Notes to the Consolidated Financial Statements
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Note 1:
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Summary of Significant Accounting Policies
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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
2017
and
2015
.
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 30, 2017
and
December 31, 2016
,
$10.2 million
and
$9.6 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 by business unit 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 as past due any receivable balance not collected within its contractual terms.
Inventories
. Inventories are valued at the lower of cost or net realizable value 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 the availability of 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
$24.4 million
and
$21.3 million
at
December 30, 2017
and
December 31, 2016
, respectively. Amortization cost related to internal use software development costs totaled
$5.4 million
,
$6.9 million
and
$5.7 million
in
2017
,
2016
and
2015
, 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
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Building and improvements
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10 - 40
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Molds
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4 - 10
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Production equipment
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10 - 20
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Distribution equipment
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5 - 10
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Computer/telecom equipment
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3 - 5
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Capitalized software
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3 - 5
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Depreciation expense was
$45.6 million
,
$43.0 million
and
$46.5 million
in
2017
,
2016
and
2015
, 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, if any, 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 Company has early adopted the Financial Accounting Standards Board's ("FASB")
Accounting Standards Update 2017-04: Simplifying the Test for Goodwill Impairment
.
The annual process for evaluating goodwill begins with an assessment for each entity of qualitative factors to determine whether a quantitative evaluation of the unit's fair value compared with its carrying value is appropriate for determining potential goodwill impairment. 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 quantitative fair value evaluation ("fair value test"), as prescribed under Accounting Standards Codification ("ASC") 350,
Intangibles - Goodwill and Other
, and other entity specific factors as deemed appropriate. When the Company determines a fair value test is appropriate, it estimates the fair value of the reporting unit and compares the result with its carrying amount, including goodwill, after any long-lived asset impairment charges. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recorded equal to the amount by which the carrying value exceeds the fair value, up to the amount of goodwill associated with the reporting unit.
Any fair value test necessary is done 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. The most sensitive estimate in the fair value test 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 uses a forecast period of
10 years
and a terminal value. The growth rates are determined by reviewing historical results of the operating unit and the historical results of the Company’s 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 are 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 are then applied to the reporting unit to determine fair value. 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 30, 2017
and
December 31, 2016
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
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Indefinite
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Definite-lived tradename
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10 years
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The Company's indefinite-lived tradename intangible assets are evaluated for impairment annually similarly to goodwill beginning with a qualitative assessment. 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 estimated using the relief from royalty method, which is a form of the income approach. Under this method, the value of the asset is calculated by selecting a royalty rate, which estimates the amount a company would be willing to pay for the use of the asset. This rate is applied to the reporting unit's projected revenue, tax affected and discounted to present value.
The Company's definite-lived intangible asset relates to the Fuller tradename and is being amortized since August 2013 based on its estimated useful life of 10 years. 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, addition of new sales force members or other business-critical functions. The awards offered are in the form of product awards, special prizes or trips.
Programs are generally designed to recognize sales force members for achieving a primary objective. An example is 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
$356.2 million
,
$376.2 million
and
$378.7 million
in
2017
,
2016
and
2015
, 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
2017
,
2016
and
2015
were
$142.2 million
,
$137.0 million
and
$139.3 million
, respectively.
Advertising and Research and Development Costs.
Advertising and research and development costs are charged to expense as incurred. Advertising expense totaled
$9.3 million
,
$8.3 million
and
$13.4 million
in
2017
,
2016
and
2015
, respectively. Research and development costs totaled
$16.7 million
,
$18.3 million
and
$18.1 million
, in
2017
,
2016
and
2015
, 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.
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. 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. For those awards with performance vesting criteria, the expense is recorded straight-line over the required service period based on an assessment of achieving the criteria.
Through 2016, the Company reported the excess tax benefits from share-based payment arrangements as an inflow from financing activities. For
2016
and
2015
, the Company generated
$0.6 million
and
$6.0 million
of excess tax benefits, respectively. Effective as of the beginning of 2017, the tax effects from share-based payments is recognized as part of the Company's tax provision and is included in net income within operating activities on the statement of cash flows.
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. It also requires estimates associated with enactment effects, as of December 22, 2017, and ongoing activity under the the U.S. Tax Cuts and Jobs Act of 2017 (the "Tax Act”).
ASC 740 requires a company to record the effect of tax law change in the period of enactment. However, shortly after the enactment of the Tax Act, the SEC staff issued SEC Staff Accounting Bulletin 118 (“SAB 118”), which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. To the extent that the Company was able to make a reasonable estimate of the effects of elements of the Tax Act for which the analysis was not complete, it recorded those amounts. In instance where the Company was not able to make reasonable estimates of the impact of certain elements, as provided for by SAB 118, it did not record an amount related to those elements and accounted for them on the basis of tax laws in effect before the Tax Act.
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, or when the Company has a net loss for the period, 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)
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2017
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2016
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2015
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Net income (loss)
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$
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(265.4
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)
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$
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223.6
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$
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185.8
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Weighted average shares of common stock outstanding
|
50.8
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50.5
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49.9
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Common equivalent shares:
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Assumed exercise of dilutive options, restricted shares, restricted stock units and performance share units
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—
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0.2
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0.5
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Weighted average common and common equivalent shares outstanding
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50.8
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50.7
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50.4
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Basic earnings per share
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$
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(5.22
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)
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$
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4.43
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$
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3.72
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Diluted earnings per share
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$
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(5.22
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)
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$
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4.41
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$
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3.69
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Shares excluded from the determination of potential common stock because inclusion would have been anti-dilutive
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3.1
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1.4
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0.9
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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 a high level the past several 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, through fiscal 2017, the bolivar to U.S. dollar exchange rates used in translating the Company’s operating activity was based on an official rate recognized by the Venezuelan government. As of the end of December 2017, the Company evaluated the significant inflationary environment in Venezuela, as well as the actual exchange rates used to conduct business, particularly related to the procurement of resins to manufacture product. The Company concluded it would not be appropriate to use the official rate to value sales and profit beginning in 2018, and will use a parallel rate that is currently approximately
99 percent
lower than the official rate used during 2017. As a result, as of the end of 2017, the Company remeasured its balance sheet at the parallel rate available at that time, and evaluated the Venezuelan fixed assets for impairment. In
2017
,
2016
and
2015
, 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, and in 2017 the write-down of inventory, was
$7.4 million
,
$4.3 million
and
$14.9 million
, respectively. The amounts related to remeasurement are included in other expense. In 2017, there was also a fixed asset impairment charge of
$2.3 million
recorded in re-engineering and impairments caption.
As of the end of
2017
, 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. Subsequently, the FASB has issued several other amendments clarifying specific topics within the scope of the new guidance regarding contracts with customers. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has surveyed revenue recognition policies and sales incentives programs across each of its global operating segments, and has evaluated 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 Company does not believe the impact to the Consolidated Financial Statements, including adjustments to the 2018 beginning retained earnings, will be significant, as the majority of the Company's transactions have not been accounted for under industry-specific guidance that will be superseded by the new guidance, and generally only consist of a single performance obligation to transfer non-customized, promised goods. The Company has used the modified retrospective method of adoption beginning January 2018.
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 specific impact of the adoption of this amendment on its Consolidated Financial Statements, though it does expect an increase in both assets and liabilities upon adoption due to recognition of operating lease assets and related liabilities.
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. 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. 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. The Company does not expect the adoption of this amendment to have a significant impact on the Company’s Consolidated Financial Statements.
In March 2017, the FASB issued an amendment to existing guidance on presentation of net periodic pension and post-retirement benefit costs. Under the amendment, the service cost component will be presented in the same income statement line item as other compensation costs arising from services rendered during the period. The other components of the net periodic benefit cost will be presented separately from the service cost and outside operating income subtotal. Only the service cost will be eligible for capitalization in assets. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect a significant impact from the adoption of this amendment on its Consolidated Financial Statements.
In May 2017, the FASB issued an amendment to existing guidance on stock compensation to provide clarity and reduce diversity in modification accounting. Under the amendment, modification accounting is to be applied unless the fair value, vesting conditions and classification of the modified award are the same as that of the original award immediately before the modification. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect an impact from the adoption of this amendment on its Consolidated Financial Statements.
In August 2017, the FASB issued an amendment to existing guidance on hedge accounting. Under the amendment, the impact of both the effective and ineffective components of a hedging relationship is required to be recorded in the same income statement line. After initial qualification, a qualitative assessment of effectiveness is permitted instead of a quantitative test for certain hedges. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company estimates that based on how it has operated historically between
$10 million
and
$15 million
in interest expense would have been reclassified into other line items of the Consolidated Statement of Income as a result of adoption of this amendment.
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)
|
2017
|
|
2016
|
|
2015
|
|
Severance
|
$
|
48.1
|
|
|
$
|
5.4
|
|
|
$
|
5.0
|
|
|
Other
|
15.6
|
|
|
2.2
|
|
|
1.8
|
|
|
Total re-engineering charges
|
$
|
63.7
|
|
|
$
|
7.6
|
|
|
$
|
6.8
|
|
In
2017
, these charges were primarily related to restructuring actions taken in connection with the Company's plans, through 2018 or 2019, to rationalize its supply chain and to adjust the cost base of several marketing units. The restructuring charges also relate to the Company's decision to wind-down the Beauticontrol reporting unit due to a history of declining revenues, operating losses and the competitive environment in the direct selling channel and retail sector for beauty and personal care products in the United States, Canada and Puerto Rico. In connection with the closure of Beauticontrol, the Company also recorded
$3.2 million
in cost of sales for inventory obsolescence.
In 2016 and 2015, the re-engineering charges were primarily related to severance costs incurred for headcount reductions in several of the Company’s operations in connection with changes in its management and organizational structures.
The total cost of the restructuring actions announced in July 2017, is estimated to be
$100 million
to
$110 million
from the second quarter of 2017 forward. This excludes the benefit of selling fixed assets that will become excess in light of the re-engineering actions. The Company expects about
90 percent
of second quarter 2017 forward re-engineering costs to require cash outflows, and for these to be funded with cash flow from operations, net of investing activities, notwithstanding the timing during each fiscal year in which the Company generates the majority of its cash. Of the total costs, the Company estimates that about
80 percent
relates to severance and benefits related to headcount reductions, while the balance is predominantly related to costs to exit leases and other contracts, as well as write-offs of excess assets for which there are not expected to be disposal proceeds.
The re-engineering charges by segment for the year ended
December 30, 2017
were as follows:
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
Europe
|
$
|
47.9
|
|
|
Asia Pacific
|
4.8
|
|
|
North America
|
11.0
|
|
|
Total re-engineering charges
|
$
|
63.7
|
|
Pretax costs incurred in connection with the re-engineering program included above and other amounts allocated to cost of products sold were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
2015
|
|
Re-engineering charges
|
$
|
63.7
|
|
|
$
|
7.6
|
|
|
$
|
6.8
|
|
|
Cost of products sold
|
3.6
|
|
|
—
|
|
|
—
|
|
|
Total pretax re-engineering costs
|
$
|
67.3
|
|
|
$
|
7.6
|
|
|
$
|
6.8
|
|
The balances included in accrued liabilities related to re-engineering and impairment charges as of
December 30, 2017
,
December 31, 2016
, and
December 26, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
2015
|
|
Beginning balance
|
$
|
1.6
|
|
|
$
|
1.7
|
|
|
$
|
2.4
|
|
|
Provision
|
63.7
|
|
|
7.6
|
|
|
6.8
|
|
|
Non-cash charges
|
(0.4
|
)
|
|
(0.3
|
)
|
|
(0.2
|
)
|
|
Cash expenditures:
|
|
|
|
|
|
|
Severance
|
(12.7
|
)
|
|
(5.2
|
)
|
|
(5.8
|
)
|
|
Other
|
(6.8
|
)
|
|
(2.2
|
)
|
|
(1.5
|
)
|
|
Ending balance
|
$
|
45.4
|
|
|
$
|
1.6
|
|
|
$
|
1.7
|
|
The accrual balance as of
December 30, 2017
, related primarily to severance payments to be made by the end of the second quarter of 2018.
As of the end of December 2017, the Company evaluated the significant inflationary environment, the early 2018 devaluation of the currency in relation to the U.S. dollar and the actual exchange rates being used to conduct business, particularly procurement of resins to manufacture product in Venezuela. As a result of that evaluation that was similar to its analysis in 2015 described below, the Company concluded it was appropriate to record an impairment charge of
$2.3 million
dollars to reduce the carrying value of its long-term fixed assets to zero. This impairment charge was included in the re-engineering and impairment charge caption of the Company's consolidated income statement, but is not a component of the program announced in July 2017.
This was deemed a non-recurring, Level 3 measurement within the fair value hierarchy.
In February 2015, the Venezuelan government launched an overhaul of its foreign currency exchange structure and created a new exchange mechanism that provided an official 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. 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
, which was deemed a non-recurring Level 3 measurement within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
Finished goods
|
$
|
203.5
|
|
|
$
|
189.4
|
|
|
Work in process
|
26.0
|
|
|
23.0
|
|
|
Raw materials and supplies
|
32.7
|
|
|
28.0
|
|
|
Total inventories
|
$
|
262.2
|
|
|
$
|
240.4
|
|
|
|
|
|
Note 4:
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
Land
|
$
|
43.4
|
|
|
$
|
36.7
|
|
|
Buildings and improvements
|
204.8
|
|
|
194.1
|
|
|
Molds
|
678.6
|
|
|
624.7
|
|
|
Production equipment
|
298.8
|
|
|
264.3
|
|
|
Distribution equipment
|
40.5
|
|
|
37.4
|
|
|
Computer/telecom equipment
|
47.5
|
|
|
45.2
|
|
|
Furniture and fixtures
|
20.7
|
|
|
15.8
|
|
|
Capitalized software
|
81.2
|
|
|
69.5
|
|
|
Construction in progress
|
25.1
|
|
|
29.3
|
|
|
Total property, plant and equipment
|
1,440.6
|
|
|
1,317.0
|
|
|
Less accumulated depreciation
|
(1,162.4
|
)
|
|
(1,057.2
|
)
|
|
Property, plant and equipment, net
|
$
|
278.2
|
|
|
$
|
259.8
|
|
|
|
|
|
Note 5:
|
Accrued and Other Liabilities
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
Income taxes payable
|
$
|
49.7
|
|
|
$
|
23.1
|
|
|
Compensation and employee benefits
|
69.0
|
|
|
73.0
|
|
|
Advertising and promotion
|
55.9
|
|
|
57.6
|
|
|
Taxes other than income taxes
|
30.0
|
|
|
24.5
|
|
|
Pensions
|
8.3
|
|
|
2.7
|
|
|
Post-retirement benefits
|
1.5
|
|
|
1.7
|
|
|
Dividends payable
|
34.7
|
|
|
34.4
|
|
|
Foreign currency contracts
|
29.6
|
|
|
31.7
|
|
|
Re-engineering
|
45.4
|
|
|
1.6
|
|
|
Other
|
77.3
|
|
|
73.7
|
|
|
Total accrued liabilities
|
$
|
401.4
|
|
|
$
|
324.0
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
Post-retirement benefits
|
$
|
13.7
|
|
|
$
|
15.4
|
|
|
Pensions
|
120.6
|
|
|
123.0
|
|
|
Income taxes
|
21.2
|
|
|
22.5
|
|
|
Deferred income tax
|
41.0
|
|
|
17.6
|
|
|
Other
|
47.0
|
|
|
42.9
|
|
|
Total other liabilities
|
$
|
243.5
|
|
|
$
|
221.4
|
|
|
|
|
|
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. Refer to Note 1 for the annual process for evaluating goodwill and intangible assets for impairment.
In the third quarters of
2017
and 2016, the Company completed the annual assessments for all of its reporting units and indefinite-lived intangible assets, concluding there were
no
i
mpairments. The Company performed only qualitative assessments in the third quarter of 2017.
In the second quarter of
2017
, as part of its on-going assessment of goodwill and intangible assets, the Company noted that the sales, profitability and cash flow of Fuller Mexico had fallen below its recent trend lines and was expected to fall significantly short of previous expectations for the year. As a result, the Company performed an interim impairment test as of the end of May 2017, recording an impairment charge of
$62.9 million
. This was deemed a non-recurring, Level 3 measurement within the fair value hierarchy. The remaining goodwill balance at Fuller Mexico is
$17.4 million
.
The significant assumptions for the Fuller Mexico step 1 analysis included annual revenue growth rates, beginning in 2017, ranging from
negative
10 percent
to
positive
4 percent
with a compound average growth rate of
1.6 percent
, including a
3 percent
growth rate used in calculating the terminal value. The discount rate used was
15.8 percent
.
The estimated fair value of the Fuller Mexico reporting unit equaled its carrying value as of May 2017 in light of the impairment charge recorded. Having the carrying value equal to fair value results in an elevated risk of additional future impairment. Fuller Mexico continued to carry a total sales force size and field manager deficit as of the end of December 2017, despite new programs aimed at higher rates of sales force additions and retention and increased activity. These programs and trends were considered as part of the fair value evaluation performed as of the end of May 2017. Fuller Mexico's performance in the second half of 2017 was not out of line with assumptions built into the fair value evaluation performed as of the end of May 2017, despite the impact of the natural disasters in Mexico during the third quarter. Local currency sales declined
9 percent
in 2017. A deterioration in key operating metrics, such as sales force size, and/or operating performance significantly below expectations built into the May 2017 evaluation, 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 or value due to changes in the macro-economic environment. 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 any negative macro-economic factors in the time frame forecast, which could also 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, resulting in additional impairment charges to the goodwill of Fuller Mexico.
Other than for the Fuller Mexico reporting unit, management has concluded there is no significant foreseeable risk of failing a future goodwill impairment test, nor is there significant foreseeable risk of the fair value of the indefinite-lived intangible assets falling materially 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.
Amortization expense related to all intangible assets, most significantly at Fuller Mexico, was
$7.9 million
,
$7.6 million
and
$8.8 million
in
2017
,
2016
and
2015
, respectively. The estimated annual amortization expense associated with intangibles in 2018 is
$7.6 million
and in 2019 through 2022 is
$7.2 million
annually.
The following table reflects gross goodwill and accumulated impairments allocated to each reporting segment at
December 30, 2017
,
December 31, 2016
and
December 26, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Europe
|
|
Asia Pacific
|
|
North America
|
|
South America
|
|
Total
|
|
Gross goodwill balance at December 26, 2015
|
$
|
28.9
|
|
|
$
|
74.7
|
|
|
$
|
143.8
|
|
|
$
|
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
|
|
|
128.4
|
|
|
3.7
|
|
|
237.3
|
|
|
Effect of changes in exchange rates
|
0.6
|
|
|
2.2
|
|
|
6.5
|
|
|
(0.1
|
)
|
|
9.2
|
|
|
Gross goodwill balance at December 30, 2017
|
$
|
29.9
|
|
|
$
|
78.1
|
|
|
$
|
134.9
|
|
|
$
|
3.6
|
|
|
$
|
246.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Europe
|
|
Asia Pacific
|
|
North America
|
|
South America
|
|
Total
|
|
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
|
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
62.9
|
|
|
—
|
|
|
62.9
|
|
|
Cumulative impairments as of December 30, 2017
|
$
|
24.5
|
|
|
$
|
41.3
|
|
|
$
|
101.8
|
|
|
$
|
—
|
|
|
$
|
167.6
|
|
The gross carrying amount and accumulated amortization of the Company's intangible assets, other than goodwill, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
(In millions)
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
|
Indefinite-lived tradenames
|
$
|
21.1
|
|
|
$
|
—
|
|
|
$
|
21.1
|
|
|
Definite-lived tradename
|
73.1
|
|
|
31.7
|
|
|
41.4
|
|
|
Total intangible assets
|
$
|
94.2
|
|
|
$
|
31.7
|
|
|
$
|
62.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
A summary of the identifiable intangible asset account activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
(In millions)
|
December 30,
2017
|
|
December 31,
2016
|
|
Beginning balance
|
$
|
90.6
|
|
|
$
|
101.8
|
|
|
Effect of changes in exchange rates
|
3.6
|
|
|
(11.2
|
)
|
|
Ending balance
|
$
|
94.2
|
|
|
$
|
90.6
|
|
|
|
|
|
Note 7:
|
Financing Obligations
|
Debt Obligations
Debt obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
Fixed rate Senior Notes due 2021
|
$
|
599.5
|
|
|
$
|
599.4
|
|
|
Five year Revolving Credit Agreement
|
131.0
|
|
|
104.0
|
|
|
Belgium facility capital lease
|
7.5
|
|
|
8.4
|
|
|
Other
|
0.1
|
|
|
0.1
|
|
|
Total debt obligations
|
738.1
|
|
|
711.9
|
|
|
Less current portion
|
(133.0
|
)
|
|
(105.9
|
)
|
|
Long-term debt and capital lease obligations
|
$
|
605.1
|
|
|
$
|
606.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
2017
|
|
2016
|
|
Total short-term borrowings at year-end
|
$
|
131.0
|
|
|
$
|
104.0
|
|
|
Weighted average interest rate at year-end
|
1.9
|
%
|
|
1.5
|
%
|
|
Average short-term borrowings during the year
|
$
|
322.3
|
|
|
$
|
357.4
|
|
|
Weighted average interest rate for the year
|
2.3
|
%
|
|
1.8
|
%
|
|
Maximum short-term borrowings during the year
|
$
|
389.2
|
|
|
$
|
429.3
|
|
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 notes sold in June 2011 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. The notes sold in March 2013 were sold at a premium.
The Senior Notes were issued under an indenture (the “Indenture”) between the Company and its 100% subsidiary, Dart Industries Inc. (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 certain 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 30, 2017
, 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”). Under the Credit Agreement that has a final maturity date of June 9, 2020, the aggregate amount available is
$600 million
(the “Facility Amount”). The Credit Agreement provides (a) a revolving credit facility, available up to 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 30, 2017
, the Company had total borrowings of
$131.0 million
outstanding under its Credit Agreement, with
$96.1 million
of that amount denominated in euros.
The Company routinely increases its revolver borrowings under the Credit Agreement 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 the 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 30, 2017
, 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
1.92 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 30, 2017
, 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 30, 2017
, the Company had
$553.6 million
of unused lines of credit, including
$467.5 million
under the committed, secured Credit Agreement, and
$86.1 million
available under various uncommitted lines around the world. Interest paid on total debt, including forward points on foreign currency contracts, in
2017
,
2016
and
2015
was
$47.6 million
,
$47.4 million
and
$47.8 million
, respectively.
Contractual Maturities
Contractual maturities for debt obligations at
December 30, 2017
are summarized by year as follows (in millions):
|
|
|
|
|
|
|
|
Year ending:
|
Amount
|
|
December 29, 2018
|
$
|
133.0
|
|
|
December 28, 2019
|
1.7
|
|
|
December 26, 2020
|
1.4
|
|
|
December 25, 2021
|
600.9
|
|
|
December 31, 2022
|
1.1
|
|
|
Total
|
$
|
738.1
|
|
Capital Leases
In 2007, the Company completed construction of a 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 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
December 30,
2017
|
|
December 31,
2016
|
|
Gross payments
|
$
|
8.3
|
|
|
$
|
9.4
|
|
|
Less imputed interest
|
0.8
|
|
|
1.0
|
|
|
Total capital lease obligation
|
7.5
|
|
|
8.4
|
|
|
Less current maturity
|
1.9
|
|
|
1.8
|
|
|
Capital lease obligation - long-term portion
|
$
|
5.6
|
|
|
$
|
6.6
|
|
|
|
|
|
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
2017
,
2016
and
2015
, forward points on fair value hedges resulted in pretax gains of
$22.6 million
,
$15.7 million
and
$14.1 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
$1.6 million
,
$4.9 million
and
$4.3 million
as of
December 30, 2017
,
December 31, 2016
and
December 26, 2015
, respectively. In
2017
,
2016
and
2015
, the Company recorded in other comprehensive loss, net of tax, net (losses)/gains associated with cash flow hedges of
$(3.3) million
,
$0.6 million
and
$(3.5) 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 loss of
$21.2 million
and gains of
$28.6 million
and
$54.6 million
associated with these hedges in
2017
,
2016
and
2015
, 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
2017
,
2016
and
2015
was an
inflow
of
$0.1 million
and
outflow
s of
$2.7 million
and
$17.0 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 30, 2017
and
December 31, 2016
, the notional amounts of outstanding forward contracts to purchase currencies were
$111.1 million
and
$116.7 million
, respectively, and the notional amounts of outstanding forward contracts to sell currencies were
$112.1 million
and
$109.6 million
, respectively. As of
December 30, 2017
, the notional values of the largest positions outstanding were to purchase U.S. dollars
$68.9 million
and euro
$23.7 million
and to sell Mexican pesos
$36.6 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 30, 2017
and
December 31, 2016
. 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
|
|
2017
|
|
2016
|
|
Balance sheet location
|
|
2017
|
|
2016
|
|
Foreign exchange contracts
|
|
Non-trade amounts receivable
|
|
$
|
32.2
|
|
|
$
|
41.1
|
|
|
Accrued liabilities
|
|
$
|
29.6
|
|
|
$
|
31.7
|
|
The following table summarizes the impact of the Company's fair value hedging positions on the results of operations for the years ended
December 30, 2017
,
December 31, 2016
and
December 26, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
2017
|
2016
|
2015
|
|
|
|
2017
|
2016
|
2015
|
|
Foreign exchange contracts
|
|
Other expense
|
|
$
|
17.2
|
|
$
|
(41.8
|
)
|
$
|
(83.6
|
)
|
|
Other expense
|
|
|
($17.1
|
)
|
|
$42.1
|
|
|
$83.8
|
|
The following table summarizes the impact of Company's hedging activities on comprehensive income for the years ended
December 30, 2017
,
December 31, 2016
and
December 26, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2017
|
2016
|
2015
|
|
|
|
2017
|
2016
|
2015
|
|
|
|
2017
|
2016
|
2015
|
|
Foreign exchange contracts
|
|
$
|
(2.7
|
)
|
$
|
6.7
|
|
$
|
14.5
|
|
|
Cost of products sold
|
|
$
|
1.4
|
|
$
|
5.7
|
|
$
|
19.2
|
|
|
Interest expense
|
|
$
|
(4.8
|
)
|
$
|
(5.6
|
)
|
$
|
(7.7
|
)
|
|
Net equity hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
(21.6
|
)
|
41.0
|
|
74.2
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(26.0
|
)
|
(20.8
|
)
|
(16.8
|
)
|
|
Euro denominated debt
|
|
(11.5
|
)
|
3.7
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
$2.6 million
,
$9.4 million
and
$6.9 million
at
December 30, 2017
,
December 31, 2016
and
December 26, 2015
, 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 30, 2017
and
December 31, 2016
. The Company estimates that, based on current market conditions, the value of its
4.75%
, 2021 senior notes was
$631.6 million
at
December 30, 2017
, compared with the carrying value of
$599.5 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 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
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
42.4
|
|
|
(2.5
|
)
|
|
1.8
|
|
|
41.7
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(0.8
|
)
|
|
1.2
|
|
|
0.4
|
|
|
Net other comprehensive income (loss)
|
42.4
|
|
|
(3.3
|
)
|
|
3.0
|
|
|
42.1
|
|
|
December 30, 2017
|
$
|
(501.9
|
)
|
|
$
|
1.6
|
|
|
$
|
(29.1
|
)
|
|
$
|
(529.4
|
)
|
Pretax amounts reclassified from accumulated other comprehensive loss that related to cash flow hedges consisted of net
gains
of
$1.4 million
,
$5.7 million
and
$19.2 million
in
2017
,
2016
and
2015
, respectively. Associated with these items were tax
provision
s of
$0.6 million
,
$1.4 million
and
$4.4 million
in
2017
,
2016
and
2015
, respectively. See Note 8 for further discussion of derivatives.
In
2017
,
2016
and
2015
, pretax amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items consisted of prior service
benefit
s of
$1.3 million
,
$1.2 million
and
$1.3 million
, respectively, and pension settlement
costs
of
$1.0 million
,
$3.9 million
and
$1.6 million
, respectively, and actuarial
losses
of
$2.0 million
,
$2.6 million
and
$4.5 million
, respectively. Associated with these items were tax
benefit
s of
$0.5 million
,
$0.8 million
and
$1.2 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
2017
,
2016
and
2015
,
40,777
,
30,703
and
22,344
shares, respectively, were retained to fund withholding taxes, with values totaling
$2.5 million
,
$1.7 million
and
$1.5 million
, respectively, which were included as stock repurchases in the Consolidated Statements of Cash Flows.
For income tax purposes, the domestic and foreign components of income (loss) before taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
2015
|
|
Domestic
|
$
|
(76.2
|
)
|
|
$
|
(44.8
|
)
|
|
$
|
(67.5
|
)
|
|
Foreign
|
261.3
|
|
|
346.1
|
|
|
327.4
|
|
|
Total
|
$
|
185.1
|
|
|
$
|
301.3
|
|
|
$
|
259.9
|
|
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)
|
2017
|
|
2016
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
25.6
|
|
|
$
|
(23.8
|
)
|
|
$
|
(22.8
|
)
|
|
Foreign
|
136.9
|
|
|
114.1
|
|
|
92.6
|
|
|
State
|
2.1
|
|
|
1.4
|
|
|
(0.8
|
)
|
|
|
164.6
|
|
|
91.7
|
|
|
69.0
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
312.9
|
|
|
(14.7
|
)
|
|
(13.8
|
)
|
|
Foreign
|
(25.6
|
)
|
|
0.2
|
|
|
18.2
|
|
|
State
|
(1.4
|
)
|
|
0.5
|
|
|
0.7
|
|
|
|
285.9
|
|
|
(14.0
|
)
|
|
5.1
|
|
|
Total
|
$
|
450.5
|
|
|
$
|
77.7
|
|
|
$
|
74.1
|
|
The differences between the provision for income taxes and income taxes computed using the U.S. federal statutory rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
2015
|
|
Amount computed using statutory rate
|
$
|
64.8
|
|
|
$
|
105.5
|
|
|
$
|
91.0
|
|
|
Increase (reduction) in taxes resulting from:
|
|
|
|
|
|
|
Net impact from repatriating foreign earnings and direct foreign tax credits
|
(5.8
|
)
|
|
(16.3
|
)
|
|
(7.9
|
)
|
|
Foreign income taxes
|
14.3
|
|
|
(7.5
|
)
|
|
(4.6
|
)
|
|
Impact of non-deductible currency translation losses
|
—
|
|
|
—
|
|
|
3.1
|
|
|
Impact of changes in U.S. tax legislation
|
375.0
|
|
|
(2.7
|
)
|
|
—
|
|
|
Other changes in valuation allowances for deferred tax assets
|
5.3
|
|
|
(0.1
|
)
|
|
(0.4
|
)
|
|
Foreign and domestic tax audit settlement and adjustments
|
(2.5
|
)
|
|
—
|
|
|
(2.4
|
)
|
|
Other
|
(0.6
|
)
|
|
(1.2
|
)
|
|
(4.7
|
)
|
|
Total
|
$
|
450.5
|
|
|
$
|
77.7
|
|
|
$
|
74.1
|
|
The effective tax rates in
2016
and
2015
are below the U.S. statutory rate, primarily reflecting the availability of excess foreign tax credits, as well as lower foreign effective tax rates.
The Tax Act referred to in the Summary of Significant Accounting Policies - Income Taxes significantly revised U.S. corporate income tax law by, among other things, reducing the U.S. federal corporate rate to
21 percent
and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.
Implementation of the Tax Act resulted in recording
$264 million
in expense for the revaluation of the Company’s net domestic deferred tax assets and a one-time provisional transition tax charge of approximately
$96 million
for the repatriation tax provision of the Tax Act. Reversal of various net tax benefits recorded under previous tax law changed by the Tax Act totaled
$15 million
. In reaching these estimates, the Company took into account all available guidance and notices issued by the U.S. Department of the Treasury. The amounts are to be considered provisional and are subject to change given the complexity of the underlying calculations and uncertainty as to how some provisions of the Tax Act are to be applied. The Company will update and conclude its accounting as additional information is obtained, which in many cases is contingent on the timing of issuance of regulatory guidance.
The Company continues to analyze the impact of provisions that will be effective in future years. Relevant to the 2017 Consolidated Financial Statements is the Company’s selection of an accounting policy with respect to the new minimum tax on global intangible low-taxed income (“GILTI”), and whether to account for GILTI as a periodic charge in the period it arises, or to record deferred taxes associated with the basis in the Company’s foreign subsidiaries. Due to the intricacy of this topic, the Company is still in the process of investigating the implications of accounting for the GILTI tax, and intends to make an accounting policy decision once additional guidance is available.
Deferred tax assets (liabilities) were composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
Purchased intangibles
|
$
|
(20.3
|
)
|
|
$
|
(21.7
|
)
|
|
Other
|
(6.5
|
)
|
|
(14.1
|
)
|
|
Gross deferred tax liabilities
|
(26.8
|
)
|
|
(35.8
|
)
|
|
Credit and net operating loss carry forwards (net of unrecognized tax benefits)
|
295.9
|
|
|
301.2
|
|
|
Employee benefits accruals
|
51.0
|
|
|
63.1
|
|
|
Deferred costs
|
48.0
|
|
|
92.2
|
|
|
Fixed assets basis differences
|
17.8
|
|
|
22.4
|
|
|
Capitalized intangibles
|
21.4
|
|
|
34.2
|
|
|
Other accruals
|
33.5
|
|
|
32.1
|
|
|
Accounts receivable
|
10.7
|
|
|
11.3
|
|
|
Post-retirement benefits
|
4.5
|
|
|
7.1
|
|
|
Depreciation
|
11.2
|
|
|
13.4
|
|
|
Inventory
|
5.3
|
|
|
6.4
|
|
|
Gross deferred tax assets
|
499.3
|
|
|
583.4
|
|
|
Valuation allowances
|
(235.5
|
)
|
|
(24.8
|
)
|
|
Net deferred tax assets
|
$
|
237.0
|
|
|
$
|
522.8
|
|
At
December 30, 2017
, the Company had domestic federal and state net operating loss carryforward of
$14.2 million
, separate state net operating loss carry forwards of
$9.0 million
, and a valuation allowance of
$5.2 million
. The Company had foreign net operating loss carry forwards of
$300.1 million
, resulting in a deferred tax asset of
$86.9 million
and a valuation allowance of
$37.5 million
. Of the total foreign and domestic net operating loss carry forwards,
$217.1 million
expire at various dates from 2019 to 2036, while the remainder have unlimited lives. This balance included net deferred tax assets of
$3.0 million
for federal net operating losses, which will expire in the years 2025 through 2035 if not utilized,
$29.7 million
of foreign net operating losses which will expire in 2026 if not utilized. During
2017
, the Company realized net cash benefits of
$6.3 million
related to foreign net operating loss carry forwards. At
December 30, 2017
and
December 31, 2016
, the Company had estimated gross foreign tax credit carry forwards of
$199.2 million
and
$215.0 million
, respectively and a valuation allowance of
$188.8 million
at
December 30, 2017
and
no
valuation allowance prior to the tax reform. The increase in valuation allowance was primarily from the estimated impact of the limitation of usage of foreign tax credit carryforwards under the Tax Act. The valuation allowance assessment is based in part upon expected future domestic results under the Tax Act, and available foreign source income, including rents and royalties available for credit usage under the Tax Act, as well as anticipated gains related to future sales of land held for development near the Company's Orlando, Florida headquarters.
The Company paid income taxes in
2017
,
2016
and
2015
of
$123.3 million
,
$118.7 million
and
$113.7 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
$0.7 million
,
$1.3 million
and
$2.6 million
in
2017
,
2016
and
2015
, respectively.
As of
December 30, 2017
and
December 31, 2016
, the Company's accrual for uncertain tax positions was
$19.8 million
and
$20.7 million
, respectively. The Company estimates that approximately
$19.2 million
of that amount, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amount of accrual for uncertain tax positions is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
2015
|
|
Balance, beginning of year
|
$
|
20.7
|
|
|
$
|
21.8
|
|
|
$
|
22.5
|
|
|
Additions based on tax positions related to the current year
|
3.6
|
|
|
2.7
|
|
|
3.3
|
|
|
Additions for tax positions of prior year
|
2.2
|
|
|
1.2
|
|
|
3.4
|
|
|
Reduction for tax positions of prior years
|
(3.0
|
)
|
|
(1.2
|
)
|
|
(1.6
|
)
|
|
Settlements
|
(1.2
|
)
|
|
—
|
|
|
(1.1
|
)
|
|
Reductions for lapse in statute of limitations
|
(3.7
|
)
|
|
(3.1
|
)
|
|
(3.2
|
)
|
|
Impact of foreign currency rate changes versus the U.S. dollar
|
1.2
|
|
|
(0.7
|
)
|
|
(1.5
|
)
|
|
Balance, end of year
|
$
|
19.8
|
|
|
$
|
20.7
|
|
|
$
|
21.8
|
|
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
$7.3 million
and
$7.1 million
as of
December 30, 2017
and
December 31, 2016
, respectively. Interest and penalties included in the provision for income taxes totaled
$0.2 million
and
$1.1 million
for
2017
and
2016
, respectively and
no
significant interest and penalties included in the provision for income taxes for
2015
.
During the year ended
December 30, 2017
, the accrual for uncertain tax positions decreased by
$3.7 million
primarily due to the expiration of the statute of limitations in various jurisdictions and decreased by another
$1.2 million
as a result of the Company agreeing to tax settlements in various foreign tax 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 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.
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 2003, Australia (2012), Brazil (2005), China (2005), France (2012), Germany (2011), Greece (2011), India (2002), Indonesia (2010), Italy (2015), Malaysia (2010), Mexico (2005), and South Africa (2013), 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
$0.8 million
. For the remaining balance as of
December 30, 2017
, 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 30, 2017
, the Company had foreign undistributed earnings of
$1.7 billion
where it is the Company's intent that the earnings be reinvested indefinitely. The Company is in the process of evaluating the impact of the Tax Act on its indefinite reinvestment assertion, including the impact of foreign withholding taxes and it expects to complete its evaluation in the one-year period provided by SAB 118. With respect to accumulated earnings of foreign subsidiaries, no additional U.S. federal and state income taxes or foreign withholding taxes have been provided as all accumulated earnings of foreign subsidiaries are deemed to have been remitted as part of the one-time mandatory repatriation transition tax charge recorded in 2017, although the amount recorded is subject to adjustment if estimates change. In the event that in certain foreign jurisdictions earnings that are currently considered indefinitely invested would no longer be classified as such, expense would be recorded at that time for withholding taxes that would be due in the foreign jurisdictions when those earnings are repatriated.
|
|
|
|
Note 13:
|
Retirement Benefit Plans
|
The Company has various defined benefit pension plans covering substantially all domestic employees employed as of June 30, 2005 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)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
49.8
|
|
|
$
|
59.2
|
|
|
$
|
17.0
|
|
|
$
|
18.3
|
|
|
$
|
179.6
|
|
|
$
|
183.3
|
|
|
Service cost
|
—
|
|
|
0.3
|
|
|
0.1
|
|
|
0.1
|
|
|
10.4
|
|
|
11.3
|
|
|
Interest cost
|
1.7
|
|
|
2.2
|
|
|
0.7
|
|
|
0.7
|
|
|
3.8
|
|
|
4.5
|
|
|
Actuarial (gain) loss
|
1.3
|
|
|
(2.9
|
)
|
|
(1.1
|
)
|
|
(0.2
|
)
|
|
(2.2
|
)
|
|
7.3
|
|
|
Benefits paid
|
(2.1
|
)
|
|
(0.9
|
)
|
|
(1.5
|
)
|
|
(1.9
|
)
|
|
(7.9
|
)
|
|
(7.8
|
)
|
|
Impact of exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14.1
|
|
|
(11.0
|
)
|
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
0.8
|
|
|
Settlements/Curtailments
|
—
|
|
|
(8.1
|
)
|
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
(8.8
|
)
|
|
Ending balance
|
$
|
50.7
|
|
|
$
|
49.8
|
|
|
$
|
15.2
|
|
|
$
|
17.0
|
|
|
$
|
194.9
|
|
|
$
|
179.6
|
|
|
Change in plan assets at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
27.0
|
|
|
$
|
33.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
76.9
|
|
|
$
|
78.2
|
|
|
Actual return on plan assets
|
4.4
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
|
2.2
|
|
|
Company contributions
|
—
|
|
|
—
|
|
|
1.5
|
|
|
1.9
|
|
|
10.8
|
|
|
14.2
|
|
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
0.8
|
|
|
Benefits and expenses paid
|
(2.4
|
)
|
|
(1.6
|
)
|
|
(1.5
|
)
|
|
(1.9
|
)
|
|
(8.3
|
)
|
|
(7.8
|
)
|
|
Impact of exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.7
|
|
|
(1.9
|
)
|
|
Settlements
|
—
|
|
|
(8.1
|
)
|
|
—
|
|
|
—
|
|
|
(3.2
|
)
|
|
(8.8
|
)
|
|
Ending balance
|
$
|
29.0
|
|
|
$
|
27.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87.7
|
|
|
$
|
76.9
|
|
|
Funded status of plans
|
$
|
(21.7
|
)
|
|
$
|
(22.8
|
)
|
|
$
|
(15.2
|
)
|
|
$
|
(17.0
|
)
|
|
$
|
(107.2
|
)
|
|
$
|
(102.7
|
)
|
Amounts recognized in the balance sheet consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
December 30,
2017
|
|
December 31,
2016
|
|
Accrued benefit liability
|
$
|
(144.1
|
)
|
|
$
|
(142.5
|
)
|
|
Accumulated other comprehensive loss (pretax)
|
40.1
|
|
|
44.4
|
|
Items not yet recognized as a component of pension expense as of
December 30, 2017
and
December 31, 2016
consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(In millions)
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Transition obligation
|
$
|
2.4
|
|
|
$
|
—
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
Prior service cost (benefit)
|
1.2
|
|
|
(6.0
|
)
|
|
1.1
|
|
|
(7.3
|
)
|
|
Net actuarial loss (gain)
|
42.7
|
|
|
(0.2
|
)
|
|
47.4
|
|
|
1.0
|
|
|
Accumulated other comprehensive loss(income) pretax
|
$
|
46.3
|
|
|
$
|
(6.2
|
)
|
|
$
|
50.7
|
|
|
$
|
(6.3
|
)
|
Components of other comprehensive loss (income) for the years ended
December 30, 2017
and
December 31, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(In millions)
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Net prior service cost
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
Net actuarial (gain)
|
(8.5
|
)
|
|
(1.2
|
)
|
|
(12.3
|
)
|
|
(0.2
|
)
|
|
Impact of exchange rates
|
4.1
|
|
|
—
|
|
|
8.0
|
|
|
—
|
|
|
Other comprehensive (income) loss
|
$
|
(4.4
|
)
|
|
$
|
0.1
|
|
|
$
|
(4.3
|
)
|
|
$
|
1.1
|
|
In
2018
, the Company expects to recognize a prior service benefit of
$1.4 million
and a net actuarial loss of
$0.3 million
as components of pension and post-retirement expense.
The accumulated benefit obligation for all defined benefit pension plans at
December 30, 2017
and
December 31, 2016
was
$220.9 million
and
$205.7 million
, respectively. At
December 30, 2017
and
December 31, 2016
, the accumulated benefit obligations of certain pension plans exceeded those respective plans' assets. For those plans, the accumulated benefit obligations were
$190.6 million
and
$196.9 million
, and the fair value of their assets was
$84.7 million
and
$93.7 million
as of
December 30, 2017
and
December 31, 2016
, respectively. At
December 30, 2017
and
December 31, 2016
, 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)
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost and expenses
|
$
|
10.4
|
|
|
$
|
11.8
|
|
|
$
|
10.8
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Interest cost
|
5.6
|
|
|
6.7
|
|
|
6.9
|
|
|
0.7
|
|
|
0.7
|
|
|
0.7
|
|
|
Return on plan assets
|
(4.4
|
)
|
|
(5.3
|
)
|
|
(5.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlement/Curtailment
|
1.0
|
|
|
3.9
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Employee contributions
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net deferral
|
2.0
|
|
|
2.7
|
|
|
4.5
|
|
|
(1.3
|
)
|
|
(1.3
|
)
|
|
(1.3
|
)
|
|
Net periodic benefit cost (income)
|
$
|
14.4
|
|
|
$
|
19.6
|
|
|
$
|
18.4
|
|
|
$
|
(0.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(0.5
|
)
|
|
Weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate, net periodic benefit cost
|
3.8
|
%
|
|
3.9
|
%
|
|
3.6
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
|
3.8
|
%
|
|
Discount rate, benefit obligations
|
3.3
|
|
|
3.7
|
|
|
3.9
|
|
|
3.5
|
|
|
4.0
|
|
|
4.0
|
|
|
Return on plan assets
|
7.3
|
|
|
8.3
|
|
|
8.3
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
Salary growth rate, net periodic benefit cost
|
—
|
|
|
—
|
|
|
3.0
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
Salary growth rate, benefit obligations
|
—
|
|
|
—
|
|
|
—
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
Foreign plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.2
|
%
|
|
2.3
|
%
|
|
2.4
|
%
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
Return on plan assets
|
3.1
|
|
|
3.2
|
|
|
3.4
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
Salary growth rate
|
2.7
|
|
|
2.9
|
|
|
3.1
|
|
|
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
2017
was
7.3 percent
and
3.1 percent
, respectively, and
8.3 percent
and
3.2 percent
for
2016
, 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
2017
was
3.3 percent
and
2.2 percent
, respectively, and
3.7 percent
and
2.3 percent
for
2016
, 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 30, 2017
and
December 31, 2016
, by asset category, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Asset category
|
U.S. plans
|
|
Foreign plans
|
|
U.S. plans
|
|
Foreign plans
|
|
Equity securities
|
63
|
%
|
|
26
|
%
|
|
62
|
%
|
|
27
|
%
|
|
Fixed income securities
|
37
|
|
|
16
|
|
|
38
|
|
|
16
|
|
|
Cash and money market investments
|
—
|
|
|
7
|
|
|
—
|
|
|
6
|
|
|
Guaranteed contracts
|
—
|
|
|
49
|
|
|
—
|
|
|
50
|
|
|
Other
|
—
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The fair value of the Company's pension plan assets at
December 30, 2017
by asset category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of assets
(in millions)
|
December 30,
2017
|
|
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)
|
$
|
28.9
|
|
|
$
|
—
|
|
|
$
|
28.9
|
|
|
$
|
—
|
|
|
Foreign plans:
|
|
|
|
|
|
|
|
|
Australia
|
Investment fund (b)
|
2.5
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
Switzerland
|
Guaranteed insurance contract (c)
|
32.8
|
|
|
—
|
|
|
—
|
|
|
32.8
|
|
|
Germany
|
Guaranteed insurance contract (c)
|
5.6
|
|
|
—
|
|
|
—
|
|
|
5.6
|
|
|
Belgium
|
Mutual fund (d)
|
25.2
|
|
|
25.2
|
|
|
—
|
|
|
—
|
|
|
Austria
|
Guaranteed insurance contract (c)
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
Korea
|
Guaranteed insurance contract (c)
|
4.1
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
Japan
|
Common/collective trust (e)
|
12.8
|
|
|
—
|
|
|
12.8
|
|
|
—
|
|
|
Philippines
|
Fixed income securities (f)
|
1.8
|
|
|
1.8
|
|
|
—
|
|
|
—
|
|
|
|
Equity fund (f)
|
2.6
|
|
|
2.6
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
116.7
|
|
|
$
|
29.6
|
|
|
$
|
44.2
|
|
|
$
|
42.9
|
|
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 funds (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
|
|
____________________
|
|
|
|
(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 30, 2017
and
December 31, 2016
, the common trusts held
63 percent
and
62 percent
of its assets in equity securities and
37 percent
and
38 percent
in fixed income securities, respectively. The percentage of funds invested in equity securities at the end of
2017
and
2016
, included:
10 percent
in international stocks,
32 percent
in large U.S. stocks in each year and
21 percent
and
20 percent
in small 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
2017
and
2016
, the strategy of this fund is to achieve a long-term net return of at least
3.5 percent
and
4 percent
above inflation based on the Australian consumer price index over a rolling five-year period, respectively. 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 30, 2017
and
December 31, 2016
, the percentage of funds held in investments included: Australian equities of
16 percent
and
31 percent
, other equities of listed companies outside of Australia of
44 percent
and
41 percent
, government and corporate bonds of
17 percent
and
12 percent
and cash of
14 percent
and
7 percent
, respectively and real estate of
9 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 30, 2017
and
December 31, 2016
, the percentage of funds held in various asset classes included: large-cap equities of European companies of
27 percent
, small-cap equities of European companies of
17 percent
, and money market fund of
17 percent
in each year, bonds, primarily from European and U.S. governments, of
31 percent
and
32 percent
, and equities outside of Europe, mainly in the U.S. and emerging markets,
8 percent
and
7 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 30, 2017
and
December 31, 2016
. As of the end of
December 30, 2017
and
December 31, 2016
, the allocation of funds within the common collective trust included:
36 percent
and
40 percent
in Japanese equities,
53 percent
and
50 percent
in Japanese bonds, and
4 percent
and
3 percent
in cash and other short term investments, respectively and
7 percent
in equities of companies based outside of Japan 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 30,
2017
|
|
December 31,
2016
|
|
Beginning balance
|
$
|
37.9
|
|
|
$
|
38.7
|
|
|
Realized gains
|
1.1
|
|
|
0.9
|
|
|
Purchases, sales and settlements, net
|
1.7
|
|
|
(0.4
|
)
|
|
Impact of exchange rates
|
2.2
|
|
|
(1.3
|
)
|
|
Ending balance
|
$
|
42.9
|
|
|
$
|
37.9
|
|
The Company expects to contribute
$11.0 million
to its U.S. and foreign pension plans and
$1.5 million
to its other U.S. post-retirement benefit plan in
2018
.
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
$6.5 million
,
$6.1 million
and
$7.4 million
for
2017
,
2016
and
2015
, 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
|
|
2018
|
|
|
$13.4
|
|
|
|
$1.5
|
|
|
|
$14.9
|
|
|
2019
|
|
27.0
|
|
|
1.4
|
|
|
28.4
|
|
|
2020
|
|
12.8
|
|
|
1.3
|
|
|
14.1
|
|
|
2021
|
|
13.3
|
|
|
1.3
|
|
|
14.6
|
|
|
2022
|
|
16.2
|
|
|
1.2
|
|
|
17.4
|
|
|
2023-2027
|
|
72.0
|
|
|
4.9
|
|
|
76.9
|
|
|
|
|
|
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 30, 2017
was
2,979,087
.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Dividend yield
|
4.4
|
%
|
|
4.7
|
%
|
|
4.3
|
%
|
|
Expected volatility
|
29
|
%
|
|
30
|
%
|
|
36
|
%
|
|
Risk-free interest rate
|
2.2
|
%
|
|
2.1
|
%
|
|
2.1
|
%
|
|
Expected life
|
7 years
|
|
|
7 years
|
|
|
7 years
|
|
Stock option activity for
2017
, 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 31, 2016
|
2,722,965
|
|
|
|
$57.78
|
|
|
|
|
Granted
|
640,242
|
|
|
58.21
|
|
|
|
|
|
Expired/Forfeited
|
(47,111
|
)
|
|
66.95
|
|
|
|
|
Exercised
|
(270,780
|
)
|
|
43.88
|
|
|
|
|
|
Outstanding at December 30, 2017
|
3,045,316
|
|
|
|
$58.96
|
|
|
|
$16.1
|
|
|
Exercisable at December 30, 2017
|
1,802,768
|
|
|
|
$59.55
|
|
|
|
$10.4
|
|
The intrinsic value of options exercised during
2017
,
2016
and
2015
totaled
$6.2 million
,
$1.2 million
and
$20.8 million
, respectively. The average remaining contractual life on outstanding and exercisable options was
7.1
and
5.6
, respectively, at the end of
2017
. The weighted average estimated grant date fair value of
2017
,
2016
and
2015
option grants was
$10.48
,
$10.67
and
$13.13
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
.
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, are 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.
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
2017
,
2016
and
2015
was
$61.29
,
$49.55
and
$64.21
, 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
2017
, as a result of the Company's performance, the estimated number of shares expected to vest increased by
27,380
shares for the
three
performance share plans running during
2017
.
Restricted stock, restricted stock units, performance-vested and market-vested share award activity for
2017
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 31, 2016
|
602,940
|
|
|
|
$61.28
|
|
|
Time-vested shares granted
|
153,581
|
|
|
60.12
|
|
|
Market-vested shares granted
|
25,170
|
|
|
61.29
|
|
|
Performance shares granted
|
76,615
|
|
|
60.39
|
|
|
Performance share adjustments
|
27,380
|
|
|
58.35
|
|
|
Vested
|
(207,650
|
)
|
|
67.60
|
|
|
Forfeited
|
(42,529
|
)
|
|
62.98
|
|
|
Outstanding at December 30, 2017
|
635,507
|
|
|
|
$58.59
|
|
The vesting date fair value of restricted stock, restricted stock units and performance-vested awards that vested in
2017
,
2016
and
2015
was
$12.8 million
,
$12.4 million
and
$20.9 million
, respectively. The weighted average grant-date fair value per share of these types of awards in
2017
,
2016
and
2015
was
$60.32
,
$55.39
and
$61.89
, 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
17,525
,
18,174
and
27,582
shares as of the end of
2017
,
2016
and
2015
, respectively. These outstanding cash settled awards had a fair value of
$1.1 million
,
$1.0 million
and
$1.5 million
as of the end of
2017
,
2016
and
2015
, respectively.
Compensation expense associated with all stock-based compensation was
$22.6 million
in
2017
and
$20.0 million
in
2016
and
2015
. The estimated tax benefit associated with this compensation expense was
$8.1 million
in
2017
and
$7.2 million
and
2016
and
2015
. As of
December 30, 2017
, total unrecognized stock-based compensation expense related to all stock-based awards was
$27.0 million
, which is expected to be recognized over a weighted average period of
24 months
.
Expense related to earned cash performance awards of
$11.0 million
,
$18.7 million
and
$21.5 million
was included in the Consolidated Statements of Income for
2017
,
2016
and
2015
, 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. There were
no
share repurchases under this program in
2017
,
2016
and
2015
. 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 in the fourth quarter of 2017, in connection with the closure of its Beauticontrol business, the Company changed its segment reporting. The change was to combine its previous Beauty North America and Tupperware North America segments into one North America segment. Comparable information from all historical periods presented has been revised to conform with the new presentation.
The Company's reportable segments primarily sell 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. North America also includes the Fuller Mexico beauty and personal care products business and sells products under the Fuller Cosmetics® brand in that unit and in Central America. South America also sells beauty products under the Fuller®, Nutrimetics® and Nuvo® brands.
Worldwide sales of beauty and personal care products totaled
$331.7 million
,
$368.5 million
and
$428.8 million
in
2017
,
2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
|
Europe
|
$
|
550.4
|
|
|
$
|
559.4
|
|
|
$
|
612.9
|
|
|
Asia Pacific
|
734.8
|
|
|
748.6
|
|
|
771.0
|
|
|
North America
|
541.5
|
|
|
548.3
|
|
|
593.7
|
|
|
South America
|
429.1
|
|
|
356.8
|
|
|
306.2
|
|
|
Total net sales
|
$
|
2,255.8
|
|
|
$
|
2,213.1
|
|
|
$
|
2,283.8
|
|
|
Segment profit:
|
|
|
|
|
|
|
Europe
|
$
|
54.5
|
|
|
$
|
65.3
|
|
|
$
|
92.4
|
|
|
Asia Pacific
|
189.3
|
|
|
181.0
|
|
|
175.9
|
|
|
North America
|
69.7
|
|
|
66.1
|
|
|
69.7
|
|
|
South America
|
98.7
|
|
|
82.2
|
|
|
46.5
|
|
|
Total segment profit
|
$
|
412.2
|
|
|
$
|
394.6
|
|
|
$
|
384.5
|
|
|
Unallocated expenses
|
(64.1
|
)
|
|
(67.6
|
)
|
|
(72.8
|
)
|
|
Re-engineering and impairment charges (a)
|
(66.0
|
)
|
|
(7.6
|
)
|
|
(20.3
|
)
|
|
Impairment of goodwill and intangibles (b)
|
(62.9
|
)
|
|
—
|
|
|
—
|
|
|
Gains on disposal of assets (c)
|
9.1
|
|
|
27.3
|
|
|
13.7
|
|
|
Interest expense, net
|
(43.2
|
)
|
|
(45.4
|
)
|
|
(45.2
|
)
|
|
Income before taxes
|
$
|
185.1
|
|
|
$
|
301.3
|
|
|
$
|
259.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2017
|
|
2016
|
|
2015
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Europe
|
$
|
16.7
|
|
|
$
|
15.9
|
|
|
$
|
17.3
|
|
|
Asia Pacific
|
14.9
|
|
|
14.5
|
|
|
14.9
|
|
|
North America
|
12.3
|
|
|
18.7
|
|
|
21.3
|
|
|
South America
|
5.9
|
|
|
3.3
|
|
|
4.1
|
|
|
Corporate
|
10.7
|
|
|
5.1
|
|
|
4.8
|
|
|
Total depreciation and amortization
|
$
|
60.5
|
|
|
$
|
57.5
|
|
|
$
|
62.4
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
Europe
|
$
|
18.7
|
|
|
$
|
15.6
|
|
|
$
|
18.2
|
|
|
Asia Pacific
|
10.7
|
|
|
12.0
|
|
|
12.3
|
|
|
North America
|
15.9
|
|
|
11.9
|
|
|
12.6
|
|
|
South America
|
12.1
|
|
|
12.4
|
|
|
8.9
|
|
|
Corporate
|
14.9
|
|
|
9.7
|
|
|
9.1
|
|
|
Total capital expenditures
|
$
|
72.3
|
|
|
$
|
61.6
|
|
|
$
|
61.1
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
Europe
|
$
|
308.5
|
|
|
$
|
257.2
|
|
|
$
|
276.5
|
|
|
Asia Pacific
|
297.2
|
|
|
278.6
|
|
|
290.2
|
|
|
North America
|
266.3
|
|
|
333.7
|
|
|
375.2
|
|
|
South America
|
138.6
|
|
|
124.6
|
|
|
96.9
|
|
|
Corporate
|
377.4
|
|
|
593.7
|
|
|
559.4
|
|
|
Total identifiable assets
|
$
|
1,388.0
|
|
|
$
|
1,587.8
|
|
|
$
|
1,973.4
|
|
____________________
|
|
|
|
(a)
|
See Note 2 for discussion of re-engineering and impairment charges.
|
|
|
|
|
(b)
|
See Note 6 for discussion of goodwill impairment charges.
|
|
|
|
|
(c)
|
Gains on disposal of assets in
2017
,
2016
and
2015
include
$8.8 million
,
26.5 million
and
12.9 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
2017
,
2016
and
2015
sales of Tupperware
®
and beauty products to customers in Mexico were
$279.7 million
,
$282.4 million
and
$338.9 million
, respectively, while sales in Brazil were
$316.3 million
,
$260.4 million
and
$201.1 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
$191.8 million
,
$204.2 million
and
$209.4 million
in
2017
,
2016
and
2015
, 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
2017
,
2016
and
2015
, long-lived assets in the United States were
$91.6 million
,
$88.7 million
and
$86.6 million
, respectively.
As of
December 30, 2017
and
December 31, 2016
, the Company's net investment in international operations was
$523.5 million
and
$482.1 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
$34.9 million
in
2017
,
$33.3 million
in
2016
and
$34.0 million
in
2015
. Approximate minimum rental commitments under non-cancelable operating leases in effect at
December 30, 2017
were:
2018
-
$35.1 million
;
2019
-
$23.6 million
;
2020
-
$13.9 million
;
2021
-
$9.4 million
;
2022
-
$6.3 million
; and after
2022
-
$23.4 million
. Leases included in the minimum rental commitments for
2018
and
2019
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 30, 2017
,
$17.3 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 30, 2017
was as follows:
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Balance at December 31, 2016
|
$
|
11.0
|
|
|
Write-offs
|
(0.9
|
)
|
|
Provision (a)
|
4.8
|
|
|
Currency translation adjustment
|
1.6
|
|
|
Balance at December 30, 2017
|
$
|
16.5
|
|
____________________