1
Exhibit 13
SELECTED PAGES FROM ANNUAL REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the results of operations for 1999 compared
with 1998, and of 1998 compared with 1997, and changes in financial condition
during 1999. This information should be read in conjunction with the
consolidated financial information provided on pages 34 to 54 of the Annual
Report.
RESULTS OF OPERATIONS
NET SALES AND NET INCOME. Net sales in 1999 of $1.0 billion were 4 percent lower
than 1998 net sales, reflecting decreases from operations in all areas except
Asia Pacific, which had a significant improvement. In addition, foreign exchange
had a negative impact on the comparison of $19.7 million, or 2 percentage
points. Net sales in 1998 of $1.1 billion were 12 percent lower than 1997 net
sales, reflecting decreases from operations in all areas except the United
States, which had a modest improvement. In addition, foreign exchange had a
significant negative impact on the comparison of $63.5 million, or 5 percentage
points.
For 1999, net income increased 14 percent to $79.0 million from $69.1 million in
1998. Included in the 1999 results were $16.1 million ($12.3 million after tax)
of re-engineering costs related to the three-year program announced in July
1999. The re-engineering charge of $15.1 million provides for severance and
other exit costs associated with the decision to close manufacturing plants in
Spain and Argentina, and to restructure manufacturing operations in Japan and
the headquarters for Europe and Asia Pacific. The additional $1.0 million
expense incurred was for internal and external consulting costs to design and
execute the re-engineering actions. The cash portion of the 1999 re-engineering
costs is $12.0 million. The re-engineering project is designed to increase
operating profit return on sales by improving organizational alignment,
increasing the gross margin percentage, and reducing operating expenses. The
1999 results included approximately $10.0 million of pretax benefits associated
with re-engineering actions taken, about half of which related to an improved
gross margin percentage. Total one-time costs to be incurred through 2001 in
implementing the program are projected to be between $50 million and $75
million, mainly for severance, information technology expenditures, and plant
closure costs. The annual benefit of the actions when they are fully implemented
is expected to be approximately $40 million to $50 million. Excluding the
re-engineering costs, net income increased to $91.3 million, or 32 percent. All
areas except Europe reported improved earnings. Foreign exchange did not have an
impact on the net income comparison.
Net income of $69.1 million in 1998 was $12.9 million, or 16 percent, lower than
1997 net income of $82.0 million. The 1997 results include a pretax charge
totaling $42.4 million ($31.3 million after tax), primarily for provisions for
bad debts in Brazil, inventory obsolescence in the United States, and to a
lesser extent, corporate downsizing. Only a small portion of the charge involved
cash outlays by the Company. Excluding the 1997 charge, net income decreased
$44.2 million, or 39 percent. As with sales, all areas other than the United
States reported worse results. Foreign exchange had a negative impact of $9.2
million, or 11 percentage points, on the 1998 versus 1997 comparison.
In 1999, unallocated corporate expenses increased to $23.1 million from $17.5
million in 1998. The increase was primarily due to accruals for bonuses, which
programs, and the inclusion of the costs for the re-engineering program.
Unallocated corporate expenses decreased to $17.5 million in 1998 from $18.0
million, which included $4.2 million of the 1997 fourth quarter charge. The 1997
charge was primarily for severance costs associated with corporate downsizing.
The 1998 increase, excluding the charge, reflects the addition of a corporate
president and spending on development of marketing initiatives.
In both 1999 and 1998, 85 percent of sales, and 97 percent of the Company's
operating profit was generated by international operations.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COSTS AND EXPENSES. The cost of products sold in relation to sales was 35.0
percent, 37.5 percent, and 38.6 percent in 1999, 1998, and 1997, respectively.
All areas reported improved ratios in 1999 primarily due to the sale of a
greater proportion of high-margin products, and lower manufacturing costs.
Europe's cost of products sold improved only slightly due to lower sales volumes
in Germany. The improvement in the ratio in 1998 reflects lower costs from
higher production and sales in the United States, as well as the sale of a
greater proportion of high-margin products, and the absence of the 1997 charge.
Partially offsetting these factors was the impact of lower capacity utilization
in certain plants in Latin America. Delivery, sales, and administrative expense
as a percentage of sales was 51.4 percent, 51.9 percent, and 50.5 percent in
1999, 1998, and 1997, respectively. The decrease in 1999 expenses exceeded the
sales decrease, while the expenses in 1998 decreased from 1997, but not to as
great an extent as sales.
TAX RATE. The effective tax rate for 1999, 1998, and 1997, was 23.5 percent,
24.5 percent, and 26.0 percent, respectively. The 1999 and 1998 rate decreases
are the result of the benefit of much lower foreign effective rates only
partially offset by the absence of a reduction in a valuation allowance against
federal deferred tax assets.
NET INTEREST. The Company had $20.9 million of net interest expense in 1999,
compared with $22.7 million in 1998, and $17.8 million in 1997. The 1999
decrease resulted from carrying a higher proportion of debt offshore, and from
shifting the offshore debt to lower cost countries. The 1998 increase resulted
from a higher level of borrowing to fund the repurchase of 5 million of the
Company's shares in 1997 and the first half of 1998, which was only partially
offset by lower 1998 interest rates on variable-rate borrowing.
REGIONAL RESULTS 1999 VS. 1998
Positive
Increase (negative)
(decrease) Restated(a) foreign Percent of total
----------------- increase exchange ----------------
(Dollars in millions) 1999 1998 Dollar Percent (decrease) impact 1999 1998
- ------------------------------------------ --------- ------- ------- ----------- ---------- ------ ------
Sales
Europe $ 489.1 $ 518.7 $ (29.6) (6)% (1)% $ (23.9) 47% 48%
Asia Pacific 242.3 211.5 30.8 15 4 20.8 23 20
Latin America 154.2 186.8 (32.6) (18) (9) (16.6) 15 17
United States 158.2 165.8 (7.6) (5) (5) na 15 15
--------- --------- ------- ------- --- ---
$ 1,043.8 $ 1,082.8 $ (39.0) (4)% (2)% $ (19.7) 100% 100%
========= ========= ======= = ======= === ===
Operating profit (loss)
Europe $ 110.7 $ 123.9 $ (13.2) (11)% (7)% $ (5.2) 68% 94%
Asia Pacific 35.0 20.2 14.8 73 49 3.3 22 15
Latin America 12.0 (16.4) 28.4 nm nm 1.7 7 nm
United States 4.7 4.0 0.7 17 17 na 3 3
--------- --------- ------- ------- --- ---
$ 162.4 $ 131.7 $ 30.7 23% 23% $ (0.2) 100% nm
========= ========= ======= ======= === ===
a. 1999 actual compared with 1998 translated at 1999 exchange rates.
nm - Not meaningful.
na - Not applicable.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EUROPE
The sales decline in Europe was primarily due to lower sales volume in Germany,
which was driven by the impact of new social security tax legislation. The
United Kingdom and Scandinavia also had lower sales volumes. Offsetting these
declines was a significant sales increase in France in addition to improvement
in Italy. The German market had sequential sales improvements in the fourth
quarter, due primarily to recruiting programs that had a positive impact on the
sales force trends. The Company expects the impact of this legislation to have
been mitigated by the end of the first half of 2000. Germany is the Company's
largest market with sales of $209.2 million in 1999 compared with $241.2 million
in 1998. Foreign exchange had a $9.4 million negative impact on the comparison.
The German market also accounts for a substantial portion of Europe's operating
profit. The decrease in the area's operating profit primarily reflected the
lower sales level along with higher operating expense partially offset by a
slightly higher gross margin percentage. Operating expenses in Germany increased
in 1999 due to the reimbursement of a portion of the social security tax, as
well as higher promotion expenses to stimulate sales growth.
ASIA PACIFIC
Asia Pacific led the areas with a 4-percent increase in sales and a 49-percent
increase in operating profit, excluding the favorable impact of exchange rates.
The sales increase was primarily due to improvements in Korea, Australia,
Indonesia, the Philippines, and India, which was driven by an increase in the
total sales force as a result of successful recruiting programs in addition to
the economic recovery in Korea. Partially offsetting this improvement was a
decline in Japan. Economic factors and a less active sales force contributed to
the decline in Japan, although there was improvement in the fourth quarter. The
improvement in the area's operating profit was due to the focus on cost
reduction measures and higher sales volumes in addition to smaller losses in
China and India. Currencies throughout the region strengthened in comparison
with the U.S. dollar.
LATIN AMERICA
In local currency, Latin American sales decreased 9 percent as declines in
Venezuela, Argentina, and Brazil offset improved performance in Mexico. These
declines were due to a smaller sales force resulting mainly from the decision to
significantly reduce the number of distributors in those markets in order to
enhance the opportunity for profitability of those remaining. The improvement in
Mexico was primarily due to price increases. Operating profits improved
significantly to $12.0 million profit versus a $16.4 million operating loss. The
increase was due to cost reductions, a higher gross margin percentage, and lower
promotion expenses. The impact of foreign exchange on the sales comparisons
reflects weakness in the Brazilian real as well as the Mexican peso.
UNITED STATES
The 5-percent sales decrease for the year was primarily the result of a smaller
sales force reflecting the difficulty of recruiting and motivating consultants
in a full employment environment. This factor was somewhat mitigated by further
improvements in sales force productivity and by sales through the integrated
direct access channels (IDA), which is a convergence of our core party plan
business with kiosks, the Internet, television sales, and direct mail, which
will begin later in 2000. In the fourth quarter, IDA, mainly kiosks, accounted
for 7 percent of U.S. sales. The Company expects to continue to develop its IDA
channels. Higher operating profit was primarily driven by improved gross margin
percentages, reflecting a more favorable mix of sales and a modest price
increase. A decrease in operating expenses partially offset by an increase in
promotional spending associated with additional recruiting programs also
contributed to the increase.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REGIONAL RESULTS 1998 VS. 1997
Increase Negative
(decrease) Restated(a) foreign Percent of total
--------------------- increase exchange ----------------
(Dollars in millions) 1998 1997 Dollar Percent (decrease) impact 1998 1997
- ------------------------------------- --------- -------- ------- ---------- --------- ---- ----
Sales
Europe $ 518.7 $ 546.6 $ (27.9) (5)% (3)% $ (11.6) 48% 44%
Asia Pacific 211.5 279.0 (67.5) (24) (8) (49.4) 20 23
Latin America 186.8 247.2 (60.4) (24) (24) (2.5) 17 20
United States 165.8 156.5 9.3 6 6 na 15 13
--------- --------- -------- ------- --- ---
$ 1,082.8 $ 1,229.3 $ (146.5) (12)% (7)% $ (63.5) 100% 100%
========= ========= ======== ======= --- ---
Operating profit (loss)
Europe $ 123.9 $ 144.6 $ (20.7) (14)% (13)% $ (1.8) 94% 99%
Asia Pacific 20.2 37.2 (17.0) (46) (25) (10.3) 15 25
Latin America (16.4) (5.7)(b) (10.7) -- -- (0.2) nm nm
United States 4.0 (29.5)(b) 33.5 nm nm na 3 nm
--------- --------- -------- ------- --- ---
$ 131.7 $ 146.6 $ (14.9) (10)% (2)% $ (12.3) nm nm
========= ========= ======== ======= --- ---
a. 1998 actual compared with 1997 translated at 1998 exchange rates.
b. Includes charge: $22.2 million in Latin America, primarily for bad debt
expense in Brazil; and $16.0 million in the United States, primarily
for inventory obsolescence.
nm - Not meaningful.
na - Not applicable.
EUROPE
Europe's sales decrease was primarily the result of lower volume in Germany.
Italy and Scandinavia also had lower sales volume, while several of the smaller
markets had increases. During the second half, Germany continued to face the
impact of a smaller active sales force following an ineffective recruiting
promotion in the second quarter; however, the year-over-year gap in the active
sales force decreased through the fourth quarter. German sales were $241.2
million in 1998 and $260.8 million in 1997. Foreign exchange had a $3.3 million
negative impact on the comparison. The decrease in the area's operating profit
primarily reflected the lower sales level along with a slightly lower gross
margin percentage and slightly higher operating expenses. The area's
profitability benefited from improvements in the United Kingdom and France
as spending in these markets was reduced in 1998 while sales were about even
with 1997.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ASIA PACIFIC
Excluding the negative impact of foreign exchange that related to currencies
throughout the region, the sales decline in Asia Pacific was primarily due to
lower volume in Japan and Korea. Difficult economic conditions seriously
curtailed consumers' purchasing power in the Asian markets. The Philippines had
a strong sales increase resulting from good recruiting results and success in
increasing the activity level of the sales force. The emerging markets of
Indonesia and India had sharply higher sales off of low bases. Throughout the
region, other than in Japan, 1998 sales force recruiting was very strong, which
is a key focus in struggling economies where the Tupperware earnings opportunity
is particularly appealing. The decrease in operating profit was attributable to
the lower sales along with operating expenses running at a higher percentage of
sales in 1998 than in 1997. While the dollar amount of operating expense
decreased, since a portion of these costs does not vary directly with sales
volume, they decreased at a lower rate than sales.
LATIN AMERICA
Latin America's decrease in sales was attributable to significantly lower volume
in Brazil and Argentina, along with the impact of the weakening Mexican peso.
Sales in local currency in Mexico increased modestly for the year. The fall off
in sales in Brazil and Argentina reflected the impact of a much smaller sales
force than in 1997. Early in the year, the number of distributors in these
markets was reduced about 30 percent, which led to the decrease in the sales
force.
The 1998 operating loss versus the $16.5 million operating profit in 1997 before
the charge reflects the impact of the lower sales volume, along with a lower
gross margin from a lower level of production, and the impact of the Mexican
peso devaluation. Through the end of 1998, the Company was accounting for the
operations of Mexico as hyperinflationary. Consequently, the translation of
balance sheet items impacted the income statement. Additionally, local currency
sales were translated at less favorable rates, but the cost of the product sold
was translated at rates in effect when the product was manufactured. Due to the
relatively low inflation rate in Mexico from 1996 to 1998, as of the beginning
of 1999, Mexico was no longer accounted for as hyperinflationary.
UNITED STATES
Sales in 1998 increased in spite of a smaller sales force as volume rose due to
a significant sales force productivity improvement. The Company addressed the
gap in the size of the sales force, which began to narrow in the second half of
the year, with new initiatives in the sales force compensation and by updating
the party. The 1998 operating profit versus the 1997 operating loss of $13.5
million before the charge reflected the impact of the higher sales; improvement
in the gross margin percentage due to less sales discounting and higher plant
capacity utilization; and lower operating expenses resulting from cost
containment efforts.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES. Working capital decreased to $61.3 million as
of December 25, 1999, compared with $95.5 million as of December 26, 1998, and
$103.3 million as of December 27, 1997. The current ratio was 1.2 to 1 at the
end of 1999, and 1.3 to 1 at the end of 1998 and 1997. In 1999, working capital
decreased from a lower level of net inventories reflecting the Company's
reduction initiatives and the impact of a stronger dollar, and a higher current
portion of long-term debt, partially offset by an increase in accounts
receivable, primarily reflecting higher December 1999 sales in Europe compared
with December 1998.
In 1998, working capital decreased from a lower level of net inventories, again
reflecting the Company's reduction initiatives, as well as provisions for
obsolescence, and a higher accounts payable balance. Also, whereas only a
portion of the Company's borrowings that were current by their terms were
classified as long-term debt as of the end of 1998, due to the Company's ability
and intent to have them outstanding throughout the following year, at the end of
1997 all such borrowings were classified as long-term debt. These factors were
offset primarily due to an increase in deferred tax assets as temporary
differences grew, and lower taxes payable as a result of lower pretax earnings.
The Company has a $300.0 million unsecured multicurrency credit facility that
expires on August 8, 2002, and $280.0 million of foreign uncommitted lines of
credit. As of December 25, 1999, the Company had $260.0 million available under
the multicurrency credit facility and $211.0 million available under the foreign
lines of credit. The multicurrency credit facility, the foreign uncommitted
lines of credit, and cash generated by operating activities are expected to be
adequate to finance any additional working capital needs and capital
expenditures. The total debt-to-capital ratio at the end of 1999 was 66.8
percent compared with 70.1 percent at the end of 1998.
OPERATING ACTIVITIES. Cash provided by operating activities was $113.0 million
in 1999, compared with $118.1 million in 1998, and $161.8 million in 1997. The
1999 decrease in cash flow reflects a smaller decrease in inventories, and an
increase in accounts receivable, partially offset by an increase in net income
and cash taxes in excess of the effective tax rate to a lower extent than in
1998. Cash flow in 1999 reflects the payment of $11.1 million of re-engineering
costs. The 1998 decrease in cash flow reflects lower earnings, a smaller
decrease in working capital, and cash taxes in excess of the effective tax rate
to a larger extent than in 1997.
INVESTING ACTIVITIES. For 1999, 1998, and 1997, respectively, capital
expenditures totaled $40.9 million, $46.2 million, and $67.5 million. The most
significant individual component of capital spending was new molds. The steadily
decreasing level of overall expenditures reflects lower spending on plant and
equipment in light of the Company's sales decreases. Capital expenditures are
expected to be between $45 million and $50 million in 2000.
In 1998, the Company sold its Halls, Tennessee, distribution center for $10.6
million in notes receivable. The notes are due through 2004, with the majority
due under a balloon payment to be received in the final year. There was no
significant income statement impact from the sale.
DIVIDENDS. During 1999, 1998, and 1997, the Company paid dividends of $0.88 per
share of common stock totaling $50.7 million, $51.6 million, and $54.2 million,
respectively.
SUBSCRIPTION RECEIVABLE. On November 30, 1998, the Company made a non-recourse,
non-interest bearing loan of $7.7 million (the loan) to its chairman and chief
executive officer (chairman), the proceeds of which were used by the chairman to
buy in the open market 400,000 shares of the Company's common stock (the
shares). The shares are pledged to secure the repayment of the loan. The loan
has been recorded as a subscription receivable and is due November 12, 2006,
with voluntary prepayments permitted subsequent to November 12, 2002. Ten
percent of any annual cash bonus award will be applied against the balance of
the loan. As the loan is reduced by voluntary payments after November 12, 2002,
the lien against the shares will be reduced. The subscription receivable will be
reduced as payments are received.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SHARE REPURCHASES. In 1998 and 1997, respectively, the Company repurchased 3.5
million and 1.5 million shares in the open market, completing its share
repurchase program announced in 1996, for a cost of $150.2 million, or an
average of $30 per share.
YEAR 2000 ISSUES
The Company studied the "Year 2000" issues affecting its information technology
systems, its non-information technology systems, and its issues with third-party
companies and other significant suppliers, and implemented a plan to address
them. Year 2000 issues have not had a material adverse effect on the Company's
operations. The cost of addressing its Year 2000 issues was approximately $5.3
million. These costs have not had a material effect on the Company's financial
position or results of operations in any one period in part because they
represent the re-deployment of existing information technology resources, and
because they would have been incurred as part of normal software upgrades and
replacements.
Due to the Company's extensive foreign operations, it is exposed to Year 2000
issues related to the infrastructures of the countries where these operations
are located; however, the Company is not aware of any specific issues that have
not been addressed through implementation of its plan. Although the Company
believes that it successfully avoided any significant disruption from the Year
2000 issue, it will continue to monitor all critical systems for the appearance
of delayed complications or disruptions, problems relating to the leap year, and
problems encountered through suppliers, customers, and other third parties with
whom the Company deals.
EURO IMPLEMENTATION
On January 1, 1999, several European countries that are members of the European
Monetary Union replaced their respective currencies with one common currency --
the euro. To date there has been no significant impact from the adoption of the
euro, and none is expected. The incremental cost to the Company of addressing
the euro conversion has not been material.
IMPACT OF INFLATION
Inflation as measured by consumer price indexes has continued at a low level in
most of the countries in which the Company operates.
MARKET RISK
One of the Company's market risks is its exposure to the impact of interest rate
changes. The Company has elected to manage this risk through the maturity
structure of its borrowings. Under its present policy, the Company has set a
target of having approximately half of its borrowings with extended terms.
A significant portion of the Company's sales and profits comes from its
international operations. Although these operations are geographically
dispersed, which partially mitigates the risks associated with operating in
particular countries, the Company is subject to the usual risks associated with
international operations. These risks include local political and economic
environments, and relations between foreign and U.S. governments.
Another economic risk of the Company, which is associated with its operating
internationally, is the exposure to fluctuations in foreign currency exchange
rates on the earnings, cash flows, and financial position of the Company's
international operations. The Company is not able to project in any meaningful
way the possible effect of these fluctuations on translated amounts or future
earnings. This is due to the Company's constantly changing exposure to various
currencies, the fact that all foreign currencies do not react in the same manner
in relation to the U.S. dollar, and the large number of currencies involved,
although the Company's most significant exposure is to the euro.
Although this currency risk is partially mitigated by the natural hedge arising
from the Company's local manufacturing in many markets, a strengthening U.S.
dollar generally has a negative impact on the Company. In response to this fact,
the Company uses financial instruments, such as cross-currency interest rate
swaps and forward contracts, to hedge its exposure to certain foreign exchange
risks associated with a portion of its investment in international operations.
In addition to hedging against the balance sheet impact of changes in exchange
rates, the hedge of investments in international operations also has the effect
of hedging a portion of the cash flows from those operations. The Company also
hedges with these instruments certain other exposures to various currencies
arising from non-permanent intercompany loans and firm purchase commitments.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is a listing of the Company's outstanding derivative financial
instruments as of December 25, 1999, and December 26, 1998:
FORWARD CONTRACTS 1999 1998
- ----------------- ------------------------------- ---------------------------------
Weighted Weighted
average average
contract contract
rate of rate of
(Dollars in millions) Buy Sell exchange Buy Sell exchange
- ----------------------------------------------------- ------ --------- ------- ------- ---------
Euro with U.S. dollars $ 70.2 $ 1.0340 $ $
German marks with U.S. dollars 24.4 1.9333
Swiss francs with U.S. dollars 21.1 1.5677 20.8 1.3254
Japanese yen with U.S. dollars 19.2 101.3265
Mexican pesos with U.S. dollars 17.5 9.5463
Philippine pesos with U.S. dollars 13.6 40.9280 12.7 39.4400
Australian dollars with U.S. dollars 12.7 0.6457 6.1 0.6229
Singapore dollars with U.S. dollars 4.8 1.6688
Canadian dollars with U.S. dollars 3.9 1.4718
Greek drachma with U.S. dollars 3.1 324.9300
Austrian shillings with U.S. dollars 0.1 13.5885 8.7 11.6527
Belgian francs with U.S. dollars 82.0 33.8132
French francs with U.S. dollars 36.0 5.4611
Portuguese escudos with U.S. dollars 17.9 167.9783
Italian lira with U.S. dollars 7.2 1,635.2500
Netherlands guilders with U.S. dollars 6.6 1.8462
Mexican pesos for U.S. dollars 21.3 10.3200
Swiss francs for U.S. dollars 19.3 1.5631 18.4 1.3620
Japanese yen for U.S. dollars 17.5 101.8794 10.1 116.6352
Euro for U.S. dollars 4.6 1.0470
German marks for U.S. dollars 4.2 1.9368 19.1 1.6565
Belgian francs for U.S. dollars 29.8 36.0269
French francs for U.S. dollars 16.3 5.9456
Spanish pesetas for U.S. dollars 13.7 140.3850
Portuguese escudos for U.S. dollars 7.5 181.2634
Hong Kong dollars for U.S. dollars 5.5 7.7551
Other currencies 16.1 7.6 various 7.2 9.5 various
-------- ------ ------- -------
$ 206.7 $ 74.5 $ 205.2 $ 129.9
======== ====== ======= =======
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CROSS-CURRENCY INTEREST RATE SWAPS 1999 1998
- ---------------------------------- --------------------------- -------------------------
(Dollars in millions) Weighted Weighted
average average
Amount at contract rate Amount at contract rate
Currency owed inception of exchange inception of exchange
- ----------------------------------------------- ------------- --------- -------------
Euro $ 65.5 1.0650 $
Japanese yen 14.2 141.3300 14.2 141.3300
Swiss francs 10.0 1.5000 11.1 1.3539
Belgian francs 44.2 33.9250
French francs 27.2 5.5075
Portuguese escudos 11.9 168.3600
Netherlands guilders 5.4 1.8550
------ -------
Total $ 89.7 $ 114.0
====== =======
The Company's derivative financial instruments at December 25, 1999, and
December 26, 1998, consisted solely of the financial instruments summarized
above. All of the contracts mature within 12 months. Related to the forward
contracts, the "buy" amounts represent the U.S. dollar equivalent of commitments
to purchase foreign currencies and the "sell" amounts represent the U.S. dollar
equivalent of commitments to sell foreign currencies, all translated at the
year-end market exchange rates for the U.S. dollar. The Company's open forward
contracts as of December 26, 1998, included approximately $60 million of
contracts to sell foreign currencies, which were initially entered into to hedge
a portion of the Company's foreign net investments. All forward contracts open
as of the end of 1999 are hedging cross-currency intercompany loans that are not
permanent in nature or firm purchase commitments. As of the end of fiscal 1999,
under the cross currency interest rate swaps, the Company was to receive
interest at a weighted average rate of 5.9 percent and was obligated to pay
interest at a weighted average rate of 2.4 percent.
FORWARD-LOOKING STATEMENTS
Statements contained in this report that are not based on historical facts are
forward-looking statements involving risks and uncertainties, including sales
force recruiting and activity levels, success of new products and promotional
programs, economic and market conditions generally and foreign exchange risk in
particular, and other risks detailed in the Company's Securities and Exchange
Commission filings. These risks and uncertainties may cause actual results to
differ materially from those projected in forward-looking statements.
10
CONSOLIDATED STATEMENT OF INCOME
Year Ended
--------------------------------------------
(In millions, except per share amounts) Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
- ------------------------------------------------------------------------------- ------------- -------------
Net sales $ 1,043.8 $ 1,082.8 $ 1,229.3
------------- ------------- -------------
Costs and expenses:
Cost of products sold 365.1 406.3 473.9
Delivery, sales, and administrative expense 536.8 562.3 620.7
Interest expense 23.0 24.8 24.1
Interest income (2.1) (2.1) (6.3)
Re-engineering charge 15.1 -- --
Other expense, net 2.6 -- 6.1
------------- ------------- -------------
Total costs and expenses 940.5 991.3 1,118.5
------------- ------------- -------------
Income before income taxes 103.3 91.5 110.8
Provision for income taxes 24.3 22.4 28.8
------------- ------------- -------------
Net income $ 79.0 $ 69.1 $ 82.0
============= ============= =============
Net income per common share:
Basic $ 1.37 $ 1.19 $ 1.34
============= ============= =============
Diluted $ 1.37 $ 1.18 $ 1.32
============= ============= =============
See Notes to the Consolidated Financial Statements.
11
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except per share amounts) Dec. 25, 1999 Dec. 26, 1998
- ---------------------------------------------------------------------------------------------------------------- -------------
ASSETS
Cash and cash equivalents $ 24.4 $ 23.0
Accounts receivable, less allowances of $22.5 million in 1999 and $32.7 million in 1998 114.4 92.3
Inventories 136.7 157.1
Deferred income tax benefits 48.5 55.5
Prepaid expenses and other 46.5 57.7
------------- -------------
Total current assets 370.5 385.6
------------- -------------
Deferred income tax benefits 107.9 84.7
Property, plant, and equipment, net 242.9 271.0
Long-term receivables, net of allowances of $28.0 million in 1999 and $41.4 million in 1998 34.2 40.3
Other assets 40.6 41.8
------------- -------------
Total assets $ 796.1 $ 823.4
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 87.8 $ 85.3
Short-term borrowings and current portion of long-term debt 43.9 18.7
Accrued liabilities 177.5 186.1
------------- -------------
Total current liabilities 309.2 290.1
============= =============
Long-term debt 248.5 300.1
Accrued post-retirement benefit cost 37.0 38.4
Other liabilities 56.1 59.0
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred stock, $0.01 par value, 200,000,000 shares authorized; none issued -- --
Common stock, $0.01 par value, 600,000,000 shares authorized; 62,367,289 shares issued 0.6 0.6
Paid-in capital 20.3 19.5
Subscription receivable (7.7) (7.7)
Retained earnings 484.0 457.2
Treasury stock, 4,701,740 and 4,753,287 shares at cost in 1999, and 1998, respectively (140.2) (142.0)
Unearned portion of restricted stock issued for future service (0.6) (1.4)
Accumulated other comprehensive loss (211.1) (190.4)
------------- -------------
Total shareholders' equity 145.3 135.8
============= =============
Total liabilities and shareholders' equity $ 796.1 $ 823.4
============= =============
See Notes to the Consolidated Financial Statements.
12
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Accumulated
other
compre-
(In millions, except per share amounts) Common stock Treasury stock hensive Compre-
- --------------------------------------- ------------------- ------------------- Paid-in Retained income hensive
Shares Dollars Shares Dollars capital earnings (loss) (a) income
------ ------- ------ ------- ------- -------- ---------- -------
December 28, 1996 62.4 $ 0.6 -- $ -- $ 19.1 $418.2 $(128.5)
Net income 82.0 $ 82.0
Other comprehensive loss:
foreign currency translation
adjustments, net of tax
provision of $5.0 million (62.4) (62.4)
------
Comprehensive income $ 19.6
======
Distribution of equity of the
Company to Premark's
shareholders (2.7)
Cash dividends declared
($0.88 per share) (53.9)
Purchase of treasury stock 1.5 (57.6)
Stock issued for incentive
plans and related tax benefits (0.1) 3.6 0.4 (2.2)
------ ------ ------ ------ ------ ----- ------
December 27, 1997 62.4 0.6 1.4 (54.0) 19.5 441.4 (190.9)
Net income 69.1 $ 69.1
Other comprehensive income:
foreign currency translation
adjustments, net of tax
benefit of $3.7 million 0.5 0.5
------
Comprehensive income $ 69.6
======
Cash dividends declared
($0.88 per share) (50.9)
Purchase of treasury stock 3.5 (93.1)
Stock issued for incentive
plans and related tax benefits (0.1) 5.1 (2.4)
------ ------ ------ ------- ------ ------ -------
December 26, 1998 62.4 0.6 4.8 (142.0) 19.5 457.2 (190.4)
====== ====== ====== ======= ====== ====== =======
(continued on following page)
a. Represents foreign currency translation adjustments.
See Notes to the Consolidated Financial Statements.
13
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (CONTINUED)
Accumulated
other
compre-
(In millions, except per share amounts) Common stock Treasury stock hensive Compre-
- ----------------------------------------------------------- ------------------ Paid-in Retained income hensive
Shares Dollars Shares Dollars capital earnings (loss) (a) income
------ ------- ------ ------- ------- -------- ------------ -------
Net income 79.0 $ 79.0
Other comprehensive loss:
foreign currency translation
adjustments, net of tax
provision of $4.2 million (20.7) (20.7)
------- ------
Comprehensive income $ 58.3
======
Cash dividends declared
($0.88 per share) (50.7)
Stock issued for incentive
plans and related tax benefits (0.1) 1.8 0.8 (1.5)
------ ------ ------ ------- ------ ------ -------
December 25, 1999 62.4 $ 0.6 4.7 $(140.2) $ 20.3 $484.0 $(211.1)
====== ====== ====== ======= ====== ====== =======
a. Represents foreign currency translation adjustments.
See Notes to the Consolidated Financial Statements.
14
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
--------------------------------------------
(In millions) Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 79.0 $ 69.1 $ 82.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 55.6 64.0 66.1
Loss on sale of assets 3.3 3.4 2.7
Foreign exchange loss (gain), net 0.1 (0.6) 1.2
Non-cash impact of re-engineering charge 3.1 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts and notes receivable (30.1) 2.2 15.5
Decrease in inventories 9.1 29.8 44.7
Increase (decrease) in accounts payable and accrued liabilities 6.0 (1.8) (13.6)
Increase (decrease) in income taxes payable 0.6 (27.9) 5.1
Increase in net deferred income taxes (17.7) (15.1) (33.2)
Other, net 4.0 (5.0) (8.7)
------- ------- -------
Net cash provided by operating activities 113.0 118.1 161.8
INVESTING ACTIVITIES:
Capital expenditures (40.9) (46.2) (67.5)
------- ------- -------
FINANCING ACTIVITIES:
Dividend payments to shareholders (50.7) (51.6) (54.2)
Payments to acquire treasury stock -- (93.1) (57.1)
Proceeds from exercise of stock options 0.6 1.4 3.4
Issuance of subscription receivable -- (7.7) --
Net (decrease) increase in short-term debt (23.2) 80.9 (14.8)
Proceeds from issuance of long-term debt -- -- 15.0
------- ------- -------
Net cash used in financing activities (73.3) (70.1) (107.7)
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents 2.6 (0.9) (17.5)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1.4 0.9 (30.9)
Cash and cash equivalents at beginning of year 23.0 22.1 53.0
------- ------- -------
Cash and cash equivalents at end of year $ 24.4 $ 23.0 $ 22.1
======= ======= =======
See Notes to the Consolidated Financial Statements.
15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Tupperware Corporation and all of its subsidiaries (Tupperware, the
Company). All significant intercompany accounts and transactions have been
eliminated. The Company's fiscal year ends on the last Saturday of December.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and 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
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 25, 1999, and December 26, 1998, $8.3 million and $6.8 million,
respectively, of the cash and cash equivalents included on the consolidated
balance sheet were held in the form of time deposits or certificates of
deposit.
INVENTORIES. Inventories are valued at the lower of cost or market. Inventory
cost includes cost of raw material, labor, and overhead. Domestic
inventories, approximately 17 percent and 16 percent of total inventories, at
December 25, 1999, and December 26, 1998, respectively, are valued on the
last-in, first-out (LIFO) cost method. The first-in, first-out (FIFO) cost
method is generally used for the remaining inventories. If inventories valued
on the LIFO method had been valued using the FIFO method, they would have been
$11.9 million and $13.7 million higher at the end of 1999 and 1998,
respectively.
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 years beginning when the software is
placed in service.
PROPERTY AND DEPRECIATION. Properties are initially stated at cost.
Depreciation is determined on a straight-line basis over estimated useful
lives. Generally, the estimated useful lives are 10 to 45 years for buildings
and improvements and 3 to 20 years for machinery and equipment. Upon the sale
or retirement of property, plant, and equipment, a gain or loss is recognized.
If the carrying value of an asset, including associated intangibles, exceeds
the sum of estimated undiscounted future cash flows, then an impairment loss is
recognized for the difference between estimated fair value and carrying value.
Expenditures for maintenance and repairs are charged to expense.
REVENUE RECOGNITION. Revenue is recognized when product is shipped.
ADVERTISING AND RESEARCH AND DEVELOPMENT COSTS. Advertising and research and
development costs are charged to expense as incurred. Advertising expense
totaled $8.7 million, $7.2 million, and $6.2 million in 1999, 1998, and 1997,
respectively. Research and development costs totaled $12.3 million, $13.8
million, and $12.8 million, in 1999, 1998, and 1997, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company measures compensation
expense for employee and director stock options as the aggregate difference
between the market and exercise prices of the options on the date that both the
number of shares the grantee is entitled to receive and the purchase price are
known. Compensation expense associated with restricted stock grants is equal to
the market value of the shares on the date of grant and is recorded pro rata
over the required holding period. Pro forma information relating to the fair
value of stock-based compensation is presented in Note 9 to the consolidated
financial statements.
16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 rates expected to
apply 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 the 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 includes anticipating future income.
NET INCOME PER COMMON SHARE. The financial statements include "basic" and
"diluted" per share information. 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 weighted average number of shares used in the basic
earnings per share computations were 57.5 million,58.2 million, and 61.3
million, in 1999, 1998, and 1997, respectively. The only difference in the
computation of basic and diluted earnings per share is the inclusion of 0.4
million in 1999 and 0.5 million in 1998 and 1997 of shares of potential common
stock. The Company's potential common stock consists of employee and director
stock options and restricted stock.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company uses derivative financial
instruments, principally cross-currency interest rate swaps and
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 firm purchase commitments, and certain
inter-company loan transactions. Gains and losses on instruments designated as
hedges of net investments in a foreign subsidiary or intercompany transactions
that are permanent in nature are accrued as exchange rates change, and are
recognized in shareholders' equity, along with any points on forward exchange
contracts, as foreign currency translation adjustments. The net interest
differential on cross-currency interest rate swaps is included within interest
expense. Gains and losses on contracts designated as hedges of intercompany
transactions that are not permanent in nature are accrued as exchange rates
change and are recognized in income. Gains and losses on contracts designated as
hedges of identifiable foreign currency firm commitments are deferred and
included in the measurement of the related foreign currency transaction.
Contracts hedging non-permanent intercompany transactions and identifiable
foreign currency firm commitments are held to maturity.
In 1999, the Financial Accounting Standards Board (FASB) amended the effective
date for Statement of Financial Accounting Standards (SFAS) 133, "Accounting
for Derivative Instruments and Hedging Activities" to fiscal years beginning
after June 30, 2000. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative 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 the fair value is reported either in earnings or in
other comprehensive income. Adoption of the statement, which is required for the
Company's year 2001 financial statements, will have no significant impact on
the accounting treatment related to the hedging programs the Company has
undertaken.
FOREIGN CURRENCY TRANSLATION. Results of operations for foreign subsidiaries
are translated into U.S. dollars using the 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 the exchange rates at the balance sheet date. The related translation
adjustments are "Accumulated other comprehensive income." Foreign currency
transaction gains and losses, as well as translation of financial statements of
subsidiaries in highly inflationary countries, are included in income.
SUBSCRIPTION RECEIVABLE. On November 30, 1998, the Company made a non-recourse,
non-interest bearing loan of $7.7 million (the loan) to its chairman and chief
executive officer (chairman), the proceeds of which were used by the chairman
to buy in the open market 400,000 shares of the Company's common stock (the
shares). The shares are pledged to secure the repayment of the loan. The loan
has been recorded as a subscription receivable and is due November 12, 2006,
with voluntary prepayments permitted subsequent to November 12, 2002. Ten
percent of any annual cash bonus award to the chairman will be applied against
the balance of the loan. As the loan is reduced by voluntary payments after
November 12, 2002, the lien against the shares will be reduced. The
subscription receivable will be reduced as payments are received.
17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: RE-ENGINEERING PROGRAM
In July 1999, the Company announced a re-engineering program designed to improve
operating profit return on sales over three years through improved
organizational alignment, a higher gross margin percentage, and reduced
operating expenses. In conjunction with implementing the first phase of this
program, the Company recorded a $15.1 million pretax charge in the second
quarter. In the fourth quarter, the Company also incurred $1.0 million of
internal and external consulting costs associated with designing and executing
the re-engineering projects, which are classified as "Delivery, sales, and
administrative expense." The total cost was $12.3 million after tax.
The re-engineering charge falls in the following categories of expenditures and
relates to activities in the Company's geographic segments as indicated below
(in millions):
Severance $ 9.0 Europe $ 7.1
Asset write down 3.1 Asia Pacific 4.0
Other 3.0 Latin America 4.0
------- -------
Total $ 15.1 Total $ 15.1
======= =======
The severance costs relate primarily to the approximately 200 employees whose
positions are being eliminated as a result of the decision to close the Spanish
and Argentine manufacturing plants and to restructure the Japanese
manufacturing operation and the area headquarters in Europe and Asia Pacific.
The asset write downs relate primarily to the plant closures. The expenses
included in the other category are primarily for non-asset write down costs of
exiting facilities and professional fees associated with accomplishing
the re-engineering actions.
The liability balance as of December 25, 1999, was as follows (in millions):
Balance at December 26, 1998 $ --
Provision 15.1
Cash expenditures:
Severance (9.0)
Other (2.1)
Non-cash write downs (3.1)
-------
Balance at December 25, 1999 $ 0.9
=======
NOTE 3: INVENTORIES
(In millions) 1999 1998
- --------------------------------------------------------------------------------------------------------- --------
Finished goods $ 66.0 $ 74.5
Work in process 27.9 31.7
Raw materials and supplies 42.8 50.9
-------- --------
Total inventories $ 136.7 $ 157.1
======== ========
18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: PROPERTY, PLANT, AND EQUIPMENT
(In millions) 1999 1998
- -------------------------------------------------------------- --------
Land $ 12.5 $ 12.5
Buildings and improvements 173.2 182.9
Machinery and equipment 758.1 773.6
Construction in progress 10.3 3.9
-------- --------
Total property, plant, and equipment 954.1 972.9
Less accumulated depreciation (711.2) (701.9)
-------- --------
Property, plant, and equipment, net $ 242.9 $ 271.0
======== ========
In 1998, the Company sold its Halls, Tennessee, distribution center for $10.6
million in notes receivable. As of December 25, 1999, the outstanding receivable
notes were $10.3 million. The notes are due through 2004, with the majority due
under a balloon payment to be received in the final year. There was no
significant income statement impact from the sale.
NOTE 5: ACCRUED LIABILITIES
(In millions) 1999 1998
- -------------------------------------------------------------- --------
Compensation and employee benefits $ 55.1 $ 51.3
Advertising and promotion 33.8 31.1
Taxes other than income taxes 18.3 22.0
Other 70.3 81.7
-------- --------
Total accrued liabilities $ 177.5 $ 186.1
======== ========
NOTE 6: FINANCING ARRANGEMENTS
DEBT
Debt consists of the following:
(In millions) 1999 1998
- -------------------------------------------------------------- --------
6.84% Series Notes due 2000 $ 15.0 $ 15.0
7.05% Series Notes due 2003 15.0 15.0
7.25% Notes due 2006 100.0 100.0
Short-term borrowings 161.9 187.3
Other 0.5 1.5
-------- --------
292.4 318.8
Less current portion (43.9) (18.7)
-------- --------
Long-term debt $ 248.5 $ 300.1
======== ========
19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In millions) 1999 1998
- ---------------------------------------------------------------------------
Total short-term borrowings at year-end $ 161.9 $ 187.3
Weighted average interest rate at year-end 5.3% 4.7%
Average short-term borrowings during the year $ 217.6 $ 197.2
Weighted average interest rate for the year 4.6% 5.7%
Maximum short-term borrowings during the year $ 258.5 $ 240.8
The average borrowings and weighted average interest rates were determined
using month-end borrowings and the interest rates applicable to them. Of total
year-end borrowings at December 25, 1999, $40.0 million was under the Company's
$300.0 million multicurrency financing facility (the $300 Million Facility)
with a group of banks, and $52.9 million was through outstanding commercial
paper. The remaining $69.0 million of short-term borrowings was from several
banks, with $27.7 million in German marks, $15.7 million in Japanese yen, $14.5
million in Belgian francs, and $11.1 million in various other currencies. As of
December 25, 1999, $133.0 million of the Company's outstanding borrowings that
were due within one year by their terms were classified as non-current due to
the Company's ability and intent that those borrowings be outstanding
throughout 2000.
As of December 25, 1999, the Company had $471.0 million of unused lines of
credit, including $260.0 million under the $300 Million Facility and $211.0
million available under $280.0 million of foreign uncommitted lines of credit.
The $300 Million Facility supports the Company's commercial paper borrowing
capability and expires on August 8, 2002. Interest paid on total debt in 1999,
1998, and 1997, was $21.6 million, $26.2 million, and $23.7 million,
respectively.
The Company's debt agreements contain covenants that require the Company, among
other things, to maintain liquidity amounts, net worth, and fixed charge
coverage ratios, and limit debt to capital ratios.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to their short maturity or their insignificance, the carrying amounts of
cash and cash equivalents, accounts and notes receivable, accounts payable,
accrued liabilities, short-term borrowings, and outstanding forward exchange
contracts approximated their fair values at December 25, 1999, and December 26,
1998. The approximate fair value of the Company's $100.0 million of 7.25 percent
notes due in 2006, determined through reference to market yields, was $92.5
million and $104.3 million as of December 25, 1999, and December 26, 1998,
respectively. The fair value of the remaining long-term debt approximated its
book value at the end of 1999 and 1998.
OPERATING LEASES
Rental expense for operating leases totaled $37.0 million in 1999, $36.7
million in 1998, and $40.5 million in 1997. Approximate minimum rental
commitments under noncancelable operating leases with initial terms of more than
one year, in effect at December 25, 1999, were: 2000 - $6.0 million; 2001 -
$4.0 million; 2002 - $3.3 million; 2003 - $2.5 million; 2004 - $0.6 million;
and after 2004 - $0.2 million.
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
Following is a listing of the Company's outstanding derivative financial
instruments as of December 25, 1999, and December 26, 1998:
FORWARD CONTRACTS 1999 1998
- ----------------- ------------------------------- ----------------------------------
Weighted Weighted
average average
contract contract
rate of rate of
(Dollars in millions) Buy Sell exchange Buy Sell exchange
- ---------------------------------------------------------------- -------- --------- ------ ------- ----------
Euro with U.S. dollars $ 70.2 $ 1.0340 $ $
German marks with U.S. dollars 24.4 1.9333
Swiss francs with U.S. dollars 21.1 1.5677 20.8 1.3254
Japanese yen with U.S. dollars 19.2 101.3265
Mexican pesos with U.S. dollars 17.5 9.5463
Philippine pesos with U.S. dollars 13.6 40.9280 12.7 39.4400
Australian dollars with U.S. dollars 12.7 0.6457 6.1 0.6229
Singapore dollars with U.S. dollars 4.8 1.6688
Canadian dollars with U.S. dollars 3.9 1.4718
Greek drachma with U.S. dollars 3.1 324.9300
Austrian shillings with U.S. dollars 0.1 13.5885 8.7 11.6527
Belgian francs with U.S. dollars 82.0 33.8132
French francs with U.S. dollars 36.0 5.4611
Portuguese escudos with U.S. dollars 17.9 167.9783
Italian lira with U.S. dollars 7.2 1,635.2500
Netherlands guilders with U.S. dollars 6.6 1.8462
Mexican pesos for U.S. dollars 21.3 10.3200
Swiss francs for U.S. dollars 19.3 1.5631 18.4 1.3620
Japanese yen for U.S. dollars 17.5 101.8794 10.1 116.6352
Euro for U.S. dollars 4.6 1.0470
German marks for U.S. dollars 4.2 1.9368 19.1 1.6565
Belgian francs for U.S. dollars 29.8 36.0269
French francs for U.S. dollars 16.3 5.9456
Spanish pesetas for U.S. dollars 13.7 140.3850
Portuguese escudos for U.S. dollars 7.5 181.2634
Hong Kong dollars for U.S. dollars 5.5 7.7551
Other currencies 16.1 7.6 various 7.2 9.5 various
------- -------- ------- -------
$ 206.7 $ 74.5 $ 205.2 $ 129.9
======= ======== ======= =======
21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CROSS-CURRENCY INTEREST RATE SWAPS 1999 1998
- ---------------------------------- --------------------------- ---------------------------
(Dollars in millions) Weighted Weighted
average average
Amount at contract rate Amount at contract rate
Currency owed inception of exchange inception of exchange
- ----------------------------------------------------------------- ------------- ---------- -------------
Euro $ 65.6 1.0650 $
Japanese yen 14.2 141.3300 14.2 141.3300
Swiss francs 10.0 1.5000 11.1 1.3539
Belgian francs 44.2 33.9250
French francs 27.2 5.5075
Portuguese escudos 11.9 168.3600
Netherlands guilders 5.4 1.8550
-------- --------
Total $ 89.7 $ 114.0
======== ========
The Company's derivative financial instruments at December 25, 1999, and
December 26, 1998, consisted solely of the financial instruments summarized
above. All of the contracts mature within 12 months. Related to the forward
contracts, the "buy" amounts represent the U.S. dollar equivalent of
commitments to purchase foreign currencies and the "sell" amounts represent the
U.S. dollar equivalent of commitments to sell foreign currencies, all
translated at the year-end market exchange rates for the U.S. dollar. The
Company's open forward contracts as of December 26, 1998, included
approximately $60 million of contracts to sell foreign currencies, which were
initially entered into to hedge a portion of the Company's foreign net
investments. All forward contracts open as of the end of 1999 are hedging
cross-currency intercompany loans that are not permanent in nature or firm
purchase commitments. As of the end of fiscal 1999, under the cross currency
interest rate swaps, the Company was to receive interest at a weighted average
rate of 5.9 percent and was obligated to pay interest at a weighted average
rate of 2.4 percent.
The Company's theoretical credit risk for each derivative instrument is its
replacement cost, but management believes that the risk of incurring credit
losses is remote and that such losses, if any, would not be material. The
Company also is exposed to market risk on its derivative instruments due to
potential changes in foreign exchange rates; however, such market risk would be
substantially offset by changes in the valuation of the underlying items being
hedged. For all outstanding derivative instruments, the net accrued loss was
$3.3 million and $7.5 million, at December 25, 1999 and December 26, 1998,
respectively. The aggregate impact of all foreign currency transactions was not
material to the Company's income.
NOTE 7: INCOME TAXES
For income tax purposes, the domestic and foreign components of income (loss)
before taxes were as follows:
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------ -------- --------
Domestic $ (15.7) $ 24.5 $ 59.9
Foreign 119.0 67.0 50.9
-------- -------- --------
Total $ 103.3 $ 91.5 $ 110.8
======== ======== ========
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes was as follows:
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------- ----- -----
Current:
Federal $ 8.7 $(2.1) $(1.3)
Foreign 26.1 43.9 55.1
State 3.5 1.4 2.8
----- ----- -----
38.3 43.2 56.6
===== ===== =====
Deferred:
Federal (15.9) (10.3) (10.5)
Foreign 3.7 (9.3) (16.1)
State (1.8) (1.2) (1.2)
----- ----- -----
(14.0) (20.8) (27.8)
----- ----- -----
Total $24.3 $22.4 $28.8
===== ===== =====
The differences between the provision for income taxes and income taxes
computed using the U.S. federal statutory rate were as follows:
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------- ----- -----
Amount computed using statutory rate $36.1 $32.0 $38.8
Increase (reduction) in taxes resulting from:
Net benefit from repatriating foreign earnings (0.3) (22.0) (22.7)
Foreign income taxes (11.5) 11.1 21.3
Changes in valuation allowance for federal deferred tax assets -- -- (10.0)
Other -- 1.3 1.4
----- ----- -----
Total $24.3 $22.4 $28.8
===== ===== =====
In 1999, 1998, and 1997, the Company recognized $0.2 million, $0.6 million, and
$0.3 million, respectively, of benefits for deductions associated with the
exercise of employee stock options. These benefits were added directly to
paid-in capital, and are not reflected in the provision for income taxes.
Deferred tax assets (liabilities) are composed of the following:
(In millions) 1999 1998
- --------------------------------------------------------------------------------------------------------------------- ------
Depreciation $ (8.7) $ (8.9)
Deferred costs -- (0.4)
Other (2.9) (3.4)
------ ------
Gross deferred tax liabilities (11.6) (12.7)
------ ------
Credit carry forwards 42.6 62.2
Fixed assets basis differences 60.5 20.5
Employee benefits accruals 21.0 18.0
Post-retirement benefits 15.8 16.4
Inventory reserves 17.3 16.3
Bad debt reserves 3.2 3.4
Computer leasing transactions -- 3.1
Other accruals 33.8 34.5
------ ------
Gross deferred tax assets 194.2 174.4
====== ======
Valuation allowances (30.8) (23.9)
------ ------
Net deferred tax assets $151.8 $137.8
====== ======
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 25, 1999, the Company had foreign net operating loss carry forwards
of $113.2 million. Of the total net operating loss carry forwards, $60.7
million expire at various dates from 2000 to 2006, while the remainder have
unlimited lives. During 1999, the Company recognized net benefits of $3.0
million related to foreign net operating loss carry forwards. Repatriation of
foreign earnings would not result in a significant incremental cost to the
Company. At December 25, 1999, and December 26, 1998, the Company had valuation
allowances against certain deferred tax assets totaling $30.8 million and $23.9
million, respectively. These valuation allowances relate to tax assets in
jurisdictions where it is management's best estimate that there is not a
greater than 50 percent probability that the benefit of the assets will be
realized in the associated tax returns. The likelihood of realizing the benefit
of deferred tax assets is assessed on an ongoing basis. Consequently, future
material changes in the valuation allowance are possible. The Company paid
income taxes in 1999, 1998, and 1997, of $47.7 million, $65.3 million, and
$50.5 million, respectively.
NOTE 8: RETIREMENT BENEFIT PLANS
PENSION PLANS. The Company has various pension plans covering substantially all
domestic employees 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. Most employees and retirees outside the United States are covered by
government healthcare programs. Employees may become eligible for these
benefits if they reach normal retirement age while working for the Company and
satisfy certain years of service requirements. The medical plans are
contributory, with retiree 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 retirees. The Company has the
right to modify or terminate these plans.
The funded status of the plans was as follows:
U.S. plans Foreign plans
---------------------------------------------- --------------------
Pension benefits Post-retirement benefits Pension benefits
----------------- ------------------------ --------------------
(In millions) 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Change in benefit obligations:
Beginning balance $ 29.9 $ 25.7 $ 41.0 $ 38.1 $ 64.1 $ 57.0
Service cost 1.2 1.1 0.4 0.3 2.7 3.0
Interest cost 1.9 1.8 2.6 2.7 2.5 2.9
Actuarial (gain) loss (4.8) 2.6 (4.0) 2.5 (4.4) --
Benefits paid (1.9) (1.3) (3.5) (2.6) (4.8) (4.6)
Impact of exchange rates -- -- -- -- (1.5) 5.8
------- ------- ------- ------- ------- -------
Ending balance 26.3 29.9 36.5 41.0 58.6 64.1
------- ------- ------- ------- ------- -------
Change in plan assets at fair value:
Beginning balance 25.3 23.1 -- -- 27.4 23.7
Actual return on plan assets 3.6 3.2 -- -- 4.9 1.2
Company contributions -- 0.3 3.5 2.8 2.1 4.2
Plan participant contributions -- -- -- -- 0.2 0.2
Benefits paid (1.8) (1.3) (3.5) (2.6) (4.8) (4.6)
Impact of exchange rates -- -- -- -- -- 2.7
------- ------- ------- ------- ------- -------
Ending balance 27.1 25.3 -- -- 29.8 27.4
------- ------- ------- ------- ------- -------
Funded status of the plan 0.8 (4.6) (36.5) (41.0) (28.8) (36.7)
Unrecognized actuarial (gain) loss (6.6) -- (1.9) 2.1 (5.7) 1.8
Unrecognized prior service benefit (0.1) (0.1) (1.7) (1.8) (0.2) --
Unrecognized net transaction (asset) liability (0.1) (0.2) -- -- 1.5 2.0
Impact of exchange rates -- -- -- -- 0.5 0.6
------- ------- ------- ------- ------- -------
Accrued benefit cost $ (6.0) $ (4.9) $ (40.1) $ (40.7) $ (32.7) $ (32.3)
======= ======= ======= ======= ======= =======
Weighted average assumptions:
Discount rate 7.8% 6.8% 7.8% 6.8% 4.5% 4.7%
Return on plan assets 9.0 9.0 n/a n/a 5.3 5.2
Salary growth rate 6.0 6.0 n/a n/a 2.5 2.6
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Plan assets consist primarily of equity securities and corporate and government
bonds. At December 25, 1999, and December 26, 1998, the accumulated benefit
obligations of certain pension plans exceeded those plans' assets. For those
plans, the accumulated benefit obligations were $41.0 million and $70.7
million, and the fair value of those plans' assets as of December 25, 1999, and
December 26, 1998, were $18.2 million and $42.5 million, respectively.
The costs associated with the plans were as follows:
(In millions) Pension benefits Post-retirement benefits
- -------------------------------------------------------------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
Components of net periodic benefit cost:
Service cost $ 4.0 $ 4.1 $ 4.2 $ 0.4 $ 0.3 $ 0.3
Interest cost 4.5 4.7 4.8 2.6 2.7 2.7
Actual return on plan assets (5.2) (2.3) (3.1) -- -- --
Net amortization and (deferral) 2.4 (0.3) 0.7 (0.1) (0.2) (0.2)
------ ------ ------ ------ ------ ------
Net periodic benefit cost $ 5.7 $ 6.2 $ 6.6 $ 2.9 $ 2.8 $ 2.8
====== ====== ====== ====== ====== ======
The assumed healthcare cost trend rate was 7 percent for the pre-65 plan and 6
percent for the post-65 plan for 1999. The pre-65 plan rate is assumed to
decrease by one percentage point in 2000 when an ultimate level of 6 percent
will be reached. For the post-65 plan the rate is assumed to remain at 6
percent. The healthcare cost trend rate assumption has a significant effect on
the amounts reported. A one percentage point change in the assumed healthcare
cost trend rates would have the following effects:
One percentage point
----------------------
(In millions) Increase Decrease
- ------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components $ 0.3 $ (0.2)
Effect on post-retirement benefit obligation 3.3 (2.9)
The Company also has several savings, thrift, and profit-sharing plans.
Contributions to these plans are based upon various levels of employee
participation. The total cost of these plans was $3.8 million in 1999, $4.5
million in 1998, and $4.9 million in 1997.
NOTE 9: INCENTIVE COMPENSATION PLANS
INCENTIVE PLAN. Certain officers and other key employees of the Company
participate in the Tupperware Corporation 1996 Incentive Plan (the Incentive
Plan). Annual and long-term performance awards and awards of options to
purchase Tupperware shares and of restricted stock are made under the Incentive
Plan. The total number of shares initially available for grant under the
Incentive Plan was 6,100,000; however, that amount was increased to 7,600,000
as a result of Company repurchase of shares in 1997. Of the total number of
shares available for grant, up to 300,000 may be used for restricted stock
awards.
Other than for options on 405,500 shares granted in 1997, for which the
exercise price is 10 percent greater than the grant-date market value of the
shares, all options' exercise prices are equal to the underlying shares'
grant-date market values. Outstanding options granted in 1997 and earlier and
in 1999, which have exercise prices equal to the underlying shares' grant-date
market value and options granted in 1998 on 339,000 shares, have vesting dates
that are three years from the date of grant. The remainder of the options
granted in 1998 vest ratably from the second through fifth anniversaries of the
date of grant. Options that have exercise prices in excess of the grant-date
market price will vest in three equal tranches if the price of the Company's
stock exceeds $32.05, $36.05, and $40.05 per share for 45 of 60 consecutive
trading days over the five-year period beginning on the date of grant.
Outstanding restricted shares have initial vesting periods ranging from 1 to 5
years. All outstanding options have exercise periods that are 10 years from the
date of grant. As of December 25, 1999, shares available for award under the
Incentive Plan totaled 775,899, of which 70,844 could be granted in the form of
restricted stock.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DIRECTOR PLAN. Under the Tupperware Corporation Director Stock Plan (Director
Plan), non-employee directors may elect to receive their annual retainers in
the form of stock or stock options. Options granted to directors become
exercisable on the last day of the fiscal year in which they are granted, have
a term of 10 years, and have an exercise price that compensates for the
foregone cash retainer. This amount and the value of stock grants on the date
of award have been recognized as an expense by the Company. The number of
shares initially available for grant under the Director Plan and the number of
shares available as of December 25, 1999, were 300,000 and 205,076,
respectively.
Earned performance awards of $9.3 million, $9.6 million, and $7.5 million are
included in the consolidated statement of income for 1999, 1998, and 1997,
respectively.
Stock option and restricted stock activity and information about stock options
for the Incentive Plan and the Director Plan are summarized in the following
tables:
Shares Average
subject to option price
Stock options option per share
- ---------------------------------------------------------------- ------------
Balance at December 28, 1996 2,437,143 $ 28.91
Granted 1,090,000 25.24
Canceled (96,748) 36.98
Exercised (83,525) 15.91
---------
Balance at December 27, 1997 3,346,870 27.81
Granted 1,975,402 19.43
Canceled (174,646) 32.84
Exercised (125,413) 11.65
---------
Balance at December 26, 1998 5,022,213 24.75
Granted 1,434,650 18.62
Canceled (233,732) 29.78
Exercised (70,805) 11.42
---------
Balance at December 25, 1999 6,152,326 23.28
=========
Shares
Shares available for
Restricted stock outstanding issuance
- ---------------------------------------------------------------- -------------
Balance at December 28, 1996 148,311 151,689
Awarded 20,329 (20,329)
Canceled (3,244) 3,244
Vested (38,055) --
-------- -------
Balance at December 27, 1997 127,341 134,604
Awarded 59,760 (59,760)
Canceled (7,000) 7,000
Vested (29,728) --
-------- -------
Balance at December 26, 1998 150,373 81,844
Awarded 11,000 (11,000)
Canceled -- --
Vested (101,711) --
-------- -------
Balance at December 25, 1999 59,662 70,844
======== =======
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STOCK OPTIONS OUTSTANDING
As of December 25, 1999
Outstanding Exercisable
------------------------------------------ ------------------------
Average Average Average
remaining exercise exercise
Exercise Price Range Shares life price Shares price
- ----------------------------------------- --------- -------- --------- --------
$ 4.84 48,105 0.9 $ 4.84 48,105 $ 4.84
$ 9.53 -- $ 14.15 437,219 2.7 12.91 437,219 12.91
$ 14.50 -- $ 19.20 3,258,173 9.3 18.97 13,523 16.84
$ 20.00 -- $ 28.57 1,300,892 6.6 25.81 252,642 27.80
$ 30.25 -- $ 42.25 1,107,937 5.7 37.90 1,097,937 37.89
--------- ---------
6,152,326 7.5 23.28 1,849,426 29.59
========= =========
In addition, the Company granted an option on 150,000 shares in 1999 at the
grant date market price of $18.75 per share under the Tupperware Corporation
2000 Incentive Plan (2000 Plan). This grant is subject to shareholder approval
of the 2000 Plan at the Company's May 2000 annual meeting.
The Company uses the intrinsic value method of accounting for stock-based
compensation. The Company has estimated the fair value of its option grants
beginning with 1995. If these fair value estimates had been used to record
compensation expense in the consolidated statement of income, net income would
have been reduced by $4.5 million, $3.7 million, and $2.5 million, to $74.5
million, $65.3 million, and $79.5 million, or $1.29, $1.11, and $1.29 per
diluted common share ($1.30, $1.12, and $1.30 per basic common share) in 1999,
1998, and 1997, respectively.
The fair value of the stock option grants was estimated using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 3.5
percent for 1999 grants, 3.0 percent for 1998 grants, and 2.0 percent for
previous grants; expected volatility of 40.0 percent for 1999 and 1998 grants,
35.0 percent for 1997 grants, and 30.0 percent for previous grants; risk-free
interest rates of 5.9 percent for 1999, 4.5 percent for 1998, 5.8 percent for
1997 and 1995, and 6.4 percent for 1996; and expected lives of 5 years for all
grants. Compensation expense associated with restricted stock grants is equal
to the fair market value of the shares on the date of grant and is recognized
ratably over the required holding period. Compensation expense associated with
restricted stock grants was not significant.
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: SEGMENT INFORMATION
The Company operates worldwide in one line of business: the manufacture and
distribution, primarily through independent direct sales forces, of plastic
food storage and serving containers, microwave cookware, and educational toys.
Its operations are organized into the four geographic segments included in the
following table.
(In millions) 1999 1998 1997
- ------------------------------------------------------------- ---------- ----------
Net sales:
Europe $ 489.1 $ 518.7 $ 546.6
Asia Pacific 242.3 211.5 279.0
Latin America 154.2 186.8 247.2
United States 158.2 165.8 156.5
---------- ---------- ----------
Total net sales $ 1,043.8 $ 1,082.8 $ 1,229.3
========== ========== ==========
Operating profit (loss):
Europe $ 110.7 $ 123.9 $ 144.6
Asia Pacific 35.0 20.2 37.2
Latin America 12.0 (16.4) (5.7)(b)
United States 4.7 4.0 (29.5)(b)
---------- ---------- ----------
Total operating profit 162.4 131.7 146.6
Unallocated expenses (23.1)(a) (17.5) (18.0)(b)
Re-engineering charge (15.1)(a) -- --
Interest expense, net (20.9) (22.7) (17.8)
---------- ---------- ----------
Income before income taxes $ 103.3(a) $ 91.5 $ 110.8(b)
---------- ---------- ----------
Depreciation:
Europe $ 22.0 $ 25.7 $ 26.5
Asia Pacific 11.5 12.0 14.4
Latin America 10.0 12.5 10.5
United States 10.3 11.7 12.8
Corporate 1.8 2.1 1.9
---------- ---------- ----------
Total depreciation $ 55.6 $ 64.0 $ 66.1
========== ========== ==========
Capital expenditures:
Europe $ 14.1 $ 13.1 $ 15.5
Asia Pacific 2.6 5.6 9.8
Latin America 11.5 13.6 17.0
United States 11.5 9.0 16.4
Corporate 1.2 4.9 8.8
---------- ---------- ----------
Total capital expenditures $ 40.9 $ 46.2 $ 67.5
========== ========== ==========
Identifiable assets:
Europe $ 237.6 $ 260.7 $ 287.1
Asia Pacific 139.1 148.4 144.9
Latin America 148.7 165.1 170.2
United States 153.4 151.7 157.1
Corporate 117.3 97.5 87.9
---------- ---------- ----------
Total identifiable assets $ 796.1 $ 823.4 $ 847.2
========== ========== ==========
a. The Company announced a three-year re-engineering program in July 1999. The
re-engineering charge line provides for severance and other exit costs. In
addition, 1999 unallocated expenses include $1.0 million for internal and
external consulting costs incurred in connection with the program. Together,
the after-tax impact of these costs was $12.3 million. See Note 2.
b. Includes a pretax charge totaling $42.4 million ($31.4 million after tax):
$22.2 million in Latin America, primarily for bad debts in Brazil; $16.0
million in the United States, primarily for inventory obsolescence; and $4.2
million in unallocated expenses, primarily for corporate downsizing.
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Sales and operating profit in the preceding table are from transactions with
customers. Inter-area transfers of inventory are accounted for at cost. Sales
to a single customer did not exceed 10 percent of total sales. Export sales
were insignificant. Sales to customers in Germany were $209.2 million, $241.2
million, and $260.8 million in 1999, 1998, and 1997, respectively ($231.8
million and $247.0 million in 1998 and 1997, respectively, at 1999 exchange
rates). No other foreign country's sales were material to the Company's total
sales. Unallocated expenses are corporate expenses and other items not directly
related to the operations of any particular geographic segment.
Corporate assets consist of cash and assets maintained for general corporate
purposes. The United States was the only country with long-lived assets greater
than 10 percent of the Company's total assets at December 25, 1999. As of the
end of 1999 and 1998, respectively, long-lived assets in the United States were
$109.0 million and $110.3 million.
As of December 25, 1999, and December 26, 1998, the Company's net investment in
international operations was $223.7 million and $212.2 million, respectively.
The Company is subject to the usual economic risks associated with
international operations; however, these risks are partially mitigated by the
broad geographic dispersion of the Company's operations.
NOTE 11: COMMITMENTS AND CONTINGENCIES
The Company and certain subsidiaries are involved in litigation and various
legal matters that are being defended and handled in the ordinary course of
business. Included among these matters are environmental issues. None of the
Company's contingencies are expected to 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. and Tupperware, has assumed any liabilities arising out of any legal
proceedings in connection with certain divested or discontinued businesses. The
liabilities assumed include matters alleging product liability, environmental
liability, and infringement of patents.
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
Following is a summary of the unaudited interim results of operations for each
quarter in the years ended December 25, 1999, and December 26, 1998.
First Second Third Fourth
(In millions, except per share amounts) quarter quarter quarter quarter
- ----------------------------------------------------- ------- ------- -------
Year ended December 25, 1999:
Net sales $ 250.9 $ 271.3 $ 211.9 $ 309.7
Cost of product sold 84.1 93.1 79.1 108.8
Net income 17.8 14.3(a) 3.5 43.4(a)
Net income per share:
Basic 0.31 0.25(a) 0.06 0.75(a)
Diluted 0.31 0.25(a) 0.06 0.75(a)
Dividends declared per share 0.22 0.22 0.22 0.22
Composite stock price range:
High 21 7/16 24 1/16 25 1/2 21 1/8
Low 15 1/16 17 19 1/8 16
Close 19 1/16 20 7/16 19 3/4 16 7/8
Year ended December 26, 1998:
Net sales $ 268.8 $ 282.9 $ 217.4 $ 313.7
Cost of product sold 96.3 108.4 90.6 111.0
Net income (loss) 15.4 23.0 (6.5) 37.2
Net income (loss) per share:
Basic 0.26 0.40 (0.11) 0.64
Diluted 0.26 0.39 (0.11) 0.64
Dividends declared per share 0.22 0.22 0.22 0.22
Composite stock price range:
High 28 9/16 29 28 3/4 20
Low 24 1/4 24 13/16 12 7/8 11 7/16
Close 26 9/16 27 1/16 12 7/8 16
a. Includes pretax re-engineering costs of $15.1 million in the second quarter
and $1.0 million in the fourth quarter (after-tax $11.5 million, and $0.7
million) for the program announced in July 1999. See Note 2.
NOTE 13: RIGHTS AGREEMENT
In 1996, the Company adopted a shareholders' rights plan with a duration of 10
years, under which shareholders received a right to purchase one one-hundredth
of a share of preferred stock for each right owned. The rights are exercisable
if 15 percent of the Company's common stock is acquired or threatened to be
acquired, and the rights are redeemable by the Company if exercisability has
not been triggered. Under certain circumstances, if 50 percent or more of the
Company's consolidated assets or earning power are sold, a right entitles the
holder to buy shares of the Company equal in value to twice the exercise price
of each right. Upon acquisition of the Company by a third party, a holder could
receive the right to purchase stock in the acquirer. The foregoing percentage
thresholds may be reduced to not less than 10 percent.
30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Tupperware Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Tupperware
Corporation and its subsidiaries at December 25, 1999 and December 26, 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 25, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of Tupperware Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Orlando, Florida
February 18, 2000
REPORT OF MANAGEMENT
The management of Tupperware is responsible for the preparation of the
financial statements and other information contained in this Annual Report. The
financial statements were prepared in accordance with generally accepted
accounting principles and include amounts that are based upon management's best
estimate and judgments, as appropriate. PricewaterhouseCoopers LLP has audited
these financial statements and has expressed an independent opinion thereon.
The Company maintains internal control systems, policies, and procedures
designed to provide reasonable assurance that assets are safeguarded, that
transactions are executed in accordance with management's authorization and
properly recorded, and that accounting records may be relied upon for the
preparation of financial information. There are inherent limitations in all
internal control systems based on the fact that the cost of such systems should
not exceed the benefits derived. Management believes that the Company's systems
provide the appropriate balance of costs and benefits. The Company also
maintains an internal auditing function that evaluates and reports on the
adequacy and effectiveness of internal accounting controls, policies, and
procedures. The Audit and Corporate Responsibility Committee of the Board of
Directors is composed entirely of outside directors. The Committee meets
periodically and independently with management, the vice president of internal
audit, and PricewaterhouseCoopers LLP to discuss the Company's internal
accounting controls, auditing, and financial reporting matters. The vice
president of internal audit and PricewaterhouseCoopers LLP have unrestricted
access to the Audit and Corporate Responsibility Committee. Management
recognizes its responsibility for conducting the Company's affairs in a manner
that is responsive to the interests of its shareholders and its employees. This
responsibility is characterized in the Code of Conduct, which provides that the
Company will fully comply with laws, rules, and regulations of every country in
which it operates and will observe the rules of ethical business conduct.
Employees of the Company are expected and directed to manage the business of
the Company accordingly.
/s/ Rick Goings /s/ Paul B. Van Sickle
Rick Goings Paul B. Van Sickle
Chairman and Chief Executive Vice President
Executive Officer and Chief Financial Officer