Notes to the Consolidated Financial Statements
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Note 1:
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Summary of Significant Accounting Policies
|
Principles of Consolidation.
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. The Company’s fiscal year ends on the last Saturday of December and included 53 weeks during
2016
and 52 weeks during
2015
and
2014
.
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.
Cash and Cash Equivalents.
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As of
December 31, 2016
and
December 26, 2015
,
$9.6 million
and
$7.4 million
, respectively, of the cash and cash equivalents included on the Consolidated Balance Sheets were held in the form of time deposits, certificates of deposit or similar instruments.
Allowance for Doubtful Accounts.
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 and similar factors. It also considers collateral of the customer that could be recovered to satisfy debts. The Company records its allowance for doubtful 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.
Inventories
. Inventories are valued at the lower of cost or market on a first-in, first-out basis. Inventory cost includes cost of raw material, labor and overhead.
The Company writes down its inventory for obsolescence or unmarketability in an amount equal to the difference between the cost of the inventory and estimated market value based upon expected future demand and pricing. The demand and pricing is estimated based upon the historical success of product lines as well as the projected success of promotional programs, new product introductions and new markets or distribution channels. The Company prepares projections of demand and pricing on an item by item basis for all of its products. If inventory on hand exceeds projected demand or the expected market value is less than the carrying value, the excess is written down to its net realizable value. However, if actual demand or the estimate of market value decreases, additional write-downs would be required.
Internal Use Software Development Costs.
The Company capitalizes internal use software development costs as they are incurred and amortizes such costs over their estimated useful lives of three to five years, beginning when the software is placed in service. Net unamortized costs of such amounts included in property, plant and equipment were
$21.3 million
and
$20.1 million
at
December 31, 2016
and
December 26, 2015
, respectively. Amortization cost related to internal use software development costs totaled
$6.9 million
,
$5.7 million
and
$4.4 million
in
2016
,
2015
and
2014
, respectively.
Property, Plant and Equipment.
Property, plant and equipment is initially stated at cost. Depreciation is recorded on a straight-line basis over the following estimated useful lives of the assets:
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Years
|
Building and improvements
|
10 - 40
|
Molds
|
4 - 10
|
Production equipment
|
10 - 20
|
Distribution equipment
|
5 - 10
|
Computer/telecom equipment
|
3 - 5
|
Capitalized software
|
3 - 5
|
Depreciation expense was
$43.0 million
,
$46.5 million
and
$47.3 million
in
2016
,
2015
and
2014
, respectively. The Company considers the need for an impairment review when events occur that indicate that the book value of a long-lived asset may exceed its recoverable value. Upon the sale or retirement of property, plant and equipment, a gain or loss is recognized equal to the difference between sales price and net book value. Expenditures for maintenance and repairs are charged to cost of products sold or delivery, sales and administrative (DS&A) expense, depending on the asset to which the expenditure relates.
Goodwill.
The Company's recorded goodwill relates primarily to the December 2005 acquisition of the direct-to-consumer businesses of Sara Lee Corporation. The Company does not amortize its goodwill. Instead, the Company performs an annual assessment during the third quarter of each year to evaluate the assets in each of its reporting units for impairment, or more frequently if events or changes in circumstances indicate that a triggering event for an impairment evaluation has occurred.
The annual process for evaluating goodwill begins with an assessment for each entity of qualitative factors to determine whether the two-step goodwill impairment evaluation is appropriate. The qualitative factors evaluated by the Company include: macro-economic conditions of the local business environment, overall financial performance, sensitivity analysis from the most recent step 1 fair value evaluation ("step 1"), as prescribed under ASC 350,
Intangibles - Goodwill and Other
, and other entity specific factors as deemed appropriate. When the Company determines the two-step goodwill impairment evaluation is appropriate, the step 1 involves comparing the fair value of a reporting unit to its carrying amount, including goodwill, after any long-lived asset impairment charges. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to determine whether there is a goodwill impairment, and if so, its amount. 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.
When a determination of fair value of the Company's reporting units is necessary, it is determined by using either the income approach or a combination of the income and market approaches, with generally a greater weighting on the income approach (
75 percent
). The income approach, or discounted cash flow approach, requires significant assumptions to estimate the fair value of each reporting unit. These include assumptions regarding future operations and the ability to generate cash flows including projections of revenue, costs, utilization of assets and capital requirements, along with an appropriate discount rate to be used. Goodwill is further discussed in Note 6 to the Consolidated Financial Statements.
Intangible Assets
. Intangible assets are recorded at their fair market values at the date of acquisition and definite-lived intangibles are amortized over their estimated useful lives
.
The intangible assets included in the Company's Consolidated Financial Statements at
December 31, 2016
and
December 26, 2015
were related to the acquisition of the Sara Lee direct-to-consumer businesses in December 2005. The weighted average estimated useful lives of the Company's intangible assets were as follows:
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Weighted Average Estimated Useful Life
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Indefinite-lived tradenames
|
Indefinite
|
Definite-lived tradename
|
10 years
|
The Company's indefinite-lived tradename intangible assets are evaluated for impairment annually similarly to goodwill. The annual process for assessing the carrying value of indefinite-lived tradename intangible assets begins with a qualitative assessment that is similar to the assessment performed for goodwill. When the Company determines it is appropriate, the quantitative impairment evaluation for the Company's indefinite-lived tradenames involves comparing the estimated fair value of the assets to the carrying amounts, to determine if fair value is lower and a write-down 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 fair value of these assets is 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 are applied to the Company's projected revenue, tax affected and discounted to present value using an appropriate rate.
The Company's definite-lived intangible asset relates to the Fuller tradename and has been amortized based on its estimated useful life of 10 years since August 2013. The Fuller tradename's useful life was estimated, at that time, based on the period that the tradename was expected to contribute directly to the Company's revenue. Definite-lived intangible assets are reviewed for impairment in a similar manner as property, plant and equipment as discussed above. Amortization related to definite-lived intangible assets is included in DS&A on the Consolidated Statements of Income. Intangible assets are further discussed in Note 6 to the Consolidated Financial Statements.
Promotional and Other 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, additions of new sales force members or other business-critical functions. The awards offered are in the form of product awards, special prizes or trips.
Programs are generally designed to recognize sales force members for achieving a primary objective. An example is to reward the independent sales force for holding a certain number of product demonstrations. In this situation, the Company offers a prize to sales force members that achieve the targeted number of product demonstrations over a specified period. The period runs from a couple of weeks to several months. The prizes are generally graded, in that meeting one level may result in receiving a piece of jewelry, with higher achievement resulting in more valuable prizes such as a television set or a trip. Similar programs are designed to reward current sales force members who reach certain goals by promoting them to a higher level in the organization where their earning opportunity would be expanded, and they would take on additional responsibilities for adding new sales force members and providing training and motivation to new and existing sales force members. Other business drivers, such as scheduling product demonstrations, increasing the number of sales force members, holding product demonstrations or increasing end consumer attendance at product demonstrations, may also be the focus of a program.
The Company also offers commissions for achieving targeted sales levels. These types of awards are generally based upon the sales achievement of at least a mid-level member of the sales force and her or his down-line members. The down-line consists of those sales force members that have been directly added to the sales force by a given sales force member, as well as those added by her or his down-line member. In this manner, sales force members can build an extensive organization over time if they are committed to adding and developing their units. In addition to the commission, the positive performance of a unit may also entitle its leader to the use of a company-provided vehicle and in some cases, the permanent awarding of a vehicle. Similar to the prize programs noted earlier, these programs generally offer varying levels of vehicles that are dependent upon performance.
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
$376.2 million
,
$378.7 million
and
$430.1 million
in
2016
,
2015
and
2014
, respectively.
Like promotional accruals, other accruals are recorded over the time period that a liability is incurred and is both probable and reasonably estimable. Adjustments to amounts previously accrued are made when changes occur in the facts and circumstances that generated the accrual.
Revenue Recognition
.
Revenue is recognized when the price is fixed, the title and risks and rewards of ownership have passed to the customer who, in most cases, is one of the Company’s independent distributors or a member of its independent sales force, and when collection is reasonably assured. Depending on the contractual arrangements for each business, revenue is recognized upon either delivery or shipment, which is when title and risk and rewards of ownership have passed to the customer. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Discounts earned based on promotional programs in place, volume of purchases or other factors are also estimated at the time of revenue recognition and recorded as a reduction of that revenue.
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, duties, 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 in
2016
,
2015
and
2014
were
$137.0 million
,
$139.3 million
and
$156.6 million
, respectively.
Advertising and Research and Development Costs.
Advertising and research and development costs are charged to expense as incurred. Advertising expense totaled
$8.3 million
,
$13.4 million
and
$19.9 million
in
2016
,
2015
and
2014
, respectively. Research and development costs totaled
$18.3 million
,
$18.1 million
and
$19.3 million
, in
2016
,
2015
and
2014
, respectively. Research and development expenses primarily include salaries, contractor costs and facility costs. Both advertising and research and development costs are included in DS&A expense.
Accounting for Stock-Based Compensation
. The Company has several stock-based employee and director compensation plans, which are described more fully in Note 14 to the Consolidated Financial Statements. Compensation cost for share-based awards is recorded on a straight line basis over the required service period, based on the fair value of the award. The fair value of the stock option grants is estimated using the Black-Scholes option-pricing model, which requires assumptions, including dividend yield, risk-free interest rate, the estimated length of time employees will retain their stock options before exercising them (expected term) and the estimated volatility of the Company's common stock price over the expected term. These assumptions are generally based on historical averages of the Company. Furthermore, in calculating compensation expense for these awards, the Company is also required to estimate the extent to which options will be forfeited prior to vesting. Many factors are considered when estimating expected forfeitures, including types of awards, employee class and historical experience. To the extent actual results or updated estimates of forfeiture differ from current estimates, such amounts are recorded as a cumulative adjustment to the previously recorded amounts.
Compensation expense associated with restricted stock, restricted stock units and performance-vested share awards is equal to the market value of the Company's common stock on the date of grant and is recorded pro rata over the required service period. The fair value of market-vested awards is based on a Monte-Carlo simulation that estimates the fair value based on the Company's share price activity between the beginning of the year and the grant date relative to a defined comparative group of companies, expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of the stock of the Company and those in the comparative group. For those awards with performance vesting criteria, the expense is recorded based on an assessment of achieving the criteria. The grant date fair value per share of market-vested awards already reflects the probability of achieving the market condition, and is therefore used to record expense straight line over the performance period regardless of actual achievement.
The Company reports as a financing cash flow the tax benefits from share-based payment arrangements. For
2016
,
2015
and
2014
, the Company generated
$0.6 million
,
$6.0 million
and
$6.3 million
of excess tax benefits, respectively.
Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets also are recognized for credit carryforwards. Deferred tax assets and liabilities are measured using the enacted rates applicable to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets. This assessment requires estimates as to future operating results, as well as an evaluation of the effectiveness of the Company's tax planning strategies. These estimates are made on an ongoing basis based upon the Company's business plans and growth strategies in each market and consequently, future material changes in the valuation allowance are possible.
The Company accounts for uncertain tax positions in accordance with ASC 740,
Income Taxes
. This guidance prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Interest and penalties related to tax contingency or settlement items are recorded as a component of the provision for income taxes in the Company's Consolidated Statements of Income. The Company records accruals for tax contingencies as a component of accrued liabilities or other long-term liabilities on its balance sheet.
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 elements of the earnings per share computations were as follows:
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(In millions, except per share amounts)
|
2016
|
|
2015
|
|
2014
|
Net income
|
$
|
223.6
|
|
|
$
|
185.8
|
|
|
$
|
214.4
|
|
Weighted-average shares of common stock outstanding
|
50.5
|
|
|
49.9
|
|
|
50.1
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|
Common equivalent shares:
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|
|
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|
Assumed exercise of dilutive options, restricted shares, restricted stock units and performance share units
|
0.2
|
|
|
0.5
|
|
|
0.9
|
|
Weighted-average common and common equivalent shares outstanding
|
50.7
|
|
|
50.4
|
|
|
51.0
|
|
Basic earnings per share
|
$
|
4.43
|
|
|
$
|
3.72
|
|
|
$
|
4.28
|
|
Diluted earnings per share
|
$
|
4.41
|
|
|
$
|
3.69
|
|
|
$
|
4.20
|
|
Shares excluded from the determination of potential common stock because inclusion would have been anti-dilutive
|
1.4
|
|
|
0.9
|
|
|
0.4
|
|
Derivative Financial Instruments.
The Company recognizes in its Consolidated Balance Sheets the asset or liability associated with all derivative instruments and measures those assets and liabilities at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the value of a derivative accounted for as a hedge depends on the intended use of the derivative and the resulting designation of the hedge exposure. Depending on how the hedge is used and the designation, the gain or loss due to changes in value is reported either in earnings, or initially in other comprehensive income. Gains or losses that are reported in other comprehensive income are eventually recognized in earnings, with the timing of this recognition governed by ASC 815,
Derivatives and Hedging
.
The Company uses derivative financial instruments, principally over-the-counter forward exchange contracts with major international financial institutions, to offset the effects of exchange rate changes on net investments in certain foreign subsidiaries, certain forecasted purchases, certain intercompany transactions, and certain accounts payable and accounts receivable. The Company also uses euro denominated borrowings under its Credit Agreement to hedge a portion of its net investment in foreign subsidiaries. Gains and losses on instruments designated as net equity hedges of net investments in a foreign subsidiary or on intercompany transactions that are permanent in nature are accrued as exchange rates change, and are recognized in shareholders' equity as a component of foreign currency translation adjustments within accumulated other comprehensive loss. Gains and losses on contracts designated as fair value hedges of accounts receivable, accounts payable and non-permanent intercompany transactions are accrued as exchange rates change and are recognized in income. Gains and losses on contracts designated as cash flow hedges of identifiable foreign currency forecasted purchases are deferred and initially included in other comprehensive income. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense. See Note 8 to the Consolidated Financial Statements.
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.
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. The Company does not have any recurring Level 3 fair value measurements.
Foreign Currency Translation.
Results of operations of foreign subsidiaries are translated into U.S. dollars using average exchange rates during the year. The assets and liabilities of those subsidiaries, other than those of operations in highly inflationary countries, are translated into U.S. dollars using exchange rates at the balance sheet date. The related translation adjustments are included in accumulated other comprehensive loss. Foreign currency transaction gains and losses, as well as re-measurement of financial statements of subsidiaries in highly inflationary countries, are included in income.
Inflation in Venezuela has been at relatively high levels over the past few years. The Company uses a blended index of the Consumer Price Index and National Consumer Price Index for determining highly inflationary status in Venezuela. This blended index reached cumulative three-year inflation in excess of 100 percent at November 30, 2009 and as such, the Company transitioned to highly inflationary status at the beginning of its 2010 fiscal year. Gains and losses resulting from the translation of the financial statements of subsidiaries operating in highly inflationary economies are recorded in earnings.
For Venezuela, the bolivar to U.S. dollar exchange rates used in translating the Company’s operating activity is based on the Simadi exchange mechanism created by the government. In
2016
,
2015
and
2014
, 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 with when it was sold was
$4.3 million
,
$14.9 million
and
$42.4 million
, respectively. The amounts related to remeasurement are included in other expense.
As of the end of
2016
, the 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 were not material. In addition, there was
$25.5 million
in cumulative foreign currency translation losses related to Venezuela included in equity within the consolidated balance sheets.
Product Warranty.
Tupperware® brand products are guaranteed against chipping, cracking, breaking or peeling under normal non-commercial use of the product with certain limitations. The cost of replacing defective products is not material.
New Accounting Pronouncements
. In May 2014, the FASB issued an amendment to existing guidance regarding revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. In August 2015, the FASB issued an amendment to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The August 2015 amendment also allows early adoption of the revenue standard, but not before the original effective date of December 15, 2016. In March and April 2016, the FASB issued amendments to provide clarification on implementation guidance. In May 2016, the FASB issued amendments to provide clarification on assessment of collectibility criteria, presentation of sales taxes and measurement of non-cash consideration. In addition, the amendment provided clarification and included simplification to transition guidance on contract modifications and completed contracts at transition. In December 2016, the FASB issued amendments to provide clarification on codification and guidance application. The Company has surveyed revenue recognition policies across each of its global operating segments, evaluating the impact of the adoption of this amendment on its Consolidated Financial Statements. While there are expected to be changes in policy in certain units, the impact to the consolidated financial statements is not expected to be significant as the majority of the Company's transactions are not accounted for under industry-specific guidance that will be superseded by the new guidance and generally only consists of a single performance obligation to transfer promised goods.
In February 2016, the FASB issued an amendment to existing guidance on lease accounting that requires the assets and liabilities arising from operating leases be presented in the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this amendment on its Consolidated Financial Statements.
In March 2016, the FASB issued an amendment to existing guidance regarding employee share-based payments. Under the amendment, all excess tax benefits and tax deficits will be recognized in the income statement. Regardless of the impact on taxes payable, the tax benefits will be recognized in the current period and excess tax benefits will be classified as an element of cash flow operating activities. In addition, the amendment included simplification to existing guidance on forfeitures, intrinsic value and the withholding of shares for participants' personal income taxes. This guidance is effective for fiscal years beginning after December 15, 2016 and will be adopted by the Company as of the beginning of 2017. There will be an impact of adopting this standard on the consolidated financial statements that likely will lead to increased volatility of the Company's tax rate that will be dependent on the timing and intrinsic value of future share-based compensation award exercises.
In August 2016, the FASB issued an amendment to existing guidance on presentation and classification of certain cash receipts and cash payments in the Statement of Cash Flows. This guidance is intended to reduce diversity in the classification of transactions related to debt prepayment or debt extinguishment costs, zero-coupon debt instruments settlement, contingent consideration payments made after a business combination, insurance claims settlement and corporate-owned life insurance settlement, distributions from equity method investments and beneficial interests in securitization transactions. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect adoption of this amendment to have an impact on its Consolidated Financial Statements.
In October 2016, the FASB issued an amendment to existing guidance on income tax consequences of intra-entity transfers of assets other than inventory. Under the amendment, the income tax consequences of an intra-entity transfer of an asset other than inventory will be recognized when the transfer occurs. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this amendment on its Consolidated Financial Statements.
In November 2016, the FASB issued an amendment to existing guidance on classification and presentation of changes in restricted cash on the statement of cash flows. Under the amendment, the restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the total cash balance for the period on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this amendment will not have a material impact on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued an amendment to existing guidance on Goodwill Impairment to simplify goodwill measurement. This guidance eliminated step 2 from the goodwill impairment test, and instead goodwill shall be tested by comparing the fair value of a reporting unit with its carrying amount. An impairment charge for the amount by which the carrying amount exceeds the fair value will be recognized; however the loss recognized will not exceed the total amount of goodwill. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Upon adoption, any impairment losses recognized under the new guidance could differ significantly and occur more frequently compared with amounts recognized under current guidance, particularly as it relates to the
$73.2 million
goodwill recorded in Fuller Mexico.
Reclassifications
. Certain prior year amounts have been reclassified in the Consolidated Financial Statements to conform to current year presentation.
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Note 2:
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Re-engineering Costs
|
The Company continually reviews its business models and operating methods for opportunities to increase efficiencies and/or align costs with business performance. Pretax costs incurred in the re-engineering and impairment charges caption by category were as follows:
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(In millions)
|
2016
|
|
2015
|
|
2014
|
Severance
|
$
|
5.4
|
|
|
$
|
5.0
|
|
|
$
|
7.4
|
|
Other
|
2.2
|
|
|
1.8
|
|
|
3.6
|
|
Total re-engineering charges
|
$
|
7.6
|
|
|
$
|
6.8
|
|
|
$
|
11.0
|
|
The severance costs incurred were associated with 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. In 2014, the Other caption included a write-off of
$1.1 million
in capitalized software in connection with a new information systems project.
Pretax costs incurred in connection with the re-engineering program included above and other amounts allocated to cost of products sold were as follows:
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|
|
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(In millions)
|
2016
|
|
2015
|
|
2014
|
Re-engineering charges
|
$
|
7.6
|
|
|
$
|
6.8
|
|
|
$
|
11.0
|
|
Cost of products sold
|
—
|
|
|
—
|
|
|
2.3
|
|
Total pretax re-engineering costs
|
$
|
7.6
|
|
|
$
|
6.8
|
|
|
$
|
13.3
|
|
The balances included in accrued liabilities related to re-engineering and impairment charges as of
December 31, 2016
,
December 26, 2015
, and
December 27, 2014
were as follows:
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|
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(In millions)
|
2016
|
|
2015
|
|
2014
|
Beginning balance
|
$
|
1.7
|
|
|
$
|
2.4
|
|
|
$
|
2.6
|
|
Provision
|
7.6
|
|
|
6.8
|
|
|
11.0
|
|
Non-cash charges
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(1.8
|
)
|
Cash expenditures:
|
|
|
|
|
|
Severance
|
(5.2
|
)
|
|
(5.8
|
)
|
|
(7.1
|
)
|
Other
|
(2.2
|
)
|
|
(1.5
|
)
|
|
(2.3
|
)
|
Ending balance
|
$
|
1.6
|
|
|
$
|
1.7
|
|
|
$
|
2.4
|
|
The accrual balance as of
December 31, 2016
, related primarily to severance payments to be made by the end of the second quarter of 2017. In connection with the decision to cease operating the Armand Dupree business in the United States and the Nutrimetics business in Thailand, the Company recorded in 2014 charges of
$1.9 million
and
$0.4 million
, respectively, in cost of sales for inventory obsolescence.
In February 2015, the Venezuelan government launched an overhaul of its foreign currency exchange structure and created a new exchange mechanism called Simadi that provided an exchange rate significantly lower than the rate available to the Company at that time. 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
$2.2 million
estimated fair value at that time, which is considered a non-recurring Level 3 measurement within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
Finished goods
|
$
|
189.4
|
|
|
$
|
203.2
|
|
Work in process
|
23.0
|
|
|
21.0
|
|
Raw materials and supplies
|
28.0
|
|
|
30.4
|
|
Total inventories
|
$
|
240.4
|
|
|
$
|
254.6
|
|
|
|
Note 4:
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
Land
|
$
|
36.7
|
|
|
$
|
35.3
|
|
Buildings and improvements
|
194.1
|
|
|
194.1
|
|
Molds
|
624.7
|
|
|
624.7
|
|
Production equipment
|
264.3
|
|
|
270.6
|
|
Distribution equipment
|
37.4
|
|
|
36.3
|
|
Computer/telecom equipment
|
45.2
|
|
|
46.2
|
|
Furniture and fixtures
|
15.8
|
|
|
10.9
|
|
Capitalized software
|
69.5
|
|
|
76.0
|
|
Construction in progress
|
29.3
|
|
|
26.6
|
|
Total property, plant and equipment
|
1,317.0
|
|
|
1,320.7
|
|
Less accumulated depreciation
|
(1,057.2
|
)
|
|
(1,067.1
|
)
|
Property, plant and equipment, net
|
$
|
259.8
|
|
|
$
|
253.6
|
|
|
|
Note 5:
|
Accrued and Other Liabilities
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
Income taxes payable
|
$
|
23.1
|
|
|
$
|
25.0
|
|
Compensation and employee benefits
|
73.0
|
|
|
83.4
|
|
Advertising and promotion
|
57.6
|
|
|
62.1
|
|
Taxes other than income taxes
|
24.5
|
|
|
22.3
|
|
Pensions
|
2.7
|
|
|
4.0
|
|
Post-retirement benefits
|
1.7
|
|
|
1.9
|
|
Dividends payable
|
34.4
|
|
|
34.3
|
|
Foreign currency contracts
|
31.7
|
|
|
14.6
|
|
Other
|
75.3
|
|
|
77.2
|
|
Total accrued liabilities
|
$
|
324.0
|
|
|
$
|
324.8
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
Post-retirement benefits
|
$
|
15.4
|
|
|
$
|
16.4
|
|
Pensions
|
123.0
|
|
|
126.4
|
|
Income taxes
|
22.5
|
|
|
18.7
|
|
Deferred income tax
|
17.6
|
|
|
16.9
|
|
Other
|
42.9
|
|
|
36.6
|
|
Total other liabilities
|
$
|
221.4
|
|
|
$
|
215.0
|
|
|
|
Note 6:
|
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 quarters of
2016
and
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 balance of
$73.2 million
associated with the Fuller Mexico reporting unit to be significant relative to total equity.
These assessments included a step 1 impairment evaluation for the goodwill associated with the Fuller Mexico reporting unit as prescribed under ASC 350, Intangibles - Goodwill and Other. The fair value analysis for Fuller Mexico was 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, or discounted cash flow 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 estimate of fair market value. The Company’s cash flow model used a forecast period of
10 years
and a terminal value. The growth rates were determined by reviewing historical results of the operating unit and the historical results of the Company’s other similar business units, along with the expected contribution from growth strategies being implemented. 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 reporting unit to determine fair value.
The significant assumptions for the Fuller Mexico step 1 analysis included annual revenue growth rates, beginning in 2017, ranging from
1 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 Fuller Mexico was
14.8 percent
.
The amount by which the estimated fair value of the Fuller Mexico reporting unit exceeded its carrying value, at
20 percent
, was more in the third quarter of
2016
than in the
2015
assessment, primarily due to an increase in the estimated fair market value in connection with improved market pricing metrics and other observable market conditions, as well as a lower carrying value in
2016
, reflecting the amortization of the definite-lived Fuller tradename.
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 negative effect on the fair value of the reporting unit. In addition, the Company is unable to predict, at this time, whether there will be a significant, long-term impact to the Fuller Mexico operations due to the change in the macro-economic environment in connection with the 2016 presidential election in the United States, which did have an impact on the business in the fourth quarter of 2016. Should the Company's programs and strategies to improve the key performance indicators as outlined above not be able to overcome the general trends in the business and/or the macro-economic impacts of the changing dynamic between the United States and Mexican governments, which could impact the long-term discount rate values used in estimating fair value, the estimated fair value of the reporting unit could fall below its carrying value. This could result in recording an impairment to the goodwill of Fuller Mexico, including prior to the 2017 annual assessment.
During the fourth quarter of 2016, the Company made the decision to combine NaturCare Japan and Tupperware Japan into a single operating segment in connection with on-going actions to stream-line operations in that geography. As a result, the goodwill previously associated with the NaturCare reporting unit was re-allocated between Japan, Korea and Malaysia/Singapore based on relative fair value of their respective NaturCare operations. The goodwill now associated with the respective operating segments is not considered significant relative to the total equity of the Company. These changes did not impact the geographical reporting segments.
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. Impairment charges would have an adverse impact on the Company’s net income and shareholders' equity.
The Company has estimated a
10
year useful life for the Fuller tradename with amortization to be recorded on a straight-line basis. Amortization expense recorded in
2016
,
2015
and
2014
related to the Fuller tradename was
$7.6 million
,
$8.8 million
, and
$10.2 million
, respectively. The decreasing annual expense reflects the weakening of the Mexican peso to U.S. dollar exchange rate.
The following table reflects gross goodwill and accumulated impairments allocated to each reporting segment at
December 31, 2016
,
December 26, 2015
and
December 27, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Europe
|
|
Asia Pacific
|
|
TW North America
|
|
Beauty North America
|
|
South America
|
|
Total
|
Gross goodwill balance at December 27, 2014
|
$
|
30.3
|
|
|
$
|
75.4
|
|
|
$
|
16.3
|
|
|
$
|
142.6
|
|
|
$
|
4.8
|
|
|
$
|
269.4
|
|
Effect of changes in exchange rates
|
(1.4
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
(15.1
|
)
|
|
(1.2
|
)
|
|
(18.4
|
)
|
Gross goodwill balance at December 26, 2015
|
28.9
|
|
|
74.7
|
|
|
16.3
|
|
|
127.5
|
|
|
3.6
|
|
|
251.0
|
|
Effect of changes in exchange rates
|
0.4
|
|
|
1.2
|
|
|
—
|
|
|
(15.4
|
)
|
|
0.1
|
|
|
(13.7
|
)
|
Gross goodwill balance at December 31, 2016
|
$
|
29.3
|
|
|
$
|
75.9
|
|
|
$
|
16.3
|
|
|
$
|
112.1
|
|
|
$
|
3.7
|
|
|
$
|
237.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Europe
|
|
Asia Pacific
|
|
TW North America
|
|
Beauty North America
|
|
South America
|
|
Total
|
Cumulative impairments as of December 27, 2014
|
$
|
24.5
|
|
|
$
|
41.3
|
|
|
$
|
—
|
|
|
$
|
38.9
|
|
|
$
|
—
|
|
|
$
|
104.7
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative impairments as of December 26, 2015
|
24.5
|
|
|
41.3
|
|
|
—
|
|
|
38.9
|
|
|
—
|
|
|
104.7
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative impairments as of December 31, 2016
|
$
|
24.5
|
|
|
$
|
41.3
|
|
|
$
|
—
|
|
|
$
|
38.9
|
|
|
$
|
—
|
|
|
$
|
104.7
|
|
The gross carrying amount and accumulated amortization of the Company's intangible assets, other than goodwill, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
(In millions)
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived tradenames
|
$
|
20.6
|
|
|
$
|
—
|
|
|
$
|
20.6
|
|
Definite-lived tradename
|
70.0
|
|
|
23.3
|
|
|
46.7
|
|
Total intangible assets
|
$
|
90.6
|
|
|
$
|
23.3
|
|
|
$
|
67.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 26, 2015
|
(In millions)
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived tradenames
|
$
|
20.1
|
|
|
$
|
—
|
|
|
$
|
20.1
|
|
Definite-lived tradename
|
81.7
|
|
|
19.1
|
|
|
62.6
|
|
Total intangible assets
|
$
|
101.8
|
|
|
$
|
19.1
|
|
|
$
|
82.7
|
|
A summary of the identifiable intangible asset account activity is as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
|
(In millions)
|
December 31,
2016
|
|
December 26,
2015
|
Beginning balance
|
$
|
101.8
|
|
|
$
|
116.8
|
|
Effect of changes in exchange rates
|
(11.2
|
)
|
|
(15.0
|
)
|
Ending balance
|
$
|
90.6
|
|
|
$
|
101.8
|
|
Amortization expense was
$7.6 million
,
$10.2 million
and
$11.8 million
in
2016
,
2015
and
2014
, respectively. The estimated annual amortization expense associated with the above intangibles for each of the five succeeding years is
$7.0 million
.
|
|
Note 7:
|
Financing Obligations
|
Debt Obligations
Debt obligations consisted of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
Fixed rate Senior Notes due 2021
|
$
|
599.4
|
|
|
$
|
599.3
|
|
Five year Revolving Credit Agreement
|
104.0
|
|
|
155.8
|
|
Belgium facility capital lease
|
8.4
|
|
|
10.6
|
|
Other
|
0.1
|
|
|
5.0
|
|
Total debt obligations
|
711.9
|
|
|
770.7
|
|
Less current portion
|
(105.9
|
)
|
|
(162.5
|
)
|
Long-term debt and capital lease obligations
|
$
|
606.0
|
|
|
$
|
608.2
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
2016
|
|
2015
|
Total short-term borrowings at year-end
|
$
|
104.0
|
|
|
$
|
160.4
|
|
Weighted average interest rate at year-end
|
1.5
|
%
|
|
1.5
|
%
|
Average short-term borrowings during the year
|
$
|
357.4
|
|
|
$
|
394.9
|
|
Weighted average interest rate for the year
|
1.8
|
%
|
|
1.5
|
%
|
Maximum short-term borrowings during the year
|
$
|
429.3
|
|
|
$
|
444.8
|
|
Senior Notes
On June 2, 2011, the Company completed the sale of
$400 million
in aggregate principal amount of
4.75%
Senior Notes due June 1, 2021 under an indenture (the "Indenture"), entered into by the Company and its 100% subsidiary, Dart Industries Inc. (the “Guarantor”). These Senior Notes were sold at a discount.
On March 11, 2013, the Company issued and sold an additional
$200 million
in aggregate principal amount of these notes (both issuances together, the "Senior Notes") in a registered public offering. As a result of the 2013 issuance, the Company recorded a premium of
$7.6 million
to be amortized over the life of the Senior Notes. The Company also incurred
$1.5 million
in deferred financing costs.
The Senior Notes were issued under an Indenture between the Company, the Guarantor and Wells Fargo Bank, N.A., as trustee. As security for its obligations under the guarantee of the Senior 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 customary circumstances specified in the Indenture. These customary circumstances include:
|
|
•
|
payment in full of principal of and premium, if any, and interest on the Senior Notes;
|
|
|
•
|
satisfaction and discharge of the Indenture;
|
|
|
•
|
upon legal defeasance or covenant defeasance of the Senior Notes as set forth in the Indenture;
|
|
|
•
|
as to any property or assets constituting Collateral owned by the Guarantor that is released from its Guarantee in accordance with the Indenture;
|
|
|
•
|
with the consent of the Holders of the requisite percentage of Senior Notes in accordance with the Indenture; and
|
|
|
•
|
if the rating on the Senior Notes is changed to investment grade in accordance with the Indenture.
|
Prior to March 1, 2021, the Company may redeem the Senior Notes, at its option, at a redemption price equal to accrued and unpaid interest and the greater of i)
100 percent
of the principal amount to be redeemed; and ii) 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 Senior Notes 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 Senior 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. As of
December 31, 2016
, the Company was in compliance with all of its covenants.
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 September 11, 2013, as amended by Amendment No. 1 dated June 2, 2014 (as so amended, the “Credit Agreement”). The terms and structure of the Credit Agreement remained 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 the agreement of the lenders. As of
December 31, 2016
, the Company had total borrowings of
$104.0 million
outstanding under its Credit Agreement, with
$84.6 million
of that amount denominated in euros.
The Company routinely increases its revolver borrowings under the Credit Agreement and uncommitted lines during each quarter to fund operating, investing and financing activities and uses cash available at the end of each quarter to reduce borrowing levels. As a result, the Company incurs more interest expense and has higher foreign exchange exposure on the value of its cash and debt during each quarter than would relate solely to the quarter end balances.
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
December 31, 2016
, the Credit Agreement dictated a base rate spread of
150
basis points, which gave the Company a weighted average interest rate on
LIBOR
based borrowings of
1.50 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. As of
December 31, 2016
, and currently, the Company had considerable cushion under its financial covenants.
The Guarantor unconditionally guarantees all obligations and liabilities of the Company and the Subsidiary Borrower relating to the Credit Agreement as well as the Senior Notes, supported by a security interest in certain "Tupperware" trademarks and service marks.
At
December 31, 2016
, the Company had
$577.0 million
of unused lines of credit, including
$494.7 million
under the committed, secured Credit Agreement, and
$82.3 million
available under various uncommitted lines around the world. Interest paid on total debt, including forward points on foreign currency contracts, in
2016
,
2015
and
2014
was
$47.4 million
,
$47.8 million
and
$44.0 million
, respectively.
Contractual Maturities
Contractual maturities for debt obligations at
December 31, 2016
are summarized by year as follows (in millions):
|
|
|
|
|
Year ending:
|
Amount
|
December 30, 2017
|
$
|
105.9
|
|
December 29, 2018
|
1.8
|
|
December 28, 2019
|
1.4
|
|
December 26, 2020
|
1.2
|
|
December 25, 2021
|
600.6
|
|
Thereafter
|
1.0
|
|
Total
|
$
|
711.9
|
|
Capital Leases
In 2007, the Company completed construction of its Tupperware center of excellence manufacturing facility in Belgium. Costs related to the new facility and equipment totaled
$24.0 million
and were financed through a sale lease-back transaction under two separate leases. The two leases are being accounted for as capital leases and have initial terms of
10 years
and
15 years
and interest rates of
5.1 percent
. In 2010, the Company extended a lease on an additional building in Belgium that was previously accounted for as an operating lease. As a result of renegotiating the terms of the agreement, the lease is now classified as capital and had an initial value of
$3.8 million
with an initial term of
10 years
and an interest rate of
2.9 percent
.
Following is a summary of significant capital lease obligations at
December 31, 2016
and
December 26, 2015
:
|
|
|
|
|
|
|
|
|
(In millions)
|
December 31,
2016
|
|
December 26,
2015
|
Gross payments
|
$
|
9.4
|
|
|
$
|
12.2
|
|
Less imputed interest
|
1.0
|
|
|
1.6
|
|
Total capital lease obligation
|
8.4
|
|
|
10.6
|
|
Less current maturity
|
1.8
|
|
|
1.8
|
|
Capital lease obligation - long-term portion
|
$
|
6.6
|
|
|
$
|
8.8
|
|
|
|
Note 8:
|
Derivative Financial Instruments
|
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 these fluctuations, 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 as described in Note 1 to the Consolidated Financial Statements.
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. In
2016
,
2015
and
2014
, forward points on fair value hedges resulted in pretax gains of
$15.7 million
,
$14.1 million
and
$10.3 million
, respectively.
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 generally 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 current reporting period in other comprehensive income, related to cash flow hedges, will generally be reclassified into earnings within the next
twelve months
. The associated asset or liability on the open hedges is recorded in Non-trade amounts receivable or accrued liabilities, as applicable. The balance in accumulated other comprehensive loss, net of tax, resulting from open foreign currency hedges designated as cash flow hedges was a deferred gain of
$4.9 million
,
$4.3 million
and
$7.8 million
as of
December 31, 2016
,
December 26, 2015
and
December 27, 2014
, respectively. In
2016
,
2015
and
2014
, the Company recorded in other comprehensive loss, net of tax, net (losses)/gains associated with cash flow hedges of
$0.6 million
,
$(3.5) million
and
$5.6 million
, respectively, which represents the net change to accumulated other comprehensive income on the Company's balance sheet related to these type of hedges.
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, in other comprehensive income a net gain of
$28.6 million
,
$54.6 million
and
$25.5 million
associated with these hedges in
2016
,
2015
and
2014
, respectively. 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.
While the forward contracts used for 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 for the years ended
2016
,
2015
and
2014
were
outflow
s of
$2.7 million
,
$17.0 million
and an inflow of
$4.6 million
, respectively. The cash flow impact of certain of these exposures is in turn partially offset by certain hedges of net equity.
The Company considers the total notional value of its forward contracts as the best measure of the volume of derivative transactions. As of
December 31, 2016
and
December 26, 2015
, the notional amounts of outstanding forward contracts to purchase currencies were
$116.7 million
and
$141.9 million
, respectively, and the notional amounts of outstanding forward contracts to sell currencies were
$109.6 million
and
$137.4 million
, respectively. As of
December 31, 2016
, the notional values of the largest positions outstanding were to purchase U.S. dollars
$60.5 million
and euro
$46.9 million
and to sell Mexican pesos
$32.6 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
December 31, 2016
and
December 26, 2015
. 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
|
|
2016
|
|
2015
|
|
Balance sheet location
|
|
2016
|
|
2015
|
Foreign exchange contracts
|
|
Non-trade amounts receivable
|
|
$
|
41.1
|
|
|
$
|
21.5
|
|
|
Accrued liabilities
|
|
$
|
31.7
|
|
|
$
|
14.6
|
|
The following table summarizes the impact of the Company's fair value hedging positions on the results of operations for the years ended
December 31, 2016
,
December 26, 2015
and
December 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
|
|
|
|
|
2016
|
2015
|
2014
|
|
|
|
2016
|
2015
|
2014
|
Foreign exchange contracts
|
|
Other expense
|
|
$
|
(41.8
|
)
|
$
|
(83.6
|
)
|
$
|
(36.6
|
)
|
|
Other expense
|
|
|
$42.1
|
|
|
$83.8
|
|
|
$35.0
|
|
The following table summarizes the impact of Company's hedging activities on comprehensive income for the years ended
December 31, 2016
,
December 26, 2015
and
December 27, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 amounts excluded from effectiveness testing)
|
Cash flow hedging relationships
|
|
2016
|
2015
|
2014
|
|
|
|
2016
|
2015
|
2014
|
|
|
|
2016
|
2015
|
2014
|
Foreign exchange contracts
|
|
$
|
6.7
|
|
$
|
14.5
|
|
$
|
15.9
|
|
|
Cost of products sold
|
|
$
|
5.7
|
|
$
|
19.2
|
|
$
|
9.1
|
|
|
Interest expense
|
|
$
|
(5.6
|
)
|
$
|
(7.7
|
)
|
$
|
(4.9
|
)
|
Net equity hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
41.0
|
|
74.2
|
|
38.8
|
|
|
Other expense
|
|
—
|
|
—
|
|
—
|
|
|
Interest expense
|
|
(20.8
|
)
|
(16.8
|
)
|
(13.3
|
)
|
Euro denominated debt
|
|
3.7
|
|
11.1
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company's theoretical credit risk for each foreign exchange contract is its replacement cost, but management believes that the risk of incurring credit losses is remote and such losses, if any, would not be material. The Company is also exposed to market risk on its derivative instruments due to potential changes in foreign exchange rates; however, such market risk would be fully offset by changes in the valuation of the underlying items being hedged. For all outstanding derivative instruments, the net accrued gain was
$9.4 million
,
$6.9 million
and
$4.7 million
at
December 31, 2016
,
December 26, 2015
and
December 27, 2014
, respectively, and were recorded either in Non-trade amounts receivable or accrued liabilities, depending upon the net position of the individual contracts. The notional amounts shown above change based upon the Company's outstanding exposure to fair value fluctuations.
|
|
Note 9:
|
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
December 31, 2016
and
December 26, 2015
. The Company estimates that, based on current market conditions, the value of its
4.75%
, 2021 senior notes was
$640.8 million
at
December 31, 2016
, compared with the carrying value of
$599.4 million
. The higher fair value resulted from changes, since issuance, in the corporate debt markets 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 that consider the Company's credit risk and market related conditions. See Note 8 to the Consolidated Financial Statements for discussion of the Company's derivative instruments and related fair value measurements.
|
|
Note 10:
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, net of tax)
|
Foreign Currency Items
|
|
Cash Flow Hedges
|
|
Pension and Other Post-retirement Items
|
|
Total
|
December 28, 2013
|
$
|
(283.1
|
)
|
|
$
|
2.2
|
|
|
$
|
(35.9
|
)
|
|
$
|
(316.8
|
)
|
Other comprehensive income (loss) before reclassifications
|
(85.2
|
)
|
|
12.7
|
|
|
(14.9
|
)
|
|
(87.4
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(7.1
|
)
|
|
2.6
|
|
|
(4.5
|
)
|
Net other comprehensive income (loss)
|
(85.2
|
)
|
|
5.6
|
|
|
(12.3
|
)
|
|
(91.9
|
)
|
December 27, 2014
|
$
|
(368.3
|
)
|
|
$
|
7.8
|
|
|
$
|
(48.2
|
)
|
|
$
|
(408.7
|
)
|
Other comprehensive income (loss) before reclassifications
|
(122.3
|
)
|
|
11.3
|
|
|
8.9
|
|
|
(102.1
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(14.8
|
)
|
|
3.6
|
|
|
(11.2
|
)
|
Net other comprehensive income (loss)
|
(122.3
|
)
|
|
(3.5
|
)
|
|
12.5
|
|
|
(113.3
|
)
|
December 26, 2015
|
$
|
(490.6
|
)
|
|
$
|
4.3
|
|
|
$
|
(35.7
|
)
|
|
$
|
(522.0
|
)
|
Other comprehensive income (loss) before reclassifications
|
(53.7
|
)
|
|
4.9
|
|
|
(0.9
|
)
|
|
(49.7
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(4.3
|
)
|
|
4.5
|
|
|
0.2
|
|
Net other comprehensive income (loss)
|
(53.7
|
)
|
|
0.6
|
|
|
3.6
|
|
|
(49.5
|
)
|
December 31, 2016
|
$
|
(544.3
|
)
|
|
$
|
4.9
|
|
|
$
|
(32.1
|
)
|
|
$
|
(571.5
|
)
|
Pretax amounts reclassified from accumulated other comprehensive loss that related to cash flow hedges consisted of net
gains
of
$5.7 million
,
$19.2 million
and
$9.1 million
in
2016
,
2015
and
2014
, respectively. Associated with these items were tax
provision
s of
$1.4 million
,
$4.4 million
and
$2.0 million
in
2016
,
2015
and
2014
, respectively. See Note 8 for further discussion of derivatives.
In
2016
,
2015
and
2014
, pretax amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items consisted of prior service
benefit
s of
$1.2 million
,
$1.3 million
and
$0.8 million
, respectively, and pension settlement
costs
of
$3.9 million
,
$1.6 million
and
$1.8 million
, respectively, and actuarial
losses
of
$2.6 million
,
$4.5 million
and
$2.6 million
, respectively. Associated with these items were tax
benefit
s of
$0.8 million
,
$1.2 million
and
$1.0 million
, respectively. See Note 13 for further discussion of pension and other post-retirement benefit costs.
|
|
Note 11:
|
Statements of Cash Flows Supplemental Disclosure
|
Under the Company's stock incentive programs, employees are allowed to use shares retained by the Company to satisfy minimum statutorily required withholding taxes in certain jurisdictions. In
2016
,
2015
and
2014
,
30,703
,
22,344
and
102,405
shares, respectively, were retained to fund withholding taxes, with values totaling
$1.7 million
,
$1.5 million
and
$8.0 million
, respectively, which were included as a component of stock repurchases in the Consolidated Statement of Cash Flows.
During the first quarter of 2014 and the fourth quarter of 2015, the Company entered into joint ventures with a real estate development partner. The Company contributed land to each joint venture in exchange for
50 percent
ownership in each joint venture. The carrying value of the land contributed in 2015 and 2014 was
$0.8 million
and
$3.1 million
, respectively. The joint ventures were sold in the third quarter of 2016 with the related proceeds recorded under the proceeds from disposal of property, plant and equipment caption in the Consolidated Statement of Cash flows.
There were
no
capital lease arrangements initiated in
2016
,
2015
or
2014
.
For income tax purposes, the domestic and foreign components of income (loss) before taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
(44.8
|
)
|
|
$
|
(67.5
|
)
|
|
$
|
(35.5
|
)
|
Foreign
|
346.1
|
|
|
327.4
|
|
|
333.7
|
|
Total
|
$
|
301.3
|
|
|
$
|
259.9
|
|
|
$
|
298.2
|
|
The domestic and foreign components of income (loss) before taxes reflect adjustments as required under certain advanced pricing agreements and exclude repatriation of foreign earnings to the United States.
The provision (benefit) for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(23.8
|
)
|
|
$
|
(22.8
|
)
|
|
$
|
11.5
|
|
Foreign
|
114.1
|
|
|
92.6
|
|
|
114.8
|
|
State
|
1.4
|
|
|
(0.8
|
)
|
|
1.5
|
|
|
91.7
|
|
|
69.0
|
|
|
127.8
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(14.7
|
)
|
|
(13.8
|
)
|
|
(40.6
|
)
|
Foreign
|
0.2
|
|
|
18.2
|
|
|
(1.9
|
)
|
State
|
0.5
|
|
|
0.7
|
|
|
(1.5
|
)
|
|
(14.0
|
)
|
|
5.1
|
|
|
(44.0
|
)
|
Total
|
$
|
77.7
|
|
|
$
|
74.1
|
|
|
$
|
83.8
|
|
The differences between the provision for income taxes and income taxes computed using the U.S. federal statutory rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Amount computed using statutory rate
|
$
|
105.5
|
|
|
$
|
91.0
|
|
|
$
|
104.4
|
|
Increase (reduction) in taxes resulting from:
|
|
|
|
|
|
Net impact from repatriating foreign earnings and direct foreign tax credits
|
(16.3
|
)
|
|
(7.9
|
)
|
|
(17.7
|
)
|
Foreign income taxes
|
(7.5
|
)
|
|
(4.6
|
)
|
|
(20.6
|
)
|
Impact of non-deductible currency translation losses
|
—
|
|
|
3.1
|
|
|
19.0
|
|
Impact of changes in U.S. tax legislation
|
(2.7
|
)
|
|
—
|
|
|
—
|
|
Other changes in valuation allowances for deferred tax assets
|
(0.1
|
)
|
|
(0.4
|
)
|
|
(0.5
|
)
|
Foreign and domestic tax audit settlement and adjustments
|
—
|
|
|
(2.4
|
)
|
|
—
|
|
Other
|
(1.2
|
)
|
|
(4.7
|
)
|
|
(0.8
|
)
|
Total
|
$
|
77.7
|
|
|
$
|
74.1
|
|
|
$
|
83.8
|
|
The effective tax rates are below the U.S. statutory rate, primarily reflecting the availability of excess foreign tax credits, as well as lower foreign effective tax rates. During 2014, the tax rate was impacted by the devaluation of the Venezuelan bolivar that generated losses for which there was no tax benefit.
Deferred tax assets (liabilities) were composed of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
Purchased intangibles
|
$
|
(21.7
|
)
|
|
$
|
(26.6
|
)
|
Other
|
(14.1
|
)
|
|
(9.2
|
)
|
Gross deferred tax liabilities
|
(35.8
|
)
|
|
(35.8
|
)
|
Credit and net operating loss carry forwards (net of unrecognized tax benefits)
|
301.2
|
|
|
293.6
|
|
Employee benefits accruals
|
63.1
|
|
|
63.2
|
|
Deferred costs
|
92.2
|
|
|
80.7
|
|
Fixed assets basis differences
|
22.4
|
|
|
33.6
|
|
Capitalized intangibles
|
34.2
|
|
|
32.7
|
|
Other accruals
|
32.1
|
|
|
27.8
|
|
Accounts receivable
|
11.3
|
|
|
10.5
|
|
Post-retirement benefits
|
7.1
|
|
|
7.5
|
|
Depreciation
|
13.4
|
|
|
7.2
|
|
Inventory
|
6.4
|
|
|
10.0
|
|
Gross deferred tax assets
|
583.4
|
|
|
566.8
|
|
Valuation allowances
|
(24.8
|
)
|
|
(23.1
|
)
|
Net deferred tax assets
|
$
|
522.8
|
|
|
$
|
507.9
|
|
At
December 31, 2016
, the Company had domestic federal loss carryforward of
$18.0 million
, resulting in a domestic deferred tax asset of
$6.4 million
and state loss carry forwards of
$161.0 million
, state deferred tax assets of
$6.0 million
and a valuation allowance of
$3.7 million
. The Company had foreign net operating loss carry forwards of
$213.8 million
, resulting in a deferred tax asset of
$62.2 million
and a valuation allowance of
$21.1 million
. Of the total foreign and domestic net operating loss carry forwards,
$304.2 million
expire at various dates from 2017 to 2036, while the remainder have unlimited lives. This balance included net deferred tax assets of
$6.4 million
for federal net operating losses, which would expire in the years 2020 through 2035 if not utilized,
$25.2 million
of foreign net operating losses which would expire in 2026 if not utilized and
no
foreign net operating losses which would expire in 2017. During
2016
, the Company realized net cash benefits of
$1.4 million
related to foreign net operating loss carry forwards. At
December 31, 2016
and
December 26, 2015
, the Company had estimated gross foreign tax credit carry forwards of
$215.0 million
and
$218.6 million
, respectively, most of which would expire in 2018 through 2025 if not utilized. Deferred costs in
December 31, 2016
included assets of
$92.8 million
related to advanced payment agreements entered into by the Company with its foreign subsidiaries, which are expected to reverse during the next
three years
.
As of
December 31, 2016
and
December 26, 2015
, the Company's gross unrecognized tax benefit was
$20.7 million
and
$21.8 million
, respectively. During the year ended
December 31, 2016
, the accrual for uncertain tax positions decreased by
$3.1 million
primarily due to the expiration of the statute of limitations in various jurisdictions. During the year, the balance increased due to uncertain positions taken in various foreign tax jurisdictions that were partially offset by the impact of changes in foreign exchange rates. 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. This assessment is based upon expected future domestic results, future foreign dividends from then current year earnings and cash flows and other foreign source income, including rents and royalties, as well as anticipated gains related to future sales of land held for development near the Company's Orlando, Florida headquarters. In addition, certain tax planning transactions may be entered into to facilitate realization of these benefits. The likelihood of realizing the benefit of deferred tax assets is assessed on an ongoing basis. Consequently, future material changes in the valuation allowance are possible. The credit and net operating loss carry forwards increased by
$7.6 million
, in 2016, primarily due to an increase in credits for net operating losses. The increase in deferred costs of
$11.5 million
in 2016, was due to increase related to advanced payments during the year, netted against reversals of prior year payments.
The Company paid income taxes in
2016
,
2015
and
2014
of
$108.3 million
,
$106.4 million
and
$117.0 million
, respectively. The Company has a foreign subsidiary which receives a tax holiday that expires in 2020. The net benefit of this and other expired tax holidays was
$1.3 million
,
$2.6 million
and
$3.4 million
in
2016
,
2015
and
2014
, respectively.
As of
December 31, 2016
and
December 26, 2015
, the Company's gross unrecognized tax benefit was
$20.7 million
and
$21.8 million
, respectively. The Company estimates that approximately
$19.2 million
of the unrecognized tax benefits, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Balance, beginning of year
|
$
|
21.8
|
|
|
$
|
22.5
|
|
|
$
|
27.4
|
|
Additions based on tax positions related to the current year
|
2.7
|
|
|
3.3
|
|
|
3.9
|
|
Additions for tax positions of prior year
|
1.2
|
|
|
3.4
|
|
|
1.2
|
|
Reduction for tax positions of prior years
|
(1.2
|
)
|
|
(1.6
|
)
|
|
(3.1
|
)
|
Settlements
|
—
|
|
|
(1.1
|
)
|
|
(1.9
|
)
|
Reductions for lapse in statute of limitations
|
(3.1
|
)
|
|
(3.2
|
)
|
|
(3.7
|
)
|
Impact of foreign currency rate changes versus the U.S. dollar
|
(0.7
|
)
|
|
(1.5
|
)
|
|
(1.3
|
)
|
Balance, end of year
|
$
|
20.7
|
|
|
$
|
21.8
|
|
|
$
|
22.5
|
|
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
$7.1 million
and
$6.0 million
as of
December 31, 2016
and
December 26, 2015
, respectively. Interest and penalties included in the provision for income taxes totaled
$1.1 million
and
$0.9 million
for
2016
and
2014
, respectively and
no
significant interest and penalties included in the provision for income taxes for
2015
.
During the year ended
December 31, 2016
, the accrual for uncertain tax positions decreased by
$3.1 million
primarily due to the expiration of the statute of limitations in various jurisdictions. During the year, increases in uncertain positions being taken during the year in various foreign tax jurisdictions were partially offset by the impact of changes in foreign exchange rates.
During the year ended
December 26, 2015
, the accrual for uncertain tax positions decreased by
$1.1 million
primarily as a result of the Company agreeing to tax settlements in various foreign jurisdictions, as well as a
$3.2 million
decrease of accruals for uncertain tax positions due to the expiration of the statute of limitations in various jurisdictions. During the year, increases in uncertain positions being taken in various foreign tax jurisdictions were partially offset by the impact of changes in foreign exchange rates.
During the year ended
December 27, 2014
, the accrual for uncertain tax positions decreased by
$1.9 million
primarily as a result of the Company agreeing to transfer pricing settlements in various foreign jurisdictions and entering into an Advanced Pricing Agreement, as well as a
$3.7 million
decrease of accruals for uncertain tax positions due to the expiration of the statute of limitations in various jurisdictions. During the year, increases in uncertain positions being taken in various foreign tax jurisdictions were partially offset by the impact of foreign exchange rates.
The Company operates globally and files income tax returns in the United States with federal and various state agencies, and in foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is no longer subject to income tax examination in the following major jurisdictions: for U.S. tax for years before 2002, Australia (2011), Brazil (2005), China (2004), France (2011), Germany (2011), Greece (2009), India (2002), Indonesia (2009), Italy (2011), Malaysia (2009), Mexico (2005), and South Africa (2010), with limited exceptions.
The Company estimates that it may settle one or more foreign and domestic 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
December 31, 2016
, 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.
As of
December 31, 2016
, the Company had foreign undistributed earnings of
$1.2 billion
where it is the Company's intent that the earnings be reinvested indefinitely. Consequently, the Company has not provided for U.S. deferred income taxes on these undistributed earnings. The determination of the amount of unrecognized deferred U.S. income tax liability associated with these undistributed earnings is not practicable because of the complexities associated with the calculation.
The Company recognized
$1.7 million
of expense, and
$6.0 million
and
$6.3 million
of benefits for deductions, associated with the exercise of employee stock options in
2016
,
2015
and
2014
, respectively. These changes were added directly to paid-in capital, and were not reflected in the provision for income taxes.
|
|
Note 13:
|
Retirement Benefit Plans
|
The Company has various defined benefit pension plans covering substantially all domestic employees employed as of June 30, 2005, except those employed by Beauticontrol, and certain employees in other countries. In addition to providing pension benefits, the Company provides certain post-retirement healthcare and life insurance benefits for selected U.S. and Canadian employees. Employees may become eligible for these benefits if they reach normal retirement age while working for the Company or satisfy certain age and years of service requirements. The medical plans are contributory for most retirees with contributions adjusted annually, and contain other cost-sharing features, such as deductibles and coinsurance. The medical plans include an allowance for Medicare for post-65 age retirees. Most employees and retirees outside the United States are covered by government healthcare programs.
The Company uses its fiscal year end as the measurement date for its plans. The funded status of all of the Company's plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
Foreign plans
|
|
Pension benefits
|
|
Post-retirement benefits
|
|
Pension benefits
|
(In millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
59.2
|
|
|
$
|
67.6
|
|
|
$
|
18.3
|
|
|
$
|
20.4
|
|
|
$
|
183.3
|
|
|
$
|
197.7
|
|
Service cost
|
0.3
|
|
|
0.3
|
|
|
0.1
|
|
|
0.1
|
|
|
11.3
|
|
|
10.3
|
|
Interest cost
|
2.2
|
|
|
2.3
|
|
|
0.7
|
|
|
0.7
|
|
|
4.5
|
|
|
4.5
|
|
Actuarial (gain) loss
|
(2.9
|
)
|
|
(8.6
|
)
|
|
(0.2
|
)
|
|
(1.0
|
)
|
|
7.3
|
|
|
(0.6
|
)
|
Benefits paid
|
(0.9
|
)
|
|
(2.2
|
)
|
|
(1.9
|
)
|
|
(1.8
|
)
|
|
(7.8
|
)
|
|
(11.1
|
)
|
Impact of exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
(11.0
|
)
|
|
(16.8
|
)
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
4.2
|
|
Settlements/Curtailments
|
(8.1
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
(8.8
|
)
|
|
(4.9
|
)
|
Ending balance
|
$
|
49.8
|
|
|
$
|
59.2
|
|
|
$
|
17.0
|
|
|
$
|
18.3
|
|
|
$
|
179.6
|
|
|
$
|
183.3
|
|
Change in plan assets at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
33.9
|
|
|
$
|
35.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
78.2
|
|
|
$
|
79.3
|
|
Actual return on plan assets
|
2.8
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
|
3.1
|
|
Company contributions
|
—
|
|
|
0.8
|
|
|
1.9
|
|
|
1.8
|
|
|
14.2
|
|
|
12.1
|
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
4.2
|
|
Benefits and expenses paid
|
(1.6
|
)
|
|
(2.5
|
)
|
|
(1.9
|
)
|
|
(1.8
|
)
|
|
(7.8
|
)
|
|
(11.1
|
)
|
Impact of exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
|
(4.6
|
)
|
Settlements
|
(8.1
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
(8.8
|
)
|
|
(4.8
|
)
|
Ending balance
|
$
|
27.0
|
|
|
$
|
33.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
76.9
|
|
|
$
|
78.2
|
|
Funded status of plans
|
$
|
(22.8
|
)
|
|
$
|
(25.3
|
)
|
|
$
|
(17.0
|
)
|
|
$
|
(18.3
|
)
|
|
$
|
(102.7
|
)
|
|
$
|
(105.1
|
)
|
Amounts recognized in the balance sheet consisted of:
|
|
|
|
|
|
|
|
|
(In millions)
|
December 31,
2016
|
|
December 26,
2015
|
Accrued benefit liability
|
$
|
(142.5
|
)
|
|
$
|
(148.7
|
)
|
Accumulated other comprehensive loss (pretax)
|
44.4
|
|
|
47.6
|
|
Items not yet recognized as a component of pension expense as of
December 31, 2016
and
December 26, 2015
consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
(In millions)
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
Transition obligation
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
Prior service cost (benefit)
|
1.1
|
|
|
(7.3
|
)
|
|
1.2
|
|
|
(8.7
|
)
|
Net actuarial loss
|
47.4
|
|
|
1.0
|
|
|
51.7
|
|
|
1.3
|
|
Accumulated other comprehensive loss(income) pretax
|
$
|
50.7
|
|
|
$
|
(6.3
|
)
|
|
$
|
55.0
|
|
|
$
|
(7.4
|
)
|
Components of other comprehensive loss (income) for the years ended
December 31, 2016
and
December 26, 2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
(In millions)
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
Net prior service cost (benefit)
|
—
|
|
|
1.3
|
|
|
(0.1
|
)
|
|
1.9
|
|
Net actuarial (gain)
|
(12.3
|
)
|
|
(0.2
|
)
|
|
(13.2
|
)
|
|
(1.6
|
)
|
Impact of exchange rates
|
8.0
|
|
|
—
|
|
|
(5.6
|
)
|
|
—
|
|
Other comprehensive (income) loss
|
$
|
(4.3
|
)
|
|
$
|
1.1
|
|
|
$
|
(18.9
|
)
|
|
$
|
0.3
|
|
In
2017
, the Company expects to recognize a prior service benefit of approximately
$1.4 million
and a net actuarial loss of
$2.1 million
as components of pension and post-retirement expense.
The accumulated benefit obligation for all defined benefit pension plans at
December 31, 2016
and
December 26, 2015
was
$205.7 million
and
$211.1 million
, respectively. At
December 31, 2016
and
December 26, 2015
, the accumulated benefit obligations of certain pension plans exceeded those respective plans' assets. For those plans, the accumulated benefit obligations were
$196.9 million
and
$185.3 million
, and the fair value of their assets was
$93.7 million
and
$83.7 million
as of
December 31, 2016
and
December 26, 2015
, respectively. At
December 31, 2016
and
December 26, 2015
, the benefit obligations of the Company's significant pension plans exceeded those respective plans' assets. The accrued benefit cost for the pension plans is reported in accrued liabilities and other long-term liabilities.
The costs associated with all of the Company's plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
Post-retirement benefits
|
(Dollars in millions)
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost and expenses
|
$
|
11.8
|
|
|
$
|
10.8
|
|
|
$
|
10.8
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest cost
|
6.7
|
|
|
6.9
|
|
|
8.6
|
|
|
0.7
|
|
|
0.7
|
|
|
1.1
|
|
Return on plan assets
|
(5.3
|
)
|
|
(5.3
|
)
|
|
(5.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement/Curtailment
|
3.9
|
|
|
1.7
|
|
|
1.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employee contributions
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net deferral
|
2.7
|
|
|
4.5
|
|
|
2.7
|
|
|
(1.3
|
)
|
|
(1.3
|
)
|
|
(0.6
|
)
|
Net periodic benefit cost (income)
|
$
|
19.6
|
|
|
$
|
18.4
|
|
|
$
|
17.8
|
|
|
$
|
(0.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
0.6
|
|
Weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate, net periodic benefit cost
|
3.9
|
%
|
|
3.6
|
%
|
|
3.9
|
%
|
|
4.0
|
%
|
|
3.8
|
%
|
|
4.5
|
%
|
Discount rate, benefit obligations
|
3.7
|
|
|
3.9
|
|
|
3.5
|
|
|
4.0
|
|
|
4.0
|
|
|
3.8
|
|
Return on plan assets
|
8.3
|
|
|
8.3
|
|
|
8.3
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Salary growth rate, net periodic benefit cost
|
—
|
|
|
3.0
|
|
|
3.0
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Salary growth rate, benefit obligations
|
—
|
|
|
—
|
|
|
3.0
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Foreign plans
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.3
|
%
|
|
2.4
|
%
|
|
2.6
|
%
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Return on plan assets
|
3.2
|
|
|
3.4
|
|
|
3.8
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Salary growth rate
|
2.9
|
|
|
3.1
|
|
|
3.2
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
____________________
n/a Not applicable
The Company has established strategic asset allocation percentage targets for significant asset classes with the aim of achieving an appropriate balance between risk and return. The Company periodically revises asset allocations, where appropriate, in an effort to improve return and/or manage risk. The expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market-related value of plan assets. The market-related value of plan assets is based on long-term expectations given current investment objectives and historical results. The expected rate of return assumption used by the Company to determine the benefit obligation for its U.S. and foreign plans for
2016
was
8.3 percent
and
3.2 percent
, respectively, and
8.3 percent
and
3.4 percent
for
2015
, respectively.
The Company determines the discount rate primarily by reference to rates on high-quality, long term corporate and government bonds that mature in a pattern similar to the expected payments to be made under the various plans. The weighted average discount rates used to determine the benefit obligation for its U.S. and foreign plans for
2016
was
3.7 percent
and
2.3 percent
, respectively, and
3.9 percent
and
2.4 percent
for
2015
, respectively.
Effective January 1, 2015, Medicare eligible participants were moved from the self-insured employer plan to a private Medicare exchange, receiving a fixed subsidy from the Company. The Company no longer uses the assumed healthcare cost trends to value its post-retirement benefits obligation.
The Company sponsors a number of pension plans in the United States and in certain foreign countries. There are separate investment strategies in the United States and for each unit operating internationally that depend on the specific circumstances and objectives of the plans and/or to meet governmental requirements. The Company's overall strategic investment objectives are to preserve the desired funded status of its plans and to balance risk and return through a wide diversification of asset types, fund strategies and investment managers. The asset allocation depends on the specific strategic objectives for each plan and is rebalanced to obtain the target asset mix if the percentages fall outside of the range considered acceptable. The investment policies are reviewed from time to time to ensure consistency with long-term objectives. Options, derivatives, forward and futures contracts, short positions, or margined positions may be held in reasonable amounts as deemed prudent. For plans that are tax-exempt, any transactions that would jeopardize this status are not allowed. Lending of securities is permitted in some cases in which appropriate compensation can be realized. While the Company's plans do not invest directly in its own stock, it is possible that the various plans' investments in mutual, commingled or indexed funds or insurance contracts (GIC's) may hold ownership of Company securities. The investment objectives of each unit are more specifically outlined below.
The Company's weighted-average asset allocations at
December 31, 2016
and
December 26, 2015
, by asset category, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Asset category
|
U.S. plans
|
|
Foreign plans
|
|
U.S. plans
|
|
Foreign plans
|
Equity securities
|
62
|
%
|
|
27
|
%
|
|
63
|
%
|
|
27
|
%
|
Fixed income securities
|
38
|
|
|
16
|
|
|
37
|
|
|
16
|
|
Cash and money market investments
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Guaranteed contracts
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
Other
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The fair value of the Company's pension plan assets at
December 31, 2016
by asset category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of assets
(in millions)
|
December 31,
2016
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Domestic plans:
|
|
|
|
|
|
|
|
|
Common/collective trust (a)
|
$
|
27.0
|
|
|
$
|
—
|
|
|
$
|
27.0
|
|
|
$
|
—
|
|
Foreign plans:
|
|
|
|
|
|
|
|
Australia
|
Investment fund (b)
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
Switzerland
|
Guaranteed insurance contract (c)
|
28.5
|
|
|
—
|
|
|
—
|
|
|
28.5
|
|
Germany
|
Guaranteed insurance contract (c)
|
5.0
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
Belgium
|
Mutual fund (d)
|
21.8
|
|
|
21.8
|
|
|
—
|
|
|
—
|
|
Austria
|
Guaranteed insurance contract (c)
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Korea
|
Guaranteed insurance contract (c)
|
4.0
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
Japan
|
Common/collective trust (e)
|
10.9
|
|
|
—
|
|
|
10.9
|
|
|
—
|
|
Philippines
|
Fixed income securities (f)
|
1.4
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
Equity fund (f)
|
2.3
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
103.9
|
|
|
$
|
25.5
|
|
|
$
|
40.5
|
|
|
$
|
37.9
|
|
The fair value of the Company's pension plan assets at
December 26, 2015
by asset category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of assets
(in millions)
|
December 26,
2015
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Domestic plans:
|
|
|
|
|
|
|
|
|
Common/collective trust (a)
|
$
|
33.9
|
|
|
$
|
—
|
|
|
$
|
33.9
|
|
|
$
|
—
|
|
Foreign plans:
|
|
|
|
|
|
|
|
Australia
|
Investment fund (b)
|
2.3
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
Switzerland
|
Guaranteed insurance contract (c)
|
30.9
|
|
|
—
|
|
|
—
|
|
|
30.9
|
|
Germany
|
Guaranteed insurance contract (c)
|
5.0
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
Belgium
|
Mutual funds (d)
|
21.8
|
|
|
21.8
|
|
|
—
|
|
|
—
|
|
Austria
|
Guaranteed insurance contract (c)
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Korea
|
Guaranteed insurance contract (c)
|
2.4
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
Japan
|
Common/collective trust (e)
|
11.1
|
|
|
—
|
|
|
11.1
|
|
|
—
|
|
Philippines
|
Fixed income securities (f)
|
1.4
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
Equity fund (f)
|
2.9
|
|
|
2.9
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
112.1
|
|
|
$
|
26.1
|
|
|
$
|
47.3
|
|
|
$
|
38.7
|
|
____________________
|
|
(a)
|
The investment strategy of the U.S. pension plan for each period presented was to achieve a return greater than or equal to the return that would have been earned by a portfolio invested approximately
60 percent
in equity securities and
40 percent
in fixed income securities. As of the years ended
December 31, 2016
and
December 26, 2015
, the common trusts held
62 percent
and
63 percent
of its assets in equity securities and
38 percent
and
37 percent
in fixed income securities, respectively. The percentage of funds invested in equity securities at the end of
2016
and
2015
, included:
10 percent
in international stocks,
20 percent
in small U.S. stocks in each year, and
32 percent
and
33 percent
in large U.S. stocks, respectively. The common trusts are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds (equity securities and fixed income securities) are valued using quoted market prices.
|
|
|
(b)
|
For each period presented, the strategy of this fund is to achieve a long-term net return of at least
4 percent
above inflation based on the Australian consumer price index over a rolling five-year period. The investment strategy is to invest mainly in equities and property, which are expected to earn relatively higher returns over the long term. The fair value of the fund is determined using the net asset value per share using quoted market prices or other observable inputs in active markets. As of
December 31, 2016
and
December 26, 2015
, the percentage of funds held in investments included: Australian equities of
31 percent
and
29 percent
, other equities of listed companies outside of Australia of
41 percent
and
42 percent
, real estate of
9 percent
and
10 percent
, respectively, and government and corporate bonds of
12 percent
and cash of
7 percent
in each year.
|
|
|
(c)
|
The strategy of the Company's plans in Austria, Germany, Korea and Switzerland is to seek to ensure the future benefit payments of their participants and manage market risk. This is achieved by funding the pension obligations through guaranteed insurance contracts. The plan assets operate similar to investment contracts whereby the interest rate, as well as the surrender value, is guaranteed. The fair value is determined as the contract value, using a guaranteed rate of return which will increase if the market performance exceeds that return.
|
|
|
(d)
|
The strategy of the Belgian plan in each period presented is to seek to achieve a return greater than or equal to the return that would have been earned by a portfolio invested approximately
62 percent
in equity securities and
38 percent
in fixed income securities. The fair value of the fund is calculated using the net asset value per share as determined by the quoted market prices of the underlying investments. As of
December 31, 2016
and
December 26, 2015
, the percentage of funds held in various asset classes included: large-cap equities of European companies of
27 percent
and
24 percent
, small-cap equities of European companies of
17 percent
and
19 percent
, bonds, primarily from European and U.S. governments, of
32 percent
and
31 percent
, and money market fund of
17 percent
and
18 percent
, and equities outside of Europe, mainly in the U.S. and emerging markets,
7 percent
and
8 percent
, respectively.
|
|
|
(e)
|
The Company's strategy is to invest approximately
47 percent
of assets to benefit from the higher expected returns from long-term investments in equities and to invest
53 percent
of assets in short-term low investment risk instruments to fund near term benefits payments. The target allocation for plan assets to implement this strategy is
40 percent
equities in Japanese listed securities,
7 percent
in equities outside of Japan,
3 percent
in cash and other short-term investments and
50 percent
in domestic Japanese bonds. This strategy has been achieved through a collective trust that held
100 percent
of total funded assets as of
December 31, 2016
and
December 26, 2015
. As of the end of
December 31, 2016
and
December 26, 2015
, the allocation of funds within the common collective trust included:
40 percent
and
50 percent
in Japanese equities,
50 percent
and
40 percent
in Japanese bonds, respectively, and
7 percent
in equities of companies based outside of Japan and
3 percent
in cash and other short term investments in each year. The fair value of the collective trust is determined by the market value of the underlying shares, which are traded in active markets.
|
|
|
(f)
|
In both years, the investment strategy in the Philippines was to achieve an appropriate balance between risk and return, from a diversified portfolio of Philippine peso denominated bonds and equities. The target asset class allocations is
57 percent
in equity securities,
38 percent
fixed income securities and
5 percent
in cash and deposits. The fixed income securities at year end included assets valued using a weighted average of completed deals on similarly termed government securities, as well as balances invested in short term deposit accounts. The equity index fund was valued at the closing price of the active market in which it was traded.
|
The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
Year Ending
|
(In millions)
|
December 31,
2016
|
|
December 26,
2015
|
Beginning balance
|
$
|
38.7
|
|
|
$
|
36.7
|
|
Realized gains
|
0.9
|
|
|
0.7
|
|
Purchases, sales and settlements, net
|
(0.4
|
)
|
|
2.5
|
|
Impact of exchange rates
|
(1.3
|
)
|
|
(1.2
|
)
|
Ending balance
|
$
|
37.9
|
|
|
$
|
38.7
|
|
The Company expects to contribute
$10.4 million
to its U.S. and foreign pension plans and
$1.8 million
to its other U.S. post-retirement benefit plan in
2017
.
The Company also has several savings, thrift and profit-sharing plans. Its contributions to these plans are in part based upon various levels of employee participation. The total cost of these plans was
$6.1 million
,
$7.4 million
and
$8.7 million
for
2016
,
2015
and
2014
, respectively.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid from the Company's U.S. and foreign plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
Pension benefits
|
|
Post-retirement benefits
|
|
Total
|
2017
|
|
|
$13.2
|
|
|
|
$1.8
|
|
|
|
$15.0
|
|
2018
|
|
15.9
|
|
|
1.7
|
|
|
17.6
|
|
2019
|
|
22.7
|
|
|
1.6
|
|
|
24.3
|
|
2020
|
|
11.7
|
|
|
1.5
|
|
|
13.2
|
|
2021
|
|
12.2
|
|
|
1.4
|
|
|
13.6
|
|
2022-2026
|
|
66.6
|
|
|
5.8
|
|
|
72.4
|
|
|
|
Note 14:
|
Incentive Compensation Plans
|
On May 24, 2016, the shareholders of the Company approved the adoption of the Tupperware Brands Corporation 2016 Incentive Plan (the “2016 Incentive Plan”). The 2016 Incentive Plan provides for the issuance of cash and stock-based incentive awards to employees, directors and certain non-employee participants. Stock-based awards may be in the form of stock options, restricted stock, restricted stock units, performance vesting and market vesting awards. Under the plan, awards that are canceled or expire are added back to the pool of available shares. When the 2016 Incentive Plan was approved, the number of shares of the Company's common stock available for stock-based awards under the plan totaled
3,500,000
, plus remaining shares available for issuance under the Tupperware Brands Corporation 2010 Incentive Plan, the Tupperware Brands Corporation 2006 Incentive Plan and the Tupperware Brands Corporation Director Stock Plan. Shares may no longer be granted under the plans adopted before 2016. The total number of shares available for grant under the 2016 Incentive Plan as of
December 31, 2016
was
4,050,366
.
Under the 2016 Incentive Plan, non-employee directors receive approximately one-half of their annual retainers in the form of stock and may elect to receive the balance of their annual retainers in the form of stock or cash. In addition, each non-employee director is eligible to receive a stock award in such form, at such time and in such amount as may be determined by the Nominating and Governance Committee of the Board of Directors.
Stock Options
Stock options to purchase the Company's common stock are granted to employees and directors, 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. The fair value of the Company's stock options is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used in the last three years:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Dividend yield
|
4.7
|
%
|
|
4.3
|
%
|
|
3.3
|
%
|
Expected volatility
|
30
|
%
|
|
36
|
%
|
|
40
|
%
|
Risk-free interest rate
|
2.1
|
%
|
|
2.1
|
%
|
|
2.1
|
%
|
Expected life
|
7 years
|
|
|
7 years
|
|
|
7 years
|
|
Stock option activity for
2016
, under all of the Company's incentive plans, is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares subject
to option
|
|
Weighted
average exercise
price per share
|
|
Aggregate Intrinsic Value
(in millions)
|
Outstanding at December 26, 2015
|
2,100,478
|
|
|
|
$56.92
|
|
|
|
Granted
|
666,848
|
|
|
58.90
|
|
|
|
|
Expired/Forfeited
|
(12,119
|
)
|
|
59.79
|
|
|
|
Exercised
|
(32,242
|
)
|
|
24.54
|
|
|
|
|
Outstanding at December 31, 2016
|
2,722,965
|
|
|
|
$57.78
|
|
|
|
$5.2
|
|
Exercisable at December 31, 2016
|
1,601,018
|
|
|
|
$57.37
|
|
|
|
$5.2
|
|
The intrinsic value of options exercised during
2016
,
2015
and
2014
totaled
$1.2 million
,
$20.8 million
and
$20.4 million
, respectively. The average remaining contractual life on outstanding and exercisable options was
7.0
and
5.4
, respectively, at the end of
2016
. The weighted average estimated grant date fair value of
2016
,
2015
and
2014
option grants was
$10.67
,
$13.13
and
$19.17
per share, respectively.
Performance Awards, Restricted Stock and Restricted Stock Units
The Company also grants restricted stock, restricted stock units, performance-vested awards and market-vested awards to employees and directors, which typically have initial vesting periods ranging from
one
to
three years
. Compensation expense associated with time-vested grants of restricted stock and restricted stock units is equal to the market value of the Company's common stock on the grant date, and is recorded straight-line over the required service period. For performance-vested awards, expense is determined by the market value of the Company's common stock on the grant date and the number of shares ultimately earned as described below and is recorded over the required service period, subject to a probability assessment of achieving the performance criteria. The grant date fair value per share of market-vested awards already reflect the probability of achieving the market condition, and is therefore used to record expense straight line over the performance period regardless of actual achievement.
The incentive program for the performance and market-vested awards are based upon a target number of share units, although the actual number of performance and market-vested shares ultimately earned can vary from
zero
to
150 percent
of target depending on the Company's achievement under the performance criteria of the grants. The payouts, if earned, will be settled in Tupperware common stock after the end of the
three
year performance period.
The Company's performance-vested awards provide incentive opportunity based on the overall success of the Company over a
three
year performance period, as reflected through a measure of diluted earnings per share in the 2014 through 2016 grants.
The Company's market-vested awards provide incentive opportunity based on the relative total shareholder return ("rTSR") of the Company's common stock against a group of companies composed of the S&P 400 Mid-cap Consumer Discretionary index and the Company's Compensation Peer Group (collectively, the "Comparative Group") over a
three
year performance period. The fair value per share of rTSR grants in
2016
,
2015
and
2014
was
$49.55
,
$64.21
and
$70.85
, respectively. The fair value was determined using a Monte-Carlo simulation, which estimated the fair value based on the Company's share price activity between the beginning of the year and the grant date relative to the Comparative Group, expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of the stock of the Company and that of the Comparative Group.
In
2016
, as a result of the Company's performance, the estimated number of shares expected to vest increased by
369
shares for the
three
performance share plans running during
2016
.
Restricted stock, restricted stock units, performance-vested and market-vested share award activity for
2016
under all of the Company's incentive plans is summarized in the following table:
|
|
|
|
|
|
|
|
|
Non-vested Shares
outstanding
|
|
Weighted average
grant date per share fair value
|
Outstanding at December 26, 2015
|
550,467
|
|
|
|
$69.71
|
|
Time-vested shares granted
|
180,207
|
|
|
59.06
|
|
Market-vested shares granted
|
30,019
|
|
|
49.55
|
|
Performance shares granted
|
89,321
|
|
|
49.95
|
|
Performance share adjustments
|
369
|
|
|
58.50
|
|
Vested
|
(221,583
|
)
|
|
72.77
|
|
Forfeited
|
(25,860
|
)
|
|
70.37
|
|
Outstanding at December 31, 2016
|
602,940
|
|
|
|
$61.28
|
|
The vesting date fair value of restricted stock, restricted stock units and performance-vested awards that vested in
2016
,
2015
and
2014
was
$12.4 million
,
$20.9 million
and
$26.8 million
, respectively. The weighted-average grant-date fair value per share of these types of awards in
2016
,
2015
and
2014
was
$55.39
,
$61.89
and
$72.86
, respectively.
For awards that are paid in cash, compensation expense is remeasured each reporting period based on the market value of the shares outstanding and is included as a liability on the Consolidated Balance Sheets. Shares outstanding under cash settled awards totaled
18,174
,
27,582
and
23,986
shares as of the end of
2016
,
2015
and
2014
, respectively. These outstanding cash settled awards had a fair value of
$1.0 million
at the end of
2016
and
$1.5 million
as of the end of
2015
and
2014
.
Compensation expense associated with all stock-based compensation was
$20.0 million
,
$20.0 million
and
$18.9 million
in
2016
,
2015
and
2014
, respectively. The estimated tax benefit associated with this compensation expense was
$7.2 million
,
$7.2 million
and
$6.8 million
in
2016
,
2015
and
2014
, respectively. As of
December 31, 2016
, total unrecognized stock based compensation expense related to all stock based awards was
$27.4 million
, which is expected to be recognized over a weighted average period of
24 months
.
Expense related to earned cash performance awards of
$18.7 million
,
$21.5 million
and
$13.2 million
was included in the Consolidated Statements of Income for
2016
,
2015
and
December 27, 2014
, respectively.
The Company's Board of Directors has authorized up to
$2 billion
of open market share repurchases under a program that began in 2007 and expires on February 1, 2020. During
2014
, under this program, the Company repurchased
1.2 million
shares at an aggregate cost of
$84.3 million
. There were
no
share repurchases under this program in
2015
and
2016
. Since inception of the program, the Company has repurchased
21.3 million
shares at an aggregate cost of
$1.29 billion
.
|
|
Note 15:
|
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.
Effective from the first quarter of 2016, the Nutrimetics business in France, previously reported in the Asia Pacific segment, is being reported in the Europe segment. Comparable information from prior periods has been reclassified to conform with the new presentation. In full year 2016, Nutrimetics France generated less than one half percent of total sales.
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
®
in South Africa and Nutrimetics
®
in France, which sell beauty and personal care products. Some units in Asia Pacific also sell beauty and personal care products 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 the Fuller Cosmetics
®
brand 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
$368.5 million
,
$428.8 million
and
$510.8 million
in
2016
,
2015
and
2014
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Net sales:
|
|
|
|
|
|
Europe
|
$
|
559.4
|
|
|
$
|
612.9
|
|
|
$
|
740.6
|
|
Asia Pacific
|
748.6
|
|
|
771.0
|
|
|
839.6
|
|
Tupperware North America
|
358.3
|
|
|
353.7
|
|
|
349.9
|
|
Beauty North America
|
190.0
|
|
|
240.0
|
|
|
290.9
|
|
South America
|
356.8
|
|
|
306.2
|
|
|
385.1
|
|
Total net sales
|
$
|
2,213.1
|
|
|
$
|
2,283.8
|
|
|
$
|
2,606.1
|
|
Segment profit:
|
|
|
|
|
|
Europe
|
$
|
65.3
|
|
|
$
|
92.4
|
|
|
$
|
117.5
|
|
Asia Pacific
|
181.0
|
|
|
175.9
|
|
|
191.7
|
|
Tupperware North America
|
69.7
|
|
|
67.4
|
|
|
68.3
|
|
Beauty North America
|
(3.6
|
)
|
|
2.3
|
|
|
1.3
|
|
South America
|
82.2
|
|
|
46.5
|
|
|
27.1
|
|
Total segment profit
|
$
|
394.6
|
|
|
$
|
384.5
|
|
|
$
|
405.9
|
|
Unallocated expenses
|
(67.6
|
)
|
|
(72.8
|
)
|
|
(55.9
|
)
|
Re-engineering and impairment charges (a)
|
(7.6
|
)
|
|
(20.3
|
)
|
|
(11.0
|
)
|
Gains on disposal of assets (b)
|
27.3
|
|
|
13.7
|
|
|
2.7
|
|
Interest expense, net
|
(45.4
|
)
|
|
(45.2
|
)
|
|
(43.5
|
)
|
Income before taxes
|
$
|
301.3
|
|
|
$
|
259.9
|
|
|
$
|
298.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Depreciation and amortization:
|
|
|
|
|
|
Europe
|
$
|
15.9
|
|
|
$
|
17.3
|
|
|
$
|
20.5
|
|
Asia Pacific
|
14.5
|
|
|
14.9
|
|
|
12.8
|
|
Tupperware North America
|
10.2
|
|
|
10.5
|
|
|
9.6
|
|
Beauty North America
|
8.5
|
|
|
10.8
|
|
|
11.8
|
|
South America
|
3.3
|
|
|
4.1
|
|
|
4.2
|
|
Corporate
|
5.1
|
|
|
4.8
|
|
|
4.8
|
|
Total depreciation and amortization
|
$
|
57.5
|
|
|
$
|
62.4
|
|
|
$
|
63.7
|
|
Capital expenditures:
|
|
|
|
|
|
Europe
|
$
|
15.6
|
|
|
$
|
18.2
|
|
|
$
|
18.9
|
|
Asia Pacific
|
12.0
|
|
|
12.3
|
|
|
19.3
|
|
Tupperware North America
|
9.1
|
|
|
9.2
|
|
|
11.8
|
|
Beauty North America
|
2.8
|
|
|
3.4
|
|
|
3.1
|
|
South America
|
12.4
|
|
|
8.9
|
|
|
12.6
|
|
Corporate
|
9.7
|
|
|
9.1
|
|
|
3.7
|
|
Total capital expenditures
|
$
|
61.6
|
|
|
$
|
61.1
|
|
|
$
|
69.4
|
|
Identifiable assets:
|
|
|
|
|
|
Europe
|
$
|
257.2
|
|
|
$
|
276.5
|
|
|
$
|
343.4
|
|
Asia Pacific
|
278.6
|
|
|
290.2
|
|
|
315.3
|
|
Tupperware North America
|
119.0
|
|
|
121.2
|
|
|
137.1
|
|
Beauty North America
|
214.7
|
|
|
254.0
|
|
|
317.0
|
|
South America
|
124.6
|
|
|
96.9
|
|
|
131.1
|
|
Corporate
|
593.7
|
|
|
559.4
|
|
|
525.9
|
|
Total identifiable assets
|
$
|
1,587.8
|
|
|
$
|
1,598.2
|
|
|
$
|
1,769.8
|
|
____________________
|
|
(a)
|
See Note 2 to the unaudited Consolidated Financial Statements for a discussion of re-engineering and impairment charges.
|
|
|
(b)
|
Gains on disposal of assets in
2016
,
2015
and
2014
include
$26.5 million
,
$12.9 million
and
$1.3 million
from transactions related to land near the Orlando, FL headquarters.
|
Sales and segment profit in the preceding table are from transactions with customers, with inter-segment profit eliminated. Sales generated by product line, except beauty and personal care, as opposed to Tupperware
®
, are not captured in the financial statements, and disclosure of the information is impractical. Sales to a single customer did not exceed 10 percent of total sales in any segment. In
2016
,
2015
and
2014
sales of Tupperware
®
and beauty products to customers in Mexico were
$282.4 million
,
$338.9 million
and
$387.7 million
, respectively, while sales in Brazil were
$260.4 million
,
$201.1 million
and
$225.8 million
, respectively. There was no other foreign country in which sales were individually material to the Company's total sales. Sales of Tupperware
®
and beauty products to customers in the United States were
$204.2 million
,
$209.4 million
and
$210.4 million
in
2016
,
2015
and
2014
, respectively. Unallocated expenses are corporate expenses and other items not directly related to the operations of any particular segment.
Corporate assets consist of cash and buildings and assets maintained for general corporate purposes. As of the end of
2016
,
2015
and
2014
, respectively, long-lived assets in the United States were
$88.7 million
,
$86.6 million
and
$88.7 million
.
As of
December 31, 2016
and
December 26, 2015
, the Company's net investment in international operations was
$482.1 million
and
$429.0 million
, respectively. The Company is subject to the usual economic, business and political risks associated with international operations; however, these risks are partially mitigated by the broad geographic dispersion of the Company's operations.
|
|
Note 16:
|
Commitments and Contingencies
|
The Company and certain subsidiaries are involved in litigation and various legal matters that are being defended and handled in the ordinary course of business. Included among these matters are environmental issues. The Company does not include estimated future legal costs in accruals recorded related to these matters. The Company believes that it is remote that the Company's contingencies will have a material adverse effect on its financial position, results of operations or cash flow.
Kraft Foods, Inc., which was formerly affiliated with Premark International, Inc., the Company's former parent, has assumed any liabilities arising out of certain divested or discontinued businesses. The liabilities assumed include matters alleging product liability, environmental liability and infringement of patents.
Leases.
Rental expense for operating leases totaled
$33.3 million
in
2016
,
$34.0 million
in
2015
and
$38.0 million
in
2014
. Approximate minimum rental commitments under non-cancelable operating leases in effect at
December 31, 2016
were:
2017
-
$30.3 million
;
2018
-
$23.4 million
;
2019
-
$14.8 million
;
2020
-
$8.6 million
;
2021
-
$4.8 million
; and after
2021
-
$28.3 million
. Leases included in the minimum rental commitments for
2017
and
2018
primarily relate to lease agreements for automobiles which generally have a lease term of
two
to
three years
with the remaining leases related to office, manufacturing and distribution space. It is common for lease agreements to contain various provisions for items such as step rent or other escalation clauses and lease concessions, which may offer a period of no rent payment. These types of items are considered by the Company, and are recorded into expense on a straight line basis over the minimum lease terms. There are no material lease agreements containing renewal options. Certain leases require the Company to pay property taxes, insurance and routine maintenance.
|
|
Note 17:
|
Allowance for Long-Term Receivables
|
As of
December 31, 2016
,
$10.6 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
December 31, 2016
was as follows:
|
|
|
|
|
(In millions)
|
|
Balance at December 26, 2015
|
$
|
11.2
|
|
Write-offs
|
(2.0
|
)
|
Provision (a)
|
2.0
|
|
Currency translation adjustment
|
(0.2
|
)
|
Balance at December 31, 2016
|
$
|
11.0
|
|
____________________