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 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 52 weeks during 2019, 2018 and 2017.
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 28, 2019 and December 29, 2018, $8.2 million and $7.8 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 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. 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 $59.9 million and $39.4 million at December 28, 2019 and December 29, 2018, respectively. Amortization cost related to internal use software development costs totaled $6.1 million, $5.8 million and $5.4 million in 2019, 2018 and 2017, 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
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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 $41.0 million, $44.8 million and $45.6 million in 2019, 2018 and 2017, 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.
Leases: On December 30, 2018, the Company adopted new guidance on lease accounting using the modified retrospective method, which required a cumulative-effect adjustment to the opening balance of retained earnings of $7.1 million, net of taxes. Prior periods have not been restated. The standard did not materially impact consolidated net income or liquidity, and did not have an impact on debt-covenant compliance under the Company's debt agreements. The new guidance was applied to all operating and capital leases at the date of initial application. Leases historically referred to as capital leases are now referred to as finance leases under the new guidance.
The Company elected the package of practical expedients permitted under the transition guidance, and as a basis for its lease policies, which allowed the Company to carryforward its historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company also elected to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee, and made an accounting policy election to not account for leases with an initial term of 12 months or less on the balance sheet. In addition, the Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company recognizes payments on these leases on a straight-line basis over the lease term.
Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $84.1 million and $85.2 million, respectively, as of December 28, 2019 related to the Company's operating leases. The standard did not materially impact the Company's consolidated net earnings or cash flows. Refer to Note 5 to the Consolidated Financial Statements for further information.
Goodwill. The Company's recorded goodwill relates primarily to the December 2005 acquisition of the direct selling 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. During 2017, the Company 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 selling distribution method. The resulting multiples are then applied to the reporting unit to determine fair value. Goodwill is further discussed in Note 7 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 28, 2019 and December 29, 2018 were related to the acquisition of the Sara Lee direct selling 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 during the third quarter of each year 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 7 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 other activities, ancillary to the Company's sales, which are measured by defined group/team 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 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 $275.1 million, $313.3 million and $356.2 million in 2019, 2018 and 2017, 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. On December 31, 2017, the Company adopted new guidance on revenue from contracts with customers using the modified retrospective method. The new guidance was applied to all contracts at the date of initial application. There was no impact on beginning retained earnings from the adoption as of December 31, 2017. Results for reporting periods beginning December 31, 2017 are presented under the new guidance, while prior period amounts continue to be reported in accordance with previous guidance without revision.
Under the new guidance, the contract is defined as the order received from the Company's customer who, in most cases, is one of the Company's independent distributors or a member of its independent sales force. Revenue is recognized when control of the product passes to the customer, which is upon shipment, and is recognized at the amount that reflects the consideration the Company expects to receive for the products sold, including various forms of discounts and net of expected returns which is estimated using historical return patterns and current expectation of future returns. The Company elected to account for shipping and handling activities that occur after the customer has obtained control of the product as an activity to fulfill the promise to transfer the product rather than as an additional promised service. Generally, payment is either received in advance or in a relatively short period of time following shipment. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Contracts with customers are evaluated to determine if there are separate performance obligations that are not yet met. These obligations generally relate to product awards to be subsequently fulfilled. When that is the case, revenue is deferred until each performance obligation is met. The impact as of the end of 2018 from deferred revenue was not material.
The Company's financial position and results of operations as of December 28, 2019 and December 29, 2018, and for the years then ended, were not materially impacted by the adoption of the new guidance.
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 2019, 2018 and 2017 were $127.8 million, $138.4 million and $142.2 million, respectively.
Advertising and Research and Development Costs. Advertising and research and development costs are charged to expense as incurred. Advertising expense totaled $4.7 million, $6.7 million and $9.3 million in 2019, 2018 and 2017, respectively. Research and development costs totaled $15.1 million, $15.0 million and $16.7 million, in 2019, 2018 and 2017, 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 15 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.
Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets also are recognized for credit carryforwards. Deferred tax assets and liabilities are measured using the enacted rates applicable to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets. This assessment requires estimates as to future operating results, as well as an evaluation of the effectiveness of the Company's tax planning strategies. These estimates are made on an ongoing basis based upon the Company's business plans and growth strategies in each market and consequently, future material changes in the valuation allowance are possible.
The Company accounts for uncertain tax positions in accordance with ASC 740, Income Taxes. This guidance prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Interest and penalties related to tax contingency or settlement items are recorded as a component of the provision for income taxes in the Company's Consolidated Statements of Income. The Company records accruals for tax contingencies as a component of accrued liabilities or other long-term liabilities on its balance sheet.
Net Income Per Common Share. Basic per share information is calculated by dividing net income by the weighted average number of shares outstanding. Diluted per share information is calculated by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. The Company's potential common stock consists of employee and director stock options, restricted stock, restricted stock units and performance share units. Performance share awards are included in the diluted per share calculation when the performance criteria are achieved. The Company's potential common stock is excluded from the basic per share calculation, 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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2019
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2018
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2017
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Net income (loss)
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$
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12.4
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$
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155.9
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$
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(265.4
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)
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Weighted average shares of common stock outstanding
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48.8
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49.9
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50.8
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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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0.2
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0.3
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—
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Weighted average common and common equivalent shares outstanding
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49.0
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50.2
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50.8
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Basic earnings (loss) per share
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$
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0.26
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$
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3.12
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$
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(5.22
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)
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Diluted earnings (loss) per share
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$
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0.25
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$
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3.11
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$
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(5.22
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)
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Shares excluded from the determination of potential common stock because inclusion would have been anti-dilutive
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3.9
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3.0
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3.1
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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 through 2018, the Company excluded forward points, which were included as a component of interest expense.
On December 30, 2018, the Company adopted new guidance on hedge accounting, which required a cumulative-effect adjustment to the opening balance of retained earnings and accumulated other comprehensive income of $5.0 million, net of taxes. As part of the adoption, the Company elected to include forward points in the assessment of hedge effectiveness for net equity and cash flow hedges and exclude forward points in the assessment for fair value hedges. In addition, the Company now records the entire change in fair value of hedging instruments in the same income statement line item as the earnings effect of the hedged item. Prior to adoption, the impact from forward points was recorded as interest expense. Refer to Note 9 to the Consolidated Financial Statements for further discussion on impact from new hedge accounting guidance.
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 Argentina and 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 Argentina and Venezuela. For Argentina, this blended index reached cumulative three-year inflation in excess of 100 percent in 2018 and as such, the Company transitioned to highly inflationary status as of July 1, 2018. For 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 use the parallel exchange rate in use in the country to value sales and profit beginning in 2018. 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 2019, 2018 and 2017, 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 in Venezuela, was $1.6 million, $2.1 million and $7.4 million, respectively. The amounts related to remeasurement are included in other expense. In 2017, there was also a fixed asset impairment charge for Venezuela of $2.3 million, recorded in re-engineering and impairments caption.
As of the end of 2019, the net monetary assets, which were of a nature that will generate income or expense for the change in value associated with exchange rate fluctuations versus the U.S. dollar were immaterial. 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 December 2019, the FASB issued a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this amendment on its Consolidated Financial Statements, including accounting policies and processes.
In August 2018, the FASB issued an amendment to existing guidance on the accounting for implementation, setup, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor that is a service contract. Under the amendment, the requirement for capitalizing implementation costs incurred in a hosting environment that is a service contract is aligned with the requirements for capitalizing implementation costs incurred for an internal-use software license. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company estimates the amount of cloud computing implementation costs capitalized during 2020 to be immaterial.
In August 2018, the FASB issued an amendment to existing guidance on disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. Under the amendment, the entity is required to disclose the weighted-average interest crediting rates used, reasons for significant gains and losses affecting the benefit obligation and an explanation of any other significant changes in the benefit obligation or plan assets. The amendment also removed certain required disclosures that no longer are considered cost beneficial. This guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company has evaluated the impact of adoption of this amendment and does not expect any impact on its Consolidated Financial Statements.
In August 2018, the FASB issued an amendment to existing guidance on disclosure requirements on fair value measurement as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to the financial statements. Under this amendment, certain disclosure requirements for fair value measurement were eliminated, modified and added. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company has evaluated the impact of adoption of this amendment and does not expect any impact on its Consolidated Financial Statements.
In June 2016, the FASB issued an amendment to existing guidance for the measurement of credit losses on financial instruments and subsequent updates to that amendment. This guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when recording credit loss estimates. The new standard is effective for fiscal years and interim periods beginning after December 15, 2019. The Company has evaluated the impact of adoption of this amendment and does not expect a material impact on its Consolidated Financial Statements.
Reclassifications. Certain prior year amounts have been reclassified in the Consolidated Financial Statements to conform to current year presentation. This includes changes to the presentation of pension costs in other expense in the Company's Consolidated Statements of Income under ASU 2017-07, Improving the Presentation of Net Periodic Pension Costs and Net Periodic Post-Retirement Benefit Costs. For applying the retrospective presentation requirements under this standard, the Company used the practical expedient that allows for the use of amounts disclosed in its retirement benefit plans note for the year ended December 30, 2017 as the estimation basis.
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Note 2:
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Re-engineering Costs
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The Company recorded $34.7 million, $15.9 million and $63.7 million in re-engineering charges during 2019, 2018 and 2017, respectively. These re-engineering costs were mainly related to the July 2017 revitalization program ("2017 program") and the transformation program announced in January 2019 ("2019 program"). The Company continually reviews its business models and operating methods for opportunities to increase efficiencies and/or align costs with business performance.
In relation to the 2017 program, the Company incurred $4.5 million, $15.9 million and $63.7 million of charges in 2019, 2018 and 2017, respectively, 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. Under this program, the Company has incurred $84.1 million of pretax costs starting in the second quarter of 2017 through 2019. In addition to the costs outlined below, the Company recorded $0.9 million and $3.6 million in cost of sales for inventory obsolescence in connection with the 2017 program in 2018 and 2017, respectively.
Pretax costs incurred related to the 2017 program by category were as follows:
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(In millions)
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2019
|
|
2018
|
|
2017
|
Severance
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$
|
4.4
|
|
|
$
|
3.6
|
|
|
$
|
48.1
|
|
Other
|
0.1
|
|
|
12.3
|
|
|
15.6
|
|
Total re-engineering charges
|
$
|
4.5
|
|
|
$
|
15.9
|
|
|
$
|
63.7
|
|
The re-engineering charges related to the 2017 program by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Europe
|
$
|
2.7
|
|
|
$
|
10.2
|
|
|
$
|
47.9
|
|
Asia Pacific
|
0.6
|
|
|
0.5
|
|
|
4.8
|
|
North America
|
1.2
|
|
|
3.8
|
|
|
11.0
|
|
South America
|
—
|
|
|
1.4
|
|
|
—
|
|
Total re-engineering charges
|
$
|
4.5
|
|
|
$
|
15.9
|
|
|
$
|
63.7
|
|
The balances included in accrued liabilities related to re-engineering and impairment charges as of December 28, 2019, December 29, 2018, and December 30, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
23.3
|
|
|
$
|
45.4
|
|
|
$
|
1.6
|
|
Provision
|
4.5
|
|
|
15.9
|
|
|
63.7
|
|
Adjustments and other charges
|
(0.3
|
)
|
|
3.0
|
|
|
(0.4
|
)
|
Cash expenditures:
|
|
|
|
|
|
Severance
|
(20.3
|
)
|
|
(27.1
|
)
|
|
(12.7
|
)
|
Other
|
(3.6
|
)
|
|
(12.8
|
)
|
|
(6.8
|
)
|
Currency translation adjustment
|
(0.5
|
)
|
|
(1.1
|
)
|
|
—
|
|
Ending balance
|
$
|
3.1
|
|
|
$
|
23.3
|
|
|
$
|
45.4
|
|
The accrual balance as of December 28, 2019, related primarily to severance payments to be made during 2020.
During 2019, the Company incurred $26.4 million of costs related to the 2019 program, primarily related to severance costs, outside consulting services, project team expenses, and distributor support. In addition to the costs outlined below, the Company recorded $0.9 million and $0.4 million in cost of sales for inventory obsolescence and DS&A for bad debt expense, respectively, in connection with the 2019 program.
Pretax costs incurred related to the 2019 program by category were as follows:
|
|
|
|
|
(In millions)
|
2019
|
Severance
|
$
|
13.1
|
|
Other
|
13.3
|
|
Total re-engineering charges
|
$
|
26.4
|
|
The re-engineering charges related to the 2019 program by segment during 2019 were as follows:
|
|
|
|
|
(In millions)
|
2019
|
Europe
|
$
|
12.4
|
|
Asia Pacific
|
11.1
|
|
Other
|
2.9
|
|
Total re-engineering charges
|
$
|
26.4
|
|
The balances included in accrued liabilities related to the 2019 program as of December 28, 2019 were as follows:
|
|
|
|
|
(In millions)
|
2019
|
Beginning balance
|
$
|
—
|
|
Provision
|
26.4
|
|
Adjustments and other charges
|
(1.7
|
)
|
Cash expenditures:
|
|
Severance
|
(0.9
|
)
|
Other
|
(10.9
|
)
|
Ending balance
|
$
|
12.9
|
|
The accrual balance as of December 28, 2019, primarily related to severance payments to be made during 2020.
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. The Company concluded, it would use the parallel exchange rate in use in the country, which was approximately 99 percent lower than the official exchange rate that was used in 2017, to value sales and profit beginning of 2018. As a result of this evaluation, the Company recorded 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 millions)
|
2019
|
|
2018
|
Finished goods
|
$
|
197.1
|
|
|
$
|
203.9
|
|
Work in process
|
22.4
|
|
|
25.0
|
|
Raw materials and supplies
|
25.7
|
|
|
28.8
|
|
Total inventories
|
$
|
245.2
|
|
|
$
|
257.7
|
|
|
|
Note 4:
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
Land
|
$
|
29.4
|
|
|
$
|
43.3
|
|
Buildings and improvements
|
171.2
|
|
|
175.6
|
|
Molds
|
687.6
|
|
|
681.0
|
|
Production equipment
|
268.7
|
|
|
262.2
|
|
Distribution equipment
|
38.9
|
|
|
39.4
|
|
Computer/telecom equipment
|
43.2
|
|
|
43.6
|
|
Furniture and fixtures
|
29.2
|
|
|
28.4
|
|
Capitalized software
|
115.1
|
|
|
89.0
|
|
Construction in progress
|
16.6
|
|
|
23.9
|
|
Total property, plant and equipment
|
1,399.9
|
|
|
1,386.4
|
|
Less accumulated depreciation
|
(1,132.4
|
)
|
|
(1,110.4
|
)
|
Property, plant and equipment, net
|
$
|
267.5
|
|
|
$
|
276.0
|
|
The Company leases certain equipment, vehicles, office space, and manufacturing and distribution facilities, and recognizes the associated lease expense on a straight-line basis over the lease term.
Some leases include one or more options to renew, with renewal terms that can extend the lease term from one year to five years, or more. The exercise of lease renewal options is at the Company's discretion and renewal options that are reasonably certain to be exercised have been included in the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Certain lease agreements held by the Company include rental payments adjusted periodically for inflation. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of lease expense for 2019 were as follows:
|
|
|
|
|
(In millions)
|
2019
|
Operating lease cost (a) (c)
|
$
|
51.7
|
|
Finance lease cost
|
|
Amortization of right-of-use assets (a)
|
0.9
|
|
Interest on lease liabilities (b)
|
0.2
|
|
Total finance lease cost
|
$
|
1.1
|
|
____________________
|
|
(a)
|
Included in DS&A and cost of products sold.
|
|
|
(b)
|
Included in interest expense.
|
|
|
(c)
|
Includes $3.8 million and $1.4 million related to short-term rent expense and variable rent expense, respectively.
|
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
(In millions)
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
Operating cash flows from operating leases
|
$
|
(50.1
|
)
|
Operating cash flows from finance leases
|
(0.2
|
)
|
Financing cash flows from finance leases
|
(1.8
|
)
|
Leased assets obtained in exchange for new operating lease liabilities
|
$
|
8.4
|
|
Supplemental balance sheet information related to leases is as follows:
|
|
|
|
|
(In millions, except lease term and discount rate)
|
2019
|
Operating Leases
|
|
Operating lease right-of-use assets
|
$
|
84.1
|
|
|
|
Accrued liabilities
|
$
|
29.2
|
|
Operating lease liabilities
|
56.0
|
|
Total Operating lease liabilities
|
$
|
85.2
|
|
|
|
Finance Leases
|
|
Property, plant and equipment, at cost
|
$
|
17.9
|
|
Accumulated amortization
|
10.3
|
|
Property, plant and equipment, net
|
$
|
7.6
|
|
|
|
Current portion of finance lease obligations
|
$
|
1.3
|
|
Long-term finance lease obligations
|
2.3
|
|
Total Finance lease liabilities
|
$
|
3.6
|
|
|
|
Weighted Average Remaining Lease Term
|
|
Operating Leases
|
4.5 years
|
|
Finance Leases
|
2.8 years
|
|
Weighted Average Discount Rate (a)
|
|
Operating Leases
|
5.2
|
%
|
Finance Leases
|
5.1
|
%
|
_________________________
|
|
(a)
|
Calculated using Company's incremental borrowing rate.
|
Maturities of lease liabilities as of December 28, 2019 were as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
Operating Leases
|
|
Finance Leases
|
2020
|
$
|
32.8
|
|
|
$
|
1.4
|
|
2021
|
22.6
|
|
|
1.4
|
|
2022
|
13.0
|
|
|
1.0
|
|
2023
|
7.5
|
|
|
—
|
|
2024
|
5.6
|
|
|
—
|
|
Thereafter
|
13.0
|
|
|
—
|
|
Total lease payments
|
94.5
|
|
|
3.8
|
|
Less imputed interest
|
9.3
|
|
|
0.2
|
|
Total
|
$
|
85.2
|
|
|
$
|
3.6
|
|
Maturities of lease liabilities as of December 29, 2018 were as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
Operating Leases
|
|
Finance Leases
|
2019
|
$
|
28.3
|
|
|
$
|
1.6
|
|
2020
|
19.2
|
|
|
1.3
|
|
2021
|
15.8
|
|
|
1.4
|
|
2022
|
8.3
|
|
|
1.0
|
|
2023
|
6.3
|
|
|
—
|
|
Thereafter
|
25.3
|
|
|
—
|
|
Total
|
$
|
103.2
|
|
|
$
|
5.3
|
|
Rental expense for operating leases totaled $32.2 million and gross payments of financing leases totaled $2.5 million in fiscal year 2018.
As of December 28, 2019, the Company had $2.3 million of operating leases not yet commenced but are expected to commence in 2020 with a term of one year to four years.
|
|
Note 6:
|
Accrued and Other Liabilities
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
Income taxes payable
|
$
|
25.1
|
|
|
$
|
46.6
|
|
Compensation and employee benefits
|
51.5
|
|
|
56.0
|
|
Advertising, promotion and returns
|
42.4
|
|
|
41.3
|
|
Taxes other than income taxes
|
23.7
|
|
|
21.7
|
|
Pensions
|
2.5
|
|
|
11.8
|
|
Post-retirement benefits
|
1.2
|
|
|
1.3
|
|
Operating lease liability
|
29.2
|
|
|
—
|
|
Dividends payable
|
—
|
|
|
33.1
|
|
Foreign currency contracts
|
19.6
|
|
|
22.6
|
|
Re-engineering
|
17.1
|
|
|
23.3
|
|
Other
|
78.0
|
|
|
86.7
|
|
Total accrued liabilities
|
$
|
290.3
|
|
|
$
|
344.4
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
Post-retirement benefits
|
$
|
11.4
|
|
|
$
|
11.3
|
|
Pensions
|
118.2
|
|
|
105.7
|
|
Income taxes
|
9.7
|
|
|
15.1
|
|
Deferred income tax
|
3.3
|
|
|
7.3
|
|
Other
|
49.7
|
|
|
42.1
|
|
Total other liabilities
|
$
|
192.3
|
|
|
$
|
181.5
|
|
|
|
Note 7:
|
Goodwill and Intangible Assets
|
The Company's goodwill and intangible assets relate primarily to the December 2005 acquisition of the direct selling businesses of Sara Lee Corporation. Refer to Note 1 for the annual process for evaluating goodwill and intangible assets for impairment.
In the third quarters of 2019 and 2018, the Company completed the annual assessments for all of its reporting units and indefinite-lived intangible assets, concluding $19.7 million impairment existed as of the third quarter 2019, mainly for the impairment of goodwill associated with the Fuller Mexico beauty and personal care products business in the amount of $17.5 million. This was a triggering event to assess the recoverability of the Fuller tradename, which concluded no impairment as of the third quarter of 2019 based on actual and forecasted results of the units which support the Fuller tradename value.
The Nutrimetics tradename was also impaired by $2.2 million due to declining sales trends, leaving a $3.5 million carrying value as of September 28, 2019. There were no impairments in 2018.
The impairment evaluation of the goodwill associated with the Fuller Mexico reporting unit involved comparing the fair value of the reporting unit to its carrying value, including the goodwill balance, after consideration of impairment to its long-lived assets. There were no impairments of any long-lived assets. The fair value analysis for Fuller Mexico was completed using the income approach, which was considered a Level 3 measurement within the fair value hierarchy. The significant assumptions used in the income approach included estimates regarding future operations and the ability to generate cash flows, including projections of revenue, costs, utilization of assets and capital requirements. The income approach, or discounted cash flow approach, also requires an estimate as to the appropriate discount rate to be used. The most sensitive estimate in this valuation is the projection of operating cash flows, as these provide the basis for the estimate of fair market value. The Company’s cash flow model used a forecast period of ten years with annual revenue growth rates ranging from negative eight percent to positive four percent, a compound average growth rate of 0.2 percent, and a 2.5 percent growth rate used in calculating the terminal value. The discount rate used was 14.9 percent. The growth rates were determined by reviewing historical results of the operating unit and the historical results of the Company’s other similar business units, along with the expected contribution from growth strategies being implemented. As the fair value of Fuller Mexico was less than the carrying value by more than the recorded goodwill balance, the remaining balance of goodwill recorded at Fuller Mexico was written off.
In the fourth quarter of 2019, as part of the on-going assessment of goodwill and intangible assets, the Company noted that the financial performance of the units selling Fuller products had fallen below their previous trend lines and it concluded that they would fall significantly short of previous expectations. Sales further declined in the fourth quarter of 2019 and margins significantly declined from third to fourth quarter resulting in an approximate 30 percent decrease in margins in the forecasted period. This significant impact to margins also impacted the royalty rate which was reduced from the rate utilized in the third quarter of 2019. These declines in the financial performance were deemed to be a triggering event and a test for recoverability and impairment was performed over the definite-lived intangible asset which included comparing the sum of the estimated undiscounted future cash flows attributable to the Fuller tradename to its carrying value. The result of the impairment test was to record a $20.3 million impairment to the Fuller tradename included in the impairment of goodwill and intangible assets caption of the Company's Consolidated Statements of Income. As the units that sell Fuller products are in different geographical areas, impairments of $6.0 million, $13.6 million and $0.7 million were recorded for the Asia Pacific, North America and South America segments, respectively. The Fuller tradename carrying value was $6.5 million as of December 28, 2019.
Amortization expense related to all intangible assets, most significantly at Fuller Mexico, was $7.2 million, $7.6 million and $7.9 million in 2019, 2018 and 2017, respectively. The estimated annual amortization expense associated with intangibles is $1.8 million annually in 2020 through 2022 and $1.2 million in 2023.
The following table reflects gross goodwill and accumulated impairments allocated to each reporting segment at December 28, 2019, December 29, 2018 and December 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Europe
|
|
Asia Pacific
|
|
North America
|
|
South America
|
|
Total
|
Gross goodwill balance at December 30, 2017
|
$
|
29.9
|
|
|
$
|
78.1
|
|
|
$
|
134.9
|
|
|
$
|
3.6
|
|
|
$
|
246.5
|
|
Effect of changes in exchange rates
|
(0.7
|
)
|
|
(1.1
|
)
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
(2.8
|
)
|
Gross goodwill balance at December 29, 2018
|
29.2
|
|
|
77.0
|
|
|
134.4
|
|
|
3.1
|
|
|
243.7
|
|
Effect of changes in exchange rates
|
0.1
|
|
|
0.1
|
|
|
1.0
|
|
|
(0.3
|
)
|
|
0.9
|
|
Gross goodwill balance at December 28, 2019
|
$
|
29.3
|
|
|
$
|
77.1
|
|
|
$
|
135.4
|
|
|
$
|
2.8
|
|
|
$
|
244.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Europe
|
|
Asia Pacific
|
|
North America
|
|
South America
|
|
Total
|
Cumulative impairments as of December 30, 2017
|
$
|
24.5
|
|
|
$
|
41.3
|
|
|
$
|
101.8
|
|
|
$
|
—
|
|
|
$
|
167.6
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative impairments as of December 29, 2018
|
24.5
|
|
|
41.3
|
|
|
101.8
|
|
|
—
|
|
|
167.6
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
17.5
|
|
|
—
|
|
|
17.5
|
|
Cumulative impairments as of December 28, 2019
|
$
|
24.5
|
|
|
$
|
41.3
|
|
|
$
|
119.3
|
|
|
$
|
—
|
|
|
$
|
185.1
|
|
The gross carrying amount and accumulated amortization of the Company's intangible assets, other than goodwill, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
(In millions)
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived tradenames
|
$
|
18.2
|
|
|
$
|
—
|
|
|
$
|
18.2
|
|
Definite-lived tradename
|
53.3
|
|
|
46.9
|
|
|
6.4
|
|
Total intangible assets
|
$
|
71.5
|
|
|
$
|
46.9
|
|
|
$
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2018
|
(In millions)
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived tradenames
|
$
|
20.3
|
|
|
$
|
—
|
|
|
$
|
20.3
|
|
Definite-lived tradename
|
70.5
|
|
|
37.9
|
|
|
32.6
|
|
Total intangible assets
|
$
|
90.8
|
|
|
$
|
37.9
|
|
|
$
|
52.9
|
|
A summary of the identifiable intangible asset account activity is as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
|
(In millions)
|
December 28,
2019
|
|
December 29,
2018
|
Beginning balance
|
$
|
90.8
|
|
|
$
|
94.2
|
|
Impairment of intangible assets
|
(22.5
|
)
|
|
—
|
|
Effect of changes in exchange rates
|
3.2
|
|
|
(3.4
|
)
|
Ending balance
|
$
|
71.5
|
|
|
$
|
90.8
|
|
|
|
Note 8:
|
Financing Obligations
|
Debt Obligations
Debt obligations consisted of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
Fixed rate Senior Notes due 2021
|
$
|
599.8
|
|
|
$
|
599.7
|
|
Five-year Revolving Credit Agreement
|
272.0
|
|
|
283.9
|
|
Belgium facilities capital leases
|
3.6
|
|
|
5.3
|
|
Total debt obligations
|
875.4
|
|
|
888.9
|
|
Less current portion
|
(273.2
|
)
|
|
(285.5
|
)
|
Long-term debt and capital lease obligations
|
$
|
602.2
|
|
|
$
|
603.4
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
2019
|
|
2018
|
Total short-term borrowings at year-end
|
$
|
272.0
|
|
|
$
|
283.9
|
|
Weighted average interest rate at year-end
|
2.1
|
%
|
|
2.3
|
%
|
Average short-term borrowings during the year
|
$
|
422.8
|
|
|
$
|
364.6
|
|
Weighted average interest rate for the year
|
2.7
|
%
|
|
2.6
|
%
|
Maximum short-term borrowings during the year
|
$
|
548.9
|
|
|
$
|
509.9
|
|
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. Whether the Company will be able to repay or refinance, if at all, the Senior Notes will depend on market conditions and the Company’s financial performance.
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 percent 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, plus accrued interest to the redemption date.
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 28, 2019, the Company was in compliance with all of its covenants.
Credit Agreement
On March 29, 2019, the Company and its wholly owned subsidiaries Tupperware Nederland B.V., Administradora Dart, S. de R.L. de C.V., and Tupperware Brands Asia Pacific Pte. Ltd. (the “Subsidiary Borrowers”), amended and restated its multicurrency Credit Agreement, amended by Amendment No. 1 dated August 28, 2019 (so as amended, the "Credit Agreement"), with JPMorgan Chase Bank, N.A. as administrative agent (the “Administrative Agent”), swingline lender, joint lead arranger and joint bookrunner, and Credit Agricole Corporate and Investment Bank, HSBC Securities (USA) Inc., Mizuho Bank, Ltd. and Wells Fargo Securities, LLC, as syndication agents, joint lead arrangers and joint bookrunners. The Credit Agreement replaces the credit agreement dated September 11, 2013 and as amended (the “Old Credit Agreement”) and, other than an increased aggregate amount that may be borrowed, an improvement in the consolidated leverage ratio covenant and a slightly more favorable commitment fee rate, has terms and conditions similar to that of the Old Credit Agreement. The Credit Agreement makes available to the Company and the Subsidiary Borrowers a committed five-year credit facility in an aggregate amount of $650 million (the “Facility Amount”). The Credit Agreement provides (i) a revolving credit facility, available up to the full amount of the Facility Amount, (ii) a letter of credit facility, available up to $50 million of the Facility Amount, and (iii) a swingline facility, available up to $100 million of the Facility Amount. Each of such facilities is fully available to the Company and the Facility Amount is available to the Subsidiary Borrowers up to an aggregate amount not to exceed $325 million. With the agreement of its lenders, 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 $850 million), subject to certain conditions. As of December 28, 2019, the Company had total borrowings of $272.0 million outstanding under its Credit Agreement, with $174.9 million of that amount denominated in Euro. 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 temporarily 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 will be composed of (i) “Eurocurrency Borrowings”, bearing interest determined in reference to the London interbank offered rate ("LIBOR") or the EURIBOR rate for the applicable currency and interest period, plus a margin, and/or (ii) “ABR Borrowings”, bearing interest at the sum of (A) the greatest of (x) the Prime Rate, (y) the NYFRB rate plus 0.5 percent, and (z) adjusted LIBOR on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in U.S. dollars with a maturity of one month plus 1 percent, and (B) a margin. The applicable margin in each case will be determined by reference to a pricing schedule and will be based upon the better for the Company of (a) the Consolidated Leverage Ratio (computed as 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) for the fiscal quarter referred to in the quarterly or annual financial statements most recently delivered, 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. Under the Credit Agreement, the applicable margin for ABR Borrowings ranges from 0.375 percent to 0.875 percent, the applicable margin for Eurocurrency Borrowings ranges from 1.375 percent to 1.875 percent, and the applicable margin for the commitment fee ranges from 0.150 percent to 0.275 percent. Loans made under the swingline facility will bear interest, if denominated in U.S. Dollars, at the same rate as an ABR Borrowing and, if denominated in another currency, at the same rate as a Eurocurrency Borrowing. As of December 28, 2019, 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 2.10 percent on borrowings under the Credit Agreement that has a final maturity date of March 29, 2024.
Similar to the Old 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 certain liquidations or dissolutions, engage in certain mergers or consolidations, or change lines of business. These covenants are subject to significant exceptions and qualifications.
On February 28, 2020, the Company amended the Credit Agreement (the “Amendment”) in order to modify certain provisions, including the required Consolidated Leverage Ratio. Previously, the Company had to maintain at specified measurement periods a Consolidated Leverage Ratio that was not greater than or equal to 3.75 to 1.00. Following the Amendment, the Company is required to maintain at the last day of each quarterly measurement period a Consolidated Leverage Ratio not greater than or equal to the ratio as set forth below opposite the period that includes such day (or, if such day does not end on the last day of the calendar quarter, that includes the last day of the calendar quarter that is nearest to such day):
|
|
|
Period
|
Consolidated Leverage Ratio
|
From the Amendment No. 2 effective date to and including June 27, 2020
|
5.75 to 1.00
|
September 26, 2020
|
5.25 to 1.00
|
December 26, 2020
|
4.50 to 1.00
|
March 27, 2021
|
4.00 to 1.00
|
June 26, 2021 and thereafter
|
3.75 to 1.00
|
The Amendment also eliminated the requirement that a Non-Investment Grade Ratings Event must occur before the Company is required to cause the Additional Guarantee and Collateral Requirement to be satisfied, each term, as defined in the Amendment. As a result, the Company is now required to cause certain of its domestic subsidiaries to become guarantors and the Company and certain of its domestic subsidiaries are required to pledge additional collateral.
For purposes of the Credit Agreement, consolidated EBITDA represents earnings before interest, income taxes, depreciation and amortization, as adjusted to exclude unusual, non-recurring gains as well as non-cash charges and certain other items. As of December 28, 2019, and currently, the Company was in compliance with the financial covenants in the Credit Agreement. Had the Credit Agreement not been amended, the Company may have exceeded the Consolidated Leverage Ratio for the four fiscal quarters ending in March 2020. This would have constituted an Event of Default, potentially resulting in a cross default under cross-default provisions with respect to other of our debt obligations, giving the lenders the ability to terminate the revolving commitments, accelerate outstanding amounts under the Credit Agreement, exercise certain remedies relating to the collateral securing the Credit Agreement and require the Company to post cash collateral for all outstanding letters of credit. In addition to the relief provided in the Amendment, the Company has reduced certain operating expenses beginning in 2020 and could use available cash to make debt repayments to lower its Consolidated Leverage Ratio.
Under the Credit Agreement and consistent with the Old Credit Agreement, the Guarantor unconditionally guarantees all obligations and liabilities of the Company and the Subsidiary Borrowers relating to the Credit Agreement, supported by a security interest in certain "Tupperware" trademarks and service marks. The Amendment eliminated the requirement that a Non-Investment Grade Ratings Event, as defined therein, must occur before the Company is required to cause the Additional Guarantee and Collateral Requirement to be satisfied, each term, defined in the Amendment. Pursuant to the Amendment, the Company is required to cause certain of its domestic subsidiaries to become guarantors and the Company and certain of its domestic subsidiaries to pledge additional collateral.
At December 28, 2019, the Company had $458.5 million of unused lines of credit, including $376.6 million under the committed, secured Credit Agreement, and $81.9 million available under various uncommitted lines around the world. Interest paid on total debt in 2019, 2018 and 2017 was $40.7 million, $45.2 million and $47.6 million, respectively. The 2018 and 2017 payments included forward points on foreign currency contracts.
Contractual Maturities
Contractual maturities for debt obligations at December 28, 2019 are summarized by year as follows (in millions):
|
|
|
|
|
Year ending:
|
Amount
|
December 26, 2020
|
$
|
273.2
|
|
December 25, 2021
|
601.2
|
|
December 31, 2022
|
1.0
|
|
Total
|
$
|
875.4
|
|
Finance 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 finance 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 finance 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 finance lease obligations at December 28, 2019 and December 29, 2018:
|
|
|
|
|
|
|
|
|
(In millions)
|
December 28,
2019
|
|
December 29,
2018
|
Gross payments
|
$
|
3.8
|
|
|
$
|
5.8
|
|
Less imputed interest
|
0.2
|
|
|
0.5
|
|
Total finance lease obligation
|
3.6
|
|
|
5.3
|
|
Less current maturity
|
1.3
|
|
|
1.6
|
|
Finance lease obligation - long-term portion
|
$
|
2.3
|
|
|
$
|
3.7
|
|
|
|
Note 9:
|
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, 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 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, as of the beginning of 2019, the Company made the accounting policy election in accordance with ASU 2017-12 to exclude forward points and record their impact in the same income statement line item that is used to present the earnings effect of the hedged item for 2019, Other (income) expense. Prior to 2019, the forward points had been included as a component of interest expense. The forward points on fair value hedges resulted in pretax income of $17.5 million, $19.8 million and $22.6 million for 2019, 2018 and 2017, 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. The majority of cash flow hedge contracts that the Company enters into relate to inventory purchases. At initiation, the Company's cash flow hedge contracts are generally for periods ranging from one month to fifteen months. The effective portion of the gain or loss on the open hedging instrument is recorded in other comprehensive income and is reclassified into earnings when settled through the same line item as the transaction being hedged. 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 within the next twelve months. The associated asset or liability on the open hedges is recorded in other current assets or accrued liabilities, as applicable. In assessing hedge effectiveness, the Company made an accounting policy change as of December 30, 2018 to include forward points in the assessment of effectiveness for cash flow hedges causing the impact from forward points to be recorded as part of other comprehensive income compared to interest expense as it previously had been recorded. Based on the interest expense incurred for open cash flow hedges as of December 30, 2018, the Company recorded an adjustment of $1.2 million, net of taxes, to accumulated comprehensive income and retained earnings to reflect this accounting policy change. There was an immaterial impact from forward points recorded in other comprehensive income for activity related to 2019. The Company recognized $4.1 million of negative manufacturing variances that will be capitalized and amortized over actual months of inventory turns related to the forward point impact from the settlement of cash flow hedges in 2019. The balance in accumulated other comprehensive (loss), net of tax, resulting from open foreign currency hedges designated as cash flow hedges was a deferred loss of $2.4 million, and a deferred gain of $1.7 million and $1.6 million as of December 28, 2019, December 29, 2018 and December 30, 2017, respectively. In 2019, 2018 and 2017, the Company recorded in other comprehensive (loss), net of tax, a net loss of $2.9 million, a net gain of $0.1 million and a net loss of $3.3 million, respectively, which represents the net change to accumulated other comprehensive income on the Company's balance sheet related to this type of hedges.
The Company also uses financial instruments, such as forward contracts and certain euro denominated borrowings under its 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 $22.5 million, gain of $23.7 million and loss of $21.2 million associated with these hedges in 2019, 2018 and 2017, 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 made an accounting policy change as of December 30, 2018 to include forward points in the assessment of effectiveness for net equity hedges causing the impact from forward points to be recorded as part of other comprehensive income compared to interest expense as it previously had been recorded. The impact of forward points is being recorded in other comprehensive income, and will remain there indefinitely since that is where the gains and losses on hedges of net equity are recorded. Based on the interest expense associated with forward points incurred for open net equity hedges as of December 30, 2018, the Company recorded an adjustment of $3.8 million, net of taxes, to accumulated comprehensive income and retained earnings to reflect this accounting policy change. The impact related to forward points on hedges of net equity recorded as a component of other comprehensive income in 2019 were losses of $18.3 million.
The net cash flow impact from hedging activity for 2019, 2018 and 2017 was outflow of $2.3 million and inflows of $2.9 million and $0.1 million, respectively.
The Company considers the total notional value of its forward contracts as the best measure of the volume of derivative transactions. As of December 28, 2019 and December 29, 2018, the notional amounts of outstanding forward contracts to purchase currencies were $137.7 million and $186.8 million, respectively, and the notional amounts of outstanding forward contracts to sell currencies were $143.5 million and $184.6 million, respectively. As of December 28, 2019, the notional values of the largest positions outstanding were to purchase $72.5 million of U.S. dollars and $56.6 million of euros and to sell $50.3 million of Swiss francs and $31.9 million of Mexican pesos.
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 28, 2019 and December 29, 2018. 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
|
|
2019
|
|
2018
|
|
Balance sheet location
|
|
2019
|
|
2018
|
Foreign exchange contracts
|
|
Non-trade amounts receivable
|
|
$
|
16.0
|
|
|
$
|
26.7
|
|
|
Accrued liabilities
|
|
$
|
19.8
|
|
|
$
|
22.6
|
|
The following table summarizes the impact on the results of operations for the years ended December 28, 2019, December 29, 2018 and December 30, 2017 for the components included in the hedge effectiveness assessment of the Company's fair value hedging positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (loss) or gain recognized in
income on related
hedged items
|
|
Amount of (loss) or gain
recognized in income on
related hedged items
|
|
|
|
|
2019
|
2018
|
2017
|
|
|
|
2019
|
2018
|
2017
|
Foreign exchange contracts
|
|
Other expense
|
|
$
|
9.6
|
|
$
|
(21.9
|
)
|
$
|
17.2
|
|
|
Other expense
|
|
|
($9.6
|
)
|
|
$21.6
|
|
|
($17.1
|
)
|
The following table summarizes the impact of Company's hedging activities on comprehensive income for the years ended December 28, 2019, December 29, 2018 and December 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow and net equity hedges (in millions)
|
|
Amount of (loss) or gain recognized in OCI on derivatives (effective portion)
|
|
Location of (loss) or gain reclassified from accumulated OCI into income (effective portion)
|
|
Amount of (loss) or gain reclassified from accumulated OCI into income (effective portion)
|
|
Location of loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
|
|
Amount of loss recognized in income on derivatives (ineffective portion and amounts excluded from effectiveness testing)
|
Cash flow hedging relationships
|
|
2019
|
2018
|
2017
|
|
|
|
2019
|
2018
|
2017
|
|
|
|
2019
|
2018
|
2017
|
Foreign exchange contracts
|
|
$
|
(6.3
|
)
|
$
|
6.9
|
|
$
|
(2.7
|
)
|
|
Cost of products sold
|
|
$
|
(3.1
|
)
|
$
|
6.9
|
|
$
|
1.4
|
|
|
Interest expense
|
|
$
|
—
|
|
$
|
(4.1
|
)
|
$
|
(4.8
|
)
|
Net equity hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
(30.9
|
)
|
26.5
|
|
(21.6
|
)
|
|
|
|
|
|
|
|
Interest expense
|
|
—
|
|
(21.2
|
)
|
(26.0
|
)
|
Euro denominated debt
|
|
2.6
|
|
3.8
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loss was $3.8 million and gain was $4.1 million and $2.6 million at December 28, 2019, December 29, 2018 and December 30, 2017, respectively, and was 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 10:
|
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 28, 2019 and December 29, 2018. The Company estimates that, based on current market conditions, the value of its 4.75%, 2021 senior notes was $605.8 million at December 28, 2019, compared with the carrying value of $599.8 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 9 to the Consolidated Financial Statements for discussion of the Company's derivative instruments and related fair value measurements.
|
|
Note 11:
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, net of tax)
|
Foreign Currency Items
|
|
Cash Flow Hedges
|
|
Pension and Other Post-retirement Items
|
|
Total
|
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
|
)
|
Cumulative effect of change in Accounting Principle
|
(24.2
|
)
|
|
—
|
|
|
—
|
|
|
(24.2
|
)
|
Other comprehensive income (loss) before reclassifications
|
(53.0
|
)
|
|
5.4
|
|
|
3.6
|
|
|
(44.0
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(5.3
|
)
|
|
0.8
|
|
|
(4.5
|
)
|
Net other comprehensive income (loss)
|
(53.0
|
)
|
|
0.1
|
|
|
4.4
|
|
|
(48.5
|
)
|
December 29, 2018
|
$
|
(579.1
|
)
|
|
$
|
1.7
|
|
|
$
|
(24.7
|
)
|
|
$
|
(602.1
|
)
|
Cumulative effect of change in Accounting Principle
|
(3.8
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
(5.0
|
)
|
Other comprehensive loss before reclassifications
|
(17.3
|
)
|
|
(5.1
|
)
|
|
(10.7
|
)
|
|
(33.1
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
2.2
|
|
|
(0.3
|
)
|
|
1.9
|
|
Net other comprehensive loss
|
(17.3
|
)
|
|
(2.9
|
)
|
|
(11.0
|
)
|
|
(31.2
|
)
|
December 28, 2019
|
$
|
(600.2
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
(35.7
|
)
|
|
$
|
(638.3
|
)
|
Pretax amounts reclassified from accumulated other comprehensive loss that related to cash flow hedges consisted of net loss of $3.1 million and gains of $6.9 million and $1.4 million in 2019, 2018 and 2017, respectively. Associated with these items were a tax benefit of $0.9 million and tax provisions of $1.6 million and $0.6 million in 2019, 2018 and 2017, respectively. See Note 9 for further discussion of derivatives.
In 2019, 2018 and 2017, pretax amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items consisted of prior service benefits of $1.3 million, $0.7 million and $1.3 million, respectively, and pension settlement costs of $0.7 million, $1.3 million and $1.0 million, respectively, and actuarial losses of $0.3 million, $0.2 million and $2.0 million, respectively. Associated with these items was a tax benefit of $0.5 million in 2017. There was no tax amount associated with these items in 2019 and 2018. See Note 14 for further discussion of pension and other post-retirement benefit costs.
|
|
Note 12:
|
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 2019, 2018 and 2017, 44,131, 32,445 and 40,777 shares, respectively, were retained to fund withholding taxes, with values totaling $0.9 million, $1.5 million and $2.5 million, respectively, which were included as stock repurchases in the Consolidated Statements of Cash Flows.
Restricted cash is not material and is recorded in either prepaid and other current assets or in long-term other assets.
For income tax purposes, the domestic and foreign components of income (loss) before taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Domestic
|
$
|
(44.9
|
)
|
|
$
|
(54.2
|
)
|
|
$
|
(76.2
|
)
|
Foreign
|
148.3
|
|
|
330.4
|
|
|
261.3
|
|
Total
|
$
|
103.4
|
|
|
$
|
276.2
|
|
|
$
|
185.1
|
|
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 provisions for current and deferred income taxes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
United States
|
$
|
6.8
|
|
|
$
|
13.2
|
|
|
$
|
25.6
|
|
International
|
71.7
|
|
|
80.8
|
|
|
136.9
|
|
State and local
|
0.9
|
|
|
(1.0
|
)
|
|
2.1
|
|
|
79.4
|
|
|
93.0
|
|
|
164.6
|
|
Deferred:
|
|
|
|
|
|
United States
|
(7.9
|
)
|
|
26.1
|
|
|
312.9
|
|
International
|
18.4
|
|
|
1.7
|
|
|
(25.6
|
)
|
State and local
|
1.1
|
|
|
(0.5
|
)
|
|
(1.4
|
)
|
|
11.6
|
|
|
27.3
|
|
|
285.9
|
|
Total
|
$
|
91.0
|
|
|
$
|
120.3
|
|
|
$
|
450.5
|
|
A reconciliation of the provision for income taxes and income taxes computed using the U.S. federal statutory rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
|
2017
|
Amount computed using statutory rate
|
$
|
21.7
|
|
|
$
|
58.0
|
|
|
$
|
64.8
|
|
Increase (reduction) in taxes resulting from:
|
|
|
|
|
|
Foreign direct taxes in excess of credits
|
8.2
|
|
|
(10.1
|
)
|
|
(5.8
|
)
|
Foreign rate differential
|
30.4
|
|
|
(8.3
|
)
|
|
14.3
|
|
Foreign-derived intangible income, benefit
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
GILTI, net of credits
|
9.8
|
|
|
10.9
|
|
|
—
|
|
Impact of changes in U.S. tax legislation
|
(22.2
|
)
|
|
39.6
|
|
|
375.0
|
|
Other changes in valuation allowances for deferred tax assets
|
45.6
|
|
|
36.2
|
|
|
5.3
|
|
Impact of equity based compensation
|
2.8
|
|
|
0.6
|
|
|
—
|
|
Foreign and domestic tax audit settlement and adjustments
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
Other
|
(3.6
|
)
|
|
(6.6
|
)
|
|
(0.6
|
)
|
Total
|
$
|
91.0
|
|
|
$
|
120.3
|
|
|
$
|
450.5
|
|
The effective tax rates for 2019, 2018 and 2017 were 87.9 percent, 43.6 percent and 243.4 percent, respectively. In 2019, the effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was higher than the U.S. statutory rate due to continued negative impacts from the tax reform provisions such as GILTI inclusions, interest deduction limitations, a jurisdictional mix of offshore earnings in countries with statutory tax rates higher than the U.S. and certain valuation allowances that were booked against existing deferred tax assets in 2019. The effective tax rates for 2018 and 2017 are higher than the U.S. statutory rate which reflect the various impacts of the Tax Cuts and Jobs Act of 2017 (“the Tax Act”).
In accordance with U.S. GAAP, the Company made the accounting policy election to treat GILTI as a current period expense starting in fiscal year 2018. Therefore, the Company has not provided any deferred tax impacts of GILTI in the Consolidated Financial Statements. The Company recognized $16.9 million and $10.9 million of tax cost associated with GILTI ( before credits) for the years ended December 28, 2019 and December 29, 2018, respectively. The expense recorded in 2018 did not significantly change due to the U.S. Treasury issuance of final regulations.
The Company also completed a comprehensive analysis of the foreign-derived intangible income (“FDII”) based on additional guidance provided in the proposed regulations issued by the U.S. Treasury Department in 2018. FDII activity for the year ended December 28, 2019 resulted in a benefit of $1.7 million.
The components of deferred income tax assets (liabilities) were as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
2019
|
|
2018
|
Purchased intangibles
|
$
|
(9.1
|
)
|
|
$
|
(17.4
|
)
|
Lease Liabilities
|
(22.7
|
)
|
|
—
|
|
Other
|
(0.8
|
)
|
|
(1.6
|
)
|
Gross deferred tax liabilities
|
(32.6
|
)
|
|
(19.0
|
)
|
Credit and net operating loss carry forwards (net of unrecognized tax benefits)
|
296.3
|
|
|
314.2
|
|
Employee benefits accruals
|
45.5
|
|
|
45.5
|
|
Deferred costs
|
39.5
|
|
|
35.1
|
|
Fixed assets basis differences
|
19.9
|
|
|
18.6
|
|
Capitalized intangibles
|
21.7
|
|
|
19.1
|
|
Other accruals
|
56.6
|
|
|
62.0
|
|
Accounts receivable
|
14.5
|
|
|
1.3
|
|
Post-retirement benefits
|
3.3
|
|
|
3.4
|
|
Depreciation
|
5.5
|
|
|
9.4
|
|
Lease Assets
|
22.7
|
|
|
—
|
|
Inventory
|
5.6
|
|
|
4.7
|
|
Gross deferred tax assets
|
531.1
|
|
|
513.3
|
|
Valuation allowances
|
(315.6
|
)
|
|
(284.6
|
)
|
Net deferred tax assets
|
$
|
182.9
|
|
|
$
|
209.7
|
|
At December 28, 2019, the Company had gross federal, state, and international tax operating losses of $0 million, $10.8 million and $440.8 million, respectively. These tax loss carryforwards have expiration dates ranging between one year and no expiration in certain instances. The estimated gross foreign tax credit carryforwards for 2019 and 2018 are $189.5 million and $193.5 million, respectively. These credit carryforwards have expirations ranging from one to ten years.
At December 28, 2019 and December 29, 2018, the Company had valuation allowances against certain deferred tax assets, including the tax loss and credit carryforwards mentioned above, totaling $315.6 million and $284.6 million, respectively. The increase in valuation allowance was primarily associated with booking a full reserve against the foreign tax credits, the interest expense carryforwards created by the Tax Act, and net operating losses. These valuation allowances relate to tax assets in jurisdictions where it is management's best estimate that there is not a greater than 50 percent probability that the benefit of the assets will be realized in the associated tax returns.
As of December 28, 2019 the Company has approximately $2.0 billion of cumulative undistributed earnings of its non-U.S. subsidiaries. The Tax Act imposed a mandatory transition tax on accumulated foreign earnings and generally eliminated U.S. taxes on foreign subsidiary distribution with the exception of foreign withholding taxes and other foreign local tax. The Company generally does not provide for taxes related to our undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. If in the foreseeable future, the Company can no longer demonstrate that these earnings are indefinitely reinvested, a deferred tax liability will be recognized. As of December 28, 2019, the Company has recorded a deferred tax liability of $8.8 million on $178.3 million of earnings it has deemed to not be permanently reinvested. A determination of the amount of the unrecognized deferred tax liability related to other undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.
As of December 28, 2019 and December 29, 2018, the Company's accrual for uncertain tax positions was $13.5 million and $15.1 million, respectively. The Company estimates that approximately $13.2 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)
|
2019
|
|
2018
|
|
2017
|
Balance, beginning of year
|
$
|
15.1
|
|
|
$
|
19.8
|
|
|
$
|
20.7
|
|
Additions based on tax positions related to the current year
|
1.1
|
|
|
2.2
|
|
|
3.6
|
|
Additions for tax positions of prior year
|
3.0
|
|
|
0.5
|
|
|
2.2
|
|
Reduction for tax positions of prior years
|
(2.4
|
)
|
|
(3.4
|
)
|
|
(3.0
|
)
|
Settlements
|
(3.0
|
)
|
|
—
|
|
|
(1.2
|
)
|
Reductions for lapse in statute of limitations
|
(0.3
|
)
|
|
(3.6
|
)
|
|
(3.7
|
)
|
Impact of foreign currency rate changes versus the U.S. dollar
|
—
|
|
|
(0.4
|
)
|
|
1.2
|
|
Balance, end of year
|
$
|
13.5
|
|
|
$
|
15.1
|
|
|
$
|
19.8
|
|
In evaluating uncertain tax positions, the Company makes determinations regarding the application of complex tax rules, regulations and practices. Uncertain tax positions are evaluated based on many factors including but not limited to changes in tax laws, new developments and the impact of tax audit settlements on future periods.
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. The Company had accrued $4.0 million for the potential payment of interest and penalties as of December 28, 2019 and $4.0 million of this total could favorably impact future tax rates. The Company had accrued $5.5 million for the potential payment of interest and penalties as of December 29, 2018 and $5.5 million of this total could favorably impact future tax rates if recognized and released.
The Company operates globally and files income tax returns in the United States with federal and various state agencies, and in foreign jurisdictions. The Company paid income taxes in 2019, 2018 and 2017 of $98.9 million, $124.5 million and $123.3 million, respectively. The Company has a foreign subsidiary which receives a tax holiday that expires in 2020. The net benefit of this and other previous tax holidays was $0.1 million, $0.3 million and $0.7 million in 2019, 2018 and 2017, respectively.
In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is currently under examination or contesting proposed adjustments by various state and international tax authorities for fiscal years ranging from 2004 through 2018. It is reasonably possible that there could be a significant decrease or increase to the unrecognized tax benefit balance during the course of the next twelve months as these examinations continue, other tax examinations commence or various statutes of limitations expire. 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. An estimate of the range of possible changes cannot be made for remaining unrecognized tax benefits because of the significant number of jurisdictions in which the Company does business and the number of open tax periods.
|
|
Note 14:
|
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)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
45.5
|
|
|
$
|
50.7
|
|
|
$
|
12.6
|
|
|
$
|
15.2
|
|
|
$
|
178.3
|
|
|
$
|
194.9
|
|
Service cost
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
7.3
|
|
|
8.4
|
|
Interest cost
|
1.6
|
|
|
1.6
|
|
|
0.5
|
|
|
0.5
|
|
|
4.4
|
|
|
3.8
|
|
Actuarial (gain) loss
|
4.6
|
|
|
(3.7
|
)
|
|
0.8
|
|
|
(1.7
|
)
|
|
17.5
|
|
|
(6.8
|
)
|
Benefits paid
|
(0.9
|
)
|
|
(0.8
|
)
|
|
(1.4
|
)
|
|
(1.4
|
)
|
|
(4.5
|
)
|
|
(7.5
|
)
|
Impact of exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
(1.2
|
)
|
|
(4.8
|
)
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
0.9
|
|
Settlements/Curtailments (a)
|
(11.8
|
)
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
(10.1
|
)
|
|
(10.6
|
)
|
Ending balance
|
$
|
39.0
|
|
|
$
|
45.5
|
|
|
$
|
12.6
|
|
|
$
|
12.6
|
|
|
$
|
192.7
|
|
|
$
|
178.3
|
|
Change in plan assets at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
24.4
|
|
|
$
|
29.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81.9
|
|
|
$
|
87.7
|
|
Actual return on plan assets
|
6.4
|
|
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
(3.1
|
)
|
Company contributions
|
10.9
|
|
|
0.7
|
|
|
1.4
|
|
|
1.4
|
|
|
8.8
|
|
|
11.2
|
|
Plan participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
0.9
|
|
Benefits and expenses paid
|
(1.3
|
)
|
|
(1.2
|
)
|
|
(1.4
|
)
|
|
(1.4
|
)
|
|
(4.5
|
)
|
|
(7.5
|
)
|
Impact of exchange rates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
(1.7
|
)
|
Settlements
|
(11.8
|
)
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
(10.1
|
)
|
|
(5.6
|
)
|
Ending balance
|
$
|
28.6
|
|
|
$
|
24.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82.6
|
|
|
$
|
81.9
|
|
Funded status of plans
|
$
|
(10.4
|
)
|
|
$
|
(21.1
|
)
|
|
$
|
(12.6
|
)
|
|
$
|
(12.6
|
)
|
|
$
|
(110.1
|
)
|
|
$
|
(96.4
|
)
|
|
|
(a)
|
Includes $5.0 million pension obligations replaced by severance obligations to be paid as part of the 2018 closure of the supply chain facility in France. See Note 2 for discussion of re-engineering charges.
|
Amounts recognized in the balance sheet consisted of:
|
|
|
|
|
|
|
|
|
(In millions)
|
December 28,
2019
|
|
December 29,
2018
|
Accrued benefit liability
|
$
|
(133.1
|
)
|
|
$
|
(130.1
|
)
|
Accumulated other comprehensive loss (pretax)
|
49.8
|
|
|
35.3
|
|
Items not yet recognized as a component of pension expense as of December 28, 2019 and December 29, 2018 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
(In millions)
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
Transition obligation
|
$
|
2.0
|
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
—
|
|
Prior service cost (benefit)
|
2.0
|
|
|
(3.4
|
)
|
|
2.1
|
|
|
(4.7
|
)
|
Net actuarial loss (gain)
|
50.3
|
|
|
(1.1
|
)
|
|
37.4
|
|
|
(1.9
|
)
|
Accumulated other comprehensive loss (income) pretax
|
$
|
54.3
|
|
|
$
|
(4.5
|
)
|
|
$
|
41.9
|
|
|
$
|
(6.6
|
)
|
Components of other comprehensive loss (income) for the years ended December 28, 2019 and December 29, 2018 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
(In millions)
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
|
Pension
Benefits
|
|
Post-retirement
Benefits
|
Net prior service cost
|
$
|
(0.1
|
)
|
|
$
|
1.3
|
|
|
$
|
0.9
|
|
|
$
|
1.3
|
|
Net actuarial loss (gain)
|
12.9
|
|
|
0.8
|
|
|
(4.9
|
)
|
|
(1.7
|
)
|
Impact of exchange rates
|
(0.4
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
Other comprehensive loss (income)
|
$
|
12.4
|
|
|
$
|
2.1
|
|
|
$
|
(4.4
|
)
|
|
$
|
(0.4
|
)
|
In 2020, the Company expects to recognize a prior service benefit of $1.5 million and a net actuarial loss of $3.0 million as components of pension and post-retirement expense.
The accumulated benefit obligation for all defined benefit pension plans at December 28, 2019 and December 29, 2018 was $206.4 million and $201.9 million, respectively. At December 28, 2019 and December 29, 2018, the accumulated benefit obligations of certain pension plans exceeded those respective plans' assets. For those plans, the accumulated benefit obligations were $177.9 million and $199.9 million, and the fair value of their assets was $82.4 million and $104.2 million as of December 28, 2019 and December 29, 2018, respectively. At December 28, 2019 and December 29, 2018, 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)
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost and expenses
|
$
|
7.3
|
|
|
$
|
8.4
|
|
|
$
|
10.4
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest cost
|
6.0
|
|
|
5.4
|
|
|
5.6
|
|
|
0.5
|
|
|
0.5
|
|
|
0.7
|
|
Return on plan assets
|
(4.1
|
)
|
|
(4.4
|
)
|
|
(4.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement/Curtailment
|
0.7
|
|
|
1.3
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employee contributions
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net deferral
|
0.3
|
|
|
0.8
|
|
|
2.0
|
|
|
(1.3
|
)
|
|
(1.3
|
)
|
|
(1.3
|
)
|
Net periodic benefit cost (income)
|
$
|
10.0
|
|
|
$
|
11.3
|
|
|
$
|
14.4
|
|
|
$
|
(0.7
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
(0.5
|
)
|
Weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate, net periodic benefit cost
|
4.3
|
%
|
|
3.3
|
%
|
|
3.8
|
%
|
|
4.3
|
%
|
|
3.5
|
%
|
|
4.0
|
%
|
Discount rate, benefit obligations
|
3.3
|
|
|
4.0
|
|
|
3.3
|
|
|
3.3
|
|
|
4.2
|
|
|
3.5
|
|
Return on plan assets
|
7.0
|
|
|
7.0
|
|
|
7.3
|
|
|
na
|
|
|
na
|
|
|
na
|
|
Salary growth rate, net periodic benefit cost
|
—
|
|
|
—
|
|
|
—
|
|
|
na
|
|
|
na
|
|
|
na
|
|
Salary growth rate, benefit obligations
|
—
|
|
|
—
|
|
|
—
|
|
|
na
|
|
|
na
|
|
|
na
|
|
Foreign plans
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
1.9
|
%
|
|
2.6
|
%
|
|
2.2
|
%
|
|
na
|
|
|
na
|
|
|
na
|
|
Return on plan assets
|
2.6
|
|
|
3.0
|
|
|
3.1
|
|
|
na
|
|
|
na
|
|
|
na
|
|
Salary growth rate
|
2.8
|
|
|
2.8
|
|
|
2.7
|
|
|
na
|
|
|
na
|
|
|
na
|
|
____________________
na 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 2019 was 7.0 percent and 2.6 percent, respectively, and 7.0 percent and 3.0 percent for 2018, 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 2019 was 3.3 percent and 1.9 percent, respectively, and 4.0 percent and 2.6 percent for 2018, respectively.
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 plan are more specifically outlined below.
The Company's weighted average asset allocations at December 28, 2019 and December 29, 2018, by asset category, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Asset category
|
U.S. plans
|
|
Foreign plans
|
|
U.S. plans
|
|
Foreign plans
|
Equity securities
|
64
|
%
|
|
29
|
%
|
|
61
|
%
|
|
25
|
%
|
Fixed income securities
|
36
|
|
|
18
|
|
|
39
|
|
|
17
|
|
Cash and money market investments
|
—
|
|
|
6
|
|
|
—
|
|
|
7
|
|
Guaranteed contracts
|
—
|
|
|
45
|
|
|
—
|
|
|
50
|
|
Other
|
—
|
|
|
2
|
|
|
—
|
|
|
1
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The fair value of the Company's pension plan assets at December 28, 2019 by asset category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of assets (in millions)
|
December 28,
2019
|
|
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)
|
$
|
28.7
|
|
|
$
|
—
|
|
|
$
|
28.7
|
|
|
$
|
—
|
|
Foreign plans:
|
|
|
|
|
|
|
|
Australia
|
Investment fund (b)
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
Switzerland
|
Guaranteed insurance contract (c)
|
28.3
|
|
|
—
|
|
|
—
|
|
|
28.3
|
|
Germany
|
Guaranteed insurance contract (c)
|
5.4
|
|
|
—
|
|
|
—
|
|
|
5.4
|
|
Belgium
|
Mutual fund (d)
|
26.7
|
|
|
26.7
|
|
|
—
|
|
|
—
|
|
Austria
|
Guaranteed insurance contract (c)
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
Korea
|
Guaranteed insurance contract (c)
|
3.7
|
|
|
—
|
|
|
—
|
|
|
3.7
|
|
Japan
|
Common/collective trust (e)
|
12.6
|
|
|
—
|
|
|
12.6
|
|
|
—
|
|
Philippines
|
Fixed income securities (f)
|
1.4
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
Equity fund (f)
|
2.1
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
111.3
|
|
|
$
|
30.2
|
|
|
$
|
43.4
|
|
|
$
|
37.7
|
|
The fair value of the Company's pension plan assets at December 29, 2018 by asset category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of assets (in millions)
|
December 29,
2018
|
|
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)
|
$
|
24.4
|
|
|
$
|
—
|
|
|
$
|
24.4
|
|
|
$
|
—
|
|
Foreign plans:
|
|
|
|
|
|
|
|
Australia
|
Investment fund (b)
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
Switzerland
|
Guaranteed insurance contract (c)
|
32.0
|
|
|
—
|
|
|
—
|
|
|
32.0
|
|
Germany
|
Guaranteed insurance contract (c)
|
5.5
|
|
|
—
|
|
|
—
|
|
|
5.5
|
|
Belgium
|
Mutual funds (d)
|
23.4
|
|
|
23.4
|
|
|
—
|
|
|
—
|
|
Austria
|
Guaranteed insurance contract (c)
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Korea
|
Guaranteed insurance contract (c)
|
4.1
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
Japan
|
Common/collective trust (e)
|
11.2
|
|
|
—
|
|
|
11.2
|
|
|
—
|
|
Philippines
|
Fixed income securities (f)
|
1.4
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
Equity fund (f)
|
1.8
|
|
|
1.8
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
106.3
|
|
|
$
|
26.6
|
|
|
$
|
37.7
|
|
|
$
|
42.0
|
|
____________________
|
|
(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 28, 2019 and December 29, 2018, the common trusts held 64 percent and 61 percent of its assets in equity securities and 36 percent and 39 percent in fixed income securities, respectively. The percentage of funds invested in equity securities at the end of 2019 and 2018, included: ten percent in international stocks in each year, 33 percent and 31 percent in large U.S. stocks 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)
|
The strategy of this fund was to achieve a 10-year long-term net return of at least 3.5 percent, above inflation based on the Australian consumer price index. 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 28, 2019 and December 29, 2018, the percentage of funds held in investments included: Australian equities of 13 percent and 14 percent, other equities of listed companies outside of Australia of 49 percent and 42 percent, government and corporate bonds of 19 percent and 21 percent and cash of 12 percent and 15 percent and real estate of seven percent and eight percent, respectively.
|
|
|
(c)
|
The strategy of the Company's plans in Austria, Germany, Korea and Switzerland was 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 was 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, 37 percent in fixed income securities and one percent cash. 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 28, 2019 and December 29, 2018, the percentage of funds held in various asset classes included: large-cap equities of European companies of 25 percent and 22 percent, small-cap equities of European companies of 18 percent and 16 percent, and money market fund of 14 percent and 21 percent, bonds, primarily from European and U.S. governments, of 31 percent and 29 percent, respectively, and equities outside of Europe, mainly in the U.S. and emerging markets, 12 percent each year.
|
|
|
(e)
|
The Company's strategy was to invest approximately 50 percent of assets to benefit from the higher expected returns from long-term investments in equities and to invest 50 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 51 percent equities in Japanese listed securities, seven percent in equities outside of Japan, four percent in cash and other short-term investments and 38 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 28, 2019 and December 29, 2018. As of the end of December 28, 2019 and December 29, 2018, the allocation of funds within the common collective trust included: 50 percent and 47 percent in Japanese equities, 38 percent and 42 percent in Japanese bonds, eight percent and seven percent in equities of companies based outside of Japan, respectively, and four percent in cash and other short-term investments in each year. The fair value of the collective trust is determined by the market value of the underlying shares, which are traded in active markets.
|
|
|
(f)
|
In both years, the investment strategy in the Philippines was to achieve an appropriate balance between risk and return, from a diversified portfolio of Philippine peso denominated bonds and equities. The target asset class allocations is 57 percent in equity securities, 38 percent fixed income securities and five 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 28,
2019
|
|
December 29,
2018
|
Beginning balance
|
$
|
42.0
|
|
|
$
|
42.9
|
|
Realized gains
|
0.7
|
|
|
0.1
|
|
Purchases, sales and settlements, net
|
(5.1
|
)
|
|
(0.5
|
)
|
Impact of exchange rates
|
0.1
|
|
|
(0.5
|
)
|
Ending balance
|
$
|
37.7
|
|
|
$
|
42.0
|
|
The Company expects to contribute $11.3 million to its U.S. and foreign pension plans and $1.3 million to its other U.S. post-retirement benefit plan in 2020.
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 $6.7 million in 2019 and $6.5 million each year of 2018 and 2017.
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
|
2020
|
|
|
$16.0
|
|
|
|
$1.3
|
|
|
|
$17.3
|
|
2021
|
|
11.4
|
|
|
1.2
|
|
|
12.6
|
|
2022
|
|
12.6
|
|
|
1.1
|
|
|
13.7
|
|
2023
|
|
12.6
|
|
|
1.1
|
|
|
13.7
|
|
2024
|
|
12.7
|
|
|
1.0
|
|
|
13.7
|
|
2025-2029
|
|
64.6
|
|
|
3.9
|
|
|
68.5
|
|
In addition to the Company's health and insurance benefits, the Company also offers select employees a deferred compensation plan. The Tupperware Deferred Compensation Plan is an unfunded, non-tax-qualified supplemental deferred compensation plan for highly compensated and key management employees and for directors that allows participants to defer a portion of their compensation. The Company utilizes a rabbi trust to hold assets intended to satisfy the Company's obligations under the deferred compensation plan. The trust restricts the Company's use and access to the assets held but is subject to the claims of the Company's general creditors. The Tupperware Deferred Compensation Plan offers a variety of investment options and is accounted for as a plan that permits diversification but does not include Company stock as an investment option. All distributions from the Tupperware Deferred Compensation Plan must be made in cash and changes in the fair value of the assets are recognized in earnings. The deferred compensation obligation is adjusted, with a charge or a credit to compensation cost, to reflect changes in the fair value of the obligation. The assets and liabilities are included in Other assets, net and Other liabilities of the Consolidated Balance Sheets. As of December 28, 2019 and December 29, 2018, the fair value of the investments held in trust and the related liability was $12.1 million and $16.7 million, respectively. All assets held in the trust are Level 1 Fidelity mutual funds and the fair value of the funds are calculated using the net asset value per share as determined by the quoted market prices of the underlying investments. Changes in the fair value of the assets held in the rabbi trust are recorded through compensation expense included in DS&A and investment gains/losses in Other (income) expense within the Consolidated Statements of Income. During 2019, 2018 and 2017, the change in fair value of the underlying assets was an increase of $3.3 million, decrease of $1.1 million and increase of $2.3 million, respectively.
|
|
Note 15:
|
Incentive Compensation Plans
|
On May 22, 2019, the shareholders of the Company approved the adoption of the Tupperware Brands Corporation 2019 Incentive Plan (the “2019 Incentive Plan”). The 2019 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 2019 Incentive Plan was approved, the number of shares of the Company's common stock available for stock-based awards under the plan totaled 850,000, plus remaining shares available for issuance under the Tupperware Brands Corporation 2016 Incentive Plan, the Tupperware Brands Corporation 2010 Incentive Plan and the Tupperware Brands Corporation Director Stock Plan. Shares may no longer be granted under the plans adopted before 2019. The total number of shares available for grant under the 2019 Incentive Plan as of December 28, 2019 was 2,975,253.
Under the 2019 Incentive Plan, non-employee directors receive approximately 60 percent 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.
Stock Options
Stock options to purchase the Company's common stock are granted to employees and directors, upon approval by the Compensation and Management Development Committee of the 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:
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2019
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2018
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2017
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Dividend yield
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na
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5.7
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%
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4.4
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%
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Expected volatility
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na
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|
29
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%
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29
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%
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Risk-free interest rate
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na
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3.1
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%
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2.2
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%
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Expected life
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na
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7 years
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7 years
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____________________
na Not applicable. During 2019, there were no stock options granted.
Stock option activity for 2019, under all of the Company's incentive plans, is summarized in the following table:
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Shares subject
to option
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Weighted
average exercise
price per share
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Aggregate Intrinsic Value (in millions)
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Outstanding at December 29, 2018
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3,630,684
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$55.66
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Expired/Forfeited
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(289,945
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)
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48.48
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Outstanding at December 28, 2019
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3,340,739
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$56.28
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$—
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Exercisable at December 28, 2019
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2,913,631
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$57.81
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$—
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The intrinsic value of options exercised during 2018 and 2017 totaled $0.4 million and $6.2 million, respectively, and there were no stock options exercised during 2019. The average remaining contractual life on outstanding and exercisable options was 4.8 and 4.4, respectively, at the end of 2019. The weighted average estimated grant-date fair value of 2018 and 2017 option grants was $6.01 and $10.48 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 year 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 years performance period.
The Company's performance-vested awards provide incentive opportunity based on the overall success of the Company over a three years 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 years performance period. The fair value per share of rTSR grants in 2019, 2018 and 2017 was $27.12, $63.48 and $61.29, 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 2019, as a result of the Company's performance, the estimated number of shares expected to vest decreased by 68,761 shares for the three performance share plans running during 2019.
Restricted stock, restricted stock units, performance-vested and market-vested share award activity for 2019 under all of the Company's incentive plans is summarized in the following table:
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Non-vested Shares
outstanding
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Weighted average
grant date per share fair value
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Outstanding at December 29, 2018
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684,184
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$47.68
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Time-vested shares granted
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271,528
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14.55
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Market-vested shares granted
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42,365
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27.12
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Performance shares granted
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111,536
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30.90
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Performance share adjustments
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(68,761
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)
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40.74
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Vested
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(289,487
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)
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48.67
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Forfeited
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(223,076
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)
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40.58
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Outstanding at December 28, 2019
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528,289
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$28.82
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The vesting date fair value of restricted stock, restricted stock units and performance-vested awards that vested in 2019, 2018 and 2017 was $5.2 million, $8.5 million and $12.8 million, respectively. The weighted average grant-date fair value per share of these types of awards in 2019, 2018 and 2017 was $29.86, $42.26 and $60.32, 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 10,449, 21,391 and 17,525 shares as of the end of 2019, 2018 and 2017, respectively. These outstanding cash settled awards had a fair value of $0.1 million, $0.7 million and $1.1 million as of the end of 2019, 2018 and 2017, respectively.
Compensation expense associated with all stock-based compensation was $10.4 million, $14.5 million and $22.6 million in 2019, 2018 and 2017, respectively. The estimated tax benefit associated with this compensation expense was $2.4 million, $3.2 million and $8.1 million in 2019, 2018 and 2017, respectively. As of December 28, 2019, total unrecognized stock-based compensation expense related to all stock-based awards was $11.1 million, which is expected to be recognized over a weighted average period of 15 months.
Expense related to earned cash performance awards of $1.0 million, $3.1 million and $11.0 million was included in the Consolidated Statements of Income for 2019, 2018 and 2017, respectively.
The Company's Board of Directors has authorized up to $2.0 billion of open market share repurchases under a program that began in 2007, expired on February 1, 2020 and was not extended. Under this program, the Company repurchased 2.6 million shares for $100.2 million in 2018. There were no share repurchases under this program in 2019 and 2017. Since inception of the program in May 2007, and through December 29, 2018, the Company has repurchased 23.8 million shares at an aggregate cost of $1.39 billion.
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Note 16:
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Segment Information
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The Company manufactures and distributes a broad portfolio of products, primarily through independent direct sales force members. Certain operating segments have been aggregated based upon consistency of economic substance, geography, products, production process, class of customers and distribution method.
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 $247.7 million, $291.7 million and $331.7 million in 2019, 2018 and 2017, respectively.
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(In millions)
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2019
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2018
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2017
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Net sales:
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Europe
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$
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475.2
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$
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525.6
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$
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550.4
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Asia Pacific
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590.5
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682.0
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734.8
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North America
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453.5
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515.1
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541.5
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South America
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278.7
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347.0
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429.1
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Total net sales
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$
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1,797.9
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$
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2,069.7
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$
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2,255.8
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Segment profit:
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Europe
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$
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38.0
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$
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46.3
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$
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54.5
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Asia Pacific
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124.3
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172.5
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189.3
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North America
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40.2
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76.3
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69.7
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South America
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43.8
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68.3
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98.7
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Total segment profit
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$
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246.3
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$
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363.4
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$
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412.2
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Unallocated expenses
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$
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(41.8
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)
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$
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(46.3
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)
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$
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(64.1
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)
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Re-engineering and impairment charges (a)
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(34.7
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)
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(15.9
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)
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(66.0
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)
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Impairment of goodwill and intangibles (b)
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(40.0
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)
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—
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(62.9
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)
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Gains on disposal of assets (c)
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12.9
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18.7
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9.1
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Interest expense, net
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(39.3
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)
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(43.7
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)
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(43.2
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)
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Income before taxes
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$
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103.4
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$
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276.2
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$
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185.1
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(In millions)
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2019
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2018
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2017
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Depreciation and amortization:
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Europe
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$
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14.4
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$
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16.3
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$
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16.7
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Asia Pacific
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14.5
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14.7
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14.9
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North America
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11.5
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11.8
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12.3
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South America
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5.5
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5.6
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5.9
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Corporate
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9.3
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9.8
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10.7
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Total depreciation and amortization
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$
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55.2
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$
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58.2
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$
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60.5
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Capital expenditures:
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Europe
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$
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16.5
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$
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22.3
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$
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18.7
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Asia Pacific
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7.3
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10.1
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10.7
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North America
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15.0
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13.3
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15.9
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South America
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5.5
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3.9
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12.1
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Corporate
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16.7
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25.8
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|
14.9
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Total capital expenditures
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$
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61.0
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$
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75.4
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$
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72.3
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Identifiable assets:
|
|
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Europe
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$
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269.7
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$
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291.0
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$
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308.5
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Asia Pacific
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300.3
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|
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281.2
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297.2
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North America
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235.9
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|
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250.9
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|
|
266.3
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South America
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125.2
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|
|
125.0
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|
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138.6
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Corporate
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331.3
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|
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360.7
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|
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377.4
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Total identifiable assets
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$
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1,262.4
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$
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1,308.8
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$
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1,388.0
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____________________
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(a)
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See Note 2 for discussion of re-engineering and impairment charges.
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(b)
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See Note 7 for discussion of goodwill impairment charges.
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(c)
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Gains on disposal of assets in 2019, 2018 and 2017 include $8.8 million, $7.1 million and $8.8 million from transactions related to land near the Orlando, FL headquarters. Included in 2019 was a $5.8 million gain from the sale of the French marketing office and included in 2018 was a $9.5 million gain from a transaction associated with a distribution facility in Japan, and $2.1 million from the Beauticontrol headquarters in Texas.
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Sales and segment profit in the preceding table are from transactions with customers, with inter-segment transactions 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 2019, 2018 and 2017 sales of Tupperware® and beauty products to customers in Mexico were $261.7 million, $285.8 million and $279.7 million, respectively, while sales in Brazil were $208.5 million, $265.4 million and $316.3 million, respectively, and sales in China were $216.2 million, $247.4 million and $216.0 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 $132.7 million, $163.2 million and $191.8 million in 2019, 2018 and 2017, 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 2019, 2018 and 2017, long-lived assets in the United States were $108.6 million, $108.7 million and $91.6 million, respectively.
As of December 28, 2019 and December 29, 2018, the Company's net investment in international operations was $474.2 million and $479.1 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.
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Note 17:
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Commitments and Contingencies
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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 and approximate minimum rental commitments under non-cancelable operating leases in effect at December 28, 2019 are disclosed in Note 5 to the Consolidated Financial Statements. Leases including the minimum rental commitments for 2020 and 2021, primarily are for automobiles, that generally have a lease term of one year to four 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.
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|
Note 18:
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Allowance for Long-Term Receivables
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As of December 28, 2019, $13.9 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 28, 2019 was as follows:
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(In millions)
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Balance at December 29, 2018
|
$
|
16.0
|
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Write-offs
|
(6.8
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)
|
Provision (a)
|
4.6
|
|
Recoveries
|
0.4
|
|
Currency translation adjustment
|
(0.3
|
)
|
Balance at December 28, 2019
|
$
|
13.9
|
|
____________________