Mead Johnson Nutrition 10-Q 2013 Q3 Quarterly report

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 September 30, 2013

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 October 21, 2013, there were 201,985,119 shares of common stock outstanding.

MEAD JOHNSON NUTRITION COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Statements of Earnings for the three and nine months ended September 30, 2013 and 2012 (unaudited)
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012 (unaudited)
	Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (unaudited)
	Consolidated Statements of Equity and Redeemable Noncontrolling Interest for the nine months ended September 30, 2013 and 2012 (unaudited)
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (unaudited)
	Notes to Consolidated Financial Statements
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk
ITEM 4.	Controls and Procedures
PART II — OTHER INFORMATION
ITEM 1.	Legal Proceedings
ITEM 1A.	Risk Factors
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 6.	Exhibits

PART I — FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS.

MEAD JOHNSON NUTRITION COMPANY

CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in millions, except per share data)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013		2012
NET SALES	$	1,046.8		$	921.3		$	3,140.0	$	2,920.2
Cost of Products Sold	365.5			357.5			1,140.8		1,103.3
GROSS PROFIT	681.3			563.8			1,999.2		1,816.9
Expenses:
Selling, General and Administrative	222.6			210.7			666.8		642.2
Advertising and Promotion	163.8			138.8			475.9		413.3
Research and Development	24.8			21.5			74.5		67.6
Other Expenses/(Income) – net	31.4			9.6			62.6		13.5
EARNINGS BEFORE INTEREST AND INCOME TAXES	238.7			183.2			719.4		680.3
Interest Expense – net	12.3			16.9			38.9		49.0
EARNINGS BEFORE INCOME TAXES	226.4			166.3			680.5		631.3
Provision for Income Taxes	66.4			27.1			182.4		151.2
NET EARNINGS	160.0			139.2			498.1		480.1
Less Net Earnings/(Loss) Attributable to Noncontrolling Interests	(1.6		)	(1.1		)	1.8		9.8
NET EARNINGS ATTRIBUTABLE TO SHAREHOLDERS	$	161.6		$	140.3		$	496.3	$	470.3
Earnings per Share – Basic
Net Earnings Attributable to Shareholders	$	0.80		$	0.69		$	2.45	$	2.30
Earnings per Share – Diluted
Net Earnings Attributable to Shareholders	$	0.79		$	0.69		$	2.44	$	2.29
Weighted Average Shares – Diluted	202.8			204.3			203.1		204.5
Dividends Declared per Share	$	0.34		$	0.30		$	1.02	$	0.90

The accompanying notes are an integral part of these financial statements.

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MEAD JOHNSON NUTRITION COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in millions)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
NET EARNINGS	$	160.0		$	139.2		$	498.1		$	480.1
OTHER COMPREHENSIVE INCOME/(LOSS)
Foreign Currency Translation Adjustments
Translation Adjustments	(4.9		)	25.6			(66.8		)	(4.2		)
Tax Benefit/(Expense)	(0.6		)	(17.5		)	4.0			(12.2		)
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges for the Period	1.2			(5.4		)	5.2			(9.5		)
Reclassification Adjustment for (Gains)/Losses Included in Net Earnings	(0.5		)	(0.4		)	5.7			(0.9		)
Tax Benefit/(Expense)	(0.2		)	1.7			(3.0		)	3.1
Pension and Other Postretirement Benefits
Deferred Gains on Pension and Other Postretirement Benefits	—			—			0.8			—
Reclassification Adjustment for Losses Included in Net Earnings	4.5			5.9			23.9			18.4
Tax Benefit/(Expense)	0.5			(2.2		)	(6.6		)	(5.4		)
OTHER COMPREHENSIVE INCOME/(LOSS)	—			7.7			(36.8		)	(10.7		)
COMPREHENSIVE INCOME	160.0			146.9			461.3			469.4
Less Comprehensive Income/(Loss) Attributable to Noncontrolling Interests	(3.8		)	(1.1		)	(7.3		)	9.8
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAREHOLDERS	$	163.8		$	148.0		$	468.6		$	459.6

The accompanying notes are an integral part of these financial statements.

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MEAD JOHNSON NUTRITION COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in millions, except per share data)

(UNAUDITED)

	September 30, 2013			December 31, 2012
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents	$	985.2		$	1,042.1
Receivables – net of allowances of $5.9 and $7.6, respectively	405.3			364.6
Inventories	499.6			435.9
Deferred Income Taxes – net of valuation allowance	86.2			86.4
Income Taxes Receivable	41.3			26.0
Prepaid Expenses and Other Assets	63.1			60.0
Total Current Assets	2,080.7			2,015.0
Property, Plant and Equipment – net	785.1			689.9
Goodwill	209.3			270.6
Other Intangible Assets – net	106.8			129.9
Deferred Income Taxes – net of valuation allowance	38.2			24.5
Other Assets	135.6			128.3
TOTAL	$	3,355.7		$	3,258.2
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term Borrowings	$	2.6		$	161.0
Accounts Payable	509.6			508.5
Dividends Payable	69.3			61.3
Note Payable	—			26.0
Accrued Expenses	226.7			220.4
Accrued Rebates and Returns	317.6			314.8
Deferred Income – current	23.6			36.1
Income Taxes – payable and deferred	81.0			41.8
Total Current Liabilities	1,230.4			1,369.9
Long-Term Debt	1,516.8			1,523.2
Deferred Income Taxes – noncurrent	16.0			15.9
Pension, Postretirement and Postemployment Liabilities	184.4			188.8
Other Liabilities	141.9			95.1
Total Liabilities	3,089.5			3,192.9
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTEREST	46.1			36.3
EQUITY
Shareholders’ Equity
Common Stock, $0.01 par value: 3,000 authorized, 206.7 and 206.0 issued, respectively	2.1			2.1
Additional Paid-in/(Distributed) Capital	(630.7		)	(676.6		)
Retained Earnings	1,392.6			1,124.8
Treasury Stock – at cost	(339.1		)	(244.6		)
Accumulated Other Comprehensive Loss	(214.7		)	(187.0		)
Total Shareholders’ Equity	210.2			18.7
Noncontrolling Interests	9.9			10.3
Total Equity	220.1			29.0
TOTAL	$	3,355.7		$	3,258.2

The accompanying notes are an integral part of these financial statements.

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MEAD JOHNSON NUTRITION COMPANY

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

(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, 2013	$	2.1	$	(676.6	)	$	1,124.8		$	(244.6	)	$	(187.0	)	$	10.3		$	29.0		$	36.3
Stock-based Compensation Awards			45.9						(17.9		)							28.0
Treasury Stock Acquired									(76.6		)							(76.6		)
Distributions to Noncontrolling Interests															(3.7		)	(3.7		)	(1.2		)
Cash Dividends Declared						(206.9		)										(206.9		)
Net Earnings						496.3									1.3			497.6			0.5
Redeemable Noncontrolling Interest Accretion						(21.6		)										(21.6		)	21.6
Other Comprehensive Income (Loss)												(27.7		)	2.0			(25.7		)	(11.1		)
Balance as of September 30, 2013	$	2.1	$	(630.7	)	$	1,392.6		$	(339.1	)	$	(214.7	)	$	9.9		$	220.1		$	46.1
Balance as of January 1, 2012	$	2.1	$	(728.4	)	$	770.0		$	(89.7	)	$	(133.1	)	$	11.1		$	(168.0	)	$	—
Stock-based Compensation Awards			41.2						(15.0		)							26.2
Treasury Stock Acquired									(93.3		)							(93.3		)
Acquisition																					30.2
Distributions to Noncontrolling Interests															(4.0		)	(4.0		)
Cash Dividends Declared						(183.8		)										(183.8		)
Net Earnings						470.3									8.9			479.2			0.9
Redeemable Noncontrolling Interest Accretion						(3.1		)										(3.1		)	3.1
Other Comprehensive Loss												(10.7		)				(10.7		)
Balance as of September 30, 2012	$	2.1	$	(687.2	)	$	1,053.4		$	(198.0	)	$	(143.8	)	$	16.0		$	42.5		$	34.2

The accompanying notes are an integral part of these consolidated financial statements.

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MEAD JOHNSON NUTRITION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(UNAUDITED)

	Nine Months Ended September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings	$	498.1		$	480.1
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation and Amortization	62.1			56.7
Other	36.9			23.5
Changes in Assets and Liabilities	1.0			(95.3		)
Pension and Other Postretirement Benefits Contributions	(6.1		)	(24.9		)
Net Cash Provided by Operating Activities	592.0			440.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Capital Expenditures	(177.3		)	(85.7		)
Proceeds from Sale of Property, Plant and Equipment	2.0			1.2
Proceeds from Sale of Intangible Assets	—			5.5
Investment in Other Companies	(2.7		)	(3.3		)
Acquisition	—			(106.1		)
Net Cash Used in Investing Activities	(178.0		)	(188.4		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings	6.8			385.2
Repayments of Short-term Borrowings	(165.0		)	(230.0		)
Repayments of Notes Payable	(27.6		)	(26.8		)
Payments of Dividends	(198.9		)	(175.6		)
Stock-based-compensation-related Proceeds and Excess Tax Benefits	19.8			21.0
Purchases of Treasury Stock	(92.5		)	(108.3		)
Distributions to Noncontrolling Interests	(4.9		)	(2.2		)
Net Cash Used in Financing Activities	(462.3		)	(136.7		)
Effects of Changes in Exchange Rates on Cash and Cash Equivalents	(8.6		)	3.1
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	(56.9		)	118.1
CASH AND CASH EQUIVALENTS:
Beginning of Period	1,042.1			840.3
End of Period	$	985.2		$	958.4

The accompanying notes are an integral part of these financial statements.

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MEAD JOHNSON NUTRITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.ORGANIZATION

Mead Johnson Nutrition Company (“MJN” or the “Company”) manufactures, distributes and sells infant formulas, children’s nutrition and other nutritional products. MJN has a broad product portfolio, which extends across routine and specialty infant formulas, children’s milks and milk modifiers, dietary supplements for pregnant and breastfeeding mothers, pediatric vitamins, and products for pediatric metabolic disorders. These products are generally sold to wholesalers, retailers and distributors and are promoted to healthcare professionals, and, where permitted by regulation and policy, directly to consumers. 

2.ACCOUNTING POLICIES

Basis of Presentation—The Company prepared the accompanying unaudited 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 consolidated financial statements include all of the normal and recurring adjustments necessary for the fair presentation of the Company’s financial position as of September 30, 2013 and December 31, 2012, results of operations for the three and nine months endedSeptember 30, 2013 and 2012, and cash flows for the nine months ended September 30, 2013 and 2012. 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 consolidated financial statements may not be indicative of full-year operating results or future performance.

The accounting policies used in preparing these 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, 2012 (“2012 Form 10-K”) with the exception of our goodwill impairment testing policy which is discussed below. These unaudited 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 2012 Form 10-K.

Goodwill—During the third quarter of 2013 the Company changed its annual impairment testing date from January 1 to July 1, which did not result in any delay, acceleration or avoidance of an impairment charge. The Company believes that moving the goodwill impairment testing date to the third quarter is preferable because it better aligns the impairment testing with our annual and long-term planning timeline, which is a significant element in the testing process. The Company completed impairment testing in both the first and third quarters of 2013 and concluded that no impairment of goodwill exists (see Note 13).

Recently Adopted Accounting Standards—In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, requiring entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. For significant reclassifications related to net income, the ASU required disclosure in the consolidated statement of earnings or within the footnotes. For other amounts, the ASU required a cross-reference to other disclosures that provide additional detail about those amounts. This ASU did not change the current requirements for reporting the consolidated statement of earnings or other comprehensive income in the financial statements. The Company adopted the required financial reporting presentation effective January 1, 2013.

Recently Issued Accounting Standards—In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830), clarifying the applicable guidance for the release of the cumulative translation adjustment. ASU 2013-05 is effective for the Company in the period beginning January 1, 2014. The Company does not expect the adoption of this update to have a material effect on the consolidated financial statements.   

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists. ASU 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. ASU 2013-11 is

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effective for the Company in the period beginning January 1, 2014 and the Company does not anticipate that the adoption of this standard will have a material impact on its 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 September 30,						Nine Months Ended September 30,
(In millions, except per share data)	2013			2012			2013			2012
Basic earnings per share:
Weighted-average shares outstanding	202.3			203.7			202.5			203.9
Net earnings attributable to shareholders	$	161.6		$	140.3		$	496.3		$	470.3
Dividends and undistributed earnings attributable to unvested shares	(0.3		)	(0.3		)	(1.0		)	(1.1		)
Net earnings attributable to shareholders used for basic earnings per share calculation	$	161.3		$	140.0		$	495.3		$	469.2
Net earnings attributable to shareholders per share	$	0.80		$	0.69		$	2.45		$	2.30
Diluted earnings per share:
Weighted-average shares outstanding	202.3			203.7			202.5			203.9
Incremental shares outstanding assuming the exercise/vesting of dilutive stock options/performance shares	0.5			0.6			0.6			0.6
Weighted-average shares — diluted	202.8			204.3			203.1			204.5
Net earnings attributable to shareholders	$	161.6		$	140.3		$	496.3		$	470.3
Dividends and undistributed earnings attributable to unvested shares	(0.3		)	(0.3		)	(1.0		)	(1.1		)
Net earnings attributable to shareholders used for diluted earnings per share calculation	$	161.3		$	140.0		$	495.3		$	469.2
Net earnings attributable to shareholders per share	$	0.79		$	0.69		$	2.44		$	2.29

Potential shares outstanding from all stock-based awards were 2.9 million and 2.8 million as of September 30, 2013 and 2012, respectively. Of these shares, 2.4 million and 2.2 million were not included in the diluted earnings per share calculation for the three months ended September 30, 2013 and 2012, respectively, and 2.3 million and 2.2 million were not included in the diluted earnings per share calculation for the nine months ended September 30, 2013 and 2012. 

4.INCOME TAXES

For the three and nine months ended September 30, 2013, the effective tax rate (“ETR”) was 29.4% and 26.8%, respectively, compared with 16.3% and 24.0% for the same periods in 2012. The ETR increase was primarily due to the prior year change in management's assertion regarding certain foreign earnings and profits that are permanently invested abroad, favorable U.S. return-to-provision adjustments recorded in the prior year and the administrative penalty related to the China Antitrust Review (as defined in Note 8) which is non-deductible for tax purposes.

The Company’s gross reserve for uncertain tax positions related to foreign and domestic matters, including penalties and interest, as of September 30, 2013 and December 31, 2012, was $102.8 million and $75.9 million, respectively. The Company believes that it has adequately provided for all uncertain tax positions. It is reasonably possible that new issues may be raised by tax authorities and that these issues may require increases in the balance of uncertain tax positions. 

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 recorded a receivable from BMS for uncertain tax positions, including penalties and interest, of $8.8 million and $8.5 million as of September 30, 2013 and December 31, 2012 respectively.

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5.SEGMENT INFORMATION

MJN operates in four geographic operating segments: Asia, Europe, Latin America and North America. This operating segmentation is how the chief operating decision maker regularly assesses information for decision making purposes, including allocation of resources. Due to similarities in the economics, products offered, production process, customer base, and regulatory environment, these operating segments have been aggregated into two reportable segments: Asia/Latin America and North America/Europe.

During the fourth quarter of 2012, the Company implemented a change in its organizational structure involving the transfer of its Puerto Rican operations from North America to Latin America. This change did not impact Europe or Asia and did not have a material impact on the assets of North America or Latin America. Segment information, for all periods presented, has been revised to be consistent with the new basis of presentation.

Corporate and Other consists of unallocated general and administrative expenses; global business support activities, including research and development, marketing and supply chain costs; and income or expenses incurred within the operating segments that are not reflective of ongoing 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 our reportable segments: 

	Three Months Ended September 30,										Nine Months Ended September 30,
	Net Sales				Earnings Before Interest and Income Taxes						Net Sales				Earnings Before Interest and Income Taxes
(In millions)	2013		2012		2013			2012			2013		2012		2013			2012
Asia/Latin America	$	768.0	$	646.7	$	262.0		$	193.1		$	2,280.7	$	2,056.0	$	770.0		$	713.9
North America/Europe	278.8		274.6		63.0			53.2			859.3		864.2		187.7			157.2
Total reportable segments	1,046.8		921.3		325.0			246.3			3,140.0		2,920.2		957.7			871.1
Corporate and Other	—		—		(86.3		)	(63.1		)	—		—		(238.3		)	(190.8		)
Total	$	1,046.8	$	921.3	$	238.7		$	183.2		$	3,140.0	$	2,920.2	$	719.4		$	680.3

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 September 30,						Nine Months Ended September 30,
(In millions)	2013			2012			2013			2012
Stock options	$	1.6		$	1.8		$	4.9		$	5.5
Performance share awards	3.5			2.0			12.9			11.8
Restricted stock units	2.2			2.1			7.9			6.5
Total pre-tax stock-based compensation expense	$	7.3		$	5.9		$	25.7		$	23.8
Net tax benefit related to stock-based compensation expense	$	(2.6	)	$	(2.5	)	$	(8.8	)	$	(9.1	)

During the nine months ended September 30, 2013, the Company granted the following awards: 

(Shares in millions)	Shares Granted	Weighted- Average Grant Date Fair Value
Stock options	0.5	$	15.08
Performance share awards	0.2	$	72.53
Restricted stock units	0.1	$	74.85

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As of September 30, 2013, the Company had the following award expense yet to be recognized: 

(Dollars and shares in millions)	Unrecognized Compensation Expense		Expected Weighted-Average Period to be Recognized (years)
Stock options	$	9.2	2.0
Performance share awards	$	10.1	1.4
Restricted stock units	$	15.3	2.6

7.PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The net periodic benefit cost of the Company’s defined benefit pension and postretirement benefit plans includes: 

	Three Months Ended September 30,											Nine Months Ended September 30,
	Pension Benefits						Other Benefits					Pension Benefits						Other Benefits
(In millions)	2013			2012			2013			2012		2013			2012			2013			2012
Service cost – benefits earned during the period	$	1.3		$	1.0		$	0.3		$	0.2	$	3.9		$	2.9		$	0.8		$	0.7
Interest cost on projected benefit obligations	3.6			3.8			0.4			0.4		10.8			11.7			1.0			1.0
Expected return on plan assets	(4.1		)	(4.2		)	—			—		(12.3		)	(12.1		)	—			—
Amortization of net actuarial loss	1.7			1.4			0.4			0.4		5.0			4.0			1.3			1.4
Amortization of prior service benefit	—			—			(0.1		)	—		—			—			(0.1		)	(0.1		)
Net periodic benefit cost	$	2.5		$	2.0		$	1.0		$	1.0	$	7.4		$	6.5		$	3.0		$	3.0
Settlements	2.5			4.1			—			—		17.7			13.1			—			—
Total net periodic benefit cost	$	5.0		$	6.1		$	1.0		$	1.0	$	25.1		$	19.6		$	3.0		$	3.0

Settlements reflect the recognition of losses that were previously deferred within accumulated other comprehensive loss attributable to plan participants who have received lump sum distributions during the plan year. Recognition of settlements is triggered when the amount paid for lump sum distributions from a plan exceeds the sum of service and interest cost for the plan year. Losses reclassified to settlements for the nine months ended September 30, 2013 and 2012, respectively, were related to the U.S. plans and were recognized within other expenses/(income)-net on the consolidated statements of earnings.

For the nine months ended September 30, 2013, the Company contributed $6.1 million to non-U.S. pension plans. For the nine months ended September 30, 2012, the Company contributed $24.9 million, primarily to the U.S. pension plan.

8.OTHER EXPENSES/(INCOME) - NET

The components of other expenses/(income) - net were:

	Three Months Ended September 30,					Nine Months Ended September 30,
(In millions)	2013		2012			2013		2012
Foreign exchange (gains)/losses - net	$	2.1	$	6.7		$	6.9	$	(2.1	)
Administrative penalty (China)	26.0		—			33.4		—
Pension settlements	2.5		4.1			17.7		13.1
Gain on sale of certain non-core intangible assets	—		(5.5		)	—		(5.5		)
Other - net	0.8		4.3			4.6		8.0
Other expenses/(income) - net	$	31.4	$	9.6		$	62.6	$	13.5

As announced by the Company on August 6, 2013, China’s National Development and Reform Commission (“NDRC”) assessed an administrative penalty against the Company in connection with the NDRC’s antitrust review of the infant formula industry’s resale pricing practices (“China Antitrust Review”). All amounts assessed were paid in the third quarter of 2013.

9.REDEEMABLE NONCONTROLLING INTEREST

On March 15, 2012, the Company acquired 80% of the outstanding capital stock of Nutricion para el Conosur S.A. which manufactures, distributes and sells infant formula and children’s nutrition products in Argentina under the SanCor Bebé and

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Bebé Plus brands (the “Argentine Acquisition”). Under the terms of an agreement related to the Argentine Acquisition, the noncontrolling interest owner has 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 para el Conosur S.A. The Put Right is exercisable from September 15, 2015 to September 15, 2018 and the decision to exercise is not within the control of MJN. The price paid upon exercise will be determined based on established multiples of sales and earnings of the acquired business and is currently estimated to equate to fair value at the earliest exercise date. As a result of the Put Right, the noncontrolling interest is presented as redeemable noncontrolling interest outside of equity on the balance sheet. Accretion to the redemption value of the Put Right will be recognized through equity using an interest method over the period from March 15, 2012 to September 15, 2015.

10.NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Net earnings attributable to noncontrolling interests consists of a 20%, 11% and 10% interest held by third parties in operating entities in Argentina, China and Indonesia, respectively. 

11.INVENTORIES

The major categories of inventories were as follows:

(In millions)	September 30, 2013		December 31, 2012
Finished goods	$	286.3	$	264.6
Work in process	85.8		56.9
Raw and packaging materials	127.5		114.4
Inventories	$	499.6	$	435.9

12.PROPERTY, PLANT AND EQUIPMENT

The major categories of property, plant and equipment were as follows: 

(In millions)	September 30, 2013			December 31, 2012
Land	$	6.6		$	6.0
Buildings	521.5			506.0
Machinery, equipment and fixtures	638.6			595.7
Construction in progress	214.7			150.4
Accumulated depreciation	(596.3		)	(568.2		)
Property, plant and equipment — net	$	785.1		$	689.9

Construction in progress included investment primarily for the Company’s new spray dryer and technology center in Singapore (“Asia Spray Dryer Project”).

13.GOODWILL

The Company tests goodwill for impairment on an annual basis 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. Historically, the Company’s policy was to perform the annual impairment test for goodwill as of January 1 of each year. The Company completed its annual impairment test in the first quarter of 2013 in accordance with this policy and concluded that no impairment existed. During the third quarter of 2013 the Company changed its annual impairment testing date from January 1 to July 1 of each fiscal year to better align with the timing of its annual and long-term planning process, which is a significant input in the testing process. Accordingly, the Company believes this change is preferable. This change did not delay, accelerate or avoid an impairment charge. As a result of this change, impairment testing was completed during the third quarter of 2013 and the Company concluded that no impairment existed. This change was applied prospectively beginning July 1, 2013 and had no impact on the consolidated financial statements. The change was not applied retrospectively as it is impracticable to do so because retrospective application would have required the application of significant estimates and assumptions without the use of hindsight.

For the nine months ended September 30, 2013 and 2012, the change in the carrying amount of goodwill by reportable segment, was primarily driven by the cumulative impact due to a correction of the currency denomination of the goodwill related to two reporting units. The revision had the impact of decreasing the Company’s total value of goodwill and decreasing

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the total currency translation adjustment included in the accumulated other comprehensive loss section of shareholders’ equity and other comprehensive income.

For the nine months ended September 30, 2013 and 2012, the change in the carrying amount of goodwill by reportable segment, including the cumulative impact of the revisions described above, was as follows:

(In millions)	Asia/ Latin America			North America/ Europe			Total
Balance as of January 1, 2013	$	253.6		$	17.0		$	270.6
Redenomination	(42.5		)	2.0			(40.5		)
Translation adjustments	(20.8		)	—			(20.8		)
Balance as of September 30, 2013	$	190.3		$	19.0		$	209.3
Balance as of January 1, 2012	$	115.8		$	1.7		$	117.5
Acquisition	155.5			17.3			172.8
Translation adjustments	(11.4		)	(1.3		)	(12.7		)
Balance as of September 30, 2012	$	259.9		$	17.7		$	277.6

As of September 30, 2013, the Company had no accumulated impairment loss.

14.OTHER INTANGIBLE ASSETS

The gross carrying value and accumulated amortization by class of intangible assets as of September 30, 2013 and December 31, 2012 were as follows: 

	As of September 30, 2013							As of December 31, 2012
(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Indefinite-lived intangible assets:
Trademark(1) .	$	38.5	$	—		$	38.5	$	45.3	$	—		$	45.3
Non-compete agreement(1) .	7.6		—			7.6		8.9		—			8.9
Sub-total	46.1		—			46.1		54.2		—			54.2
Amortizable intangible assets:
Computer software	132.2		(74.6		)	57.6		132.2		(60.2		)	72.0
Distributor-customer relationship(1) .	3.7		(0.6		)	3.1		4.4		(0.7		)	3.7
Sub-total	135.9		(75.2		)	60.7		136.6		(60.9		)	75.7
Total other intangible assets	$	182.0	$	(75.2	)	$	106.8	$	190.8	$	(60.9	)	$	129.9

⁽¹⁾Changes in balances result from currency translation and amortization.

The Company tests intangibles assets not subject to amortization for impairment on an annual basis and whenever a significant event occurs or circumstances change that indicate that it is more likely than not that the asset is impaired. To align with the change in the timing of its annual goodwill impairment test, the Company completed impairment testing as of both the first and third quarters of 2013 and concluded that no impairment of intangible assets not subject to amortization exists.

15.DEBT

Short-Term Borrowings and Five-Year Revolving Credit Facility Agreement

As of September 30, 2013, the Company’s short-term borrowings were $2.6 million and were for the Company’s legal entity based in Argentina. These short-term borrowings had a weighted-average interest rate of 22.00% as of September 30, 2013. The Company intends to repay these borrowings within 12 months and has the ability to do so. As of December 31, 2012, the Company’s short-term borrowings totaled $161.0 million and were primarily from the Company’s five-year revolving credit facility agreement (“Credit Facility”). For the nine months ended September 30, 2013, borrowings from the Credit Facility had a weighted-average interest rate of 1.53%.

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Borrowings from the Credit Facility are used for working capital and other general corporate purposes. The Credit Facility is unsecured and repayable on maturity in June 2016, 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 $500.0 million, which may be increased from time to time up to $750.0 million at the Company’s request and with the consent of the lenders, subject to satisfaction of 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 3.25 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 covenants as of September 30, 2013.

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 0.075% to 1.45% over the base rate. In addition, the Company incurs an annual 0.2% facility fee on the entire facility commitment of $500.0 million.

Note Payable

On March 15, 2012, the Company completed the Argentine Acquisition described in Note 9. Of the ARS850.7 million purchase price payable in connection with the Argentine Acquisition, ARS377.6 million was financed through a note payable. The remaining balance of the note payable was paid on July 10, 2013. Through March 15, 2013, the annual interest rate for the note payable was 14%. Effective as of March 16, 2013, the note was converted to U.S. dollar-denominated indebtedness and the annual interest rate was automatically modified to be 0.85%, which accrued through the Company’s final payment.

Long-Term Debt

The components of long-term debt were as follows: 

(Dollars in millions)	September 30, 2013			December 31, 2012
Principal Value:
3.50% Notes due 2014	$	500.0		$	500.0
4.90% Notes due 2019	700.0			700.0
5.90% Notes due 2039	300.0			300.0
Sub-total	1,500.0			1,500.0
Adjustments to Principal Value:
Unamortized basis adjustment for terminated interest rate swaps	19.0			26.0
Unamortized bond discount	(2.2		)	(2.8		)
Long-term debt	$	1,516.8		$	1,523.2

Using quoted prices in markets that are not active, the Company determined that the fair value of its long-term debt was $1,615.9 million (Level 2) as of September 30, 2013.

The components of interest expense-net were as follows: 

	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2013			2012			2013			2012
Interest expense	$	14.5		$	18.3		$	45.3		$	53.3
Interest income	(2.2		)	(1.4		)	(6.4		)	(4.3		)
Interest expense-net	$	12.3		$	16.9		$	38.9		$	49.0

For the three and nine months endedSeptember 30, 2013, capitalized interest was $1.5 million and $3.7 million, respectively, compared with no capitalized interest for the same periods in 2012.

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16.DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS

Derivatives

The Company is exposed to market risk due to changes in currency exchange rates 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. These financial instruments are in Level 2 of the fair value hierarchy for both periods presented. For the nine months ended September 30, 2013 and 2012, there were no transfers between levels in the fair value hierarchy. Derivative financial instruments are not used for speculative purposes.

The following table summarizes the Company’s fair value of outstanding derivatives designated as hedging instruments:

(In millions)
Cash flow hedges:	Balance Sheet Location	September 30, 2013			December 31, 2012
Foreign exchange contracts	Other assets	$	5.8		$	—
Foreign exchange contracts	Accrued expenses	(0.5		)	(5.1		)
Net asset/(liability) of derivatives designated as hedging instruments		$	5.3		$	(5.1	)

The Company’s derivative financial instruments present certain market and counterparty risks; however, concentration of counterparty risk is mitigated as the Company uses 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 September 30, 2013 failed to perform according to the terms of its agreement. At this time, the Company does not require collateral or any other form of securitization to be furnished by the counterparties to its derivative financial instruments.

Cash Flow Hedges-Foreign Exchange Contracts

The Company uses foreign exchange contracts to hedge forecasted transactions, primarily intercompany purchases for up to 18 months, on certain foreign currencies and designates these derivative instruments as foreign currency cash flow hedges when appropriate. For the contracts that qualify as hedges of probable forecasted transactions, the effective portion of changes in fair value is temporarily reported in accumulated other comprehensive loss and recognized in earnings when the hedged item affects earnings.

The Company assesses hedge effectiveness at inception and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of the change in fair value is included in current period earnings. For the three and nine months endedSeptember 30,2013 and 2012, the impact of hedge ineffectiveness on earnings was not significant.

The Company will discontinue cash flow hedge accounting when the forecasted transaction is no longer probable to occur on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective. During the three and nine months endedSeptember 30,2013 and 2012, the Company did not discontinue any cash flow hedges.

The effective portion of changes in the fair value of foreign exchange contracts is recognized in earnings when the hedged item affects earnings, in cost of products sold, or deemed ineffective, in other expenses/(income)—net. All of the Company’s foreign exchange contracts qualify as hedges of probable forecasted cash flows.

As of September 30, 2013, the notional value of the Company’s outstanding foreign exchange forward contracts designated as hedging instruments was $201.1 million, with a fair value of $5.3 million in net assets. As of December 31, 2012, the notional value of the Company’s outstanding foreign exchange forward contracts designated as hedging instruments was $207.2 million, with a fair value of $5.1 million in net liabilities. 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.

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The change in accumulated other comprehensive loss and the impact on earnings from foreign exchange contracts that qualified as cash flow hedges were as follows: 

(In millions)	2013			2012
Balance—January 1	$	(4.1	)	$	4.3
Derivatives qualifying as cash flow hedges deferred in other comprehensive income	5.2			(9.5		)
Derivatives qualifying as cash flow hedges reclassified to cost of products sold (effective portion)	5.7			(0.9		)
Change in deferred taxes	(3.0		)	3.1
Balance—September 30	$	3.8		$	(3.0	)

At September 30, 2013, 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 $3.8 million, $3.6 million of which is expected to be reclassified into earnings within the next 12 months.

Fair Value Hedges

The Company may, from time to time, enter into fixed-to-floating interest rate swaps as part of its interest rate management strategy. The gain or loss on these swaps that are designated and qualify as fair value hedges will be recognized in current earnings and offset by the loss or gain on the hedged item. These swaps are recorded at fair value. The fair value of the interest rate swaps is the present value of the future cash flows calculated based on forecasted LIBOR rates from a third party bank including credit value adjustments.

In November 2009, the Company executed several interest rate swaps to convert $700.0 million of the Company’s 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. There were no interest rate swaps outstanding at September 30, 2013.

The earnings impact and decrease in interest expense from interest rate swaps was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2013		2012		2013		2012
Amortization of basis adjustment for terminated interest rate swaps recognized in interest expense	(2.3	)	(2.3	)	(6.9	)	(7.0	)

See Note 15 for discussion of 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 $314.7 million and $520.7 million as of September 30, 2013 and December 31, 2012, 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.

17.MARKETABLE SECURITIES

Cost basis for the Company’s equity securities is determined by the specific identification method. Realized and unrealized gains and losses on trading securities are included in other expenses/(income) - net in the Company’s consolidated statements of earnings.

During the three months ended September 30, 2013, the Company sold all of its investments in equity securities classified as trading securities. The Company recognized gains on trading securities of $4.0 million and $3.7 million for the three months and nine months ended September 30, 2013, respectively.  

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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, 2013	206.0	3.5	$	244.6
Stock-based compensation	0.7	0.2	17.9
Treasury stock purchases	—	1.0	76.6
Balance as of September 30, 2013	206.7	4.7	$	339.1
Balance as of January 1, 2012	205.1	1.4	$	89.7
Stock-based compensation	0.9	0.2	15.0
Treasury stock purchases	—	1.2	93.3
Balance as of September 30, 2012	206.0	2.8	$	198.0

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 March 16, 2010, MJN’s board of directors approved the repurchase of up to $300.0 million of the Company’s common stock. From the date of such authorization through September 30, 2013, 4.2 million shares were repurchased at an average cost per share of $71.12. As of September 30, 2013, the Company had $2.1 million available under this authorization.

On September 10, 2013, MJN’s board of directors approved a new share repurchase authorization of up to an additional $500.0 million of the Company’s common stock. As of September 30, 2013, the Company had $500.0 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-retirement Benefits			Total			Noncontrolling Interest				Redeemable Noncontrolling Interest
Balance as of January 1, 2013	$	(14.6	)	$	(4.1	)	$	(168.3	)	$	(187.0	)	$	(0.2	)		$	—
Deferred Gains/(Losses)	(58.8		)	5.2			0.8			(52.8		)	3.1			1	(11.1		)	1
Reclassification Adjustment for   (Gains)/Losses Included in Net   Earnings	—			5.7			23.9			29.6			—				—
Tax Benefit/(Expense)	5.1			(3.0		)	(6.6		)	(4.5		)	(1.1		)		—
Balance as of September 30, 2013	$	(68.3	)	$	3.8		$	(150.2	)	$	(214.7	)	$	1.8			$	(11.1	)

1 Represents foreign currency translation adjustments.

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Reclassification adjustments out of accumulated other comprehensive loss were as follows:

	Three Months Ended September 30,
	Affected Statement of Earnings Lines
(In millions)	Cost of Products Sold			Selling, General and Administrative			Research and Development			Other Expenses/ (Income) - Net			Tax Benefit/(Expense)			Net
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges:
Forward Exchange Contracts	$	0.5		$	—		$	—		$	—		$	(0.1	)	$	0.4
Pension and Other Postretirement Benefit Plans:
Actuarial Gains/(Losses)	(0.7		)	(1.3		)	(0.1		)				0.6			(1.5		)
Prior Service Benefits				0.1						—			—			0.1
Settlements	—			—			—			(2.5		)	1.0			(1.5		)
Total Reclassifications	$	(0.2	)	$	(1.2	)	$	(0.1	)	$	(2.5	)	$	1.5		$	(2.5	)
	Nine Months Ended September 30, 2013
	Affected Statement of Earnings Lines
(In millions)	Cost of Products Sold			Selling, General and Administrative			Research and Development			Other Expenses/ (Income) - Net			Tax Benefit/(Expense)			Net
Deferred Gains/(Losses) on Derivatives Qualifying as Hedges:
Forward Exchange Contracts	$	(5.7	)	$	—		$	—		$	—		$	1.7		$	(4.0	)
Pension and Other Postretirement Benefit Plans:
Actuarial Gains/(Losses)	(2.1		)	(3.6		)	(0.6		)	—			2.0			(4.3		)
Prior Service Benefits				0.1												0.1
Settlements	—			—			—			(17.7		)	6.6			(11.1		)
Total Reclassifications	$	(7.8	)	$	(3.5	)	$	(0.6	)	$	(17.7	)	$	10.3		$	(19.3	)

19.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 is not aware of any environmental, health or safety-related litigation or significant environmental, health and safety-related financial obligations or liabilities arising from current or former operations or properties that are likely to have a material impact on the Company’s business, financial position, results of operations or cash flows. Liabilities or obligations, which could require the Company to make significant expenditures, could arise in the future, however, as the result of, among other things, changes in, or new interpretations of, existing laws, regulations or enforcement policies, claims relating to on- or off-site contamination, or the imposition of unanticipated investigation or cleanup obligations.

On November 14, 2011, the Company’s subsidiary Mead Johnson & Company, LLC (“MJC”) obtained final trial court approval of a nationwide class settlement with plaintiffs in eight putative consumer class actions that had been consolidated and transferred to the U.S. District Court for the Southern District of Florida.  The suits all involved allegations of false and misleading advertising with respect to certain Enfamil LIPIL infant formula advertising.  The settlement allowed consumers who purchased Enfamil LIPIL infant formula between October 13, 2005, and March 31, 2010, to receive infant formula or

16

cash. The period for submitting claims has expired, and the total amount claimed by class members was less than $8.0 million. As a result and consistent with the Company’s previously reported obligations under the settlement agreement, MJC distributed the difference between $8.0 million and the total amount claimed in the form of infant formula to Feeding America, the nation’s largest domestic hunger relief charity.  MJC also agreed not to oppose, and the court approved, attorneys’ fees and expenses to plaintiffs’ counsel of $3.5 million and $140 thousand, respectively.  As previously reported, MJC agreed to pay costs of notice and settlement administration.  The trial court’s approval of the settlement was affirmed on appeal, and the settlement became final in October 2012. The distribution to class members was completed as of the end of the third quarter of 2013.

As previously reported in the Company’s Annual Report on Form 10-K for fiscal year 2012, the Company was served with a lawsuit filed on October 16, 2012 in St. Clair County (Illinois) Circuit Court under the caption Shelby Schrack, et al. v. Mead Johnson Nutrition Company and Mead Johnson & Company, which lawsuit alleges that certain bacteria in powdered formula were responsible for the death of one infant and serious illness in two others and seeks unspecified monetary damages. These illnesses were widely publicized in December 2011 and January 2012. The infants allegedly consumed formula from batches that were extensively tested by the Company, the Centers for Disease Control (“CDC”) and the U.S. FDA. These tests detected no bacteria in our infant formula. The CDC further noted that while these bacteria have sometimes been found in formula, they also exist in the environment and may potentially cause illness through person to person contact or through contamination of infant feedings at the point of use. We believe that the claims in this matter are without merit, and we intend to defend such claims vigorously. Nevertheless, we cannot guarantee the outcome of this litigation. The Company is currently in settlement discussions with the plantiffs in this case.

The Company records accruals for contingencies when it is probable that a loss will be incurred and can be reasonably estimated. Although MJN cannot predict with certainty the final resolution of these lawsuits, investigations and claims asserted against the Company, MJN does not believe any currently pending legal proceeding to which MJN 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 September 30, 2013, 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 China Antitrust Review, discussed in Note 8 above, was resolved during the third quarter of 2013. In connection with the China Antitrust Review, the NDRC assessed an administrative penalty of $33.4 million against the Company, which penalty was paid during the third quarter and is non-deductible for tax purposes. The Company accrued $7.4 million in the second quarter of 2013 in connection with this matter and recognized the remaining charge of $26.0 million upon final resolution in the third quarter.

The Company has initiated an internal investigation of, and is voluntarily complying with an SEC request for documents relating to, certain business activities of the Company’s local subsidiary in China. The Company’s investigation is focused on certain expenditures that were made by the subsidiary in connection with the promotion of the Company’s products or may have otherwise been made and that may not have complied with Company policies and applicable U.S. and/or local laws. The Company has retained outside legal counsel to conduct the investigation, which is being overseen by a committee of independent members of the Company’s board of directors. At this time, the Company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview of Our Business

We are a global leader in pediatric nutrition. We are committed to building trusted nutritional brands and products that help improve the health and development of infants and children around the world and provide them with the best start in life. Our comprehensive product portfolio addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. We have over 100 years of innovation experience during which we have developed or improved many breakthrough or industry-defining products across each of our product categories. We operate in four geographic segments: Asia, Europe, Latin America and North America. Due to similarities in the economics, products offered, production process, customer base and regulatory environment, these operating segments have been aggregated into two reportable segments: Asia/Latin America and North America/Europe.

Executive Summary

For the three months ended September 30, 2013, sales grew 14% compared to the prior year period, primarily as a result of volume growth within the Asia/Latin America segment. Earnings per share increased 14% driven by higher sales and an increased gross margin, partially offset by increased demand generation investments, the China administrative penalty described below and a higher effective tax rate.

For the nine months ended September 30,2013, sales grew 8% compared to the prior year period, balanced between increased volume and higher prices. The 4% volume increase was driven by category growth along with market share improvements, partially offset by lower volumes in the North America/Europe segment related to the late 2012 exit of certain non-core businesses. Earnings per share increased 7% driven by higher sales and an increased gross margin, partially offset by increased demand generation investments, the China administrative penalty and a higher effective tax rate.

As announced by the Company on August 6, 2013, China’s National Development and Reform Commission’s (“NDRC”) antitrust review of the infant formula industry’s resale pricing practices (“China Antitrust Review”) was resolved during the third quarter of 2013. In connection with the China Antitrust Review, the NDRC assessed an administrative penalty of $33.4 million against the Company, which penalty was paid during the third quarter.

Three Months Results of Operations

Below is a summary of comparative results of operations for the three months ended September 30, 2013 and 2012: 

									% of Net Sales
(Dollars in millions, except per share data)	2013			2012			% Change		2013		2012
Net Sales	$	1,046.8		$	921.3		14	%
Earnings before Interest and Income Taxes	238.7			183.2			30	%	23	%	20	%
Interest Expense—net	12.3			16.9			(27	)%	1	%	2	%
Earnings before Income Taxes	226.4			166.3			36	%	22	%	18	%
Provision for Income Taxes	66.4			27.1			145	%	7	%	3	%
Effective Tax Rate	29.4		%	16.3		%
Net Earnings	160.0			139.2			15	%	15	%	15	%
Less: Net Earnings/(Loss) Attributable to Noncontrolling Interests	(1.6		)	(1.1		)	(45	)%	—	%	—	%
Net Earnings Attributable to Shareholders	$	161.6		$	140.3		15	%	15	%	15	%
Weighted-Average Common Shares— Diluted	202.8			204.3
Earnings per Common Share—Diluted	$	0.79		$	0.69		14	%

The results for the three months ended September 30, 2013 and 2012 include several items that affect the comparability of our results. These items include significant expenses/(income) not indicative of on-going results (“Specified Items”) and are listed in the table below.

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	Three Months Ended September 30,
(In millions)	2013			2012
IT/other separation costs	$	—		$	4.9
Gain on sale of certain non-core intangible assets	—			(5.5		)
Severance and other costs	0.1			8.1
Legal, settlements and related costs	27.1			0.2
Specified Items	$	27.2		$	7.7
Income tax impact on Specified Items	(0.4		)	(3.2		)
Specified Items attributable to Noncontrolling Interests	(3.7		)	—
Specified Items - net	23.1			4.5

The increase in legal, settlements and related costs is primarily driven by the administrative penalty assessed by China’s NDRC in connection with the China Antitrust Review. The Company accrued $7.4 million in the second quarter of 2013 in connection with this matter and recognized the remaining charge of $26.0 million upon final resolution in the third quarter.

The 2012 IT/other separation costs related to the completion of our stand-alone operating structure.

Net Sales

Our net sales by reportable segments are shown in the table below:

	Three Months Ended September 30,						% Change Due to
(Dollars in millions)	2013		2012		% Change		Volume		Price/Mix		Foreign Exchange
Asia/Latin America	$	768.0	$	646.7	19	%	17	%	4	%	(2	)%
North America/Europe	278.8		274.6		2	%	—	%	2	%	—	%
Net Sales	$	1,046.8	$	921.3	14	%	12	%	4	%	(2	)%

Asia/Latin America sales accounted for 73% of our net sales for the third quarter of 2013. Sales volume increases reflected a favorable prior period comparison related to distributor inventory reductions and lower market share in China during the third quarter of 2012, which accounted for approximately 5% of the segment’s growth. In addition, market share gains in key Asian markets and a majority of Latin American markets drove the balance of volume growth. Price increases in Venezuela and Argentina helped mitigate high inflation in these markets and accounted for 2% of both the segment and total Company growth.

Sales in North America/Europe increased 2% versus the prior year period. Excluding the impact of the exit of certain non-core businesses late in 2012, segment sales increased approximately 6%. This increase resulted primarily from market share gains in Canada, partially offset by lower U.S. category consumption.

Our net sales by product category are shown in the table below: 

	Three Months Ended September 30,
(Dollars in millions)	2013		2012		% Change
Infant Formula	$	604.1	$	536.4	13	%
Children’s Nutrition	421.5		354.3		19	%
Other	21.2		30.6		(31	)%
Net Sales	$	1,046.8	$	921.3	14	%

Infant Formula accounts for the large majority of our sales in North America/Europe and nearly half of our sales in Asia/Latin America. Other category sales decreased due to the prior year exit of certain non-core products primarily in the North America/Europe segment.

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We recognize revenue net of various sales adjustments to arrive at net sales as reported on the statements of earnings. These adjustments are referred to as gross-to-net sales adjustments. The reconciliation of our gross sales to net sales is as follows: 

	Three Months Ended September 30,				% of Gross Sales
(Dollars in millions)	2013		2012		2013		2012
Gross Sales	$	1,326.8	$	1,204.8	100	%	100	%
Gross-to-Net Sales Adjustments
WIC Rebates	169.7		181.2		13	%	15	%
Sales Discounts	54.9		46.3		4	%	4	%
Returns	17.9		22.8		1	%	2	%
Cash Discounts	10.8		11.1		1	%	1	%
Prime Vendor Charge-Backs	7.5		8.0		1	%	1	%
Coupons and Other Adjustments	19.2		14.1		1	%	1	%
Total Gross-to-Net Sales Adjustments	280.0		283.5		21	%	24	%
Total Net Sales	$	1,046.8	$	921.3	79	%	76	%

The gross-to-net sales adjustments decreased as a percentage of gross sales with the prior year period. U.S. WIC Rebates were lower as a percentage of global gross sales due to growth in the Asia/Latin America segment. The total dollar amount of WIC rebates decreased due to changes in certain WIC contracts in late 2012.

Gross Profit

	Three Months Ended September 30,
(Dollars in millions)	2013			2012			% Change
Net Sales	$	1,046.8		$	921.3		14	%
Cost of Products Sold	365.5			357.5			2	%
Gross Profit	$	681.3		$	563.8		21	%
Gross Margin	65.1		%	61.2		%

The increase in gross margin resulted from increased prices, productivity gains and favorable manufacturing volumes. The Company anticipates that increased dairy and other commodity costs will negatively impact gross margin beginning in the fourth quarter of 2013.

Expenses

	Three Months Ended September 30,						% of Net Sales
(Dollars in millions)	2013		2012		% Change		2013		2012
Selling, General and Administrative	$	222.6	$	210.7	6	%	21	%	23	%
Advertising and Promotion	163.8		138.8		18	%	16	%	15	%
Research and Development	24.8		21.5		15	%	2	%	2	%
Other Expenses/(Income)—net	31.4		9.6		n/a		3	%	1	%

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased year over year due to higher sales force expense and performance-based compensation.

Advertising and Promotion Expenses

Our advertising spending primarily includes television and other consumer media. Promotion activities primarily include product evaluation and education provided to health care professionals and consumers, where permitted by regulation. The increase in advertising and promotion expenses reflected demand-generation investments primarily in Asia/Latin America in support of our strategic growth initiatives.

Research and Development Expenses

Our research and development expenses include the continued investment in our innovation capability, product pipeline and quality programs.

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Other Expenses/(Income) — net

	Three Months Ended September 30,
(In millions)	2013		2012
Foreign exchange (gains)/losses - net	$	2.1	$	6.7
Administrative penalty (China)	26.0		—
Pension settlements	2.5		4.1
Gain on sale of certain non-core intangible assets	—		(5.5		)
Other - net	0.8		4.3
Other expenses/(income) - net	$	31.4	$	9.6

As announced by the Company on August 6, 2013, China’s NDRC assessed an administrative penalty against the Company in connection with the China Antitrust Review. The penalty was paid during the third quarter of 2013.

Earnings before Interest and Income Taxes

Earnings before interest and income taxes (“EBIT”) from our two reportable segments is reduced by Corporate and Other expenses. Corporate and Other consists of unallocated general and administrative expenses; global business support activities, including research and development, marketing and supply chain costs; and income or expenses incurred within our operating segments that are not reflective of ongoing operations and affect the comparability of the operating segments’ results.

	Three Months Ended September 30,
(Dollars in millions)	2013			2012			% Change
Asia/Latin America	$	262.0		$	193.1		36	%
North America/Europe	63.0			53.2			18	%
Corporate and Other	(86.3		)	(63.1		)	(37	)%
EBIT	$	238.7		$	183.2		30	%

EBIT in Asia/Latin America increased primarily due to higher sales and improved gross margin partially offset by higher demand-generation investments as compared to the prior year period.

EBIT in North America/Europe increased primarily due to a higher gross margin partially offset by additional demand-generation investments as compared to the prior year period .

Corporate and Other expenses increased compared to the prior year period primarily as a result of the third quarter charge of $26.0 million related to the administrative penalty assessed by the NDRC in connection with the China Antitrust Review.

Interest Expense—net

Net interest expense decreased compared to the prior year period primarily as a result of the July 2013 retirement of the note payable in Argentina and the capitalization of interest cost associated with the construction of our new spray dryer and technology center in Singapore (the “Asia Spray Dryer Project”).

Income Taxes

The effective tax rate (“ETR”) for the three months ended September 30, 2013 and 2012 was 29.4% and 16.3%, respectively. The ETR increase was primarily due to the prior year change in management's assertion regarding certain foreign earnings and profits that are permanently invested abroad, favorable U.S. return-to-provision adjustments recorded in the prior year and the administrative penalty related to the China Antitrust Review which is non-deductible for tax purposes.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests consists of a 20%, 11% and 10% interest held by third parties in the Company’s operating entities in Argentina, China and Indonesia, respectively.

Net Earnings Attributable to Shareholders

For the foregoing reasons, net earnings attributable to shareholders for the three months ended September 30, 2013 increased 15% to $161.6 million compared with the three months ended September 30, 2012.

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Nine Months Results of Operations

Below is a summary of comparative results of operations for the nine months ended September 30, 2013 and 2012: 

									% of Net Sales
(Dollars in millions, except per share data)	2013			2012			% Change		2013		2012
Net Sales	$	3,140.0		$	2,920.2		8	%
Earnings before Interest and Income Taxes	719.4			680.3			6	%	23	%	23	%
Interest Expense—net	38.9			49.0			(21	)%	1	%	2	%
Earnings before Income Taxes	680.5			631.3			8	%	22	%	21	%
Provision for Income Taxes	182.4			151.2			21	%	6	%	5	%
Effective Tax Rate	26.8		%	24.0		%
Net Earnings	498.1			480.1			4	%	16	%	16	%
Less: Net Earnings/(Loss) Attributable to Noncontrolling Interests	1.8			9.8			(82	)%	—	%	—	%
Net Earnings Attributable to Shareholders	$	496.3		$	470.3		6	%	16	%	16	%
Weighted-Average Common Shares— Diluted	203.1			204.5
Earnings per Common Share—Diluted	$	2.44		$	2.29		7	%

The results for the nine months ended September 30, 2013 and 2012 include several items that affect the comparability of our results. These items include Specified Items and are listed in the table below.

	Nine Months Ended September 30,
(In millions)	2013			2012
IT/other separation costs	$	—		$	12.0
Gain on sale of certain non-core intangible assets	—			(5.5		)
Severance and other costs	2.1			9.6
Legal, settlements and related costs	34.7			3.1
Specified Items	$	36.8		$	19.2
Income tax impact on Specified Items	0.3			(6.1		)
Specified Items attributable to Noncontrolling Interests	(3.7		)	—
Specified Items - net	33.4			13.1

The increase in legal, settlements and related costs is primarily driven by an administrative penalty assessed by China’s NDRC in connection with the China Antitrust Review. The Company accrued $7.4 million in the second quarter of 2013 in connection with this matter and recognized the remaining charge of $26.0 million upon final resolution in the third quarter.

The 2012 IT/other separation costs related to the completion of our stand-alone operating structure.

Net Sales

Our net sales by reportable segments are shown in the table below:

	Nine Months Ended September 30,						% Change Due to
(Dollars in millions)	2013		2012		% Change		Volume		Price/Mix		Foreign Exchange
Asia/Latin America	$	2,280.7	$	2,056.0	11	%	8	%	4	%	(1	)%
North America/Europe	859.3		864.2		(1	)%	(4	)%	3	%	—	%
Net Sales	$	3,140.0	$	2,920.2	8	%	4	%	4	%	—	%

Asia/Latin America sales accounted for 73% of our net sales for the first nine months of 2013. Increased volume was driven by China/Hong Kong recovery of market share lost in the prior year comparative period. Latin American markets gained share throughout Latin America. The Company’s 2012 Argentine Acquisition (see “Item 1. Financial Statements - Note 9. Redeemable Noncontrolling Interest”) increased sales by 1% versus the prior year period. Price increases in Venezuela and Argentina helped mitigate high inflation in their respective markets and accounted for 2% of the segment's growth and 1% of total Company growth. Higher prices throughout the rest of the segment were slightly offset by lower prices in China.

Excluding the impact of the late 2012 exit of certain non-core businesses, North America/Europe sales increased by 3%. Higher prices in the U.S. and market share gains in Canada were partially offset by lower U.S. category consumption.

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Our net sales by product category are shown in the table below: 

	Nine Months Ended September 30,
(Dollars in millions)	2013		2012		% Change
Infant Formula	$	1,843.2	$	1,692.1	9	%
Children’s Nutrition	1,230.7		1,134.0		9	%
Other	66.1		94.1		(30	)%
Net Sales	$	3,140.0	$	2,920.2	8	%

Infant Formula accounts for the large majority of our sales in North America/Europe and nearly half of our sales in Asia/Latin America. Other category sales declined due to the prior year exit of certain non-core products primarily in the North America/Europe segment.

We recognize revenue net of various sales adjustments to arrive at net sales as reported on the statements of earnings. These adjustments are referred to as gross-to-net sales adjustments. The reconciliation of our gross sales to net sales is as follows: 

	Nine Months Ended September 30,				% of Gross Sales
(Dollars in millions)	2013		2012		2013		2012
Gross Sales	$	3,993.7	$	3,765.7	100	%	100	%
Gross-to-Net Sales Adjustments
WIC Rebates	526.4		546.9		13	%	14	%
Sales Discounts	155.9		138.9		4	%	4	%
Returns	59.9		62.0		1	%	2	%
Cash Discounts	33.3		33.4		1	%	1	%
Prime Vendor Charge-Backs	22.4		24.1		1	%	—	%
Coupons and Other Adjustments	55.8		40.2		1	%	1	%
Total Gross-to-Net Sales Adjustments	853.7		845.5		21	%	22	%
Total Net Sales	$	3,140.0	$	2,920.2	79	%	78	%

Total gross-to-net sales adjustments were similar as a percentage of gross sales with the prior year period. U.S. WIC Rebates declined as a percentage of global gross sales due to growth in the Asia/Latin America segment. The total dollar amount of WIC rebates decreased due to changes in certain WIC contracts in late 2012.

Gross Profit

	Nine Months Ended September 30,
(Dollars in millions)	2013			2012			% Change
Net Sales	$	3,140.0		$	2,920.2		8	%
Cost of Products Sold	1,140.8			1,103.3			3	%
Gross Profit	$	1,999.2		$	1,816.9		10	%
Gross Margin	63.7		%	62.2		%

The increase in gross margin resulted primarily from increased prices, productivity gains and lower dairy costs. The Company anticipates that increased dairy and other commodity costs will negatively impact gross margin beginning in the fourth quarter of 2013.

Expenses

	Nine Months Ended September 30,						% of Net Sales
(Dollars in millions)	2013		2012		% Change		2013		2012
Selling, General and Administrative	$	666.8	$	642.2	4	%	21	%	22	%
Advertising and Promotion	475.9		413.3		15	%	15	%	14	%
Research and Development	74.5		67.6		10	%	2	%	2	%
Other Expenses/(Income)—net	62.6		13.5		n/a		2	%	—	%

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased year over year due to higher sales force expense and performance-based compensation partially offset by the elimination of prior year IT/other separation costs related to the completion of our stand-alone operating structure.

Advertising and Promotion Expenses

Our advertising spending primarily includes television and other consumer media. Promotion activities primarily include product evaluation and education provided to health care professionals and consumers, where permitted by regulation. The increase in advertising and promotion expenses reflected demand-generation investments primarily in Asia/Latin America in support our strategic growth initiatives.

Research and Development Expenses

Our research and development expenses include the continued investment in our innovation capability, product pipeline and quality programs.

Other Expenses/(Income) — net

	Nine Months Ended September 30,
(In millions)	2013		2012
Foreign exchange (gains)/losses - net	$	6.9	$	(2.1	)
Administrative penalty (China)	33.4		—
Pension settlements	17.7		13.1
Gain on sale of certain non-core intangible assets	—		(5.5		)
Other - net	4.6		8.0
Other expenses/(income) - net	$	62.6	$	13.5

As announced by the Company on August 6, 2013, China’s NDRC assessed an administrative penalty against the Company in connection with the China Antitrust Review. The penalty was paid during the third quarter of 2013.

Earnings before Interest and Income Taxes

EBIT from our two reportable segments is reduced by Corporate and Other expenses. Corporate and Other consists of unallocated general and administrative expenses; global business support activities, including research and development, marketing and supply chain costs; and income or expenses incurred within our operating segments that are not reflective of ongoing operations and affect the comparability of the operating segments’ results.

	Nine Months Ended September 30,
(Dollars in millions)	2013			2012			% Change
Asia/Latin America	$	770.0		$	713.9		8	%
North America/Europe	187.7			157.2			19	%
Corporate and Other	(238.3		)	(190.8		)	(25	)%
EBIT	$	719.4		$	680.3		6	%

EBIT in Asia/Latin America increased primarily due to higher sales and improved gross margin partially offset by higher demand-generation investments as compared to the prior year period.

EBIT in North America/Europe increased primarily due to a higher gross margin resulting from the exit of certain non-core businesses in late 2012 and our new business model in Europe.

Corporate and Other expenses increased compared to the prior year period primarily as a result of the $33.4 million charge related to the administrative penalty assessed by the NDRC in connection with the China Antitrust Review, increased performance-based compensation and current year foreign exchange transaction losses.

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Interest Expense—net

Net interest expense decreased compared to the prior year primarily as a result of the July 2013 retirement of the note payable in Argentina and the capitalization of interest cost associated with the construction of our Asia Spray Dryer Project.

Income Taxes

The ETR for the nine months ended September 30, 2013 and 2012 was 26.8% and 24.0%, respectively. The ETR increase was primarily due to the prior year change in management's assertion regarding certain foreign earnings and profits that are permanently invested abroad, favorable U.S. return-to-provision adjustments recorded in the prior year and the administrative penalty related to the China Antitrust Review which is non-deductible for tax purposes.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests consists of a 20%, 11% and 10% interest held by third parties in the Company’s operating entities in Argentina, China and Indonesia, respectively.

Net Earnings Attributable to Shareholders

For the foregoing reasons, net earnings attributable to shareholders for the nine months ended September 30, 2013 increased 6% to $496.3 million compared with the nine months ended September 30, 2012.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash on hand, cash from operations and available borrowings under our $500.0 million revolving credit facility. Cash flows from operating activities represent the inflow of cash from our 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 acquisitions and capital expenditures for equipment, buildings and computer software. Cash flows used in financing activities primarily represent proceeds and repayments of short-term borrowings, dividend payments and share repurchases.

Cash and cash equivalents totaled $985.2 million at September 30, 2013, of which $693.8 million was held outside of the United States. Cash and cash equivalents totaled $1,042.1 million as of December 31, 2012, of which $486.7 million was held outside of the United States.

During the third quarter of 2013, we repatriated approximately $5.9 million of cash to the United States from multiple jurisdictions whose earnings and profits are not permanently invested abroad. During the third quarter of 2012, approximately $408 million was repatriated as a return of basis.  The Company has no current plans to repatriate cash in a similar manner.

As a result of our evaluation of our global cash position, management has asserted that current year earnings and profits in certain foreign jurisdictions are permanently invested abroad. We will continue to evaluate our global cash position and whether earnings and profits of certain other foreign jurisdictions are permanently invested abroad. As of September 30, 2013, approximately $430 million of cash and cash equivalents were held by foreign subsidiaries whose undistributed earnings, either partially or entirely, are considered permanently invested. Our intent is to invest these earnings in our foreign operations and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations. If we decide 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.

The Company applies highly inflationary accounting to its business in Venezuela. Under highly inflationary accounting, the functional currency of the entity is aligned with the reporting currency of the Company. Exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than accumulated other comprehensive loss on the balance sheet. The impact of applying highly inflationary accounting for Venezuela on our consolidated financial statements is dependent upon movements in the official exchange rate, including devaluations, between the Venezuelan bolivar and the U.S. dollar. The amount of net monetary assets and liabilities included in our subsidiary's balance sheet was approximately $30 million at September 30, 2013.

During the quarter, the Company repaid $36.8 million against its short-term revolving credit facilities. The Company’s short-term borrowings were $2.6 million and $161.0 million as of September 30, 2013 and December 31, 2012 respectively.

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Our board of directors previously authorized the repurchase of up to $300.0 million of the Company’s common stock (the “2010 Authorization”). The 2010 Authorization program was primarily intended to offset the dilutive effect on earnings from stock-based compensation. The 2010 Authorization ends on May 1, 2015. During the three months ended September 30, 2013, we purchased 0.5 million shares under the 2010 Authorization for $33.7 million. In September 2013, the Company’s board of directors approved a new share repurchase authorization of up to an additional $500.0 million of the Company’s common stock (the “2013 Authorization”). The 2013 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 2013 Authorization does not have an expiration date.As of September 30, 2013, we had $2.1 million available under the 2010 Authorization and $500.0 million under the 2013 Authorization.

Cash Flows

We believe that cash on hand and cash from operations will be sufficient to support our working capital needs, pay our operating expenses, satisfy debt obligations, fund capital expenditures and make dividend payments. 

	Nine Months Ended September 30,
(Dollars in millions)	2013			2012
Cash flow provided by/(used in):
Operating Activities
Net Earnings	$	498.1		$	480.1
Depreciation and Amortization	62.1			56.7
Other	36.9			23.5
Changes in Assets and Liabilities	1.0			(95.3		)
Pension and Other Postretirement Benefits Contributions	(6.1		)	(24.9		)
Total Operating Activities	592.0			440.1
Investing Activities	(178.0		)	(188.4		)
Financing Activities	(462.3		)	(136.7		)
Effects of Changes in Exchange Rates on Cash and Cash Equivalents	(8.6		)	3.1
Net Decrease in Cash and Cash Equivalents	$	(56.9	)	$	118.1

For the nine months ended September 30, 2013, cash flow from operating activities was $592.0 million and primarily driven by net earnings. For the nine months ended September 30, 2012, cash flow from operating activities was $440.1 million driven by net earnings, partially offset by cash paid for income taxes, a decline in deferred income, cash contributions to our frozen U.S. defined benefit pension plan and a decline in accrued expenses.

Cash flow used in investing activities was $10.4 million less than the prior year period. The decrease was largely the result of the prior year Argentine Acquisition partially offset by higher capital expenditures in 2013 as compared to 2012. For more information regarding the Argentine Acquisition, see “Item 1, Financial Statements - Note 9. Redeemable Noncontrolling Interest.”

Cash flow used in financing activities was $462.3 million for the nine months ended September 30, 2013, and included $198.9 million of dividend payments, $158.2 million net repayments from our short-term credit facilities, $92.5 million of treasury stock purchases and $27.6 million for the retirement of a note payable related to the Argentine Acquisition, partially offset by $19.8 million inflow related to stock-based compensation. For the nine months ended September 30, 2012, cash flow used in financing activities was $136.7 million and included $175.6 million of dividend payments, $108.3 million of treasury stock purchases and $26.8 million for the first installment of the note payable related to the Argentine Acquisition, partially offset by $155.2 million net borrowing from our short-term Credit Facility and a $21.0 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
Nine Months Ended September 30, 2013	$	149.3	$	177.3
Nine Months Ended September 30, 2012	$	72.5	$	85.7

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Capital expenditures included investment primarily in our new Asia Spray Dryer Project. We expect capital expenditures in 2013 to be approximately $260 million, including our investment in the Asia Spray Dryer Project, with continued emphasis on investment in growth and innovation.

Short-Term Borrowings and Note Payable

For information regarding Short-Term Borrowings and Note Payable, see “Item 1. Financial Statements - Note 15. Debt.”

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other written and oral statements we make 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. You can also identify forward-looking statements 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 our reputation of real or perceived quality issues; (3) the effect of regulatory restrictions related to our 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 we operate; (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 our ability to advertise our products or maintain product margins; and (13) the ability to develop and market new, innovative products. For additional information regarding these and other factors, see our filings with the United States Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”), which filings are available upon request from the SEC or at www.meadjohnson.com. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.  We undertake 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.

There is no material change in the information reported under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” contained in our 2012 Form 10-K.

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 the Chief Financial Officer (our principal executive officer and principal financial officer, respectively), we have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2013. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of September 30, 2013, the Company’s disclosure controls and procedures were effective in ensuring information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting during the quarter ended September 30, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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 19. 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 our 2012 Form 10-K.

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ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(c) Issuer Purchases of Equity Securities

The following table includes information about the Company’s stock repurchases during the three-month period ending September 30, 2013:

(Dollars in millions, except per share amounts) Period	Total Number of Shares Purchased  (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (3)
July 1, 2013 through July 31, 2013	50,000	$	72.05	50,000	$	32.2
August 1, 2013 through August 31, 2013	195,000	$	75.68	195,000	17.4
September 1, 2013 through September 30, 2013	204,563	$	74.82	204,563	502.1
	449,563	$	74.89	449,563	$	502.1

(1) The total number of shares purchased does not include shares surrendered to the Company to pay the exercise price in connection with the exercise of employee stock options or shares surrendered to the Company to satisfy tax withholding obligations in connection with the exercise of employee stock options or the vesting of restricted stock units.

(2) Average Price Paid per Share includes commissions.

(3) On March 17, 2010, the Company announced that its board of directors authorized the repurchase of up to $300.0 million of the Company’s common stock (the “2010 Authorization”). The 2010 Authorization ends on May 1, 2015. As of September 30, 2013, the Company had $2.1 million remaining available under the 2010 Authorization. On September 11, 2013, the Company announced that its board of directors approved a new, additional share repurchase authorization of up to an additional $500.0 million of the Company’s common stock (the “2013 Authorization”). The 2013 Authorization does not have an expiration date. As of September 30, 2013, the Company had $500.0 million remaining available under the 2013 Authorization.

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ITEM 6.     EXHIBITS.

Exhibit Number	Exhibit Description
18.1	Preferability Letter Regarding Change in Accounting Policy
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

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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:	October 24, 2013	By:	/s/ Tom De Weerdt
			Tom De Weerdt
			Vice President, Corporate Controller
			(Authorized Officer and Chief Accounting Officer)

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