424B3 1 d424b3.htm FINAL PROSPECTUS Final Prospectus
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-163126

PROSPECTUS

BRISTOL-MYERS SQUIBB COMPANY

Offer to Exchange Up to

170,000,000 Shares of Class A Common Stock of

MEAD JOHNSON NUTRITION COMPANY

Which are owned by Bristol-Myers Squibb Company for

Outstanding Shares of Common Stock of

BRISTOL-MYERS SQUIBB COMPANY

 

 

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 17, 2009 UNLESS THE EXCHANGE OFFER IS EXTENDED OR TERMINATED.

 

 

Bristol-Myers Squibb Company (“BMS”) is offering to exchange (the “exchange offer”) up to 170.0 million shares of class A common stock (“MJN common stock”) of Mead Johnson Nutrition Company (“MJN”) in the aggregate for outstanding shares of BMS common stock that are validly tendered and not validly withdrawn.

For each $1.00 of BMS common stock accepted in the exchange offer, you will receive approximately $1.11 of MJN common stock, subject to an upper limit of 0.6313 shares of MJN common stock per share of BMS common stock. The exchange offer does not provide for a lower limit or minimum exchange ratio. IF THE UPPER LIMIT IS IN EFFECT, YOU WILL RECEIVE LESS THAN $1.11 OF MJN COMMON STOCK FOR EACH $1.00 OF BMS COMMON STOCK THAT YOU TENDER, AND YOU COULD RECEIVE MUCH LESS.

The final exchange ratio of MJN common stock per share of BMS common stock tendered by you and accepted will be the lesser of (a) the Average BMS Price (as described below) divided by 90% of the Average MJN Price (as described below) and (b) the upper limit of 0.6313.

The average value of the two stocks will be determined by reference to the simple arithmetic average of the daily volume-weighted average prices (“VWAP”) of BMS common stock (the “Average BMS Price”) and MJN common stock (the “Average MJN Price”) on the New York Stock Exchange (“NYSE”) during the three consecutive trading days (currently expected to be December 11, 14 and 15, 2009) ending on and including the second trading day (currently expected to be December 15, 2009) preceding the expiration date of the exchange offer (currently expected to be December 17, 2009). See “The Exchange Offer—Terms of the Exchange Offer”. BMS common stock and MJN common stock are listed on the NYSE under the symbols “BMY” and “MJN”, respectively. On November 13, 2009, the reported last sales prices of BMS common stock and MJN common stock on the NYSE were $23.18 and $45.25 per share, respectively.

The indicative exchange ratio that would have been in effect following the official close of trading on the NYSE on November 13, 2009, based on the daily VWAPs of BMS common stock and MJN common stock on November 11, 12 and 13, 2009, would have provided for 0.5696 shares of MJN common stock to be exchanged for every share of BMS common stock accepted.

The final exchange ratio (as well as whether the upper limit will be in effect) will be announced by press release by 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date of the exchange offer (currently expected to be December 17, 2009). At such time, the final exchange ratio will be available from the information agent at (800) 868-1359 (toll-free in the United States), (212) 806-6859 (outside the United States) and (212) 440-9800 (for banks and brokers). Throughout the exchange offer, indicative exchange ratios (calculated in the manner described in this prospectus) will also be available from the information agent.

You should read carefully the terms and conditions of the exchange offer described in this prospectus. None of BMS, MJN or any of their respective directors or officers or any of the dealer managers makes any recommendation as to whether you should tender your shares of BMS common stock. You must make your own decision after reading this document and consulting with your advisors.

BMS’ obligation to exchange shares of MJN common stock for shares of BMS common stock is subject to the conditions listed under “The Exchange Offer—Conditions to Completion of the Exchange Offer”.

 

 

See “Risk Factors” beginning on page 22 for a discussion of factors that you should consider in connection with the exchange offer.

 

 

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of the securities to be exchanged under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The joint dealer managers for the exchange offer are:

 

 

Citi   Goldman, Sachs & Co.   Morgan Stanley

 

 

The date of this prospectus is December 15, 2009


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TABLE OF CONTENTS

 

Incorporation by Reference

   ii

Questions and Answers About the Exchange Offer

   1

Summary

   10

Risk Factors

   22

Cautionary Statement Concerning Forward-Looking Statements

   43

Recent Developments

   44

The Transaction

   45

The Exchange Offer

   49

Spin-Off of MJN Common Stock

   64

Management’s Discussion and Analysis of Financial Condition and Results of Operations of MJN

   65

Business of MJN

   96

Management of MJN

   110

Executive Compensation

   116

Agreements Between BMS and MJN and Other Related Party Transactions

   159

Security Ownership of Certain Beneficial Owners and Management of BMS and MJN

   164

Material U.S. Federal Income Tax Consequences

   167

Description of Capital Stock of MJN

   172

Comparison of Stockholder Rights

   176

Description of Certain Indebtedness of MJN

   180

Shares Eligible for Future Sale

   182

Legal Matters

   183

Experts

   184

Index to Financial Statements of MJN

   F-1

This prospectus incorporates by reference important business and financial information about BMS from documents filed with the Securities and Exchange Commission (“SEC”) that have not been included herein or delivered herewith. This information is available without charge at the website that the SEC maintains at http://www.sec.gov, as well as from other sources. See “Incorporation by Reference”. In addition, you may ask any questions about the exchange offer or request copies of the exchange offer documents and the other information incorporated by reference in this prospectus from BMS, without charge, upon written or oral request to the information agent, Georgeson Inc., located at 199 Water Street, 26th Floor, New York, NY 10038 by calling (800) 868-1359 (toll-free in the United States), (212) 806-6859 (outside the United States) or (212) 440-9800 (for banks and brokers). In order to receive timely delivery of those materials, you must make your requests no later than five business days before expiration of the exchange offer.

This prospectus is not an offer to sell or exchange and it is not a solicitation of an offer to buy any shares of BMS common stock or MJN common stock in any jurisdiction in which the offer, sale or exchange is not permitted. Non-U.S. stockholders should consult their advisors in considering whether they may participate in the exchange offer in accordance with the laws of their home countries and, if they do participate, whether there are any restrictions or limitations on transactions in BMS common stock or MJN common stock that may apply in their home countries. BMS, MJN and the dealer managers cannot provide any assurance about whether such limitations exist.

 

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INCORPORATION BY REFERENCE

The SEC allows certain information to be “incorporated by reference” into this prospectus by BMS, which means that BMS can disclose important information to you by referring you to another document it has separately filed with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in this prospectus. This prospectus incorporates by reference the documents set forth below that BMS has previously filed with the SEC. These documents contain important information about BMS, its business, financial condition and results of operations:

BMS SEC Filings

 

   

BMS Annual Report on Form 10-K for the year ended December 31, 2008 (except for (i) Item 6. Selected Financial Data, (ii) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (iii) Item 8. Financial Statements and Supplementary Data, each of which is superseded by the BMS Current Report on Form 8-K filed on April 28, 2009);

 

   

BMS Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009;

 

   

BMS Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009;

 

   

BMS Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009;

 

   

BMS Definitive Proxy Statement filed on March 23, 2009; and

 

   

BMS Current Reports on Form 8-K filed on March 6, 2009, April 6, 2009, April 28, 2009 (excluding the Form 8-K furnishing information under Item 2.02), July 23, 2009 (only with respect to Item 8.01), August 17, 2009, September 2, 2009, November 12, 2009 and December 1, 2009.

All documents filed by BMS pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), from the date of this prospectus to the date that this offering is terminated or expires shall also be deemed to be incorporated into this prospectus by reference (except for any information therein which has been furnished rather than filed). Subsequent filings with the SEC will automatically modify and supersede the information in this prospectus.

Documents incorporated by reference are available without charge, upon written or oral request to the information agent, Georgeson Inc., located at 199 Water Street, 26th Floor, New York, NY 10038 at (800) 868-1359 (toll-free in the United States), (212) 806-6859 (outside the United States) and (212) 440-9800 (for banks and brokers). In order to receive timely delivery of those materials, you must make your requests no later than five business days before expiration of the exchange offer.

Where You Can Find More Information About BMS and MJN

BMS and MJN file annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. You may read and copy this information at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain copies of this information by mail from the SEC at the above address, at prescribed rates. The SEC also maintains a website that contains reports, proxy statements and other information that BMS and MJN file electronically with the SEC. The address of that website is http://www.sec.gov.

MJN has filed a registration statement on Form S-4 under the Securities Act, of which this prospectus forms a part, to register with the SEC the shares of MJN common stock to be exchanged in the exchange offer to BMS stockholders whose shares of BMS common stock are accepted for exchange. BMS will file a Tender Offer Statement on Schedule TO with the SEC with respect to the exchange offer. This prospectus constitutes BMS’ offer to exchange, in addition to being a prospectus of MJN. This prospectus does not contain all the information

 

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set forth in the registration statement, the exhibits to the registration statement or the Schedule TO, selected portions of which are omitted from this prospectus in accordance with the rules and regulations of the SEC. For further information pertaining to BMS, MJN and MJN common stock, reference is made to the registration statement and its exhibits. Statements contained in this prospectus or in any document incorporated herein by reference as to the contents of any contract or other document referred to within this prospectus or other documents that are incorporated herein by reference are not necessarily complete and, in each instance, reference is made to the copy of the applicable contract or other document filed as an exhibit to the registration statement or otherwise filed with the SEC. Each statement contained in this prospectus is qualified in its entirety by reference to the underlying documents.

 

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QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER

The BMS board of directors has authorized the disposition, pursuant to the exchange offer, of its remaining interest in MJN, consisting of 170.0 million shares of MJN common stock, which represents approximately 83.1% of the outstanding common stock of MJN. Following the exchange offer, MJN will be wholly independent from BMS subject to certain agreements between BMS and MJN which will remain in place. See “Agreements Between BMS and MJN and Other Related Party Transactions”. The following are answers to common questions about the exchange offer.

As used in this prospectus, unless the context requires otherwise, (i) references to BMS include Bristol-Myers Squibb Company and its consolidated subsidiaries, (ii) references to MJN include Mead Johnson Nutrition Company and its consolidated subsidiaries and (iii) references to the exchange offer include any subsequent spin-off to distribute shares of MJN common stock held by BMS that are not distributed in the exchange offer. Unless the context otherwise indicates, it is assumed throughout this prospectus that (i) the exchange offer is fully subscribed and that all shares of MJN common stock held by BMS are distributed through the exchange offer and (ii) all the outstanding MJN class B common stock has been converted by BMS to MJN class A common stock (which is also referred to as MJN common stock).

 

1. Why has BMS decided to separate MJN from BMS through the exchange offer?

BMS’ board of directors has authorized the exchange offer in order to, among other things, enable BMS to focus on the development of its biopharmaceutical business. BMS also believes that MJN’s separation from BMS through the exchange offer will afford MJN increased flexibility and decision-making power to pursue its own strategic objectives.

 

2. Why did BMS choose an exchange offer as the way to separate MJN from BMS?

BMS believes that the exchange offer, also referred to as the “split-off”, is a tax-efficient way to divest its interest in MJN. The split-off is expected to qualify for non-recognition of gain and loss under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”), and will thus give BMS’ stockholders an opportunity to adjust their investment between BMS and MJN on a tax-free basis for U.S. federal income tax purposes (except with respect to cash received in lieu of a fractional share).

BMS and MJN also have significantly different competitive strengths and operating strategies and operate in different industries. The exchange offer is an efficient means of placing MJN common stock with holders of BMS common stock who wish to own an interest in MJN. By comparison, a separation effected exclusively by spin-off would result in all BMS stockholders becoming owners of MJN, regardless of their desire to own shares of MJN.

 

3. What are the main ways that the relationship between MJN and BMS will change after the exchange offer is completed?

Following the exchange offer, BMS will no longer own any equity interest in MJN. MJN will be free to pursue its own initiatives, regardless of whether those initiatives are consistent with BMS’ strategy. Historically BMS provided significant corporate and shared services functions to MJN. In January 2009, in connection with the MJN initial public offering, MJN and BMS entered into a transitional services agreement governing the provision by BMS to MJN of various services on a transitional basis. MJN is pursuing alternative arrangements for these services, but the expenses paid to BMS for such services are not necessarily indicative of the expense MJN will incur to procure services from alternative sources. In addition, MJN has paid BMS for the assets related to its business in certain jurisdictions where the assets have not yet been transferred to MJN. MJN and BMS are implementing alternative arrangements to complete the transfer of assets in these jurisdictions, but those transfers are not a condition to the exchange offer.

 

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4. Will I receive class A or class B common stock of MJN in the exchange offer?

BMS owns all of the issued MJN class B common stock. Prior to the completion of the exchange offer, BMS will convert all of its MJN class B common stock into MJN class A common stock (otherwise referred to as MJN common stock). As a result, you will receive MJN class A common stock, and upon the completion of the exchange offer, only MJN class A common stock will remain outstanding. Upon the amended and restated certificate of incorporation that MJN intends to file in connection with the exchange offer becoming effective, the class A common stock will be reclassified as common stock.

 

5. Who will receive any dividends on MJN common stock declared prior to the completion of the exchange offer?

The declaration and payment of dividends is at the discretion of MJN’s board of directors and depends on many factors; however, MJN expects the next dividend record date to be after the completion of the exchange offer in which case BMS is not expected to receive the next dividend for any shares of MJN common stock distributed in the exchange offer. Instead, record holders of shares of MJN common stock distributed in the exchange offer are expected to receive the next dividend payment declared by MJN.

 

6. Who may participate in the exchange offer and will it be extended outside the United States?

Any U.S. holder of BMS common stock during the exchange offer period, which will be at least 20 business days, may participate in the exchange offer, including directors and officers of BMS, MJN and their respective subsidiaries.

Although BMS will mail this prospectus to its stockholders to the extent required by U.S. law, including stockholders located outside the United States, this prospectus is not an offer to sell or exchange and it is not a solicitation of an offer to buy any shares of BMS common stock or MJN common stock in any jurisdiction in which such offer, sale or exchange is not permitted.

Countries outside the United States generally have their own legal requirements that govern securities offerings made to persons resident in those countries and often impose stringent requirements about the form and content of offers made to the general public. BMS has not taken any action under those non-U.S. regulations to facilitate a public offer to exchange BMS common stock or MJN common stock outside the United States but may take steps to facilitate such tenders. Therefore, the ability of any non-U.S. person to tender BMS common stock in the exchange offer will depend on whether there is an exemption available under the laws of such person’s home country that would permit the person to participate in the exchange offer without the need for BMS or MJN to take any action to facilitate a public offering in that country or otherwise. For example, some countries exempt transactions from the rules governing public offerings if they involve persons who meet certain eligibility requirements relating to their status as sophisticated or professional investors.

All tendering holders must make certain representations in the letter of transmittal, including (in the case of non-U.S. holders) as to the availability of an exemption under their home country laws that would allow them to participate in the exchange offer without the need for BMS or MJN to take any action to facilitate a public offering in that country or otherwise. BMS will rely on those representations and, unless the exchange offer is terminated, plans to accept shares tendered by persons who properly complete the letter of transmittal and provide any other required documentation on a timely basis and as otherwise described herein.

Non-U.S. stockholders should consult their advisors in considering whether they may participate in the exchange offer in accordance with the laws of their home countries and, if they do participate, whether there are any restrictions or limitations on transactions in BMS common stock or MJN common stock that may apply in their home countries. BMS, MJN and the dealer managers cannot provide any assurance about whether such limitations exist.

 

7. How many shares of MJN common stock will I receive for my shares of BMS common stock accepted in the exchange offer?

The exchange offer is designed to permit you to exchange your shares of BMS common stock for shares of MJN common stock so that for each $1.00 of your BMS common stock accepted in the exchange offer, you will receive approximately $1.11 of MJN common stock, based on the calculated per-share values

 

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determined by reference to the simple arithmetic average of the daily volume-weighted average price (“VWAP”) of BMS common stock (the “Average BMS Price”) and MJN common stock (the “Average MJN Price”) on the New York Stock Exchange (“NYSE”) during the three consecutive trading days (the “Averaging Period”) ending on and including the second trading day (currently expected to be December 15, 2009) preceding the expiration date of the exchange offer (currently expected to be December 17, 2009).

Please note, however, that the number of shares you can receive is subject to an upper limit of 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer. If the upper limit is in effect, you will receive less than $1.11 of MJN common stock for each $1.00 of BMS common stock, based on the Average BMS Price and Average MJN Price, and you could receive much less. The exchange offer does not provide for a lower limit or minimum exchange ratio. In addition, because the exchange offer is subject to proration, the number of shares BMS accepts in the exchange offer may be less than the number of shares you tender.

BMS will announce the final exchange ratio, including whether the upper limit on the number of shares that can be received for each share of BMS common stock tendered is in effect, by press release, no later than 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date (currently expected to be December 17, 2009). If the upper limit is in effect at that time, you will receive 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer.

 

8. Why is there an upper limit on the number of shares of MJN common stock I can receive for each share of BMS common stock that I tender?

The number of shares you can receive is subject to an upper limit of 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer. If the upper limit is in effect, you will receive less than $1.11 of MJN common stock for each $1.00 of BMS common stock that you tender based on the Average BMS Price and the Average MJN Price, and you could receive much less.

This upper limit represents an approximately 18.86% discount for shares of MJN common stock based on the closing prices of BMS common stock and MJN common stock on November 13, 2009 (the trading day immediately preceding the date of the commencement of the exchange offer). BMS set this upper limit to ensure that any unusual or unexpected decrease in the trading price of MJN common stock, relative to the trading price of BMS common stock, would not result in an unduly high number of shares of MJN common stock being exchanged for each share of BMS common stock accepted in the exchange offer.

 

9. What will happen if the upper limit is in effect?

BMS will announce whether the upper limit on the number of shares of MJN common stock that can be received for each share of BMS common stock tendered is in effect by press release, no later than 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date (currently expected to be December 17, 2009). If the upper limit is in effect at that time, you will receive 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer. If the upper limit is in effect, you will receive less than $1.11 of MJN common stock for each $1.00 of BMS common stock that you tender based on the Average BMS Price and the Average MJN Price, and you could receive much less.

 

10. How are the Average BMS Price and Average MJN Price determined for purposes of calculating the number of shares of MJN common stock to be received for each share of BMS common stock accepted in the exchange offer?

The Average BMS Price and Average MJN Price for purposes of the exchange offer will equal the simple arithmetic average of the daily VWAPs of BMS common stock and MJN common stock, respectively, on the NYSE during the Averaging Period (the three consecutive trading days ending on and including the second trading day preceding the expiration date of the exchange offer). The Averaging Period currently is expected to be December 11, 14 and 15, 2009.

 

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If the upper limit is in effect, you will receive 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer, and the Average BMS Price and Average MJN Price will no longer affect the exchange ratio.

 

11. What is the “daily volume-weighted average price” or daily VWAP?

The daily VWAP for BMS common stock or MJN common stock, as the case may be, will be the volume-weighted average price per share of that stock on the NYSE during the period beginning at 9:30 a.m., New York City time (or such other time as is the official open of trading on the NYSE) and ending at 4:00 p.m., New York City time (or such other time as is the official close of trading on the NYSE), as determined by BMS, which determination will be definitive and may be different from other sources or investors’ own calculations.

 

12. How and when will I know the final exchange ratio?

The final exchange ratio showing the number of shares of MJN common stock that you will receive for each share of BMS common stock accepted in the exchange offer will be announced by press release by 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date of the exchange offer (currently expected to be December 17, 2009). In addition, as described below, you may also contact the information agent to obtain indicative exchange ratios (prior to the time the final exchange ratio becomes available) and the final exchange ratio (after the time the final exchange ratio becomes available) at its toll-free number provided on the back cover of this prospectus.

 

13. Will indicative exchange ratios be provided during the exchange offer period?

Yes. Indicative exchange ratios will be available by contacting the information agent at its toll-free telephone number provided on the back cover of this prospectus on each day of the exchange offer period prior to the announcement of the final exchange ratio. Prior to the Averaging Period, the indicative exchange ratios for each day will be calculated based on the simple arithmetic average of the closing prices of shares of BMS common stock and MJN common stock on the NYSE on the three consecutive trading days immediately preceding such day. For example, on the tenth trading day of the exchange offer an indicative exchange ratio will be available based on the simple arithmetic average of the closing prices of shares of BMS common stock and MJN common stock on the NYSE on the seventh, eighth and ninth trading days of the exchange offer. During the Averaging Period, the indicative exchange ratios will be based on (i) for the first day of the Averaging Period, the simple arithmetic average of the closing prices of shares of BMS common stock and MJN common stock on the NYSE on the three consecutive trading days immediately preceding the first day of the Averaging Period, (ii) for the second day of the Averaging Period, the daily VWAPs of shares of BMS common stock and MJN common stock on the first day of the Averaging Period and (iii) for the third day of the Averaging Period, the simple arithmetic average of the daily VWAPs of shares of BMS common stock and MJN common stock on the first and second days of the Averaging Period. The indicative exchange ratios will also reflect whether the upper limit on the exchange ratio would have been in effect.

In addition, for purposes of illustration, we have provided a table that indicates the number of shares of MJN common stock that you would receive per share of BMS common stock, calculated on the basis described above and taking into account the upper limit, assuming a range of simple arithmetic averages of the daily VWAPs of BMS common stock and MJN common stock during the Averaging Period. See “The Exchange Offer—Terms of the Exchange Offer”.

 

14. What if the trading market in either shares of BMS common stock or MJN common stock is disrupted on one or more days during the Averaging Period?

If a market disruption event occurs with respect to shares of BMS common stock or MJN common stock on any day during the Averaging Period, the simple arithmetic average stock price of BMS common stock and

 

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MJN common stock will be determined using the daily VWAPs of shares of BMS common stock and MJN common stock on the preceding trading day or days, as the case may be, on which no market disruption event occurred. If, however, BMS decides to extend the exchange offer period following a market disruption event, the Averaging Period will be reset. If a market disruption event occurs as specified above, BMS may terminate the exchange offer if, in its reasonable judgment, the market disruption event has impaired the benefits of the exchange offer for BMS. For specific information as to what would constitute a market disruption event, see “The Exchange Offer—Conditions to Completion of the Exchange Offer”.

 

15. Are there circumstances under which I would receive fewer shares of MJN common stock than I would have received if the exchange ratio were determined using the closing prices of shares of BMS common stock and MJN common stock on the expiration date?

Yes. For example, if the trading price of shares of BMS common stock were to increase during the last two trading days of the exchange offer period (currently expected to be December 16 and 17, 2009), the Average BMS Price would likely be lower than the closing price of shares of BMS common stock on the expiration date. As a result, you may receive fewer shares of MJN common stock for each $1.00 of shares of BMS common stock than you would have if the Average BMS Price were calculated on the basis of the closing price of shares of BMS common stock on the expiration date or on the basis of an Averaging Period that includes the last two trading days of the exchange offer period. Similarly, if the trading price of MJN common stock were to decrease during the last two trading days of the exchange offer period, the Average MJN Price would likely be higher than the closing price of MJN common shares on the expiration date. This could also result in your receiving fewer shares of MJN common stock for each $1.00 of shares of BMS common stock than you would otherwise receive if the Average MJN Price were calculated on the basis of the closing price of MJN common stock on the expiration date or on the basis of an Averaging Period that includes the last two trading days of the exchange offer period. See “The Exchange Offer—Terms of the Exchange Offer”.

 

16. Will I receive any fractional shares of MJN common stock in the exchange offer?

No. Fractional shares of MJN common stock will not be distributed in the exchange offer. Instead, you will receive cash in lieu of a fractional share. The exchange agent, acting as agent for the BMS stockholders otherwise entitled to receive a fractional share of MJN common stock, will aggregate all fractional shares that would otherwise have been required to be distributed and cause them to be sold in the open market for the accounts of those stockholders. The distribution of fractional share proceeds will take longer than the distribution of shares of MJN common stock. As a result, stockholders will not receive fractional share proceeds at the same time they receive shares of MJN common stock.

 

17. Will all the shares of BMS common stock that I tender be accepted in the exchange offer?

Not necessarily. BMS holds 170.0 million shares of MJN common stock. Depending on the number of shares of BMS common stock validly tendered in the exchange offer and not validly withdrawn, and the Average BMS Price and Average MJN Price, BMS may need to limit the number of shares of BMS common stock that it accepts in the exchange offer through a proration process. Any proration of the number of shares accepted in the exchange offer will be determined on the basis of the proration mechanics described under “The Exchange Offer—Terms of the Exchange Offer—Proration; Odd-Lots”.

 

18. Are there any conditions to BMS’ obligation to complete the exchange offer?

Yes. BMS is not required to complete the exchange offer unless the conditions described under “The Exchange Offer—Conditions to Completion of the Exchange Offer” are satisfied or, where permissible, waived before the expiration of the exchange offer. For example, BMS is not required to complete the exchange offer unless (i) at least 144.5 million shares of MJN common stock would be distributed in exchange for shares of BMS common stock that are tendered in the exchange offer, (ii) BMS receives an opinion of counsel to the effect that (A) the Internal Spin-Off, and the exchange offer together with any subsequent spin-off, each should qualify for non-recognition of gain and loss under Section 355 of the Code, (B) the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN class A

 

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common stock) should qualify for non-recognition of gain and loss under Section 368(a)(1)(E) of the Code and/or Section 1036(a) of the Code and (C) the conversion by Mead Johnson & Company, a Delaware corporation wholly owned by MJN (“MJC”), to a limited liability company (the “MJC Conversion”) under Delaware law should qualify for non-recognition of gain and loss under Sections 332 and 337 of the Code and (iii) the Recapitalization Ruling, a private letter ruling from the Internal Revenue Service (“IRS”), regarding the Proposed Recapitalization, continues to be effective and valid. We refer to the minimum number of shares of BMS common stock that must be tendered in order for at least 144.5 million shares of MJN common stock to be distributed in the exchange offer in this prospectus as the “minimum amount”. BMS may waive any or all of the conditions to the exchange offer, subject to limited exceptions. MJN has no right to waive any of the conditions to the exchange offer.

 

19. How many shares of BMS common stock will BMS acquire if the exchange offer is completed?

The number of shares of BMS common stock that will be accepted if the exchange offer is completed will depend on the final exchange ratio and the number of shares of BMS common stock tendered. BMS holds 170.0 million shares of MJN common stock. Accordingly, the largest possible number of shares of BMS common stock that will be accepted equals 170.0 million divided by the final exchange ratio. For example, assuming that the final exchange ratio is 0.6313 (the upper limit for shares of MJN common stock that could be exchanged for one share of BMS common stock), then BMS would accept up to 269,285,601 shares of BMS common stock.

 

20. What happens if more than the minimum amount of shares are tendered, but not enough shares of BMS common stock are tendered to allow BMS to exchange all of the shares of MJN common stock it owns?

In that case, promptly following the completion of the exchange offer, BMS will distribute to its stockholders, on a pro rata basis, all of its remaining shares of MJN common stock. We refer to this distribution as the “spin-off”. The spin-off will be a special dividend distribution with respect to BMS common stock, and the record date for holders to receive shares of MJN common stock in any subsequent spin-off will be set by the BMS board of directors promptly following the expiration of the exchange offer.

 

21. What happens if the exchange offer is oversubscribed and BMS is unable to fulfill all tenders of BMS common stock at the exchange ratio?

In that case, all shares of BMS common stock that are validly tendered and not validly withdrawn will generally be accepted for exchange on a pro rata basis in proportion to the number of shares tendered. We refer to this as “proration”. Stockholders who beneficially own “odd-lots” (less than 100 shares) of BMS common stock and who validly tender all their shares will not be subject to proration. For instance, if you beneficially own 50 shares of BMS common stock and tender all 50 shares, your odd-lot will not be subject to proration. If, however, you hold less than 100 shares of BMS common stock, but do not tender all of your shares, you will be subject to proration to the same extent as holders of more than 100 shares if the exchange offer is oversubscribed. Beneficial holders of 100 or more shares of BMS common stock are not eligible for this preference, even if those holders have separate stock certificates representing less than 100 shares.

Proration for each tendering stockholder will be based on the number of shares of BMS common stock tendered by that stockholder in the exchange offer, and not on that stockholder’s aggregate ownership of BMS common stock. Any shares of BMS common stock not accepted for exchange as a result of proration will be returned to tendering stockholders. BMS will announce its preliminary determination of the extent to which tenders will be prorated by press release by 9:00 a.m., New York City time, on the business day immediately following the expiration of the exchange offer. We refer to this determination as the “preliminary proration factor”. BMS will announce its final determination of the extent to which tenders will be prorated by press release promptly after this determination is made. We refer to this determination as the “final proration factor”.

 

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22. How long will the exchange offer be open?

The period during which you are permitted to tender your shares of BMS common stock in the exchange offer will expire at 12:00 midnight, New York City time, on the currently expected expiration date, December 17, 2009, unless the exchange offer is extended or terminated. BMS may terminate the exchange offer in the circumstances described in “The Exchange Offer—Extension; Termination; Amendment”.

 

23. Under what circumstances can the exchange offer be extended by BMS?

BMS can extend the exchange offer at any time, in its sole discretion, and regardless of whether any condition to the exchange offer has been satisfied or, where permissible, waived. If BMS extends the exchange offer, it must publicly announce the extension by press release at any time prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.

 

24. How do I decide whether to participate in the exchange offer?

Whether you should participate in the exchange offer depends on many factors. You should examine carefully your specific financial position, plans and needs before you decide whether to participate, as well as the relative risks associated with an investment in MJN and BMS.

In addition, you should consider all of the factors described in “Risk Factors”. None of BMS, MJN or any of their respective directors or officers or any of the dealer managers makes any recommendation as to whether you should tender your shares of BMS common stock. You must make your own decision after carefully reading this prospectus and consulting with your advisors in light of your own particular circumstances. You are strongly encouraged to read this prospectus in its entirety very carefully.

 

25. How do I participate in the exchange offer?

The procedures you must follow to participate in the exchange offer will depend on whether you hold your shares of BMS common stock in certificated form, in uncertificated form registered directly in your name in BMS’ share register (“Direct Registration Shares”), through a broker, dealer, commercial bank, trust company or similar institution or otherwise. For specific instructions about how to participate, see “The Exchange Offer—Procedures for Tendering”.

 

26. Can I tender only a part of my BMS common stock in the exchange offer?

Yes. You may tender all, some or none of your BMS common stock.

 

27. Will holders of BMS stock options have the opportunity to exchange their BMS stock options for MJN stock options in the exchange offer?

No. However, holders of vested and unexercised BMS stock options can exercise their vested stock options in accordance with the terms of the plans under which the options were issued and tender the shares of BMS common stock received upon exercise in the exchange offer. An exercise of a BMS stock option can not be revoked for any reason, including if the exchange offer is terminated for any reason or if shares of BMS common stock received upon exercise are tendered and not accepted for exchange in the exchange offer.

 

28. What do I do if I want to retain all of my BMS common stock?

If you want to retain your BMS common stock, you do not need to take any action in connection with the exchange offer.

 

29. Will I be able to withdraw the shares of BMS common stock that I tender in the exchange offer?

You have a right to withdraw all, some or none of your shares of BMS common stock you have tendered at any time before 12:00 midnight, New York City time, on the expiration date (currently expected to be December 17, 2009). See “The Exchange Offer—Withdrawal Rights”. Given that the final exchange ratio

 

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used to determine the number of shares of MJN common stock that you will receive for each share of BMS common stock accepted for exchange in the exchange offer will be announced by 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date (currently expected to be December 17, 2009), you will be able to withdraw shares of BMS common stock tendered for two trading days after the final exchange ratio has been established. If you change your mind again before the expiration of the exchange offer, you can re-tender shares of BMS common stock by following the exchange procedures again prior to expiration of the exchange offer.

If you are a registered holder of BMS common stock (which includes persons holding certificated shares), you must provide a written notice of withdrawal or facsimile transmission notice of withdrawal to the exchange agent. The information that must be included in that notice is specified under “The Exchange Offer—Terms of the Exchange Offer—Withdrawal Rights”.

If you hold your shares through a broker, dealer, commercial bank, trust company or similar institution, you should consult with that institution on the procedures with which you must comply and the time by which such procedures must be completed in order for that institution to provide a written notice of withdrawal or facsimile notice of withdrawal to the exchange agent on your behalf before 12:00 midnight, New York City time, on the expiration date (currently expected to be December 17, 2009). If you hold your shares through such an institution, that institution must deliver the notice of withdrawal with respect to any shares you wish to withdraw. In such a case, as a beneficial owner and not a registered stockholder, you will not be able to provide a notice of withdrawal for such shares directly to the exchange agent.

 

30. How soon will I receive delivery of my MJN common stock once I have tendered my BMS common stock?

Following the expiration date (currently expected to be December 17, 2009), the exchange agent will cause shares of MJN common stock to be credited to you in book-entry form as soon as practicable after acceptance of shares of BMS common stock in the exchange offer and determination of the final proration factor, if any. See the “The Exchange Offer—Delivery of MJN Common Stock; Book-Entry Accounts”.

 

31. Will I be taxed on the shares of MJN common stock that I receive in the exchange offer?

BMS expects to receive an opinion of counsel to the effect that (i) the Internal Spin-Off, and the exchange offer together with any subsequent spin-off, each should qualify for non-recognition of gain and loss under Section 355 of the Code, (ii) the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN class A common stock) should qualify for non-recognition of gain and loss under Section 368(a)(1)(E) of the Code and/or Section 1036(a) of the Code and (iii) the MJC Conversion should qualify for non-recognition of gain and loss under Sections 332 and 337 of the Code. The opinion of counsel is a condition to the exchange offer. The opinion of counsel will not address any state, local or foreign tax consequences of the exchange offer and any subsequent spin-off that may apply to BMS and its stockholders. The opinion of counsel is not binding upon the IRS or the courts, and there is no assurance that the IRS or a court will not take a contrary position. You should consult your own tax advisor regarding the particular tax consequences to you of the exchange offer and any subsequent spin-off.

If the exchange offer and any subsequent spin-off were determined not to qualify for non-recognition of gain and loss under Section 355 of the Code, these transactions would be taxable to BMS and its stockholders. See “Risk Factors—Risks Relating to the Exchange Offer and Any Subsequent Spin-Off—The IRS may treat the exchange offer as taxable to exchanging stockholders”, “—The transactions could result in tax liability for the BMS group” and “—If any of the transactions contemplated in this prospectus fails to qualify for non-recognition of gain and loss, MJN may in certain circumstances be required to indemnify BMS for any resulting taxes and related expenses, and MJN believes that the payment if required could be significant” and “Material U.S. Federal Income Tax Consequences”.

 

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32. Are there any appraisal rights for holders of BMS or MJN common stock?

There are no appraisal rights available to BMS stockholders or MJN stockholders in connection with the exchange offer.

 

33. What is the accounting treatment of the exchange offer?

The shares of BMS common stock acquired by BMS in the exchange offer will be recorded as an acquisition of treasury stock at a cost equal to the market value of the shares of BMS common stock accepted in the exchange offer at its expiration. Assuming all the shares of MJN common stock owned by BMS are distributed in the exchange offer, the sum of MJN net deficit attributable to BMS that is distributed and the market value of the shares of BMS common stock acquired in the exchange offer at that date will be recognized by BMS as gain on sale of discontinued operations, net of any direct and incremental expenses of the exchange offer on the disposal of its MJN common stock.

Also, upon completion of the exchange offer, MJN’s results will no longer be consolidated with those of BMS for financial reporting purposes and will be shown as discontinued operations. As a result, BMS’ financial statements will no longer reflect the assets, liabilities, results of operations or cash flows attributable to MJN. For a more detailed discussion of MJN’s impact on BMS’ financial statements, see Note 3 to the BMS Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 and Note 22 to the BMS audited financial statements included in the BMS Current Report on Form 8-K filed on April 28, 2009 which are incorporated by reference in this prospectus. The MJN segment information does not reflect MJN’s results as a separate company. The pre-tax income in the MJN segment information does not include MJN’s separation costs from BMS, costs incurred in connection with productivity initiatives and other adjustments. In addition, MJN segment results for periods after February 17, 2009 do not reflect MJN results attributable to the approximately 17% economic interest not held by BMS in MJN as a result of the initial public offering of MJN.

 

34. What will BMS do with the shares of BMS common stock it acquires in the exchange offer?

The BMS common stock acquired by BMS in the exchange offer will be held as treasury stock.

 

35. What is the impact of the exchange offer on the number of BMS shares outstanding?

Any BMS common stock acquired by BMS in the exchange offer will reduce the total number of BMS shares outstanding, although BMS’ actual number of shares outstanding on a given date reflects a variety of factors such as option exercises.

 

36. Do the statements on the cover page regarding this prospectus being subject to change and the registration statement filed with the SEC not yet being effective mean that the exchange offer has not commenced?

As permitted under SEC rules, we have commenced the exchange offer without the registration statement, of which this prospectus forms a part, having been declared effective by the SEC. BMS cannot, however, complete the exchange offer and accept for exchange any shares of BMS common stock tendered in the exchange offer until the registration statement is declared effective by the SEC and the other conditions to the exchange offer have been satisfied or, where permissible, waived.

 

37. Where can I find out more information about BMS and MJN?

You can find out more information about BMS and MJN by reading this prospectus and, with respect to BMS, from various sources described in “Incorporation by Reference”.

 

38. Whom should I call if I have questions about the exchange offer or want copies of additional documents?

You may ask any questions about the exchange offer or request copies of the exchange offer documents and the other information incorporated by reference in this prospectus, without charge, from the information agent, Georgeson Inc., located at 199 Water Street, 26th Floor, New York, NY 10038 by calling (800) 868-1359 (toll-free in the United States), (212) 806-6859 (outside the United States) or (212) 440-9800 (for banks and brokers).

 

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SUMMARY

This summary does not contain all of the information that may be important to you. You should carefully read this entire prospectus and the other documents to which it refers to understand the exchange offer. See “Incorporation by Reference”.

The Companies

Bristol-Myers Squibb Company

345 Park Avenue

New York, New York 10154

(212) 546-4000

BMS is a global biopharmaceutical and nutritional products company whose mission is to extend and enhance human life by providing the highest quality biopharmaceutical and nutritional products. BMS is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceuticals and nutritional products. BMS has two reportable segments—BioPharmaceuticals and Mead Johnson. The BioPharmaceuticals segment consists of the global biopharmaceutical and international consumer medicines business. The Mead Johnson segment consists of BMS’ interest in MJN. Following completion of the exchange offer, BMS will only have one reportable segment, BioPharmaceuticals.

Mead Johnson Nutrition Company

2701 Patriot Blvd.

Glenview, Illinois 60026

(847) 832-2420

MJN is a global leader in pediatric nutrition. MJN is committed to creating 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. MJN’s comprehensive product portfolio addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. MJN has 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. MJN operates in four geographic regions: Asia, Latin America, North America and Europe. Due to similarities in the economics, products offered, production process, customer base and regulatory environment, these operating regions have been aggregated into two reportable segments: Asia/Latin America and North America/Europe. See “Recent Developments”.

The Exchange Offer

Terms of the Exchange Offer

BMS is offering to exchange up to 170.0 million shares of MJN common stock in the aggregate for outstanding shares of BMS common stock that are validly tendered and not validly withdrawn. You may tender all, some or none of your shares of BMS common stock.

Shares of BMS common stock validly tendered and not validly withdrawn will be accepted for exchange at the final exchange ratio, on the terms and conditions of the exchange offer and subject to the limits described below, including the proration provisions. Shares not accepted for exchange will be credited to the holder’s account in book-entry form as soon as practicable following the expiration or termination of the exchange offer.

 

 

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Extension; Termination; Amendment

The exchange offer, and your withdrawal rights, will expire at 12:00 midnight, New York City time, on December 17, 2009, unless the exchange offer is extended or terminated. You must tender your shares of BMS common stock before this time if you want to participate in the exchange offer. BMS may extend, terminate or amend the exchange offer as described in this prospectus.

Conditions to Completion of the Exchange Offer

The exchange offer is subject to various conditions, including that (i) at least 144.5 million shares of MJN common stock would be distributed in exchange for shares of BMS common stock that are tendered in the exchange offer, (ii) BMS receives an opinion of counsel to the effect that (A) the Internal Spin-Off, and the exchange offer together with any subsequent spin-off, each should qualify for non-recognition of gain and loss under Section 355 of the Code, (B) the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN class A common stock) should qualify for non-recognition of gain and loss under Section 368(a)(1)(E) of the Code and/or Section 1036(a) of the Code and (C) the MJC Conversion should qualify for non-recognition of gain and loss under Sections 332 and 337 of the Code and (iii) the Recapitalization Ruling, a private letter ruling from the IRS regarding the Proposed Recapitalization, continues to be effective and valid. All conditions to the completion of the exchange offer must be satisfied or, where permissible, waived by BMS before the expiration of the exchange offer. BMS may waive any or all of the conditions to the exchange offer, subject to limited exceptions. See “The Exchange Offer—Conditions to Completion of the Exchange Offer”.

Proration; Odd-Lots

If, on the expiration date of the exchange offer (currently expected to be December 17, 2009), the exchange offer is oversubscribed, BMS will accept on a pro rata basis, in proportion to the number of shares tendered, all shares of BMS common stock validly tendered and not validly withdrawn, except for tenders of odd-lots as described below. BMS will announce the preliminary results of the exchange offer, including the preliminary proration factor, if any, by press release by 9:00 a.m., New York City time, on the first business day following the expiration of the exchange offer (currently expected to be December 17, 2009). Upon determining the number of shares of BMS common stock validly tendered for exchange, BMS will announce the final results, including the final proration factor, if any, promptly after the determination is made.

If you directly or beneficially own less than 100 shares of BMS common stock and wish to tender all of your shares of BMS common stock, you may request that your shares not be subject to proration. In order to request this preferential treatment, you should check the box entitled “Odd-Lot Preference” on the letter of transmittal. If your odd-lot shares are held by a broker, dealer, commercial bank, trust company or similar institution for your account, you should contact that institution so that it can request such preferential treatment. All of your odd-lot shares will be accepted for exchange without proration if BMS completes the exchange offer. If you hold odd-lot shares as a participant in the BMS or MJN employee benefit plans, you are not eligible for this preference.

Fractional Shares

Fractional shares of MJN common stock will not be distributed in the exchange offer. The exchange agent, acting as agent for the tendering BMS stockholders, will aggregate any fractional shares that would otherwise have been required to be distributed and cause them to be sold in the open market. You will receive the proceeds, if any, less any brokerage commissions or other fees, from the sale of these shares in accordance with your fractional interest in the aggregate number of shares sold. The distribution of fractional share proceeds will take longer than the distribution of shares of MJN common stock. As a result, stockholders will not receive fractional share proceeds at the same time they receive shares of MJN common stock.

 

 

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Procedures for Tendering

The procedures you must follow to participate in the exchange offer will depend on how you hold your shares of BMS common stock. For you to validly tender your shares of BMS common stock pursuant to the exchange offer, before the expiration of the exchange offer, you will need to take the following steps:

 

   

If you hold certificates for shares of BMS common stock, you must deliver to the exchange agent at the address listed on the back cover of this prospectus a properly completed and duly executed letter of transmittal, together with any required signature guarantees and any other required documents, and the certificates representing the shares of BMS common stock tendered;

 

   

If you hold shares in uncertificated form that are directly registered in your name in the BMS share register, which we refer to as “Direct Registration Shares”, you must deliver to the exchange agent at the appropriate address listed in the letter of transmittal a properly completed and duly executed letter of transmittal, together with any required signature guarantees and any other required documents. Because certificates are not issued for Direct Registration Shares, you do not need to deliver any certificates representing those shares to the exchange agent;

 

   

If you hold shares of BMS common stock though a broker, dealer, commercial bank, trust company or similar institution, you should receive instructions from that institution on how to participate in the exchange offer. In this situation, do not complete the letter of transmittal. Please contact the institution through which you hold your shares directly if you have not yet received instructions. Some financial institutions may effect tenders by book-entry transfer through the Depository Trust Company (“DTC”). If you do not hold any certificates for these shares, you need not deliver any certificates representing those shares to the exchange agent;

 

   

Participants in BMS or MJN employee benefit plans should follow the special instructions that are being sent to them by the applicable plan trustee. Such participants should not use the letter of transmittal to direct the tender of shares of BMS common stock held in these plans. Such participants may direct the applicable plan trustee to tender all, some or none of the shares of BMS common stock in their employee benefit plan account(s), subject to the limitations set forth in any instructions provided by the applicable plan trustee. BMS and MJN have been informed that instructions to tender or withdraw by participants in the BMS or MJN employee benefit plans must be made by a date that is earlier than the expiration date of the exchange offer which will be specified in the instructions sent by the applicable trustee; and

 

   

If you wish to tender your shares of BMS common stock that are in certificated form but the share certificates are not immediately available, time will not permit shares or other required documentation to reach the exchange agent before the expiration date (currently expected to be December 17, 2009) or the procedure for book-entry transfer cannot be completed on a timely basis, you must follow the procedures for guaranteed delivery described under “The Exchange Offer—Procedures for Tendering—Guaranteed Delivery Procedures”.

Delivery of Shares of MJN Common Stock

Following the expiration date (currently expected to be December 17, 2009), the exchange agent will cause shares of MJN common stock to be credited in book-entry form to direct registered accounts maintained by MJN’s transfer agent for the benefit of the respective holders (or, in the case of shares tendered through DTC, to the account of DTC so that DTC can credit the relevant DTC participant and such participant can credit its respective account holders) as soon as practicable after acceptance of shares of BMS common stock in the exchange offer and determination of the final proration factor, if any. Certificates representing shares of MJN common stock will not be issued pursuant to the exchange offer.

 

 

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Withdrawal Rights

You may withdraw your tendered shares of BMS common stock at any time before the expiration of the exchange offer. If you change your mind again before the expiration of the exchange offer, you may re-tender your shares of BMS common stock by again following the exchange offer procedures.

In order to withdraw your shares, you (or, in lieu thereof, if you hold your shares through a broker, dealer, commercial bank, trust company or similar institution, that institution on your behalf) must provide a written notice or facsimile transmission notice of withdrawal to the exchange agent. The information that must be included in that notice is specified under “The Exchange Offer—Withdrawal Rights”.

No Appraisal Rights

No appraisal rights are available to BMS stockholders or MJN stockholders in connection with the exchange offer.

Legal and Other Limitations; Certain Matters Relating to Non-U.S. Jurisdictions

Although BMS will mail this prospectus to its stockholders to the extent required by U.S. law, including to stockholders located outside the United States, this prospectus is not an offer to sell or exchange and it is not a solicitation of an offer to buy any shares of BMS common stock or MJN common stock in any jurisdiction in which such offer, sale or exchange is not permitted. Countries outside the United States generally have their own legal requirements that govern securities offerings made to persons resident in those countries and often impose stringent requirements about the form and content of offers made to the general public. BMS has not taken any action under those non-U.S. regulations to facilitate a public offer to exchange BMS common stock or MJN common stock outside the United States but may take steps to facilitate such tenders. Therefore, the ability of any non-U.S. person to tender BMS common stock in the exchange offer will depend on whether there is an exemption available under the laws of such person’s home country that would permit the person to participate in the exchange offer without the need for BMS or MJN to take any action to facilitate a public offering in that country or otherwise. For example, some countries exempt transactions from the rules governing public offerings if they involve persons who meet certain eligibility requirements relating to their status as sophisticated or professional investors.

All tendering holders must make certain representations in the letter of transmittal, including (in the case of non-U.S. holders) as to the availability of an exemption under their home country laws that would allow them to participate without the need for BMS or MJN to take any action to facilitate a public offering in that country or otherwise. BMS will rely on those representations and, unless the exchange offer is terminated, plans to accept shares tendered by persons who properly complete the letter of transmittal and provide any other required documentation on a timely basis and as otherwise described herein.

Non-U.S. stockholders should consult their advisors in considering whether they may participate in the exchange offer in accordance with the laws of their home countries and, if they do participate, whether there are any restrictions or limitations on transactions in BMS common stock or MJN common stock that may apply in their home countries. BMS, MJN and the dealer managers cannot provide any assurance about whether such limitations may exist. See “The Exchange Offer—Legal and Other Limitations; Certain Matters Relating to Non-U.S. Jurisdictions” for additional information about limitations on the exchange offer outside the United States.

Spin-Off of MJN Common Stock

BMS will distribute in a spin-off to its stockholders, on a pro rata basis, all of its remaining shares (if any) of MJN common stock promptly following the completion of the exchange offer. The spin-off will be a special dividend distribution with respect to BMS common stock, and the record date for holders to receive shares of

 

 

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MJN common stock in any subsequent spin-off will be set promptly following the expiration of the exchange offer. No fractional shares of MJN common stock will be distributed in the exchange offer or any subsequent spin-off. See “The Exchange Offer—Terms of the Exchange Offer—Fractional Shares”.

Risk Factors

In deciding whether to tender your shares of BMS common stock, you should carefully consider in their entirety the matters described in “Risk Factors”, as well as other information included in this prospectus and the other documents incorporated by reference herein.

Regulatory Approval

Certain acquisitions of MJN common stock under the exchange offer may require a premerger notification filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. If you decide to participate in the exchange offer and acquire enough shares of MJN common stock to exceed the $65.2 million threshold stated in the Hart-Scott-Rodino Act and associated regulations, and if no exemption under the Hart-Scott-Rodino Act or regulations applies, BMS and you would be required to make filings under the Hart-Scott-Rodino Act and you would be required to pay the applicable filing fee. A filing requirement could delay the exchange of shares with any stockholder or stockholders required to make such a filing until the waiting periods in the Hart-Scott-Rodino Act have expired or been terminated.

Material U.S. Federal Income Tax Consequences

As described more fully in “Material U.S. Federal Income Tax Consequences”, for U.S. Federal income tax purposes:

 

   

the Internal Spin-Off, and the exchange offer together with any subsequent spin-off, each should qualify for non-recognition of gain and loss under Section 355 of the Code,

 

   

the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN class A common stock) should qualify for non-recognition of gain and loss under Section 368(a)(1)(E) of the Code and/or Section 1036(a) of the Code,

 

   

the MJC Conversion should qualify for non-recognition of gain and loss under Sections 332 and 337 of the Code , and MJN should not be required to take into income or gain any “excess loss account” (within the meaning of § 1.1502-19 of the Treasury Regulations) (“ELA”) with respect to the stock of MJC and

 

   

it is more likely than not that the BMS group will not be required to take into account as income or gain any ELA with respect to the MJN stock as a result of the transactions.

BMS has received the Recapitalization Ruling, a private letter ruling from the IRS, to the effect that the Proposed Recapitalization will not cause BMS or any of its subsidiaries to incur U.S. federal income taxes in connection with the Internal Spin-Off. The continuing effectiveness and validity of the Recapitalization Ruling is a condition to the exchange offer. BMS does not intend to request a comprehensive ruling from the IRS regarding all aspects of U.S. Federal income tax consequences of the transactions.

If the exchange offer together with any subsequent spin-off were determined not to qualify for non-recognition of gain and loss under Section 355 of the Code, each BMS stockholder who receives shares of MJN common stock in the exchange offer or spin-off would generally be treated as recognizing taxable gain equal to the difference between the fair market value of the shares of MJN common stock received by the stockholder and its tax basis in the shares of BMS common stock exchanged therefor and/or receiving a taxable distribution equal to the fair market value of the shares of MJN common stock received by the stockholder.

 

 

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If the Internal Spin-Off or the exchange offer together with any subsequent spin-off were determined not to qualify for non-recognition of gain and loss under Section 355 of the Code, BMS would generally recognize taxable gain equal to the excess of the fair market value of the shares of MJN common stock distributed by BMS in the exchange offer and any subsequent spin-off over BMS’ tax basis in such stock. In addition, in such case, the BMS group would be required to take the ELA described below into taxable income.

The BMS group has an ELA in its MJN stock. BMS expects to receive an opinion of counsel to the effect that it is more likely than not that the BMS group will not be required to take into account as income or gain any ELA with respect to the MJN stock as a result of the transactions contemplated in this prospectus, but these transactions are not conditioned on receiving this opinion. The tax law in this area is complex and there is a risk that, even if the Internal Spin-Off, the exchange offer and any subsequent spin-off qualify for non-recognition of gain and loss under Section 355 of the Code, the BMS group will be required to take its ELA in taxable income as a result of these transactions. This would result in a material tax liability for BMS. BMS has determined that it will be required to account for its position with respect to the ELA as an “uncertain tax position” under Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, and that, under those rules, it may recognize on its financial statements only a portion of the tax benefit associated with that position. As a result, BMS will reflect on its financial statements a reserve for taxes payable of between $250 and $300 million, plus an amount in respect of any accrued interest.

The exchange offer could be taxable to BMS, but not to its stockholders, if MJN or its stockholders were to engage in certain transactions after the exchange offer is completed. In such cases, MJN may be required to indemnify BMS for any gain and related losses. You should consult your own tax advisor regarding the particular consequences to you of the exchange offer and any subsequent spin-off.

See “Risk Factors—Risks Relating to the Exchange Offer and Any Subsequent Spin-Off—The IRS may treat the exchange offer as taxable to exchanging stockholders”, “—The Transactions could result in tax liability for the BMS group”, “—Restrictions in connection with the tax treatment of the exchange offer and any subsequent spin-off could adversely affect MJN”, “—If any of the transactions contemplated in this prospectus fails to qualify for non-recognition of gain and loss, MJN may in certain circumstances be required to indemnify BMS for any resulting taxes and related expenses, and MJN believes that the payment if required could be significant” and “Material U.S. Federal Income Tax Consequences”.

Accounting Treatment of the Exchange Offer

The shares of BMS common stock acquired by BMS in the exchange offer will be recorded as an acquisition of treasury stock at a cost equal to the market value of the shares of BMS common stock accepted in the exchange offer at its expiration. Assuming all the shares of MJN common stock owned by BMS are distributed in the exchange offer, the sum of MJN net deficit attributable to BMS that is distributed and the market value of the shares of BMS common stock acquired in the exchange offer at that date will be recognized by BMS as gain on sale of discontinued operations, net of any direct and incremental expenses of the exchange offer on the disposal of its MJN common stock.

Upon completion of the exchange offer, MJN’s results will no longer be consolidated with those of BMS for financial reporting purposes and will be shown as discontinued operations. As a result, BMS’ financial statements will no longer reflect the assets, liabilities, results of operations or cash flows attributable to MJN. For a more detailed discussion of MJN’s impact on BMS’ financial statements, see Note 3 to the BMS Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 and Note 22 to the BMS audited financial statements included in the BMS Current Report on Form 8-K filed on April 28, 2009 which are incorporated by reference in this prospectus. The MJN segment information does not reflect MJN’s results as a

 

 

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separate company. The pre-tax income in the MJN segment information does not include MJN’s separation costs from BMS, costs incurred in connection with productivity initiatives and other adjustments. In addition, MJN segment results for periods after February 17, 2009 do not reflect MJN results attributable to the approximately 17% economic interest not held by BMS in MJN as a result of the initial public offering of MJN.

Comparison of Stockholder Rights

BMS and MJN are both organized under the laws of the State of Delaware. Differences in the rights of a stockholder of BMS from those of a stockholder of MJN arise principally from provisions of the constitutive documents of each of BMS and MJN.

The Exchange Agent

The exchange agent for the exchange offer is BNY Mellon Shareowner Services.

The Information Agent

The information agent for the exchange offer is Georgeson Inc.

The Dealer Managers

The dealer managers for the exchange offer are Citigroup Global Markets Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated. We refer to these firms in this prospectus as the “dealer managers”.

Selected Historical Financial Data for BMS and MJN

BMS Selected Historical Financial Data

The selected consolidated financial data presented below should be read together with BMS’ consolidated financial statements and the accompanying notes and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections included in the BMS Current Report on Form 8-K filed on April 28, 2009 and the BMS Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, which are incorporated by reference into this prospectus. The income statement data, per share data and cash flow data for the years ended December 31, 2008, 2007 and 2006 and the consolidated balance sheet data as of December 31, 2008 and 2007 have been derived from BMS’ audited consolidated financial statements which are incorporated by reference into this prospectus. The consolidated financial statements for the years ended December 31, 2008, 2007 and 2006 have been audited and reported upon by Deloitte & Touche LLP, an independent registered public accounting firm. The income statement data, per share data and cash flow data for the years ended December 31, 2005 and 2004 and the consolidated balance sheet data as of December 31, 2006, 2005 and 2004 have been derived from audited financial statements not included or incorporated by reference in this prospectus. The income statement data, per share data and cash flow data for the nine months ended September 30, 2009 and 2008 and the balance sheet data as of September 30, 2009 have been derived from unaudited consolidated financial statements, which are incorporated by reference into this prospectus and include all adjustments consisting of normal recurring adjustments necessary for the fair presentation of interim periods.

 

 

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The data shown below are not necessarily indicative of results to be expected for any future period. Based on BMS’ historical ownership of MJN, the data shown below is impacted by assets, liabilities, results of operations or cash flows attributable to MJN. Upon completion of the exchange offer, MJN’s results will no longer be consolidated with those of BMS for financial reporting purposes and will be shown as discontinued operations. As a result, BMS’ financial statements will no longer reflect the assets, liabilities, results of operations and cash flows attributable to MJN. For a more detailed discussion of MJN’s impact on BMS’ financial statements, see Note 3 to the BMS Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 and Note 22 to the BMS audited financial statements included in the BMS Current Report on Form 8-K filed on April 28, 2009, which are incorporated by reference in this prospectus. The MJN segment information does not reflect MJN’s results as a separate company. The pre-tax income in the MJN segment information does not include MJN’s separation costs from BMS, costs incurred in connection with productivity initiatives and other adjustments. In addition, MJN segment results for periods after February 17, 2009 do not reflect MJN results attributable to the approximately 17% economic interest not held by BMS in MJN as a result of the initial public offering of MJN. To find out where you can obtain copies of BMS’ documents that have been incorporated by reference, see “Incorporation by Reference”.

 

    Nine Months Ended
September 30,
  Years Ended December 31,
(in millions, except per share data)   2009   2008   2008   2007   2006   2005   2004

Income Statement Data(1)

             

Net Sales

  $ 15,886   $ 15,348   $ 20,597   $ 18,193   $ 16,208   $ 17,613   $ 17,837

Earning from Continuing Operations Before Income Taxes

    4,849     3,583     5,471     3,186     2,085     4,016     3,911

Net Earnings from Continuing Operations

    3,509     2,687     4,151     2,504     1,654     3,244     2,538

Net Earnings from Continuing Operations per Common Share:

             

Basic

    1.30     0.99     1.60     0.88     0.62     1.36     1.04

Diluted

    1.30     0.98     1.59     0.88     0.62     1.35     1.02

Per Share Data

             

Weighted Average Common Shares Outstanding:

             

Basic

    1,979     1,976     1,977     1,970     1,960     1,952     1,942

Diluted

    1,982     2,004     2,001     1,980     1,963     1,983     1,976

Dividends Paid on Common and Preferred Stock

    1,857     1,845     2,461     2,213     2,199     2,186     2,174

Dividends Declared Per Common Share

    0.93     0.93     1.24     1.15     1.12     1.12     1.12

Book Value Per Common Share at End of Period

    7.34       6.19     5.36     5.10     5.74     5.25

Balance Sheet Data at End of Period

             

Total Assets

    30,951       29,486     25,867     25,271     27,905     30,309

Cash and Cash Equivalents

    6,367       7,976     1,801     2,018     3,050     3,680

Marketable Securities

    302       289     424     1,995     2,749     3,794

Long-term Debt

    6,307       6,585     4,381     7,248     8,364     8,463

Shareholders’ Equity

    14,518       12,208     10,535     10,041     11,074     10,109

 

(1) BMS recorded items that affected the comparability of results. For a discussion of these items for the years 2008, 2007 and 2006, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Expenses/Gains” in the BMS Current Report on Form 8-K filed on April 28, 2009 incorporated by reference in this prospectus. See “Incorporation by Reference”.

 

 

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MJN Selected Historical Financial Data

The selected financial data presented below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MJN” and MJN’s financial statements and the accompanying notes included elsewhere in this prospectus. The selected statement of earnings data, per share data and statement of cash flows data for the years ended December 31, 2008, 2007 and 2006 and the selected balance sheet data as of December 31, 2008 and 2007 have been derived from MJN’s audited financial statements included elsewhere in this prospectus. The financial statements for the years ended December 31, 2008, 2007 and 2006 have been audited and reported upon by Deloitte & Touche LLP, an independent registered public accounting firm. The selected statement of earnings data, per share data and statement of cash flows data for the years ended December 31, 2005 and 2004 and the balance sheet data as of December 31, 2006 and 2005 have been derived from audited financial statements not included in this prospectus. The statement of earnings data, per share data and statement of cash flows data for the nine months ended September 30, 2009 and 2008 and the balance sheet data as of September 30, 2009 have been derived from unaudited financial statements included elsewhere in this prospectus and include all adjustments consisting of normal recurring adjustments necessary for the fair presentation of interim periods. The balance sheet data as of December 31, 2004 is derived from unaudited financial statements, which are not included in this prospectus. The data shown below are not necessarily indicative of results to be expected for any future period.

 

    Nine Months Ended
September 30,
  Years Ended December 31,  
(in millions, except per share data)   2009     2008   2008     2007   2006   2005   2004  

Statement of Earnings Data

             

Net Sales

  $ 2,112.1      $ 2,174.7   $ 2,882.4      $ 2,576.4   $ 2,345.1   $ 2,201.8   $ 1,997.2   

Earnings Before Interest and Income Taxes

    566.6        560.8     695.7        663.2     634.8     618.4     849.9 (1) 

Interest Expense—net

    75.3        11.9     43.3        —       —       —       —     

Net Earnings attributable to shareholders

    335.6        347.5     393.9        422.5     398.2     389.8     519.2   

Per Share Data

             

Earnings per Share:

             

Basic

    1.68        2.05     2.32        2.49     2.34     2.29     3.05   

Diluted(2)

    1.68        2.05     2.32        2.49     2.34     2.29     3.05   

Weighted Average Shares Outstanding

             

Basic

    199.3        170.0     170.0        170.0     170.0     170.0     170.0   

Diluted(2)

    199.3        170.0     170.0        170.0     170.0     170.0     170.0   

Dividends Declared Per Common Share

    0.50 (3)      —       —          —       —       —       —     

Book Value Per Common Share at End of Period

    (3.41       (8.21     3.75     3.48     2.73     2.65   

Equivalent Per Share Data(4)

             

Earnings per Share:

             

Basic

    1.06        1.29     1.46        1.57     1.48     1.45     1.93   

Diluted

    1.06        1.29     1.46        1.57     1.48     1.45     1.93   

Dividends Declared Per Common Share

    0.32        —       —          —       —       —       —     

Book Value Per Common Share at End of Period

    (2.15)          (5.18)        2.37     2.20     1.72     1.67   

Cash Flows Data

             

Depreciation and Amortization

    43.9        38.1     52.1        51.0     49.5     53.8     57.4   

Payments for Capital Expenditures

    59.3        50.7     81.1        78.4     68.9     56.4     59.9   

Balance Sheet Data at End of Period

             

Total Assets

    1,964.3          1,361.4        1,301.9     1,204.3     1,123.5     1,103.3   

Debt

    1,746.4          2,000.0        —       —       —       —     

Total Equity (Deficit)

    (697.5       (1,395.5     637.8     592.4     464.8     451.1   

 

 

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(1) Includes $325.3 million pre-tax gain on sale of Adult Nutrition Business.
(2) On February 17, 2009, MJN completed the offering of 34.5 million shares of MJN common stock in an initial public offering (“IPO”). Prior to that date, MJN had 170.0 million shares of MJN common stock outstanding, all of which were owned by BMS. The same number of shares has been used to calculate basic earnings per share and diluted earnings per share for the periods prior to the IPO as no MJN restricted stock units, stock options or performance shares were outstanding prior to the IPO. For the nine months ended September 30, 2009, diluted earnings per share was computed using the weighted average common shares outstanding during the period plus the incremental shares outstanding assuming the exercise of dilutive restricted stock units, stock options and performance shares.
(3) On September 1, 2009, MJN’s board of directors declared a dividend of $0.20 per share for the quarter ending September 30, 2009. The dividend was paid on October 1, 2009, to shareholders of record on September 17, 2009. On June 23, 2009, MJN’s board of directors declared a dividend of $0.20 per share for the quarter ending June 30, 2009, and a $0.10 per share dividend prorated for the period from settlement of MJN’s IPO through March 31, 2009. The declaration and payment of dividends is at the discretion of MJN’s board of directors and will depend upon, among other things, future earnings, general financial condition and liquidity, success in business activities, capital requirements and general business conditions.
(4) Equivalent per share data equals the corresponding per share data multiplied by 0.6313 (the upper limit of the exchange offer) so that per share amounts are equated to the respective values that would have been attributable to one share of BMS common stock assuming it had been exchanged for MJN common stock at the upper limit of 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer.

 

 

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Market Price and Dividend Information

The market prices of BMS and MJN common stock are subject to fluctuation. The exchange ratio will be set based on the respective market prices of BMS and MJN common stock. As a result, you should, among other things, obtain current market quotations before deciding to tender your shares of BMS common stock. There can be no assurance what the market price of shares will be before, on or after the date on which the exchange offer is completed.

BMS

The following table describes the per share range of high and low sales prices, as reported by the NYSE, for shares of BMS common stock and dividends declared per share of BMS common stock for the quarterly periods indicated. Shares of BMS common stock are listed on the NYSE under the symbol “BMY”.

 

     Market Price for
BMS Common Stock
   Dividends
Declared
         High            Low        Per Share

2007

        

First Quarter

   $ 29.39    $ 25.73    $ 0.28

Second Quarter

     32.25      27.00    $ 0.28

Third Quarter

     32.35      26.38    $ 0.28

Fourth Quarter

     30.35      26.52    $ 0.31

2008

        

First Quarter

   $ 27.37    $ 20.05    $ 0.31

Second Quarter

     23.60      19.43    $ 0.31

Third Quarter

     22.93      19.70    $ 0.31

Fourth Quarter

     23.82      16.00    $ 0.31

2009

        

First Quarter

   $ 23.98    $ 17.23    $ 0.31

Second Quarter

     22.32      18.83    $ 0.31

Third Quarter

     23.28      19.19    $ 0.31

At November 12, 2009, there were 1,981,017,084 shares of BMS common stock outstanding, and as of November 12, 2009, there were 64,013 stockholders of record of shares of BMS common stock.

On November 13, 2009, the NYSE trading day immediately preceding the initial filing of the registration statement of which this prospectus forms a part, the closing sales price per share of BMS common stock as reported by the NYSE was $23.18.

MJN

The following table describes the per share range of high and low sales prices, as reported by the NYSE, for shares of MJN common stock and dividends declared per share of MJN common stock for the quarterly periods indicated. Shares of MJN common stock commenced trading on the NYSE on February 11, 2009 under the symbol “MJN”.

 

     Market Price for
MJN Common Stock
   Dividends
Declared
 
         High            Low        Per Share  

2009

        

First Quarter

   $ 29.85    $ 25.90      —     

Second Quarter

     33.76      25.72    $ 0.30 (1) 

Third Quarter

     50.35      31.51    $ 0.20   

 

 

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(1) On June 23, 2009, MJN’s board of directors declared a dividend of $0.20 per share for the quarter ending June 30, 2009, and a $0.10 per share dividend prorated for the period from settlement of MJN’s IPO through March 31, 2009.

The declaration and payment of dividends is at the discretion of MJN’s board of directors and depends on many factors; however, MJN expects the next dividend record date to be after the completion of the exchange offer in which case BMS is not expected to receive the next dividend for any shares of MJN common stock distributed in the exchange offer. Instead, record holders of shares of MJN common stock distributed in the exchange offer are expected to receive the next dividend payment declared by MJN.

As of November 11, 2009, there were 204.5 million shares of MJN common stock outstanding. As of November 12, 2009, there were four holders of record of shares of MJN common stock. Immediately before the commencement of the exchange offer, BMS beneficially owns 170.0 million shares of MJN common stock representing 83.1% of MJN’s outstanding common stock. After the completion of the exchange offer, BMS will not own any shares of MJN common stock.

On November 13, 2009, the last NYSE trading day immediately preceding the initial filing of the registration statement of which this prospectus forms a part, the closing sales price per share of MJN common stock as reported by the NYSE was $45.25.

 

 

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RISK FACTORS

In determining whether or not to tender your shares of BMS common stock in the exchange offer, you should consider carefully all of the information about MJN and BMS included or incorporated by reference in this prospectus, as well as the information about the terms and conditions of the exchange offer. None of BMS, MJN or any of their respective directors or officers or any of the dealer managers makes any recommendation as to whether you should tender your shares of BMS common stock. You must make your own decision after reading this prospectus and consulting with your advisors.

The risk factors described below are separated into two groups:

 

  1. Risks Relating to MJN; and

 

  2. Risks Relating to the Exchange Offer and Any Subsequent Spin-Off.

Risks Relating to MJN describe the material risks relating to MJN as a stand-alone company following the completion of the exchange offer of MJN from BMS, as contemplated by the exchange offer and any subsequent spin-off distribution. For a description of the material risks relating to BMS, please read “Risk Factors” in BMS’ Annual Report on Form 10-K for the year ended December 31, 2008, which report is incorporated by reference in this prospectus.

The occurrence of the events described below under the risks relating to MJN could have a material adverse effect on MJN’s businesses, prospects, financial condition, results of operations and/or cash flows. In such a case, the price of shares of MJN common stock may decline and you could lose all or part of your investment. In addition, the risks described in this prospectus relating to MJN are, until the completion of the exchange offer, also associated with an investment in BMS due to BMS’ ownership interest in MJN. In addition, other unknown or unpredictable economic, business, competitive, regulatory, geopolitical or other factors could have material adverse effects on MJN’s or BMS’ businesses, prospects, financial condition, results of operations and/or cash flows. Please read “Cautionary Statement Concerning Forward-Looking Statements”.

Risks Relating to MJN

MJN’s success depends on sustaining the strength of MJN’s brands, particularly MJN’s Enfa family of brands.

The Enfa family of brands accounted for 61.0% of MJN’s net sales for the year ended December 31, 2008. The willingness of consumers to purchase MJN’s products depends upon MJN’s ability to offer attractive brand value propositions. This in turn depends in part on consumers attributing a higher value to MJN’s products than to alternatives. For example, in the United States, MJN faces significant competition from the Similac brand of infant formula. If the difference in the value attributed to MJN’s products as compared to those of MJN’s competitors narrows, or if there is a perception of such a narrowing, consumers may choose not to buy MJN’s products. If MJN fails to promote and maintain the brand equity of MJN’s products across each of MJN’s markets, then consumer perception of MJN’s products’ nutritional quality may be diminished and MJN’s business could be materially adversely affected. MJN’s ability to maintain or improve MJN’s brand value propositions will impact whether these circumstances will result in decreased market share and profitability.

MJN may experience liabilities or negative effects on MJN’s reputation as a result of real or perceived quality issues, including product recalls, injuries or other claims.

Whether real or perceived, contamination, spoilage or other adulteration, product mislabeling or product tampering could require MJN to recall products. From time to time MJN has experienced recalls of MJN’s products. While such recalls have not been material to MJN’s business on a global level in the past, MJN cannot assure you that such material product recalls will not occur in the future. MJN may also be subject to liability if

 

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MJN’s products or operations violate or are alleged to violate applicable laws or regulations or in the event MJN’s products cause, or are alleged to cause, injury, illness or death.

Powder milk products are not sterile. A substantial portion of MJN’s products must be prepared and maintained according to label instruction to retain their flavor and nutritional value and avoid contamination or deterioration. Depending on the specific type of product, a risk of contamination or deterioration may exist at each stage of the production cycle, including the purchase and delivery of raw food materials, the processing and packaging of food products and upon use and handling by health care professionals, hospital personnel and consumers. In the event that certain of MJN’s products are found, or are alleged, to have suffered contamination or deterioration, whether or not such products were under MJN’s control, MJN’s brand reputation and business could be materially adversely affected.

Whether real or perceived, reports or allegations of inadequate product quality control with respect to other manufacturers of pediatric nutrition products also could adversely impact sales of MJN’s products. For example, in November 2008 and December 2008, the United States Food and Drug Administration (“U.S. FDA”) released test results that identified extremely low trace levels of melamine and cyanuric acid in infant formula produced by U.S. manufacturers. The U.S. FDA has found no melamine in MJN’s products and only a trace amount of cyanuric acid, which the U.S. FDA believes does not raise public health concerns, was found in a sampling of MJN’s products. Chinese authorities found significant levels of melamine in Chinese dairy used in certain infant formula products of other manufacturers, which led to the deaths of several infants in September 2008. MJN does not use dairy or protein-containing raw ingredients from China at any of MJN’s manufacturing sites and MJN has not been adversely impacted by these events in China thus far. In addition, although the U.S. FDA currently permits the use of bisphenol-A (“BPA”) in food packaging materials, including polycarbonate baby bottles and some of MJN’s infant formula packaging, recent public reports and allegations regarding the potential health hazards of BPA, and several lawsuits against baby bottle manufacturers and infant formula manufacturers (including MJN) related to BPA content, could contribute to a perceived safety risk about MJN’s products and adversely impact sales or otherwise disrupt MJN’s business. Moreover, certain states and municipalities have either proposed or already passed legislation banning the use of BPA in certain infant products, and the U.S. FDA, other regulatory authorities or state legislatures could prohibit the use of BPA in the future. Events such as these may create a perception of contamination risk among consumers with respect to all products in MJN’s industry.

In addition, MJN advertises its products and could be the target of claims relating to false or deceptive advertising under foreign laws and U.S. federal and state laws, including the consumer protection statutes of some states. A significant product liability or other legal claim or judgment against MJN or a widespread product recall may negatively impact MJN’s profitability. Even if a product liability or consumer fraud claim is unsuccessful or is not merited or fully pursued, the negative publicity surrounding such assertions regarding MJN’s products or processes could materially adversely affect MJN’s reputation and brand image and therefore MJN’s business.

MJN is subject to numerous governmental regulations, and it can be costly to comply with these regulations. Changes in governmental regulations could harm MJN’s business.

As a producer of pediatric nutrition products, MJN’s activities are subject to extensive regulation by governmental authorities and international organizations, including rules and regulations with respect to the environment, employee health and safety, hygiene, quality control and tax laws. It can be costly to comply with these regulations and to develop compliant product processes. MJN’s activities may also be subject to all kinds of barriers or sanctions imposed by countries or international organizations limiting international trade and increasingly dictating the specific content of MJN’s products and, with regard to the protection of consumer health and safety, limiting information and advertising about the health benefits of products that MJN markets. In addition, regulatory changes or decisions that restrict the marketing, promotion and availability of MJN’s products, continued access to health care professionals, the ability to include genetically modified organisms in MJN’s products, as well as the manufacture and labeling of MJN’s products, could materially adversely affect

 

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MJN’s business. For example, regulations in the Philippines require governmental review of all advertisements for products intended for children under the age of two. In addition, certain activists, along with governmental and quasi-governmental entities, such as the United Nations Children’s Fund (“UNICEF”), have advocated against the marketing and sale of pediatric nutrition products. These efforts could result in increased regulatory restrictions on MJN’s activities in the future. MJN’s activities could be materially adversely affected by any significant changes in such regulations or their enforcement. MJN’s ability to anticipate and comply with evolving global standards requires significant investment in monitoring the global regulatory environment and MJN may be unable to comply with changes in regulation restricting MJN’s ability to continue to operate MJN’s business or manufacture, market or sell MJN’s products.

Commodity price increases will increase MJN’s operating costs and may reduce MJN’s profitability.

Commodity prices impact MJN’s business directly through the cost of raw materials used to make MJN’s products (such as skim milk powder, lactose and whey protein concentrate), the cost of inputs used to manufacture and ship MJN’s products (such as crude oil and energy) and the amount MJN pays to produce or purchase packaging for MJN’s products (such as cans, pouches, cardboard and plastic). Commodities such as these are susceptible to price volatility caused by conditions outside of MJN’s control, including fluctuations in commodities markets, currency fluctuations and changes in governmental agricultural programs. MJN’s dairy costs have increased significantly over the past two years. If, as a result of consumer sensitivity to pricing or otherwise, MJN is unable to increase MJN’s prices to offset the increased cost of commodities, MJN may experience lower profitability and MJN may be unable to maintain historical levels of productivity.

MJN’s business is particularly vulnerable to commodity price increases in Asia, the fastest growing region in the pediatric nutrition industry. Commodity price increases in Asia could reduce MJN’s sales and limit MJN’s ability to pursue MJN’s growth strategy in that region. MJN employs various purchasing and pricing contract techniques in an effort to minimize commodity price volatility. Generally, these techniques include setting fixed terms with suppliers such as incorporating clauses setting forth unit pricing that is based on an average commodity price over a corresponding period of time. If MJN fails to manage MJN’s commodity price exposure adequately, MJN’s business may be materially adversely affected.

MJN’s profitability may suffer as a result of competition in MJN’s markets.

The pediatric nutrition industry is intensely competitive. MJN’s primary competitors, including Nestlé S.A., Abbott Laboratories, Groupe Danone and Wyeth, all have substantial financial, marketing and other resources. MJN competes against large global companies, as well as regional and local companies, in each of the regions in which MJN operates. In most product categories, MJN competes not only with other widely advertised branded products, but also with private label, store and economy brand products that are generally sold at lower prices. Competition in MJN’s product categories is based on the following factors:

 

   

brand recognition and loyalty;

 

   

product quality;

 

   

effectiveness of marketing, promotional activity and the ability to identify and satisfy consumer preferences;

 

   

product innovation;

 

   

price; and

 

   

distribution and availability of products.

From time to time, in order to protect MJN’s existing market share or capture increased market share, MJN may need to improve MJN’s brand recognition and product value proposition, and increase MJN’s spending on

 

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marketing, advertising and new product innovation. The success of marketing, advertising and new product innovation is subject to risks, including uncertainties about trade and consumer acceptance. MJN may also need to reduce prices for some of MJN’s products in order to respond to competitive and customer pressures and to maintain MJN’s market share. Competitive and customer pressures may restrict MJN’s ability to increase prices, including in response to commodity and other cost increases. MJN’s business will suffer if profit margins decrease, either as a result of a reduction in prices or an increase in costs with an inability to increase prices proportionally.

Economic downturns, such as the current downturn, could cause consumers to shift their purchases from MJN’s higher-priced premium products to lower-priced products, including private label or store brands, which could materially adversely affect MJN’s business.

The willingness of consumers to purchase premium brand pediatric nutrition products depends in part on local economic conditions. In periods of economic uncertainty, consumers may shift their purchases from MJN’s higher-priced premium products to lower-priced products, including private label and store brand products. MJN believes that private label and store brand product manufacturers gained market share in the United States in 2008.

Turmoil in the financial markets could adversely affect MJN’s liquidity, cash flow and financial flexibility, as well as the demand for MJN’s products.

Recent turmoil in the financial markets has adversely affected economic activity and credit markets in the United States and other regions of the world in which MJN does business. This could have an adverse impact on MJN’s customers, distributors, suppliers, counterparties to certain financial instruments, financial service providers and other service providers.

MJN’s operations face significant foreign currency exchange rate exposure that could materially negatively impact MJN’s operating results.

MJN holds assets, incurs liabilities, earns revenue and pays expenses in a variety of currencies other than the U.S. dollar, primarily the Chinese renminbi, the Mexican peso, the Philippine peso, the Hong Kong dollar and the Euro. Because MJN’s financial statements are presented in U.S. dollars, MJN must translate its assets, liabilities, sales and expenses into U.S. dollars at the then-applicable exchange rates. Consequently, increases in the value of the U.S. dollar versus these other currencies may negatively affect the value of these items in MJN’s financial statements, even if their value has not changed in their original currency. While MJN intends to mitigate some of this risk with hedging and other activities, MJN’s business will nevertheless remain subject to substantial foreign exchange risk from foreign currency translation exposures that MJN will not be able to manage through effective hedging or the use of other financial instrument approaches.

The international nature of MJN’s business subjects MJN to additional business risks that could cause MJN’s sales and profitability to decline.

MJN operates its business and markets its products internationally in more than 50 countries. For the years ended December 31, 2008 and 2007, 61.5% and 56.2%, respectively, of MJN’s net sales were generated in countries outside of the United States. The risks associated with MJN’s operations outside of the United States include:

 

   

multiple regulatory requirements that are subject to change and that could restrict MJN’s ability to manufacture, market or sell MJN’s products;

 

   

inflation, recession, fluctuations in foreign currency exchange and interest rates and discriminatory fiscal policies;

 

   

adverse tax consequences from the repatriation of cash;

 

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trade protection measures, including increased duties and taxes, and import or export licensing requirements;

 

   

price controls;

 

   

government health promotional programs intended to discourage the use of MJN’s products;

 

   

differing local product preferences and product requirements;

 

   

difficulty in establishing, staffing and managing operations;

 

   

differing labor regulations;

 

   

potentially negative consequences from changes in or interpretations of tax laws;

 

   

political and economic instability;

 

   

enforcement of remedies in various jurisdictions;

 

   

changes in foreign medical reimbursement policies and programs; and

 

   

diminished protection of intellectual property in some countries.

These and other risks could have a material adverse effect on MJN’s business.

MJN’s international operations are subject to political and economic risks of developing countries, and special risks associated with doing business in corrupt environments.

MJN operates its business and market MJN’s products internationally in more than 50 countries, and MJN is focusing on increasing MJN’s sales and in some cases establishing new production facilities in regions, including Asia, Latin America, India and the Middle East, which are less developed, have less stability in legal systems and financial markets, and are generally recognized as potentially more corrupt business environments than the United States, and therefore present greater political, economic and operational risks. MJN has in place policies, procedures and certain ongoing training of employees with regard to business ethics and many key legal requirements, such as applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which make it illegal for MJN to give anything of value to foreign officials in order to obtain or retain any business or other advantages; however, there can be no assurance that MJN’s employees will adhere to MJN’s code of business ethics or any other of MJN’s policies, applicable anti-corruption laws, including the FCPA, or other legal requirements. If MJN fails to enforce MJN’s policies and procedures properly or maintain adequate record-keeping and internal accounting practices to accurately record MJN’s transactions, MJN may be subject to regulatory sanctions. If MJN believes or has reason to believe that MJN’s employees have or may have violated applicable anti-corruption laws, including the FCPA, or other laws or regulations, MJN is required to investigate or have outside counsel investigate the relevant facts and circumstances, and if violations are found or suspected could face civil and criminal penalties, and significant costs for investigations, litigation, fees, settlements and judgments, which in turn could have a material adverse effect on MJN’s business.

Sales of MJN’s products are subject to changing consumer preferences, and MJN’s success depends upon MJN’s ability to predict, identify and interpret changes in consumer preferences and develop and offer new products rapidly enough to meet those changes.

MJN’s success depends on MJN’s ability to predict, identify and interpret the tastes, dietary habits and nutritional needs of consumers and to offer products that appeal to those preferences. If MJN does not succeed in offering products that consumers want to buy, MJN’s sales and market share will decrease, resulting in reduced profitability. If MJN is unable to predict accurately which shifts in consumer preferences will be long lasting, or to introduce new and improved products to satisfy those preferences, MJN’s sales will decline. In addition, given the variety of cultures and backgrounds of consumers in MJN’s global consumer base, MJN must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. As such, MJN must be successful in developing innovative products across MJN’s product categories.

 

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The consolidation of MJN’s retail customers may put pressures on MJN’s profitability.

MJN’s retail customers, such as mass merchandisers, club stores, grocery stores, drug stores and convenience stores, have consolidated in recent years and consolidation is expected to continue throughout the United States, Europe and other major markets. This consolidation has produced large, sophisticated customers with increased buying power, which are more capable of operating with reduced inventories, resisting price increases and demanding lower pricing, increased promotional programs and specifically tailored products. These customers also may use shelf space currently used for MJN’s products for their private label or store brand products. Meeting demands from these customers may adversely affect MJN’s margins and, if MJN fails to effectively respond to these demands, MJN’s sales could decline, each of which could materially adversely affect MJN’s profitability.

MJN relies on third parties to provide it with materials and services in connection with the manufacturing and distribution of MJN’s products.

Unaffiliated third-party suppliers provide MJN with materials necessary for commercial production of MJN’s products, including certain key raw materials (such as dairy, agricultural oil and agricultural products) and primary packaging materials (such as cans). In particular, Martek Biosciences Corporation (“Martek”) provides MJN with most of the supply of DHA and ARA that MJN uses in its products. MJN may be unable to manufacture MJN’s products in a timely manner, or at all, if any of MJN’s third-party suppliers, including Martek, should cease or interrupt production or otherwise fail to supply MJN or if the supply agreements are suspended, terminated or otherwise expire without renewal. If these suppliers are not able to supply MJN with the quantities of materials MJN needs or if these suppliers are not able to provide services in the required time period, this could have a material adverse effect on MJN’s business. MJN also utilizes third parties in several countries throughout the world to distribute MJN’s products. If any of MJN’s third-party distributors fail to distribute MJN’s products in a timely manner, or at all, or if MJN’s distribution agreements are suspended, terminated or otherwise expire without renewal, MJN’s profitability could be materially adversely affected.

The manufacture of many of MJN’s products is a highly exacting and complex process, and if MJN or one of MJN’s suppliers should encounter problems manufacturing products, MJN’s business could suffer.

The manufacture of many of MJN’s products is a highly exacting and complex process, in part due to strict regulatory requirements. Problems may arise during the manufacturing process for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, maintenance of MJN’s manufacturing environment, natural disasters, various contagious diseases and process safety issues. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to increased costs, lost sales, damage to customer relations, time and expenses being spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not discovered before the affected product is released to the market, recall and product liability costs as well as reputational damage may also be incurred. To the extent that MJN or one of MJN’s suppliers experience significant manufacturing problems, this could have a material adverse effect on MJN’s business.

MJN may experience difficulties and delays inherent in the manufacturing and selling of MJN’s products.

MJN may experience difficulties and delays inherent in the manufacturing and selling of MJN’s products, such as: (1) seizure or recalls of products or forced closings of manufacturing plants; (2) the failure to obtain, the imposition of limitations on the use of, or loss of, patent, trademark or other intellectual property rights; (3) MJN’s failure, or the failure of any of MJN’s vendors or suppliers, to comply with current good manufacturing practices and other applicable regulations and quality assurance guidelines that could lead to temporary manufacturing shutdowns, product shortages and delays in product manufacturing; (4) construction delays related to the construction of new facilities or the expansion of existing facilities, including those intended to support future demand for MJN’s products; (5) other manufacturing or distribution problems, including

 

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changes in manufacturing production sites and limits to manufacturing capability due to regulatory requirements, changes in types of products produced or physical limitations that could impact continuous supply; (6) availability of raw materials; and (7) restrictions associated with the transportation of goods in and out of foreign countries.

If MJN fails to increase MJN’s production and manufacturing capacity, MJN will be unable to continue to grow and MJN’s ability to produce new products, expand within MJN’s existing markets and enter into new markets will be limited.

Global growth and demand for MJN’s products has increased the utilization of MJN’s production and manufacturing facilities, including manufacturing capacity provided by third-party manufacturers and packaging capacity with respect to MJN’s products. If MJN is unable to successfully expand MJN’s production and manufacturing capacity, MJN will be unable to continue MJN’s growth and expand within MJN’s existing markets or enter into additional geographic markets or new product categories. In addition, failure to successfully expand MJN’s production and manufacturing capacity will limit MJN’s ability to introduce and distribute new products, including MJN’s existing pipeline of innovations and product improvements, or otherwise take advantage of opportunities in new and existing markets. Further, increasing MJN’s production and manufacturing facilities requires significant investment and build times. Delays in increasing capacity could also limit MJN’s ability to continue MJN’s growth and materially adversely affect MJN’s business.

Disruption of MJN’s global supply chain could materially adversely affect MJN’s business.

MJN’s ability to manufacture, distribute and sell products is critical to MJN’s success. Damage or disruption to raw material supplies or MJN’s manufacturing or distribution capabilities due to weather, natural disaster, fire, terrorism, strikes, various contagious diseases or other reasons could impair MJN’s ability to manufacture or sell MJN’s products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly when a product is sourced from a single location, could materially adversely affect MJN’s business.

Changes in WIC, or MJN’s participation in it, could materially adversely affect MJN’s business.

Participation in the special supplemental nutrition program for women, infants and children (“WIC”) is an important part of MJN’s U.S. business based on the volume of infant formula sold under the program. As of December 31, 2008, MJN holds the contracts that supply approximately 41% of WIC births. As a result, MJN’s business strategy includes bidding for new WIC contracts and maintaining current WIC relationships. MJN’s failure to win bids for new contracts pursuant to the WIC program or MJN’s inability to maintain current WIC relationships could have a material adverse effect on MJN’s business. In addition, any changes to how the WIC program is administered and any changes to the eligibility requirements and/or overall participation in the WIC program could also have a material adverse effect on MJN’s business.

MJN’s business could be harmed by a failure of MJN’s information technology, administrative or outsourcing systems.

MJN relies on MJN’s information technology, administrative and outsourcing systems to effectively manage MJN’s business data, communications, supply chain, order entry and fulfillment and other business processes. The failure of MJN’s information technology, administrative or outsourcing systems to perform as MJN anticipates could disrupt MJN’s business and result in transaction errors, processing inefficiencies and the loss of sales and customers, causing MJN’s business to suffer. In addition, MJN’s information technology, administrative and outsourcing systems may be vulnerable to damage or interruption from circumstances beyond MJN’s control, including fire, natural disasters, systems failures, security breaches and viruses. Any such damage or interruption could have a material adverse effect on MJN’s business and prevent MJN from paying MJN’s suppliers or employees, receiving payments from MJN’s customers or performing other information technology, administrative or outsourcing services on a timely basis.

 

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MJN may face difficulties as it expands its operations into countries in which MJN has no prior operating experience or as MJN expands its operations into new product categories.

MJN intends to continue to expand MJN’s global footprint in order to enter into new markets. This may involve expanding into countries other than those in which MJN currently operates. It may involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. MJN also intends to expand its product portfolio by adding new product categories. As MJN expands its business into new countries or product categories MJN may encounter regulatory, personnel, technological and other difficulties that increase MJN’s expenses or delay MJN’s ability to start up MJN’s operations or become profitable in such countries or product categories. This may affect MJN’s relationships with customers, suppliers and regulators and could have a material adverse effect on MJN’s business.

Resources devoted to research and development may not yield new products that achieve commercial success.

MJN’s ability to develop new pediatric nutrition products depends on, among other factors, MJN’s ability to understand the composition and variation of breast milk. Analyzing breast milk requires significant investment in research and development and testing of new ingredients and new production processes. MJN devotes significant resources to investment in research and development in order gain a deep understanding of the composite ingredients of breast milk. The research and development process is expensive, prolonged and entails considerable uncertainty. Development of a new product, from discovery through testing and registration to initial product launch, typically takes between five and seven years. Each of these periods varies considerably from product to product and country to country. Because of the complexities and uncertainties associated with research and development, products that MJN is currently developing may not complete the development process or obtain the regulatory approvals required for MJN to market such products successfully. The development of new products may take longer and cost more to develop and may be less successful than MJN currently anticipates as a result of:

 

   

products that may appear promising in development but fail to reach market within the expected or optimal time frame, or fail to ever reach market, for any number of reasons, including efficacy and the difficulty or excessive cost to manufacture;

 

   

failure to enter into or successfully implement optimal alliances where appropriate for the discovery and commercialization of products, or otherwise to maintain a consistent scope and variety of promising late-stage pipeline products; or

 

   

failure of one or more of MJN’s products to achieve or maintain commercial viability.

MJN cannot assure you that any of MJN’s products currently in MJN’s development pipeline will be commercially successful.

MJN could incur substantial costs to comply with environmental, health, and safety laws and regulations and to address violations of or liabilities under these requirements.

MJN’s facilities and operations are subject to various environmental, health, and safety laws and regulations in each of the jurisdictions in which MJN operates. Among other things, these requirements regulate the emission or discharge of materials into the environment, the use, management, treatment, storage and disposal of solid and hazardous substances and wastes, the control of combustible dust, the reduction of noise emissions and fire and explosion risks, the cleanup of contamination and the prevention of workplace exposures and injuries. Pollution controls and various permits and programs are required for many of MJN’s operations. MJN could incur or be subject to, among other things, substantial costs (including civil or criminal fines or penalties or clean-up costs), third party damage claims, requirements to install additional pollution control or safety control equipment and/or permit revocations in the event of violations by MJN of environmental, health, and safety requirements applicable to MJN’s facilities and operations or MJN’s failure to obtain, develop or comply with required environmental permits or programs.

 

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In addition, most of MJN’s facilities have a history of industrial operations, and contaminants have been detected at some of MJN’s facilities. MJN also is named as a potentially responsible party with respect to three Superfund or state sites. MJN can be held responsible, in some cases without regard to knowledge, fault, or ownership at the time of the release, for the costs of investigating or remediating contamination of any real property MJN or MJN’s predecessors ever owned, operated, or used as a waste disposal site. In addition, MJN can be required to compensate public authorities or private owners for damages to natural resources or other real property, or to restore those properties, in the event of off-site migration of contamination. Changes in, or new interpretations of, existing laws, regulations or enforcement policies, could also cause MJN to incur additional or unexpected costs to achieve or maintain compliance. The assertion of claims relating to on- or off-site contamination, the discovery of previously unknown environmental liabilities or the imposition of unanticipated investigation or cleanup obligations, could result in potentially significant expenditures to address contamination or resolve claims or liabilities. Such costs and expenditures could have a material adverse effect on MJN’s business, financial condition or results of operations.

MJN may not be able to adequately protect MJN’s intellectual property rights.

Given the importance of brand recognition to MJN’s business, MJN has invested considerable effort in seeking trademark protection for MJN’s core brands, including the Enfa family of brands. However, MJN cannot be certain that the steps MJN has taken will be sufficient to protect MJN’s intellectual property rights in MJN’s brands adequately or that third parties will not infringe upon or misappropriate any such rights. MJN’s trademark registrations and applications can potentially be challenged and cancelled or narrowed. Moreover, some of the countries in which MJN operates offer less protection for these rights, and may subject these rights to higher risks, than is the case in Europe or North America. In addition, it is costly to litigate in order to protect any of MJN’s intellectual property rights. If MJN is unable to prevent third parties from infringing or misappropriating these rights in MJN’s core products or brands, including MJN’s Enfa family of brands, MJN’s future financial condition and MJN’s ability to develop its business could be materially adversely affected.

Other companies have from time to time taken, and may in the future take, actions that MJN believes violate MJN’s intellectual property rights and MJN may decide to enforce (and in some cases are currently enforcing) those rights against such actions. Uncertainties inherent in such litigation make the outcome and associated costs difficult to predict. If unsuccessful, the legal actions could result in the invalidation of some of MJN’s intellectual property rights, which could materially adversely affect MJN’s business.

MJN relies on a combination of security measures, confidentiality policies, contractual arrangements and trade secret laws to protect MJN’s proprietary formulae and other valuable trade secrets. MJN also relies on patent, copyright and trademark laws to further protect MJN’s intellectual property rights. MJN cannot, however, be certain that the steps MJN takes will prevent the development and marketing of similar, competing products and services by third parties. MJN’s existing patents and any future patents that MJN obtains may not be sufficiently broad to protect MJN against third parties with similar products or to provide MJN with a competitive advantage. Moreover, MJN’s patents can potentially be challenged and narrowed or invalidated. Trade secrets are difficult to protect, and despite MJN’s efforts may become known to competitors or independently discovered. The confidentiality agreements MJN relies on with MJN’s employees, customers, contractors and others may be breached, and MJN may not have adequate remedies for such breach. Failure to adequately protect MJN’s valuable intellectual property from being infringed or misappropriated could materially adversely affect MJN’s business.

MJN may be required to defend itself against intellectual property claims from third parties, which could harm MJN’s business.

Regardless of merit, there are third-party patents that may cover MJN’s products. Third parties may obtain patents in the future and claim that use of MJN’s technologies infringes upon these patents. If a third party asserts that MJN’s products or services are infringing upon its intellectual property, these claims could cause MJN to

 

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incur significant expenses and, if successfully asserted against MJN, could require that MJN pay substantial damages and/or prevent MJN from selling its products. Even if MJN was to prevail against such claims, any litigation regarding intellectual property could be costly and time-consuming and could divert the attention of MJN’s management and key personnel from MJN’s business operations. Furthermore, as a result of an intellectual property challenge, MJN may find it necessary to enter into royalty licenses or other costly agreements, and MJN may not be able to obtain such agreements at all or on terms acceptable to MJN.

Increases in costs of pension benefits and current and post-retirement medical and other employee health and welfare benefits may reduce MJN’s profitability.

With approximately 5,600 employees, MJN’s profitability is substantially affected by costs of retirement benefits and current and post-retirement medical and other employee health and welfare benefits. These costs can vary substantially as a result of changes in health care costs, volatility in investment returns on plan assets and changes in discount rates used to calculate related liabilities. These factors may put upward pressure on the cost of providing pensions and medical benefits. MJN can provide no assurance that MJN will succeed in limiting future cost increases, and upward pressure would reduce MJN’s profitability.

Labor disputes may cause work stoppages, strikes and disruptions.

The workforce at MJN’s manufacturing facility in Delicias, Mexico is unionized and covered by a collective bargaining agreement, which completed a salary and benefits review on March 31, 2009, and is subject to total contract review on March 31, 2010. The manufacturing workforce and non-supervised sales force in Makati, Philippines are unionized and covered by a collective bargaining agreement, which expires on December 31, 2010. In addition, several of MJN’s workforces in Europe have works council representation. As a result, any labor disputes, including work stoppages, strikes and disruptions, could have a material adverse impact on MJN’s business.

MJN’s success depends on attracting and retaining qualified personnel in a competitive environment.

MJN’s business strategy and future success depends, in part, on MJN’s ability to attract, hire and retain highly-skilled managerial, professional service, sales, development, marketing, finance, accounting, administrative, information technology, science, research and infrastructure-related personnel in a competitive environment, who are critical to MJN’s business functions. The market for highly-skilled employees is competitive in the labor markets in which MJN operates. MJN’s business could be materially adversely affected if MJN is unable to retain key employees or recruit qualified personnel in a timely fashion, or if MJN is required to incur unexpected increases in compensation costs to retain key employees or meet MJN’s hiring goals. If MJN is not able to retain and attract the personnel that MJN requires, or MJN is not able to do so on a cost-effective basis, it could be more difficult for MJN to sell and develop its products and services and execute MJN’s business strategy.

MJN derives a significant percentage of MJN’s sales from one customer. The loss of this customer could materially adversely affect MJN’s financial performance.

MJN’s products are sold principally to the wholesale and retail trade, both nationally and internationally, and sales from one customer, Wal-Mart Stores, Inc. (including sales to Sam’s Club, “Wal-Mart”), accounted for approximately 13.0% of MJN’s gross sales for the year ended December 31, 2008. If this customer ceases doing business with MJN or if MJN encounters any difficulties in its relationship with Wal-Mart, MJN’s business could be materially adversely affected.

 

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An adverse change in favorable demographic and economic trends as well as a change in scientific opinion regarding MJN’s products in any of MJN’s largest markets could materially adversely affect MJN’s business and reduce MJN’s profitability.

MJN’s growth plan relies on favorable demographic and economic trends in various markets, including: (1) rising incomes in emerging markets, (2) increasing number of working mothers and (3) increasing consumer spending on health care worldwide. If these demographic trends change in an adverse way, MJN’s business could be materially adversely affected. In addition, an adverse change in scientific opinion regarding MJN’s products, such as the health benefits of DHA and ARA, could materially adversely affect MJN’s business.

MJN has substantial debt, which could materially adversely affect MJN’s business and MJN’s ability to meet its obligations.

MJN had total indebtedness of $1,785.8 million as of September 30, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MJN—Financial Position, Liquidity and Capital Resources—Debt” and “Recent Developments”.

This amount of debt could have important consequences to MJN and MJN’s investors, including:

 

   

requiring a substantial portion of MJN’s cash flow from operations to make interest and principal payments on this debt;

 

   

requiring MJN to repay the full amount of its debt upon a change of control triggering event;

 

   

making it more difficult to satisfy debt service and other obligations;

 

   

increasing the risk of future credit rating downgrades of MJN’s debt, which could increase future debt costs;

 

   

increasing MJN’s vulnerability to general adverse economic and industry conditions;

 

   

reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow MJN’s business;

 

   

limiting MJN’s flexibility in planning for, or reacting to, changes in MJN’s business and industry;

 

   

placing MJN at a competitive disadvantage to MJN’s competitors that may not be as leveraged with debt as MJN is;

 

   

limiting MJN’s ability to borrow additional funds as needed or take advantage of business opportunities as they arise; and

 

   

limiting MJN’s ability to pay cash dividends or repurchase common stock.

To the extent MJN becomes more leveraged, the risks described above could increase. In addition, MJN’s actual cash requirements in the future may be greater than expected. MJN’s cash flow from operations may not be sufficient to repay at maturity all of the outstanding debt as it becomes due, and MJN may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance MJN’s debt.

MJN could evaluate acquisitions, joint ventures and other strategic initiatives, any of which could distract MJN’s management or otherwise have a negative effect on MJN’s sales, costs and stock price.

MJN’s future success may depend on opportunities to buy or obtain rights to other businesses or technologies that could complement, enhance or expand MJN’s current business or products or that might otherwise offer MJN growth opportunities. MJN could evaluate potential mergers, acquisitions, joint venture investments, strategic initiatives, alliances, vertical integration opportunities and divestitures. If MJN attempts to engage in these transactions, MJN exposes itself to various inherent risks, including:

 

   

accurately assessing the value, future growth potential, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates;

 

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the potential loss of key personnel of an acquired or combined business;

 

   

MJN’s ability to achieve projected economic and operating synergies;

 

   

difficulties successfully integrating, operating, maintaining and managing newly-acquired operations or employees;

 

   

difficulties maintaining uniform standards, controls, procedures and policies;

 

   

unanticipated changes in business and economic conditions affecting an acquired business;

 

   

the possibility MJN could incur impairment charges if an acquired business performs below expectations; and

 

   

the diversion of MJN’s management’s attention from MJN’s existing business to integrate the operations and personnel of the acquired or combined business or implement the strategic initiative.

If any of the foregoing risks materializes, MJN’s results of operations and the results of the proposed transactions would likely differ from MJN’s, and market expectations, and MJN’s stock price could, accordingly, decline. In addition, MJN may not be able to complete desirable transactions, for reasons including a failure to secure financing, as a result of MJN’s separation agreement, tax matters agreement or other agreements with third parties. See “Agreements Between BMS and MJN and Other Related Party Transactions” for a description of the restrictions arising under the separation agreement and the tax matters agreement and “—Risks Relating to the Exchange Offer and Any Subsequent Spin-Off—Restrictions in connection with the tax treatment of the exchange offer and any subsequent spin-off could adversely affect MJN” for risks associated with certain transactions.

MJN depends on cash flows generated by MJN’s subsidiaries, and a failure to receive distributions from MJN’s subsidiaries may result in MJN’s inability to meet MJN’s financial obligations, or to pay dividends.

MJN is a holding company with no material assets other than the equity interests of MJN’s subsidiaries and certain intellectual property. MJN’s subsidiaries conduct substantially all of MJN’s operations and own substantially all of MJN’s assets. Consequently, MJN’s cash flow and MJN’s ability to meet MJN’s obligations and pay dividends to MJN’s stockholders depends upon the cash flow of MJN’s subsidiaries and the payment of funds by MJN’s subsidiaries to MJN in the form of dividends, tax sharing payments or otherwise. There are a number of other factors that could affect MJN’s ability to pay dividends, including the following:

 

   

lack of availability of cash to pay dividends due to changes in MJN’s operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;

 

   

unexpected or increased operating or other expenses or changes in the timing thereof;

 

   

restrictions under Delaware law or other applicable law on the amount of dividends that MJN may pay;

 

   

a decision by MJN’s board of directors to modify or revoke its policy to pay dividends; and

 

   

the other risks described in this “Risk Factors” section.

Each of MJN’s subsidiaries is a distinct legal entity and its ability to make any payments will depend on its earnings, the terms of its indebtedness, tax considerations and legal restrictions. While no restrictions currently exist, under certain circumstances, legal and contractual restrictions may limit MJN’s ability to obtain cash from MJN’s subsidiaries and MJN’s subsidiaries may not be able to, or be permitted to, make distributions to MJN in the future. In the event that MJN does not receive distributions from MJN’s subsidiaries, MJN may be unable to meet MJN’s financial obligations.

 

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MJN may not realize the potential benefits from MJN’s separation from BMS.

MJN may not realize the benefits that MJN anticipates from its separation from BMS. These benefits include the following:

 

   

allowing MJN’s management to focus its efforts on MJN’s business and strategic priorities;

 

   

enabling MJN to allocate its capital more efficiently;

 

   

providing MJN with direct access to the debt and equity capital markets;

 

   

improving MJN’s ability to pursue acquisitions through the use of shares of MJN’s common stock as consideration;

 

   

enhancing MJN’s market recognition with investors; and

 

   

increasing MJN’s ability to attract and retain employees by providing equity compensation tied to MJN’s business.

MJN may not achieve the anticipated benefits from MJN’s separation for a variety of reasons. For example, although MJN has direct access to the debt and equity capital markets, MJN may not be able to issue debt or equity on terms acceptable to MJN or at all. The availability of shares of MJN’s common stock for use as consideration for acquisitions also does not ensure that MJN will be able to successfully pursue acquisitions or that the acquisitions will be successful. Moreover, even with equity compensation tied to MJN’s business, MJN may not be able to attract and retain employees as desired. MJN also may not fully realize the anticipated benefits from its separation if any of the matters identified as risks in this “Risk Factors” section were to occur. If MJN does not realize the anticipated benefits from MJN’s separation for any reason, MJN’s business may be materially adversely affected.

The transitional services that BMS provides to MJN may not be sufficient to meet MJN’s needs, and MJN may have difficulty finding replacement services or be required to pay increased costs to replace these services after MJN’s transitional services agreement with BMS expires.

Historically, BMS has provided MJN with significant corporate and shared services related to corporate functions such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, human resources, tax, treasury, procurement, pensions and post retirement, stock based compensation and other services. BMS will continue temporarily to provide many of these services on a transitional basis for a fee. The terms of these services and amounts to be paid by MJN to BMS are provided in the transitional services agreement described in “Agreements Between BMS and MJN and Other Related Party Transactions”. While these services are being provided to MJN by BMS, MJN’s operational flexibility to modify or implement changes with respect to such services or the amounts MJN pays for them are limited. After the expiration of the transitional services agreement, MJN may not be able to replace these services or enter into appropriate third-party agreements on terms and conditions, including cost, comparable to those that MJN receives from BMS under the transitional services agreement. Although MJN intends to replace portions of the services currently provided by BMS, MJN may encounter difficulties replacing certain services or be unable to negotiate pricing or other terms as favorable as those MJN currently has in effect. In addition, MJN has historically received informal support from BMS, which may not be addressed in the transitional services agreement that MJN has entered into with BMS. MJN expects that this informal support will cease following the exchange offer.

The assets related to MJN’s businesses in certain jurisdictions may not be transferred from BMS to MJN for a significant period of time.

Even though MJN has paid BMS for, and otherwise received the rights from BMS to, assets related to its business in Argentina, Brazil and China, due to regulatory and other concerns, not all of the assets in those jurisdictions were transferred to MJN. BMS and MJN intend to make these transfers, but neither can offer any

 

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assurance that such transfers will ultimately occur or not be delayed for an extended period of time. Until the transfers are completed, MJN’s strategic options with respect to these assets could be limited. See “Agreements Between BMS and MJN and Other Related Party Transactions”.

As a stand-alone public company, MJN no longer has access to the resources of BMS, and MJN may experience increased costs resulting from decreased purchasing power.

MJN has benefited from BMS’ financial strength and numerous significant business relationships and has been able to take advantage of BMS’ size and purchasing power in procuring goods, services and technology. MJN has drawn on these resources in developing MJN’s own contacts and relationships. Following the exchange offer, MJN will no longer able to rely on BMS’ resources and contacts. As a stand-alone public company, MJN may be unable to obtain goods, services and technology at prices and on terms as favorable as those that MJN obtained prior to the exchange offer and, as a result, MJN’s profitability could be materially adversely affected.

Future sales, or the perception of future sales, of MJN’s common stock may depress the price of MJN common stock.

The market price of MJN common stock could decline significantly as a result of sales of a large number of shares of MJN’s common stock in the market, including the shares offered for exchange by BMS in the exchange offer. The perception that these sales might occur could depress the market price. These sales, or the possibility that these sales may occur, also might make it more difficult for MJN to sell equity securities in the future at a time and at a price that MJN deems appropriate. See also “Risk Factors—Risks Relating to the Exchange Offer and Any Subsequent Spin-Off—The exchange offer and related transactions will result in a substantial amount of MJN common stock entering the market, which may adversely affect the market price of MJN common stock”.

Also, in the future, MJN may issue securities in connection with investments or acquisitions. The amount of shares of MJN common stock issued in connection with an investment or acquisition could constitute a material portion of MJN’s common stock.

Failure to maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on MJN’s business and stock price.

As a public company, MJN is required to document and test MJN’s internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), which requires annual management assessments of the effectiveness of MJN’s internal control over financial reporting and a report by MJN’s independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting beginning with the year ending December 31, 2009. During the course of MJN’s testing, MJN may identify deficiencies that MJN may not be able to remediate in time to meet MJN’s deadline for compliance with Section 404. Testing and maintaining internal control can divert MJN’s management’s attention from other matters that are important to the operation of MJN’s business. MJN also expects these regulations to increase MJN’s legal and financial compliance costs and make some activities more difficult, time consuming and costly. MJN may not be able to conclude on an ongoing basis that MJN has effective internal control over financial reporting in accordance with Section 404, or MJN’s independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of MJN’s internal control over financial reporting. If MJN concludes that MJN’s internal control over financial reporting is not effective, MJN cannot be certain as to the timing of completion of MJN’s evaluation, testing and remediation actions or their effect on MJN’s operations because there is presently no precedent available by which to measure compliance adequacy. If either MJN is unable to conclude that MJN has effective internal control over financial reporting or MJN’s independent auditors are unable to provide MJN with an unqualified report as required by Section 404, then investors could lose confidence in MJN’s reported financial information, which could have a negative effect on the trading price of MJN’s stock.

 

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Anti-takeover provisions in MJN’s charter documents could discourage, delay or prevent a change of control of MJN and may result in an entrenchment of management and diminish the value of MJN common stock.

Several provisions of MJN’s certificate of incorporation and by-laws could make it difficult for MJN’s stockholders to change the composition of MJN’s board of directors, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that MJN’s stockholders may consider favorable.

These provisions include:

 

   

authorizing MJN’s board of directors to issue “blank check” preferred shares without stockholder approval;

 

   

prohibiting cumulative voting in the election of directors;

 

   

prohibiting shareholder action by written consent (after the completion of the exchange offer);

 

   

limiting the persons who may call special meetings of stockholders; and

 

   

establishing advance notice requirements for nominations for election to MJN’s board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

Additionally, MJN intends to amend its certificate of incorporation shortly after the completion of the exchange offer pursuant to a resolution of the MJN board of directors and a written consent of BMS as a majority stockholder. As a result, within 20 days after the expiration date of the exchange offer, MJN may be subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder. However, there is no guarantee that this amendment will be implemented. In addition, any person or group that becomes an interested stockholder prior to MJN becoming subject to Section 203 will not be subject to the restrictions of Section 203.

These anti-takeover provisions could substantially impede the ability of MJN common stockholders to benefit from a change of control and, as a result, could materially adversely affect the market price of MJN common stock and MJN’s stockholders’ ability to realize any potential change-in-control premium.

If securities or industry analysts do not publish research or reports about MJN or its business, if they adversely change their recommendations regarding MJN securities or if MJN’s operating results do not meet their expectations, MJN’s stock price could decline.

The trading market for common stock is influenced by the research and reports that industry or securities analysts publish about MJN or its business. If one or more of these analysts cease coverage of MJN or fail to publish reports on MJN regularly, MJN could lose visibility in the financial markets, which in turn could cause its stock price or trading volume to decline. Moreover, if one or more of the analysts who cover MJN downgrades its stock or if MJN’s operating results do not meet their expectations, MJN’s stock price could decline.

Risks Relating to the Exchange Offer and Any Subsequent Spin-Off

Your investment will be subject to different risks after the exchange offer regardless of whether you elect to participate in the exchange offer.

Your investment will be subject to different risks as a result of the exchange offer, regardless of whether you tender all, some or none of your shares of BMS common stock.

 

   

If you exchange all of your shares of BMS common stock and the exchange offer is not oversubscribed, then you will no longer have an ownership interest in BMS, but instead will directly own only an interest in MJN. As a result, your investment will be subject exclusively to risks associated with MJN and not risks associated solely with BMS.

 

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If you exchange all of your shares of BMS common stock and the exchange offer is oversubscribed, then the offer will be subject to the proration procedures described in this prospectus and, unless your odd-lot tender is not subject to proration, you will own an interest in both BMS and MJN. As a result, your investment will continue to be subject to risks associated with both BMS and MJN.

 

   

If you exchange some, but not all, of your shares of BMS common stock, then regardless of whether the exchange offer is fully subscribed, the number of shares of BMS common stock you own will decrease (unless you otherwise acquire shares of BMS common stock), while the number of shares of MJN common stock you own will increase. As a result, your investment will continue to be subject to risks associated with both BMS and MJN.

 

   

If you do not exchange any of your shares of BMS common stock and the exchange offer is fully subscribed, then your ownership interest in BMS will increase on a percentage basis, while your indirect ownership in MJN will be eliminated. As a result, your investment will be subject exclusively to risks associated with BMS and not risks associated with MJN because BMS will no longer have an investment in MJN.

 

   

If you remain a stockholder of BMS following the completion of the exchange offer and BMS completes the spin-off described under “Spin-Off of MJN Common Stock”, then you may receive shares of MJN common stock (although you may instead receive only cash in lieu of a fractional share). As a result, your investment may be subject to risks associated with both BMS and MJN.

Regardless of whether you tender your shares of BMS common stock, the shares you hold after the completion of the exchange offer will reflect a different investment from the investment you previously held.

The exchange offer and related transactions will result in a substantial amount of MJN common stock entering the market, which may adversely affect the market price of MJN common stock.

Before the exchange offer, MJN was a majority-owned subsidiary of BMS and approximately 34.5 million shares of MJN common stock (or 16.9% of the total number of outstanding MJN shares) were held by non-affiliates. Assuming the exchange offer is fully subscribed, BMS will distribute 170.0 million shares of MJN common stock. Following the exchange offer, all shares of MJN common stock not held by its affiliates will be freely tradable. The distribution of such a large number of shares of MJN common stock could adversely affect the market price of MJN common stock.

The prior performance of the prices for shares of BMS common stock and MJN common stock may not be indicative of the performance of the prices for their common stock after the exchange offer.

The common stock price history for shares of BMS and MJN may not provide investors with a meaningful basis for evaluating an investment in either company’s common stock. MJN has been a publicly traded company only since February 2009. The performance of the price for BMS common stock has historically been impacted by the performance of the MJN business, but after the completion of the exchange offer, BMS will no longer have any equity interest in MJN. The prior performance of BMS’ and MJN’s common stock may not be indicative of the performance of their common stock after the exchange offer.

The historical financial data of BMS and MJN may not be indicative of their results as separate companies.

The historical financial data of BMS and MJN presented in this prospectus may not necessarily reflect what the assets, liabilities, results of operations, financial condition and cash flows of each would have been had the companies been separate, stand-alone entities pursuing independent strategies during the periods presented. As a result, historical financial data is not necessarily indicative of future assets, liabilities, results of operations, financial condition and cash flows of either BMS or MJN.

 

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In addition, the historical BMS financial data is impacted by assets, liabilities, results of operations, financial condition and cash flows attributable to MJN. However, upon completion of the exchange offer, MJN’s results will no longer be consolidated with those of BMS for financial reporting purposes and will be shown as discontinued operations. As a result, BMS’ financial statements will no longer reflect the assets, liabilities, results of operations, financial condition or cash flows attributable to MJN. For a more detailed discussion of MJN’s impact on BMS’ financial statements, see Note 3 to the BMS Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 and Note 22 to the BMS audited financial statements included in the BMS Current Report on Form 8-K filed on April 28, 2009 which are incorporated by reference in this prospectus. The MJN segment information does not reflect MJN’s results as a separate company. The pre-tax income in the MJN segment information does not include MJN’s separation costs from BMS, costs incurred in connection with productivity initiatives and other adjustments. In addition, MJN segment results for periods after February 17, 2009 do not reflect MJN results attributable to the approximately 17% economic interest not held by BMS in MJN as a result of the initial public offering of MJN.

Tendering BMS stockholders may receive a reduced discount or may not receive any discount in the exchange offer.

The exchange offer is designed to permit you to exchange your shares of BMS common stock for shares of MJN common stock at a discount of 10%. Stated another way, for each $1.00 of your shares of BMS common stock accepted in the exchange offer, you will receive approximately $1.11 of MJN common stock based on the Average BMS Price and Average MJN Price. The number of shares you can receive is, however, subject to an upper limit of 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer. As a result, you may receive less than $1.11 of MJN common stock for each $1.00 of BMS common stock accepted in the exchange offer, depending on the Average BMS Price and the Average MJN Price. Because of the upper limit, if there is a decrease of sufficient magnitude in the trading price for shares of MJN common stock relative to the trading price for shares of BMS common stock, or if there is an increase of sufficient magnitude in the trading price for shares of BMS common stock relative to the trading price for shares of MJN common stock, you may not receive $1.11 of MJN common stock for each $1.00 of BMS common stock accepted, and could receive much less.

For example, if the Average BMS Price was $23.34 (the highest closing price for shares of BMS common stock on the NYSE during the three-month period prior to commencement of the exchange offer) and the Average MJN Price was $37.41 (the lowest closing price for shares of MJN common stock on the NYSE during that three-month period), the value of MJN common stock received for shares of BMS common stock accepted for exchange would be approximately $1.01 for each $1.00 of BMS common stock accepted for exchange.

In addition, there is no assurance that shares of MJN common stock received in the exchange offer will be able to be sold at prices comparable to the Average MJN Price.

There may also be circumstances under which you would receive fewer shares of MJN common stock than you would have received if the exchange ratio were determined using the closing prices for shares of BMS common stock and MJN common stock on the expiration date.

For example, if the trading price for shares of BMS common stock were to increase during the last two trading days of the exchange offer period, the Average BMS Price would likely be lower than the closing price for shares of BMS common stock on the expiration date. As a result, you may receive fewer shares of MJN common stock for each $1.00 of BMS common stock accepted than you would have if the Average BMS Price were calculated on the basis of the closing price for shares of BMS common stock on the expiration date or on the basis of an Averaging Period that includes the last two trading days of the exchange offer period. Similarly, if the trading price for shares of MJN common stock were to decrease during the last two trading days of the exchange offer period, the Average MJN Price would likely be higher than the closing price for shares of MJN common stock on the expiration date. This could also result in your receiving fewer shares of MJN common stock for each $1.00 of BMS common stock than you would otherwise receive if the Average MJN Price were calculated on the basis of the closing price for shares of MJN common stock on the expiration date or on the basis of an Averaging Period that includes the last two trading days of the exchange offer period.

 

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Participating BMS stockholders will experience some delay in receiving shares of MJN common stock (and cash in lieu of fractional shares of MJN common stock, if any) for shares of BMS common stock that are accepted in the exchange offer.

Tendering BMS stockholders whose shares of BMS common stock have been accepted for exchange will not be able to sell the shares of MJN common stock to be received until the distribution of shares of MJN common stock to individual stockholders has been completed. Consequently, in case the market price for shares of MJN common stock should decrease during that period, the relevant stockholder would not be able to stop any losses or recognize any gain by selling the shares of MJN common stock. Similarly, you will not be able to invest cash in lieu of fractional shares of MJN common stock, if any, until the distribution of such cash has been completed, and you will not receive interest payments for this time period.

MJN’s stock price may fluctuate significantly during and after the exchange offer period, and you could lose all or part of your investment in MJN common stock as a result.

The price of MJN common stock may fluctuate significantly during and after the exchange offer period as a result of many factors in addition to those discussed in the preceding risk factors. Since its initial public offering the price of MJN common stock as reported by the NYSE has ranged from a low of $25.72 on April 20, 2009 to a high of $50.35 on September 29, 2009. Some specific factors that may have a significant effect on MJN common stock market price include:

 

   

MJN’s operating performance and the performance of its competitors;

 

   

the public’s reaction to MJN’s press releases, its other public announcements and its filings with the SEC;

 

   

changes in earnings estimates or recommendations by research analysts who follow MJN or other companies in its industry;

 

   

variations in general economic conditions;

 

   

the arrival or departure of key personnel;

 

   

other developments affecting MJN, its industry or its competitors; and

 

   

the actions of speculators and financial arbitrageurs (such as hedge funds) during and after the exchange offer.

Market prices for shares of BMS common stock may decline following the completion of the exchange offer.

Investors may purchase shares of BMS common stock in order to participate in the exchange offer, which may have the effect of raising market prices for shares of BMS common stock during the pendency of the exchange offer. Following the completion of the exchange offer, the market prices for shares of BMS common stock may decline because any exchange offer-related demand for shares of BMS common stock will cease.

In addition, following the completion of the exchange offer, the market prices for shares of BMS common stock may decline because BMS will no longer have any equity interest in MJN.

The IRS may treat the exchange offer as taxable to exchanging stockholders.

BMS expects to receive an opinion of counsel to the effect that (i) the Internal Spin-Off, and the exchange offer together with any subsequent spin-off, each should qualify for non-recognition of gain and loss under Section 355 of the Code, (ii) the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN class A common stock) should qualify for non-recognition of gain and loss under Section 368(a)(1)(E) of the Code and/or Section 1036(a) of the Code and (iii) the MJC Conversion should qualify for non-recognition of

 

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gain and loss under Sections 332 and 337 of the Code. The opinion of counsel is a condition to the exchange offer and any subsequent spin-off. The opinion of counsel will be based on certain assumptions and representations as to factual matters from BMS and MJN, as well as certain covenants by BMS and MJN. If any of those assumptions, representations or covenants is incorrect, incomplete, inaccurate or is violated in any material respect, the conclusions reached by counsel in its opinion would be jeopardized, as would BMS’ ability to rely on the opinion.

The opinion of counsel is not binding upon the IRS or the courts, and there is no assurance that the IRS or a court will not take a contrary position. BMS does not intend to request a comprehensive ruling from the IRS regarding all aspects of the U.S. federal income tax consequences of the exchange offer and any subsequent spin-off.

If the exchange offer or any subsequent spin-off were determined not to qualify for non-recognition of gain and loss under Section 355 of the Code, BMS stockholders who receive MJN common stock would recognize taxable gain or loss and/or taxable income. In such a case, the U.S. federal income tax consequences of the transaction to a particular BMS stockholder would vary with that stockholder’s individual circumstances; these consequences may be material for some stockholders. Neither BMS nor MJN will indemnify any individual stockholder for any taxes that may be incurred in connection with the exchange offer. See “Material U.S. Federal Income Tax Consequences”.

The transactions could result in tax liability for the BMS group.

BMS expects to receive an opinion of counsel to the effect that (i) the Internal Spin-Off, and the exchange offer together with any subsequent spin-off, each should qualify for non-recognition of gain and loss under Section 355 of the Code, (ii) the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN class A common stock) should qualify for non-recognition of gain and loss under Section 368(a)(1)(E) of the Code and/or Section 1036(a) of the Code and (iii) the MJC Conversion should qualify for non-recognition of gain and loss under Sections 332 and 337 of the Code. In addition, BMS has received the Recapitalization Ruling, a private letter ruling from the IRS, to the effect that the Proposed Recapitalization will not cause BMS or any of its subsidiaries to incur U.S. federal income taxes in connection with the Internal Spin-Off. Both the opinion of counsel and the Recapitalization Ruling (and their continuing effectiveness and validity) are conditions to the exchange offer.

The opinion of counsel will not address any state, local or foreign tax consequences of the transactions. The opinion will be based on certain assumptions and representations as to factual matters from BMS and MJN, as well as certain covenants by BMS and MJN. The opinion cannot be relied upon if any of those assumptions, representations or covenants is incorrect, incomplete, inaccurate or is violated in any material respect.

The opinion of counsel is not binding upon the IRS or the courts, and there is no assurance that the IRS or a court will not take a contrary position. BMS does not intend to request a comprehensive ruling from the IRS regarding all aspects of the U.S. federal income tax consequences of the transactions.

If the Internal Spin-Off or the exchange offer together with any subsequent spin-off were determined not to qualify for non-recognition of gain and loss under Section 355 of the Code, BMS could be subject to tax as if the distribution were a taxable sale by BMS of its MJN common stock at market value. In addition, in such case, the BMS group would be required to take the “excess loss account” described below into taxable income.

The BMS group has a negative basis, or excess loss account (“ELA”), in its MJN stock. BMS expects to receive an opinion of counsel to the effect that it is more likely than not that the BMS group will not be required to take into account as income or gain any ELA with respect to the MJN stock as a result of the transactions contemplated in this prospectus, but these transactions are not conditioned on receiving this opinion. The tax law in this area is complex and there is a risk that, even if the Internal Spin-Off, the exchange offer and any

 

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subsequent spin-off qualify for non-recognition of gain and loss under Section 355 of the Code, the BMS group will be required to take its ELA in taxable income as a result of these transactions. This would result in a material tax liability for BMS. BMS has determined that it will be required to account for its position with respect to the ELA as an “uncertain tax position” under Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, and that, under those rules, it may recognize on its financial statements only a portion of the tax benefit associated with that position. As a result, BMS will reflect on its financial statements a reserve for taxes payable of between $250 million and $300 million, plus an amount in respect of any accrued interest. See “Material U.S. Federal Income Tax Consequences”.

Restrictions in connection with the tax treatment of the exchange offer and any subsequent spin-off could adversely affect MJN.

In connection with the exchange offer and any subsequent spin-off, BMS and its counsel have relied on certain assumptions and representations as to factual matters from MJN, as well as certain covenants by MJN regarding the future conduct of its business and other matters, the incorrectness or violation of which could affect the qualification for non-recognition of gain and loss of the MJC Conversion, the Internal Spin-Off, the Proposed Recapitalization, the exchange offer and any subsequent spin-off. In addition, current tax law generally creates a presumption that the transactions would be taxable to BMS, but not to its stockholders, if MJN or its stockholders were to engage in transactions that result in a 50% or greater change in its stock ownership during the four-year period beginning two years before the exchange offer and any subsequent spin-off, unless it is established that the exchange offer and any subsequent spin-off are not part of a plan or series of related transactions to effect such a change in ownership.

As a consequence of the foregoing, BMS and MJN will agree to certain tax-related restrictions set forth in the tax matters agreement referred to herein, under which MJN will agree generally:

 

   

for two years following the completion of the transactions contemplated in this prospectus, not to engage in any of the following actions unless MJN provides BMS with an opinion of counsel acceptable to BMS or BMS receives a private letter ruling, in each case to the effect that such actions will not cause the Internal Spin-Off, the MJC Conversion, the Proposed Recapitalization or the exchange offer together with any subsequent spin-off to fail to qualify for non-recognition of gain and loss:

 

   

cause or allow the MJN group to cease to be engaged in its current business as an active business;

 

   

take any action that could cause the MJC Conversion to fail to qualify as a complete liquidation under Section 332 of the Code by reason of the “liquidation-reincorporation” doctrine;

 

   

liquidate or partially liquidate, by way of a merger, conversion or otherwise;

 

   

sell or transfer 50% or more of its assets;

 

   

engage in certain stock redemptions or repurchases; and

 

   

enter into or permit certain transactions or series of related transactions (or agreements or understandings to enter into such transactions) as a result of which one or more persons would directly or indirectly acquire 40% or more of MJN’s total value or total voting power; and

 

   

for 30 months following the completion of the transactions contemplated in this prospectus, if it proposes to enter into or permit certain transactions or series of related transactions as a result of which one or more persons would directly or indirectly acquire 10% or more of MJN’s total value or total voting power, to undertake in good faith to provide written notice to BMS, including an explanation as to why such transactions do not cause the Internal Spin-Off or the exchange offer together with any subsequent spin-off to fail to qualify for non-recognition of gain and loss.

 

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If any of the transactions contemplated in this prospectus fails to qualify for non-recognition of gain and loss, MJN may in certain circumstances be required to indemnify BMS for any resulting taxes and related expenses, and MJN believes that the payment if required could be significant.

BMS and MJN will agree to certain tax-related indemnities set forth in the tax matters agreement referred to in this prospectus. MJN will agree, generally, to indemnify BMS for taxes and certain related expenses resulting from the failure of the MJC Conversion, the Internal Spin-Off, the Proposed Recapitalization or the exchange offer together with any subsequent spin-off to qualify for non-recognition of gain and loss to the extent attributable to (i) the failure of any of MJN’s representations to be true or the breach by MJN of any of its covenants, (ii) the application of Section 355(e) or Section 355(f) of the Code to any acquisition of stock or assets of MJN or any of its affiliates or (iii) certain other acts or omissions by MJN or its affiliates. To the extent MJN becomes obligated to make an indemnification payment under the tax matters agreement, MJN believes that the payment could be significant.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus, including particularly the sections entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MJN” and “Business of MJN”, and certain documents incorporated by reference into this prospectus, contain forward-looking statements. Forward-looking statements include statements about the impact of the exchange offer and any subsequent spin-off, the discussions of MJN’s and BMS’ business strategies and their expectations concerning future operations, margins, profitability, liquidity and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “thinks”, “estimates”, “seeks”, “expects”, “predicts”, “potential” and similar expressions. These statements relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to differ materially from those in the future that are implied by these forward-looking statements. These risks and other factors include those listed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in BMS’ Annual Report on Form 10-K for the year ended December 31, 2008 and BMS’ Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, which reports are incorporated by reference in this prospectus. Those factors, among others, could cause MJN’s or BMS’ actual results and performance to differ materially from the results and performance projected in, or implied by, the forward-looking statements. As you read and consider this prospectus, you should carefully understand that the forward-looking statements are not guarantees of performance or results.

The forward-looking statements included and incorporated by reference in this prospectus are only made as of the date of this prospectus or the respective documents incorporated by reference in this prospectus, as applicable. All future written and oral forward-looking statements attributable to MJN, BMS or any person acting on their respective behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and MJN and BMS cannot predict those events or their impact. MJN and BMS assume no obligation to update any forward-looking statements after the date of this prospectus as a result of new information, future events or developments, except as required by the federal securities laws.

Industry data and other statistical information used in this prospectus are based on independent publications, government publications, reports by market research firms or other published independent sources. Some data are also based on good faith estimates by BMS or MJN, derived from review of internal surveys and the independent sources listed above. Although MJN and BMS believe these sources are reliable, they have not independently verified the information.

For additional information regarding risks and uncertainties faced by BMS and MJN, see “Risk Factors”.

 

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RECENT DEVELOPMENTS

On November 5, 2009, MJN issued $500.0 million aggregate principal amount of 3.50% notes due 2014, $700.0 million aggregate principal amount of 4.90% notes due 2019 and $300.0 million aggregate principal amount of 5.90% notes due 2039. The net proceeds from the offering, less discounts and expenses, were approximately $1,482.7 million. MJN contributed the net proceeds of the offering, together with proceeds from a $200.0 million borrowing under its revolving credit facility and cash on hand, to its subsidiary Mead Johnson & Company (“MJC”) which used the money to repay all amounts owed to BMS under a floating rate note due 2014 in an aggregate principal amount of $744.2 million, a 6.43% note due 2016 in an aggregate principal amount of $500.0 million and a 6.91% note due 2019 in an aggregate principal amount of $500.0 million. See “Description of Certain Indebtedness of MJN”.

MJN expects to incur costs incremental to previously disclosed expectations for specified items in the fourth quarter of 2009 estimated in the range of $0.08 to $0.13 per share. These costs relate to the exchange offer, legal expenses associated with defense and any judgment entered by the court as a result of the lawsuit filed by PBM Products LLC against a subsidiary of MJN (see “Business of MJN-Legal Proceedings”) and other specified items.

 

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THE TRANSACTION

Background of the Exchange Offer

In April 2008, BMS announced plans to file a registration statement for an IPO of MJN in order to allow MJN to implement its growth plan, increase stockholder value and maintain its financial contribution to BMS. In September 2008, MJN filed a registration statement with the SEC for an IPO of its MJN common stock. In February 2009, MJN completed its IPO, through which it sold 34.5 million shares of MJN common stock for aggregate net proceeds of $782 million.

In November 2009, the BMS board of directors approved BMS’ disposition of its remaining interest in MJN through a tax-free exchange with BMS’ stockholders, with any unsubscribed shares of MJN common stock to be distributed to BMS stockholders in a spin-off.

Reasons for the Exchange Offer

The following potential benefits were considered by BMS’ board of directors in making the determination to effect the exchange offer:

 

   

The exchange offer will permit the independent management of each of BMS and MJN to focus its attention and its company’s financial resources on its respective distinct business and business challenges and to lead each independent company to adopt strategies and pursue objectives that are appropriate to its respective business.

 

   

The exchange offer will allow BMS and MJN to better attract, retain and motivate current and future employees through the use of equity-based compensation policies that more directly link employee compensation with financial performances.

 

   

Both BMS and MJN believe that the differing characteristics of the two companies may appeal to different investor bases.

Neither BMS nor MJN can assure that, following the exchange offer, any of these benefits will be realized to the extent anticipated or at all.

The following factors were considered by BMS’ board of directors in making the determination to complete the separation by means of the exchange offer rather than by a spin-off or other transaction:

 

   

Like a spin-off transaction, the exchange offer is a tax-efficient way for BMS to divest its interest in MJN.

 

   

The exchange offer presents an opportunity for BMS to repurchase outstanding shares of BMS common stock without reducing overall cash and financial flexibility.

 

   

The exchange offer provides BMS’ stockholders with an opportunity to adjust their investment between BMS and MJN on a tax-free basis for U.S. federal income tax purposes (except with respect to cash received in lieu of a fractional share) and, accordingly, is an efficient means of placing MJN common stock with only those BMS stockholders who wish to own an interest in MJN. By comparison, a separation effected exclusively by a pro-rata spin-off to BMS’ stockholders would result in substantially all of BMS’ stockholders becoming owners of MJN, regardless of their desire to own any shares of MJN.

 

   

In order to encourage stockholders to participate in the exchange offer, BMS will likely be acquiring shares of BMS common stock at a premium.

 

   

The exchange offer presents more execution risk than a pro rata spin-off, and may require an extension of the offering period and a subsequent spin-off if the exchange offer is not fully subscribed.

 

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The exchange offer is required to be conducted pursuant to an effective registration statement under the Securities Act of 1933, while a spin-off could be completed without such a registration statement under the Securities Act.

 

   

The exchange offer will cause BMS to incur certain incremental expenses relating to the offering that it would not otherwise incur in connection with a spin-off.

Effects of the Exchange Offer

Upon completion of the exchange offer, MJN’s results will no longer be consolidated with those of BMS for financial reporting purposes and will be shown as discontinued operations. As a result, BMS’ financial statements will no longer reflect the assets, liabilities, results of operations, financial condition or cash flows attributable to MJN.

Holders of BMS common stock will be affected by the exchange offer as follows:

 

   

Holders who exchange all of their shares of BMS common stock, if the exchange offer is not oversubscribed, will no longer have any ownership interest in BMS but will instead directly own only an interest in MJN. As a result, their investment will be subject exclusively to risks associated with MJN and not risks associated solely with BMS.

 

   

Holders who exchange all of their shares of BMS common stock will, if the exchange offer is oversubscribed, be subject to proration and, unless their odd-lot tender is not subject to proration, will own an interest in both BMS and MJN. As a result, their investment will continue to be subject to risks associated with both BMS and MJN.

 

   

Holders who exchange some, but not all, of their shares of BMS common stock, regardless of whether the exchange offer is fully subscribed, will own fewer shares of BMS common stock and more shares of MJN common stock, unless they otherwise acquire BMS common stock. As a result, their investment will continue to be subject to risks associated with both BMS and MJN.

 

   

Holders who do not exchange any of their shares of BMS common stock in the exchange offer will have an increased ownership interest in BMS, on a percentage basis, and will, assuming the exchange offer is fully subscribed, have no indirect ownership interest in MJN. As a result, their investment will be subject exclusively to risks associated with BMS and not risks associated with MJN because BMS will no longer have an investment in MJN.

 

   

Holders who remain stockholders of BMS following the completion of the exchange offer may, if the exchange offer is not fully subscribed and if BMS completes a spin-off, receive shares of MJN common stock (although such holders may instead receive only cash in lieu of a fractional share). As a result, their investment may be subject to risks associated with both BMS and MJN.

Internal Spin-Off and MJN’s Equity Capitalization

MJN had an equity capitalization of approximately 204.5 million shares of common stock as of November 11, 2009, consisting of approximately 37.6% of shares of MJN class A common stock and 62.4% of shares of MJN class B common stock. BMS currently owns approximately 55.1% of MJN class A common stock and one of BMS’ wholly-owned subsidiaries, E.R. Squibb & Sons, L.L.C. (“E.R. Squibb”), currently owns all MJN class B common stock. On November 13, 2009, E.R. Squibb distributed its entire equity interest in MJN to BMS (the “Internal Spin-Off”). As a result of the Internal Spin-Off, BMS owns an 83.1% stake in MJN by value, consisting of 55.1% of MJN class A common stock and all of MJN class B common stock. Prior to the completion of the exchange offer, Mead Johnson & Company, a Delaware corporation wholly owned by MJN (“MJC”), will convert to a limited liability company (the “MJC Conversion”) under Delaware law. BMS also will elect to convert (the “Proposed Recapitalization”) its MJN class B common stock to MJN class A common stock (otherwise referred to as MJN common stock). As a result, after the exchange offer all of the common stock of MJN will be MJN class A common stock.

 

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Amendment of MJN Certificate of Incorporation and By-Laws

In connection with the exchange offer, MJN intends to amend its certificate of incorporation and by-laws pursuant to a resolution of the MJN board of directors and, with respect to the amendment of the certificate of incorporation, a written consent of BMS as a majority stockholder of MJN. The amendments will, among other things, eliminate MJN class B common stock, make Section 203 of the Delaware General Corporation Law applicable to MJN and provide that members of MJN’s board of directors can be removed by MJN’s stockholders with or without cause. However, on account of Rule 14c-2(b) under the Exchange Act, the amendments to the certificate of incorporation will not be effective until shortly after the expiration date of the exchange offer. However, there is no guarantee that the amendments will be implemented.

No Appraisal Rights

Appraisal is a statutory remedy under state law available to corporate stockholders who object to extraordinary actions taken by their corporation. This remedy allows dissenting stockholders to require the corporation to repurchase their stock at a price equivalent to its value immediately prior to the extraordinary corporate action. No appraisal rights are available to BMS stockholders or MJN stockholders in connection with the exchange offer.

Regulatory Approval

Certain acquisitions of MJN common stock under the exchange offer may require a premerger notification filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. If a holder of BMS common stock decides to participate in the exchange offer and consequently acquires enough shares of MJN common stock to exceed the $65.2 million threshold provided for in the Hart-Scott-Rodino Act and associated regulations, and if an exemption under the Hart-Scott-Rodino Act or regulations does not apply, BMS and the holder would be required to make filings under the Hart-Scott-Rodino Act and the holder would be required to pay the applicable filing fee. A filing requirement could delay the exchange of shares with any stockholder or stockholders required to make such a filing until the waiting periods in the Hart-Scott-Rodino Act have expired or been terminated.

Apart from the registration of shares of MJN common stock offered in the exchange offer under applicable securities laws and BMS filing a Schedule TO with the SEC, BMS does not believe that any other material U.S. federal or state regulatory filings or approvals will be necessary to consummate the exchange offer or any subsequent spin-off.

Accounting Treatment

The shares of BMS common stock acquired by BMS in the exchange offer will be recorded as an acquisition of treasury stock at a cost equal to the market value of the shares of BMS common stock accepted in the exchange offer at its expiration. Assuming all the shares of MJN common stock owned by BMS are distributed in the exchange offer, the sum of MJN net deficit attributable to BMS that is distributed and the market value of the shares of BMS common stock acquired in the exchange offer at that date will be recognized by BMS as gain on sale of discontinued operations, net of any direct and incremental expenses of the exchange offer on the disposal of its MJN common stock.

The aggregate market value of BMS’ investment in 42,344,571 shares of MJN common stock and 127,655,429 shares of MJN class B common stock, based on MJN common stock closing price on November 13, 2009 of $45.25 per share, was approximately $7,690 million. The MJN net deficit attributable to BMS September 30, 2009 was approximately $580 million. If the exchange offer were to be completed and (i) the upper limit of 0.6313 shares of MJN common stock exchanged for each share of BMS common stock tendered applied, (ii) the exchange offer was fully subscribed and (iii) the market value of BMS common stock was $23.18 per share (the last reported sales price on the NYSE on November 13, 2009), BMS would recognize a

 

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gain of approximately $6,820 million in connection with the transaction, prior to estimated fees and expenses. Every $1 increase or decrease in BMS’ per share market value would increase or decrease the gain in BMS’ investment in MJN, as applicable, by approximately $270 million.

The completion of the exchange offer will be considered a change of control for accounting purposes. As a result, upon the completion of the exchange offer, MJN’s results will no longer be consolidated with those of BMS for financial reporting purposes and will be shown as discontinued operations. As a result, BMS’ financial statements will no longer reflect the assets, liabilities, results of operations, financial condition or cash flows attributable to MJN. For a more detailed discussion of MJN’s impact on BMS’ financial statements, see Note 3 to the BMS Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 and Note 22 to the BMS audited financial statements included in the BMS Current Report on Form 8-K filed on April 28, 2009 which are incorporated by reference in this prospectus. The MJN segment information does not reflect MJN’s results as a separate company. The pre-tax income in the MJN segment information does not include MJN’s separation costs from BMS, costs incurred in connection with productivity initiatives and other adjustments. In addition, MJN segment results for periods after February 17, 2009 do not reflect MJN results attributable to the approximately 17% economic interest not held by BMS in MJN as a result of the initial public offering of MJN.

Any remaining shares of MJN common stock that are distributed in any subsequent spin-off will be accounted for as a dividend through a direct charge to retained earnings. The amount of the dividend will be equal to BMS’ then carrying value of the shares of MJN common stock so distributed.

Neither the exchange of shares of MJN common stock for shares of BMS common stock in the exchange offer nor the distribution of shares of MJN common stock in any subsequent spin-off, in and of themselves, will affect the financial condition or results of operations of MJN.

Tax Treatment

See “Material U.S. Federal Income Tax Consequences” for a discussion of the tax treatment of the exchange offer and any subsequent spin-off.

 

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THE EXCHANGE OFFER

Terms of the Exchange Offer

General. BMS is offering to exchange up to 170.0 million shares of MJN common stock which are owned by BMS for shares of BMS common stock, at an exchange ratio to be calculated in the manner described below, on the terms and conditions and subject to the limitations described below and in the letter of transmittal (including the instructions thereto), which are properly tendered by 12:00 midnight, New York City time, on December 17, 2009, unless the exchange offer is extended or terminated. The last day on which tenders will be accepted, whether on December 17, 2009 or any later date to which the exchange offer is extended, is referred to in this prospectus as the “expiration date”. You may tender all, some or none of your shares of BMS common stock.

The number of shares of BMS common stock that will be accepted if the exchange offer is completed will depend on the final exchange ratio, the number of shares of MJN common stock offered and the number of shares of BMS common stock validly tendered and not validly withdrawn.

BMS’ obligation to complete the exchange offer is subject to important conditions that are described in the section entitled “—Conditions to Completion of the Exchange Offer”.

For each share of BMS common stock that you tender in the exchange offer and do not validly withdraw, you will receive a number of shares of MJN common stock at a discount of approximately 10%, subject to an upper limit of 0.6313 shares of MJN common stock per share of BMS common stock. Stated another way, subject to the upper limit described below, for each $1.00 of shares of BMS common stock accepted in the exchange offer, you will receive approximately $1.11 of shares of MJN common stock based on the Average BMS Price and the Average MJN Price as determined by BMS.

The Average BMS Price will be equal to the simple arithmetic average of the daily VWAPs of shares of BMS common stock on the NYSE during the Averaging Period as determined by BMS, and the Average MJN Price will be equal to the simple arithmetic average of the daily VWAPs of MJN common stock on the NYSE during the Averaging Period as determined by BMS.

The daily VWAP as determined by BMS will be definitive and may be different from other sources of volume-weighted average prices or investors’ or security holders’ own calculations of volume-weighted average prices.

Upper Limit. The number of shares of MJN common stock that you can receive is subject to an upper limit of 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer. If the upper limit is in effect, you will receive less than $1.11 of shares of MJN common stock for each $1.00 of shares of BMS common stock that you tender based on the Average BMS Price and the Average MJN Price, and you could receive much less. This upper limit represents an approximately 18.86% discount for shares of MJN common stock based on the closing prices of shares of BMS common stock and MJN common stock on November 13, 2009 (the trading day immediately preceding the date of the commencement of the exchange offer). BMS set this upper limit to ensure that there would not be an unduly high number of shares of MJN common stock being exchanged for each share of BMS common stock accepted in the exchange offer.

Pricing Mechanism. The terms of the exchange offer are designed to result in you receiving approximately $1.11 of shares of MJN common stock for each $1.00 of shares of BMS common stock tendered and accepted in the exchange offer based on the Average BMS Price and the Average MJN Price determined as described above and subject to the upper limit. Regardless of the final exchange ratio, the terms of the exchange offer would always result in you receiving approximately $1.11 of shares of MJN common stock for each $1.00 of shares of BMS common stock, based on the Average BMS Price and the Average MJN Price, so long as the upper limit described above is not in effect.

 

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To illustrate, the number of shares of MJN common stock you will receive for shares of BMS common stock tendered by you and accepted in the exchange offer will be calculated as:

 

Number of shares

of MJN common

stock

  =  

(a)    number of shares of BMS common stock tendered
by you and accepted

  multiplied by  

(b)    the final exchange
ratio

The following formula will be used to calculate the final exchange ratio:

 

Final exchange

ratio

  =    the lesser of:   

(a)    the Average BMS Price
divided by 90% of the
Average MJN Price

  and   (b) 0.6313

The Average BMS Price for purposes of the exchange offer will equal the simple arithmetic average of the daily VWAPs of shares of BMS common stock on the NYSE during the Averaging Period of three consecutive trading days (currently expected to be December 11, 14 and 15, 2009) ending on and including the second trading day preceding the expiration date (currently expected to be December 17, 2009). The value of a share of MJN common stock for purposes of the exchange offer will equal the simple arithmetic average of the daily VWAPs of shares of MJN common stock on the NYSE during the Averaging Period.

The final exchange ratio, the daily VWAPs used to calculate the final exchange ratio, the Average BMS Price and the Average MJN Price will each be rounded to four decimals.

To help illustrate the way these calculations work, below are two examples:

 

   

Example 1: Assuming that the simple arithmetic average of the daily VWAPs during the Averaging Period is $23.2529 per share of BMS common stock and $45.3559 per share of MJN common stock, you would receive 0.5696 shares ($23.2529 divided by 90% of $45.3559) of MJN common stock for each share of BMS common stock accepted in the exchange offer. In this example, the upper limit of 0.6313 shares of MJN common stock for each share of BMS common stock would not apply.

 

   

Example 2: Assuming that the simple arithmetic average of the daily VWAPs during the Averaging Period is $25.5782 per share of BMS common stock and $40.8203 per share of MJN common stock, the upper limit would apply and you would only receive 0.6313 shares of MJN common stock for each share of BMS common stock accepted in the exchange offer because the upper limit is less than 0.6962 shares ($25.5782 divided by 90% of $40.8203) of MJN common stock for each share of BMS common stock.

Indicative exchange ratios will be available by contacting the information agent at its toll-free telephone number provided on the back cover of this prospectus on each day of the exchange offer period prior to the announcement of the final exchange ratio. Prior to the Averaging Period, the indicative exchange ratios for each day will be calculated based on the simple arithmetic average of the closing prices of shares of BMS common stock and MJN common stock on the NYSE on the three consecutive trading days immediately preceding such day. For example, on the tenth trading day of the exchange offer an indicative exchange ratio will be available based on the simple arithmetic average of the closing prices of shares of BMS common stock and MJN common stock on the NYSE on the seventh, eighth and ninth trading days of the exchange offer. During the Averaging Period, the indicative exchange ratios will be based on (i) for the first day of the Averaging Period, the simple arithmetic average of the closing prices of shares of BMS common stock and MJN common stock on the NYSE on the three consecutive trading days immediately preceding the first day of the Averaging Period, (ii) for the second day of the Averaging Period, the daily VWAPs of shares of BMS common stock and MJN common stock on the first day of the Averaging Period and (iii) for the third day of the Averaging Period, the simple arithmetic average of the daily VWAPs of shares of BMS common stock and MJN common stock on the first and second days of the Averaging Period. The indicative exchange ratios will also reflect whether the upper limit on the exchange ratio would have been in effect.

 

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Final Exchange Ratio

The final exchange ratio that shows the number of shares of MJN common stock that you will receive for each share of BMS common stock accepted in the exchange offer will be announced by press release no later than 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date (currently expected to be December 17, 2009). After that time, you may also contact the information agent to obtain the final exchange ratio at its toll-free number provided on the back cover of this prospectus.

If a market disruption event occurs with respect to shares of BMS common stock or MJN common stock on any day during the Averaging Period, both the Average BMS Price and the Average MJN Price will be determined using the daily VWAPs of shares of BMS common stock and MJN common stock on the preceding trading day or days, as the case may be, on which no market disruption event occurred with respect to both shares of BMS common stock and MJN common stock. If, however, BMS decides to extend the exchange offer period following a market disruption event, the Averaging Period will be reset. See “—Conditions to Completion of the Exchange Offer”.

Since the exchange offer is scheduled to expire at 12:00 midnight, New York City time, on the expiration date (currently expected to be December 17, 2009) and the final exchange ratio will be announced by 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date, you will be able to tender or withdraw your shares of BMS common stock after the final exchange ratio is determined. For more information on tendering and withdrawing your shares, see “—Procedures for Tendering” and “—Withdrawal Rights”.

For the purposes of illustration, the table below indicates the number of shares of MJN common stock that you would receive per one share of BMS common stock accepted in the exchange offer, calculated on the basis described under “—Pricing Mechanism” and taking into account the upper limit, assuming a range of simple arithmetic averages of the daily VWAPs of shares of BMS common stock and MJN common stock during the Averaging Period. The first line of the table below shows the indicative Average BMS Price and the indicative Average MJN Price and the indicative exchange ratio that would have been in effect following the official close of trading on the NYSE on November 13, 2009, based on the daily VWAPs of shares of BMS common stock and MJN common stock on November 11, 12 and 13, 2009. The table also shows the effects of a 10% increase or decrease in either or both the Average BMS Price and Average MJN Price based on changes relative to the values as of November 13, 2009.

 

BMS common stock

  

MJN common stock

   Average
BMS Price
   Average
MJN Price
   Shares of MJN
common stock per
BMS common stock
tendered
   Value
Ratio(1)
As of November 13, 2009    As of November 13, 2009    $23.2529    $45.3559    0.5696    1.11

Down 10%

   Up 10%    $20.9276    $49.8915    0.4661    1.11

Down 10%

   Unchanged    $20.9276    $45.3559    0.5127    1.11

Down 10%

   Down 10%    $20.9276    $40.8203    0.5696    1.11

Unchanged

   Up 10%    $23.2529    $49.8915    0.5179    1.11

Unchanged

  

Down 10%

   $23.2529    $40.8203        0.6313(2)        1.11(2)

Up 10%

   Up 10%    $25.5782    $49.8915    0.5696    1.11

Up 10%

   Unchanged    $25.5782    $45.3559    0.6266    1.11

Up 10%

   Down 10%    $25.5782    $40.8203        0.6313(3)    1.01

 

(1) The Value Ratio equals (i) the Average MJN Price multiplied by the exchange ratio, divided by (ii) the Average BMS Price.
(2) In this scenario, the upper limit is in effect and the Value Ratio is 1.108. Absent the upper limit, the exchange ratio would have been 0.6329 shares of MJN common stock per share of BMS common stock tendered, and the Value Ratio would have been 1.111. In this scenario, BMS would announce that the upper limit on the number of shares that can be received for each share of BMS common stock tendered is in effect no later than 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date (currently expected to be December 17, 2009).
(3)

In this scenario, the upper limit is in effect. Absent the upper limit, the exchange ratio would have been 0.6962 shares of MJN common stock per share of BMS common stock tendered. In this scenario, BMS would announce that the upper limit on the number of shares that can be received for each share of BMS

 

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common stock tendered is in effect no later than 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date (currently expected to be December 17, 2009).

If the trading price of shares of BMS common stock were to increase during the last two trading days of the exchange offer period (currently expected to be December 16 and 17, 2009), the Average BMS Price would likely be lower than the closing price of shares of BMS common stock on the expiration date (currently expected to be December 17, 2009). As a result, you may receive fewer shares of MJN common stock for each $1.00 of shares of BMS common stock than you would have if the Average BMS Price were calculated on the basis of the closing price of shares of BMS common stock on the expiration date or on the basis of an Averaging Period that includes the last two trading days of the exchange offer period. Similarly, if the trading price of shares of MJN common stock were to decrease during the last two trading days of the exchange offer period, the Average MJN Price would likely be higher than the closing price of shares of MJN common stock on the expiration date. This could also result in your receiving fewer shares of MJN common stock for each $1.00 of shares of BMS common stock than you would otherwise receive if the Average MJN Price were calculated on the basis of the closing price of shares of MJN common stock on the expiration date or on the basis of an Averaging Period that includes the last two trading days of the exchange offer period.

The number of shares of BMS common stock that may be accepted in the exchange offer may be subject to proration. Depending on the number of shares of BMS common stock validly tendered in the exchange offer, and not validly withdrawn, and the final exchange ratio, determined as described above, BMS may have to limit the number of shares of BMS common stock that it accepts in the exchange offer through a proration process. Any proration of the number of shares accepted in the exchange offer will be determined on the basis of the proration mechanics described below under “—Proration; Odd-Lots”.

This prospectus and related documents are being sent to:

 

   

persons who directly held shares of BMS common stock on November 12, 2009. On that date, there were 1,981,017,084 shares of BMS common stock outstanding, which were held of record by approximately 64,013 stockholders; and

 

   

brokers, banks and similar persons whose names or the names of whose nominees appear on BMS’ stockholder list or, if applicable, who are listed as participants in a clearing agency’s security position listing for subsequent transmittal to beneficial owners of shares of BMS common stock.

Proration; Odd-Lots

If, upon the expiration of the exchange offer, BMS stockholders have validly tendered more shares of BMS common stock than BMS is able to accept for exchange, BMS will accept for exchange the shares of BMS common stock validly tendered and not validly withdrawn by each tendering stockholder on a pro rata basis, based on the proportion that the total number of shares of BMS common stock to be accepted for exchange bears to the total number of shares of BMS common stock validly tendered and not validly withdrawn (rounded to the nearest whole number of shares of BMS common stock, and subject to any adjustment necessary to ensure the exchange of all shares of MJN common stock owned by BMS), except for tenders of odd-lots, as described below.

Except as otherwise provided in this section, beneficial holders of less than 100 shares of BMS common stock who validly tender all of their shares may elect not to be subject to proration if the exchange offer is oversubscribed. Beneficial holders of more than 100 shares BMS common stock, even those holders with separate stock certificates representing less than 100 shares, and those who own less than 100 shares but do not tender all of their shares are not eligible for this preference. In addition, participants in BMS or MJN employee benefit plans are not eligible for this preference.

 

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Any beneficial holder of less than 100 shares of BMS common stock who wishes to tender all of the shares must check the box entitled “Odd-Lot Preference” on the letter of transmittal. If your odd-lot shares are held by a broker for your account, you can contact your broker and request the preferential treatment.

BMS will announce the preliminary proration factor by press release promptly after the expiration date (currently expected to be December 17, 2009). Upon determining the number of shares of BMS common stock validly tendered for exchange, BMS will announce the final results, including the final proration factor.

Any shares of BMS common stock not accepted for exchange in the exchange offer as a result of proration will be returned to the tendering stockholder promptly after the final proration factor is determined in book-entry form to a direct registration account in the name of the registered holder maintained by BMS’ transfer agent.

For purposes of the exchange offer, a “business day” means any day other than a Saturday, Sunday or U.S. federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time.

Fractional Shares

Fractional shares of MJN common stock will not be distributed in the exchange offer. The exchange agent, acting as agent for the BMS stockholders otherwise entitled to receive fractional shares of MJN common stock, will aggregate all fractional shares that would otherwise have been required to be distributed and cause them to be sold in the open market for the accounts of the stockholders. Any proceeds that the exchange agent realizes from that sale will be distributed, less any brokerage commissions or other fees, to each stockholder entitled thereto in accordance with the stockholder’s fractional interest in the aggregate number of shares sold. The distribution of fractional share proceeds will take longer than the distribution of shares of MJN common stock. As a result, stockholders will not receive fractional share proceeds at the same time they receive shares of MJN common stock.

None of BMS, MJN, the exchange agent or any of the dealer managers will guarantee any minimum proceeds from the sale of fractional shares of MJN common stock. You will not receive any interest on any cash paid to you, even if there is a delay in making the payment. In addition, a stockholder who receives cash in lieu of a fractional share of MJN common stock will generally recognize gain or loss for U.S. federal income tax purposes on the receipt of the cash to the extent that the cash received exceeds the tax basis allocated to the fractional share. You are urged to read carefully the discussion in “Material U.S. Federal Income Tax Consequences” and to consult your own tax advisor regarding the consequences to you of the exchange offer.

Exchange of Shares of BMS Common Stock

Upon the terms and subject to the conditions of the exchange offer (including, if the exchange offer is extended or amended, the terms and conditions of the extension or amendment), BMS will accept for exchange, and will exchange, for shares of MJN common stock owned by BMS, the shares of BMS common stock validly tendered, and not validly withdrawn, prior to the expiration of the exchange offer, promptly after the expiration date (currently expected to be December 17, 2009).

The exchange of shares of BMS common stock tendered and accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of (a)(i) certificates representing all physically tendered shares of BMS common stock (other than uncertificated shares registered directly in your name in BMS’ share register (“Direct Registration Shares”)) or (ii) in the case of shares delivered by book-entry transfer through The Depository Trust Company (“DTC”), confirmation of a book-entry transfer of those shares of BMS common stock in the exchange agent’s account at DTC, in each case pursuant to the procedures set forth in the section below entitled “—Procedures for Tendering”, (b) the letter of transmittal for shares of BMS common stock, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer through DTC, an agent’s message and (c) any other required documents.

 

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For purposes of the exchange offer, BMS will be deemed to have accepted for exchange, and thereby exchanged, shares of BMS common stock validly tendered and not validly withdrawn if and when BMS notifies the exchange agent of its acceptance of the tenders of those shares of BMS common stock pursuant to the exchange offer.

On or prior to the time of consummation of the exchange offer, BMS will irrevocably deliver to the exchange agent global certificates representing all of the shares of MJN common stock outstanding owned by it, with irrevocable instructions to hold the shares of MJN common stock in trust for BMS stockholders whose shares of BMS common stock are being accepted for exchange in the exchange offer and, in the case of any pro rata dividend, BMS stockholders whose shares of BMS common stock remain outstanding and have not been accepted for exchange in the exchange offer. MJN common stock and/or cash in lieu of fractional shares will be transferred to BMS stockholders whose shares of BMS common stock are accepted in the exchange offer promptly after BMS’ notice and determination of the final proration factor. You will not receive any interest on any cash paid to you, even if there is a delay in making the payment.

Return of Shares of BMS Common Stock

If shares of BMS common stock are delivered and not accepted due to proration or a partial tender, (i) certificated shares of BMS common stock that were delivered will be returned in uncertificated book-entry form to be credited in book-entry form in a direct registration account in the name of the applicable holder maintained by BMS’ transfer agent, (ii) direct registration account shares of BMS common stock that were delivered will be credited back to the applicable account in book-entry form and (iii) shares of BMS common stock held through DTC will be credited back through DTC in book-entry form.

If you validly withdraw your shares of BMS common stock or the exchange offer is not completed, (i) certificated shares of BMS common stock that were delivered will be returned, (ii) direct registration account shares of BMS common stock that were delivered will be credited back to the applicable account in book-entry form and (iii) shares of BMS common stock held through DTC will be credited back through DTC in book-entry form.

Procedures for Tendering

Shares Held in Certificated Form. If you hold certificates representing shares of BMS common stock, you must deliver to the exchange agent at an address listed on the letter of transmittal a properly completed and duly executed letter of transmittal, along with any required signature guarantees and any other required documents, and the certificates representing the shares of BMS common stock tendered.

Shares Held in Book-Entry Direct Registration System and/or Direct Purchase Plan. If you hold Direct Registration Shares of BMS common stock, you must deliver to the exchange agent at an address listed on the letter of transmittal a properly completed and duly executed letter of transmittal, along with any required signature guarantees and any other required documents. Since certificates are not issued for Direct Registration Shares, you do not need to deliver any certificates representing those shares to the exchange agent.

Shares Held Through a Broker, Dealer, Commercial Bank, Trust Company or Similar Institution. If you hold shares of BMS common stock through a broker, dealer, commercial bank, trust company or similar institution, you should follow the instructions sent to you separately by that institution. In this case, you should not use a letter of transmittal to direct the tender of your shares of BMS common stock. If that institution holds shares of BMS common stock through DTC, it must notify DTC and cause it to transfer the shares into the exchange agent’s account in accordance with DTC’s procedures. The institution must also ensure that the exchange agent receives an agent’s message from DTC confirming the book-entry transfer of your shares of BMS common stock. A tender by book-entry transfer will be completed upon receipt by the exchange agent of an agent’s message, book-entry confirmation from DTC and any other required documents.

 

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The term “agent’s message” means a message, transmitted by DTC to, and received by, the exchange agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the participant in DTC tendering the shares of BMS common stock which are the subject of the book-entry confirmation, that the participant has received and agrees to be bound by the terms of the letter of transmittal (including the instructions thereto) and that BMS may enforce that agreement against the participant.

The exchange agent will establish an account at DTC with respect to the shares of BMS common stock for purposes of the exchange offer, and any eligible institution that is a participant in DTC may make book-entry delivery of shares of BMS common stock by causing DTC to transfer such shares into the exchange agent’s account at DTC in accordance with DTC’s procedure for the transfer. Delivery of documents to DTC does not constitute delivery to the exchange agent.

Participants in BMS or MJN employee benefit plans should follow the special instructions that are being sent to them by the applicable plan trustee. Such participants should not use the letter of transmittal to direct the tender of shares of BMS common stock held in these plans. Such participants may direct the applicable plan trustee to tender all, some or none of the shares of BMS common stock in their employee benefit plan account(s), subject to the limitations set forth in any instructions provided by the applicable plan trustee. BMS and MJN have been informed that instructions to tender or withdraw by participants in the BMS or MJN employee benefit plans must be made by a date that is earlier than the expiration date of the exchange offer which will be specified in the instructions sent by the applicable trustee.

General Instructions. Do not send letters of transmittal and certificates representing shares of BMS common stock to BMS, MJN, the dealer managers or the information agent. Letters of transmittal for shares of BMS common stock and certificates representing shares of BMS common stock should be sent to the exchange agent at an address listed on the letter of transmittal. Trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity who sign a letter of transmittal or any certificates or stock powers must indicate the capacity in which they are signing and must submit evidence of their power to act in that capacity unless waived by BMS.

Whether you tender your shares of BMS common stock by delivery of certificates or through your broker, the exchange agent must receive the letter of transmittal and any certificates representing your shares of BMS common stock at the appropriate address set forth in the letter of transmittal prior to the expiration of the exchange offer. Note that for shares of BMS common stock that are directly registered in your name in the BMS share register, you do not need to deliver any certificates representing those shares because certificates are not issued for such shares. Alternatively, in case of a book-entry transfer of shares of BMS common stock through DTC, the exchange agent must receive the agent’s message and a book-entry confirmation.

Letters of transmittal for shares of BMS common stock and certificates representing shares of BMS common stock must be received by the exchange agent. Please read carefully the instructions to the letter of transmittal you have been sent. You should contact the information agent if you have any questions regarding tendering your shares of BMS common stock.

Signature Guarantees. Signatures on all letters of transmittal for shares of BMS common stock must be guaranteed by a firm which is a member of the Securities Transfer Agents Medallion Program, or by any other “eligible guarantor institution”, as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) (each of the foregoing being a “U.S. eligible institution”), except in cases in which shares of BMS common stock are tendered either (1) by a registered stockholder (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of shares of BMS common stock) who has not completed the box entitled “Special Issuance Instructions Medallion Guarantee Required” on the letter of transmittal or (2) for the account of a U.S. eligible institution.

 

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If the certificates representing shares of BMS common stock or Direct Registration Shares are registered in the name of a person other than the person who signs the letter of transmittal, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates or as reflected on the letter of transmittal for Direct Registration Shares without alteration, enlargement or any change whatsoever, with the signature(s) on the certificates or stock powers guaranteed by an eligible institution.

Guaranteed Delivery Procedures. If you wish to tender shares of BMS common stock pursuant to the exchange offer but (1) your certificates are not immediately available; (2) you cannot deliver the shares or other required documents to the exchange agent on or before the expiration date (currently expected to be December 14, 2009); or (3) you cannot comply with the procedures for book-entry transfer through DTC on a timely basis, you may still tender your shares of BMS common stock, so long as all of the following conditions are satisfied:

 

   

you must make your tender by or through a U.S. eligible institution;

 

   

on or before the expiration date (currently expected to be December 17, 2009), the exchange agent must receive a properly completed and duly executed notice of guaranteed delivery, substantially in the form made available by BMS, in the manner provided below; and

 

   

within three NYSE trading days after the date of execution of such notice of guaranteed delivery, the exchange agent must receive (1)(A) certificates representing all physically tendered shares of BMS common stock and (B) in the case of shares delivered by book-entry transfer through DTC, confirmation of a book-entry transfer of those shares of BMS common stock in the exchange agent’s account at DTC; (2) a letter of transmittal for shares of BMS common stock properly completed and duly executed (including any signature guarantees that may be required) or, in the case of shares delivered by book-entry transfer through DTC, an agent’s message; and (3) any other required documents.

Registered stockholders (including any participant in DTC whose name appears on a security position listing of DTC as the owner of shares of BMS common stock) may transmit the notice of guaranteed delivery by facsimile transmission or mail it to the exchange agent. If you hold shares of BMS common stock through a broker, dealer, commercial bank, trust company or similar institution, that institution must submit any notice of guaranteed delivery on your behalf.

Effect of Tenders. A tender of shares of BMS common stock pursuant to any of the procedures described above will constitute your acceptance of the terms and conditions of the exchange offer as well as your representation and warranty to BMS that (1) you have the full power and authority to tender, sell, assign and transfer the tendered shares (and any and all other shares of BMS common stock or other securities issued or issuable in respect of such shares); (2) when the same are accepted for exchange, BMS will acquire good and unencumbered title to such shares, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims; and (3) you own the shares being tendered within the meaning of Rule 14e-4 promulgated under the Exchange Act.

It is a violation of Rule 14e-4 under the Exchange Act for a person, directly or indirectly, to tender shares of BMS common stock for such person’s own account unless, at the time of tender, the person so tendering (1) has a net long position equal to or greater than the amount of (a) shares of BMS common stock tendered or (b) other securities immediately convertible into or exchangeable or exercisable for the shares of BMS common stock tendered and such person will acquire such shares for tender by conversion, exchange or exercise; and (2) will cause such shares to be delivered in accordance with the terms of this prospectus. Rule 14e-4 provides a similar restriction applicable to the tender of guarantee of a tender on behalf of another person.

The exchange of shares of BMS common stock tendered and accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of (a)(i) certificates representing all

 

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physically tendered shares of BMS common stock or (ii) in the case of shares delivered by book-entry transfer through DTC, confirmation of a book-entry transfer of those shares of BMS common stock in the exchange agent’s account at DTC; (b) the letter of transmittal for shares of BMS common stock, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer through DTC, an agent’s message; and (c) any other required documents.

Appointment of Attorneys-in-Fact and Proxies. By executing a letter of transmittal as set forth above, you irrevocably appoint BMS’ designees as your attorneys-in-fact and proxies, each with full power of substitution, to the full extent of your rights with respect to your shares of BMS common stock tendered and accepted for exchange by BMS and with respect to any and all other shares of BMS common stock and other securities issued or issuable in respect of the shares of BMS common stock on or after the expiration of the exchange offer. That appointment is effective when and only to the extent that BMS deposits the shares of MJN common stock for the shares of BMS common stock that you have tendered with the exchange agent. All such proxies shall be considered coupled with an interest in the tendered shares of BMS common stock and therefore shall not be revocable. Upon the effectiveness of such appointment, all prior proxies that you have given will be revoked and you may not give any subsequent proxies (and, if given, they will not be deemed effective). BMS’ designees will, with respect to the shares of BMS common stock for which the appointment is effective, be empowered, among other things, to exercise all of your voting and other rights as they, in their sole discretion, deem proper. BMS reserves the right to require that, in order for shares of BMS common stock to be deemed validly tendered, immediately upon BMS’ acceptance for exchange of those shares of BMS common stock, BMS must be able to exercise full voting rights with respect to such shares.

Determination of Validity. BMS will determine questions as to the form of documents (including notices of withdrawal) and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of shares of BMS common stock, in BMS’ sole discretion, provided that BMS may delegate such power in whole or in part to the exchange agent, and its determination shall be final and binding. BMS reserves the absolute right to reject any and all tenders of shares of BMS common stock that it determines are not in proper form or the acceptance of or exchange for which may, in the opinion of its counsel, be unlawful. BMS also reserves the absolute right to waive any of the conditions of the exchange offer (other than the conditions relating to the absence of an injunction and the effectiveness of the registration statement for MJN common stock to be distributed in the exchange offer), or any defect or irregularity in the tender of any shares of BMS common stock. No tender of shares of BMS common stock is valid until all defects and irregularities in tenders of shares of BMS common stock have been cured or waived. None of BMS, MJN, the dealer managers, the exchange agent, the information agent or any other person, nor any of their directors or officers, is under any duty to give notification of any defects or irregularities in the tender of any shares of BMS common stock or will incur any liability for failure to give any such notification. BMS’ interpretation of the terms and conditions of the exchange offer (including the letter of transmittal and instructions thereto) will be final and binding.

Binding Agreement. The tender of shares of BMS common stock pursuant to any of the procedures described above, together with BMS’ acceptance for exchange of such shares pursuant to the procedures described above, will constitute a binding agreement between BMS and you upon the terms of and subject to the conditions to the exchange offer.

The method of delivery of share certificates of shares of BMS common stock and all other required documents, including delivery through DTC, is at your option and risk, and the delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, it is recommended that you use registered mail with return receipt requested, properly insured. In all cases, you should allow sufficient time to ensure timely delivery.

Partial Tenders

If you tender fewer than all the shares of BMS common stock evidenced by any share certificate you deliver to the exchange agent, then you must check Box 3 labeled “Partial Tender” and fill in the number of shares that

 

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you are tendering in the space provided on the first page of the letter of transmittal filed as an exhibit to the registration statement of which this prospectus forms a part. In those cases, as soon as practicable after the expiration date (currently expected to be December 17, 2009), the exchange agent will credit the remainder of the common stock that were evidenced by the certificate(s) but not tendered to a Direct Registration Share account in the name of the registered holder maintained by BMS’ transfer agent, unless otherwise provided in “Special Issuance Instructions” or “Special Delivery Instructions” in the letter of transmittal filed as an exhibit to the registration statement of which this prospectus forms a part. Unless you indicate otherwise in your letter of transmittal, all of the BMS common stock represented by share certificates you deliver to the exchange agent will be deemed to have been tendered. No share certificates are expected to be delivered to you, including in respect of any shares delivered to the exchange agent that were previously in certificated form.

Lost or Destroyed Certificates

If your certificate(s) representing shares of BMS common stock have been mutilated, destroyed, lost or stolen and you wish to tender your shares, you will need to provide the information required under the section entitled “Affidavit of Lost, Missing or Destroyed Certificate(s) and Agreement of Indemnity” on the first page of the letter of transmittal. You will also need to pay a premium and service fee as calculated at the end of Box 5 on the letter of transmittal to support the purchase of the blanket bond for your lost shares of BMS common stock. Upon receipt of the completed applicable letter of transmittal (appropriately notarized) with the required information, the surety bond payment and the service fee, your shares of BMS common stock will be included in the exchange offer.

Withdrawal Rights

Shares of BMS common stock tendered pursuant to the exchange offer may be withdrawn at any time before 12:00 midnight, New York City time, on the expiration date (currently expected to be December 17, 2009) and, unless BMS has previously accepted them pursuant to the exchange offer, may also be withdrawn at any time after the expiration of 40 business days from the commencement of the exchange offer. Once BMS accepts shares of BMS common stock pursuant to the exchange offer, your tender is irrevocable.

For a withdrawal of shares of BMS common stock to be effective, the exchange agent must receive from you a written notice of withdrawal or facsimile transmission of notice of withdrawal at one of its addresses or fax numbers, respectively, set forth on the back cover of this prospectus, and your notice must include your name and the number of shares of BMS common stock to be withdrawn, as well as the name of the registered holder, if it is different from that of the person who tendered those shares.

If shares of BMS common stock have been tendered pursuant to the procedures for book-entry tender through DTC discussed in the section entitled “—Procedures for Tendering”, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn shares and must otherwise comply with the procedures of DTC.

Shares Held Through a Broker, Dealer, Commercial Bank, Trust Company or Similar Institution or in a BMS or MJN Employee Benefit Plan

If you hold your shares through a broker, dealer, commercial bank, trust company or similar institution or in a BMS or MJN employee benefit plan, you should consult the applicable institution on the procedures you must comply with and the time by which such procedures must be completed in order for that institution to provide a written notice of withdrawal or facsimile notice of withdrawal to the exchange agent on your behalf before 12:00 midnight, New York City time, on the expiration date. If you hold your shares through such an institution, that institution must deliver the notice of withdrawal with respect to any shares you wish to withdraw. In such a case, as a beneficial owner and not a registered stockholder, you will not be able to provide a notice of withdrawal for such shares directly to the exchange agent.

 

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In addition, your institution may require significant advance notice of any instruction from you, and as a result, you may have to instruct your institution well in advance of 12:00 midnight, New York City time, on the expiration date and possibly before the final exchange ratio is set. The final exchange ratio will be announced by press release by 9:00 a.m., New York City time, on the trading day (currently expected to be December 16, 2009) immediately preceding the expiration date (currently expected to be December 17, 2009). Your particular institution may require that you instruct it to withdraw shares before the final exchange ratio is announced or otherwise well in advance of 12:00 midnight, New York City time, on the expiration date. If you do not contact your particular institution by the time set by it, you will not be able to withdraw your shares. You should consult your particular institution on its withdrawal procedures.

Shares Held in Certificated Form

If you hold certificates representing shares of BMS common stock, you must provide a written notice of withdrawal or facsimile transmission notice of withdrawal to the exchange agent at anytime before 12:00 midnight, New York City time, on the expiration date (currently expected to be December 17, 2009). If certificates have been delivered or otherwise identified to the exchange agent, the name of the registered holder and the serial numbers of the particular certificates evidencing the shares of BMS common stock must also be furnished to the exchange agent, as stated above, prior to the physical release of the certificates.

Shares Held in Book-Entry Direct Registration System and/or Direct Purchase Plan

If you hold Direct Registration Shares of BMS common stock, you must provide a written notice of withdrawal or facsimile transmission notice of withdrawal to the exchange agent at anytime before 12:00 midnight, New York City time, on the expiration date (currently expected to be December 17, 2009).

BMS will decide all questions as to the form and validity (including time of receipt) of any notice of withdrawal, in its sole discretion, and its decision shall be final and binding. BMS may delegate such power in whole or in part to the exchange agent. None of BMS, MJN, any of the dealer managers, the exchange agent, the information agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or will incur any liability for failure to give any notification.

Any shares of BMS common stock validly withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer. However, you may re-tender withdrawn shares of BMS common stock by following one of the procedures discussed in the section entitled “—Procedures for Tendering” at any time prior to the expiration of the exchange offer (or pursuant to the instructions sent to you separately).

Except for the withdrawal rights described above, any tender made under the exchange offer is irrevocable.

Delivery of MJN Common Stock; Book-Entry Accounts

Physical certificates representing shares of MJN common stock will not be issued pursuant to the exchange offer. Rather than issuing physical certificates for such shares to tendering stockholders, the exchange agent will cause shares of MJN common stock to be credited in book-entry form to direct registered accounts maintained by MJN’s transfer agent for the benefit of the respective holders (or, in the case of shares tendered through DTC, to the account of DTC so that DTC can credit the relevant DTC participant and such participant can credit its respective account holders). Promptly following the crediting of shares to your respective direct registered account, you will receive a statement from MJN’s transfer agent evidencing your holdings, as well as general information on the book-entry form of ownership.

If shares of MJN common stock are to be issued to a person other than the signer of the letter of transmittal, a check is to be issued in the name of, and/or shares of BMS common stock not tendered or not accepted for

 

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exchange in the exchange offer are to be issued or returned to, a person other than the signer of the letter of transmittal, or a check is to be mailed to a person other than the signer of the letter of transmittal or to an address other than that shown in the box on the first page of the letter of transmittal, then the appropriate instructions under “Special Issuance Instructions Medallion Guarantee Required” and “Special Mailing Instructions” in the letter of transmittal filed as an exhibit to the registration statement of which this prospectus forms a part will need to be completed. BMS has no obligation pursuant to such instructions to transfer any such shares from the name of the registered holder(s) thereof if BMS does not accept any such shares for exchange. If no such instructions are given, all such shares not accepted for exchange in the exchange offer will be credited in book-entry form in a direct registered account maintained by BMS’ transfer agent.

With respect to any shares tendered through DTC, a stockholder may request that shares not exchanged be credited to a different account maintained at DTC by providing the appropriate instructions pursuant to DTC’s applicable procedures. If no such instructions are given, all such common shares not accepted will be returned by crediting the same account at DTC as the account from which such shares of BMS’ common stock were delivered.

Extension; Termination; Amendment

Extension; Termination or Amendment by BMS. BMS expressly reserves the right, in its sole discretion, at any time and from time to time to extend the period of time during which the exchange offer is open and thereby delay acceptance for exchange of, and the exchange for, any shares of BMS common stock validly tendered and not validly withdrawn in the exchange offer. For example, the exchange offer can be extended if any of the conditions to Completion of the Exchange Offer described in the next section entitled “—Conditions to completion of the exchange offer” are not satisfied or, where permissible, waived prior to the expiration of the exchange offer.

BMS expressly reserves the right, in its sole discretion, to amend the terms of the exchange offer in any respect prior to the expiration date (currently expected to be December 17, 2009), except that BMS currently does not intend to extend the exchange offer other than in the circumstances described above.

If BMS materially changes the terms of or information concerning the exchange offer, it will extend the exchange offer if required by applicable law. Generally speaking, an offer must remain open under SEC rules for a minimum of five business days from the date that notice of the material change is first given. The length of time will depend on the particular facts and circumstances giving rise to the extension.

As required by applicable law, the exchange offer will be extended so that it remains open for a minimum of ten business days following the announcement if:

 

   

BMS changes the method for calculating the number of shares of MJN common stock offered in exchange for each share of BMS common stock; and

 

   

the exchange offer is scheduled to expire within ten business days of announcing any such change.

If BMS extends the exchange offer, is delayed in accepting for exchange any shares of BMS common stock or is unable to accept for exchange any shares of BMS common stock under the exchange offer for any reason, then, without affecting BMS’ rights under the exchange offer, the exchange agent may retain on BMS’ behalf all shares of BMS common stock tendered. These shares of BMS common stock may not be withdrawn except as provided in the section entitled “—Withdrawal Rights”.

BMS’ reservation of the right to delay acceptance of any shares of BMS common stock is subject to applicable law, which requires that BMS pay the consideration offered or return the shares of BMS common stock deposited promptly after the termination or withdrawal of the exchange offer.

 

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BMS will issue a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day following any extension, amendment, non-acceptance or termination of the previously scheduled expiration date.

Method of Public Announcement. Subject to applicable law (including Rules 13e-4(d), 13e-4(e)(3) and 14e-1 under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the exchange offer be promptly disclosed to stockholders in a manner reasonably designed to inform them of the change) and without limiting the manner in which BMS may choose to make any public announcement, BMS assumes no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service or the Public Relations Newswire.

Conditions to Completion of the Exchange Offer

BMS will not be required to complete the exchange offer unless at least 144.5 million shares of MJN common stock would be distributed in exchange for shares of BMS common stock that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer. This number of shares of MJN common stock represented 85% of the outstanding shares of MJN common stock held by BMS as of November 13, 2009.

In addition, BMS will not be required to accept shares for exchange, and may extend, terminate or amend the exchange offer if:

 

   

any condition or event occurs, or BMS reasonably expects any condition or event to occur that BMS reasonably believes would, or would be likely to, cause the Internal Spin-Off, the exchange offer, together with any subsequent spin-off or the Proposed Recapitalization to be taxable to BMS or its stockholders under U.S. federal income tax laws;

 

   

the opinion of counsel to the effect that, for U.S. federal income tax purposes, (i) the Internal Spin-Off, and the exchange offer together with any subsequent spin-off, each should qualify for non-recognition of gain and loss under Section 355 of the Code, (ii) the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN class A common stock) should qualify for non-recognition of gain and loss under Section 368(a)(1)(E) of the Code and/or Section 1036(a) of the Code and (iii) the MJC Conversion should qualify for non-recognition of gain and loss under Sections 332 and 337 of the Code, is not received or is withdrawn or otherwise ceases to be effective;

 

   

the Recapitalization Ruling, a private letter ruling from the IRS to the effect that the Proposed Recapitalization (BMS’ conversion of its MJN class B common stock to MJN common stock) will not cause BMS or any of its subsidiaries to incur U.S. federal income taxes in connection with the Internal Spin-Off, is invalidated or otherwise ceases to be effective;

 

   

BMS notifies MJN that it is in good faith pursuing a transaction involving MJN (including, without limitation, a merger, consolidation, share sale or exchange, business combination, reorganization or recapitalization) that is reasonably likely to be consummated and is on terms that BMS and a majority of the independent directors of MJN determine, in their good faith judgment, to be more favorable to MJN and BMS than the exchange offer;

 

   

any of the following events occurs or will imminently occur:

 

   

any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States;

 

   

any extraordinary or material adverse change in U.S. financial markets generally, including, without limitation, a decline of at least 10% in the closing level of either the Dow Jones Industrial Average or the Standard & Poor’s 500 Index from the closing level established on November 13, 2009;

 

   

a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States;

 

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a commencement of a war (whether declared or undeclared), armed hostilities or other national or international calamity, including an act of terrorism, directly or indirectly involving the United States, which would reasonably be expected to affect materially and adversely, or to delay materially, the completion of the exchange offer;

 

   

if any of the situations described in the immediately preceding four bullet points exists, as of the date of the commencement of the exchange offer, the situation deteriorates materially;

 

   

a material adverse change in the business, condition (financial or other), results of operations or stock price of MJN, which is referred to in this prospectus as a “Business MAC”;

 

   

a material adverse change in the business, prospects, condition (financial or other) or results of operations of BMS;

 

   

any action, litigation, suit, claim or proceeding is instituted that would be reasonably likely to enjoin, prohibit, restrain, make illegal, make materially more costly or materially delay completion of the exchange offer;

 

   

any order, stay, judgment or decree is issued by any U.S. federal or state court, government, governmental authority or other regulatory or administrative authority having jurisdiction over BMS and MJN and is in effect, or any law, statute, rule, regulation, legislation, interpretation, governmental order or injunction shall have been enacted or enforced, any of which would reasonably be likely to restrain, prohibit or delay completion of the exchange offer or materially impair the contemplated benefits of the exchange offer to BMS or MJN;

 

   

the registration statement on Form S-4 of which this prospectus is a part shall not have become effective under the Securities Act prior to 5:00 p.m. on the expiration date of the exchange offer (currently expected to be December 17, 2009);

 

   

any stop order suspending the effectiveness of the registration statement of which this prospectus forms a part has been issued, or any proceeding for that purpose has been initiated by the SEC and not concluded or withdrawn; or

 

   

a market disruption event, as reasonably determined by BMS, occurs with respect to BMS common stock or MJN common stock and such market disruption event has, in BMS’ reasonable judgment, impaired the benefits of the exchange offer.

If any of the above events occurs, BMS may:

 

   

terminate the exchange offer and promptly return all tendered shares of BMS common stock to tendering stockholders;

 

   

extend the exchange offer and, subject to the withdrawal rights described in “—Withdrawal Rights” above, retain all tendered shares of BMS common stock until the extended exchange offer expires;

 

   

amend the terms of the exchange offer; or

 

   

waive the unsatisfied condition (except the conditions relating to the absence of an injunction and the effectiveness of the registration statement for shares of MJN common stock to be distributed in the exchange offer) and, subject to any requirement to extend the period of time during which the exchange offer is open, complete the exchange offer.

These conditions are for the sole benefit of BMS. BMS may assert these conditions with respect to the exchange offer regardless of the circumstances giving rise to them. Except as described in the immediately preceding bullet point, BMS may waive any condition in whole or in part at any time in its sole discretion, subject to applicable law. BMS’ failure to exercise its rights under any of the above conditions does not represent a waiver of these rights. Each right is an ongoing right which may be asserted by BMS at any time. However, all conditions to completion of the exchange offer must be satisfied or, where permissible, waived by BMS before

 

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the expiration of the exchange offer. Any determination by BMS concerning the conditions described above will be final and binding upon all parties.

If a stop order issued by the SEC is in effect with respect to the registration statement of which this prospectus forms a part, BMS will not accept any shares of BMS common stock tendered and will not exchange shares of MJN common stock for any shares of BMS common stock.

Fees and Expenses

BMS has retained Citigroup Global Markets Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated to act as dealer managers, Georgeson Inc. to act as the information agent and BNY Mellon Shareowner Services to act as the exchange agent in connection with the exchange offer.

The dealer managers, the information agent and the exchange agent each will receive reasonable compensation for their respective services, will be reimbursed for reasonable out-of-pocket expenses and will be indemnified against specified liabilities in connection with their services, including liabilities under the federal securities laws.

Each of the dealer managers and their respective affiliates have in the past provided investment banking services to BMS and its affiliates, for which they have received customary compensation. In the ordinary course of business, each of the dealer managers is engaged in securities trading and brokerage activities as well as investment banking and financial advisory services. In the ordinary course of their respective trading and brokerage activities, each of the dealer managers and certain of their respective affiliates may from time to time hold positions of BMS common stock and MJN common stock in their respective proprietary accounts or those of their respective customers, and to the extent they hold shares of BMS common stock in these accounts at the time of the exchange offer, each of the dealer managers or certain of their respective affiliates may tender these shares.

Legal and Other Limitations; Certain Matters Relating to Non-U.S. Jurisdictions

Although BMS will mail this prospectus to its stockholders to the extent required by U.S. law, including stockholders located outside the United States, this prospectus is not an offer to sell or exchange and it is not a solicitation of an offer to buy any shares of BMS common stock or MJN common stock in any jurisdiction in which such offer, sale or exchange is not permitted.

Countries outside the United States generally have their own legal requirements that govern securities offerings made to persons resident in those countries and often impose stringent requirements about the form and content of offers made to the general public. BMS has not taken any action under those non-U.S. regulations to facilitate a public offer to exchange BMS common stock or MJN common stock outside the United States but may take steps to facilitate such tenders. Therefore, the ability of any non-U.S. person to tender BMS common stock in the exchange offer will depend on whether there is an exemption available under the laws of such person’s home country that would permit the person to participate in the exchange offer without the need for BMS or MJN to take any action to facilitate a public offering in that country or otherwise. For example, some countries exempt transactions from the rules governing public offerings if they involve persons who meet certain eligibility requirements relating to their status as sophisticated or professional investors.

All tendering holders must make certain representations in the letter of transmittal, including (in the case of non-U.S. holders) as to the availability of an exemption under their home country laws that would allow them to participate in the exchange offer without the need for BMS or MJN to take any action to facilitate a public offering in that country or otherwise. BMS will rely on those representations and, unless the exchange offer is terminated, plans to accept shares tendered by persons who properly complete the letter of transmittal and provide any other required documentation on a timely basis and as otherwise described herein.

Non-U.S. stockholders should consult their advisors in considering whether they may participate in the exchange offer in accordance with the laws of their home countries and, if they do participate, whether there are any restrictions or limitations on transactions in BMS common stock or MJN common stock that may apply in their home countries. BMS, MJN and the dealer managers cannot provide any assurance about whether such limitations exist.

 

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SPIN-OFF OF MJN COMMON STOCK

BMS will distribute in a spin-off to its stockholders, on a pro rata basis, all of its remaining shares (if any) of MJN common stock promptly following the completion of the exchange offer. Any such spin-off would be a special dividend distribution with respect to BMS common stock, and the record date for holders to receive shares in any subsequent spin-off will be set promptly following the expiration of the exchange offer.

Fractional shares will not be distributed in any subsequent spin-off. The exchange agent, acting in its ongoing capacity as transfer agent for the BMS stockholders otherwise entitled to receive a fractional share of MJN common stock, will aggregate all fractional shares that would have otherwise been required to be distributed and cause them to be sold in the open market for the accounts of these stockholders. The proceeds that the exchange agent may realize from the sale of the fractional shares will be distributed, less any brokerage commissions or other fees, to each stockholder entitled thereto in accordance with the stockholder’s fractional interest in the aggregate number of shares sold. None of BMS, MJN, the exchange agent or any of the dealer managers will guarantee any minimum proceeds from the sale of fractional shares of MJN common stock, and no interest will be paid on these proceeds. Generally, a stockholder who receives cash in lieu of a fractional share of MJN common stock will recognize gain or loss for U.S. federal income tax purposes on the receipt of the cash to the extent that the cash received exceeds the tax basis allocated to the fractional share. You are urged to read carefully the discussion in “Material U.S. Federal Income Tax Consequences” and to consult your own tax advisor regarding the consequences to you of any subsequent spin-off.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS OF MJN

The following discussion should be read together with “Summary—MJN Selected Historical Financial Data” and MJN’s financial statements and related notes included elsewhere in this prospectus. The discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause MJN’s results to differ materially from expectations. Factors that might cause such differences include those described under “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” included elsewhere in this prospectus.

Overview of MJN’s Business

MJN is a global leader in pediatric nutrition. MJN is committed to creating 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. MJN’s comprehensive product portfolio addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. MJN has over 100 years of innovation experience during which MJN has developed or improved many breakthrough or industry-defining products across each of MJN’s product categories. MJN operates in four geographic regions: Asia, Latin America, North America and Europe. Due to similarities in the economics, products offered, production process, customer base and regulatory environment, these operating regions have been aggregated into two reportable segments: Asia/Latin America and North America/Europe.

Factors Affecting Comparability

The results of operations during 2009 reflect several adjustments related to MJN’s separation from BMS, as described below.

 

   

Operating model changes and delays in establishing new operating subsidiaries

 

   

Stand-alone public company costs

 

   

Separation costs

 

   

Interest expense

 

   

Effective tax rate

 

   

Number of shares outstanding

 

   

Other

In addition to these items that impact 2009 results of operations, there were several adjustments to the balance sheet related to MJN’s separation from BMS. These include the recognition of a pension and capital lease liability, inclusion of cash balances and restructuring of related party debt and divisional equity. See “Note 21. Subsequent Events” to MJN’s audited financial statements included elsewhere in this prospectus.

Operating Model Changes and Delays in Establishing New Operating Subsidiaries

In Europe, MJN has transitioned to a third-party distributor model with BMS temporarily serving as MJN’s distributor. This will reduce net sales by the amount of the distributors’ margin and lower costs for the distribution-related expenses that historically have been recorded in MJN’s marketing, selling and administrative expenses. Had this model been in effect during 2008, MJN estimates that sales and Earnings Before Interest and Income Taxes (“EBIT”) would have been reduced by approximately $8.0 million and $5.0 million, respectively.

 

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In Mexico, MJN now operates MJN’s business through a newly formed operating subsidiary that is expected to incur higher profit sharing costs than were allocated to MJN when MJN operated within BMS. Had this model been in effect during 2008, MJN estimates that employee profit sharing within the MJN operating subsidiary would have increased expenses by approximately $3.0 million. Furthermore, a BMS subsidiary currently leases to MJN’s Mexico operating subsidiary all of the property, plant and equipment at MJN’s manufacturing facility in Delicias under a 20-year lease that is treated as a capital lease. This resulted in an increase in “Interest Expense” and “Related Party Debt and Lease”. Prior to completion of the exchange offer, MJN expects to purchase the leased assets from BMS’ subsidiary and to terminate the lease, subject to customary closing conditions.

In Brazil, MJN’s ability to operate as a new stand-alone subsidiary was delayed until late in the third quarter of 2009. Prior to that time, BMS distributed and recorded sales for MJN’s products, and MJN conducted marketing activities. Had this model been in effect during 2008, MJN estimates that MJN’s sales would have been reduced by approximately $28.0 million with a minimal impact to EBIT.

The combined effect of these operating model changes and delays in establishing new operating subsidiaries was to reduce net sales and EBIT growth for the three months ended September 30, 2009, by $7.7 million and by $0.3 million, respectively. The combined effect of these operating model changes and delays in establishing new operating subsidiaries was to reduce net sales and EBIT growth for the nine months ended September 30, 2009, by $25.3 million and $1.7 million, respectively.

Stand-Alone Public Company Costs

MJN results historically have included corporate and shared service cost allocations from BMS. As a stand-alone company, MJN will build these capabilities through a combination of transition services agreements and transferred and incremental costs. MJN will incur additional costs for financial reporting and compliance, corporate governance, treasury and investor relations activities. MJN estimates that MJN’s general and administrative expenses will increase in 2009 by approximately $30.0 million, including service charges by BMS and expenses for services not included in the transition service agreements.

Separation Costs

MJN incurred in 2008, separation costs in connection with the IPO, including costs related to legal, accounting, systems implementation and consulting services. MJN’s 2008 results include separation costs of $44.8 million.

MJN incurred $7.2 million and $31.3 million in costs in connection with MJN’s IPO and separation during the three and nine months ended September 30, 2009, respectively, compared to $13.8 million and $14.0 million during the three and nine months ended September 30, 2008, respectively. These costs relate to legal, accounting, systems separation and consulting services.

Interest Expense

On August 26, 2008, MJC issued a $2,000.0 million intercompany note to BMS and incurred interest expense of $43.3 million in 2008. The note was restructured at the IPO date reducing the related party debt to approximately $1.8 billion. Net interest expense during the three and nine months ended September 30, 2009, was $23.0 million and $75.3 million, respectively, compared with $11.9 million for both the three and nine months ended September 30, 2008.

Effective Tax Rate

For the three and nine months ended September 30, 2009, the effective tax rate was 27.7% and 30.1%, respectively, compared to 30.6% and 35.5% for the three and nine months ended September 30, 2008, respectively. The lower rates were attributable primarily to benefits associated with restructuring MJN’s foreign operations as part of the separation from BMS in the IPO process and the earnings mix.

 

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Number of Shares Outstanding

Prior to February 10, 2009, there were 170.0 million shares of common stock outstanding. MJN issued an additional 34.5 million shares of common stock in the IPO. As of September 30, 2009, MJN had 204.6 million diluted common shares outstanding.

Other

In addition to these items that affect the 2009 results of operations, there are several adjustments to the balance sheet related to MJN’s separation from BMS. These include the recognition of pension and capital lease liabilities, inclusion of cash balances and restructuring of related-party debt and divisional equity.

Factors Affecting MJN’s Results of Operations

MJN’s operating results are primarily affected by the following factors:

Industry Growth

According to Euromonitor, the global pediatric nutrition industry has grown at a compound annual growth rate (“CAGR”) of approximately 11% from 2003 to 2008. MJN believes several trends have supported and will continue to support this growth, including the following:

 

   

favorable demographics;

 

   

increased consumer awareness of the importance of health and wellness;

 

   

enhanced nutritional insight;

 

   

innovation; and

 

   

consumer willingness to pay for premium and enhanced nutrition products.

Perceptions of Product Quality and Safety

MJN believes pediatric nutrition producers with a reputation for quality and safety should be able to command higher average selling prices and thereby generate higher gross margins than competitors who do not possess the same reputation. A decrease in the quality and safety of any particular product, whether real or perceived, could trigger wider negative perception of the decrease in the quality and safety of all producers, thereby affecting the industry generally. MJN believes MJN’s past growth has benefited from MJN’s brand recognition and from real and perceived safety and quality of MJN’s pediatric nutrition products. However, if a future market crisis involving any of MJN’s products should occur, especially if management fails to respond to such crisis in a timely and effective manner, MJN’s brand recognition and reputation could be severely damaged, which could adversely affect MJN’s results of operations. See “Risk Factors—Risks Relating to MJN—MJN may experience liabilities or negative effects on MJN’s reputation as a result of real or perceived quality issues, including product recalls, injuries or other claims”. For example, melamine was found in Chinese dairy used in certain infant formula products of other manufacturers, which led to the deaths of several infants in September 2008. MJN does not use dairy or protein-containing raw ingredients from China at any of MJN’s manufacturing sites and MJN has not been adversely impacted by these events in China thus far. Events such as these, however, may create a perception of contamination risk among consumers with respect to all products in MJN’s industry.

Competition and Brand Recognition

The pediatric nutrition industry is intensely competitive. MJN’s principal competitors, including Nestlé S.A., Abbott Laboratories, Groupe Danone and Wyeth, all have substantial financial, marketing and other resources. In addition, MJN faces significant competition from domestic producers and private label, store and economy brand manufacturers. In recent years, there has been growing demand, particularly in Asia, for premium pediatric nutrition products due to increasing consumer awareness of brand image and nutritional value of the products offered by leading producers.

 

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MJN’s success depends on sustaining the strength of MJN’s brands, particularly MJN’s Enfa family of brands. If MJN fails to promote and maintain the brand equity of MJN’s products, particularly MJN’s Enfa family of brands, across each of MJN’s markets, then consumer perception of its superior nutritional benefits may be diminished. If the difference in the value attributed to MJN’s products as compared to those of MJN’s competitors narrows, consumers may choose not to buy MJN’s products. In periods of economic uncertainty, these trends may be more pronounced. See “Risk Factors—Risks Relating to MJN—MJN’s success depends on sustaining the strength of MJN’s brands, particularly MJN’s Enfa family of brands”.

Raw Material Supply and Prices

The per unit costs of producing MJN’s pediatric nutrition products are subject to the supply and price volatility of dairy and other raw materials, which are affected by global factors. For example, dairy prices are affected by factors such as geographic location, the impact of weather on dairy production, fluctuation in product availability, competition and inflation. Dairy costs are the largest component of MJN’s costs of products sold.

Increases in the price of dairy and raw materials would negatively impact MJN’s gross margins if MJN is not able to offset such increases through increases in MJN’s selling price, change in product mix or cost reduction/productivity enhancement efforts. The prices of these materials may continue to rise due to a general increase in commodities prices, especially for agricultural products. This would in turn affect the unit costs of products sold for MJN’s pediatric nutrition products. Increases in the price of dairy and other raw materials have had a negative impact on MJN’s gross margin as a percent of sales in 2007 and 2008. Declines in dairy prices during 2008 have had a positive impact on MJN’s gross margin as a percent of sales in 2009. Dairy prices have been rising in the second half of 2009 and would have a negative impact on MJN’s gross margin as a percent of sales in 2010 if current prices were to hold.

Foreign Exchange Movements

MJN markets its portfolio of products in more than 50 countries in North America, Europe, Asia and Latin America. Due to the international aspect of MJN’s business, MJN’s net sales and expenses are influenced by foreign exchange movements. This impact is reflected across MJN’s results of operations discussed below.

MJN’s Growth Strategies

MJN intends to grow MJN’s business profitably and enhance stockholder value by executing against the following strategic initiatives:

 

   

Building on MJN’s leadership position in MJN’s core businesses;

 

   

Continuing MJN’s leadership in product innovation;

 

   

Expanding into selected high-growth geographic markets and adjacent product categories; and

 

   

Continuously improving upon MJN’s manufacturing and global supply chain excellence.

Build on MJN’s Leadership Position in MJN’s Core Businesses

MJN intends to grow MJN’s business in MJN’s core countries and product categories by building loyal usage of MJN’s brands, introducing innovative products that differentiate MJN in the marketplace and leveraging MJN’s expertise in marketing to consumers and health care professionals. In addition, MJN will continue to implement best practices and insights using MJN’s balance of local, regional and global capabilities to execute the most effective programs in all markets. MJN has a successful business model based on acquiring new consumers and retaining them. MJN also intends to invest in order to attract, retain and train talented employees who are committed to improving the health of the world’s infants and children and who have world class capabilities in key business disciplines including marketing, sales, product development, supply chain and finance.

 

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Continued Leadership in Innovation

Innovation is fundamental to MJN’s long-term growth and profitability. From 2003 to 2008, MJN has increased MJN’s investment in research and development (“R&D”) by 100% and established world-class professional capabilities in MJN’s R&D headquarters and regional labs. MJN’s R&D teams drive the integration of nutritional science with marketing across all phases of the product development process. MJN believes MJN has a strong innovation pipeline that is focused on improving the health and development of infants and children, with a particular focus on brain development, allergy and tolerance issues, immunity, healthy growth and improved product experience. Investments in leading systems and processes will be used to reduce cycle times for projects in MJN’s pipeline, and MJN is planning to achieve a systematic flow of innovations. MJN believes MJN’s global R&D capabilities, the strength of MJN’s brands and MJN’s ability to convert advances in nutritional science into marketable product innovations will continue to allow MJN to successfully develop new products and improve existing products across each of MJN’s product categories.

Capitalize on Favorable Demographic Trends Driving Growth in Emerging Markets

Opportunities in Asia and Latin America, driven in part by favorable demographic trends, are estimated to account for a majority of the dollar (value) growth in the pediatric nutrition industry over the next five years. MJN has established presence in these emerging markets with its Asia/Latin America segment accounting for 57% of total sales for the nine months ended September 30, 2009. MJN believes that its strong global brands, sales and marketing expertise, and investments to expand its distribution footprint, will enable it to continue to grow by capitalizing on the favorable demographic trends in these emerging markets.

Expansion into Selected High-Growth Geographic Markets and Adjacent Product Categories

Emerging markets in Asia, Eastern Europe and the Middle East are projected to experience continued growth. MJN has established replicable business models and developed a deep understanding of business drivers in MJN’s core markets that MJN believes will lead to success in selected new high-growth markets. MJN believes MJN’s global supply chain infrastructure, along with the strength of MJN’s business model and demand-creation capabilities, strategically positions MJN for further expansion into certain high-growth regions in which MJN currently has a more limited presence. In addition, there is a global trend of mothers seeking increased nutritional reassurance, and mothers and health care professionals alike associate the Mead Johnson name and the Enfa family of brands with the highest quality nutrition. MJN believes there are opportunities to extend MJN’s strong brand equities into select adjacent product categories through organic development, partnerships and acquisitions.

Continuously Improve Upon MJN’s Manufacturing and Global Supply Chain Excellence

MJN seeks to continuously improve the management and operation of MJN’s business by increasing efficiency in MJN’s operations at all stages of production, from sourcing of raw materials to manufacturing and distribution in local geographies. MJN maintained higher operating margins than those of MJN’s primary competitors in 2008, and MJN plans to continue to achieve incremental cost savings through broad-based organizational involvement.

Components of MJN’s Net Sales and Expenses

Net Sales

MJN’s net sales are primarily derived from powdered milk formulated for infants and children sold to retailers and distributors. Net sales are driven by a combination of factors that include, but are not limited to: (1) the overall number of infants and children in the geographic and demographic markets in which MJN operates, (2) the innovation and competitiveness of MJN’s product offering, (3) governmental regulations and economic dynamics in MJN’s markets and (4) increased consumer awareness of the importance of health and

 

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wellness and enhanced nutritional insight. MJN’s net sales include various adjustments including gross-to-net sales adjustments for WIC rebates, cash discounts and sales returns.

MJN’s financial results include net sales of rebated WIC products which represented approximately 13% and 12% of total U.S. and Puerto Rico net sales for the nine months ended September 30, 2009 and the year ended December 31, 2008, respectively. The WIC program is a U.S. Department of Agriculture program created to provide nutritious foods, nutrition education and referrals to health care professionals and other social services to those considered to be at nutritional risk, including low-income pregnant, postpartum and breastfeeding women and infants and children up to age five. It is estimated that approximately 51% of all infants born in the United States and Puerto Rico during the 12-month period ending December 31, 2008 benefited from the WIC program. Participation in the WIC program is an important part of MJN’s U.S. business based on the volume of infant formula sold under the program. Sales to WIC participants are primarily transacted through the retail network at full retail price. Rebates to the state WIC agencies are payable based on the number of eligible retail purchases by WIC participants, vouchers issued and the terms of the WIC contracts.

Expenses

MJN’s expenses are made up of the following components:

 

   

Costs of products sold consist primarily of costs of materials that MJN uses in the manufacture of MJN’s products. Historically, the cost of materials has represented a majority of MJN’s total costs of products sold. MJN’s materials costs are influenced by inflation and fluctuations in global commodity prices, principally dairy, agricultural oils and tinplate. Plant conversion costs including labor and overhead make up most of the remainder of costs of products sold.

 

   

Marketing, selling and administrative expenses consist primarily of employee compensation and benefits, corporate and shared service allocations, occupancy, third-party selling, marketing and market research services. These expenses also include distribution expenses, which are primarily comprised of warehousing and freight costs. Marketing, selling and administrative expenses are driven by business strategy and inflation.

 

   

Advertising and product promotion expenses consist primarily of expenses related to media, samples, medical education and direct-to-consumer programs. Advertising and product promotion expenses are driven by marketing strategy and inflation.

 

   

Research and development expenses consist primarily of employee compensation and benefits, clinical studies and product development costs. Research and development expenses are driven by business strategy and the level of innovation and support for MJN’s products.

 

   

Other expenses, net, consist primarily of income or loss from a third-party manufacturing contract that is non-core to MJN’s pediatric nutrition business, gains and losses from the disposal of property, plant and equipment, the impact of certain foreign exchange gains and losses and other miscellaneous expenses.

Prior to the IPO, MJN was allocated costs for various services from BMS. On January 31, 2009, MJN entered into a transitional services agreement with BMS whereby BMS agreed to provide MJN with various corporate support services, and MJN agreed to provide BMS with certain services. The services will continue for a specified initial term, which will vary with the types of services to be provided, unless earlier terminated or extended according to the terms of the transitional services agreement. MJN will pay BMS mutually agreed-upon fees for the services provided by BMS, and BMS will pay MJN mutually agreed-upon fees for the services provided by MJN.

 

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Results of Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

For the three months ended September 30, 2009, net sales totaled $699.8 million, down 6% from $742.8 million for the three months ended September 30, 2008.

Below is a summary of comparative results of operations and a more detailed discussion of results for the three months ended September 30, 2009 and 2008:

 

     Three Months Ended September 30,  
(In millions, except per share data)    2009     2008     % Change     % of Net Sales  
         2009     2008  

Net Sales

   $ 699.8      $ 742.8      (6 )%    —        —     

Earnings Before Interest and Income Taxes

     159.7        163.7      (2 )%    23   22

Interest Expense—net

     (23.0     (11.9   —        3   2

Earnings Before Income Taxes

     136.7        151.8      (10 )%    20   20

Provision for Income Taxes

     (37.9     (46.5   (18 )%    5   6

Effective Tax Rate

     27.7     30.6      

Net Earnings

     98.8        105.3      (6 )%    14   14

Less: Net Earnings Attributable to Noncontrolling Interests

     (1.2     (2.6   —        0   0

Net Earnings Attributable to Shareholders

     97.6        102.7      (5 )%    14   14

Weighted Average Common Shares Outstanding—Diluted

     204.6        170.0         

Earnings per Common Share—Diluted

   $ 0.48      $ 0.61         

Net Sales

MJN’s net sales by reportable segments are shown in the table below:

 

     Three Months Ended September 30,  
(Dollars in millions)    2009    2008    % Change     % Change Due to  
           Volume     Price     Foreign
Exchange
 

Asia/Latin America

   $ 413.8    $ 400.1    3   2   8   (7 )% 

North America/Europe

     286.0      342.7    (17 )%    (16 )%    1   (2 )% 
                      

Net Sales

   $ 699.8    $ 742.8    (6 )%    (7 )%    5   (4 )% 
                      

MJN’s Asia/Latin America segment represented 59% of net sales for the three months ended September 30, 2009, compared to 54% for the three months ended September 30, 2008. MJN continues to achieve significant sales growth in its international markets, particularly in Asia, where sales grew by double digits, excluding the impact of foreign exchange. MJN’s success in the Asia/Latin America segment comes from market growth as well as its investment in product innovation, sales force, advertising and product promotion. China, which is MJN’s second largest market, continues to grow at rates more than double those for the Asia/Latin America segment as a whole. Multiple other Asian and Latin American countries achieved double-digit growth as well, excluding the impact of foreign exchange.

The decrease in North America/Europe segment sales was primarily due to weaker performance in the United States driven by share losses, U.S. retail inventory reductions and the contraction in the U.S. market from a decline in births. The reduction in inventories held by retailers in the United States during the three months ended September 30, 2009, followed a corresponding build by retailers in the three months ended June 30, 2009, due to the launch of Enfamil PREMIUM LIPIL in April 2009. Excluding the impact of foreign exchange, Europe sales declined due in large part to a reduction of distributor inventory levels.

 

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MJN has three product categories: (1) infant formula, (2) children’s nutrition and (3) other. The North America/Europe segment is principally an infant formula market whereas the Asia/Latin America segment sells a balance of infant formula and children’s nutrition products. MJN’s net sales by product category are shown in the table below:

 

     Three Months Ended September 30,  
(Dollars in millions)        2009            2008        % Change  

Infant Formula

   $ 445.1    $ 496.8    (10 )% 

Children’s Nutrition

     233.5      220.7    6

Other

     21.2      25.3    (16 )% 
                

Net Sales

   $ 699.8    $ 742.8    (6 )% 
                

Excluding foreign exchange, infant formula decreased 8%, primarily reflecting the sales decline in the North America/Europe segment, which are primarily infant formula markets. Excluding foreign exchange, children’s nutrition increased 14%, reflecting the strength of the business in Asia and Latin America.

MJN recognizes sales 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 MJN’s gross sales to net sales was as follows:

 

     Three Months Ended September 30,  
(Dollars in millions)    2009     2008     % Change  

Gross Sales

   $ 964.3      $ 1,021.7      (6 )% 

Gross-to-Net Sales Adjustments

      

WIC Rebates

     (187.3     (201.7   (7 )% 

Sales Discounts

     (26.8     (22.4   20

Returns

     (17.4     (19.4   (10 )% 

Cash Discounts

     (11.2     (12.4   (10 )% 

Prime Vendor Charge-Backs

     (9.3     (10.5   (11 )% 

Coupons and Other Adjustments

     (12.5     (12.5   0
                  

Total Gross-to-Net Sales Adjustments

     (264.5     (278.9   (5 )% 
                  

Total Net Sales

   $ 699.8      $ 742.8      (6 )% 
                  

Adjustments as a percentage of gross sales were flat year-over-year. The decline in Women, Infants and Children (“WIC”) rebates was due to a decline in U.S. births and the reduction of infant formula vouchers provided by government agencies in select states. The change in sales discounts was due to new product launches along with a mix shift in sales to Asia/Latin America where sales discounts are typically higher than in North America/Europe.

Gross Profit

 

     Three Months Ended September 30,  
(Dollars in millions)        2009             2008             % Change      

Net Sales

   $ 699.8      $ 742.8      (6 )% 

Cost of Products Sold

     244.6        287.9      (15 )% 
                      

Gross Profit

   $ 455.2      $ 454.9      0

Gross Margin

     65.0     61.2  

Improvements in gross margin were driven by reduced commodity costs and product pricing partially offset by the negative impact of foreign exchange and higher manufacturing costs from capacity increases.

 

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Operating Expenses

 

     Three Months Ended September 30,  
                     % of Net Sales  
(Dollars in millions)    2009    2008    % Change     2009     2008  

Operating Expenses:

            

Marketing, Selling and Administrative

   $ 164.0    $ 173.9    (6 )%    23   23

Advertising and Product Promotion

     105.2      97.0    8   15   13

Research and Development

     17.6      17.8    (1 )%    3   2

Other (Income)/Expenses—net

     8.7      2.5    —        1   0

Marketing, Selling and Administrative Expenses

The decrease in marketing, selling and administrative expenses was primarily due to the positive impact of foreign exchange, lower distribution costs and sales force productivity initiatives. Costs related to MJN’s IPO and other separation costs decreased compared to the prior year; however, this decrease was offset by higher litigation costs.

Advertising and Product Promotion Expenses

MJN’s advertising and product promotion expenses are influenced by the timing of key product launches and promotions. The increase reflected the continued investment in Asia and Latin America.

Research and Development Expenses

Research and development expenses remained stable year-over-year.

Other (Income)/Expenses—net

Other (income)/expenses—net for the three months ended September 30, 2009, increased by $6.2 million due primarily to foreign exchange losses on assets held in non-functional currencies.

Earnings Before Interest and Income Taxes

EBIT from MJN’s two reportable segments, Asia/Latin America and North America/Europe, is reduced by corporate and other costs. Corporate and other costs consist of unallocated general and administrative activities and associated expenses, including, in part, executive, legal, finance, information technology, human resources, research and development, global marketing and global supply chain costs.

 

     Three Months Ended September 30,  
(Dollars in millions)        2009             2008         % Change  

Asia/Latin America

   $ 143.7      $ 108.2      33

North America/Europe

     90.3        115.6      (22 )% 

Corporate and Other

     (74.3     (60.1   24
                      

Total Earnings Before Interest and Income Taxes

   $ 159.7      $ 163.7      (2 )% 
                  

The increase in EBIT for Asia/Latin America was driven by higher net sales in addition to an improved gross margin, resulting from favorable commodity costs and increased pricing, largely from late 2008 price increases.

The decrease in EBIT for the North America/Europe segment was largely due to the sales decline, partly offset by sales force productivity initiatives.

 

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Expenses for the Corporate and Other segment increased $14.2 million driven primarily by higher litigation costs and severance activities that occurred during the third quarter of 2009.

Interest Expense—net

Interest expense—net for the third quarter of 2009 primarily represents interest incurred on the $744.2 million 2014 Note, the $500.0 million 2016 Note and the $500.0 million 2019 Note. Interest expense—net for the third quarter of 2008 represented interest incurred on the $2.0 billion intercompany note payable issued in August 2008.

Income Taxes

The effective tax rate for the three months ended September 30, 2009, decreased to 27.7% from 30.6% for the three months ended September 30, 2008. The lower rate was primarily attributable to benefits associated with the restructuring of MJN’s foreign operations as part of the separation from BMS in the IPO process and the earnings mix.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests consisted of an 11% interest in MJN China and a 10% interest in MJN Indonesia held by third parties.

Net Earnings Attributable to Shareholders

For the three months ended September 30, 2009, net earnings attributable to shareholders decreased by $5.1 million to $97.6 million compared with the three months ended September 30, 2008. The decrease was primarily due to higher interest expense and the unfavorable impact of foreign exchange, partially offset by a reduction in the effective tax rate.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

For the nine months ended September 30, 2009, net sales totaled $2,112.1 million, down 3% from $2,174.7 million for nine months ended September 30, 2008.

Below is a summary of comparative results of operations and a more detailed discussion of results for the nine months ended September 30, 2009 and 2008:

 

     Nine Months Ended September 30,  
                       % of Net Sales  
(In millions, except per share data)    2009     2008     % Change     2009     2008  

Net Sales

   $ 2,112.1      $ 2,174.7      (3 )%    —        —     

Earnings Before Interest and Income Taxes

     566.6        560.8      1   27   26

Interest Expense-net

     (75.3     (11.9   —        4   1

Earnings Before Income Taxes

     491.3        548.9      (10 )%    23   25

Provision for Income Taxes

     (147.9     (195.1   (24 )%    7   9

Effective Tax Rate

     30.1     35.5      

Net Earnings

     343.4        353.8      (3 )%    16   16

Less: Net Earnings Attributable to Noncontrolling Interests

     (7.8     (6.3   —        0   0

Net Earnings Attributable to Shareholders

     335.6        347.5      (3 )%    16   16

Weighted Average Common Shares Outstanding—Diluted

     199.3        170.0         

Earnings per Common Share—Diluted

   $ 1.68      $ 2.05         

 

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Net Sales

MJN’s net sales by reportable segments are shown in the table below:

 

     Nine Months Ended September 30,  
                     % Change Due to  
(Dollars in millions)    2009    2008    % Change     Volume     Price     Foreign
Exchange
 

Asia/Latin America

   $ 1,200.1    $ 1,138.7    5   3   11   (9 )% 

North America/Europe

     912.0      1,036.0    (12 )%    (9 )%    0   (3 )% 
                      

Net Sales

   $ 2,112.1    $ 2,174.7    (3 )%    (3 )%    6   (6 )% 
                      

MJN’s Asia/Latin America segment represented 57% of net sales for the nine months ended September 30, 2009, compared to 52% for the nine months ended September 30, 2008. MJN continues to have significant sales growth in MJN’s international markets, particularly in Asia where sales increased by double digits, excluding the impact of foreign exchange. MJN’s success in the Asia/Latin America segment comes from market growth as well as its investments in product innovation, sales force, advertising and product promotion. Sales growth in China, MJN’s second largest market, was the highest of any market in which MJN operates on a year-to-date basis, although multiple other Asian and Latin American countries increased sales by double digits, excluding the impact of foreign exchange. Volume growth of 3% in the segment was adversely impacted by approximately two percentage points due to the operating model change in Brazil.

The decrease in North America/Europe sales was primarily due to weaker performance in the United States driven by share losses and the contraction in the U.S. market resulting from a decline in births.

MJN’s net sales by product category are shown in the table below:

 

     Nine Months Ended September 30,  
(Dollars in millions)    2009    2008    % Change  

Infant Formula

   $ 1,376.3    $ 1,462.2    (6 )% 

Children’s Nutrition

     667.5      640.7    4

Other

     68.3      71.8    (5 )% 
                

Net Sales

   $ 2,112.1    $ 2,174.7    (3 )% 
                

Excluding foreign exchange, infant formula decreased 2% reflecting the decreases in the North America/Europe segment, which are predominantly infant formula markets. Excluding foreign exchange, children’s nutrition increased 14%, reflecting the strength of the business in Asia and Latin America.

The reconciliation of MJN’s gross sales to net sales was as follows:

 

     Nine Months Ended September 30,  
(Dollars in millions)    2009     2008     % Change  

Gross Sales

   $ 2,905.2      $ 2,997.8      (3 )% 

Gross-to-Net Sales Adjustments

      

WIC Rebates

     (569.0     (601.7   (5 )% 

Sales Discounts

     (76.0     (63.9   19

Returns

     (54.2     (48.7   11

Cash Discounts

     (33.4     (35.4   (6 )% 

Prime Vendor Charge-Backs

     (29.3     (32.1   (9 )% 

Coupons and Other Adjustments

     (31.2     (41.3   (24 )% 
                  

Total Gross-to-Net Sales Adjustments

     (793.1     (823.1   (4 )% 
                  

Total Net Sales

   $ 2,112.1      $ 2,174.7      (3 )% 
                  

 

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Adjustments as a percentage of gross sales remained flat year-over-year. The decline in WIC rebates was due to a decline in U.S. births and the reduction of infant formula vouchers provided by government agencies in select states. The change in sales discounts and coupons was due to promotional mix and new product launches along with a mix shift in sales to Asia/Latin America where sales discounts are typically higher than in North America/Europe. The increase in returns was due to an abnormally low amount of returns during the nine months ended September 30, 2008.

Gross Profit

 

     Nine Months Ended September 30,  
(Dollars in millions)    2009     2008     % Change  

Net Sales

   $ 2,112.1      $ 2,174.7      (3 )% 

Cost of Products Sold

     728.3        812.0      (10 )% 
                  

Gross Profit

   $ 1,383.8      $ 1,362.7      2

Gross Margin

     65.5     62.7  

Improvements in gross margin were driven by reduced commodity costs and product pricing partially offset by the negative impact of foreign exchange and higher manufacturing costs from capacity increases.

Operating Expenses

 

     Nine Months Ended September 30,  
                     % of Net Sales  
(Dollars in millions)    2009    2008    % Change     2009     2008  

Operating Expenses:

            

Marketing, Selling and Administrative

   $ 482.2    $ 465.0    4   23   21

Advertising and Product Promotion

     282.7      276.3    2   13   13

Research and Development

     51.3      51.5    0   2   2

Other (Income)/Expenses—net

     1.0      9.1         0   0

Marketing, Selling and Administrative Expenses

The majority of the increase in marketing, selling and administrative expenses was due to $22.3 million in additional corporate expenses that MJN now carries as a public company such as legal and audit fees, along with treasury, tax and other functions that were not necessary when MJN operated as a wholly owned subsidiary of BMS, as well as $17.3 million of incremental costs related to MJN’s IPO and $5.3 million of litigation costs. These increases were partially offset by the positive impact of foreign exchange and reduced distribution costs.

Advertising and Product Promotion Expenses

MJN’s advertising and product promotion expenses are influenced by the timing of its key product launches and promotions and are increasing with MJN’s continued investment in growth for the Asia/Latin America segment.

Research and Development Expenses

Research and development expenses remained flat as compared to prior year.

Other (Income)/Expenses—net

Other (income)/expenses—net for the nine months ended September 30, 2009, changed by $8.1 million due primarily to a favorable patent settlement of $10.0 million and gain on sale of a non-strategic intangible asset of $11.9 million, offset by severance charges of $10.1 million and foreign exchange losses on assets held in non-functional currencies.

 

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Earnings Before Interest and Income Taxes

 

     Nine Months Ended September 30,  
(Dollars in millions)    2009     2008     % Change  

Asia/Latin America

   $ 438.5      $ 359.4      22

North America/Europe

     310.5        357.6      (13 )% 

Corporate and Other

     (182.4     (156.2   17
                  

Total EBIT

   $ 566.6      $ 560.8      1
                  

The increase in EBIT for Asia/Latin America was driven by higher net sales and an improved gross margin.

The decrease in EBIT for North America/Europe was primarily due to lower net sales offset partially by improved gross margins, lower distribution costs and sales force productivity initiatives.

Expenses for the Corporate and Other segment were principally due to $21.8 million of additional costs that MJN now carries as a public company such as legal and audit fees, along with treasury, tax and other functions that were not necessary when MJN operated as a wholly owned subsidiary of BMS, $17.3 million in incremental expenses related to MJN’s IPO and separation from BMS, $10.1 million in severance costs and $5.3 million of litigation costs. These increases were partially offset by an $11.9 million gain on sale of a non-strategic intangible asset, a $10.0 million favorable patent settlement and the timing of operating expenses.

Interest Expense—net

Interest expense—net for the nine months ended September 30, 2009, primarily represents interest incurred on the $744.2 million 2014 Note, the $500.0 million 2016 Note and the $500.0 million 2019 Note. Interest expense—net for the nine months ended September 30, 2008, represented interest incurred on the $2.0 billion intercompany note payable issued in August 2008.

Income Taxes

The effective tax rate for the nine months ended September 30, 2009, decreased to 30.1% from 35.5% for the nine months ended September 30, 2008. The lower rate was attributable primarily to benefits associated with the restructuring of MJN’s foreign operations as part of the separation from BMS in the IPO process and the earnings mix.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests consisted of an 11% interest in MJN China and a 10% interest in MJN Indonesia held by third parties.

Net Earnings Attributable to Shareholders

For the nine months ended September 30, 2009, net earnings attributable to shareholders decreased by $11.9 million to $335.6 million compared with the nine months ended September 30, 2008. The decrease was primarily due to interest expense and higher costs incurred as a stand-alone public company, partially offset by an improvement in gross margin and a reduction in the effective tax rate.

 

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Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Below is a summary of comparative results of operations and a more detailed discussion of results for the years ended December 31, 2008 and 2007:

 

     Year Ended December 31,  
                       % of Net Sales  
(Dollars in millions)    2008     2007     % Change       2008         2007    

Net Sales

   $ 2,882.4      $ 2,576.4      11.9   —        —     

Expenses

     2,186.7        1,913.2      14.3   75.9   74.3

Earnings Before Interest and Income Taxes

     695.7        663.2      4.9   24.1   25.7

Interest Expense

     (43.3     —        —        1.5   —     

Provision for Income Taxes

     (251.4     (233.6   7.6   8.7   9.1

Effective Tax Rate

     38.5     35.2      

Net Earnings Attributable to Noncontrolling Interests

     (7.1     (7.1   0.0   0.2   0.3
                      

Net Earnings Attributable to Shareholders

   $ 393.9      $ 422.5      (6.8 )%    13.7   16.4
                      

Net Sales

Net sales for the year ended December 31, 2008 increased $306.0 million, or 11.9%, to $2,882.4 million compared to the year ended December 31, 2007. The percentage change in sales was driven by price increase of 8.5% and volume growth of 1.5%, and included a 1.9% positive foreign exchange impact. Net sales increased throughout Asia, Latin America and Europe offset by a slight decline in the United States. Net sales increased in all product categories, driven by pricing increases in response to increased dairy costs, the impact of increased advertising and promotion, regional expansion within key Asian markets, most notably China, and product innovation. Innovations launched in the period include the addition of prebiotics and an increase in the level of DHA in several of MJN’s products in Asia. Additionally, in North America, MJN launched Nutramigen AA®, an amino-acid based infant formula for infants with severe food allergies. The decline in the U.S. business was attributable to growth in private label products, due in part to the weakening economy, and the impact of WIC contract changes on MJN’s business.

MJN operates in two reportable segments: Asia/Latin America and North America/Europe. MJN’s net sales based on those segments are shown in the table below:

 

     Year Ended December 31,  
(Dollars in millions)    2008    2007    % Change     % Change Due
to Foreign
Exchange
 

Asia/Latin America

   $ 1,516.9    $ 1,225.2    23.8   3.2

North America/Europe

     1,365.5      1,351.2    1.1   0.8
                  

Net Sales

   $ 2,882.4    $ 2,576.4    11.9   1.9
                  

MJN’s Asia/Latin America segment represented 52.6% of net sales and MJN’s North America/Europe segment represented 47.4% of net sales for the year ended December 31, 2008. Asia/Latin America sales increased $291.7 million, or 23.8%, including a positive 3.2% foreign currency exchange impact, to $1,516.9 million in 2008. Growth in Asia/Latin America was broad-based across all major markets driven by pricing increases and strong volume growth in China and Hong Kong. The net sales growth is underpinned by higher advertising and promotion supporting new product launches including the addition of prebiotics and the increase in the level of DHA in some children’s nutrition products in Asia. In addition, MJN experienced a temporary increase in demand for MJN’s products in China due to the withdrawal of certain infant formula products of other manufacturers due to the presence of melamine in certain dairy materials sourced in-country. MJN does not use dairy or protein-containing raw ingredients from China in MJN’s products.

 

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For the year ended December 31, 2008, North America/Europe sales increased $14.3 million, or 1.1%, including a positive 0.8% foreign currency exchange impact, to $1,365.5 million compared to the year ended December 31, 2007. This increase was due primarily to pricing increases offset by U.S. volume losses attributable to growth in private label products, due in part to the weakening economy, and the impact of WIC contract changes on MJN’s business.

MJN has three product categories: (1) infant formula, (2) children’s nutrition and (3) other. MJN’s net sales based on those product categories are shown in the table below:

 

     Year Ended December 31,  
(Dollars in millions)    2008    2007    % Change     % Change Due
to Foreign
Exchange
 

Infant Formula

   $ 1,931.6    $ 1,788.1    8.0   1.5

Children’s Nutrition

     855.9      696.5    22.9   3.0

Other

     94.9      91.8    3.4   2.5
                  

Net Sales

   $ 2,882.4    $ 2,576.4    11.9   1.9
                  

Net sales for the period increased in each of MJN’s product categories. For the year ended December 31, 2008, infant formula sales increased $143.5 million, or 8.0%, including a positive 1.5% foreign currency exchange impact, to $1,931.6 million compared to 2007. Growth in the sales of infant formula, which is sold in all regions, reflects a mix of the higher growth in the Asia/Latin America segment and the lower growth in the North America/Europe segment. Children’s nutrition products, sold primarily in the Asia/Latin America segment, increased $159.4 million, or 22.9%, including a positive 3.0% foreign currency exchange impact, to $855.9 million in 2008, in line with the broad-based growth across MJN’s key Asia and Latin America markets.

MJN recognizes sales 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 MJN’s gross sales to net sales was as follows:

 

     Year Ended December 31,  
(Dollars in millions)    2008     2007     % Change  

Gross Sales

   $ 3,974.2      $ 3,717.2      6.9

Gross-to-Net Sales Adjustments

      

WIC Rebates

     (796.0     (847.8   (6.1 )% 

Sales Discounts

     (87.9     (66.3   32.6

Returns

     (64.7     (67.6   (4.3 )% 

Cash Discounts

     (46.9     (48.0   (2.3 )% 

Prime Vendor Charge-Backs

     (42.2     (47.5   (11.2 )% 

Other Adjustments

     (54.1     (63.6   (14.9 )% 
                  

Total Gross-to-Net Sales Adjustments

     (1,091.8     (1,140.8   (4.3 )% 
                  

Total Net Sales

   $ 2,882.4      $ 2,576.4      11.9
                  

For the year ended December 31, 2008, MJN’s gross sales increased $257.0 million, or 6.9%, to $3,974.2 million compared to the year ended December 31, 2007. Gross-to-net sales adjustments during the same period declined $49.0 million, or 4.3%, to $1,091.8 million. The decline was generated by changes in WIC rebates in North America due to the loss of the Western States Contracting Alliance, Texas, Minnesota and Iowa WIC contracts to other infant formula manufacturers during the fourth quarter of 2007, partially offset by the gain of California and Louisiana WIC contracts during the second half of 2007, as well as the gain of Illinois and Colorado WIC contracts during the first quarter of 2008. Sales discounts increased $21.6 million during the same

 

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period primarily in key Asia markets due to sales growth and a change in retail sales mix to key customers with higher discounts. Other adjustments include coupons, contract discounts and various rebates. The decrease in other adjustments was driven primarily by a decline in consumer coupons.

Expenses

 

     Year Ended December 31,  
                     % of Net Sales  
(Dollars in millions)    2008    2007    % Change       2008         2007    

Expenses:

            

Costs of Products Sold

   $ 1,079.8    $ 948.7    13.8   37.5   36.8

Marketing, Selling and Administrative

     651.7      575.2    13.3   22.6   22.3

Advertising and Product Promotion

     369.3      318.5    15.9   12.8   12.4

Research and Development

     72.8      67.2    8.3   2.5   2.6

Other Expenses-net

     13.1      3.6    —        0.5   0.1
                    

Total Expenses

   $ 2,186.7    $ 1,913.2    14.3   75.9   74.3
                    

Costs of Products Sold

For the year ended December 31, 2008, costs of products sold increased $131.1 million, or 13.8%, to $1,079.8 million compared to the year ended December 31, 2007. This increase was driven primarily by global material price increases. In 2007, the market volatility in material prices was mitigated partially through the contractual pricing agreements MJN entered into during 2006 and prior periods. However, many of these contracts expired in late 2007, resulting in an increase in MJN’s costs of products sold in 2008. Additionally, the costs of products sold increase was driven by sales volume growth and an unfavorable foreign exchange impact due to the weakening of the U.S. dollar versus foreign currencies. Furthermore, the cost increase as a percentage of sales was also driven by product mix changes as lower margin children’s nutrition products experienced more rapid volume gains than higher margin infant formulas.

Marketing, Selling and Administrative Expenses

For the year ended December 31, 2008, marketing, selling and administrative expenses increased $76.5 million, or 13.3%, to $651.7 million compared to the year ended December 31, 2007. The majority of this increase was due to $41.8 million of non-recurring costs related to MJN’s IPO and $19.3 million of higher corporate and shared service expense allocations. The marketing, selling and administrative expense increase was also driven by additional marketing efforts in Asia, including sales force expansion in China, and global salary and benefits increases due to inflation. Unfavorable foreign exchange impacts due to the weakening of the U.S. dollar also drove an increase in expense. Partially offsetting these increases was the absence of a $17.6 million bad debt expense in the first half of 2007 related to a distributor’s insolvency in Asia.

Advertising and Product Promotion Expenses

For the year ended December 31, 2008, advertising and product promotion expenses increased $50.8 million, or 15.9%, to $369.3 million compared to the year ended December 31, 2007. This increase was driven in large part by a strategic decision to increase various demand-generating activities in key Asian markets, investment in promotional programs in Mexico and by an unfavorable foreign exchange impact due to the weakening of the U.S. dollar versus foreign currencies.

Research and Development Expenses

For the year ended December 31, 2008, research and development expenses increased $5.6 million, or 8.3%, to $72.8 million compared to the year ended December 31, 2007. This increase was driven mainly by increased

 

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investment in clinical and discovery trials, salary and benefits inflation and an unfavorable foreign exchange impact due to the weakening of the U.S. dollar versus foreign currencies.

Other Expense—net

For the year ended December 31, 2008, other expense—net increased $9.5 million, to $13.1 million compared to the year ended December 31, 2007. The increase was driven by the losses in 2008 on MJN’s supply agreement for MJN’s former Adult Nutrition business, which was divested in 2004, and a non-recurring gain on the 2007 divestiture of Cafcit, a pediatric pharmaceutical product.

Earnings Before Interest and Income Taxes

MJN’s EBIT is from MJN’s two reportable segments, North America/Europe and Asia/Latin America, reduced by Corporate and Other costs. Corporate and Other costs consist of unallocated general and administrative activities and associated expenses, including in part, executive, legal, finance, information technology, human resources, research and development, global marketing and global supply chain costs.

 

     Year Ended December 31,  
(Dollars in millions)    2008     2007     % Change  

Total Earnings Before Interest and Income Taxes

   $ 695.7      $ 663.2      4.9

Asia/Latin America

     462.9        363.9      27.2

North America/Europe

     467.3        477.6      (2.2 )% 

Corporate and Other

     (234.5     (178.3   31.5

For the year ended December 31, 2008, Asia/Latin America EBIT increased $99.0 million, or 27.2%, to $462.9 million. This increase was primarily driven by growth in sales and the absence of a $17.6 million bad debt expense in 2007 related to a distributor’s insolvency, partly offset by increases in material costs. During the same period, North America/Europe EBIT decreased $10.3 million, or 2.2%, to $467.3 million compared to the year ended December 31, 2007, driven by sales declines in the United States and increases in material costs. During the same period, Corporate and Other costs increased $56.2 million, or 31.5%, to $234.5 million. This was principally due to $44.8 million in expenses related to MJN’s IPO and an increase in corporate and shared service expense allocations from $90.1 million for the year ended December 31, 2007, to $112.1 million for the year ended December 31, 2008.

Income Taxes

The effective tax rate for the year ended December 31, 2008 increased from 35.2% to 38.5%, compared to the year ended December 31, 2007. The increase in the effective tax rate was driven primarily by the capitalization in 2008 of certain IPO expenses for tax purposes, the benefit of certain basis differences reflected in the 2007 effective tax rate and changes in the mix of earnings by jurisdiction.

Interest Expense

Interest expense represents interest incurred on the $2,000.0 million note payable issued in August 2008. See “Note 3. Related Parties” and “Note 21. Subsequent Events” to MJN’s audited financial statements included elsewhere in this prospectus.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests consists almost entirely of an 11% noncontrolling interest in MJN’s joint venture in China.

 

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Net Earnings Attributable to Shareholders

For the foregoing reasons, for the year ended December 31, 2008, net earnings attributable to shareholders decreased $28.6 million, or 6.8%, to $393.9 million compared to the year ended December 31, 2007.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Below is a summary of comparative results of operations and a more detailed discussion of results for the years ended December 31, 2007 and 2006:

 

     Year Ended December 31,  
                       % of Net Sales  
(Dollars in millions)    2007     2006     % Change       2007         2006    

Net Sales

   $ 2,576.4      $ 2,345.1      9.9   —        —     

Expenses

     1,913.2        1,710.3      11.9   74.3   72.9

Earnings Before Interest and Income Taxes

     663.2        634.8      4.5   25.7   27.1

Provision for Income Taxes

     (233.6     (230.1   1.5   9.1   9.8

Effective Tax Rate

     35.2     36.2      

Net Earnings Attributable to Noncontrolling Interests

     (7.1     (6.5   9.2   0.3   0.3
                      

Net Earnings Attributable to Shareholders

   $ 422.5      $ 398.2      6.1   16.4   17.0
                      

Net Sales

For the year ended December 31, 2007, global net sales increased $231.3 million to $2,576.4 million compared to the year ended December 31, 2006. The percentage change in sales was driven by price increases of 3.4% and volume growth of 3.2%, and included a 3.3% positive foreign exchange impact. The business grew in all regions and all product categories, with strong broad-based growth across MJN’s key Asia markets.

Net sales based on MJN’s segments are shown in the table below:

 

     Year Ended December 31,  
(Dollars in millions)    2007    2006    % Change     % Change
Due to
Foreign
Exchange
 

Asia/Latin America

   $ 1,225.2    $ 1,054.6    16.2   5.7

North America/Europe

     1,351.2      1,290.5    4.7   1.3
                  

Net Sales

   $ 2,576.4    $ 2,345.1    9.9   3.3
                  

MJN’s Asia/Latin America segment represented 47.6% of net sales and MJN’s North America/Europe segment represented 52.4% of net sales for the year ended December 31, 2007. Asia/Latin America sales increased $170.6 million, or 16.2%, including a favorable 5.7% foreign currency exchange impact, to $1,225.2 million. Growth was broad-based with the top Asian markets all showing double digit increases in net sales. During the same period, North America/Europe net sales increased $60.7 million, or 4.7%, including a positive 1.3% foreign currency exchange impact, to $1,351.2 million in 2007 compared to 2006. Sales growth was driven in the United States by a third quarter price increase and additional WIC sales from the new California contract, which was offset partially by the Texas and the Western States Contracting Alliance contract losses and by the loss of regulatory exclusivity for Cafcit, a pediatric pharmaceutical product since divested.

 

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Net sales based on MJN’s product categories are shown in the table below:

 

     Year Ended December 31,  
(Dollars in millions)    2007    2006    % Change     % Change
Due to
Foreign
Exchange
 

Infant Formula

   $ 1,788.1    $ 1,634.8    9.4   2.4

Children’s Nutrition

     696.5      603.8    15.4   5.6

Other

     91.8      106.5    (13.8 )%    3.7
                  

Net Sales

   $ 2,576.4    $ 2,345.1    9.9   3.3
                  

Net sales for the period increased in the infant formula and children’s nutrition product categories. For the year ended December 31, 2007, the infant formula business increased $153.3 million, or 9.4%, including a favorable 2.4% foreign currency impact, to $1,788.1 million compared to the year ended December 31, 2006. MJN maintained a strong position in infant formula products sold in the United States, with 5.0% growth in net sales. Children’s nutrition products, which are almost entirely sold in the Asia/Latin America segment, increased $92.7 million, or 15.4%, including a favorable 5.6% foreign currency exchange impact, to $696.5 million during the same period, primarily due to broad-based growth across MJN’s key Asian markets. The decrease in other sales was due mainly to a $17 million decline in net sales of Cafcit, a pediatric pharmaceutical product, due to the loss of regulatory exclusivity in the fourth quarter of 2006 and its divestment in the fourth quarter of 2007.

The reconciliation of MJN’s gross sales to net sales was as follows:

 

     Year Ended December 31,  
(Dollars in millions)    2007     2006     % Change  

Gross Sales

   $ 3,717.2      $ 3,480.1      6.8

Gross-to-Net Sales Adjustments

      

WIC Rebates

     (847.8     (871.9   (2.8 )% 

Sales Discounts

     (66.3     (55.0   20.5

Returns

     (67.6     (65.2   3.7

Cash Discounts

     (48.0     (47.9   0.2

Prime Vendor Charge-Backs

     (47.5     (46.7   1.7

Other Adjustments

     (63.6     (48.3   31.7
                  

Total Gross-to-Net Sales Adjustments

     (1,140.8     (1,135.0   0.5
                  

Total Net Sales

   $ 2,576.4      $ 2,345.1      9.9
                  

For the year ended December 31, 2007, MJN’s gross sales increased $237.1 million, or 6.8%, to $3,717.2 million compared to the year ended December 31, 2006. Gross-to-net sales adjustments during the same period increased $5.8 million, or 0.5%, to $1,140.8 million. This decline was largely the result of changes in WIC rebates in North America due to the loss of Georgia and the New England and Tribal Organization WIC contracts to other infant formula manufacturers in the fourth quarter of 2006, as well as the Western States Contracting Alliance, Texas, Minnesota and Iowa WIC contracts during the fourth quarter of 2007. These declines were partially offset by the addition of the Michigan WIC contract during the fourth quarter of 2006, as well as California and Louisiana WIC contracts during the second half of 2007. In addition, sales discounts increased $6.5 million during the same period in key Asian markets due to a change in retail sales mix resulting in increased gross sales to key customers with higher discounts and a $5.1 million increase from a distributor model change. Other adjustments include coupons, contract discounts and various rebates. The increase in other adjustments was driven primarily by an increase in consumer coupons.

 

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Expenses

 

     Year Ended December 31,  
                     % of Net Sales  
(Dollars in millions)    2007    2006    % Change       2007         2006    

Expenses:

            

Costs of Products Sold

   $ 948.7    $ 850.4    11.6   36.8   36.3

Marketing, Selling and Administrative

     575.2      504.3    14.1   22.3   21.5

Advertising and Product Promotion

     318.5      290.6    9.6   12.4   12.4

Research and Development

     67.2      62.0    8.4   2.6   2.6

Other Expenses—net

     3.6      3.0    20.0   0.1   0.1
                    

Total Expenses

   $ 1,913.2    $ 1,710.3    11.9   74.3   72.9
                    

Costs of Products Sold

For the year ended December 31, 2007, costs of products sold increased $98.3 million, or 11.6%, to $948.7 million compared to the year ended December 31, 2006. The increase was driven by sales volume growth, dairy price increases and an unfavorable foreign exchange impact due to the weakening of the U.S. dollar versus foreign currencies. Furthermore, the cost increase as a percentage of sales was driven by product mix changes as children’s nutrition products carry a higher cost of products sold on a percentage of sales basis as compared to infant formula.

Marketing, Selling and Administrative Expenses

For the year ended December 31, 2007, marketing, selling and administrative expenses increased $70.9 million, or 14.1%, to $575.2 million compared to the year ended December 31, 2006. This increase was driven by a $17.6 million bad debt expense related to a distributor insolvency, increased corporate and shared service expense allocations of $11.7 million from BMS, unfavorable foreign exchange due to the weakening of the U.S. dollar versus foreign currencies and global salary and benefits inflationary increases. The increase in corporate allocations included costs related to information management and corporate insurance.

Advertising and Product Promotion Expenses

For the year ended December 31, 2007, advertising and product promotion expenses increased $27.9 million, or 9.6%, to $318.5 million compared to the year ended December 31, 2006. This increase was driven by strategic decisions regarding investment to support sales growth.

Research and Development Expenses

For the year ended December 31, 2007, research and development expenses increased $5.2 million, or 8.4%, to $67.2 million compared to the year ended December 31, 2006. The rate of increase reflected the full-year staffing impact of the regional development centers in Asia and Latin America.

Earnings Before Interest and Income Taxes

 

     Year Ended December 31,  
(Dollars in millions)    2007     2006     % Change  

Total Earnings Before Interest and Income Taxes

   $ 663.2      $ 634.8      4.5

Asia/Latin America

     363.9        335.9      8.3

North America/Europe

     477.6        460.3      3.8

Corporate and Other

     (178.3     (161.4   10.5

 

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For the year ended December 31, 2007, Asia/Latin America EBIT increased $28.0 million, or 8.3%, to $363.9 million compared to the year ended December 31, 2006. The increase in EBIT for the Asia/Latin America segment was primarily driven by a 16.2% increase in net sales during the same period, partially offset by a bad debt expense of $17.6 million related to a distributor’s insolvency. For the same period, North America/Europe EBIT increased $17.3 million, or 3.8%, to $477.6 million compared to the prior year. The increase in EBIT for North America/Europe was primarily driven by a 4.7% increase in net sales during the same period. For the same period, Corporate and Other costs increased $16.9 million, or 10.5%, to $178.3 million compared to the year ended December 31, 2006. This was due to an increase in corporate insurance and information management expenses allocated from BMS.

Income Taxes

The effective tax rate for the year ended December 31, 2007 decreased to 35.2% from 36.2%, compared to the year ended December 31, 2006. This reduction in the effective tax rate was driven primarily by the benefit of certain basis differences. For the year ended December 31, 2007, MJN’s provision for income taxes increased $3.5 million, or 1.5%, to $233.6 million compared to the year ended December 31, 2006, due to higher pre-tax earnings.

Net Earnings Attributable to Shareholders

For the foregoing reasons, for the year ended December 31, 2007, net earnings attributable to shareholders increased $24.3 million, or 6.1%, to $422.5 million compared to the year ended December 31, 2006.

Financial Position, Liquidity and Capital Resources

Overview

MJN’s primary sources of liquidity are cash from operations and available borrowings under MJN’s $410.0 million revolving credit facility. Cash flows from operating activities represent the inflow of cash from MJN’s customers and the outflow of MJN’s cash for inventory purchases, operating expenses, interest and taxes. Cash flows used in investing activities primarily represent capital expenditure for maintenance, equipment, buildings and computer software. Cash flows used in financing activities historically have represented the transfer of cash to BMS. In 2009, cash flows from financing activities primarily represent activities related to the IPO, separation from BMS and dividends. Going forward, cash flows from financing activities will reflect any borrowings, repayment of debt and dividend payments. The declaration and payment of dividends is at the discretion of MJN’s board of directors and depends on many factors, including MJN’s financial condition, earnings, legal requirements, restrictions in MJN’s debt agreements and other factors MJN’s board of directors deem relevant. On September 1, 2009, MJN’s board of directors declared a dividend of $0.20 per share for the quarter ended September 30, 2009. The dividend was paid on October 1, 2009, to shareholders of record on September 17, 2009. Cash dividends paid for the nine months ended September 30, 2009, were $61.4 million. There were no cash dividends paid in 2008.

Prior to the IPO, MJN did not report cash or cash equivalents on MJN’s balance sheet and BMS managed the treasury relationships for receiving and disbursing cash to cover all cash flow activity from operations and investing activities. Following the IPO, MJN assumed responsibility for MJN’s treasury function, including the management and reporting of cash and cash equivalents, with support services provided by BMS under MJN’s transitional services agreement with BMS. MJN believes that cash from operations will be sufficient to support MJN’s working capital needs, pay MJN’s operating expenses, satisfy debt obligations, fund capital expenditures and make dividend payments. In addition, as of September 30, 2009, MJN had $410.0 million available under its revolving credit facility; in November 2009, MJN used $200.0 million in availability, together with cash on hand, to repay all remaining amounts owed to BMS under a floating rate note due 2014. See “Recent Developments”.

 

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     Year Ended December 31,     Nine Months Ended
September 30,
 
(Dollars in millions)    2008     2007     2006     2009     2008  

Cash flow provided by/(used):

          

Operating Activities

   $ 489.0      $ 478.7      $ 358.4      $ 416.7      $ 384.0   

Investing Activities

     (79.4     (74.2     (63.0     (45.8     (49.4

Financing Activities

   $ (409.6   $ (404.5   $ (295.4     214.3        (334.6

Effects of Changes in Exchange Rates on Cash and Cash Equivalents

     —          —          —          12.2        —     
                                        

Net Increase in Cash and Cash Equivalents

   $ —        $ —        $ —        $ 597.4      $ —     
                                        

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

Cash flow provided by operating activities increased $32.7 million primarily due to a $47.2 million decrease in net current assets and liabilities in 2009 compared with a $17.7 million increase in net current assets and liabilities in 2008. The decrease in net current assets and liabilities in 2009 was attributable to working capital improvement initiatives and lower commodity costs affecting inventory and accounts payable, as well as increases in accrued liabilities and taxes payable, partially offset by a decrease in related party payables—net. The decrease in net current assets and liabilities in 2009 was partially offset by pension plan contributions. The increase in net current assets and liabilities in 2008 was primarily attributable to inventory builds. Net cash used in investing activities decreased slightly due to an $11.9 million cash inflow before taxes related to the sale of a non-strategic intangible asset, partly offset by an $8.6 million increase in capital expenditures. The increase in cash flow provided by financing activities during 2009 was due to the $782.3 million net cash proceeds from the IPO and a $97.7 million net transfer from BMS offset by a $602.8 million repayment of related party debt and dividend payments of $61.4 million. The net transfer from BMS included in financing activities during 2009 consisted mainly of a $286.0 million cash contribution from BMS offset by a $176.8 million settlement of related party payables. The decrease in cash flow used in financing activities during 2008 largely represents the transfer of cash to BMS.

Cash flow provided by operating activities includes $140.9 million paid to BMS for interest expense and corporate and shared services. Of this amount, $59.3 million of interest expense was paid from the IPO proceeds and $52.5 million of interest and $29.1 million for corporate services was paid post-IPO through September 30, 2009. Cash flow provided by financing activities includes a $51.0 million dividend payment to BMS.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Net cash provided by operating activities increased $10.3 million to $489.0 million for the year ended December 31, 2008 compared to the year ended December 31, 2007. This increase was due to a reduction in working capital in 2008 as compared to an increase in 2007, offset by a decline in net earnings attributable to shareholders of $28.6 million which was driven by IPO expenses and interest costs. The favorable change in working capital was due to increases in accounts payable and accrued expenses. Net cash used in investing activities increased $5.2 million to $79.4 million for the same period, due to an increase in capital expenditures and a decrease in the proceeds from the sale of equipment and a trademark.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Net cash provided by operating activities increased $120.3 million to $478.7 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. This increase was driven by a $24.3 million increase in net earnings attributable to shareholders and an increase of $68.8 million due to a reduced build in working capital in 2007 as compared to 2006. The favorable working capital change is due to changes in accounts payable and accrued expenses primarily due to increased commodity costs and salary and benefit

 

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accruals. Net cash used in investing activities increased $11.2 million to $74.2 million for the same period, primarily related to quality and capacity investments at MJN’s production facilities and an increase in capitalized software to support formulation management and web based sales capabilities.

Capital Expenditures

The cash outflow for capital expenditures was $59.3 million for the nine months ended September 30, 2009 compared to $50.7 million for the nine months ended September 30, 2008, reflecting additions and the increase in accounts payables for capital expenditures. MJN expects its capital expenditures to increase for the remainder of 2009 to support an expansion of its research and development facilities, additions to manufacturing capability and the initial investments in new information technology systems.

MJN’s capital expenditures increased $2.7 million to $81.1 million for the year ended December 31, 2008 compared to the year ended December 31, 2007, which is consistent with historical growth rates.

Debt

On August 26, 2008, Mead Johnson & Company (“MJC”), a wholly-owned subsidiary of MJN, declared and issued a dividend in the form of a 10-year intercompany note to E.R. Squibb, a subsidiary of BMS, in the amount of $2.0 billion, which was recorded as a reduction of equity. The note had an annual interest rate of 6.1% with interest payments settled no less than annually.

On February 17, 2009, this related party note payable was reduced to an aggregate principal amount of $1,744.2 million and amended and restructured into three separate notes issued by MJC and guaranteed by MJN. See “Agreements Between BMS and MJN and Other Related Party Transactions—Intercompany Notes”. The terms of these related party notes payable are detailed in the table below:

 

Description

  

Principal Amount

  

Interest Rate

  

Terms

2014 Note

   $744.2 million    LIBOR + 3.0%
per annum
   Annual amortization of $75.0 million payable in quarterly installments 2010 to 2014, remaining principal due on February 17, 2014

2016 Note

   $500.0 million    6.43% fixed    Interest due semi-annually, not subject to amortization, aggregate principal due on February 17, 2016

2019 Note

   $500.0 million    6.91% fixed    Interest due semi-annually, not subject to amortization, aggregate principal due on February 17, 2019

On November 5, 2009, MJN issued $500.0 million aggregate principal amount of 3.50% notes due 2014, $700.0 million aggregate principal amount of 4.90% notes due 2019 and $300.0 million aggregate principal amount of 5.90% notes due 2039. The net proceeds from the offering, less discounts and expenses, were approximately $1,482.7 million. MJN contributed the net proceeds of the offering, together with proceeds from a $200.0 million borrowing under its revolving credit facility and cash on hand, to MJC which used the money to repay all amounts owed to BMS under the 2014 Note, the 2016 Note and the 2019 Note. See “Recent Developments” and “Description of Certain Indebtedness of MJN”.

On January 31, 2009, Mead Johnson Venezuela, S.C.A., a wholly-owned indirect subsidiary of MJN, issued a note payable with the local currency equivalent of $5.8 million to Bristol-Myers Squibb de Venezuela S.C.A., a wholly-owned subsidiary of BMS. During the second quarter, this note payable was paid in full.

 

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On January 31, 2009, Mead Johnson Nutricionales de Mexico, S. De R.L. de C.V., a subsidiary of MJN, entered into an agreement with BMS to lease all of the property, plant and equipment assets at the manufacturing facility in Delicias, Mexico, for 20 years. This facility is included in the financial statements of MJN for all periods. The lease qualifies as a capital lease, and MJN carries the property, plant and equipment in MJN’s financial statements. MJN recorded a lease liability of $41.5 million, representing the present value of the minimum lease payments set forth by the lease agreement. The liability is being amortized over the lease term. Prior to the completion of the exchange offer, MJN expects to purchase the leased assets and to terminate the lease, subject to customary closing conditions.

MJN believes that cash flows from operations and available borrowings under MJC’s revolving credit facility will be sufficient to service MJN’s debt.

Revolving Credit Facility Agreement

On February 17, 2009, MJC entered into a three-year syndicated revolving credit facility agreement (“Credit Facility”) for which MJN was a guarantor. On November 5, 2009, MJN opted to become the borrower, and MJC became only a guarantor. The Credit Facility is unsecured and repayable on maturity in February 2012, subject to annual extensions if sufficient lenders agree. The maximum amount of outstanding borrowings and letters of credit permitted at any one time under the facility agreement is $410.0 million, which amount may be increased from time to time up to $500.0 million at MJN’s request and with the consent of the lenders, subject to customary conditions contained in the Credit Facility. The proceeds of the Credit Facility are to be used for working capital and other general corporate purposes. As of September 30, 2009, MJN had $410.0 million available under the Credit Facility; in November 2009, MJN used $200.0 million in availability, together with cash on hand, to repay all remaining amounts owed to BMS under a floating rate note due 2014. See “Recent Developments”.

Borrowings under the Credit Facility bear interest either at (a) LIBOR for specified interest periods plus a margin determined with reference to MJN’s consolidated leverage ratio, or (b) a floating rate based upon JPMorgan Chase Bank’s prime rate, the Federal Funds rate or LIBOR plus, in each case, a margin determined with reference to MJN’s consolidated leverage ratio. The margin on the borrowings can range from 1.125% to 2.65% over the applicable base.

MJN’s subsidiaries may become borrowers under the Credit Facility.

The Credit Facility contains customary covenants, including covenants applicable to MJN limiting liens, substantial asset sales and mergers. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Credit Facility also contains the following financial covenants:

 

   

MJN is required to maintain a ratio of (a) consolidated total debt to (b) consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”) of not greater than 3.25 to 1.0. Compliance with this covenant is tested on the last day of each fiscal quarter and as a condition precedent to each credit extension under the Credit Facility.

 

   

MJN is required to maintain a ratio of (a) consolidated EBITDA to (b) consolidated interest expense of at least 3.00 to 1.00. Compliance with this covenant is tested on the last day of each fiscal quarter for the preceding four consecutive fiscal quarters.

In addition, the Credit Facility has customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, bankruptcy or insolvency proceedings, change of control, ERISA matters and cross-default to other debt agreements. MJN was in compliance with all debt covenants as of September 30, 2009.

 

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Contractual Obligations and Commitments

As of December 31, 2008, MJN’s significant contractual obligations and other commitments were as follows:

 

     Payments due by December 31,
(Dollars in millions)    2009    2010    2011    2012    2013    Thereafter    Total

Operating Lease Obligations

   $ 14.6    $ 7.7    $ 6.1    $ 5.5    $ 5.4    $ 25.8    $ 65.1

Capital Lease Obligations

     0.2      0.2      0.2      0.2      0.2      0.4      1.4

Purchase Obligations

     29.2      25.5      23.1      12.5      6.9      52.2      149.4

Related Party Debt*

     2,043.3      —        —        —        —        —        2,043.3
                                                

Total

   $ 2,087.3    $ 33.4    $ 29.4    $ 18.2    $ 12.5    $ 78.4    $ 2,259.2
                                                

 

* Amount represents the $2,000.0 million note payable to BMS and related interest. This note is classified as noncurrent on MJN’s balance sheet as it was amended and restructured on February 17, 2009 into three notes. In connection with the amendments, $255.8 million of the principal amount was forgiven. See “Note 21. Subsequent Events” to MJN’s audited financial statements included elsewhere in this prospectus. In November 2009, the three notes were repaid with proceeds of the Notes Offering described below, proceeds from a $200.0 million borrowing under the revolving credit facility and cash on hand.

MJN’s operating lease obligations are generally related to real estate leases for manufacturing assets or offices and vehicle leases. Capital lease obligations relate to assets utilized for interplant transportation of materials and finished goods. Purchase obligations are generally for unconditional commitments related to the purchase of materials used in manufacturing and for promotional services. The table above does not include $17.9 million in uncertain tax positions due to the uncertainty related to the timing of the reversal of those positions.

On January 16, 2009, MJN signed a 10-year contract with a dairy processing plant, commencing on January 1, 2010. The contract includes purchase obligations of $9.2 million per year and MJN can exit the contract after five years with three years’ notice.

On August 7, 2009, MJN entered into a master services agreement with IBM for information technology, finance and indirect procurement services and for the design and implementation of a global Enterprise Resource Planning system. The total commitment for the information technology, accounting and indirect procurement services included in the agreement is estimated to be approximately $307.0 million payable over 10 years beginning in the third quarter of 2009 with no single year’s payment expected to exceed approximately $37.0 million. The design and implementation of the global Enterprise Resource Planning system has an estimated cost of approximately $82.0 million, half of which is anticipated to be capitalized, payable over three years beginning in the third quarter of 2009.

On November 5, 2009, MJN issued $500.0 million aggregate principal amount of 3.50% notes due 2014, $700.0 million aggregate principal amount of 4.90% notes due 2019 and $300.0 million aggregate principal amount of 5.90% notes due 2039 (the “Notes Offering”). The net proceeds from the offering, less discounts and expenses, were approximately $1,482.7 million. MJN contributed the net proceeds of the offering, together with proceeds from a $200.0 million borrowing under its revolving credit facility and cash on hand, to MJC which used the money to repay all amounts owed to BMS under the 2014 Note, the 2016 Note and the 2019 Note. See “Recent Developments” and “Description of Certain Indebtedness of MJN”.

Critical Accounting Policies

In presenting MJN’s financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), MJN is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, costs and expenses and related disclosures.

 

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Some of the estimates and assumptions that MJN is required to make relate to matters that are inherently uncertain as they pertain to future events. MJN bases these estimates and assumptions on historical experience or on various other factors that MJN believes to be reasonable and appropriate under the circumstances. On an ongoing basis, MJN reconsiders and evaluates MJN’s estimates and assumptions. Actual results may differ significantly from these estimates. Future results may differ from MJN’s estimates under different assumptions or conditions.

MJN believes that the critical accounting policies listed below involve MJN’s more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on MJN’s financial statements.

For further information on MJN’s critical and other significant accounting policies, see MJN’s audited financial statements included elsewhere in this prospectus.

Basis of Presentation

MJN’s financial statements have been derived from the consolidated financial statements and accounting records of BMS, principally from statements and records representing the MJN business. The statements of earnings also include corporate and shared service expense allocations for certain corporate functions historically provided to MJN by BMS, including general corporate expenses such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, human resources, tax and other services. These allocations were based on specific identification or the percentage of MJN’s sales and headcount to the respective total BMS sales and headcount. These allocations are reflected in the statements of earnings, primarily within marketing, selling and administrative, and totaled $112.1 million, $90.1 million, and $80.7 million for the years ended December 31, 2008, 2007 and 2006, respectively. MJN considers these allocations to be a reasonable reflection of the utilization of services provided. The allocations may not, however, reflect the expense MJN would have incurred as a stand-alone company. Actual costs that may have been incurred if MJN had been a stand-alone company in 2008, 2007 and 2006 would depend on a number of factors, including MJN’s chosen organizational structure, what functions were outsourced or performed by MJN’s employees and strategic decisions made in areas such as information technology systems and infrastructure.

BMS has not allocated debt or external debt interest cost to MJN because none of the debt recorded by BMS is directly related to MJN’s business, which is self-funding.

Revenue Recognition

MJN recognizes sales in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition, when substantially all the risks and rewards of ownership have transferred to the customer. Sales are recognized on the date of receipt by the purchaser. Sales are reduced at the time of recognition to reflect expected returns that are estimated based on historical experience and business trends. Additionally, provisions are made at the time of sales recognition for discounts, WIC rebates and estimated sales allowances based on historical experience, updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction of sales. MJN offers sales incentives to customers and consumers through various programs consisting primarily of customer pricing allowances, merchandising funds and consumer coupons. The cost of these programs is recognized as incurred and recorded as a reduction of sales.

WIC rebate accruals were $194.7 million and $197.6 million at December 31, 2008, and 2007, respectively, which are included in accrued rebates and returns. MJN participates on a competitive bidding basis in nutrition programs sponsored by states, tribal governments, the Commonwealth of Puerto Rico, and U.S. territories for WIC. Under these programs, MJN reimburses these entities for the difference between MJN’s wholesaler list price and the contract price on eligible products. MJN accounts for WIC contract rebates by establishing an accrual in an amount equal to MJN’s estimate of WIC rebate claims attributable to a sale. MJN determines MJN’s estimate of the WIC rebate accrual primarily based on historical experience regarding WIC rebates and

 

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current contract prices under the WIC programs. MJN considers levels of inventory in the distribution channel, new WIC contracts, terminated WIC contracts, changes in existing WIC contracts and WIC participation, and adjusts the accrual quarterly to reflect actual expense. Rebates under the WIC program reduced sales by $796.0 million, $847.8 million, and $871.9 million in the years ended December 31, 2008, 2007 and 2006, respectively, and reduced sales by $569.0 million and $601.7 million in the nine months ended September 30, 2009 and 2008, respectively.

Sales return accruals were $29.3 million and $30.7 million at December 31, 2008 and 2007, respectively, which are included in accrued rebates and returns. MJN accounts for sales returns in accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 48, Revenue Recognition When Right of Return Exists, by establishing an accrual in an amount equal to MJN’s estimate of sales recorded for which the related products are expected to be returned. MJN determines MJN’s estimate of the sales return accrual primarily based on historical experience regarding sales returns, but also considers other factors that could impact sales returns. Returns reduced sales by $64.7 million, $67.6 million and $65.2 million for the years ended December 31, 2008, 2007 and 2006, respectively, and reduced sales by $54.2 million and $48.7 million for the nine months ended September 30, 2009 and 2008, respectively.

Income Taxes

During the periods presented, MJN did not file separate tax returns, as MJN was included in the tax grouping of other BMS entities within the respective entity’s tax jurisdiction. The income tax provision included in the financial statements was calculated using the separate return basis, as if MJN were a separate stand-alone taxpayer.

The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of MJN’s assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax attributes are expected to be recovered or paid, and are adjusted for changes in tax rates and tax laws when changes are enacted.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgment including the long-range forecast of future taxable income and the evaluation of tax planning initiatives. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are made.

With the exception of Mead Johnson-dedicated entities, MJN does not maintain taxes payable to or from BMS and are deemed to settle the annual current tax balances immediately with the tax paying legal entities in their respective jurisdictions. These settlements are reflected as changes in divisional equity.

MJN adopted the Financial Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 on January 1, 2007. As a result of the adoption of this accounting pronouncement, MJN derecognized $4.8 million of previously recognized tax benefits, which were accounted for as a decrease to the opening balance of divisional equity.

Impairment of Long-Lived Assets

MJN periodically evaluates whether current facts or circumstances indicate that the carrying value of MJN’s depreciable assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of

 

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assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. MJN reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value. Asset impairment or accelerated depreciation resulting from an assessment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, is recorded as costs of products sold.

Goodwill and Other Intangible Assets

Goodwill is tested for impairment using a two-step process on an annual basis or when current facts or circumstances indicate that a potential impairment may exist. The first step is to identify a potential impairment, and the second step measures the amount of the impairment loss, if any. Goodwill is deemed to be impaired if the carrying amount of a reporting unit’s goodwill exceeds its estimated fair value. MJN completes its annual goodwill impairment assessment during the first quarter and monitors for any potential impairment in the remaining quarters, neither of which indicated an impairment of goodwill in 2008, 2007 or 2006.

Other intangible assets, consisting of a trademark and computer software, are amortized on a straight-line basis over their useful lives, ranging from 3 to 7.5 years. All other intangible assets are evaluated for impairment as described in “Impairment of Long-Lived Assets” above.

Contingencies

In the normal course of business, MJN is subject to loss contingencies, such as legal proceedings and claims arising out of MJN’s business, that cover a wide range of matters, including, among others, government investigations, product and/or environmental, health, and safety liabilities, and tax matters. In accordance with SFAS No. 5, Accounting for Contingencies, MJN records accruals for such loss contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. MJN, in accordance with SFAS No. 5, does not recognize gain contingencies until realized. For a discussion of contingencies, see MJN’s audited financial statements included elsewhere in this prospectus.

Recently Issued Accounting Standards

Effective January 1, 2009, MJN adopted Statement of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations, which replaces SFAS No. 141, Business Combinations. This pronouncement requires recognition of assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. In a business combination achieved in stages, this statement requires recognition of identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values. This statement also requires the fair value of acquired in-process research and development to be recorded as indefinite lived intangibles, contingent consideration to be recorded on the acquisition date, and restructuring and acquisition-related deal costs to be expensed as incurred. In addition, any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in earnings. This statement applies to business combinations occurring on or after January 1, 2009. MJN’s adoption of SFAS 141(R) did not have a material effect on MJN’s financial statements.

Effective January 1, 2009, MJN adopted SFAS No. 157, Fair Value Measurements, with respect to non-financial assets and liabilities. This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. MJN’s adoption of SFAS No. 157 did not have a material effect on MJN’s financial statements.

 

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Effective January 1, 2009, MJN retrospectively adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent to be clearly identified, labeled and presented in the consolidated balance sheets within equity, but separate from the parent’s equity. This pronouncement also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statements of income. Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary must be accounted for consistently, and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary must be initially measured at fair value. The pronouncement also requires entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. As a result of adoption the following retrospective adjustments were made: the December 31, 2008 and 2007 noncontrolling interests balances of $5.4 million and $7.0 million, respectively, have been presented as part of total equity (deficit).

Effective January 1, 2009, MJN adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, as an amendment to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 161 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The fair value of derivative instruments and their gains and losses are presented in tabular format in order to present a more complete picture of the effects of using derivative instruments.

Effective June 30, 2009, MJN adopted SFAS No. 165, Subsequent Events. SFAS No. 165 establishes guidance for the accounting and disclosure of events that happen after the date of the balance sheet but before the release of the financial statements. The adoption of this accounting pronouncement did not have a material effect on MJN’s consolidated financial statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of SFAS No. 140. Among other items, SFAS No. 166 removes the concept of a qualifying special-purpose entity and clarifies that the objective of paragraph 9 of SFAS No. 140 is to determine whether a transferor and all the entities included in the transferor’s financial statements being presented have surrendered control over transferred financial assets. SFAS No. 166 is effective for MJN January 1, 2010. MJN does not expect the adoption of this pronouncement to have a material effect on the consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). SFAS No. 167 amends FIN 46(R) in determining whether an enterprise has a controlling financial interest in a variable interest entity. This determination identifies the primary beneficiary of a variable interest entity as the enterprise that has both the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance, and the obligation to absorb losses or the right to receive benefits of the entity that could potentially be significant to the variable interest entity. SFAS No. 167 also requires ongoing reassessments of whether an enterprise is the primary beneficiary and eliminates the quantitative approach previously required for determining the primary beneficiary. SFAS No. 167 is effective for MJN January 1, 2010. MJN does not expect the adoption of this pronouncement to have a material effect on the consolidated financial statements.

Effective July 1, 2009, the FASB issued SFAS No. 168, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 168 reduces the GAAP hierarchy to two levels, one that is authoritative and one that is not. The adoption of this pronouncement is not expected to have a material effect on the consolidated financial statements.

For additional discussion of recent accounting pronouncements, see MJN’s audited financial statements included elsewhere in this prospectus.

 

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Off-Balance Sheet Arrangements

MJN does not currently use off-balance sheet derivative financial instruments to hedge or partially hedge interest rate exposure nor does MJN currently maintain any other off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions or other financial or investment purposes.

Quantitative And Qualitative Disclosures About Market Risk

Inflation

The impact of inflation has affected, and will continue to affect, MJN’s operations significantly. MJN’s materials costs are influenced by inflation and fluctuations in global commodity prices, principally dairy, agricultural oils and tinplate. In addition, costs for construction, taxes, repairs, maintenance, insurance and media are all subject to inflationary pressures.

Foreign Exchange Risk

MJN is exposed to market risk due to changes in currency exchange rates. MJN’s primary net foreign currency translation exposures are the Chinese renminbi, the Mexican peso, the Philippine peso, the Hong Kong dollar and the Euro. Historically, MJN has used derivative financial instruments indirectly through participation in the centralized hedging functions of BMS, which are designed primarily to minimize exposure to foreign currency risk. In the future, MJN expects to use derivative financial instruments consistent with past use. MJN does not hold or issue derivative financial instruments for speculative purposes.

MJN uses foreign currency contracts to hedge anticipated transactions on certain foreign currencies and designate these derivative instruments as foreign currency cash flow hedges when appropriate. If the derivative is designated as a cash flow hedge, the change in the fair value of the derivative is initially recorded in other comprehensive income and then recognized in MJN’s statement of earnings when the corresponding hedged item impacts MJN’s earnings. The foreign currency derivatives resulted in losses of $0.9 million, $2.6 million, and $5.1 million in the years ended December 31, 2008, 2007 and 2006, respectively. The impact of hedge ineffectiveness on MJN’s earnings was not material.

MJN plans to enter into hedging and other foreign exchange management arrangements to reduce the risk of foreign currency exchange rate fluctuations to the extent that cost-effective derivative financial instruments or other non-derivative financial instrument approaches are available. Derivative financial instruments will not be used for speculative purposes. The intent of gains and losses on hedging transactions is to offset the respective gains and losses on the underlying exposures being hedged. While MJN intends to mitigate some of this risk with hedging and other activities, MJN’s business will nevertheless remain subject to substantial foreign exchange risk from foreign currency translation exposures that MJN will not be able to manage through effective hedging or the use of other financial instruments.

Commodity Risk

MJN purchases certain products in the normal course of business, including dairy and agricultural oils, the costs of which are affected by global commodity changes. Therefore, MJN is exposed to some price volatility related to market conditions outside of MJN’s control.

MJN employs various purchasing and pricing contract techniques in an effort to minimize volatility. Generally these techniques include setting fixed prices with suppliers, such as unit pricing that is based on an average of commodity prices over a contractually defined period of time. MJN does not generally make use of financial instruments to hedge commodity prices, partly because of these contract pricing techniques.

 

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Natural Gas Contracts

MJN utilizes forward contracts to hedge forecasted purchases of natural gas, and designates these derivative instruments as cash flow hedges when appropriate. Natural gas forward contracts are valued using quoted NYMEX futures prices for natural gas at the reporting date.

The following table summarizes MJN’s fair value of outstanding derivat