-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4blV5xqEEQkPSSWwpa5iGy7VFuZTA+Ww0wRoHjUcBP8xWnjZ8ZGXBxKTtMwBf4p lwH3bfX7wwVl/PesXn5xYw== 0001008654-00-000038.txt : 20000320 0001008654-00-000038.hdr.sgml : 20000320 ACCESSION NUMBER: 0001008654-00-000038 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TUPPERWARE CORP CENTRAL INDEX KEY: 0001008654 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 364062333 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11657 FILM NUMBER: 573063 BUSINESS ADDRESS: STREET 1: 14901 S ORANGE BLOSSOM TRAIL CITY: ORLANDO STATE: FL ZIP: 32802-2353 BUSINESS PHONE: 4078265050 MAIL ADDRESS: STREET 1: P O BOX 2353 CITY: ORLANDO STATE: FL ZIP: 32802 10-K 1 TEST FILING OF 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 25, 1999 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from ________to ___________ Commission file number 1-11657 TUPPERWARE CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-4062333 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14901 South Orange Blossom Trail, 32837 Orlando, Florida (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (407) 826-5050 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, $0.01 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __ Aggregate market value of the Registrant's voting stock held by non-affiliates, based upon the closing price of said stock on the New York Stock Exchange-Composite Transaction Listing on March 10, 2000 ($16.25 per share): $922,572,381.25. As of March 10, 2000, 57,666,434 shares of the Common Stock, $0.01 par value, of the Registrant were outstanding. Documents Incorporated by Reference: Portions of the Annual Report to Shareholders for the year ended December 25, 1999 are incorporated by reference into Parts I, II and IV of this Report. Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held May 11, 2000 are incorporated by reference into Part III of this Report. PART I Item 1. Business (a) General Development of Business Tupperware Corporation (the "Registrant" or "Tupperware") is a multinational consumer products company. The Registrant is a Delaware corporation that was organized on February 8, 1996 in connection with the corporate reorganization of Premark International, Inc. ("Premark"). In the reorganization, the businesses of the Registrant and certain other assets and liabilities of Premark and its subsidiaries were transferred to the Registrant. On May 31, 1996, the Registrant became a publicly held company through the pro rata distribution by Premark to its shareholders of all of the outstanding shares of common stock of the Registrant. BUSINESS OF TUPPERWARE CORPORATION Tupperware is a worldwide direct selling consumer products company engaged in the manufacture and sale of Tupperware products. Principal Products. Tupperware conducts its business through a single business segment, manufacturing and marketing a broad line of high- quality consumer products for the home. The core of Tupperware's product line consists of food storage containers that preserve freshness through the well-known Tupperware seals. Tupperware also has an established line of children's educational toys, serving products and gifts. The line of products has expanded over the years into kitchen, home storage and organizing uses with products such as Modular Mates* containers, Fridge Stackables* containers, One Touch* canisters, the Rock'N Serve* line, Ultraplus* and OvenWorks* line, Expressions* line, Legacy* Serving line and TupperMagic* line, and many specialized containers. In recent years, Tupperware has expanded its offerings in the food preparation and servicing areas through the addition of a number of products, including double colanders, tumblers and mugs, mixing and serving bowls, serving centers, microwaveable cooking and serving products, and kitchen utensils. Tupperware continues to introduce new designs and colors in its product lines, and to extend existing products into new markets around the world. The development of new products varies in different markets in order to address differences in cultures, lifestyles, tastes and needs of the markets. New products introduced in 1999 included a wide range of products in all four geographic areas, including many using Disney movie and cartoon characters under a license. Some of the new products are the Fridgesmart* line, Royal Crest* line, Vitalic* stainless steel cookware line, Santoku Knives, Healthy Baster, Air Filter, Sandwich Keepers, and Cake Servers. New product development and introduction will continue to be an important part of Tupperware's strategy. Products sold by Tupperware are primarily produced by Tupperware in its manufacturing facilities around the world. In some markets, Tupperware sources certain products from third parties and/or contracts with local manufacturers to manufacture its products, utilizing high- quality molds that are generally supplied by Tupperware. Promotional items provided at product demonstrations include items obtained from outside sources. (Words followed by * are Trademarks of the Registrant.) Markets. Tupperware's business is operated on the basis of four geographic segments: Europe, Asia Pacific, Latin America, and the United States. Tupperware has operations in more than 75 countries and its products are sold in more than 100 foreign countries and in the United States. For the past five fiscal years, sales in foreign countries represented, on average, 85% percent of total Tupperware revenues. Market penetration varies throughout the world. Several "developing" areas that have low penetration, such as Latin America, Asia and Eastern (Central) Europe, provide significant growth potential for Tupperware. Tupperware's strategy continues to include expansion into new markets throughout the world. Distribution of Tupperware Products. Tupperware's products are distributed worldwide primarily through the "direct selling" method of distribution, in which products are sold to consumers outside traditional retail store channels. The distributorship system is intended to facilitate the timely distribution of products to the consumer, and to establish uniform practices regarding the use of Tupperware trademarks and the administrative arrangements with Tupperware, such as order entering and delivering, paying and recruiting, and training of dealers. Tupperware products sold under the direct selling method are sold directly to distributors or dealers throughout the world. Distributors are granted the right to market Tupperware products using the demonstration and other non-traditional retail methods and to utilize the Tupperware trademark. The vast majority of Tupperware's distributorship system is composed of distributors, managers and dealers (known in the United States as consultants) who are independent contractors and not employees of Tupperware. In certain limited circumstances, Tupperware acquires ownership of distributorships for a period of time, until an independent distributor can be installed, in order to maintain market presence. In addition to the introduction of new products and development of new geographic markets, a key element of Tupperware's strategy is expanding its business by enlarging the number of distributors and dealers. Under the Tupperware system, distributors recruit, train, and motivate a large sales force to cover the distributor's geographic area. Managers are developed and promoted by distributors to assist the distributors in recruiting, training, and motivating dealers, while continuing to hold their own demonstrations. As of December 25, 1999, the Tupperware distribution system had over 1,800 distributors, over 51,000 managers, and over 980,000 dealers worldwide. Tupperware relies primarily on the "demonstration" method of sales, which is designed to enable the purchaser to appreciate through demonstration the features and benefits of Tupperware products. Demonstrations, which are sometimes referred to as "Tupperware parties," are held in homes, offices, social clubs and other locations. In excess of 14.8 million demonstrations were held in 1999 worldwide. Tupperware products are also promoted through brochures mailed to persons invited to attend Tupperware parties and various other types of demonstrations. Sales of Tupperware products are supported by Tupperware through a program of sales promotions, sales and training aids and motivational conferences for the independent sales force. In addition, to support its sales force, Tupperware utilizes catalogs, television and magazine advertising, which helps increase its sales levels with hard-to-reach customers. In 1999, Tupperware continued exploring integrated access strategies to allow consumers to obtain Tupperware products other than by attending a Tupperware party. These strategies include television shopping, direct mail, kiosks and the Internet. Tupperware's strategy is to use integrated access strategies in a way that will complement its direct selling distribution network. The distribution of products to consumers is primarily the responsibility of distributors, who often maintain their own inventory of Tupperware products, the necessary warehouse facilities, and delivery systems; however, in some situations, Tupperware will perform the warehousing and selling function paying the distributor a commission for their sales activity. In certain markets, Tupperware offers distributors the use of a delivery system of direct product shipment to consumers or dealers, which is intended to reduce the distributor's investment in inventory and enable distributors to be more cost-efficient. Competition. There are two primary competitive factors which affect Tupperware's business: (i) competition with other "direct sales" companies for sales personnel and demonstration dates; and (ii) competition in all the markets for food storage and serving containers, toys, and gifts in general. Tupperware believes that it holds a significant market share in each of these markets in many countries. This has been facilitated by innovative product development and a large, dedicated worldwide sales force. Tupperware's competitive strategies are to continue to expand its direct selling and integrated access distribution systems, and to provide high-quality, high-value products throughout the world. Employees. Tupperware employs approximately 6,600 people, of whom approximately 1,295 are based in the United States. Tupperware's United States work force is not unionized. In certain countries, Tupperware's work force is covered by collective arrangements decreed by statute. The terms of most of these arrangements are determined on an annual basis. Additionally, approximately 130 Tupperware manufacturing employees in an Australian mold manufacturing operation are covered by a collective bargaining agreement, which is negotiated annually, and Philippine manufacturing employees have negotiated a collective bargaining agreement which will remain in effect until this year. There have been no work stoppages or threatened work stoppages by the workforce in over five years and Tupperware believes its relations with its employees to be good. The independent consultants, dealers, managers and distributors engaged in the direct sale of Tupperware products are not employees of Tupperware. Research and Development. For fiscal years ended 1999, 1998 and 1997, Tupperware incurred expenses of approximately $12.3 million, $13.8 million and $12.8 million respectively, on research and development activities for new products. Raw Materials. Products manufactured by Tupperware require plastic resins meeting its specifications. These resins are purchased through various arrangements with a number of large chemical companies located throughout Tupperware's markets. As a result, Tupperware has not experienced difficulties in obtaining adequate supplies and generally has been successful in mitigating the effects of increases in resin market prices. Research and development relating to resins used in Tupperware products is performed by both Tupperware and its suppliers. Trademarks and Patents. Tupperware considers its trademarks and patents to be of material importance to its business; however, except for the Tupperware trademark, Tupperware is not dependent upon any single patent or trademark, or group of patents or trademarks. The trademark on the Tupperware name is registered on a country-by-country basis. The current duration for such registration ranges from seven years to fifteen years; however, each such registration may be renewed an unlimited number of times. The patents and trademarks used in Tupperware's business are registered and maintained on a worldwide basis, with a variety of durations. Tupperware has followed the practice of applying for design and utility patents with respect to most of its significant patentable developments. Environmental Laws. Compliance with federal, state and local environmental protection laws has not had in the past, and is not expected to have in the future, a material effect upon Tupperware's capital expenditures, liquidity, earnings or competitive position. Other. Tupperware sales do not vary significantly on a quarterly basis; however, third quarter sales are generally lower than the other quarters in any year due to vacations by Tupperware's dealers and their customers, as well as Tupperware's reduced promotional activities during such quarter. Sales generally increase in the fourth quarter as it includes traditional gift giving occasions in many of Tupperware's markets and as children return to school and households refocus on activities that include the use of Tupperware's products. There are no working capital practices or backlog conditions which are material to an understanding of Tupperware's business. Tupperware's business is not dependent on a small number of customers, nor is any of its business subject to renegotiation of profits or termination of contracts or subcontracts at the election of the United States government. Executive Officers of the Registrant. Following is a list of the names and ages of all the Executive Officers of the Registrant, indicating all positions and offices with the Registrant held by each such person, and each such person's principal occupations or employment during the past five years. Each such person has been elected to serve until the next annual election of officers of the Registrant (expected to occur on May 11, 2000). Positions and Offices Held and Principal Occupations of Employment During Past Five Years Name and Age Office and Experience Gerald M. Crompton, age 56 Senior Vice President, Product Marketing, Worldwide since November 1997, after serving as Vice President, Product Marketing, Worldwide since November 1996. Prior thereto, he served as Vice President, Product Management for Tupperware Europe, Africa and Middle East since 1992. Karel A. De Vydt, age 49 Vice President and Chief Information Officer since January 1999. Prior thereto, he served as Director of Information Technology Worldwide from April 1997 after being the Director of Information Technology for Tupperware Europe, Africa and Middle East. R. Glenn Drake, age 47 President, Tupperware North America since January 2000. Prior thereto, he served as Managing Director, Tupperware Canada from September 1998 after serving as Area Vice President of Tupperware North America from July 1995. Prior thereto, he served as Managing Director, Tupperware Spain from January 1993. Lillian D. Garcia, age 43 Senior Vice President, Human Resources since December 1999. Prior thereto, she was Vice President Human Resources since March 1999, after serving in various human resources positions within the Corporation. E.V. Goings, age 54 Chairman and Chief Executive Officer since October 1997, after serving as President and Chief Operating Officer since 1996. Prior thereto, he served as Executive Vice President of Premark International, Inc. and President of Tupperware Worldwide since November 1992. Mr. Goings serves as a Director of SunTrust Bank, Florida. David T. Halversen, age 55 Senior Vice President, Business Development and Communications since November 1996. Prior thereto, he served as Senior Vice President, Planning, Business Development and Financial Relations since March 1996. He previously served as Vice President, Business Development and Planning since February 1995, after serving in various planning and strategy positions with Avon Products, Inc. Christine J. Hanneman, age 44 Vice President, Financial Relations and Treasury since January 2000, after serving as Vice President, Financial Relations since March 1996. She served as Director, Investor Relations for Premark International, Inc. since June 1994. Charles H. R. Henry, age 49 Vice President, Process Reengineering since January 1999. From 1994 to 1998, he served in various executive positions with Tupperware Europe, Africa and Middle East. Alan D. Kennedy, age 69 President, since April 1998. Prior thereto, he was an independent consultant, since 1996, and from 1989 to 1996 served as President and CEO of Nature's Sunshine Products, Inc. Anne E. Naylor, age 50 Vice President, Internal Audit since October 1999. Prior thereto, she served as Executive Director, Business Analysis and Audit, Cummins Engine Company from May 1995. Prior thereto, she served as Controller, North American Engine Marketing, Cummins Engine Company since May 1991. Gaylin L. Olson, age 54 President, Tupperware Latin America since September 1998. He has served in various executive positions for Tupperware, including Senior Vice President, Emerging Markets since May 1996 and prior thereto as President, Tupperware Asia Pacific since 1993. Michael S. Poteshman, age 36 Vice President and Controller since January 1998, after serving as Assistant Controller since March 1996. Prior thereto, he served as Director, Accounting and Reporting Standards for Premark International, Inc. since September 1993. Thomas M. Roehlk, age 49 Senior Vice President, General Counsel and Secretary since December 1995. Prior thereto, he served as Assistant General Counsel and Assistant Secretary of Premark International, Inc. James E. Rose, Jr., age 57 Senior Vice President, Taxes and Government Affairs since March 1997, after serving as Vice President, Taxes and Government Affairs since March 1996. Prior thereto, he served as Vice President, Taxes and Government Affairs for Premark International, Inc. Hans Joachim Schwenzer, age 63 Senior Vice President, Tupperware Worldwide since May 1996. He also serves as President, Tupperware Germany; President, Sales Programs and Promotions, Tupperware Europe, Africa and Middle East; and Regional General Manager, Russia. Prior to assuming those positions, he served as President, Tupperware Europe, Africa and Middle East. Christian E. Skroeder, age 51 Group President, Tupperware Europe, Africa and Middle East since April 1998. Prior thereto, he served in various other executive positions with Tupperware. William E. Spears, age 54 Senior Vice President Worldwide since September 1999. Prior thereto, he served as President, Tupperware North America since January 1998. Prior thereto, he served as President, Tupperware U.S. since February 1997 after serving as Executive Vice President and Chief Operating Officer of Nature's Sunshine Products, Inc. since 1994. Jose R. Timmerman, age 51 Senior Vice President, Worldwide Operations, since August 1997, after serving as Vice President Worldwide Operations, since October 1993. Paul B. Van Sickle, age 60 Executive Vice President and Chief Financial Officer since September 1999. Prior thereto, he served as Executive Vice President since March 1997, after serving as Senior Vice President, Finance and Operations since November 1992. Robert W. Williams, age 56 President, Tupperware Asia Pacific since April 1995. Prior thereto, he served in various management positions in Tupperware Asia Pacific starting in August 1993. Item 2. Properties The principal executive office of the Registrant is owned by the Registrant and is located in Orlando, Florida. The Registrant owns and maintains manufacturing plants in Belgium, Brazil, France, Greece, Japan, Korea, Mexico, the Philippines, Portugal, South Africa, and the United States, and leases manufacturing facilities in Venezuela and China. Tupperware conducts a continuing program of new product design and development at its facilities in Florida, Japan and Belgium. None of the owned principal properties is subject to any encumbrance material to the consolidated operations of the Registrant. The Registrant considers the condition and extent of utilization of its plants, warehouses and other properties to be good, the capacity of its plants and warehouses generally to be adequate for its needs, and the nature of the properties to be suitable for its needs. Item 3. Legal Proceedings A number of ordinary course legal and administrative proceedings against Tupperware are pending. In addition to such proceedings, there are certain proceedings that involve the discharge of materials into or otherwise relating to the protection of the environment. Certain of such proceedings involve federal environmental laws such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as well as state and local laws. Tupperware establishes reserves with respect to certain of such proceedings. Because of the involvement of other parties and the uncertainty of potential environmental impacts, the eventual outcomes of such actions and the cost and timing of expenditures cannot be estimated with certainty. It is not expected that the outcome of such proceedings, either individually or in the aggregate, will have a materially adverse effect upon Tupperware. As part of the 1986 reorganization involving the formation of Premark International, Inc., Premark was spun-off by Dart & Kraft, Inc. and Kraft Foods, Inc. assumed any liabilities arising out of any legal proceedings in connection with certain divested or discontinued former businesses of Dart Industries Inc., a subsidiary of Tupperware, including matters alleging product liability and environmental liability. The assumption of liabilities by Kraft Foods, Inc. remains effective subsequent to the distribution of the equity of the Registrant to Premark shareholders. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The stock price information set forth in Note 12: "Quarterly Financial Summary (Unaudited)" appearing on page 53 of the Annual Report to Shareholders for the year ended December 25, 1999, is incorporated by reference into this Report. The information set forth in Note 13: "Rights Agreement" on page 53 of the Annual Report to Shareholders for the year ended December 25, 1999 is incorporated by reference into this Report. As of March 10, 2000, the Registrant had 12,772 shareholders of record. Item 6. Selected Financial Data The information set forth under the caption "Selected Financial Data" on pages 23 and 24 of the Annual Report to Shareholders for the year ended December 25, 1999, is incorporated by reference into this Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth on pages 25 through 33 of the Annual Report to Shareholders for the year ended December 25, 1999, is incorporated by reference into this Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The information set forth under the caption "Market Risk" on page 31 of the Annual Report to Shareholders for the year ended December 25, 1999, is incorporated by reference into this Report. Item 8. Financial Statements and Supplementary Data (a) The following Consolidated Financial Statements of Tupperware Corporation and Report of Independent Certified Public Accountants set forth on pages 34 through 53, and on page 54, respectively, of the Annual Report to Shareholders for the year ended December 25, 1999 are incorporated by reference into this Report: Consolidated Statement of Income, Shareholders' Equity and Cash Flows - Years ended December 25, 1999, December 26, 1998, and December 27, 1997; Consolidated Balance Sheet - December 25, 1999 and December 26, 1998; Notes to the Consolidated Financial Statements; and Report of Independent Certified Public Accountants. (b) The supplementary data regarding quarterly results of operations contained in Note 12: "Quarterly Financial Summary (Unaudited)" of the Notes to the Consolidated Financial Statements of Tupperware Corporation on page 53 of the Annual Report to Shareholders for the year ended December 25, 1999, is incorporated by reference into this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant The information as to the Directors of the Registrant set forth under the sub-caption "Board of Directors" appearing under the caption "Election of Directors" on pages 3 through 5 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 11, 2000, is incorporated by reference into this Report. The information as to the Executive Officers of the Registrant is included in Part I hereof under the caption "Executive Officers of the Registrant" in reliance upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Item 11. Executive Compensation The information set forth under the caption "Compensation of Directors" on page 15 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 11, 2000, and the information on pages 11 through 15 of such Proxy Statement relating to executive officers' compensation is incorporated by reference into this Report. Item 12. Security Ownership of Certain Beneficial Owners and Management The information set forth under the captions "Security Ownership of Certain Beneficial Owners" on page 7 and "Security Ownership of Management" on page 6 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 11, 2000, is incorporated by reference into this Report. Item 13. Certain Relationships and Related Transactions The information set forth under the caption "Indebtedness of Management" on page 8 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 11, 2000, is incorporated by reference into this Report. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports On Form 8-K (a) (1) List of Financial Statements The following Consolidated Financial Statements of Tupperware Corporation and Report of Independent Certified Public Accountants set forth on pages 34 through 53 and on page 54, respectively, of the Annual Report to Shareholders for the year ended December 25, 1999, are incorporated by reference into this Report by Item 8 hereof: Consolidated Statement of Income, Shareholders' Equity and Cash Flows - Years ended December 25, 1999, December 26, 1998, and December 27, 1997; Consolidated Balance Sheet - December 25, 1999, and December 26, 1998; Notes to the Consolidated Financial Statements; and Report of Independent Certified Public Accountants. (a) (2) List of Financial Statement Schedules The following consolidated financial statement schedule (numbered in accordance with Regulation S-X) of Tupperware Corporation is included in this Report: Report of Independent Certified Public Accountants on Financial Statement Schedule, page 16 of this Report; and Schedule II-Valuation and Qualifying Accounts for each of the three years ended December 25, 1999, page 17 of this Report. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the information called for therein is included elsewhere in the financial statements or related notes contained or incorporated by reference herein. (a) (3) List of Exhibits: (numbered in accordance with Item 601 of Regulation S-K) Exhibit Number Description *1 Underwriting Agreement (Attached to Form S-3 (No. 33-12125) Registration Statement as Exhibit 1 filed with the Commission on September 16, 1996, and incorporated herein by reference). *2 Distribution Agreement by and among Premark International, Inc., Tupperware Corporation and Dart Industries Inc. (Attached as Exhibit 2 to Tupperware Corporation's Registration Statement on Form 10 (No. 1-11657) filed with the Commission on March 4, 1996, and incorporated herein by reference). *3.1 Amended and Restated Certificate of Incorporation of Tupperware Corporation (Attached as Exhibit 3.1 to Form 10 (No. 1-11657) filed with the Commission on March 4, 1996, and incorporated herein by reference). *3.2 Amended and Restated By-laws of Tupperware Corporation as amended May 11, 1999. (Attached as Exhibit 3.2 to Form 10-Q for the second quarter of 1999 filed with the Commission on August 9, 1999, and incorporated herein by reference). *4.1 Rights Agreement, by and between Tupperware Corporation and the rights agent named therein (Attached as Exhibit 4 to Form 10 (No. 1-11657), filed with the Commission on March 4, 1996, and incorporated herein by reference). *4.2 Indenture dated as of October 1, 1996, among Tupperware Corporation and The First National Bank of Chicago, as Trustee, (Attached as Exhibit 4(a) to Tupperware Corporation's Registration Statement on Form S-3 (No. 33-12125), filed with the Commission on September 25, 1996, and incorporated herein by reference). *4.3 Form of Debt Securities (Attached as Exhibit 4(b) to Tupperware Corporation's Registration Statement on Form S-3 (No. 33-12125), filed with the Commission on September 25, 1996, and incorporated herein by reference). *4.4 Form of Warrant Agreement, including form of Warrant Certificate (Attached as Exhibit 4(a) to Tupperware Corporation's Registration Statement on Form S-3 (No. 33-12125) filed with the Commission on September 25, 1996, and incorporated herein by reference). *10.1 Tupperware Corporation 1996 Incentive Plan as amended August 18, 1999, (Attached as Exhibit 10.12 to Form 10-Q for the third quarter of 1999 filed with the Commission on November 5, 1999, and incorporated herein by reference). *10.2 Tupperware Corporation Directors' Stock Plan as amended November 12, 1998 (Attached as Exhibit 10.2 to Form 10-K (No. 1-11657) filed with the Commission on March 24,1999 and incorporated herein by reference). *10.3 Form of Change of Control Agreement (Attached as Exhibit 10.2 to Form 10-Q for the third quarter of 1999 filed with the Commission on November 8, 1999 and incorporated herein by reference). *10.4 Tax Sharing Agreement between Tupperware Corporation and Premark International, Inc. (Attached as Exhibit 10.3 to Form 10 (No. 1-11657), filed with the Commission on May 22, 1996, and incorporated herein by reference). *10.5 Employee Benefits and Compensation Allocation Agreement between Tupperware Corporation and Premark International, Inc.(Attached as Exhibit 10.4 to Form 10 (No. 1-11657), filed with the Commission on March 4, 1996, and incorporated herein by reference). *10.6 Credit Agreement dated May 16, 1996, (Attached as Exhibit 10.8 to the Registrant's Registration Statement on Form 10 (No. 1- 11657), filed with the Commission on May 22, 1996, as Exhibit 10.8 and incorporated herein by reference). *10.7 Form of Franchise Agreement between a subsidiary of the Registrant and distributors of Tupperware products in the United States (Attached as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996, filed with the Commission on March 25, 1997, and incorporated herein by reference). *10.8 First Amendment dated August 8, 1997, to Credit Agreement dated May 16, 1996, (Attached as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended December 27, 1997, and filed with the Commission on March 24, 1998, and incorporated herein by reference). *10.9 Loan Agreement, Promissory Note, and Stock Pledge Agreement dated November 13, 1998, between Tupperware and E. V. Goings (Attached as Exhibit 10.9 to Form 10-K (No. 1-11657) filed with the Commission on March 24, 1999, and incorporated herein by reference). 13 Pages 23 through 54 of the Annual Report to Shareholders of the Registrant for the year ended December 25, 1999. 21 Subsidiaries of Tupperware Corporation as of March 10, 2000. 23 Manually signed Consent of Independent Certified Public Accountants to the incorporation of their report by reference into the prospectus contained in specified registration statements on Form S-8 and Form S-3. 24 Powers of Attorney 27 Financial Data Schedule *Document has heretofore been filed with the Commission and is incorporated by reference and made a part hereof. The Registrant agrees to furnish, upon request of the Commission, a copy of all constituent instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries. (b) Reports on Form 8-K During the quarter ended December 25, 1999, the Registrant did not file any reports on Form 8-K. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tupperware Corporation Our audits of the consolidated financial statements referred to in our report dated February 18, 2000 appearing in the 1999 Annual Report to Shareholders of Tupperware Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Orlando, Florida February 18, 2000 TUPPERWARE CORPORATION SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 25, 1999 (In millions)
Col. A Col. B. Col. C. Col. D. Col E. - -------- ------- -------- ------- ----- Additions --------------------- Balance at Charged Charged Balance Beginning to Costs & to Other at End Description of Period Expenses Accounts Deductions of Period - ----------- ---------- ---------- -------- ---------- ------- Allowance for doubtful accounts, current and long term: Year ended December 25, 1999 77.4 8.6 0.1 (25.3) 53.4 (7.4) Year ended December 26, 1998 81.9 15.0 (0.5) (22.3) 77.4 3.3 Year ended December 27, 1997 67.9 27.5 0.8 (12.1) 81.9 (2.2) Valuation allowance for deferred tax assets: Year ended December 25, 1999 23.9 6.9 -- -- 30.8 Year ended December 26, 1998 14.4 9.5 -- -- 23.9 Year ended December 27, 1997 25.8 (11.4) -- -- 14.4 Represents write-offs less recoveries. Foreign currency translation adjustment.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Signature Title Chairman of the Board of Directors, E. V. Goings Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President and Chief Financial Officer Paul B. Van Sickle (Principal Financial Officer) Vice President and Controller Michael S. Poteshman (Principal Accounting Officer) * Director Rita Bornstein, Ph.D * Director Clifford J. Grum * Director Betsy D. Holden * Director Joe R. Lee * Director Bob Marbut * Director Angel R. Martinez * Director David R. Parker * Director Robert M. Price * Director Joyce M. Roche *By Thomas M. Roehlk Attorney-in-fact March 17, 2000 EXHIBIT INDEX Exhibit No. Description 13 Pages 23 through 54 of the Annual Report to Shareholders of the Registrant for the year ended December 25, 1999 21 Subsidiaries of Tupperware Corporation as of March 10, 2000 23 Manually signed Consent of Independent Certified Public Accountants to the incorporation of their report by reference into the prospectus contained in specified registration statements on Form S-8 and Form S-3 24 Powers of Attorney 27 Financial Data Schedule EX-13 2 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 EX-21 3 LIST OF SUBSIDIARIES EXHIBIT 21 TUPPERWARE CORPORATION Active Subsidiaries As of January 5, 2000 The following subsidiaries are wholly owned by Tupperware Corporation or a subsidiary of Tupperware Corporation (degree of remoteness from the registrant is shown by indentations). Tupperware Corporation Tupperware International Holdings BV Tupperware, Ltd. Tupperware Polska Sp. zo. o Dart Argentina S. A. Tupperware Israel Ltd. Tupperware Belgium, N. V. Tupperware France S. A. Tupperware Holdings BV Tupperware Assets Management S. a. r. l. Tupperware Morocco UAB "Tupperware" Tupperware Service GmbH Tupperware Nederland Properties B.V. Tupperware Nederland B.V. Tupperware Deutschland G.m.b.H. Tupperware Osterreich G.m.b.H. Tupperware Southern Africa (Proprietary) Limited Tupperware Products B.V. Tupperware (Suisse) S.A. Tupperware Products S. A. Tupperware d.o.o. Tupperware Bulgaria EOOD Tupperware Eesti OU SIA Tupperware Latvia Tupperware Luxembourg S.ar.l. Tupperware East Africa Limited Tupperware Italia S.p.A. Tupperware General Services N.V. Japan Tupperware Co., Ltd. Tupperware Trading Ltd. Tupperware Czech Republic, spol. s.r.o. Tupperware United Kingdom & Ireland Limited Tupperware Nordic A/S Tupperware Holdings, Ltd. Deerfield Land Corporation Tupperware Financial Corporation Dart Industries Inc. Tupperware International Holdings Corporation Tupperware Far East, Inc. Tupperware Turkey, Inc. Dart Far East Sdn. Bhd. Dart de Venezuela, C.A Tupperware Espana, S. A. Tupperware Colombia S.A. Dart do Brasil Industria e Comercio Ltda. Daypar Participacoes Ltda Academia Negocios S/C Ltda. Tupperware Hellas, S.A.I.C. Tupperware Del Ecuador Cia. Ltda. Dart Industries Hong Kong Limited Tupperware Asia Pacific Holdings Private Limited Tupperware India Private Limited Dart Manufacturing India Pvt. Ltd. Dart (Philippines), Inc. Tupperware Realty Corporation Tupperware Philippines, Inc. Tupperware China, LLC Tupperware (China) Company Limited Dart Industries (New Zealand) Limited Tupperware New Zealand Staff Superannuation Plan Dart S. A. de C. V. Servicos Especializados de Arrendamiento en Latinoamerica S.A. de C.V. Dartco Manufacturing Inc. Tupperware Industria Lusitana de Artigos Domesticos, Lda. Tupperware (Portugal) Artigos Domesticos, Lda. Premiere Products, Inc. Tupperware Singapore Pte. Ltd. Premiere Korea Ltd. Premiere Marketing Company Exportadora Lerma, S. A. de C. V. Premiere Manufacturing, Inc. Tupperware U.S., Inc. Tupperware Distributors, Inc. Tupperware Factors Inc. Tupperware.com, Inc. Tupperware Canada Inc. Tupperware Australia Pty. Ltd Dart Staff Superannuation Fund Pty Ltd Importadora Y Distribuidora Importupp Limitada Tupperware Iberica S.A. Tupperware (Thailand) Limited Tupperware Uruguay S.A. Dart Executive Pension Fund Limited Dart Pension Fund Limited Tupperware U.K. Holdings, Inc. The Tupperware Foundation Tupperware Products, Inc. Tupperware de El Salvador, S. A. de C.V. Tupperware del Peru S.R.L. Dart Holdings, S. de R. L. Tupperware Honduras, S. de R. L. Tupperware de Costa Rica, S. A. Tupperware de Guatemala, S.A. Asociacion Nacional de Distribuidores de Productos Tupperware, A. C. Tupperware Panama, S. A. Tupperware Finance Holding Company, B.V. Tupperware Finance Company, B. V. Tupperware Holdings Corporation Tupperware Home Parties Corporation Tupperware Export Sales, Ltd. Tupperware Services, Inc. EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-04871), the Registration Statement on Form S-8 (No. 33-04869), the Registration Statement on Form S-8 (No. 33-18331) and the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-12125) of Tupperware Corporation of our report dated February 18, 2000, relating to the financial statements which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 18, 2000, relating to the Financial Statement Schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Orlando, Florida March 17, 2000 EX-24 5 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Tupperware Corporation, a Delaware corporation, (the "Corporation"), hereby constitutes and appoints Thomas M. Roehlk and Charles L. Dunlap, true and lawful attorneys-in-fact and agents of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign the Annual Report on Form 10-K of the Corporation for its fiscal year ended December 25, 1999, and any and all amendments thereto, and to file or cause to be filed the same, together with any and all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and substitutes, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand and seal this 14 day of March, 2000. Rita Bornstein Clifford J. Grum Betsy D. Holden Joe R. Lee Bob Marbut Angel R. Martinez David R. Parker Robert M. Price Joyce M. Roche EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TUPPERWARE CORPORATION'S 1999 FINANCIAL STATEMENTS AS INCORPORATED BY REFERENCE IN ITS ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-25-1999 DEC-27-1998 DEC-25-1999 24400 0 136900 22500 136700 370500 954100 711200 796100 309200 248500 0 0 600 144700 796100 1043800 1043800 365100 365100 2600 0 23000 103300 24300 79000 0 0 0 79000 1.37 1.37
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