10-Q
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 September 26, 2015
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 October 29, 2015, 50,356,769 shares of the common stock, $0.01 par value, of the registrant were outstanding.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. | Financial Statements (Unaudited) | |
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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 | | 39 weeks ended |
(In millions, except per share amounts) | September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
Net sales | $ | 521.0 |
| | $ | 588.7 |
| | $ | 1,691.7 |
| | $ | 1,926.2 |
|
Cost of products sold | 172.5 |
| | 209.2 |
| | 553.2 |
| | 656.5 |
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Gross margin | 348.5 |
| | 379.5 |
| | 1,138.5 |
| | 1,269.7 |
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Delivery, sales and administrative expense | 288.5 |
| | 321.7 |
| | 912.0 |
| | 1,014.8 |
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Re-engineering and impairment charges | 0.3 |
| | 2.6 |
| | 18.0 |
| | 8.3 |
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Gains on disposal of assets | 2.0 |
| | — |
| | 13.4 |
| | 2.3 |
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Operating income | 61.7 |
| | 55.2 |
| | 221.9 |
| | 248.9 |
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| | | | | | | |
Interest income | 0.5 |
| | 0.8 |
| | 1.5 |
| | 2.0 |
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Interest expense | 11.3 |
| | 11.9 |
| | 36.6 |
| | 35.9 |
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Other expense (income) | 0.3 |
| | (3.8 | ) | | 8.6 |
| | 26.3 |
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Income before income taxes | 50.6 |
| | 47.9 |
| | 178.2 |
| | 188.7 |
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Provision for income taxes | 14.4 |
| | 15.6 |
| | 50.5 |
| | 56.6 |
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Net income | $ | 36.2 |
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| $ | 32.3 |
| | $ | 127.7 |
| | $ | 132.1 |
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Earnings per share: | |
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Basic | $ | 0.72 |
| | $ | 0.64 |
| | $ | 2.56 |
| | $ | 2.63 |
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Diluted | 0.72 |
| | 0.63 |
| | 2.54 |
| | 2.59 |
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Weighted-average shares outstanding: | | | |
| | | | |
Basic | 49.9 |
| | 50.2 |
| | 49.8 |
| | 50.2 |
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Diluted | 50.3 |
| | 51.0 |
| | 50.3 |
| | 51.1 |
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Dividends declared per common share | $ | 0.68 |
| | $ | 0.68 |
| | $ | 2.04 |
| | $ | 2.04 |
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See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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| 13 weeks ended | | 39 weeks ended |
(In millions) | September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
Net income | $ | 36.2 |
| | $ | 32.3 |
| | $ | 127.7 |
| | $ | 132.1 |
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Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | (65.5 | ) | | (26.7 | ) | | (110.1 | ) | | (20.3 | ) |
Deferred gain (loss) on cash flow hedges, net of tax provision of $0.8, $0.3, $0.2 and $0.0, respectively | 1.7 |
| | 1.0 |
| | (0.5 | ) | | 1.1 |
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Pension and other post-retirement income, net of tax provision of $0.3, $0.4, $1.4 and $0.8, respectively | 1.2 |
| | 0.8 |
| | 4.2 |
| | 1.6 |
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Other comprehensive income (loss) | (62.6 | ) | | (24.9 | ) | | (106.4 | ) | | (17.6 | ) |
Total comprehensive income (loss) | $ | (26.4 | ) | | $ | 7.4 |
| | $ | 21.3 |
| | $ | 114.5 |
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See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In millions, except share amounts) | September 26, 2015 | | December 27, 2014 |
ASSETS | |
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Cash and cash equivalents | $ | 93.1 |
| | $ | 77.0 |
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Accounts receivable, less allowances of $31.8 and $34.5, respectively | 158.6 |
| | 168.1 |
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Inventories | 285.7 |
| | 306.0 |
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Deferred income tax benefits, net | 105.5 |
| | 118.8 |
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Non-trade amounts receivable, net | 59.2 |
| | 61.8 |
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Prepaid expenses and other current assets | 26.2 |
| | 21.6 |
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Total current assets | 728.3 |
| | 753.3 |
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Deferred income tax benefits, net | 402.8 |
| | 416.7 |
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Property, plant and equipment, net | 254.7 |
| | 290.3 |
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Long-term receivables, less allowances of $11.9 and $13.1, respectively | 14.0 |
| | 17.3 |
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Trademarks and tradenames, net | 86.8 |
| | 104.2 |
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Other intangible assets, net | 0.3 |
| | 1.5 |
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Goodwill | 148.7 |
| | 164.7 |
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Other assets, net | 27.7 |
| | 32.0 |
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Total assets | $ | 1,663.3 |
| | $ | 1,780.0 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | |
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Accounts payable | $ | 94.7 |
| | $ | 142.8 |
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Short-term borrowings and current portion of long-term debt and capital lease obligations | 286.2 |
| | 221.4 |
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Accrued liabilities | 327.8 |
| | 383.2 |
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Total current liabilities | 708.7 |
| | 747.4 |
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Long-term debt and capital lease obligations | 608.9 |
| | 612.1 |
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Other liabilities | 221.0 |
| | 234.7 |
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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 | 198.0 |
| | 190.7 |
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Retained earnings | 1,364.1 |
| | 1,348.2 |
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Treasury stock, 13,590,146 and 13,924,568 shares, respectively, at cost | (922.9 | ) | | (945.0 | ) |
Accumulated other comprehensive loss | (515.1 | ) | | (408.7 | ) |
Total shareholders' equity | 124.7 |
| | 185.8 |
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Total liabilities and shareholders' equity | $ | 1,663.3 |
| | $ | 1,780.0 |
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See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| 39 weeks ended |
(In millions) | September 26, 2015 | | September 27, 2014 |
Operating Activities: | | | |
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Net income | $ | 127.7 |
| | $ | 132.1 |
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Adjustments to reconcile net income to net cash provided by operating activities: | |
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Depreciation and amortization | 46.6 |
| | 47.7 |
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Unrealized foreign exchange loss | 7.2 |
| | 29.2 |
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Equity compensation | 11.8 |
| | 11.5 |
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Amortization of deferred debt costs | 0.7 |
| | 0.5 |
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Net gains on disposal of assets | (13.1 | ) | | (2.2 | ) |
Provision for bad debts | 9.8 |
| | 10.3 |
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Write-down of inventories | 12.9 |
| | 14.5 |
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Non-cash impact of re-engineering and impairment costs | 13.5 |
| | 1.5 |
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Net change in deferred income taxes | (25.1 | ) | | (31.3 | ) |
Excess tax benefits from share-based payment arrangements | (2.5 | ) | | (8.8 | ) |
Changes in assets and liabilities: | |
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Accounts and notes receivable | (20.8 | ) | | (26.2 | ) |
Inventories | (34.5 | ) | | (59.3 | ) |
Non-trade amounts receivable | (0.7 | ) | | (6.5 | ) |
Prepaid expenses | (6.8 | ) | | (9.9 | ) |
Other assets | (1.4 | ) | | (2.0 | ) |
Accounts payable and accrued liabilities | (14.1 | ) | | (5.3 | ) |
Income taxes payable | (19.7 | ) | | (7.9 | ) |
Other liabilities | 1.8 |
| | 1.1 |
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Net cash impact from hedging activity | (21.1 | ) | | 0.1 |
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Net cash provided by operating activities | 72.2 |
| | 89.1 |
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Investing Activities: | |
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Capital expenditures | (42.4 | ) | | (46.0 | ) |
Proceeds from disposal of property, plant and equipment | 17.5 |
| | 6.1 |
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Net cash used in investing activities | (24.9 | ) | | (39.9 | ) |
Financing Activities: | |
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Dividend payments to shareholders | (103.6 | ) | | (101.0 | ) |
Proceeds from exercise of stock options | 7.6 |
| | 14.0 |
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Repurchase of common stock | (0.9 | ) | | (41.7 | ) |
Repayment of capital lease obligations | (2.1 | ) | | (2.5 | ) |
Net change in short-term debt | 82.0 |
| | 84.9 |
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Debt issuance costs | (0.7 | ) | | — |
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Excess tax benefits from share-based payment arrangements | 2.5 |
| | 8.8 |
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Net cash used in financing activities | (15.2 | ) | | (37.5 | ) |
Effect of exchange rate changes on cash and cash equivalents | (16.0 | ) | | (49.6 | ) |
Net change in cash and cash equivalents | 16.1 |
| | (37.9 | ) |
Cash and cash equivalents at beginning of year | 77.0 |
| | 127.3 |
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Cash and cash equivalents at end of period | $ | 93.1 |
| | $ | 89.4 |
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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 audited 2014 financial statements included in the Company's Annual Report on Form 10-K for the year ended December 27, 2014.
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 presentation of the results for the interim periods. Certain information and note disclosures normally included in the balance sheet, statements of income, comprehensive income 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.
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.
Venezuela Foreign Currency Translation: The bolivar to U.S. dollar exchange rates used in translating the Company’s operating activity were 6.3 in the first quarter of 2014, 10.8 in the second quarter and 50.0 in the second half of 2014 and in January 2015. In February 2015, the Venezuelan government launched an overhaul of its foreign currency exchange structure for obtaining U.S. dollars, introducing the Simadi mechanism. The Company used rates determined under this mechanism of 172.0 bolivars to the U.S. dollar to translate its February 2015 operating activity and 190.0 to translate March 2015 operating activity and the end of March balance sheet of Venezuela. The Company used a rate of 199.0 as of the end of the third quarter of 2015. The Company expects to continue to use the Simadi rate to translate future operating activity. The net expense in connection with re-measuring net monetary assets and recording in cost of sales inventory at the exchange rate when it was purchased or manufactured compared to when it was sold was $2.0 million and $6.5 million for the third quarters of 2015 and 2014, respectively, and $13.1 million and $42.2 million for the year-to-date periods ended September 26, 2015 and September 27, 2014, respectively. The amounts related to remeasurement are included in other expense.
As of September 26, 2015, the Company had approximately $2 million of net monetary assets in Venezuela, which were of a nature that would generate income or expense associated with future exchange rate fluctuations versus the U.S. dollar. In addition, there were $25.5 million in cumulative foreign currency translation losses related to Venezuela included in equity within the consolidated balance sheets.
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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 delivery, sales and administrative expense (“DS&A”). 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 2015 and 2014 were $32.7 million and $36.8 million, respectively, and $103.2 million and $116.8 million for the year-to-date periods ended September 26, 2015 and September 27, 2014, respectively.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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, addition of new sales force members or other business-critical functions. The awards offered are in the form of product awards, special prizes or trips.
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 $88.2 million and $100.0 million for the third quarters of 2015 and 2014, respectively, and $288.0 million and $325.2 million for the year-to-date periods ended September 26, 2015 and September 27, 2014, respectively.
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(In millions) | September 26, 2015 | | December 27, 2014 |
Finished goods | $ | 227.5 |
| | $ | 242.5 |
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Work in process | 24.6 |
| | 26.8 |
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Raw materials and supplies | 33.6 |
| | 36.7 |
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Total inventories | $ | 285.7 |
| | $ | 306.0 |
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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 elements of the earnings per share computations were as follows:
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| 13 weeks ended | | 39 weeks ended |
(In millions, except per share amounts) | September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
Net income | $ | 36.2 |
| | $ | 32.3 |
| | $ | 127.7 |
| | $ | 132.1 |
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Weighted-average shares of common stock outstanding | 49.9 |
| | 50.2 |
| | 49.8 |
| | 50.2 |
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Common equivalent shares: | | | | | | | |
Assumed exercise of dilutive options, restricted shares, restricted stock units and performance share units | 0.4 |
| | 0.8 |
| | 0.5 |
| | 0.9 |
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Weighted-average common and common equivalent shares outstanding | 50.3 |
| | 51.0 |
| | 50.3 |
| | 51.1 |
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Basic earnings per share | $ | 0.72 |
| | $ | 0.64 |
| | $ | 2.56 |
| | $ | 2.63 |
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Diluted earnings per share | $ | 0.72 |
| | $ | 0.63 |
| | $ | 2.54 |
| | $ | 2.59 |
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Shares excluded from the determination of potential common stock because inclusion would have been anti-dilutive | 1.1 |
| | 0.4 |
| | 0.8 |
| | 0.4 |
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TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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Note 6: | Accumulated Other Comprehensive Loss |
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(In millions, net of tax) | Foreign Currency Items | | Cash Flow Hedges | | Pension and Other Post-retirement Items | | Total |
Balance at December 27, 2014 | $ | (368.3 | ) | | $ | 7.8 |
| | $ | (48.2 | ) | | $ | (408.7 | ) |
Other comprehensive income (loss) before reclassifications | (110.1 | ) | | 10.3 |
| | 2.2 |
| | (97.6 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | (10.8 | ) | | 2.0 |
| | (8.8 | ) |
Net current-period other comprehensive income (loss) | (110.1 | ) | | (0.5 | ) | | 4.2 |
| | (106.4 | ) |
Balance at September 26, 2015 | $ | (478.4 | ) | | $ | 7.3 |
| | $ | (44.0 | ) | | $ | (515.1 | ) |
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(In millions, net of tax) | Foreign Currency Items | | Cash Flow Hedges | | Pension and Other Post-retirement Items | | Total |
Balance at December 28, 2013 | $ | (283.1 | ) | | $ | 2.2 |
| | $ | (35.9 | ) | | $ | (316.8 | ) |
Other comprehensive income (loss) before reclassifications | (20.3 | ) | | 5.0 |
| | 0.3 |
| | (15.0 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | (3.9 | ) | | 1.3 |
| | (2.6 | ) |
Net current-period other comprehensive income (loss) | (20.3 | ) | | 1.1 |
| | 1.6 |
| | (17.6 | ) |
Balance at September 27, 2014 | $ | (303.4 | ) | | $ | 3.3 |
| | $ | (34.3 | ) | | $ | (334.4 | ) |
Pretax amounts reclassified from accumulated other comprehensive loss that related to cash flow hedges consisted of net gains of $14.1 million and $5.0 million for the year-to-date periods ended September 26, 2015 and September 27, 2014, respectively. Associated with these items were tax provisions of $3.3 million and $1.1 million, respectively. See Note 11 for further discussion of derivatives.
For the year-to-date periods ended September 26, 2015 and September 27, 2014, pretax amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items consisted of prior service benefits of $1.0 million and $0.5 million, respectively, actuarial losses of $3.2 million and $1.8 million, respectively, and pension settlement costs of $0.5 million and $0.4 million, respectively. The tax benefit associated with these items was $0.7 million and $0.4 million, respectively. See Note 13 for further discussion of pension and other post-retirement benefit costs.
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Note 7: | Re-engineering and Impairment Costs |
The Company recorded $0.3 million and $2.6 million in re-engineering charges during the third quarters of 2015 and 2014, respectively, and $4.5 million and $8.3 million for the respective year-to-date periods. In both years, these charges were primarily related to severance costs incurred for headcount reductions in several of the Company’s operations in connection with changes in its management and organizational structures, and in 2014, the decision to cease operating the Armand Dupree business in the United States, the Nutrimetics business in Thailand and a manufacturing plant in India.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The balances included in accrued liabilities related to re-engineering and impairment charges as of September 26, 2015 and December 27, 2014 were as follows:
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| | | | | | | |
(In millions) | September 26, 2015 | | December 27, 2014 |
Beginning of the year balance | $ | 2.4 |
| | $ | 2.6 |
|
Provision | 4.5 |
| | 11.0 |
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Non-cash charges | (0.2 | ) | | (1.8 | ) |
Cash expenditures: | | | |
|
Severance | (4.7 | ) | | (7.1 | ) |
Other | (1.2 | ) | | (2.3 | ) |
End of period balance | $ | 0.8 |
| | $ | 2.4 |
|
The accrual balance as of September 26, 2015, related primarily to severance payments to be made by the end of the fourth quarter of 2015. In connection with the decisions to cease operating the Armand Dupree business in the United States and the Nutrimetics business in Thailand, the Company recorded $1.9 million and $0.4 million, respectively, in cost of sales for inventory obsolescence in the year-to-date period of 2014.
In February 2015, the Venezuelan government launched an overhaul of its foreign currency exchange structure and created a new exchange mechanism called Simadi that has provided an exchange rate significantly lower than the rate available to the Company under the previous SICAD 2 mechanism. As a result, and based on the perceived impact of this change to the operations of its Venezuelan unit, the Company deemed this change to be a triggering event to evaluate the $15.7 million of long-term fixed assets in Venezuela at that time. This evaluation involved performing an undiscounted cash flow analysis to determine if the carrying value of the assets were recoverable and whether the amount included on the balance sheet was greater than fair value. The Company considered many economic and operating factors, including uncertainty surrounding the interpretation and enforcement of certain product pricing restrictions in Venezuela, the inability at that time to obtain the necessary raw materials locally to meet production demands and the significant decline in the global price of oil. Due, at least in part, to the decline of the global price of oil, the Venezuelan government has not made U.S. dollars widely available through any of the exchange mechanisms it has had in place. Given the devaluation of the Venezuelan bolivar compared with the U.S. dollar, and the lack of U.S dollars available to use for the purchase of raw materials for on-going operations, the Company did not believe it would be able to operate the business profitably. As a result, the Company concluded that the carrying value of the long-term fixed assets in Venezuela was not recoverable. The Company then estimated the fair value of the long-term fixed assets using estimated selling prices available in Venezuela. The primary assets that were considered to continue to maintain a marketable value in Venezuela included commercial office space, a show room and parking spaces. As a result of this evaluation in the first quarter of 2015, the Company recorded an impairment charge of $13.5 million to reduce the long-term fixed asset carrying value in Venezuela to the estimated fair value at that time of $2.2 million, which is considered a non-recurring Level 3 measurement within the fair value hierarchy.
Note 8: Goodwill and Intangible Assets
The Company's goodwill and intangible assets relate primarily to the December 2005 acquisition of the direct-to-consumer businesses of Sara Lee Corporation.
In the third quarter of 2015, the Company completed the annual assessments for all of its reporting units and indefinite-lived intangible assets, concluding there were no impairments. The Company only considers the goodwill balances of $89.8 million and $23.8 million associated with the Fuller Mexico and NaturCare reporting units, respectively, to be significant relative to total equity as of the end of the third quarter of 2015.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The Company performed step 1 impairment tests for the goodwill associated with the Fuller Mexico and NaturCare reporting units. The fair value analysis for Fuller Mexico and NaturCare were completed using a combination of the income and market approach with a 75 percent weighting on the income approach. The significant assumptions used in the income approach included estimates regarding future operations and the ability to generate cash flows, including projections of revenue, costs, utilization of assets and capital requirements. The income approach also requires an estimate as to the appropriate discount rate to be used for each entity. 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 models used a forecast period of 10 years and a terminal value. The growth rates were determined by reviewing historical results of the respective operating units and the historical results of the Company’s other similar business units, along with the expected contribution from growth strategies being implemented in the respective reporting units. 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-to-consumer distribution method. The resulting multiples were then applied to the respective reporting units to determine fair value.
The significant assumptions for the Fuller Mexico step 1 analysis included annual revenue changes ranging from negative 2 percent to positive 5 percent with an average growth rate of 3 percent, including a 3 percent growth rate used in calculating the terminal value. The discount rate used for Fuller Mexico was 14.6 percent. As the current forecast results of Fuller Mexico are below the expectations for the step 1 analysis done in 2014, the amount by which the estimated fair value of the Fuller Mexico reporting unit exceeded its carrying value, at 13 percent, was smaller in the third quarter of 2015 than in the 2014 assessment. This decrease reflected lower than expected additions of sales force members in light of high field manager turnover. Along with a difficult competitive environment, this led to worse 2015 operating performance than foreseen in 2014. This was partially offset by a lower discount rate and a lower entity carrying value from amortization of the definite lived Fuller tradename asset that began in the third quarter of 2013. Though the estimated fair value of the reporting unit exceeded its carrying value in the annual assessment, a smaller sales force size and/or operating performance significantly below current expectations, including changes in projected future revenue, profitability and cash flow, as well as higher working capital, interest rates or cost of capital, could have a further negative effect on the fair value of the reporting unit and therefore reduce the fair value below the carrying value. This could result in recording an impairment to the goodwill of Fuller Mexico.
The significant assumptions for the NaturCare step 1 analysis included annual revenue changes ranging from 3 percent to 5 percent with an average growth rate of 4 percent, including a 3 percent growth rate used in calculating the terminal value. The discount rate used for Naturcare was 10.0 percent. The estimated fair value of the NaturCare reporting unit exceeded the carrying value by 130 percent. Based on the Company's evaluation of the assumptions and sensitivities associated with the step 1 analysis for NaturCare, the Company concluded that the fair value substantially exceeded its carrying value as of the end of the third quarter of 2015.
Other than for the Fuller Mexico reporting unit, management has concluded there is no significant foreseeable risk of failing a future step 1 impairment test, nor is there significant foreseeable risk of the fair value of the indefinite-lived intangible assets falling below their respective carrying values. Given the sensitivity of fair value valuations to changes in cash flow or market multiples, the Company may be required to recognize an impairment of goodwill or indefinite-lived 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 discount rates could also result in an impairment charge, as could changes in market characteristics including declines in valuation multiples of comparable publicly-traded companies. Further impairment charges would have an adverse impact on the Company’s net income and shareholders' equity.
| |
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)
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®, which sells 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® brand in the United States, Canada and Puerto Rico and Fuller Cosmetics® brands in Mexico and Central America. |
South America | Both housewares and beauty products under the Fuller®, Nutrimetics®, Nuvo® and Tupperware® brands. |
Worldwide sales of beauty and personal care products totaled $96.7 million and $122.5 million in the third quarters of 2015 and 2014, respectively, and $325.0 million and $381.9 million in the respective year-to-date periods. |
| | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
(In millions) | September 26, 2015 | | September 27, 2014 | | September 26, 2015 | | September 27, 2014 |
Net sales: | | | | | | | |
Europe | $ | 117.4 |
| | $ | 136.7 |
| | $ | 445.2 |
| | $ | 536.3 |
|
Asia Pacific | 192.9 |
| | 209.6 |
| | 578.3 |
| | 619.7 |
|
Tupperware North America | 84.9 |
| | 84.6 |
| | 258.2 |
| | 259.5 |
|
Beauty North America | 53.5 |
| | 68.8 |
| | 182.3 |
| | 220.0 |
|
South America | 72.3 |
| | 89.0 |
| | 227.7 |
| | 290.7 |
|
Total net sales | $ | 521.0 |
| | $ | 588.7 |
| | $ | 1,691.7 |
| | $ | 1,926.2 |
|
Segment profit (loss): | | | |
| | | | |
Europe | $ | 5.9 |
| | $ | 6.3 |
| | $ | 61.6 |
| | $ | 74.5 |
|
Asia Pacific (a) | 43.3 |
| | 45.4 |
| | 123.8 |
| | 132.8 |
|
Tupperware North America | 15.3 |
| | 16.0 |
| | 48.5 |
| | 49.4 |
|
Beauty North America (a) | 0.2 |
| | (1.2 | ) | | 3.2 |
| | 1.1 |
|
South America | 12.9 |
| | 5.6 |
| | 29.8 |
| | 8.6 |
|
Total segment profit | $ | 77.6 |
| | $ | 72.1 |
| | $ | 266.9 |
| | $ | 266.4 |
|
Unallocated expenses | (17.9 | ) | | (10.5 | ) | | (49.0 | ) | | (37.8 | ) |
Re-engineering and impairment charges (a) | (0.3 | ) | | (2.6 | ) | | (18.0 | ) | | (8.3 | ) |
Gains on disposal of assets | 2.0 |
| | — |
| | 13.4 |
| | 2.3 |
|
Interest expense, net | (10.8 | ) | | (11.1 | ) | | (35.1 | ) | | (33.9 | ) |
Income before taxes | $ | 50.6 |
| | $ | 47.9 |
| | $ | 178.2 |
| | $ | 188.7 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | |
(In millions) | September 26, 2015 | | December 27, 2014 |
Identifiable assets: | | | |
Europe | $ | 300.3 |
| | $ | 337.3 |
|
Asia Pacific | 308.8 |
| | 321.4 |
|
Tupperware North America | 134.8 |
| | 137.1 |
|
Beauty North America | 265.4 |
| | 317.0 |
|
South America | 99.2 |
| | 131.1 |
|
Corporate | 554.8 |
| | 536.1 |
|
Total identifiable assets | $ | 1,663.3 |
| | $ | 1,780.0 |
|
_________________________
| |
(a) | See Note 7 to the unaudited Consolidated Financial Statements for a discussion of re-engineering and impairment charges. |
Debt Obligations
|
| | | | | | | |
(In millions) | September 26, 2015 | | December 27, 2014 |
Fixed rate senior notes due 2021 | $ | 599.3 |
| | $ | 599.2 |
|
Five year Revolving Credit Agreement (a) | 281.1 |
| | 209.0 |
|
Belgium facility capital lease | 11.2 |
| | 13.9 |
|
Other | 3.5 |
| | 11.4 |
|
Total debt obligations | $ | 895.1 |
| | $ | 833.5 |
|
____________________
| |
(a) | $179.5 million denominated in euros as of September 26, 2015. |
Credit Agreement
On June 9, 2015, the Company and its wholly owned subsidiary Tupperware International Holdings B.V. (the “Subsidiary Borrower”), entered into Amendment No. 2 (the "Amendment”) to their multicurrency Amended and Restated Credit Agreement dated as of September 11, 2013, as amended by Amendment No. 1 dated as of June 2, 2014 (as so amended, the “Credit Agreement”). The terms and structure of the Credit Agreement remain largely the same. The Amendment (i) reduced the aggregate amount available to the Company and the Subsidiary Borrower under the Credit Agreement from $650 million to $600 million (the “Facility Amount”), (ii) extended the final maturity date of the Credit Agreement from September 11, 2018 to June 9, 2020, and (iii) amended the applicable margins for borrowings and the commitment fee to be generally more favorable for the Company. The Credit Agreement continues to provide (a) a revolving credit facility, available up to the full amount of the Facility Amount, (b) a letter of credit facility, available up to $50 million of the Facility Amount, and (c) a swingline facility, available up to $100 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 $325 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 $800 million), subject to certain conditions including agreement by the lenders.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Loans made under the Credit Agreement 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 Agreement, a margin is added to the base. The applicable margin is determined by a pricing schedule and is based upon the better for the Company of (a) 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 fiscal quarters then most recently ended, or (b) the Company’s then existing long-term debt securities rating by Moody’s Investor Service, Inc. or Standard and Poor’s Financial Services, Inc. As of September 26, 2015, the Company had a weighted average interest rate on outstanding LIBOR based borrowings of 1.56 percent under the Credit Agreement.
At September 26, 2015, the Company had $582.2 million of unused lines of credit, including $317.2 million under the committed, secured Credit Agreement, and $265.0 million available under various uncommitted lines around the world.
The Credit Agreement has customary financial covenants related to interest coverage and leverage. These restrictions are not expected to impact the Company's operations. As of September 26, 2015, and currently, the Company had considerable cushion under its financial covenants.
| |
Note 11: | Derivative Instruments and Hedging Activities |
The Company 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 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 to be a component of interest expense. The forward points on fair value hedges resulted in pretax gains of $2.6 million and $2.3 million in the third quarters of 2015 and 2014, respectively, and $9.0 million and $7.5 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. At initiation, the Company's cash flow hedge contracts are for periods ranging from one to fifteen months. The effective portion of the gain or loss on the hedging instrument is recorded in other comprehensive income and is reclassified into earnings as the transactions being hedged are recorded. As such, the balance at the end of the reporting period in other comprehensive income, related to cash flow hedges, 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.
The Company also uses financial instruments, such as forward contracts and certain euro denominated borrowings under the Company's Credit Agreement, 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 financial instruments, excluding any ineffective portion of the hedges, are included in foreign currency translation adjustments within accumulated other comprehensive loss. The Company recorded, net of tax, a net gain associated with these hedges, in other comprehensive income of $27.7 million and $54.1 million in the third quarter and year-to-date periods of 2015, respectively, and a net gain of $6.0 million and $2.2 million for the respective periods of 2014. 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 twelve months. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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 net cash flow impact of these currency hedges were an outflow of $21.1 million and an inflow of $0.1 million for the year-to-date periods ended September 26, 2015 and September 27, 2014, respectively.
The Company considers the total notional value of its forward contracts as the best measure of the volume of derivative transactions. As of September 26, 2015 and December 27, 2014, the notional amounts of outstanding forward contracts to purchase currencies were $123.4 million and $185.1 million, respectively, and the notional amounts of outstanding forward contracts to sell currencies were $110.2 million and $184.2 million, respectively. As of September 26, 2015, the notional values of the largest positions outstanding were to purchase US dollars $88.0 million and to sell Mexican pesos $21.2 million.
The following table summarizes the Company's derivative positions, which are the only assets and liabilities recorded at fair value on a recurring basis, and the impact they had on the Company's financial position as of September 26, 2015 and December 27, 2014. Fair values were determined based on third party quotations (Level 2 fair value measurement):
|
| | | | | | | | | | | | | | | | | | | | |
| | Asset derivatives | | Liability derivatives |
| | | | Fair value | | | | Fair value |
Derivatives designated as hedging instruments (in millions) | | Balance sheet location | | Sept 26, 2015 | | Dec 27, 2014 | | Balance sheet location | | Sept 26, 2015 | | Dec 27, 2014 |
Foreign exchange contracts | | Non-trade amounts receivable | | $ | 34.7 |
| | $ | 35.0 |
| | Accrued liabilities | | $ | 18.9 |
| | $ | 30.3 |
|
The following table summarizes the impact of the Company's fair value hedging positions on the results of operations for the third quarters of 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | |
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 |
| | | | 2015 | | 2014 | | | | 2015 | | 2014 |
Foreign exchange contracts | | Other expense | | $ | (44.3 | ) | | $ | (8.4 | ) | | Other expense | | $ | 44.4 |
| | $ | 8.5 |
|
The following table summarizes the impact of Company's hedging activities on comprehensive income for the third quarters of 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flow and net equity hedges (in millions) | | Amount of gain or (loss) recognized in OCI (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 (ineffective portion and amount excluded from effectiveness testing) | | Amount of gain or (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing) |
Cash flow hedging relationships | | 2015 | | 2014 | | | | 2015 | | 2014 | | | | 2015 | | 2014 |
Foreign exchange contracts | | $ | 8.2 |
| | $ | 3.1 |
| | Cost of products sold | | $ | 5.6 |
| | $ | 1.8 |
| | Interest expense | | $ | (1.0 | ) | | $ | (1.6 | ) |
Net equity hedging relationships | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | 43.0 |
| | 9.5 |
| | Other expense | | — |
| | — |
| | Interest expense | | (3.5 | ) | | (3.2 | ) |
Euro denominated debt | | 0.1 |
| | — |
| | Other expense | | — |
| | — |
| | Other expense | | — |
| | — |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table summarizes the impact of the Company's fair value hedging positions on the results of operations for the year-to-date periods ended September 26, 2015 and September 27, 2014:
|
| | | | | | | | | | | | | | | | | | | | |
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 |
| | | | 2015 | | 2014 | | | | 2015 | | 2014 |
Foreign exchange contracts | | Other expense | | $ | (84.0 | ) | | $ | (2.6 | ) | | Other expense | | $ | 84.3 |
| | $ | 2.8 |
|
The following table summarizes the impact of Company's hedging activities on comprehensive income for the year-to-date periods ended September 26, 2015 and September 27, 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flow and net equity hedges (in millions) | | Amount of gain or (loss) recognized in OCI (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 (ineffective portion and amount excluded from effectiveness testing) | | Amount of gain or (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing) |
Cash flow hedging relationships | | 2015 | | 2014 | | | | 2015 | | 2014 | | | | 2015 | | 2014 |
Foreign exchange contracts | | $ | 13.7 |
| | $ | 6.0 |
| | Cost of products sold | | $ | 14.1 |
| | $ | 5.0 |
| | Interest expense | | $ | (5.6 | ) | | $ | (4.5 | ) |
Net equity hedging relationships | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | 75.2 |
| | 3.5 |
| | Other expense | | — |
| | — |
| | Interest expense | | (11.5 | ) | | (9.9 | ) |
Euro denominated debt | | 9.1 |
| | — |
| | Other expense | | — |
| | — |
| | Other expense | | — |
| | — |
|
| |
Note 12: | Fair Value Measurements |
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 September 26, 2015 and December 27, 2014. The Company estimates that, based on current market conditions, the value of its 4.750% 2021 senior notes was $621.6 million at September 26, 2015, compared with the carrying value of $599.3 million. The higher fair value resulted from changes, since issuance, in the corporate bond market and investor preferences. The fair value of debt is classified as a Level 2 liability, and is estimated using quoted market prices as provided in secondary markets which consider the Company's credit risk and market related conditions. See Note 11 to the Consolidated Financial Statements for discussion of the Company's derivative instruments and related fair value measurements.
| |
Note 13: | Retirement Benefit Plans |
Components of net periodic benefit cost for the third quarter and year-to-date periods ended September 26, 2015 and September 27, 2014 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
| Pension benefits | | Post-retirement benefits | | Pension benefits | | Post-retirement benefits |
(In millions) | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Service cost | $ | 2.6 |
| | $ | 2.6 |
| | $ | 0.1 |
| | $ | — |
| | $ | 8.1 |
| | $ | 8.2 |
| | $ | 0.1 |
| | $ | 0.1 |
|
Interest cost | 1.8 |
| | 2.1 |
| | 0.1 |
| | 0.3 |
| | 5.3 |
| | 6.5 |
| | 0.5 |
| | 0.9 |
|
Expected return on plan assets | (1.4 | ) | | (1.5 | ) | | — |
| | — |
| | (4.2 | ) | | (4.6 | ) | | — |
| | — |
|
Settlement/curtailment | 0.1 |
| | 0.4 |
| | — |
| | — |
| | 0.5 |
| | 0.4 |
| | — |
| | — |
|
Net amortization | 1.0 |
| | 0.7 |
| | (0.3 | ) | | (0.3 | ) | | 3.1 |
| | 1.9 |
| | (0.9 | ) | | (0.6 | ) |
Net periodic benefit cost | $ | 4.1 |
| | $ | 4.3 |
| | $ | (0.1 | ) | | $ | — |
| | $ | 12.8 |
| | $ | 12.4 |
| | $ | (0.3 | ) | | $ | 0.4 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
During the year-to-date periods ended September 26, 2015 and September 27, 2014, approximately $2.7 million and $1.7 million, respectively, of pretax expenses 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.
The effective tax rates for the third quarter and year-to-date periods of 2015 were 28.5 percent and 28.4 percent compared with 32.5 percent and 30.0 percent, respectively, for the comparable 2014 periods. The higher 2014 rates were due to higher 2014 losses incurred related to the devaluation of the Venezuelan bolivar for which no tax benefit could be recognized. In addition, the Company reduced its accrual for uncertain tax positions by $1.0 million due to the expiration of statutes of limitation in various jurisdictions in the third quarter of 2015, of which $0.2 million did not impact tax expense. The effective tax rates are below the U.S. statutory rate primarily due to lower foreign effective tax rates.
As of September 26, 2015 and December 27, 2014, the Company's gross unrecognized tax benefit was $20.0 million and $22.5 million, respectively. The Company estimates that approximately $18.2 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 $5.0 million and $6.5 million as of September 26, 2015 and December 27, 2014, respectively. During 2015, the accrual for uncertain tax positions decreased by $2.3 million primarily as a result of the Company agreeing to audit settlements and expiration of statutes of limitation in various jurisdictions. In addition, the accrual for interest and penalties was reduced by $1.3 million.
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 $1.0 million. For the remaining balance as of September 26, 2015, 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 including changes in laws that could also, in turn, impact the Company's assessment relative to the establishment of valuation allowances against certain existing deferred tax assets. These valuation allowances relate to tax assets in jurisdictions where it is management's best estimate that there is not a greater than 50 percent probability that the benefit of the assets will be realized in the associated tax returns. The likelihood of realizing the benefit of deferred tax assets is assessed on an ongoing basis. This assessment requires estimates as to future operating results, as well as an evaluation of the effectiveness of the Company's tax planning strategies. 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.
| |
Note 15: | Statement of Cash Flow Supplemental Disclosure |
Under the Company's stock incentive programs, employees are allowed to use shares retained by the Company to satisfy U.S. minimum statutorily required withholding taxes. In the year-to-date periods ended September 26, 2015 and September 27, 2014, 12,847 and 93,505 shares, respectively, were retained to fund withholding taxes, with values totaling $0.9 million and $7.4 million, respectively, which were included as a component of stock repurchases in the Consolidated Statements of Cash Flows.
During the first quarter of 2014, the Company entered into a joint venture with a real estate development partner. The Company contributed land to the joint venture in exchange for 50 percent ownership of the joint venture. The carrying value of the land was $3.1 million. The Company's ownership interest in the joint venture is accounted for using the equity method and was included in long-term other assets on the September 26, 2015 and December 27, 2014 balance sheets at the carrying value of the contributed land. The Company does not expect to have any significant cash inflows or outflows related to the joint venture until such time as the joint venture completes and sells its development.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
There were no capital lease arrangements initiated in the year-to-date periods ended September 26, 2015 or September 27, 2014. During the third quarter of 2015, the Company acquired $2.5 million in internal use software, included in property, plant and equipment, under a non-cash financing arrangement under which the Company is paying in two-installments in less than twelve months.
| |
Note 16: | Stock Based Compensation |
Stock option activity for 2015 is summarized in the following table:
|
| | | | | | | | | | |
| Shares subject to option | | Weighted average exercise price per share | | Aggregate intrinsic value (in millions) |
Outstanding at December 27, 2014 | 2,192,136 |
| | $ | 48.95 |
| | |
Granted | 7,132 |
| | 62.40 |
| | |
Expired / Forfeited | (11,158 | ) | | 69.28 |
| | |
Exercised | (240,269 | ) | | 31.96 |
| | |
Outstanding at September 26, 2015 | 1,947,841 |
| | $ | 50.96 |
| | $ | 14.6 |
|
Exercisable at September 26, 2015 | 1,343,978 |
| | $ | 43.26 |
| | $ | 14.6 |
|
The intrinsic value of options exercised totaled $4.7 million and $5.2 million in the third quarters of 2015 and 2014, respectively, and $7.3 million and $19.1 million in the respective year-to-date periods.
The Company also has time-vested, performance-vested and market-vested share awards. The activity for such awards in 2015 is summarized in the following table:
|
| | | | | | |
| Shares outstanding | | Weighted average grant date fair value |
December 27, 2014 | 651,849 |
| | $ | 59.76 |
|
Time-vested shares granted | 22,339 |
| | 65.20 |
|
Market-vested shares granted | 23,637 |
| | 64.21 |
|
Performance shares granted | 62,722 |
| | 72.61 |
|
Performance share adjustments | (1,132 | ) | | 78.97 |
|
Vested | (251,819 | ) | | 36.63 |
|
Forfeited | (9,213 | ) | | 75.12 |
|
September 26, 2015 | 498,383 |
| | $ | 73.12 |
|
Compensation expense related to the Company's stock based compensation for the third quarter and year-to-date periods ended September 26, 2015 and September 27, 2014 was as follows:
|
| | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
(In millions) | 2015 | | 2014 | | 2015 | | 2014 |
Stock options | $ | 0.4 |
| | $ | 0.4 |
| | $ | 1.5 |
| | $ | 1.3 |
|
Time, performance and market vested share awards | 3.2 |
| | 2.7 |
| | 10.3 |
| | 10.2 |
|
As of September 26, 2015, total unrecognized stock based compensation expense related to all stock based awards was $21.1 million, which is expected to be recognized over a weighted average period of 1.7 years.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 17: | Allowance for Long-Term Receivables |
As of September 26, 2015, $12.4 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 September 26, 2015 was as follows:
|
| | | |
(In millions) | |
Balance at December 27, 2014 | $ | 13.1 |
|
Write-offs | (0.8 | ) |
Provision and reclassifications | 1.2 |
|
Currency translation adjustment | (1.6 | ) |
Balance at September 26, 2015 | $ | 11.9 |
|
| |
Note 18: | Guarantor Information |
The Company's payment obligations under its senior notes due in 2021 are fully and unconditionally guaranteed, on a senior secured basis, by the Guarantor. The guarantee is secured by certain "Tupperware" trademarks and service marks owned by the Guarantor.
Condensed consolidated financial information as of September 26, 2015 and December 27, 2014 and for the quarter-to-date periods ended September 26, 2015 and September 27, 2014 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 that are eliminated upon consolidation. The Guarantor is 100% owned by the Parent, and there are certain entities within the Non-Guarantors classification which the Parent owns directly. There are no significant restrictions on the ability of either the Parent or the Guarantor from obtaining adequate funds from their respective subsidiaries by dividend or loan that should interfere with their ability to meet their operating needs or debt repayment obligations.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Consolidating Statement of Income
|
| | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended September 26, 2015 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Net sales | $ | — |
| | $ | — |
| | $ | 522.4 |
| | $ | (1.4 | ) | | $ | 521.0 |
|
Other revenue | — |
| | 28.7 |
| | 9.0 |
| | (37.7 | ) | | — |
|
Cost of products sold | — |
| | 9.0 |
| | 200.3 |
| | (36.8 | ) | | 172.5 |
|
Gross margin | — |
| | 19.7 |
| | 331.1 |
| | (2.3 | ) | | 348.5 |
|
Delivery, sales and administrative expense | 3.3 |
| | 23.1 |
| | 264.4 |
| | (2.3 | ) | | 288.5 |
|
Re-engineering and impairment charges | — |
| | — |
| | 0.3 |
| | — |
| | 0.3 |
|
Gains on disposal of assets | — |
| | — |
| | 2.0 |
| | — |
| | 2.0 |
|
Operating income (loss) | (3.3 | ) | | (3.4 | ) | | 68.4 |
| | — |
| | 61.7 |
|
Interest income | 8.1 |
| | 5.8 |
| | 2.1 |
| | (15.5 | ) | | 0.5 |
|
Interest expense | 11.6 |
| | 9.3 |
| | 5.9 |
| | (15.5 | ) | | 11.3 |
|
Income from equity investments in subsidiaries | 40.5 |
| | 46.0 |
| | — |
| | (86.5 | ) | | — |
|
Other expense (income) | — |
| | 0.3 |
| | — |
| | — |
| | 0.3 |
|
Income before income taxes | 33.7 |
| | 38.8 |
| | 64.6 |
| | (86.5 | ) | | 50.6 |
|
Provision (benefit) for income taxes | (2.5 | ) | | (2.8 | ) | | 19.7 |
| | — |
| | 14.4 |
|
Net income (loss) | $ | 36.2 |
| | $ | 41.6 |
| | $ | 44.9 |
| | $ | (86.5 | ) | | $ | 36.2 |
|
Comprehensive income (loss) | $ | (26.4 | ) | | $ | (19.6 | ) | | $ | 0.8 |
| | $ | 18.8 |
| | $ | (26.4 | ) |
Consolidating Statement of Income
|
| | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended September 27, 2014 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Net sales | $ | — |
| | $ | — |
| | $ | 590.6 |
| | $ | (1.9 | ) | | $ | 588.7 |
|
Other revenue | — |
| | 28.5 |
| | 6.5 |
| | (35.0 | ) | | — |
|
Cost of products sold | — |
| | 6.5 |
| | 237.3 |
| | (34.6 | ) | | 209.2 |
|
Gross margin | — |
| | 22.0 |
| | 359.8 |
| | (2.3 | ) | | 379.5 |
|
Delivery, sales and administrative expense | 2.6 |
| | 17.3 |
| | 304.1 |
| | (2.3 | ) | | 321.7 |
|
Re-engineering and impairment charges | — |
| | — |
| | 2.6 |
| | — |
| | 2.6 |
|
Gains on disposal of assets | — |
| | — |
| | — |
| | — |
| | — |
|
Operating income (loss) | (2.6 | ) | | 4.7 |
| | 53.1 |
| | — |
| | 55.2 |
|
Interest income | 0.1 |
| | 7.4 |
| | 1.3 |
| | (8.0 | ) | | 0.8 |
|
Interest expense | 9.8 |
| | 5.4 |
| | 4.7 |
| | (8.0 | ) | | 11.9 |
|
Income from equity investments in subsidiaries | 40.4 |
| | 36.2 |
| | — |
| | (76.6 | ) | | — |
|
Other expense (income) | — |
| | — |
| | (3.8 | ) | | — |
| | (3.8 | ) |
Income before income taxes | 28.1 |
| | 42.9 |
| | 53.5 |
| | (76.6 | ) | | 47.9 |
|
Provision (benefit) for income taxes | (4.2 | ) | | 2.2 |
| | 17.6 |
| | — |
| | 15.6 |
|
Net income (loss) | $ | 32.3 |
| | $ | 40.7 |
| | $ | 35.9 |
| | $ | (76.6 | ) | | $ | 32.3 |
|
Comprehensive income (loss) | $ | 7.4 |
| | $ | 16.5 |
| | $ | 20.0 |
| | $ | (36.5 | ) | | $ | 7.4 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Consolidating Statement of Income
|
| | | | | | | | | | | | | | | | | | | |
| 39 Weeks Ended September 26, 2015 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Net sales | $ | — |
| | $ | — |
| | $ | 1,694.0 |
| | $ | (2.3 | ) | | $ | 1,691.7 |
|
Other revenue | — |
| | 85.5 |
| | 23.9 |
| | (109.4 | ) | | — |
|
Cost of products sold | — |
| | 23.9 |
| | 634.3 |
| | (105.0 | ) | | 553.2 |
|
Gross margin | — |
| | 61.6 |
| | 1,083.6 |
| | (6.7 | ) | | 1,138.5 |
|
Delivery, sales and administrative expense | 10.9 |
| | 61.8 |
| | 846.0 |
| | (6.7 | ) | | 912.0 |
|
Re-engineering and impairment charges | — |
| | — |
| | 18.0 |
| | — |
| | 18.0 |
|
Gains on disposal of assets | — |
| | — |
| | 13.4 |
| | — |
| | 13.4 |
|
Operating income (loss) | (10.9 | ) | | (0.2 | ) | | 233.0 |
| | — |
| | 221.9 |
|
Interest income | 23.4 |
| | 18.5 |
| | 4.5 |
| | (44.9 | ) | | 1.5 |
|
Interest expense | 36.5 |
| | 26.4 |
| | 18.6 |
| | (44.9 | ) | | 36.6 |
|
Income from equity investments in subsidiaries | 142.7 |
| | 145.3 |
| | — |
| | (288.0 | ) | | — |
|
Other expense (income) | — |
| | 0.3 |
| | 8.3 |
| | — |
| | 8.6 |
|
Income before income taxes | 118.7 |
| | 136.9 |
| | 210.6 |
| | (288.0 | ) | | 178.2 |
|
Provision (benefit) for income taxes | (9.0 | ) | | (3.5 | ) | | 63.0 |
| | — |
| | 50.5 |
|
Net income (loss) | $ | 127.7 |
| | $ | 140.4 |
| | $ | 147.6 |
| | $ | (288.0 | ) | | $ | 127.7 |
|
Comprehensive income (loss) | $ | 21.3 |
| | $ | 30.2 |
| | $ | 64.3 |
| | $ | (94.5 | ) | | $ | 21.3 |
|
Consolidating Statement of Income
|
| | | | | | | | | | | | | | | | | | | |
| 39 Weeks Ended September 27, 2014 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Net sales | $ | — |
| | $ | — |
| | $ | 1,931.7 |
| | $ | (5.5 | ) | | $ | 1,926.2 |
|
Other revenue | — |
| | 91.7 |
| | 18.7 |
| | (110.4 | ) | | — |
|
Cost of products sold | — |
| | 18.7 |
| | 746.6 |
| | (108.8 | ) | | 656.5 |
|
Gross margin | — |
| | 73.0 |
| | 1,203.8 |
| | (7.1 | ) | | 1,269.7 |
|
Delivery, sales and administrative expense | 10.4 |
| | 52.8 |
| | 958.7 |
| | (7.1 | ) | | 1,014.8 |
|
Re-engineering and impairment charges | — |
| | — |
| | 8.3 |
| | — |
| | 8.3 |
|
Gains on disposal of assets | — |
| | — |
| | 2.3 |
| | — |
| | 2.3 |
|
Operating income (loss) | (10.4 | ) | | 20.2 |
| | 239.1 |
| | — |
| | 248.9 |
|
Interest income | 0.3 |
| | 22.0 |
| | 3.5 |
| | (23.8 | ) | | 2.0 |
|
Interest expense | 28.7 |
| | 15.3 |
| | 15.7 |
| | (23.8 | ) | | 35.9 |
|
Income from equity investments in subsidiaries | 157.3 |
| | 142.3 |
| | — |
| | (299.6 | ) | | — |
|
Other expense | — |
| | 0.2 |
| | 26.1 |
| | — |
| | 26.3 |
|
Income before income taxes | 118.5 |
| | 169.0 |
| | 200.8 |
| | (299.6 | ) | | 188.7 |
|
Provision (benefit) for income taxes | (13.6 | ) | | 9.9 |
| | 60.3 |
| | — |
| | 56.6 |
|
Net income (loss) | $ | 132.1 |
| | $ | 159.1 |
| | $ | 140.5 |
| | $ | (299.6 | ) | | $ | 132.1 |
|
Comprehensive income (loss) | $ | 114.5 |
| | $ | 141.6 |
| | $ | 127.9 |
| | $ | (269.5 | ) | | $ | 114.5 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | |
| September 26, 2015 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
ASSETS | |
| | |
| | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 0.3 |
| | $ | 92.8 |
| | $ | — |
| | $ | 93.1 |
|
Accounts receivable, net | — |
| | — |
| | 158.6 |
| | — |
| | 158.6 |
|
Inventories | — |
| | — |
| | 285.7 |
| | — |
| | 285.7 |
|
Deferred income tax benefits, net | 6.2 |
| | 36.9 |
| | 64.3 |
| | (1.9 | ) | | 105.5 |
|
Non-trade amounts receivable, net | — |
| | 42.2 |
| | 105.9 |
| | (88.9 | ) | | 59.2 |
|
Intercompany receivables | 21.4 |
| | 630.4 |
| | 226.1 |
| | (877.9 | ) | | — |
|
Prepaid expenses and other current assets | 1.5 |
| | 3.9 |
| | 90.1 |
| | (69.3 | ) | | 26.2 |
|
Total current assets | 29.1 |
| | 713.7 |
| | 1,023.5 |
| | (1,038.0 | ) | | 728.3 |
|
Deferred income tax benefits, net | 99.9 |
| | 188.4 |
| | 114.5 |
| | — |
| | 402.8 |
|
Property, plant and equipment, net | — |
| | 45.7 |
| | 209.0 |
| | — |
| | 254.7 |
|
Long-term receivables, net | — |
| | 0.1 |
| | 13.9 |
| | — |
| | 14.0 |
|
Trademarks and tradenames, net | — |
| | — |
| | 86.8 |
| | — |
| | 86.8 |
|
Other intangible assets, net | — |
| | — |
| | 0.3 |
| | — |
| | 0.3 |
|
Goodwill | — |
| | 2.9 |
| | 145.8 |
| | — |
| | 148.7 |
|
Investments in subsidiaries | 1,110.8 |
| | 562.4 |
| | — |
| | (1,673.2 | ) | | — |
|
Intercompany notes receivable | 459.1 |
| | 496.8 |
| | 295.0 |
| | (1,250.9 | ) | | — |
|
Other assets, net | 1.7 |
| | 1.2 |
| | 122.0 |
| | (97.2 | ) | | 27.7 |
|
Total assets | $ | 1,700.6 |
| | $ | 2,011.2 |
| | $ | 2,010.8 |
| | $ | (4,059.3 | ) | | $ | 1,663.3 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| | |
| | |
| | |
|
Accounts payable | $ | — |
| | $ | 2.7 |
| | $ | 92.0 |
| | $ | — |
| | $ | 94.7 |
|
Short-term borrowings and current portion of long-term debt and capital lease obligations | 191.9 |
| | 2.5 |
| | 91.8 |
| | — |
| | 286.2 |
|
Intercompany payables | 567.4 |
| | 230.9 |
| | 79.6 |
| | (877.9 | ) | | — |
|
Accrued liabilities | 142.8 |
| | 85.6 |
| | 259.5 |
| | (160.1 | ) | | 327.8 |
|
Total current liabilities | 902.1 |
| | 321.7 |
| | 522.9 |
| | (1,038.0 | ) | | 708.7 |
|
Long-term debt and capital lease obligations | 599.3 |
| | — |
| | 9.6 |
| | — |
| | 608.9 |
|
Intercompany notes payable | 56.2 |
| | 502.5 |
| | 692.2 | |