REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants of the Mead Johnson & Company, LLC Retirement Savings Plan
and the Mead Johnson Nutrition Company Benefits Committee
We have audited the accompanying statement of net assets available for benefits of Mead Johnson & Company, LLC Retirement Savings Plan (the “Plan”) as of
December 31, 2015
and
2014
, and the related statement of changes in net assets available for benefits for the year ended
December 31, 2015
. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets of the Plan as of
December 31, 2015
and
2014
, and the changes in net assets for the year ended
December 31, 2015
, in conformity with accounting principles generally accepted in the United States of America.
The supplemental information in the accompanying schedule of assets held at end of year as of
December 31, 2015
has been subjected to audit procedures performed in conjunction with the audit of the Plan's financial statements. The supplemental information is the responsibility of the Plan's management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with Department of Labor's Rules and Regulations for Reporting under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ Plante & Moran, PLLC
Chicago, Illinois
June 27, 2016
Notes to Financial Statements
Year Ended
December 31, 2015
Note 1 - Description of Plan
The following description of the Mead Johnson & Company, LLC Retirement Savings Plan (the “plan”) provides only general information. Participants should refer to the plan agreement for a complete description of the plan’s provisions. The plan is a tax-qualified defined contribution plan that is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
General
The plan was established by Mead Johnson & Company, LLC (the “Company”), a subsidiary of Mead Johnson Nutrition Company (“MJN”), on February 9, 2009 and covers substantially all employees of the Company. The plan does not cover leased employees or members of a collective bargaining agreement, which does not provide for participation under the plan.
Administration of the Plan
The Company is the plan’s sponsor and the Mead Johnson Nutrition Company Benefits Committee is the administrator. Fidelity Workspace Services LLC is the plan’s third-party administrator, and Fidelity Management Trust Company (“Fidelity”) is the plan’s trustee.
Certain administrative expenses for the plan, including legal, trustee and consulting fees, are paid by the Company. Only expenses paid by the plan are reflected in the plan’s financial statements.
Eligibility
Employees are eligible to participate in the plan upon date of hire provided that they are scheduled to work at least 1,000 hours during a 12-month period.
Participant Contributions
Participants may contribute an amount equal to 1% to 25% (in whole percentages) of their total compensation in
401(k) deferral contributions, after tax contributions or a combination of the two. Participants who have attained age 50 may make catch-up contributions in addition to their regular contributions. All participant contributions are subject to certain Internal Revenue Service (“IRS”) limitations. The plan also accepts rollovers from other qualified retirement plans. Eligible employees who do not decline enrollment are automatically enrolled in the plan 45 days after their start date, at a deferral rate equal to 6% of their total compensation.
Employer Contributions
Employer matching contributions are equal to 100% of a participant’s deferral or after-tax contributions not to exceed 6% of earnings.
The Company also makes additional employer contributions to participants who are employed at the end of the plan year. The additional contribution is calculated as follows:
|
|
|
|
|
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|
|
Age plus Years
of Service
|
|
Percentage of
Earnings
|
|
Less than 40
|
|
2
|
%
|
|
40 - 59
|
|
3
|
%
|
|
Greater than 60
|
|
4
|
%
|
For the five 12-month periods commencing February 9, 2009, the Company made a transition contribution to certain participants equal to 2% of earnings for each plan year ending within the transition period. To be eligible to receive the
transition contribution, a participant must: 1) have been employed on the last day of the calendar year or have retired during that calendar year, 2) have been employed by the Company and completed 10 years of service as of February 9, 2009, and 3) have the sum of the participant’s age and years of service equal or exceed 60 as of February 9, 2009.
Participant Accounts
Each participant’s account is credited with the participant’s contributions, the Company’s contributions and allocations of plan earnings, and is charged with an allocation of administrative expenses and plan losses. Participants may transfer assets and change their investment elections at any time and at their discretion. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. Participants are immediately vested in all of their accounts.
Notes Receivable from Participants
Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. The loans are collateralized by the balance in the participant’s account and bear interest at rates which are commensurate with local prevailing rates at the time of issuance. Principal and interest are paid ratably through periodic payroll deductions.
Payment of Benefits
Participants are entitled to their vested account balance upon retirement, termination, disability or death. A participant may elect to receive their benefit in the form of a lump-sum payment or periodic installments not to exceed 15 years. Employees hired prior to October 1994 by Bristol-Myers Squibb Company (“BMS”), former employer before MJN’s spinoff from BMS in 2009, who were participants in the BMS Savings and Investment Program may also elect to receive their benefit in the form of an annuity option. Participants experiencing financial hardship may make in-service withdrawals in accordance with the provisions of the plan.
Note 2 - Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the plan are prepared under the accrual method of accounting.
New Accounting Pronouncements
During 2015, the plan adopted Accounting Standards Update (ASU) Nos. 2015-07,
Disclosures for Investments In Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)
and 2015-12,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965) - I. Fully Benefit Responsive Investment Contracts, II. Plan Investment Disclosures, and III. Measurement Date Practical Expedient.
ASU No. 2015-07 amended ASC 820,
Fair Value Measurements
, and removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share ("NAV") as a practical expedient. Part II of ASU No. 2015-12 was applicable to the plan, and modified the investment disclosures under ASC 820 and 962. These standards were applied retrospectively and had no impact on the plan's net assets or changes in net assets.
Change in Presentation
The presentation of the plan's investments in common collective trusts for 2014 has been changed to be consistent with the 2015 presentation. The funds are presented using NAV as a practical expedient for the fair value of the investments without presentation of contract value or the difference between fair value and contract value. This change in presentation resulted from a recent clarification from the Financial Accounting Standards Board and had no effect on the plan's net assets or changes in net assets.
Investments
Investments are reported at fair value in accordance with accounting principles generally accepted in the United States (“GAAP”). See Note 3 for a discussion on fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Net depreciation in the fair value of the plan's investments includes gains and losses on investments bought and sold, as well as held during the year.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are reclassified as distributions based on the terms of the plan document.
Payment of Benefits
Benefits are recorded when paid.
Management Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of additions to and deductions from net assets available for benefits during the reporting period. Actual results could differ from those estimates.
Note 3 - Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, in the absence of a principal market, the most advantageous market accessible to the reporting entity as of the measurement date. Under GAAP, the principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity. The most advantageous market, which may be a hypothetical market, is the market in which the reporting entity would sell the asset or transfer the liability with the price that maximizes the amount that would be received for the asset or minimizes the amount that would be paid to transfer the liability, considering transaction costs in the respective market.
GAAP describes three approaches to measuring fair value: the market approach, the income approach and the cost approach. Each approach includes multiple valuation techniques. GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritizes the inputs used in applying the various techniques based on the degree to which such inputs are observable to market participants. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk.
The plan’s investments are classified in one of the following three categories based upon the inputs used to determine their respective fair values.
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•
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Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
|
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•
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Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data. These inputs may include quoted prices for similar assets or liabilities in active markets as well as quoted prices for identical or similar assets or liabilities in inactive markets.
|
|
|
|
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•
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Level 3 - Unobservable inputs that cannot be corroborated by market data. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
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When the inputs used to value an investment fall into more than one level, the investment is classified in its entirety based on the lowest level input that is significant to that investment’s fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and is dependent on factors specific to the
investment. Valuation techniques used need to maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
As of
December 31, 2015
and
2014
, the following valuation methodologies have been used to value the plan’s investments:
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•
|
Mutual funds - Valued at the reported NAV of the shares held by the plan at year-end.
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|
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•
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Common collective trusts - Valued at the NAV as determined by the administrator of the trust. Such NAV is based on the value of the underlying assets and liabilities of the trust.
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The fair value of the Fidelity Managed Income Portfolio II is based on the NAV of such fund as reported by the fund manager. This investment has certain limitations on withdrawals and exchanges as follows:
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•
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Participant-directed - Withdrawals made in order to accommodate distributions to participants or transfers to non-competing investments may be made on any business day. Transferred amounts must be held in a non-competing investment option for 90 days before subsequent transfers to a competing fund can occur.
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•
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Non-participant-directed - Withdrawals directed by a plan sponsor must be preceded by a twelve month written notice to Fidelity. Fidelity, however, may, in its discretion complete any such plan-level withdrawal before the expiration of such twelve month period. No such notice has been given to Fidelity.
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There are no unfunded commitments or other redemption notice requirements related to the common collective trust funds.
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•
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Common stock fund - Valued at the closing price of the underlying stock as reported on a national securities exchange plus uninvested cash held in the fund.
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•
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Money market fund - Based on quoted market price.
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The methods described above may produce a fair value calculation that might not be indicative of net realizable value or reflective of future fair values. Furthermore, while the plan believes its valuation methods are appropriate and consistent with other market participants, the different methodologies or assumptions used to determine fair value of certain financial instruments could result in a different fair value measurement as of the reporting date.
The following table summarizes by level within the fair value hierarchy the plan’s investments that are measured at fair value on a recurring basis as of
December 31, 2015
and
2014
:
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|
|
|
|
|
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December 31, 2015
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|
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Level 1
|
|
Level 2
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|
Level 3
|
|
Total
|
|
Mutual Funds
|
$
|
269,940,285
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
269,940,285
|
|
|
MJN Common Stock Fund
|
12,470,181
|
|
|
—
|
|
|
—
|
|
|
12,470,181
|
|
|
Money Market Fund
|
20,821,988
|
|
|
—
|
|
|
—
|
|
|
20,821,988
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
303,232,454
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
303,232,454
|
|
|
|
|
|
|
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|
|
Investments measured at NAV:
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|
|
|
|
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|
Common Collective Trusts
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|
|
|
|
|
|
89,121,625
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
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|
|
|
|
|
$
|
392,354,079
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December 31, 2014
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Mutual Funds
|
$
|
256,286,950
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
256,286,950
|
|
|
MJN Common Stock Fund
|
16,415,147
|
|
|
—
|
|
|
—
|
|
|
16,415,147
|
|
|
Money Market Fund - Short-term investments
|
19,200,948
|
|
|
—
|
|
|
—
|
|
|
19,200,948
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
291,903,045
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
291,903,045
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at NAV:
|
|
|
|
|
|
|
|
|
Common Collective Trusts
|
|
|
|
|
|
|
97,228,299
|
|
|
|
|
|
|
|
|
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|
|
Total investments at fair value
|
|
|
|
|
|
|
$
|
389,131,344
|
|
The plan’s investments are exposed to risks such as interest rate, credit and overall market volatility. Due to these risk factors, it is reasonably possible that changes in the value of investments will occur in the near term and could materially affect the amounts reported in the financial statements.
The plan also holds other assets and liabilities not measured at fair value on a recurring basis, including contributions receivable and payables. The fair value of these assets and liabilities approximates the carrying amounts in the accompanying financial statements due to the short maturity of the instruments. These financial instruments are valued primarily using level 3 inputs.
Note 4 - Common Stock Fund
Dividends pertaining to MJN common stock may be reinvested or received by participants in cash in accordance with the provisions of the plan. Dividends received in cash will be taxed as ordinary income to the participant but will not be subject to the 10% additional tax associated with early withdrawals.
Note 5 - Party-in-Interest Transactions
Certain plan investments are shares in mutual funds managed by an affiliate of the plan’s third-party administrator and trustee and, therefore, transactions in these investments qualify as party-in-interest transactions.
In addition, certain administrative, legal and accounting services are performed by Company personnel on behalf of the plan. No charges are made to the plan for such services.
See Note 4 for additional exempt party-in-interest transactions.
Note 6 - Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the plan to discontinue its contributions at any time and to terminate the plan subject to the provisions of ERISA.
Note 7 - Tax Status
The plan was established on February 9, 2009. The plan has applied for and has received a determination letter from the Internal Revenue Service indicating that the plan, as designed, is qualified for tax-exempt treatment under the applicable section of the Internal Revenue Code (IRC). The plan administrator believes that the plan is designed, and is currently being operated, in compliance with the applicable requirements of the IRC.
Note 8 - Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500 as of
December 31, 2015
and
2014
:
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|
|
|
|
|
|
|
|
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|
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2015
|
|
2014
|
|
Net assets available for benefits per the financial statements
|
$
|
403,666,089
|
|
|
$
|
398,475,724
|
|
|
Employee and employer additional and transition contributions receivable
|
(6,822,847
|
)
|
|
(5,196,556
|
)
|
|
Valuation adjustment for Common Collective Trusts
|
213,583
|
|
|
467,092
|
|
|
Net assets available for benefits per Form 5500
|
$
|
397,056,825
|
|
|
$
|
393,746,260
|
|
Following the adoption of ASU No. 2015-12 in 2015, the adjustment from contract value to fair value for fully benefit-responsive investment contracts is no longer necessary to reconcile from the financial statements to the Form 5500.
The following is a reconciliation of changes in net assets available for benefits per the financial statements to Form 5500 for the year ended
December 31, 2015
:
|
|
|
|
|
|
|
|
Net increase in net assets available for benefits per the financial statements
|
$
|
5,190,365
|
|
|
2014 employer additional and transition contributions receivable
|
5,196,556
|
|
|
2015 employer additional contributions receivable
|
(6,822,847
|
)
|
|
Valuation adjustment for Common Collective Trusts
|
(253,509
|
)
|
|
Net increase in net assets available for benefits per Form 5500
|
$
|
3,310,565
|
|