VENEZUELA CURRENCY MATTERS

12 Months Ended

Dec. 31, 2015

VENEZUELA CURRENCY MATTERS [Abstract]

VENEZUELA CURRENCY MATTERS

VENEZUELA CURRENCY MATTERS

Discussion of Venezuela Exchange Rates

In January 2014, the Venezuelan government enacted changes affecting the country’s currency exchange and other controls, and established a new foreign currency administration, the National Center for Foreign Commerce (“CENCOEX”). CENCOEX assumed control of the sale and purchase of foreign currency in Venezuela, and has maintained the official exchange rate of 6.3 Bolivares Fuertes (“VEF”) to 1.0 U.S. dollar (“USD”) (the “Official Rate”). Additionally, the government expanded the types of transactions that may be subject to the weekly auction mechanism under the Complimentary Currency Administration System (“SICAD I”). For a period of time, the Venezuelan government announced plans for the Alternative Foreign Exchange System, also known as SICAD II, which was intended to more closely resemble a market-driven exchange.

In February 2015, the Venezuelan government combined the SICAD I and SICAD II (“SICAD”) exchange rate mechanisms and created a new market based SIMADI rate, which was generally based on supply and demand. The changes created a three tiered system. As of December 31, 2015, CENCOEX traded at 6.3 VEF to 1.0 USD, the SICAD auction markets traded at 13.5 VEF to 1.0 USD and the SIMADI traded at 198.7 VEF to 1.0 USD. The Company continues to assess the impact, if any, of these changes as the Venezuelan government issues regulations to implement them. Changes to exchange systems would impact the rate used by the Company to remeasure the net monetary assets of its Venezuelan subsidiary.

Effect on the Company’s Results

In 2014, MJN concluded that, among other items, future inter-company dividend remittances qualify for the purchase of foreign currency at the SICAD rate under the revised law. As such, MJN adopted the SICAD rate for purposes of remeasuring its Venezuelan subsidiary effective February 28, 2014. The remeasurement impact of this adoption was a loss of $6.1 million, which was recognized in MJN’s Statement of Earnings as a component of other (income)/expense - net.

During the years ended December 31, 2015 and 2014, the Company received U.S. dollars to make payments for intercompany purchases of inventory at the CENCOEX Official Rate that is more favorable than the SICAD rate used to remeasure net monetary assets of MJN’s Venezuelan subsidiary, which resulted in recognized gains of $2.4 million and $14.0 million, respectively.

For the years ended December 31, 2015 and 2014, the Venezuelan subsidiary’s net sales represented approximately 1.5% and 2.2% of total Company net sales. The Venezuelan subsidiary’s EBIT was not a material component of MJN consolidated results.

Access to Currency and Related Asset Exposures

Availability of U.S. dollars at the CENCOEX official rate have become more limited during 2015, and while we were able to secure U.S. dollars at the CENCOEX official rate through the first three quarters of 2015, we were not able to secure U.S. dollars during the fourth quarter of 2015.

The following sets forth selected information of our Venezuelan subsidiary as of December 31, 2015:    

Net Monetary Assets        $44 million (591.0 million Venezuelan Bolivares; SICAD of 13.5 VEF to 1.0 USD)

Net Non-Monetary Assets        $46 million (621.0 million Venezuelan Bolivares; based on a SICAD rate of 13.5 VEF to 1.0 USD)

MJN Intercompany Payables    $51 million (U.S Dollar denominated)

The intercompany payable represents amounts owed by our Venezuelan subsidiary to our subsidiaries in Mexico and the U.S. for purchases of inventory.