TUP 10Q 10.1.11
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
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x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the 13 weeks ended October 1, 2011
OR |
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o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition period from to
Commission file number 1-11657
________________________________________
TUPPERWARE BRANDS CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________
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Delaware | 36-4062333 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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14901 South Orange Blossom Trail, Orlando, Florida | 32837 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (407) 826-5050
________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | x | | Accelerated filer | o |
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Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 4, 2011, 57,363,447 shares of the common stock, $0.01 par value, of the registrant were outstanding.
TABLE OF CONTENTS
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| | Page Number |
PART I. FINANCIAL INFORMATION |
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Item 1. | Financial Statements (Unaudited) | |
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| 13 weeks ended October 1, 2011 and September 25, 2010 | |
| 40 weeks ended October 1, 2011 and 39 weeks ended September 25, 2010 | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. OTHER INFORMATION |
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Item 2. | | |
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Item 6. | | |
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Item 1. | Financial Statements (Unaudited) |
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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| | | | | | | |
| 13 weeks ended | | 13 weeks ended |
(Dollars in millions, except per share amounts) | October 1, 2011 | | September 25, 2010 |
| | | |
Net sales | $ | 602.6 |
| | $ | 523.2 |
|
Cost of products sold | 201.7 |
| | 176.8 |
|
Gross margin | 400.9 |
| | 346.4 |
|
| | | |
Delivery, sales and administrative expense | 328.7 |
| | 284.6 |
|
Re-engineering and impairment charges | 2.2 |
| | 0.4 |
|
Impairment of goodwill and intangible assets | 36.1 |
| | — |
|
Gains on disposal of assets | — |
| | 0.2 |
|
Operating income | 33.9 |
| | 61.6 |
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| | | |
Interest income | 0.8 |
| | 0.6 |
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Interest expense | 8.0 |
| | 7.1 |
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Other expense | 0.7 |
| | 2.0 |
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Income before income taxes | 26.0 |
| | 53.1 |
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| | | |
Provision for income taxes | 15.5 |
| | 13.2 |
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Net income | $ | 10.5 |
| | $ | 39.9 |
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Earnings per share: | |
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Basic | $ | 0.18 |
| | $ | 0.64 |
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Diluted | 0.17 |
| | 0.62 |
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Weighted-average shares outstanding: | |
| | |
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Basic | 59.1 |
| | 62.6 |
|
Diluted | 60.5 |
| | 63.8 |
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| | | |
Dividends declared per common share | $ | 0.30 |
| | $ | 0.25 |
|
See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| | | | | | | |
| 40 weeks ended | | 39 weeks ended |
(Dollars in millions, except per share amounts) | October 1, 2011 | | September 25, 2010 |
| | | |
Net sales | $ | 1,908.9 |
| | $ | 1,645.4 |
|
Cost of products sold | 636.2 |
| | 542.6 |
|
Gross margin | 1,272.7 |
| | 1,102.8 |
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Delivery, sales and administrative expense | 1,012.3 |
| | 886.7 |
|
Re-engineering and impairment charges | 4.7 |
| | 4.0 |
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Impairment of goodwill and intangible assets | 36.1 |
| | — |
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Gains on disposal of assets | 0.7 |
| | 0.2 |
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Operating income | 220.3 |
| | 212.3 |
|
| | | |
Interest income | 2.5 |
| | 1.7 |
|
Interest expense | 41.1 |
| | 21.6 |
|
Other expense | 0.6 |
| | 2.6 |
|
Income before income taxes | 181.1 |
| | 189.8 |
|
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Provision for income taxes | 49.7 |
| | 44.9 |
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Net income | $ | 131.4 |
| | $ | 144.9 |
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Earnings per share: | |
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Basic | $ | 2.15 |
| | $ | 2.31 |
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Diluted | 2.10 |
| | 2.26 |
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Weighted-average shares outstanding: | | | |
Basic | 61.1 |
| | 62.6 |
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Diluted | 62.5 |
| | 63.9 |
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Dividends declared per common share | $ | 0.90 |
| | $ | 0.75 |
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See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(Dollars in millions, except share amounts) | October 1, 2011 | | December 25, 2010 |
ASSETS | |
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Cash and cash equivalents | $ | 110.2 |
| | $ | 248.7 |
|
Accounts receivable, less allowances of $28.0 million in 2011 and $32.4 million in 2010 | 187.2 |
| | 181.9 |
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Inventories | 329.2 |
| | 279.1 |
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Deferred income tax benefits, net | 75.3 |
| | 78.5 |
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Non-trade amounts receivable, net | 72.2 |
| | 39.4 |
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Prepaid expenses and other current assets | 29.6 |
| | 21.6 |
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Total current assets | 803.7 |
| | 849.2 |
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Deferred income tax benefits, net | 375.3 |
| | 391.3 |
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Property, plant and equipment, net | 265.6 |
| | 258.0 |
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Long-term receivables, less allowances of $23.8 million in 2011 and $18.8 million in 2010 | 24.6 |
| | 22.8 |
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Trademarks and tradenames | 160.6 |
| | 170.2 |
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Other intangible assets, net | 8.0 |
| | 10.2 |
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Goodwill | 246.5 |
| | 284.1 |
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Other assets, net | 37.6 |
| | 30.0 |
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Total assets | $ | 1,921.9 |
| | $ | 2,015.8 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | |
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Accounts payable | $ | 119.1 |
| | $ | 153.1 |
|
Short-term borrowings and current portion of long-term debt and capital lease obligations | 215.7 |
| | 1.9 |
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Accrued liabilities | 368.8 |
| | 345.4 |
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Total current liabilities | 703.6 |
| | 500.4 |
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Long-term debt and capital lease obligations | 416.7 |
| | 426.8 |
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Other liabilities | 254.1 |
| | 298.8 |
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Shareholders' equity: | |
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Preferred stock, $0.01 par value, 200,000,000 shares authorized; none issued | — |
| | — |
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Common stock, $0.01 par value, 600,000,000 shares authorized; 63,607,090 shares issued | 0.6 |
| | 0.6 |
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Paid-in capital | 122.2 |
| | 108.0 |
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Retained earnings | 1,025.1 |
| | 969.2 |
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Treasury stock 5,590,483 and 900,754 shares in 2011 and 2010, respectively, at cost | (339.8 | ) | | (41.5 | ) |
Accumulated other comprehensive loss | (260.6 | ) | | (246.5 | ) |
Total shareholders' equity | 547.5 |
| | 789.8 |
|
Total liabilities and shareholders' equity | $ | 1,921.9 |
| | $ | 2,015.8 |
|
See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| | | | | | | |
| 40 weeks ended | | 39 weeks ended |
(In millions) | October 1, 2011 | | September 25, 2010 |
Operating Activities: | | | |
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Net income | $ | 131.4 |
| | $ | 144.9 |
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Adjustments to reconcile net income to net cash provided by operating activities: | |
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Depreciation and amortization | 38.3 |
| | 37.0 |
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Equity compensation | 10.2 |
| | 8.0 |
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Amortization and write-off of deferred debt costs | 1.3 |
| | 0.5 |
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Interest rate swap impairment | 18.9 |
| | — |
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Net loss (gain) on disposal of assets | 1.1 |
| | (0.1 | ) |
Provision for bad debts | 8.9 |
| | 9.4 |
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Write-down of inventories | 10.8 |
| | 16.0 |
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Non-cash impact of impairment costs | 36.1 |
| | — |
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Net change in deferred income taxes | (13.5 | ) | | (10.0 | ) |
Excess tax benefits from share-based payment arrangements | (8.1 | ) | | (5.4 | ) |
Changes in assets and liabilities: | |
| | |
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Accounts and notes receivable | (17.3 | ) | | (7.8 | ) |
Inventories | (68.2 | ) | | (64.7 | ) |
Non-trade amounts receivable | (4.8 | ) | | (4.8 | ) |
Prepaid expenses | (8.3 | ) | | (3.9 | ) |
Other assets | (2.9 | ) | | (2.0 | ) |
Accounts payable and accrued liabilities | (14.0 | ) | | 0.2 |
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Income taxes payable | (16.4 | ) | | (7.7 | ) |
Other liabilities | (6.5 | ) | | 2.0 |
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Net cash impact from hedging activity | (4.2 | ) | | (7.6 | ) |
Other | (0.1 | ) | | (0.5 | ) |
Net cash provided by operating activities | 92.7 |
| | 103.5 |
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Investing Activities: | |
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Capital expenditures | (49.3 | ) | | (34.6 | ) |
Proceeds from disposal of property, plant and equipment | 3.2 |
| | 9.5 |
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Net cash used in investing activities | (46.1 | ) | | (25.1 | ) |
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Financing Activities: | |
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Dividend payments to shareholders | (56.1 | ) | | (47.2 | ) |
Net proceeds from issuance of senior notes(1) | 393.3 |
| | — |
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Proceeds from exercise of stock options | 15.2 |
| | 12.9 |
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Repurchase of common stock | (337.8 | ) | | (30.6 | ) |
Repayment of long-term debt and capital lease obligations | (406.9 | ) | | (1.7 | ) |
Net change in short-term debt | 213.7 |
| | 0.6 |
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Debt issuance costs | (3.0 | ) | | — |
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Excess tax benefits from share-based payment arrangements | 8.1 |
| | 5.4 |
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Net cash used in financing activities | (173.5 | ) | | (60.6 | ) |
Effect of exchange rate changes on cash and cash equivalents | (11.6 | ) | | (7.4 | ) |
Net change in cash and cash equivalents | (138.5 | ) | | 10.4 |
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Cash and cash equivalents at beginning of year | 248.7 |
| | 112.4 |
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Cash and cash equivalents at end of period | $ | 110.2 |
| | $ | 122.8 |
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(1) In addition to the debt discount, proceeds from issuance of senior notes was reduced by $2.6 million for non-cash debt issuance costs.
See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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Note 1: | Summary of Significant Accounting Policies |
Basis of Presentation: The condensed consolidated financial statements include the accounts of Tupperware Brands Corporation and its subsidiaries, collectively “Tupperware” or the “Company”, with all intercompany transactions and balances having been eliminated. These condensed consolidated financial statements and related notes should be read in conjunction with the 2010 audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 25, 2010.
Certain prior year amounts have been reclassified to conform with current year presentation.
These condensed consolidated financial statements are unaudited and have been prepared following the rules and regulations of the United States Securities and Exchange Commission and, in the Company's opinion, reflect all adjustments, including normal recurring items that are necessary for a fair statement of the results for the interim periods. Certain information and note disclosures normally included in the statement of financial position, results of operations and cash flows prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. Operating results of any interim period presented herein are not necessarily indicative of the results that may be expected for a full fiscal year.
The Company's fiscal year ends on the last Saturday of December and, as a result, the 2011 fiscal year will contain 53 weeks, as compared with 52 weeks for fiscal 2010. In addition, the year-to-date period ending October 1, 2011 contained 40 weeks, as compared with 39 weeks for the year-to-date period ending September 25, 2010.
Out-of-Period Amounts: In the second quarter of 2010, the Company identified certain accounting errors in its Consolidated Financial Statements for the first quarter of 2010 and periods prior to 2010. These errors were corrected in the second quarter of 2010. To correct these errors, the Company recorded in the Consolidated Statement of Income for the 13 weeks ended June 26, 2010 a $4.0 million reduction of net sales and increases of $0.5 million of cost of products sold and $5.9 million of delivery, sales and administrative expense (DS&A). The after tax impact of recording these amounts was an $8.8 million reduction of net income or 14 cents per diluted share, of which $2.8 million related to the first quarter of 2010 and the remaining $6.0 million related to periods prior to 2010. The amounts related to errors identified in the financial reporting at the Company's Russian subsidiary, which resulted in overstatements of sales, including promotional credits that had not been recorded timely, prepaid expenses that should have been reflected in expenses in earlier time periods, inappropriate levels of accruals for certain promotional events and other operating liabilities and insufficient bad debt reserves. The Company determined that the errors were not material to the financial statements in the periods in which they originated or the period in which they were corrected, and, accordingly, a restatement of prior financial statements was not necessary.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.
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Note 2: | Shipping and Handling Costs |
The cost of products sold line item includes costs related to the purchase and manufacture of goods sold by the Company. Among these costs are inbound freight charges, purchasing and receiving costs, inspection costs, depreciation expense, internal transfer costs and warehousing costs of raw material, work in process and packing materials. The warehousing and distribution costs of finished goods are included in DS&A expense. Distribution costs are comprised of outbound freight and associated labor costs. Fees billed to customers associated with the distribution of products are classified as revenue. The distribution costs included in DS&A expense for the third quarters of 2011 and 2010 were $36.3 million and $31.7 million, respectively, and were $113.7 million and $98.5 million for the year-to-date periods ended October 1, 2011 and September 25, 2010, respectively.
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Note 3: | Promotional Accruals |
The Company frequently makes promotional offers to members of its independent sales force to encourage them to fulfill specific goals or targets for sales levels, party attendance, recruiting of new sales force members or other business-critical functions. The awards offered are in the form of cash, product awards, special prizes or trips.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The Company accrues for the costs of these awards during the period over which the sales force qualifies for the award and reports these costs primarily as a component of DS&A expense. These accruals require estimates as to the cost of the awards, based upon estimates of achievement and actual cost to be incurred. During the qualification period, actual results are monitored and changes to the original estimates are made when known. Promotional and other sales force compensation expenses included in DS&A expense totaled $106.9 million and $87.6 million for the third quarters of 2011 and 2010, respectively, and $331.8 million and $287.5 million for the year-to-date periods ended October 1, 2011 and September 25, 2010, respectively.
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| October 1, 2011 | | December 25, 2010 |
| (in millions) |
Finished goods | $ | 220.0 |
| | $ | 184.7 |
|
Work in process | 27.4 |
| | 20.0 |
|
Raw materials and supplies | 81.8 |
| | 74.4 |
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Total inventories | $ | 329.2 |
| | $ | 279.1 |
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Note 5: | Net Income Per Common Share |
Basic per share information is calculated by dividing net income by the weighted average number of shares outstanding. Diluted per share information is calculated by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. The Company's potential common stock consists of employee and director stock options, restricted stock, restricted stock units and performance share units. Performance share awards are included in the diluted per share calculation when the performance criteria are achieved. The Company's potential common stock is excluded from the basic per share calculation and is included in the diluted per share calculation when doing so would not be anti-dilutive.
The Company accounts for unvested share based payment awards with a nonforfeitable right to receive dividends (participating securities) using the two-class method of computing earnings per share. The Company had no unvested share-based payment awards outstanding that were classified as participating securities in the third quarter and year-to-date period of 2011. The Company had 0.1 million and 0.2 million in unvested share-based payment awards outstanding that were classified as participating securities in the third quarter and year-to-date period of 2010, respectively. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities, according to dividends declared and participation rights in undistributed earnings. Under that method, net income is reduced by the amount of dividends declared in the current period for common shareholders and participating security holders. The remaining earnings, or “undistributed earnings”, are allocated between common stock and participating securities to the extent that each security would share in earnings as if all of the earnings for the period had been distributed. In applying the two-class method, the Company determined that undistributed earnings should be allocated equally on a per share basis for common stock and participating securities due to the rights of the participating security holders and the Company's history of paying dividends equally on a per share basis.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The elements of the earnings per share computations were as follows (in millions, except per share amounts):
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| | | | | | | | | | | | | | | |
| 13 weeks ended | | 13 weeks ended | | 40 weeks ended | | 39 weeks ended |
| October 1, 2011 | | September 25, 2010 | | October 1, 2011 | | September 25, 2010 |
Net income | $ | 10.5 |
| | $ | 39.9 |
| | $ | 131.4 |
| | $ | 144.9 |
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Less dividends declared: | | | | | | | |
To common shareholders | 17.6 |
| | 15.9 |
| | 55.3 |
| | 47.4 |
|
To participating security holders | — |
| | — |
| | — |
| | 0.2 |
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Total undistributed (deficit)/earnings | $ | (7.1 | ) | | $ | 24.0 |
| | $ | 76.1 |
| | $ | 97.3 |
|
| | | | | | | |
Undistributed (deficit)/earnings to common shareholders | $ | (7.1 | ) | | $ | 23.9 |
| | $ | 76.1 |
| | $ | 97.0 |
|
Undistributed earnings to participating security holders | — |
| | 0.1 |
| | — |
| | 0.3 |
|
Net income available to common shareholders for basic and diluted earnings per share | $ | 10.5 |
| | $ | 39.8 |
| | $ | 131.4 |
| | $ | 144.4 |
|
| | | | | | | |
Weighted-average shares of common stock outstanding | 59.1 |
| | 62.6 |
| | 61.1 |
| | 62.6 |
|
Common equivalent shares: | | | | | | | |
Assumed exercise of dilutive options, restricted shares, restricted stock units and performance share units | 1.4 |
| | 1.2 |
| | 1.4 |
| | 1.3 |
|
Weighted-average common and common equivalent shares outstanding | 60.5 |
| | 63.8 |
| | 62.5 |
| | 63.9 |
|
| | | | | | | |
Basic earnings per share | $ | 0.18 |
| | $ | 0.64 |
| | $ | 2.15 |
| | $ | 2.31 |
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| | | | | | | |
Diluted earnings per share | $ | 0.17 |
| | $ | 0.62 |
| | $ | 2.10 |
| | $ | 2.26 |
|
| | | | | | | |
Shares excluded from the determination of potential common stock because inclusion would have been anti-dilutive | 0.1 |
| | 0.5 |
| | 0.2 |
| | 0.5 |
|
| |
Note 6: | Comprehensive Income |
In addition to net income, comprehensive income included certain amounts recorded directly in equity. The components of comprehensive income, net of related income tax effects, for the respective periods were as follows (in millions):
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| | | | | | | | | | | | | | | |
| 13 weeks ended | | 13 weeks ended | | 40 weeks ended | | 39 weeks ended |
| October 1, 2011 | | September 25, 2010 | | October 1, 2011 | | September 25, 2010 |
Net income | $ | 10.5 |
| | $ | 39.9 |
| | $ | 131.4 |
| | $ | 144.9 |
|
Foreign currency translation adjustments | (78.1 | ) | | 22.9 |
| | (32.5 | ) | | 3.2 |
|
Deferred gain (loss) on cash flow hedges, net of tax provision (benefit) of $(0.1) million for the third quarter 2010 and $8.1 and $(0.3) million for the 2011 and 2010 respective year-to-date periods. | 2.6 |
| | (0.3 | ) | | 16.5 |
| | (0.7 | ) |
Pension and other post-retirement costs, net of tax provision of $0.4 and $0.2 million for the third quarters of 2011 and 2010, respectively, and $1.2 and $0.6 million for the year-to-date periods of 2011 and 2010, respectively. | 1.6 |
| | 0.5 |
| | 1.9 |
| | 1.8 |
|
Comprehensive (loss) income | $ | (63.4 | ) | | $ | 63.0 |
| | $ | 117.3 |
| | $ | 149.2 |
|
Accumulated other comprehensive loss is comprised of amounts related to pension liabilities, foreign currency translation adjustments and hedge activity.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 7: | Re-engineering Costs |
The Company recorded $2.2 million and $4.7 million in re-engineering and impairment charges during the third quarter and year-to-date periods of 2011, primarily related to severance costs incurred to reduce head count in its Argentina, Australia, France, Greece, Japan, Malaysia, Mexico, Spain, and United States operations mainly due to implementing changes in the businesses' management structures and the decision to cease operating its Nutrimetics business in Malaysia.
The Company recorded $0.4 million and $4.0 million in re-engineering and impairment charges during the third quarter and year-to-date periods of 2010, respectively, primarily related to severance costs incurred in its Argentina, Australia, BeautiControl, France, Greece, Japan and Mexico operations, also mainly due to implementing changes in the businesses' management structures, as well as for facility relocation costs in Japan.
The balances included in accrued liabilities related to re-engineering and impairment charges as of October 1, 2011 and December 25, 2010 were as follows (in millions):
|
| | | | | | | |
| October 1, 2011 | | December 25, 2010 |
Beginning of the year balance | $ | 2.4 |
| | $ | 1.5 |
|
Provision | 4.7 |
| | 7.6 |
|
Cash expenditures: |
|
| | |
|
Severance | (4.2 | ) | | (5.5 | ) |
Other | (0.9 | ) | | (1.1 | ) |
Non-cash asset impairments | — |
| | (0.1 | ) |
End of period balance | $ | 2.0 |
| | $ | 2.4 |
|
The accrual balance as of October 1, 2011, relates primarily to severance payments expected to be made by the end of the second quarter of 2012. In connection with the decision to cease operations at Nutrimetics Malaysia, the Company recorded a $1.2 million charge to cost of sales for inventory obsolescence.
Note 8: Goodwill and Intangible Assets
The Company's goodwill and intangible assets relate primarily to the December 2005 acquisition of the direct selling businesses of Sara Lee Corporation and the October 2000 acquisition of BeautiControl.
The Company does not amortize its tradename intangible assets or goodwill. Instead, the Company tests these assets for impairment annually, or more frequently if events or changes in circumstances indicate they may be impaired. Certain tradenames are allocated between multiple reporting units. The impairment test for the Company's tradenames involves comparing the estimated combined fair value of the assets to the combined carrying amounts, to determine if a write-down to fair value is required. If the carrying amount of a tradename exceeds its estimated fair value, an impairment charge is recognized in an amount equal to the excess. The impairment test for goodwill involves comparing the fair value of a reporting unit to its carrying amount, including goodwill, after any intangible asset impairment charges. If the carrying amount of the reporting unit exceeds its fair value, a second step is required to measure for any goodwill impairment loss. This step revalues all assets and liabilities of the reporting unit to their current fair value and then compares the implied fair value of the reporting unit's goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.
In prior years, the Company recorded impairment charges related to its NaturCare, Nutrimetics and South African businesses, in part, due to the fact that current and forecasted future results of operations were below its prior projections. Also contributing to the previous impairments was an overall increase to the assumed discount rates used in the valuations. In the third quarter of 2011, the Company completed the annual impairment tests for all of the reporting units and tradenames, other than BeautiControl, which was completed in the second quarter. During the third quarter of 2011, the financial results of Nutrimetics were below expectations. As well, the Company made the decision to cease operating its Nutrimetics business in Malaysia. As a result, the Company lowered its forecast of future sales and profit. The result of the impairment tests was to record a $31.1 million impairment to the Nutrimetics goodwill in the Asia Pacific reporting unit and a $5.0 million impairment to its tradename.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Fair value of the reporting units is determined by the Company using either the income approach or a combination of the income and market approach with generally a greater weighting on the income approach (75 percent). When the characteristics of the reporting unit are more similar to the guideline public companies in terms of size, markets and economy then a more equal weighting is used between the income and market approaches. The income approach, or discounted cash flow approach, requires significant assumptions to determine the fair value of each reporting unit. The significant assumptions used in the income approach include estimates regarding future operations and the ability to generate cash flows, including projections of revenue, costs, utilization of assets and capital requirements. It also requires estimates as to the appropriate discount rates to be used. The most sensitive estimate in this valuation is the projection of operating cash flows, as these provide the basis for the fair market valuation. The Company’s cash flow model uses forecasts for periods of about 10 years and a terminal value. The significant 2011 assumptions for these forecasts included annual revenue growth rates ranging from zero to 12.0 percent with an average growth rate of 6 percent. The growth rates are determined by reviewing historical results of these units and the historical results of the Company’s other business units that are similar to those of the reporting units, along with the expected contribution from growth strategies implemented in the units. Terminal values for all reporting units were calculated using a long-term growth rate of 3 percent. In estimating the fair value of the reporting units in 2011, the Company applied discount rates to its reporting units’ projected cash flows ranging from 11.6 to 22.3 percent. The discount rate at the high end of this range was for the Avroy Shlain and Latin American reporting units due to higher country-specific risk. The market approach relies on an analysis of publicly-traded companies similar to Tupperware and deriving a range of revenue and profit multiples. The publicly-traded companies used in the market approach were selected based on their having similar product lines of consumer goods, beauty products and/or companies using a direct-selling distribution method. The resulting multiples were then applied to the reporting unit to determine fair value.
The fair value of the Company’s tradenames was determined using the relief from royalty method, which is a form of the income approach. In this method, the value of the asset is calculated by selecting royalty rates, which estimate the amount a company would be willing to pay for the use of the asset. These rates were applied to the Company’s projected revenue, tax affected and discounted to present value using an appropriate rate. Royalty rates used were selected by reviewing comparable trademark licensing agreements in the market, and a range from 3.0 to 4.75 percent was used in 2011. In estimating the fair value of the tradenames, the Company also applied a discount rate ranging from 12.6 to 22.3 percent, and revenue growth ranging from zero to 12 percent, with an average growth rate of 6 percent, and a long-term terminal growth rate of 3 percent. Similar to the rates used in valuing goodwill, the discount rates toward the high end of the range related to tradenames located in areas with higher country risks, including revenue generated using the Avroy Shlain tradenames in South Africa and the Nuvo tradename in Uruguay.
With the goodwill impairment recorded in the current year for Nutrimetics Asia Pacific, this unit is at a higher risk of additional impairments in future periods if changes in certain assumptions occur. This is also the case for the Nutrimetics tradename value, as the fair value was set equal to carrying value in the current period. The fair value of the Avroy Shlain, Fuller Mexico, Fuller Philippines, NaturCare and Nutrimetics Europe reporting units as well as the Nuvo and Avroy Shlain trade names exceeded the carrying value by over 65 percent at the valuation date. The fair value of the Fuller Latin America and BeautiControl reporting units exceeded the carrying value by almost 45 percent. The fair value of the Company’s Fuller and NaturCare tradenames showed an excess of 29 and 37 percent over carrying value, respectively. Given the sensitivity of the valuation to changes in cash flow or market multiples, the Company may be required to recognize an impairment of goodwill or intangible assets in the future due to changes in market conditions or other factors related to the Company’s performance. Actual results below forecasted results or a decrease in the forecasted future results of the Company’s business plans or changes in interest rates could also result in an impairment charge, as could changes in market characteristics including additional declines in valuation multiples of comparable publicly-traded companies. Further impairment charges would have an adverse impact on the Company’s net income.
| |
Note 9: | Segment Information |
The Company manufactures and distributes a broad portfolio of products, primarily through independent direct sales consultants. Certain operating segments have been aggregated based upon consistency of economic substance, geography, products, production process, class of customers and distribution method.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Effective with the first quarter of 2011, the Company changed its segment reporting to reflect the geographic distribution of its businesses in accordance with how it views the operations. Since the acquisition of the direct selling businesses of Sara Lee Corporation in 2005, certain segments previously aggregated in Beauty Other have changed such that both Tupperware and beauty and personal care products contribute significantly to sales and profit, which has changed the way these businesses have been operated. Consequently, the Company no longer has a Beauty Other segment, and the businesses previously reported in that segment are now reported as follows: Tupperware Brands Philippines in Asia Pacific; the Company's Central America businesses in Tupperware North America; the Nutrimetics businesses in Europe and Asia Pacific (as applicable); and the businesses in South America as a separate geographic segment. Comparable information from 2010 has been reclassified to conform to the new presentation.
The Company's reportable segments include the following:
|
| |
Europe | Primarily design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware® brand. Europe also includes Avroy Shlain® and Nutrimetics® units that sell beauty and personal care products. Asia Pacific also sells beauty and personal care products in some of its units under the NaturCare®,Nutrimetics® and Fuller® brands.
|
Asia Pacific |
Tupperware North America |
Beauty North America | Premium cosmetics, skin care and personal care products marketed under the BeautiControl® and Armand Dupree® brands in the United States, Canada and Puerto Rico and the Fuller Cosmetics® brand in Mexico and Central America. |
South America | Both houseware and beauty products under the Fuller®, Nuvo® and Tupperware® brands. |
Worldwide sales of beauty and personal care products totaled $168.0 million and $158.9 million in the third quarters of 2011 and 2010, respectively, and $513.7 million and $475.8 million in the year-to-date periods ended October 1, 2011 and September 25, 2010, respectively.
|
| | | | | | | | | | | | | | | |
| 13 weeks ended | | 13 weeks ended | | 40 weeks ended | | 39 weeks ended |
(In millions) | October 1, 2011 | | September 25, 2010 | | October 1, 2011 | | September 25, 2010 |
Net sales: | | | | | | | |
Europe | $ | 169.0 |
| | $ | 155.5 |
| | $ | 623.8 |
| | $ | 566.5 |
|
Asia Pacific | 180.3 |
| | 145.2 |
| | 515.9 |
| | 409.0 |
|
Tupperware North America | 82.3 |
| | 78.5 |
| | 267.1 |
| | 246.2 |
|
Beauty North America | 99.4 |
| | 96.7 |
| | 303.0 |
| | 296.7 |
|
South America | 71.6 |
| | 47.3 |
| | 199.1 |
| | 127.0 |
|
Total net sales | $ | 602.6 |
| | $ | 523.2 |
| | $ | 1,908.9 |
| | $ | 1,645.4 |
|
| | | | | | | |
Segment profit: | | | |
| | | | |
Europe | $ | 16.3 |
| | $ | 16.6 |
| | $ | 98.2 |
| | $ | 89.3 |
|
Asia Pacific | 38.8 |
| | 29.5 |
| | 100.2 |
| | 73.3 |
|
Tupperware North America | 13.3 |
| | 9.8 |
| | 42.3 |
| | 38.2 |
|
Beauty North America | 4.7 |
| | 12.5 |
| | 27.3 |
| | 39.4 |
|
South America | 12.9 |
| | 7.4 |
| | 33.3 |
| | 14.6 |
|
Total segment profit | 86.0 |
| | 75.8 |
| | 301.3 |
| | 254.8 |
|
| | | | | | | |
Unallocated expenses | (14.5 | ) | | (16.0 | ) | | (41.5 | ) | | (41.3 | ) |
Re-engineering and impairment charges (a) | (2.2 | ) | | (0.4 | ) | | (4.7 | ) | | (4.0 | ) |
Impairment of goodwill and intangibles | (36.1 | ) | | — |
| | (36.1 | ) | | — |
|
Gains on disposal of assets | — |
| | 0.2 |
| | 0.7 |
| | 0.2 |
|
Interest expense, net | (7.2 | ) | | (6.5 | ) | | (38.6 | ) | | (19.9 | ) |
Income before taxes | $ | 26.0 |
| | $ | 53.1 |
| | $ | 181.1 |
| | $ | 189.8 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | | |
Identifiable assets: | | October 1, 2011 | | December 25, 2010 |
Europe | | $ | 424.0 |
| | $ | 397.8 |
|
Asia Pacific | | 354.6 |
| | 349.6 |
|
Tupperware North America | | 176.2 |
| | 165.3 |
|
Beauty North America | | 375.8 |
| | 419.2 |
|
South America | | 116.9 |
| | 95.1 |
|
Corporate | | 474.4 |
| | 588.8 |
|
Total identifiable assets | $ | 1,921.9 |
| | $ | 2,015.8 |
|
_________________________
| |
(a) | See Note 7 to the Consolidated Financial Statements for a discussion of re-engineering and impairment charges. |
Current Debt Structure
Notes Sold
On June 2, 2011, Tupperware Brands Corporation (the “Company”) completed the sale of $400 million in aggregate principal amount of 4.750% Senior Notes due June 1, 2021 (the “Notes”) at an issue price of 98.989%, pursuant to a purchase agreement, dated as of May 25, 2011, that included the Company and its wholly-owned subsidiary, Dart Industries Inc. (the “Guarantor”).
The Notes were issued under an Indenture, dated as of June 2, 2011 (the “Indenture”), between the Company, the Guarantor and Wells Fargo Bank, N.A. (the “Trustee”). As security for its obligations under the guarantee of the Notes, the Guarantor has granted a security interest in certain "Tupperware" trademarks and service marks. The guarantee and the lien securing the guarantee may be released under certain circumstances specified in the Indenture.
Prior to March 1, 2021, the Company may redeem the Notes, at its option, at a redemption price equal to 100 percent of the principal amount to be redeemed, accrued interest and a make-whole premium equal to the present value of the remaining scheduled payments of principal and interest. In determining the present value of the remaining scheduled payments, such payments shall be discounted to the redemption date using a discount rate equal to the Treasury Rate (as defined in the Indenture) plus 30 basis points. On or after March 1, 2021, the redemption price will equal 100 percent of the principal amount of the Notes to be redeemed.
The Indenture includes covenants which, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, (i) incur indebtedness secured by liens on real property, (ii) enter into sale and leaseback transactions, (iii) consolidate or merge with another entity, or sell or transfer all or substantially all of their properties and assets, and (iv) sell the capital stock of the Guarantor. In addition, upon a change of control, as defined in the Indenture, the Company may be required to make an offer to repurchase the Notes at 101 percent of their principal amount, plus accrued and unpaid interest. The Indenture also contains customary events of default. These restrictions are not expected to impact the Company's operations.
The Notes were initially sold to qualified institutional buyers in transactions pursuant to Rule 144A under the Securities Act of 1933. In connection with the sale, the Company and the Guarantor entered into a registration rights agreement with the Initial Purchasers (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company and the Guarantor have agreed to file with the Securities and Exchange Commission ("SEC") by November 29, 2011 a registration statement to offer to exchange the Notes for registered notes substantially identical to the Notes (except that the registered notes will not be subject to the additional interest provisions or restrictions on ownership or transfer that the Notes are), to use commercially reasonable efforts to cause such registration statement to be declared effective by December 29, 2011 and to consummate the exchange offer by February 27, 2012. If the Company and the Guarantor fail to comply with their obligations under the Registration Rights Agreement, the Company would be required to pay additional interest with respect to the Notes. The required registration statement was filed with the SEC on November 1, 2011.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Credit Agreement
Also on June 2, 2011, the Company and its wholly owned subsidiary Tupperware International Holdings B.V. (the “Subsidiary Borrower”), entered into a multicurrency Credit Agreement (the “Credit Agreement”) with a consortium of lenders led by JPMorgan Chase Bank, N.A. as administrative agent (the “Administrative Agent”). The Credit Agreement makes available to the Company and the Subsidiary Borrower a committed five-year credit facility in an aggregate amount of $450 million (the “Facility Amount”). The Credit Agreement provides (i) a revolving credit facility, available up to the full amount of the Facility Amount, (ii) a letter of credit facility, available up to $50 million of the Facility Amount, and (iii) a swingline facility, available up to $50 million of the Facility Amount. Each of such facilities is fully available to the Company and is available to the Subsidiary Borrower up to an aggregate amount not to exceed $225 million. The Company is permitted to increase, on up to three occasions, the Facility Amount by a total of up to $200 million (for a maximum aggregate Facility Amount of $650 million), subject to certain conditions. As of October 1, 2011, the Company had $213.6 million of borrowings outstanding under its $450 million Credit Agreement.
Loans made under the revolving credit facility bear interest under a formula that includes, at the Company's option, one of three different base rates. The Company generally selects the London interbank offered rate ("LIBOR") for the applicable currency and interest period as its base for its interest rate. As provided in the credit facility a margin is added to the base. The applicable margin is determined by reference to a pricing schedule based upon the ratio (the “Consolidated Leverage Ratio”) of the consolidated funded indebtedness of the Company and its subsidiaries to the consolidated EBITDA (as defined in the Credit Agreement) of the Company and its subsidiaries for the four (4) fiscal quarters then most recently ended. As of October 1, 2011, the Credit Agreement dictated a spread of 125 basis points, which gave the Company an interest rate at that time of 2.21 percent on borrowings under the Credit Agreement.
The Credit Agreement contains customary covenants that, among other things, generally restrict the Company's ability to incur subsidiary indebtedness, create liens on and sell assets, engage in liquidation or dissolutions, engage in mergers or consolidations, or change lines of business. These covenants are subject to significant exceptions and qualifications. The agreement also has customary financial covenants related to interest coverage and leverage. These restrictions are not expected to impact the Company's operations.
The Guarantor unconditionally guarantees all obligations and liabilities of the Company and the Subsidiary Borrower relating to this Credit Agreement through a security interest in certain "Tupperware" trademarks and service marks.
Use of Proceeds
In connection with the closing of the Credit Agreement, the company terminated its Credit Facility dated September 28, 2007 (the "Old Credit Facility"). The net proceeds from the issuance of the Notes, along with borrowings under the new Credit Agreement were used to repay all of the Company's $405 million outstanding term loans under the Old Credit Facility. As a result of the termination of the Old Credit Facility, the Company recorded a loss on the extinguishment of debt of $0.9 million of unamortized debt issuance costs, as well as an additional $18.9 million in interest expense reclassified from other comprehensive loss as hedges under related interest rate swaps became ineffective. As a result of the Notes offering and the execution of the new Credit Agreement, the Company incurred costs of $5.8 million of which $0.2 million were expensed and $5.6 million were capitalized as deferred finance costs.
At October 1, 2011, the Company had $338.7 million of unused lines of credit, including $233.3 million under the committed, secured $450 million Credit Agreement, and $105.4 million available under various uncommitted lines around the world.
Prior Debt Structure
Prior to its termination in connection with the signing of the new Credit Agreement, the Old Credit Facility consisted of an $800 million five-year senior secured agreement including a $200 million revolving credit facility and originally $600 million in term loans. There were $405 million in outstanding term loans at the date of termination. The interest rate charged on outstanding borrowings under the old revolving credit facility was a floating LIBOR base rate plus an applicable margin. Although the Old Credit Facility was a floating rate debt instrument, the Company was required to maintain at least 40 percent of the term loans outstanding at fixed rates, which was achieved through the use of interest rate swaps, as further discussed in Note 11 to the Consolidated Financial Statements. As of the date the Old Credit Facility was terminated, $325 million of the term loans had been swapped to fixed interest rates. The Old Credit Facility, which dictated a contractual spread of 62.5 basis points at its termination, combined with the swap agreements, gave the Company an all-in effective rate of about 4.5 percent on the previous term loans.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 11: | Derivative Instruments and Hedging Activities |
The Company markets its products in almost 100 countries and is exposed to fluctuations in foreign currency exchange rates on the earnings, cash flows and financial position of its international operations. Although this currency risk is partially mitigated by the natural hedge arising from the Company's local manufacturing in many markets, a strengthening U.S. dollar generally has a negative impact on the Company. In response to this fact, the Company uses financial instruments to hedge certain of its exposures and to manage the foreign exchange impact to its financial statements. At its inception, a derivative financial instrument used for hedging is designated as a fair value, cash flow or net equity hedge.
Fair value hedges are entered into with financial instruments such as forward contracts with the objective of limiting exposure to certain foreign exchange risks primarily associated with accounts receivable, accounts payable and non-permanent intercompany transactions. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings. In assessing hedge effectiveness, the Company excludes forward points, which are considered by the Company to be a component of interest expense. The forward points on fair value hedges resulted in pretax gains of $1.6 million and $1.7 million in third quarters of 2011 and 2010, respectively, and pretax gains of $5.7 million and $4.2 million for the respective year-to-date periods.
The Company also uses derivative financial instruments to hedge foreign currency exposures resulting from certain forecasted purchases and classifies these as cash flow hedges. The Company generally enters into cash flow hedge contracts for periods ranging from three to twelve months. The effective portion of the gain or loss on the hedging instrument is recorded in other comprehensive loss and is reclassified into earnings as the transactions being hedged are recorded. As such, the balance at the end of each reporting period in other comprehensive loss will be reclassified into earnings within the next twelve months. The associated asset or liability on the open hedges is recorded in other current assets or accrued liabilities, as applicable. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense. Forward points on cash flow hedges resulted in pretax losses of $0.4 million and $0.5 million in the third quarters of 2011 and 2010, respectively, and in pretax losses of $1.6 million for each of the year-to-date periods.
The Company also uses financial instruments, such as forward contracts, to hedge a portion of its net equity investment in international operations and classifies these as net equity hedges. Changes in the value of these derivative instruments, excluding any ineffective portion of the hedges, are included in foreign currency translation adjustments within accumulated other comprehensive income. The Company recorded a net gain (loss) associated with these hedges, in other comprehensive income, net of tax, of $18.2 million and $(4.1) million in the third quarter of 2011 and 2010, respectively, and a net gain (loss) of $7.1 million and $(4.2) million for the respective year-to-date periods. Due to the permanent nature of the investments, the Company does not anticipate reclassifying any portion of these amounts to the income statement in the next 12 months. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense. For the third quarters of 2011 and 2010, forward points on net equity hedges resulted in pretax losses of $2.5 million and $2.2 million, respectively, and they resulted in pretax losses of $7.9 million and $5.8 million for the respective year-to-date periods.
While the Company's net equity and fair value hedges of non-permanent intercompany balances mitigate its exposure to foreign exchange gains or losses, they result in an impact to operating cash flows as they are settled, whereas the hedged items do not generate offsetting cash flows. The cash flow impact of these currency hedges was an outflow of $4.2 million and $7.6 million for the year-to-date periods ending October 1, 2011 and September 25, 2010, respectively.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Following is a listing of the Company's outstanding derivative financial instruments at fair value as of October 1, 2011 and December 25, 2010. Related to the forward contracts, the “buy” amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the “sell” amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies, all translated at the period-end market exchange rates for the U.S. dollar. All forward contracts are hedging net investments in certain foreign subsidiaries, cross-currency intercompany loans that are not permanent in nature, cross-currency external payables and receivables or forecasted purchases. Some amounts are between two foreign currencies:
|
| | | | | | | | | | | | | | | | |
Forward Contracts | | October 1, 2011 | | December 25, 2010 |
(in millions) | | Buy | | Sell | | Buy | | Sell |
U.S. dollar | | $ | 41.7 |
| |
| | $ | 21.0 |
| |
|
Euro | | 39.7 |
| |
| | 65.2 |
| |
|
South African rand | | 11.3 |
| |
|
| |
|
| | $ | 1.2 |
|
Brazilian real | | 9.6 |
| |
|
| | 2.8 |
| |
|
Mexican peso | | 8.3 |
| |
|
| |
|
| | 0.2 |
|
Indonesian rupiah | | 8.2 |
| |
|
| | 17.5 |
| |
|
Malaysian ringgit | | 7.8 |
| |
|
| |
|
| | 0.3 |
|
New Zealand dollar | | 2.0 |
| |
|
| | 4.4 |
| |
|
|
South Korean won | | 0.6 |
| |
| | 12.5 |
| |
|
Hungarian forint | | 0.2 |
| |
| |
| | 1.9 |
|
Swiss franc | |
| | $ | 28.8 |
| |
| | 49.6 |
|
Japanese yen | |
| | 22.0 |
| |
| | 11.9 |
|
Turkish lira | |
|
| | 17.7 |
| |
|
| | 11.9 |
|
Australian dollar | |
|
| | 11.1 |
| |
|
| | 5.5 |
|
Russian ruble | |
|
| | 6.0 |
| |
|
| | 1.0 |
|
Polish zloty | |
|
| | 4.9 |
| |
|
| | 5.7 |
|
British pound | |
|
| | 4.1 |
| |
|
| | 3.3 |
|
Kazakhstan tenge | |
|
| | 3.7 |
| |
|
| | 2.6 |
|
Canadian dollar | |
|
| | 2.9 |
| |
|
| | 9.6 |
|
Croatian kuna | |
|
| | 2.6 |
| |
|
| | 2.6 |
|
Thai baht | |
|
| | 2.5 |
| |
|
| | 2.2 |
|
Norwegian krone | |
|
| | 2.2 |
| |
|
| | 1.8 |
|
Argentine peso | |
|
| | 1.7 |
| |
|
| | 7.6 |
|
Swedish krona | |
|
| | 1.7 |
| |
|
| | 1.5 |
|
Ukraine hryvnia | |
|
| | 1.3 |
| |
|
| | 1.3 |
|
Czech koruna | |
|
| | 1.1 |
| |
|
| | 1.6 |
|
Danish krone | |
|
| | 0.6 |
| |
|
| | — |
|
Other currencies (net) | |
|
| | 3.4 |
| |
| | 1.9 |
|
| | $ | 129.4 |
| | $ | 118.3 |
| | $ | 123.4 |
| | $ | 125.2 |
|
In agreements to sell foreign currencies in exchange for U.S. dollars, for example, an appreciating dollar versus the opposing currency would generate a cash inflow for the Company at settlement, with the opposite result in agreements to buy foreign currencies for U.S. dollars. The above noted notional amounts change based upon changes in the Company's outstanding currency exposures.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Under the Old Credit Facility, which was terminated during the second quarter of 2011 in conjunction with the signing of the new Credit Agreement, there was a requirement that the Company keep at least 40 percent of total borrowings at a fixed interest rate through September 2012. In September 2007, the Company entered into four interest rate swap agreements with notional values totaling $325 million that expired in 2012. Under the terms of these swap agreements, the Company received a floating rate equal to the 3 month U.S. dollar LIBOR and paid a weighted average fixed rate of about 4.8 percent. In 2011 and 2010, through the date of termination, the interest rate under the Old Credit Facility also included a spread of 62.5 basis points. As a result of the termination of the Old Credit Facility, the Company recorded $18.9 million in interest expense which was reclassified from other comprehensive loss as a result of the hedges under related interest rate swaps becoming ineffective.
During 2008, the Company entered into a forward interest rate agreement that swapped a portion of the Company's then outstanding LIBOR-based floating obligation into a fixed obligation for $100 million. The Company paid a weighted average rate of about 1.9 percent plus the spread under the Old Credit Facility. This agreement expired at the end of 2010.
The following tables summarize the Company's derivative positions and the impact they have on the Company's financial position as of October 1, 2011 and December 25, 2010:
|
| | | | | | | | | | | |
| October 1, 2011 |
| Asset derivatives | | Liability derivatives |
Derivatives not designated as hedging instruments (in millions) | Balance sheet location | | Fair value | | Balance sheet location | | Fair value |
Interest rate contracts | Non-trade amounts receivable | | $ | — |
| | Accrued liabilities | | $ | 14.0 |
|
Derivatives designated as hedging instruments (in millions) | | | | | | | |
Foreign exchange contracts | Non-trade amounts receivable | | 44.5 |
| | Accrued liabilities | | 33.3 |
|
Total derivatives instruments | | | $ | 44.5 |
| | | | $ | 47.3 |
|
| |
| December 25, 2010 |
| Asset derivatives | | Liability derivatives |
Derivatives designated as hedging instruments (in millions) | Balance sheet location | | Fair value | | Balance sheet location | | Fair value |
Interest rate contracts | Non-trade amounts receivable | | $ | — |
| | Other liabilities | | $ | 23.1 |
|
Foreign exchange contracts | Non-trade amounts receivable | | 16.1 |
| | Accrued liabilities | | 17.7 |
|
Total derivatives designated as hedging instruments | | | $ | 16.1 |
| | | | $ | 40.8 |
|
The following tables summarize the Company's derivative positions and the impact they had on the Company's results of operations and comprehensive income for the third quarters ended October 1, 2011 and September 25, 2010:
|
| | | | | | | | | | | | | | | | | | |
Derivatives designated as fair value hedges (in millions) | | Location of gain or (loss) recognized in income on derivatives | | Amount of gain or (loss) recognized in income on derivatives | | Location of gain or (loss) recognized in income on related hedged items | | Amount of gain or (loss) recognized in income on related hedged items |
| | | | 2011 | 2010 | | | | 2011 | 2010 |
Foreign exchange contracts | | Other expense | | $ | (23.9 | ) | $ | 3.0 |
| | Other expense | | $ | 23.7 |
| $ | (3.8 | ) |
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives designated as cash flow and net equity hedges (in millions) | | Amount of gain or (loss) recognized in OCI on derivatives (effective portion) | | Location of gain or (loss) reclassified from accumulated OCI into income (effective portion) | | Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion) | | Location of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) | | Amount of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) |
Cash flow hedging relationships | | 2011 | 2010 | | | | 2011 | 2010 | | | | 2011 | 2010 |
Interest rate contracts | | $ | — |
| $ | (0.1 | ) | | Interest expense | | $ | — |
| $ | — |
| | Interest expense | | $ | — |
| $ | 0.1 |
|
Foreign exchange contracts | | 2.7 |
| — |
| | Cost of products sold and DS&A | | 0.8 |
| 0.5 |
| | Interest expense | | (0.4 | ) | (0.5 | ) |
Net equity hedging relationships | | | | | | | | | | | | | |
Foreign exchange contracts | | 28.4 |
| (6.4 | ) | | Other expense | | — |
| — |
| | Interest expense | | (2.5 | ) | (2.2 | ) |
The following tables summarize the Company's derivative positions and the impact they had on the Company's results of operations and comprehensive income for the year-to-date periods ended October 1, 2011 and September 25, 2010:
|
| | | | | | | | | | | | | | | | | | |
Derivatives designated as fair value hedges (in millions) | | Location of gain or (loss) recognized in income on derivatives | | Amount of gain or (loss) recognized in income on derivatives | | Location of gain or (loss) recognized in income on related hedged items | | Amount of gain or (loss) recognized in income on related hedged items |
| | | | 2011 | 2010 | | | | 2011 | 2010 |
Foreign exchange contracts | | Other expense | | $ | (3.1 | ) | $ | — |
| | Other expense | | $ | 3.1 |
| $ | (0.9 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives designated as cash flow and net equity hedges (in millions) | | Amount of gain or (loss) recognized in OCI on derivatives (effective portion) | | Location of gain or (loss) reclassified from accumulated OCI into income (effective portion) | | Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion) | | Location of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) | | Amount of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) |
Cash flow hedging relationships | | 2011 | 2010 | | | | 2011 | 2010 | | | | 2011 | 2010 |
Interest rate contracts | | $ | 4.1 |
| $ | (0.1 | ) | | Interest expense | | $ | — |
| $ | — |
| | Interest expense | | $ | (18.9 | ) | $ | 0.2 |
|
Foreign exchange contracts | | (0.2 | ) | 0.3 |
| | Cost of products sold and DS&A | | 2.5 |
| 0.6 |
| | Interest expense | | (1.6 | ) | (1.6 | ) |
Net equity hedging relationships | | | | | | | | | | | | | |
Foreign exchange contracts | | 11.1 |
| (6.6 | ) | | Other expense | | — |
| — |
| | Interest expense | | (7.9 | ) | (5.8 | ) |
| |
Note 12: | Fair Value Measurements |
The Company applies the applicable accounting guidance for fair value measurements. This guidance provides the definition of fair value, describes the method used to appropriately measure fair value in accordance with generally accepted accounting principles and outlines fair value disclosure requirements.
The fair value hierarchy established under this guidance prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1-Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Level 2-Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted prices, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3-Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value from the perspective of a market participant.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Some fair value measurements, such as those related to foreign currency forward contracts and interest rate swaps, are performed on a recurring basis, while others, such as those related to evaluating goodwill and other intangibles for impairment, are performed on a nonrecurring basis.
|
| | | | | | | | | | | | | | | | |
Description of Assets (in millions) | | October 1, 2011 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Money market funds | | $ | 9.3 |
| | $ | 9.3 |
| | $ | — |
| | $ | — |
|
Foreign currency derivative contracts | | 44.5 |
| | — |
| | 44.5 |
| | — |
|
Total | | $ | 53.8 |
| | $ | 9.3 |
| | $ | 44.5 |
| | $ | — |
|
| | | | | | | | |
Description of Liabilities (in millions) | | |
| | |
| | |
| | |
|
Interest rate swaps | | $ | 14.0 |
| | $ | — |
| | $ | 14.0 |
| | $ | — |
|
Foreign currency derivative contracts | | 33.3 |
| | — |
| | 33.3 |
| | — |
|
Total | | $ | 47.3 |
| | $ | — |
| | $ | 47.3 |
| | $ | — |
|
| | | | | | | | |
Description of Assets (in millions) | | December 25, 2010 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Money market funds | | $ | 30.2 |
| | $ | 30.2 |
| | $ | — |
| | $ | — |
|
Foreign currency derivative contracts | | 16.1 |
| | — |
| | 16.1 |
| | — |
|
Total | | $ | 46.3 |
| | $ | 30.2 |
| | $ | 16.1 |
| | $ | — |
|
| | | | | | | | |
Description of Liabilities (in millions) | | |
| | |
| | |
| | |
|
Interest rate swaps | | $ | 23.1 |
| | $ | — |
| | $ | 23.1 |
| | $ | — |
|
Foreign currency derivative contracts | | 17.7 |
| | — |
| | 17.7 |
| | — |
|
Total | | $ | 40.8 |
| | $ | — |
| | $ | 40.8 |
| | $ | — |
|
The Company markets its products in almost 100 countries and is exposed to fluctuations in foreign currency exchange rates on the earnings, cash flows and financial position of its international operations. The Company uses financial instruments to hedge certain of its exposures and to manage the foreign exchange impact to its financial statements. As of October 1, 2011 and December 25, 2010, the Company held foreign currency forward contracts to hedge various currencies which had a net fair value, determined based on third party quotations, of positive $11.2 million and negative $1.6 million, respectively. Changes in fair market value are recorded either in other comprehensive income or earnings, depending on the designation of the hedge as outlined in Note 11 to the Consolidated Financial Statements.
The fair value of interest rate swap contracts was based on the discounted net present value of the swap using third party quotes. Changes in fair market value were recorded in other comprehensive income through the termination date of the related credit facility, and changes resulting from ineffectiveness, which were not material, have been recorded in current earnings.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Included in the Company's cash equivalents balances as of October 1, 2011 and December 25, 2010 were $9.3 million and $30.2 million, respectively, in money market funds, which are highly liquid investments with a maturity of three months or less. These assets are classified within Level 1 of the fair value hierarchy, as the money market funds are valued using quoted market prices in active markets.
Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis
The following table presents information about assets and liabilities measured at fair value on a non-recurring basis as of October 1, 2011, and indicates the placement in the fair value hierarchy of the valuation techniques utilized to determine such fair value.
|
| | | | | | | | | | | | | | | | |
Description of Assets (in millions) | | October 1, 2011 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Intangible Assets | | $ | 22.3 |
| | $ | — |
| | $ | — |
| | $ | 22.3 |
|
Goodwill | | 7.3 |
| | — |
| | — |
| | 7.3 |
|
Total | | $ | 29.6 |
| | $ | — |
| | $ | — |
| | $ | 29.6 |
|
In the third quarter of 2011, the Company completed the annual impairment tests for all of the reporting units and tradenames, other than BeautiControl, which was completed in the second quarter. As a result, goodwill allocated to the Nutrimetics Asia Pacific reporting units was written down to its implied fair value of $7.3 million. Additionally, intangible assets relating to the Company’s Nutrimetics tradename was written down to its implied fair value of $22.3 million. Refer to Note 8 to the Consolidated Financial Statements for further discussion of goodwill and tradename impairments.
Fair Value of Financial Instruments
Due to their short maturities or their insignificance, the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, accrued liabilities and short-term borrowings approximated their fair values at October 1, 2011 and December 25, 2010. The Company estimates that, based on current market conditions, the value of its 4.750% 2021 Notes debt was $412 million at October 1, 2011 compared with the carrying value of $396 million. The higher fair value resulted from changes, since issuance, in the corporate bond market and investor preferences.
| |
Note 13: | Retirement Benefit Plans |
Components of net periodic benefit cost for the third quarter and year-to-date periods ended October 1, 2011 and September 25, 2010 were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
| Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits |
| 2011 | 2010 | | 2011 | 2010 | | 2011 | 2010 | | 2011 | 2010 |
Service cost | $ | 2.6 |
| $ | 2.4 |
| | $ | — |
| $ | — |
| | $ | 7.8 |
| $ | 7.0 |
| | $ | 0.1 |
| $ | — |
|
Interest cost | 2.6 |
| 2.5 |
| | 0.4 |
| 0.6 |
| | 7.8 |
| 7.5 |
| | 1.3 |
| 1.5 |
|
Expected return on plan assets | (1.7 | ) | (1.7 | ) | | — |
| — |
| | (5.0 | ) | (4.9 | ) | | — |
| — |
|
Settlement/Curtailment | — |
| — |
| | — |
| — |
| | 1.0 |
| — |
| | — |
| — |
|
Net amortization | 1.0 |
| 0.8 |
| | (0.1 | ) | (0.1 | ) | | 2.8 |
| 2.5 |
| | (0.3 | ) | (0.2 | ) |
Net periodic benefit cost | $ | 4.5 |
| $ | 4.0 |
| | $ | 0.3 |
| $ | 0.5 |
| | $ | 14.4 |
| $ | 12.1 |
| | $ | 1.1 |
| $ | 1.3 |
|
During the year-to-date periods of 2011 and 2010, approximately $3.5 million and $2.3 million, respectively, were reclassified from other comprehensive income to a component of net periodic benefit cost. As they relate to foreign plans, the Company uses current exchange rates to make these reclassifications. The impact of exchange rate fluctuations is included on the net amortization line of the table above.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
As of October 1, 2011 and December 25, 2010, the Company's gross unrecognized tax benefit was $30.2 million and $27.3 million, respectively. The accrual for uncertain tax positions increased for positions being taken in various global tax filings, and the impact of foreign currency fluctuations. The Company estimates that approximately $25.0 million of the unrecognized tax benefits, if recognized, would impact the effective tax rate. Interest and penalties related to uncertain tax positions in the Company's global operations are recorded as a component of the provision for income taxes. Accrued interest and penalties were $5.8 million and $5.1 million as of October 1, 2011 and December 25, 2010, respectively.
The Company estimates that it may settle one or more foreign audits in the next twelve months that may result in a decrease in the amount of accrual for uncertain tax positions of up to $2.0 million. For the remaining balance as of October 1, 2011, the Company is not able to reliably estimate the timing or ultimate settlement amount. While the Company does not currently expect material changes, it is possible that the amount of unrecognized benefit with respect to the uncertain tax positions will significantly increase or decrease related to audits in various foreign jurisdictions that may conclude during that period or new developments that could also, in turn, impact the Company's assessment relative to the establishment of valuation allowances against certain existing deferred tax assets. At this time, the Company is not able to make a reasonable estimate of the range of impact on the balance of unrecognized tax benefits or the impact on the effective tax rate related to these items.
The effective tax rate for the third quarter of 2011 was 59.3 percent, compared with 24.8 percent for the comparable 2010 period. The increase was due to intangible impairment charges recorded in the third quarter of 2011for which no tax benefit was available. The effective tax rate for the year to date period ending October 1, 2011 was 27.4 percent, compared with 23.7 percent for the comparable 2010 period, with the change primarily due to the above item impacting the quarter, offset in part by the tax benefit from the Company's refinancing costs incurred in the second quarter. On a year-to-date basis, the effective tax rates are below the U.S. statutory rate, primarily due to lower foreign effective tax rates. As a result of tax law changes in Mexico, a tax election was made during the first quarter that resulted in a reduction of $20.4 million of deferred tax liabilities. The Company also incurred discrete tax costs of $16.8 million during the first quarter due to the Company's decision to repatriate earnings from Australia and certain foreign units that were previously determined to be indefinitely reinvested, in order to take advantage of historically favorable exchange rates.
| |
Note 15: | Statement of Cash Flow Supplemental Disclosure |
Under the Company's stock incentive programs, employees are allowed to use shares to satisfy minimum statutorily required withholding taxes. In the year-to-date periods of 2011 and 2010, 30,108 and 34,586 shares, respectively, were retained to fund withholding taxes, with values totaling $1.6 million and $1.5 million, respectively, which were included as a component of stock repurchases in the Consolidated Statement of Cash Flows. For the year-to-date period ended September 25, 2010, the Company acquired $4.6 million of property, plant and equipment under capital lease arrangements. There were no such capital lease arrangements initiated in 2011.
| |
Note 16: | Stock Based Compensation |
The Company records compensation expense using the applicable accounting guidance for share-based payments related to stock options, restricted stock, restricted stock units and performance share awards granted to directors and employees. Compensation expense for share-based awards is recorded straight line over the required service period, based on the fair value of the award.
Stock Options
Stock options to purchase the Company's common stock are granted to employees, upon approval by the Company's Board of Directors, with an exercise price equal to the fair market value of the stock on the date of grant. Options generally become exercisable in three years, in equal installments beginning one year from the date of grant, and generally expire 10 years from the date of grant. No stock options were granted in the year-to-date periods of 2011 or 2010. Compensation expense associated with all outstanding stock option awards was $0.5 million and $0.7 million in the third quarters of 2011 and 2010, respectively, and $1.4 million and $2.0 million in the year-to-date periods of 2011 and 2010, respectively.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Stock option activity for 2011, under all of the Company's incentive plans, is summarized in the following table:
|
| | | | | | | | | | | | | |
| Outstanding | | Exercisable |
Stock options | Shares subject to option | | Weighted average exercise price per share | | Shares subject to option exercisable at end of period | | Weighted average exercise price per share |
Balance at December 25, 2010 | 3,535,204 |
| | $ | 27.43 |
| | 2,591,135 |
| | $ | 23.69 |
|
Granted | — |
| | — |
| | |
| | |
|
Expired / Forfeited | (2,484 | ) | | 48.30 |
| | |
| | |
|
Exercised | (680,562 | ) | | 22.36 |
| | |
| | |
|
Balance at October 1, 2011 | 2,852,158 |
| | $ | 28.62 |
| | 1,953,624 |
| | $ | 24.06 |
|
The intrinsic value of options exercised totaled $1.9 million and $5.0 million, respectively, in the third quarters of 2011 and 2010 and $23.1 million and $17.9 million in the respective year-to-date periods.
Performance Awards, Restricted Stock and Restricted Stock Units
The Company also grants performance awards, restricted stock and restricted stock units to employees and directors. The Company has time-vested and performance-vested awards, which typically have initial vesting periods ranging from one to six years. Compensation expense associated with restricted stock and restricted stock units is equal to the market value of the Company's common stock on the date of grant, and for time-vested awards, is recorded straight-line over the required service period. For performance-vested awards, expense is recorded over the required service period, subject to a probability assessment of achieving the performance criteria.
The Company granted 101,000 shares of time-vested restricted stock in January 2011 with a weighted average fair value of $56.67 per share that vest over a period of 3 years from the date of grant. In May 2011, the Company granted 18,707 time-vested restricted stock units with a fair value of $66.05 per share that vest over one year from date of grant. The Company also granted performance-vested awards totaling 73,975 shares under its performance share plan in February 2011. The Company's performance-vested awards, granted under its performance share plan, provide incentive opportunity based on the overall success of the Company, as reflected through cash flow and earnings per share achieved over a three year performance period. The program is based upon a pre-defined number of performance share units. Depending on achievement under the performance measures, the actual payout can be up to 150 percent of shares initially granted. In January 2010, the Company granted 6,255 shares of time-vested restricted stock with a fair value of $42.54 per share that vest over an average period of 2.6 years. In May 2010, the Company granted 24,180 time-vested restricted stock units with a fair value of $47.05 per share that vested over one year from date of grant. The Company also granted performance-vested awards totaling 61,400 shares under its performance share plan in February 2010.
For the third quarters of 2011 and 2010, compensation expense associated with all employee and director restricted stock and restricted stock unit awards outstanding, including performance shares, was $2.9 million and $2.1 million, respectively. Such expense was $8.8 million and $6.0 million for the year-to-date periods of 2011 and 2010, respectively.
Restricted stock, restricted stock units, and performance share award activity for 2011 under all of the Company's incentive plans is summarized in the following table:
|
| | | | | | |
| Shares outstanding | | Weighted average grant date fair value |
Balance at December 25, 2010 | 987,739 |
| | $ | 25.86 |
|
Granted | 193,682 |
| | 56.85 |
|
Performance share adjustments | 14,233 |
| | 54.76 |
|
Vested | (213,300 | ) | | 23.14 |
|
Forfeited | (9,339 | ) | | 36.45 |
|
Balance at October 1, 2011 | 973,015 |
| | $ | 33.09 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The fair value of performance awards, restricted stock and restricted stock units vested was $0.1 million in the third quarter of 2010, and $11.2 million and $7.3 million in the first nine months of 2011 and 2010, respectively. There were no such amounts vested in the third quarter of 2011. As of October 1, 2011, total unrecognized stock based compensation expense related to all stock based awards was $19.8 million, which is expected to be recognized over a weighted average period of 24 months. The average remaining contractual life on outstanding and exercisable stock options was 5.8 years and 4.8 years, respectively.
| |
Note 17: | Allowance for Long-Term Receivables |
The Company maintains current receivable amounts with most of its independent distributors and sales force in certain markets. It also maintains long-term receivable amounts with certain of these customers. The Company regularly monitors and assesses its risk of not collecting amounts owed to it by customers. This evaluation is based upon an analysis of amounts current and past due, along with relevant history and facts particular to the customer. It is also based upon estimates of distributor business prospects, particularly related to the evaluation of the recoverability of long-term amounts due. This evaluation is performed market by market and account by account based upon historical experience, market penetration levels, access to alternative channels and similar factors. It also considers collateral of the customer that could be recovered to satisfy debts. The Company records its allowance for uncollectible accounts based on the results of this analysis. The analysis requires the Company to make significant estimates and as such, changes in facts and circumstances could result in material changes in the allowance for doubtful accounts. The Company considers any receivable balance not collected within its contractual terms past due. As of October 1, 2011, $28.7 million of long-term receivables from both active and inactive customers were considered past due, the majority of which were reserved through the Company's allowance for uncollectible accounts.
The balance of the allowance for long-term receivables as of October 1, 2011 was as follows (in millions):
|
| | | |
Balance at December 25, 2010 | $ | 18.8 |
|
Write-offs | (2.8 | ) |
Recoveries | (1.1 | ) |
Provision (a) | 8.5 |
|
Currency translation adjustment | 0.4 |
|
Balance at October 1, 2011 | $ | 23.8 |
|
(a) Provision includes $4.7 million of reclassifications from current receivables.
| |
Note 18: | Guarantor Information |
The Company's payment obligations under the Notes are fully and unconditionally guaranteed by certain "Tupperware" trademarks and service marks owned by the Guarantor, as discussed in Note 10 to the Consolidated Financial Statements.
Condensed consolidated financial information as of October 1, 2011 and December 25, 2010 and for the quarter-to-date and year-to-date periods ended October 1, 2011 and September 25, 2010 for Tupperware Brands Corporation (the "Parent"), Dart Industries Inc. (the "Guarantor") and all other subsidiaries (the "Non-Guarantors") is as follows. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent and Guarantor of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation. Note that there are certain entities within the Non-Guarantors classification which the Parent owns directly.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | |
| October 1, 2011 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
ASSETS | |
| | |
| | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 0.1 |
| | $ | 110.1 |
| | $ | — |
| | $ | 110.2 |
|
Accounts receivable, net | — |
| | — |
| | 187.2 |
| | — |
| | 187.2 |
|
Inventories | — |
| | — |
| | 329.2 |
| | — |
| | 329.2 |
|
Deferred income tax benefits, net | — |
| | 25.4 |
| | 53.0 |
| | (3.1 | ) | | 75.3 |
|
Non-trade amounts receivable, net | 0.3 |
| | 19.3 |
| | 52.2 |
| | 0.4 |
| | 72.2 |
|
Intercompany receivables | 1,501.8 |
| | 3,242.4 |
| | 1,413.2 |
| | (6,157.4 | ) | | — |
|
Prepaid expenses and other current assets | 1.5 |
| | 3.8 |
| | 64.9 |
| | (40.6 | ) | | 29.6 |
|
Total current assets | 1,503.6 |
| | 3,291.0 |
| | 2,209.8 |
| | (6,200.7 | ) | | 803.7 |
|
| | | | | | | | | |
Deferred income tax benefits, net | 76.5 |
| | 141.0 |
| | 157.8 |
| | — |
| | 375.3 |
|
Property, plant and equipment, net | — |
| | 22.8 |
| | 242.8 |
| | — |
| | 265.6 |
|
Long-term receivables, net | — |
| | 0.1 |
| | 24.5 |
| | — |
| | 24.6 |
|
Trademarks and tradenames | — |
| | — |
| | 160.6 |
| | — |
| | 160.6 |
|
Other intangible assets, net | — |
| | — |
| | 8.0 |
| | — |
| | 8.0 |
|
Goodwill | — |
| | 2.9 |
| | 243.6 |
| | — |
| | 246.5 |
|
Investments in subsidiaries | 2,635.2 |
| | 1,727.3 |
| | — |
| | (4,362.5 | ) | | — |
|
Intercompany notes receivable | 96.3 |
| | 510.7 |
| | 1,462.6 |
| | (2,069.6 | ) | | — |
|
Other assets, net | 28.1 |
| | 8.2 |
| | 114.2 |
| | (112.9 | ) | | 37.6 |
|
Total assets | $ | 4,339.7 |
| | $ | 5,704.0 |
| | $ | 4,623.9 |
| | $ | (12,745.7 | ) | | $ | 1,921.9 |
|
| |
| | |
| | |
| | |
| | |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| | |
| | |
| | |
|
Accounts payable | $ | — |
| | $ | — |
| | $ | 119.1 |
| | $ | — |
| | $ | 119.1 |
|
Short-term borrowings and current portion of long-term debt and capital lease obligations | 213.6 |
| | — |
| | 2.1 |
| | — |
| | 215.7 |
|
Intercompany payables | 2,768.4 |
| | 2,226.4 |
| | 1,162.6 |
| | (6,157.4 | ) | | — |
|
Accrued liabilities | 48.0 |
| | 69.5 |
| | 319.3 |
| | (68.0 | ) | | 368.8 |
|
Total current liabilities | 3,030.0 |
| | 2,295.9 |
| | 1,603.1 |
| | (6,225.4 | ) | | 703.6 |
|
| | | | | | | | | |
Long-term debt and capital lease obligations | 396.1 |
| | — |
| | 20.6 |
| | — |
| | 416.7 |
|
Intercompany notes payable | 341.9 |
| | 1,120.6 |
| | 607.1 |
| | (2,069.6 | ) | | — |
|
Other liabilities | 24.2 |
| | 103.0 |
| | 215.1 |
| | (88.2 | ) | | 254.1 |
|
| | | | | | | | | |
Shareholders' equity | 547.5 |
| | 2,184.5 |
| | 2,178.0 |
| | (4,362.5 | ) | | 547.5 |
|
Total liabilities and shareholders' equity | $ | 4,339.7 |
| | $ | 5,704.0 |
| | $ | 4,623.9 |
| | $ | (12,745.7 | ) | | $ | 1,921.9 |
|
TUPPERWARE BRANDS CORPORATIO