Tupperware Brands(TUP) - 2018 Q4 - Annual Report

Part I Business Tupperware Brands Corporation is a global direct-to-consumer marketer of kitchen and beauty products, operating through a 3.0 million independent sales force with 70% of 2018 sales from emerging markets - The company operates as a global direct-to-consumer marketer, offering Tupperware® brand kitchen solutions and various beauty and personal care products[12][15][16] - The business relies on an independent sales force of 3.0 million individuals globally, including approximately 2,100 distributors, 110,600 managers, and 3.0 million dealers[12][33] - Emerging markets are a primary growth driver, contributing 70% of 2018 sales with significant potential in Latin America, Asia, and Central/Eastern Europe[26][28] - In China, the company employs a unique model featuring 6,600 independent retail outlets and a focus on digital marketing[34] Research and Development Expenses (2016-2018) | Fiscal Year | R&D Expense (Millions USD) | | :--- | :--- | | 2018 | $15.0 | | 2017 | $16.7 | | 2016 | $18.3 | Risk Factors The company faces material risks including high sales force turnover, significant foreign currency exposure from over 90% international sales, cybersecurity threats, and challenges in executing its Global Growth Strategy - The direct-to-consumer model heavily relies on the successful addition, activation, and retention of its independent sales force, which experiences high turnover[52] - Over 90% of net sales originate from international operations, leading to significant exposure to foreign currency fluctuations, particularly the Brazilian real, Chinese renminbi, euro, Indonesian rupiah, Malaysian ringgit, Mexican peso, and South African rand[56] - Extensive reliance on IT systems exposes the company to cybersecurity threats, necessitating a multi-year system upgrade project[62][63] - The Global Growth Strategy, accelerated in January 2019, involves an investment of approximately $100 million through 2022 to drive sales and generate about $50 million in annualized savings[66] - Company success is contingent on its senior management team, with the announced retirement of the Executive Vice President and CFO by March 31, 2019, posing a specific transition risk[61] Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments from the SEC[68] Properties The company owns its principal office and major manufacturing/distribution facilities globally, while actively selling approximately 170 acres of unimproved real estate near its Orlando headquarters - Major manufacturing and distribution facilities are owned in Australia, Brazil, France, Greece, Indonesia, Korea, Mexico, New Zealand, Portugal, South Africa, and the United States[69] - The company is selling approximately 170 acres of unimproved real estate adjacent to its Orlando, Florida headquarters, a process initiated in 2002[72] Legal Proceedings The company is involved in ordinary-course legal proceedings not expected to have a material adverse effect, with certain pre-1996 liabilities assumed by Kraft Foods, Inc - The company is engaged in ordinary-course legal proceedings, none of which are expected to have a material adverse effect on the business[73] - Liabilities from certain divested businesses of Dart Industries Inc. prior to the 1996 spin-off were assumed by Kraft Foods, Inc. (now Mondelez International, Inc.)[74] Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable to the Registrant's business[75] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'TUP', with 46,113 shareholders as of February 21, 2019, and has underperformed relevant market indices over the past five years - The Registrant's common stock is traded on the New York Stock Exchange under the symbol "TUP"[78] Stock Performance Comparison (2013-2018) | Measurement Period (Fiscal Year Ended) | Tupperware Brands Corporation | S&P 400 Mid-Cap | S&P 400 Mid-Cap Consumer Discretionary Index | | :--- | :--- | :--- | :--- | | 12/28/2013 | 100.00 | 100.00 | 100.00 | | 12/27/2014 | 69.63 | 111.39 | 111.85 | | 12/26/2015 | 63.95 | 109.15 | 103.71 | | 12/31/2016 | 63.16 | 130.22 | 112.79 | | 12/30/2017 | 78.56 | 151.35 | 134.73 | | 12/29/2018 | 41.86 | 133.19 | 109.91 | Selected Financial Data Selected financial data reveals a decline in net sales from $2.61 billion in 2014 to $2.07 billion in 2018, a $265.4 million net loss in 2017 due to tax reform, and a shareholders' deficit of $235.2 million by 2018 year-end Selected Operating Results (2014-2018, in millions) | Metric | 2018 (Millions USD) | 2017 (Millions USD) | 2016 (Millions USD) | 2015 (Millions USD) | 2014 (Millions USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total net sales | $2,069.7 | $2,255.8 | $2,213.1 | $2,283.8 | $2,606.1 | | Segment profit | $317.1 | $412.2 | $394.6 | $311.7 | $350.0 | | Income before income taxes | $276.2 | $185.1 | $301.3 | $259.9 | $298.2 | | Net income (loss) | $155.9 | $(265.4) | $223.6 | $185.8 | $214.4 | Selected Per Share Data (2014-2018) | Metric | 2018 (USD) | 2017 (USD) | 2016 (USD) | 2015 (USD) | 2014 (USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Diluted earnings (loss) per share | $3.11 | $(5.22) | $4.41 | $3.69 | $4.20 | | Dividends declared per share | $2.72 | $2.72 | $2.72 | $2.72 | $2.72 | Selected Financial Condition (End of Year, in millions) | Metric | 2018 (Millions USD) | 2017 (Millions USD) | | :--- | :--- | :--- | | Total assets | $1,308.8 | $1,388.0 | | Long-term obligations | $603.4 | $605.1 | | Shareholders' equity (deficit) | $(235.2) | $(119.4) | - A significant non-cash income tax charge of $375 million in 2017, resulting from the U.S. Tax Cuts and Jobs Act, led to a net loss for that fiscal year[87] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2018, net sales declined 8% to $2.07 billion, gross margin decreased to 66.6%, and operating income increased 38% to $319.8 million, while the company's financial condition showed negative working capital and a shareholders' deficit Results of Operations In 2018, net sales decreased 8% to $2.07 billion, gross margin contracted to 66.6%, and operating income increased 38% to $319.8 million, with net income recovering from a $265.4 million loss in 2017 Total Company Results 2018 vs. 2017 | Metric | 2018 (Millions USD) | 2017 (Millions USD) | Change | Change (Local Currency) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,069.7 | $2,255.8 | (8)% | (5)% | | Gross margin % | 66.6% | 67.0% | (0.4 pp) | na | | Operating income | $319.8 | $232.5 | 38% | 54% | | Net income (loss) | $155.9 | $(265.4) | - | - | - The 2018 sales decrease included a 2 percentage point negative impact from the 2017 closure of Beauticontrol and the combination of businesses in Japan[96] - In 2017, the company recorded a $62.9 million non-cash impairment charge on the goodwill of its Fuller Mexico reporting unit[120] - The effective tax rate was 43.6% in 2018 and 243.4% in 2017, both significantly influenced by the U.S. Tax Cuts and Jobs Act of 2017[129] Segment Results In 2018, most segments experienced local currency sales declines, with Europe down 6%, Asia Pacific down 6%, and South America down 1%, while North America's underlying business grew despite a 4% reported decline Net Sales by Segment (2018 vs 2017, in millions) | Segment | 2018 Sales (Millions USD) | 2017 Sales (Millions USD) | % Change (Reported) | % Change (Local Currency) | | :--- | :--- | :--- | :--- | :--- | | Europe | $525.6 | $550.4 | (5)% | (6)% | | Asia Pacific | $682.0 | $734.8 | (7)% | (6)% | | North America | $515.1 | $541.5 | (5)% | (4)% | | South America | $347.0 | $429.1 | (19)% | (1)% | Segment Profit (2018 vs 2017, in millions) | Segment | 2018 Profit (Millions USD) | 2017 Profit (Millions USD) | % Change (Reported) | % Change (Local Currency) | | :--- | :--- | :--- | :--- | :--- | | Europe | $46.3 | $54.5 | (15)% | (19)% | | Asia Pacific | $172.5 | $189.3 | (9)% | (8)% | | North America | $76.3 | $69.7 | 9% | 12% | | South America | $68.3 | $98.7 | (31)% | (15)% | - China's sales growth, driven by a 9% net increase in outlets to 6,600, partially offset declines in other Asia Pacific markets[154] Financial Condition, Liquidity and Capital Resources The company's financial condition weakened in 2018, with net working capital at negative $138.5 million and cash from operations declining to $132.0 million, leading to a Q1 2019 dividend reduction from $0.68 to $0.27 per share - Net working capital was negative $138.5 million at year-end 2018, a $110.2 million decrease from year-end 2017[187][188] Key Cash Flow Activities (in millions) | Activity | 2018 (Millions USD) | 2017 (Millions USD) | 2016 (Millions USD) | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $132.0 | $217.4 | $237.0 | | Net cash used in investing activities | $(34.7) | $(57.6) | $(25.7) | | Net cash used in financing activities | $(79.0) | $(116.6) | $(193.3) | - The company maintains a $600 million committed credit facility maturing in 2020 and $600 million in Senior Notes due 2021[191][192] - In Q1 2019, the Board of Directors reduced the quarterly dividend to $0.27 per share from $0.68 per share paid in prior years[208] - The company repurchased 2.6 million shares for $100 million in 2018 under its share repurchase program, with no repurchases in 2017 or 2016[210] Application of Critical Accounting Policies and Estimates Management's critical accounting policies involve significant estimates for doubtful accounts, inventory valuation, income taxes, promotional accruals, goodwill impairment, and retirement obligations - Key estimates are required for the allowance for doubtful accounts, inventory valuation, income taxes (including valuation allowances and uncertain tax positions), promotional accruals, and goodwill impairment testing[215] - As of December 29, 2018, the company held a valuation allowance of $253.3 million against certain deferred tax assets, primarily for net operating losses and foreign tax credits[220] - Goodwill and indefinite-lived intangible assets are annually tested for impairment using a discounted cash flow approach (75% weighted) and a market approach, with operating cash flow projections being the most sensitive estimate[229] - New revenue recognition guidance was adopted on December 31, 2017, using the modified retrospective method, with no material impact on financial statements[237][298] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including interest rate fluctuations on variable-rate debt, significant foreign exchange exposure from international sales, commodity price risk from plastic resins, and real estate risk from land sales - Significant foreign exchange rate risk exists, primarily from the Brazilian real, Chinese renminbi, Indonesian rupiah, Malaysian ringgit, Mexican peso, and South African rand, partially managed through forward contracts[248][249] - Commodity price risk from plastic resins means a 10% fluctuation could impact annual cost of sales by approximately $13 million, with a negative $10 million impact on gross margin in 2018[255] - Interest rate risk arises from $283.9 million in outstanding variable-rate borrowings under the Credit Agreement as of December 29, 2018[244][245] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2016-2018, including income statements, balance sheets, and cash flows, along with detailed notes and an unqualified audit opinion from PricewaterhouseCoopers LLP Consolidated Income Statement Highlights (in millions) | Line Item | 2018 (Millions USD) | 2017 (Millions USD) | 2016 (Millions USD) | | :--- | :--- | :--- | :--- | | Net sales | $2,069.7 | $2,255.8 | $2,213.1 | | Gross margin | $1,377.5 | $1,511.5 | $1,498.4 | | Operating income | $319.8 | $232.5 | $354.2 | | Net income (loss) | $155.9 | $(265.4) | $223.6 | Consolidated Balance Sheet Highlights (in millions) | Line Item | Dec 29, 2018 (Millions USD) | Dec 30, 2017 (Millions USD) | | :--- | :--- | :--- | | Total current assets | $620.6 | $630.5 | | Total assets | $1,308.8 | $1,388.0 | | Total current liabilities | $759.1 | $658.8 | | Total liabilities | $1,544.0 | $1,507.4 | | Total shareholders' deficit | $(235.2) | $(119.4) | - The Notes to the Consolidated Financial Statements offer detailed explanations of accounting policies, re-engineering costs, debt obligations, segment information, income taxes, and retirement benefit plans[277] - PricewaterhouseCoopers LLP issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 29, 2018[463] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - There were no disagreements with accountants on accounting and financial disclosure[472] Controls and Procedures As of December 29, 2018, the CEO and CFO concluded that disclosure controls and procedures were effective, and management affirmed the effectiveness of internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 29, 2018[474] - Management concluded that the company's internal control over financial reporting was effective as of December 29, 2018, based on the COSO framework[475] Other Information The company reports no other information for this item - There is no information to report under this item[477] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, and security ownership, is incorporated by reference from the 2019 Proxy Statement - Information for Items 10-14, including Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accounting Fees, is incorporated by reference from the 2019 Annual Meeting of Shareholders Proxy Statement[480][486][488] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements, Schedule II for Valuation and Qualifying Accounts, and various corporate documents - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[493][494][497] - Financial Statement Schedule II, detailing Valuation and Qualifying Accounts for allowances for doubtful accounts and deferred tax assets, is included[494][502] Form 10-K Summary The company reports no summary for this item - No Form 10-K summary is provided[500]