate or Subsidiary and not to have incurred a Termination Date solely as a result thereof, the Committee may specify that such leave period shall not be counted in determining the period of employment for purposes of the accumulation of the Performance Shares.
Upon the Participant’s Termination Date as determined hereunder, accumulation of the Performance Shares shall be based on the Participant’s circumstances at the time of such termination; provided, however, that if the Participant’s Disability exceeds 26 weeks in the aggregate during one or more Performance Years, the provisions of Section 3(a) shall apply for purposes of determining the portion of the Performance Shares that will be accumulated for any Performance Year.
EXHIBIT 31.1
Certification of the Chief Executive Officer
I, Peter Kasper Jakobsen, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Mead Johnson Nutrition Company;
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
| |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| | | |
Date: | July 23, 2015 | By: | /s/ Peter Kasper Jakobsen |
| | | Peter Kasper Jakobsen |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
EXHIBIT 31.2
Certification of the Chief Financial Officer
I, Charles M. Urbain, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Mead Johnson Nutrition Company;
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
| |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| | | |
Date: | July 23, 2015 | By: | /s/ Charles M. Urbain |
| | | Charles M. Urbain |
| | | Senior Vice President and Interim Chief Financial Officer |
| | | (Principal Financial Officer) |
EXHIBIT 32.1
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Peter Kasper Jakobsen, Chief Executive Officer of Mead Johnson Nutrition Company, certify that (i) Mead Johnson Nutrition Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in Mead Johnson Nutrition Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, fairly presents, in all material respects, the financial condition and results of operations of Mead Johnson Nutrition Company.
|
| | | | |
Date: | July 23, 2015 | By: | /s/ Peter Kasper Jakobsen | |
| | | Peter Kasper Jakobsen | |
| | | President and Chief Executive Officer | |
| | | (Principal Executive Officer) | |
EXHIBIT 32.2
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Charles M. Urbain, Senior Vice President and Interim Chief Financial Officer of Mead Johnson Nutrition Company, certify that (i) Mead Johnson Nutrition Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in Mead Johnson Nutrition Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 fairly presents, in all material respects, the financial condition and results of operations of Mead Johnson Nutrition Company.
|
| | | |
Date: | July 23, 2015 | By: | /s/ Charles M. Urbain |
| | | Charles M. Urbain |
| | | Senior Vice President and Interim Chief Financial Officer |
| | | (Principal Financial Officer) |
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