TUP 10Q 6.30.12
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the 13 weeks ended June 30, 2012
OR
o
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 BRANDS CORPORATION
(Exact name of registrant as specified in its charter)  
 ________________________________________
Delaware
36-4062333
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
14901 South Orange Blossom Trail, Orlando, Florida
32837
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code: (407) 826-5050
________________________________________ 
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   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
x
 
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o  No   x
As of August 2, 2012, 55,713,868 shares of the common stock, $0.01 par value, of the registrant were outstanding.

Table of Contents

TABLE OF CONTENTS

 
 
Page
Number  
PART I. FINANCIAL INFORMATION
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
Consolidated Statements of Income 13 weeks ended June 30, 2012 and July 2, 2011, 26 weeks ended June 30, 2012 and 27 weeks ended July 2, 2011
 
 
 
 
Consolidated Statements of Comprehensive Income 13 weeks ended June 30, 2012 and July 2, 2011, 26 weeks ended June 30, 2012 and 27 weeks ended July 2, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II. OTHER INFORMATION
 
 
 
Item 2.
 
 
 
Item 6.
 
 


2
Table of Contents


Item 1.
Financial Statements (Unaudited)

TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
13 weeks ended
 
13 weeks ended
 
26 weeks ended
 
27 weeks ended
(Dollars in millions, except per share amounts)
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
 
 
 
 
 
 
 
 
Net sales
$
638.9

 
$
669.9

 
$
1,278.4

 
$
1,306.3

Cost of products sold
206.7

 
219.6

 
419.8

 
434.5

Gross margin
432.2

 
450.3

 
858.6

 
871.8

 
 
 
 
 
 
 
 
Delivery, sales and administrative expense
328.5

 
344.2

 
668.1

 
683.6

Re-engineering and impairment charges
1.1

 
1.1

 
2.0

 
2.5

Impairment of goodwill and intangible assets
76.9

 
—

 
76.9

 
—

Gains on disposal of assets, including insurance recoveries
7.5

 
0.7

 
7.7

 
0.7

Operating income
33.2

 
105.7

 
119.3

 
186.4

 
 
 
 
 
 
 
 
Interest income
0.6

 
0.8

 
1.3

 
1.7

Interest expense
8.7

 
25.6

 
18.5

 
33.1

Other expense (income)
0.4

 
(0.2
)
 
0.1

 
(0.1
)
Income before income taxes
24.7

 
81.1

 
102.0

 
155.1

 
 
 
 
 
 
 
 
Provision for income taxes
12.0

 
16.0

 
31.0

 
34.2

Net income
$
12.7


$
65.1

 
$
71.0

 
$
120.9

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 

 
 

 
 
 
 
Basic
$
0.23

 
$
1.05

 
$
1.28

 
$
1.95

Diluted
0.22

 
1.03

 
1.25

 
1.91

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 

 
 
 
 
Basic
55.5

 
61.7

 
55.7

 
62.0

Diluted
56.5

 
63.1

 
56.8

 
63.3

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.36

 
$
0.30

 
$
0.72

 
$
0.60


See accompanying Notes to Consolidated Financial Statements (Unaudited).

3
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TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
13 weeks ended
 
13 weeks ended
 
26 weeks ended
 
27 weeks ended
(Dollars in millions, except per share amounts)
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Net income
$
12.7

 
$
65.1

 
$
71.0

 
$
120.9

Foreign currency translation adjustments
(59.0
)
 
11.3

 
(18.0
)
 
45.6

Deferred gain on cash flow hedges, net of tax provision of $0.8 and $7.4 million for the second quarters of 2012 and 2011, respectively, and $0.3 and $8.1 million for the year-to-date periods, respectively.
2.9

 
13.8

 
1.3

 
13.9

Pension and other post-retirement costs, net of tax provision of $0.5 and $0.1 million for the second quarters of 2012 and 2011, respectively, and $0.2 and $0.8 million for the year-to-date periods, respectively.
1.8

 
(0.3
)
 
2.1

 
0.3

Comprehensive (loss) income
$
(41.6
)
 
$
89.9

 
$
56.4

 
$
180.7


See accompanying Notes to Consolidated Financial Statements (Unaudited).

4
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TUPPERWARE BRANDS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
(Dollars in millions, except share amounts)
June 30,
2012
 
December 31,
2011
ASSETS
 

 
 

Cash and cash equivalents
$
98.0

 
$
138.2

Accounts receivable, less allowances of $28.6 million in 2012 and $26.8 million in 2011
176.7

 
163.7

Inventories
321.1

 
302.5

Deferred income tax benefits, net
97.0

 
94.2

Non-trade amounts receivable, net
53.8

 
47.5

Prepaid expenses and other current assets
33.9

 
23.3

Total current assets
780.5

 
769.4

Deferred income tax benefits, net
317.6

 
339.2

Property, plant and equipment, net
276.7

 
273.1

Long-term receivables, less allowances of $23.2 million in 2012 and $23.3 million in 2011
23.3

 
23.2

Trademarks and tradenames
132.5

 
157.1

Other intangible assets, net
5.7

 
7.2

Goodwill
185.2

 
241.4

Other assets, net
34.5

 
33.6

Total assets
$
1,756.0

 
$
1,844.2

LIABILITIES AND SHAREHOLDERS' EQUITY
 

 
 

Accounts payable
$
115.6

 
$
157.2

Short-term borrowings and current portion of long-term debt and capital lease obligations
227.7

 
195.7

Accrued liabilities
309.0

 
320.5

Total current liabilities
652.3

 
673.4

Long-term debt and capital lease obligations
414.3

 
415.2

Other liabilities
228.7

 
254.8

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; 63,607,090 shares issued
0.6

 
0.6

Paid-in capital
137.3

 
126.8

Retained earnings
1,098.9

 
1,091.7

Treasury stock 7,797,559 and 7,099,345 shares in 2012 and 2011, respectively, at cost
(466.0
)
 
(422.8
)
Accumulated other comprehensive loss
(310.1
)
 
(295.5
)
Total shareholders' equity
460.7

 
500.8

Total liabilities and shareholders' equity
$
1,756.0

 
$
1,844.2


See accompanying Notes to Consolidated Financial Statements (Unaudited).

5
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TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
26 weeks ended
 
27 weeks ended
(In millions)
June 30,
2012
 
July 2,
2011
Operating Activities:
 
 
 

Net income
$
71.0

 
$
120.9

Adjustments to reconcile net income to net cash used in operating activities:
 

 
 

Depreciation and amortization
24.0

 
25.8

Equity compensation
7.2

 
6.8

Amortization of deferred debt costs
0.6

 
1.2

Interest rate swap impairment
—

 
18.9

Net gains on disposal of assets, including insurance recoveries
(7.6
)
 
(0.2
)
Provision for bad debts
5.7

 
5.9

Write-down of inventories
8.4

 
7.4

Non-cash impact of re-engineering and impairment costs
76.9

 
—

Net change in deferred income taxes
(2.6
)
 
(17.0
)
Excess tax benefits from share-based payment arrangements
(8.5
)
 
(7.6
)
Changes in assets and liabilities:
 

 
 

Accounts and notes receivable
(25.5
)
 
(17.3
)
Inventories
(35.8
)
 
(41.3
)
Non-trade amounts receivable
(3.1
)
 
1.8

Prepaid expenses
(11.2
)
 
(8.8
)
Other assets
(2.4
)
 
(4.1
)
Accounts payable and accrued liabilities
(24.9
)
 
(34.5
)
Income taxes payable
(21.9
)
 
(8.2
)
Other liabilities
(0.3
)
 
(3.1
)
Proceeds from insurance recoveries, net of costs
0.2

 
—

Net cash impact from hedging activity
0.8

 
3.2

Other
(0.3
)
 
(0.2
)
Net cash provided by operating activities
50.7

 
49.6

Investing Activities:
 

 
 

Capital expenditures
(33.7
)
 
(25.7
)
Proceeds from disposal of property, plant and equipment
8.8

 
2.6

Net cash used in investing activities
(24.9
)
 
(23.1
)
Financing Activities:
 

 
 

Dividend payments to shareholders
(37.5
)
 
(37.6
)
Net proceeds from issuance of senior notes(1)
—

 
393.3

Proceeds from exercise of stock options
7.4

 
13.9

Repurchase of common stock
(79.0
)
 
(130.8
)
Repayment of long-term debt and capital lease obligations
(1.3
)
 
(406.4
)
Net change in short-term debt
40.4

 
0.1

Debt issuance costs
—

 
(2.9
)
Excess tax benefits from share-based payment arrangements
8.5

 
7.6

Net cash used in financing activities
(61.5
)
 
(162.8
)
Effect of exchange rate changes on cash and cash equivalents
(4.5
)
 
3.7

Net change in cash and cash equivalents
(40.2
)
 
(132.6
)
Cash and cash equivalents at beginning of year
138.2

 
248.7

Cash and cash equivalents at end of period
$
98.0

 
$
116.1

(1)Net proceeds from issuance of senior notes are net of $2.6 million in non-cash debt issuance costs.

See accompanying Notes to Consolidated Financial Statements (Unaudited).

6
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1:
Summary of Significant Accounting Policies
Basis of Presentation: The condensed consolidated financial statements include the accounts of Tupperware Brands Corporation and its subsidiaries, collectively “Tupperware” or the “Company”, with all intercompany transactions and balances having been eliminated. These condensed consolidated financial statements and related notes should be read in conjunction with the 2011 audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
Certain prior year amounts have been reclassified to conform with current year presentation.
These condensed consolidated financial statements are unaudited and have been prepared following the rules and regulations of the United States Securities and Exchange Commission and, in the Company's opinion, reflect all adjustments, including normal recurring items that are necessary for a fair statement of the results for the interim periods. Certain information and note disclosures normally included in the statement of financial position, results of operations, comprehensive income and cash flows prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. Operating results of any interim period presented herein are not necessarily indicative of the results that may be expected for a full fiscal year.
The Company's fiscal year ends on the last Saturday of December and, as a result, the 2012 fiscal year will contain 52 weeks, as compared with 53 weeks for fiscal 2011. The year-to-date period ending June 30, 2012 contained 26 weeks, as compared with the year-to-date period ending July 2, 2011 that contained 27 weeks.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

Note 2:
Shipping and Handling Costs
The cost of products sold line item includes costs related to the purchase and manufacture of goods sold by the Company. Among these costs are inbound freight charges, purchasing and receiving costs, inspection costs, depreciation expense, internal transfer costs and warehousing costs of raw material, work in process and packing materials. The warehousing and distribution costs of finished goods are included in delivery, selling and administrative expense (“DS&A”). Distribution costs are comprised of outbound freight and associated labor costs. Fees billed to customers associated with the distribution of products are classified as revenue. The distribution costs included in DS&A expense for the second quarters of 2012 and 2011 were $37.3 million and $39.9 million, respectively, and were $74.7 million and $77.5 million for the year-to-date periods ended June 30, 2012 and July 2, 2011, respectively.

Note 3:
Promotional Accruals
The Company frequently makes promotional offers to members of its independent sales force to encourage them to fulfill specific goals or targets for sales levels, party attendance, recruiting of new sales force members or other business-critical functions. The awards offered are in the form of cash, product awards, special prizes or trips.
The Company accrues for the costs of these awards during the period over which the sales force qualifies for the award and reports these costs primarily as a component of DS&A expense. These accruals require estimates as to the cost of the awards, based upon estimates of achievement and actual cost to be incurred. During the qualification period, actual results are monitored, and changes to the original estimates are made when known. Promotional and other sales force compensation expenses included in DS&A expense totaled $107.0 million and $114.5 million for the second quarters of 2012 and 2011, respectively, and $219.5 million and $224.9 million for the year-to-date periods ended June 30, 2012 and July 2, 2011, respectively.


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Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 4:
Inventories
 
 
June 30,
2012
 
December 31,
2011
 
(in millions)
Finished goods
$
254.4

 
$
241.0

Work in process
23.9

 
22.0

Raw materials and supplies
42.8

 
39.5

Total inventories
$
321.1

 
$
302.5


Note 5:
Net Income Per Common Share
Basic per share information is calculated by dividing net income by the weighted average number of shares outstanding. Diluted per share information is calculated by also considering the impact of potential common stock on both net income and the weighted average number of shares outstanding. The Company's potential common stock consists of employee and director stock options, restricted stock, restricted stock units and performance share units. Performance share awards are included in the diluted per share calculation when the performance criteria are achieved. The Company's potential common stock is excluded from the basic per share calculation and is included in the diluted per share calculation when doing so would not be anti-dilutive.
The elements of the earnings per share computations were as follows (in millions, except per share amounts):
 
13 weeks ended
 
13 weeks ended
 
26 weeks ended
 
27 weeks ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Net income
$
12.7

 
$
65.1

 
$
71.0

 
$
120.9

Weighted-average shares of common stock outstanding
55.5

 
61.7

 
55.7

 
62.0

Common equivalent shares:
 
 
 
 
 
 
 
Assumed exercise of dilutive options, restricted shares, restricted stock units and performance share units
1.0

 
1.4

 
1.1

 
1.3

Weighted-average common and common equivalent shares outstanding
56.5

 
63.1

 
56.8

 
63.3

Basic earnings per share
$
0.23

 
$
1.05

 
$
1.28

 
$
1.95

Diluted earnings per share
$
0.22

 
$
1.03

 
$
1.25

 
$
1.91

Shares excluded from the determination of potential common stock because inclusion would have been anti-dilutive
0.2

 
0.1

 
0.2

 
0.3


Note 6:
Re-engineering Costs
The Company recorded $1.1 million in re-engineering and impairment charges during each of the second quarters of 2012 and 2011 and $2.0 million and $2.5 million for the respective year-to-date periods. In both years, these charges were primarily related to severance incurred for head count reductions in several of the Company’s operations in connection with changes in its management and organizational structures, and in 2012, also included the relocation of the Company's office in Poland.

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TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The balances included in accrued liabilities related to re-engineering and impairment charges as of June 30, 2012 and December 31, 2011 were as follows (in millions):
 
June 30,
2012
 
December 31,
2011
Beginning of the year balance
$
3.0

 
$
2.4

Provision
2.0

 
7.9

Cash expenditures:
 
 
 

Severance
(2.0
)
 
(5.7
)
Other
(1.1
)
 
(1.1
)
Non-cash asset impairments
—

 
(0.5
)
End of period balance
$
1.9

 
$
3.0

The accrual balance as of June 30, 2012, relates primarily to payments in connection with severance costs in several of the Company's operating units as well as expected payments from the 2011 decision to merge the Nutrimetics and Tupperware businesses in Malaysia. Payments are mainly expected to be made by the end of 2012.
 
Note 7:
Goodwill and Intangible Assets
The Company's goodwill and intangible assets relate primarily to the December 2005 acquisition of the direct selling businesses of Sara Lee Corporation and the October 2000 acquisition of BeautiControl.
The Company does not amortize its tradename intangible assets or goodwill. Instead, the Company tests these assets for impairment annually, or more frequently if events or changes in circumstances indicate they may be impaired. Certain tradenames are allocated between multiple reporting units. The impairment test for the Company's tradenames involves comparing the estimated combined fair value of the assets to the combined carrying amounts, to determine if a write-down to fair value is required. If the carrying amount of a tradename exceeds its estimated fair value, an impairment charge is recognized in an amount equal to the excess. The impairment test for goodwill involves comparing the fair value of a reporting unit to its carrying amount, including goodwill, after any intangible asset impairment charges. If the carrying amount of the reporting unit exceeds its fair value, a second step is required to measure for any goodwill impairment loss. This step revalues all assets and liabilities of the reporting unit to their current fair value and then compares the implied fair value of the reporting unit's goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.
During the second quarter, the Company completed its annual impairment test of the BeautiControl reporting units, resulting in an impairment charge of $38.9 million related to the goodwill in the BeautiControl United States and Canada business as a result of the rates of growth of sales, profit and cash flow and expectations for future performance that were below the Company's previous projections. Also in the second quarter, the financial performance of the Nutrimetics reporting units fell below their normal trend line and it became apparent that they would fall significantly short of previous expectations for the year. Additionally, reductions in the forecasted operating trends of NaturCare relating to declines in the rates of growth of sales, profit and cash flows in the Japanese market led to interim impairment testing in both these businesses, as of the end of May and June 2012, respectively. The result of these tests was to record tradename impairments of $13.8 million for Nutrimetics and $9.0 million for NaturCare, primarily due to the use of lower estimated royalty rates in light of lower sales and profit forecasts for these units, as well as macroeconomic factors that increased the discount rates used in the valuations versus those used previously. In addition, the Company wrote off the $7.2 million and $7.7 million carrying value of the goodwill of the Nutrimetics Asia Pacific and Nutrimetics Europe reporting units, respectively, in light of current operating trends and expected future results as well as the macroeconomic factors that increased the discount rates used in the valuations.

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TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Fair value of the BeautiControl United States, Nutrimetics and NaturCare reporting units is determined by the Company using a combination of the income and market approaches with generally a greater weighting on the income approach (75 percent). The income approach, or discounted cash flow approach, requires significant assumptions to determine the fair value of each reporting unit. These include estimates regarding future operations and the ability to generate cash flows, including projections of revenue, costs, utilization of assets and capital requirements, along with an estimate as to the appropriate discount rate to be used. The most sensitive estimate in this valuation is the projection of operating cash flows, as these provide the basis for the fair market valuation. The Company’s cash flow model uses forecasts for periods of about 10 years and a terminal value. The significant assumptions for these forecasts included annual revenue growth rates ranging from negative 7 percent to positive 10 percent with an average growth rate of positive 3 percent. The growth rates were determined by reviewing historical results of these units and the historical results of the Company’s other business units that are similar to those of the reporting units, along with the expected contribution from growth strategies implemented in the units. Terminal values for all reporting units were calculated using a long-term growth rate of 3 percent. In estimating the fair value of the reporting units, the Company applied discount rates to the projected cash flows ranging from 12.5 to 14.0 percent. The discount rate at the high end of this range was for the Nutrimetics Asia Pacific reporting unit due to higher country-specific risks. The market approach relies on an analysis of publicly-traded companies similar to Tupperware and deriving a range of revenue and profit multiples. The publicly-traded companies used in the market approach were selected based on their having similar product lines of consumer goods, beauty products and/or companies using a direct-selling distribution method. The resulting multiples were then applied to the revenue and profit of the reporting units to determine fair value.
The fair value of the Nutrimetics and NaturCare tradenames were determined using the relief from royalty method, which is a form of the income approach. In this method, the value of the asset is calculated by selecting royalty rates, which estimate the amount a company would be willing to pay for the use of the asset. These rates were applied to the projected revenue, tax affected and discounted to present value. Royalty rates used were selected by reviewing comparable trademark licensing agreements in the market and the forecasted performance of the business. As a result, the royalty rates were reduced to 1.5 percent for Nutrimetics and 3.75 percent for NaturCare from 3.0 and 4.75 percent previously. In estimating the fair value of the tradenames, the Company applied discount rates of 15.2 and 13.5 percent, respectively, and annual revenue growth ranging from negative 7 percent to positive 7 percent, with an average growth rate of positive 2 percent and a long-term terminal growth rate of 3 percent.
With the tradename impairment recorded in the current year for Nutrimetics and NaturCare, these assets are at a higher risk of additional impairments in future periods if changes in certain assumptions occur. There is no longer a goodwill balance recorded on the books related to Nutrimetics or BeautiControl United States and Canada. The estimated fair value of the NaturCare reporting unit exceeded the carrying value by 29 percent. Given the sensitivity of the valuations to changes in cash flow or market multiples, the Company may be required to recognize an impairment of goodwill or intangible assets in the future due to changes in market conditions or other factors related to the Company’s performance. Actual results below forecasted results or a decrease in the forecasted future results of the Company’s business plans or changes in discount rates could also result in an impairment charge, as could changes in market characteristics including declines in valuation multiples of comparable publicly-traded companies. Further impairment charges would have an adverse impact on the Company’s net income.
The Company expects to complete the annual valuation of the remaining units during the third quarter.
The following table summarizes the year-to-date changes in the Company’s goodwill and tradename balance (in millions):
 
 Goodwill
 
 Tradenames
 Balance at December 31, 2011
$
241.4

 
$
157.1

 Impairments
(53.8
)
 
(22.8
)
 Effect of changes in exchange rates
(2.4
)
 
(1.8
)
 Balance at June 30, 2012
$
185.2

 
$
132.5



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TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 8:
Segment Information
The Company manufactures and distributes a broad portfolio of products, primarily through independent direct sales consultants. Certain operating segments have been aggregated based upon consistency of economic substance, geography, products, production process, class of customers and distribution method.
The Company's reportable segments include the following:
Europe
Primarily design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware® brand. Europe also includes Avroy Shlain® and Nutrimetics® units that sell beauty and personal care products. Asia Pacific also sells beauty and personal care products in some of its units under the NaturCare®, Nutrimetics® and Fuller® brands.

Asia Pacific
Tupperware North America
Beauty North America
Premium cosmetics, skin care and personal care products marketed under the BeautiControl® and Armand Dupree® brands in the United States, Canada and Puerto Rico and the Fuller Cosmetics® brand in Mexico and Central America.
South America
Both housewares and beauty products under the Fuller®, Nuvo® and Tupperware® brands.
Worldwide sales of beauty and personal care products totaled $148.1 million and $176.3 million in the second quarters of 2012 and 2011, respectively, and $296.9 million and $345.7 million in the year-to-date periods ended June 30, 2012 and July 2, 2011, respectively.
 
13 weeks ended
 
13 weeks ended
 
26 weeks ended
 
27 weeks ended
(In millions)
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Net sales:
 
 
 
 
 
 
 
Europe
$
194.2

 
$
223.5

 
$
412.4

 
$
454.8

Asia Pacific
186.2

 
175.5

 
364.0

 
335.6

Tupperware North America
89.8

 
97.4

 
174.4

 
184.8

Beauty North America
85.8

 
103.6

 
173.2

 
203.6

South America
82.9

 
69.9

 
154.4

 
127.5

Total net sales
$
638.9

 
$
669.9

 
$
1,278.4

 
$
1,306.3

Segment profit:
 
 
 

 
 
 
 
Europe
$
32.1

 
$
42.2

 
$
68.2

 
$
81.9

Asia Pacific
40.8

 
33.3

 
74.7

 
61.4

Tupperware North America
17.9

 
16.8

 
31.2

 
29.0

Beauty North America
10.1

 
14.4

 
17.0

 
22.6

South America
16.6

 
12.2

 
26.6

 
20.4

Total segment profit
$
117.5

 
$
118.9

 
$
217.7

 
$
215.3

Unallocated expenses
(14.2
)
 
(12.6
)
 
(27.3
)
 
(27.0
)
Re-engineering and impairment charges (a)
(1.1
)
 
(1.1
)
 
(2.0
)
 
(2.5
)
Impairment of goodwill and intangible assets (b)
(76.9
)
 
—

 
(76.9
)
 
—

Gains on disposal of assets, including insurance recoveries
7.5

 
0.7

 
7.7

 
0.7

Interest expense, net
(8.1
)
 
(24.8
)
 
(17.2
)
 
(31.4
)
Income before taxes
$
24.7

 
$
81.1

 
$
102.0

 
$
155.1


11
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Identifiable assets:
June 30,
2012
 
December 31,
2011
Europe
$
378.2

 
$
395.9

Asia Pacific
323.6

 
330.6

Tupperware North America
148.0

 
130.4

Beauty North America
322.9

 
373.7

South America
113.9

 
105.4

Corporate
469.4

 
508.2

Total identifiable assets
$
1,756.0

 
$
1,844.2

_________________________
(a)
See Note 6 to the Consolidated Financial Statements for a discussion of re-engineering and impairment charges.
(b)
See Note 7 to the Consolidated Financial Statements for a discussion of the impairment of goodwill and intangible assets.

Note 9:
Debt
On June 2, 2011, the Company completed the sale of $400 million in aggregate principal amount of 4.750% senior notes due June 1, 2021 (the “Notes”) at an issue price of 98.989%, pursuant to a purchase agreement, dated as of May 25, 2011, that included the Company and its wholly-owned subsidiary, Dart Industries Inc. (the “Guarantor”). As security for its obligations under the guarantee of the Notes, the Guarantor has granted a security interest in certain "Tupperware" trademarks and service marks.
Also on June 2, 2011, the Company and its wholly owned subsidiary Tupperware International Holdings B.V. (the “Subsidiary Borrower”), entered into a multicurrency Credit Agreement (the “Credit Agreement”) with a consortium of lenders. The Credit Agreement makes available to the Company and the Subsidiary Borrower a committed five-year credit facility in an aggregate amount of $450 million (the “Facility Amount”). The Credit Agreement provides (i) a revolving credit facility, available up to the full amount of the Facility Amount, (ii) a letter of credit facility, available up to $50 million of the Facility Amount, and (iii) a swingline facility, available up to $50 million of the Facility Amount. Each of such facilities is fully available to the Company and is available to the Subsidiary Borrower up to an aggregate amount not to exceed $225 million. With the agreement of its lenders, the Company is permitted to increase, on up to three occasions, the Facility Amount by a total of up to $200 million (for a maximum aggregate Facility Amount of $650 million), subject to certain conditions. As of June 30, 2012, the Company had $225.3 million of borrowings outstanding under its $450 million Credit Agreement with $171.3 million denominated in euros.
The Company routinely increases its revolver borrowings under the Credit Agreement during each quarter to fund operating, investing and financing activities, and uses cash available at the end of each quarter to reduce borrowing levels. As a result, the Company has higher foreign exchange exposure on the value of its cash during each quarter than at the end of each quarter.
Loans taken under the Credit Agreement bear interest under a formula that includes, at the Company's option, one of three different base rates, plus an applicable spread.  The Company generally selects the London interbank offered rate ("LIBOR"). As of June 30, 2012, the Credit Agreement dictated a spread of 175 basis points, which gave the Company a weighted average interest rate at that time of 2.35 percent on borrowings under the Credit Agreement.
The Credit Agreement contains customary covenants, including financial covenants requiring a minimum level of interest coverage and allowing a maximum amount of leverage. As of June 30, 2012, and currently, the Company had considerable leeway under its financial covenants.
The Guarantor unconditionally guarantees all obligations and liabilities of the Company and the Subsidiary Borrower relating to this Credit Agreement through a security interest in certain "Tupperware" trademarks and service marks.
At June 30, 2012, the Company had $325.0 million of unused lines of credit, including $221.5 million under the committed, secured $450 million Credit Agreement, and $103.5 million available under various uncommitted lines around the world.


12
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 10:
Derivative Instruments and Hedging Activities
The Company markets its products in almost 100 countries and is exposed to fluctuations in foreign currency exchange rates on the earnings, cash flows and financial position of its international operations. Although this currency risk is partially mitigated by the natural hedge arising from the Company's local manufacturing in many markets, a strengthening U.S. dollar generally has a negative impact on the Company. In response to this fact, the Company uses financial instruments to hedge certain of its exposures and to manage the foreign exchange impact to its financial statements. At its inception, a derivative financial instrument used for hedging is designated as a fair value, cash flow or net equity hedge.
Fair value hedges are entered into with financial instruments such as forward contracts, with the objective of limiting exposure to certain foreign exchange risks primarily associated with accounts receivable, accounts payable and non-permanent intercompany transactions. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings. In assessing hedge effectiveness, the Company excludes forward points, which are considered to be a component of interest expense. The forward points on fair value hedges resulted in pretax gains of $2.7 million and $2.4 million in the second quarters of 2012 and 2011, respectively, and pretax gains of $5.6 million and $4.1 million for the respective year-to-date periods.
The Company also uses derivative financial instruments to hedge foreign currency exposures resulting from certain forecasted purchases and classifies these as cash flow hedges. The Company generally enters into cash flow hedge contracts for periods ranging from three to twelve months. The effective portion of the gain or loss on the hedging instrument is recorded in other comprehensive loss and is reclassified into earnings as the transactions being hedged are recorded. As such, the balance at the end of each reporting period in other comprehensive loss will be reclassified into earnings within the next twelve months. The associated asset or liability on the open hedges is recorded in other current assets or accrued liabilities, as applicable. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense. Forward points on cash flow hedges resulted in pretax losses of $0.4 million and $0.6 million in the second quarters of 2012 and 2011, respectively, and in pretax losses of $1.3 million and $1.2 million for the respective year-to-date periods.
The Company also uses financial instruments, such as forward contracts, to hedge a portion of its net equity investment in international operations and classifies these as net equity hedges. Changes in the value of these derivative instruments, excluding any ineffective portion of the hedges, are included in foreign currency translation adjustments within accumulated other comprehensive loss. The Company recorded a net gain (loss) associated with these hedges, in other comprehensive income, net of tax, of $18.9 million and $(4.4) million in the second quarters of 2012 and 2011, respectively, and a net gain (loss) of $4.6 million and $(11.1) million for the respective year-to-date periods. Due to the permanent nature of the investments, the Company does not anticipate reclassifying any portion of these amounts to the income statement in the next 12 months. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense. For the second quarters of 2012 and 2011, forward points on net equity hedges resulted in pretax losses of $3.4 million and $2.8 million, respectively, and pretax losses of $7.2 million and $5.4 million for the respective year-to-date periods.
While the Company's net equity and fair value hedges of non-permanent intercompany balances mitigate its exposure to foreign exchange gains or losses, they result in an impact to operating cash flows as they are settled, whereas the hedged items do not generate offsetting cash flows. The net cash flow impact of these currency hedges was an inflow of $0.8 million and $3.2 million for the year-to-date periods ended June 30, 2012 and July 2, 2011, respectively.

13
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Following is a listing of the Company's outstanding derivative financial instruments at fair value as of June 30, 2012 and December 31, 2011. 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 period-end market exchange rates for the U.S. dollar. All forward contracts are hedging net investments in certain foreign subsidiaries, cross-currency intercompany loans that are not permanent in nature, cross-currency external payables and receivables or forecasted purchases. Some amounts are between two foreign currencies:
Forward Contracts
 
June 30, 2012
 
December 31, 2011
(in millions)
 
Buy
 
Sell 
 
Buy
 
Sell
Euro
 
$
49.1

 

 
$
61.4

 

U.S. dollar
 
30.9

 


 
48.5

 


Malaysian ringgit
 
12.1

 
 
 
5.0

 
 
Philippine peso
 
8.3

 


 
4.2

 


Indonesian rupiah
 
4.8

 
 
 
6.6

 
 
New Zealand dollar
 
2.4

 


 
4.6

 


Singapore Dollar
 
0.9

 
 
 
 
 
$
1.3

Brazilian real
 
0.7

 


 
6.3

 


Japanese yen
 


 
$
27.4

 


 
28.4

Swiss franc
 
 
 
21.3

 
 
 
39.2

Turkish lira
 
 
 
9.8

 
 
 
14.4

Canadian dollar
 
 
 
6.2

 
 
 
8.6

Russian ruble
 
 
 
6.0

 
 
 
9.3

Mexican peso
 


 
5.2

 
1.8

 


Australian dollar
 


 
4.3

 


 
17.5

British pound
 
 
 
4.1

 
 
 
3.8

South Korean won
 
 
 
3.0

 
6.8

 
 
Thai baht
 
 
 
3.0

 
 
 
2.6

Argentine peso
 


 
2.7

 


 
4.3

Croatian kuna
 
 
 
2.4

 
 
 
2.5

Hungarian forint
 
 
 
2.3

 
 
 
2.0

South African rand
 


 
2.1

 
0.5

 


Indian Rupee
 


 
2.1

 


 
2.0

Czech koruna
 
 
 
1.7

 
 
 
1.9

Polish zloty
 
 
 
1.5

 
 
 
1.5

Norwegian krone
 


 
1.4

 


 
2.0

Swedish krona
 


 
1.2

 


 
1.5

Ukraine hryvnia
 


 
0.5

 


 
1.3

Kazakhstan tenge
 


 
—

 


 
0.3

Other currencies (net)
 


 
2.4

 

 
0.6

 
 
$
109.2

 
$
110.6

 
$
145.7

 
$
145.0

In agreements to sell foreign currencies in exchange for U.S. dollars, for example, an appreciating dollar versus the opposing currency would generate a cash inflow for the Company at settlement, with the opposite result in agreements to buy foreign currencies for U.S. dollars. The above noted notional amounts change based upon changes in the Company's outstanding currency exposures.

14
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

At the time the Company's previous credit facility was terminated during the second quarter of 2011 in conjunction with the signing of the Credit Agreement, the Company maintained four interest rate swap agreements that expire in 2012. These swaps were, at the time the previous credit facility was terminated, and continue to be, out-of-the-money, and the Company continues to pay amounts required under these swaps. The liability under these swaps as of June 30, 2012 was $3.6 million, and changes in fair value of these swaps during the second quarter of 2012, which were not material, have been recorded in current earnings.
The following tables summarize the Company's derivative positions and the impact they have on the Company's financial position as of June 30, 2012 and December 31, 2011:
 
June 30, 2012
 
Asset derivatives
 
Liability derivatives
Derivatives not designated as hedging
instruments (in millions)
Balance sheet location
 
Fair value
 
Balance sheet location
 
Fair value
Interest rate contracts
Non-trade amounts receivable
 
$
—

 
Accrued liabilities
 
$
3.6

Derivatives designated as hedging
instruments (in millions)
 
 
 
 
 
 
 
Foreign exchange contracts
Non-trade amounts receivable
 
25.0

 
Accrued liabilities
 
26.0

Total derivatives instruments
 
 
$
25.0

 
 
 
$
29.6

 
 
 
December 31, 2011
 
Asset derivatives
 
Liability derivatives
Derivatives not designated as hedging
instruments (in millions)
Balance sheet location
 
Fair value
 
Balance sheet location
 
Fair value
Interest rate contracts
Non-trade amounts receivable
 
$
—

 
Accrued liabilities
 
$
10.2

Derivatives designated as hedging
instruments (in millions)
 
 
 
 
 
 
 
Foreign exchange contracts
Non-trade amounts receivable
 
21.4

 
Accrued liabilities
 
18.7

Total derivatives designated as hedging instruments
 
 
$
21.4

 
 
 
$
28.9

The following tables summarize the Company's derivative positions and the impact they had on the Company's results of operations and comprehensive income for the second quarters ended June 30, 2012 and July 2, 2011:
Derivatives designated as fair
value hedges (in millions)
 
Location of gain or
(loss) recognized in
income on derivatives
 
Amount of gain or
(loss) recognized in
income on derivatives 
 
Location of gain or
(loss) recognized in
income on related
hedged items
 
Amount of gain or (loss)
recognized in income on
related hedged items
 
 
 
 
2012
2011
 
 
 
2012
2011
Foreign exchange contracts
 
Other expense
 
$
(30.1
)
$
8.5

 
Other expense
 
$
29.9

$
(8.3
)

15
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Derivatives designated as
cash flow and net equity
hedges (in millions)
 
Amount of gain or
(loss) recognized in
OCI on derivatives
(effective portion)
 
Location of gain or
(loss) reclassified from
accumulated OCI  into
income (effective
portion)
 
Amount of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)
 
Location of gain or
(loss) recognized
in income on
derivatives
(ineffective portion
and amount
excluded from
effectiveness
testing)
 
Amount of gain or
(loss) recognized
in income on
derivatives
(ineffective
portion and
amount excluded
from effectiveness
testing)
Cash flow hedging relationships
 
2012
2011
 
 
 
2012
2011
 
 
 
2012
2011
Interest rate contracts
 
$
—

$
1.2

 
Interest expense
 
$
—

$
—

 
Interest expense
 
$
—

$
(18.9
)
Foreign exchange contracts
 
4.3

(0.4
)
 
Cost of products sold and DS&A
 
(0.6
)
(0.9
)
 
Interest expense
 
(0.4
)
(0.6
)
Net equity hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
29.7

(6.8
)
 
Other expense
 
—

—

 
Interest expense
 
(3.4
)
(2.8
)
The following tables summarize the Company's derivative positions and the impact they had on the Company's results of operations and comprehensive income for the year-to-date periods ended June 30, 2012 and July 2, 2011:
Derivatives designated as fair
value hedges (in millions)
 
Location of gain or
(loss) recognized in
income on derivatives
 
Amount of gain or
(loss) recognized in
income on derivatives 
 
Location of gain or
(loss) recognized in
income on related
hedged items
 
Amount of gain or (loss)
recognized in income on
related hedged items
 
 
 
 
2012
2011
 
 
 
2012
2011
Foreign exchange contracts
 
Other expense
 
$
(10.1
)
$
20.8

 
Other expense
 
$
10.1

$
(20.6
)
Derivatives designated as
cash flow and net equity
hedges (in millions)
 
Amount of gain or
(loss) recognized in
OCI on derivatives
(effective portion)
 
Location of gain or
(loss) reclassified from
accumulated OCI  into
income (effective
portion)
 
Amount of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)
 
Location of gain or
(loss) recognized
in income on
derivatives
(ineffective portion
and amount
excluded from
effectiveness
testing)
 
Amount of gain or
(loss) recognized
in income on
derivatives
(ineffective
portion and
amount excluded
from effectiveness
testing)
Cash flow hedging relationships
 
2012
2011
 
 
 
2012
2011
 
 
 
2012
2011
Interest rate contracts
 
$
—

$
4.1

 
Interest expense
 
$
—

$
—

 
Interest expense
 
$
—

$
(18.9
)
Foreign exchange contracts
 
1.4

(2.9
)
 
Cost of products sold and DS&A
 
0.3

(1.6
)
 
Interest expense
 
(1.3
)
(1.2
)
Net equity hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
7.4

(17.3
)
 
Other expense
 
—

—

 
Interest expense
 
(7.2
)
(5.4
)


16
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 11:
Fair Value Measurements
The following table presents those assets and liabilities recorded at fair value on a recurring basis:
Description of Assets (in millions)
 
June 30, 2012
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Money market funds
 
$
2.0

 
$
2.0

 
$
—

 
$
—

Foreign currency derivative contracts
 
25.0

 
—

 
25.0

 
—

Total
 
$
27.0

 
$
2.0

 
$
25.0

 
$
—

 
 
 
 
 
 
 
 
 
Description of Liabilities (in millions)
 
 

 
 

 
 

 
 

Interest rate swaps
 
$
3.6

 
$
—

 
$
3.6

 
$
—

Foreign currency derivative contracts
 
26.0

 
—

 
26.0

 
—

Total
 
$
29.6

 
$
—

 
$
29.6

 
$
—

 
 
 
 
 
 
 
 
 
Description of Assets (in millions)
 
December 31, 2011
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Money market funds
 
$
9.5

 
$
9.5

 
$
—

 
$
—

Foreign currency derivative contracts
 
21.4

 
—

 
21.4

 
—

Total
 
$
30.9

 
$
9.5

 
$
21.4

 
$
—

 
 
 
 
 
 
 
 
 
Description of Liabilities (in millions)
 
 

 
 

 
 

 
 

Interest rate swaps
 
$
10.2

 
$
—

 
$
10.2

 
$
—

Foreign currency derivative contracts
 
18.7

 
—

 
18.7

 
—

Total
 
$
28.9

 
$
—

 
$
28.9

 
$
—

The Company uses financial instruments to hedge certain of its exposures and to manage the foreign exchange impact to its financial statements. As of June 30, 2012 and December 31, 2011, the Company held foreign currency forward contracts to hedge various currencies which had a net fair value, determined based on third party quotations, of negative $1.0 million and positive $2.7 million, respectively. Changes in fair market value are recorded either in other comprehensive income or earnings, depending on the designation of the hedge as outlined in Note 10 to the Consolidated Financial Statements.
The fair value of interest rate swap contracts was based on the discounted net present value of the swap using third party quotes. Changes in fair market value were recorded in other comprehensive income through the termination date of the related credit facility in the second quarter of 2011. The changes resulting from ineffectiveness during the year-to-date period ended June 30, 2012, which were not material, have been recorded in current earnings.
Included in the Company's cash equivalents balances as of June 30, 2012 and December 31, 2011 were $2.0 million and $9.5 million, respectively, in money market funds, which are highly liquid investments with a maturity of three months or less. These assets are classified within Level 1 of the fair value hierarchy, as the money market funds are valued using quoted market prices in active markets.

17
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis
The following table presents information about assets and liabilities measured at fair value on a non-recurring basis and indicates the placement in the fair value hierarchy of the valuation techniques utilized to determine such fair value.
Description of Assets (in millions)
 
Quarter ended June 30, 2012
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Intangible Assets
 
$
23.0

 
$
—

 
$
—

 
$
23.0

In the second quarter of 2012, the Company completed its annual impairment test of the BeautiControl reporting units. Additionally, the Company completed interim impairment testing for the Nutrimetics and NaturCare reporting units in May and June of 2012, respectively. As a result, the carrying value of goodwill allocated to the Nutrimetics and BeautiControl United States and Canada reporting units were written off in the amounts of $14.9 million and $38.9 million, respectively. Additionally, intangible assets relating to the Company’s Nutrimetics and NaturCare tradenames were written down to their implied fair values of $7.9 million and $15.1 million, respectively. Refer to Note 7 to the Consolidated Financial Statements for further discussion of goodwill and tradename impairments.
Fair Value of Financial Instruments
Due to their short maturities or their insignificance, the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, accrued liabilities and short-term borrowings approximated their fair values at June 30, 2012 and December 31, 2011. The Company estimates that, based on current market conditions, the value of its 4.750% 2021 Notes was $417 million at June 30, 2012, compared with the carrying value of $396 million. The higher fair value resulted from changes, since issuance, in the corporate bond market and investor preferences. The fair value of debt is classified as a Level 2 liability and is estimated using quoted market prices as provided in secondary markets which consider the Company's credit risk and market related conditions.

Note 12:
Retirement Benefit Plans
Components of net periodic benefit cost for the second quarter and year-to-date periods ended June 30, 2012 and July 2, 2011 were as follows (in millions):
 
Second Quarter
 
Year-to-Date
 
Pension benefits
 
Postretirement benefits
 
Pension benefits
 
Postretirement benefits
 
2012
2011
 
2012
2011
 
2012
2011
 
2012
2011
Service cost
$
2.1

$
2.7

 
$
—

$
0.1

 
$
4.8

$
5.2

 
$
0.1

$
0.1

Interest cost
1.8

2.7

 
0.3

0.4

 
4.5

5.2

 
0.7

0.9

Expected return on plan assets
(1.1
)
(1.7
)
 
—

—

 
(2.8
)
(3.3
)
 
—

—

Settlement/Curtailment
—

—

 
—

—

 
—

1.0

 
—

—

Net amortization
1.2

0.9

 
0.1

(0.1
)
 
2.1

1.8

 
—

(0.2
)
Net periodic benefit cost
$
4.0

$
4.6

 
$
0.4

$
0.4

 
$
8.6

$
9.9

 
$
0.8

$
0.8

During the year-to-date periods ended June 30, 2012 and July 2, 2011, approximately $2.1 million and $2.6 million, respectively, were reclassified from other comprehensive income to a component of net periodic benefit cost. As they relate to foreign plans, the Company uses current exchange rates to make these reclassifications. The impact of exchange rate fluctuations is included on the net amortization line of the table above.


18
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 13:
Income Taxes
As of June 30, 2012 and December 31, 2011, the Company's gross unrecognized tax benefit was $29.8 million and $28.6 million, respectively. The accrual for uncertain tax positions increased for positions being taken in various global tax filings. The Company estimates that approximately $24.3 million of the unrecognized tax benefits, if recognized, would impact the effective tax rate. Interest and penalties related to uncertain tax positions in the Company's global operations are recorded as a component of the provision for income taxes. Accrued interest and penalties were $6.6 million and $5.8 million as of June 30, 2012 and December 31, 2011, respectively.
The Company estimates that it may settle one or more foreign audits in the next twelve months that may result in a decrease in the amount of accrual for uncertain tax positions of up to $3.1 million. For the remaining balance as of June 30, 2012, the Company is not able to reliably estimate the timing or ultimate settlement amount. While the Company does not currently expect material changes, it is possible that the amount of unrecognized benefit with respect to the uncertain tax positions will significantly increase or decrease related to audits in various foreign jurisdictions that may conclude during that period or new developments that could also, in turn, impact the Company's assessment relative to the establishment of valuation allowances against certain existing deferred tax assets. At this time, the Company is not able to make a reasonable estimate of the range of impact on the balance of unrecognized tax benefits or the impact on the effective tax rate related to these items.
The effective tax rate for the second quarter of 2012 was 48.6 percent, compared with 19.8 percent for the comparable 2011 period. The increase was due to intangible impairment charges recorded in the second quarter of 2012, for which limited tax benefits were available as compared with tax benefits derived from refinancing costs incurred during the comparable period in 2011. The effective tax rate for the year-to-date period ended June 30, 2012 was 30.4 percent, compared with 22.1 percent for the comparable 2011 period, with the change also primarily related to the amount of tax benefit associated with the impairment charges and the tax benefits from refinancing costs.

Note 14:
Statement of Cash Flow Supplemental Disclosure
Under the Company's stock incentive programs, employees are allowed to use shares retained by the Company to satisfy minimum statutorily required withholding taxes. In the year-to-date periods ended June 30, 2012 and July 2, 2011, 64,927 and 30,108 shares, respectively, were retained to fund withholding taxes, with values totaling $4.1 million and $1.6 million, respectively, which were included as a component of stock repurchases in the Consolidated Statement of Cash Flows. For the year-to-date period ended June 30, 2012, the Company acquired $1.2 million of property, plant and equipment under capital lease arrangements. There were no such capital lease arrangements initiated in the year-to-date period ended July 2, 2011.

Note 15:
Stock Based Compensation
The Company records compensation expense using the applicable accounting guidance for share-based payments related to stock options, restricted stock, restricted stock units and performance share awards granted to directors and employees. Compensation expense for share-based awards is recorded straight line over the required service period, based on the fair value of the award.
Stock Options
Stock options to purchase the Company's common stock are granted to employees, upon approval by the Company's Board of Directors, with an exercise price equal to the fair market value of the stock on the date of grant. Options generally become exercisable in three years, in equal installments beginning one year from the date of grant, and generally expire 10 years from the date of grant. In February 2012, the Company granted a stock option on 24,300 shares. The fair value of the Company’s stock option was estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used to value the 2012 option grant: dividend yield of 2.4 percent; expected volatility of 40 percent; risk-free interest rate of 1.6 percent; and expected life of 8 years. The grant date fair value of the stock option granted during the first quarter of 2012 was $20.83 per share. No stock options were granted in the second quarter of 2012 or in the first half of 2011. Compensation expense associated with all outstanding stock option awards was $0.6 million and $0.4 million in the second quarters of 2012 and 2011, respectively, and $1.2 million and $0.9 million in the respective year-to-date periods.

19
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Stock option activity for 2012, under all of the Company's incentive plans, is summarized in the following table:
 
Outstanding
 
Exercisable
Stock options
Shares subject
to option
 
Weighted
average exercise
price per share
 
Options
exercisable at
end of period
 
Weighted
average exercise
price per share
December 31, 2011
3,153,506

 

$31.43

 
2,405,638

 

$25.85

Granted
24,300

 
62.20

 
 

 
 

Expired / Forfeited
—

 
—

 
 

 
 

Exercised
(360,052
)
 
20.47

 
 

 
 

June 30, 2012
2,817,754

 

$33.09

 
2,084,870

 

$26.64

The intrinsic value of options exercised totaled $8.9 million and $4.4 million in the second quarters of 2012 and 2011, respectively, and $15.1 million and $21.2 million in the respective year-to-date periods.
Performance Awards, Restricted Stock and Restricted Stock Units
The Company also grants performance awards, restricted stock and restricted stock units to employees and directors. The Company has time-vested and performance-vested awards, which typically have initial vesting periods ranging from one to six years. Compensation expense associated with restricted stock and restricted stock units is equal to the market value of the Company's common stock on the date of grant, and for time-vested awards, is recorded straight-line over the required service period. For performance-vested awards, expense is recorded over the required service period, subject to a probability assessment of achieving the performance criteria.
The Company granted 68,000 and 73,975 performance-vested awards shares under its performance share plan in February 2012 and 2011, respectively. The Company's performance-vested awards provide incentive opportunity based on the overall success of the Company, as reflected through cash flow and earnings per share achieved over a three year performance period. The program is based upon a pre-defined number of performance share units. Depending on achievement under the performance measures, the actual payout can be up to 150 percent of shares initially granted.
In January 2011, the Company granted 101,000 shares of time-vested restricted stock with a fair value of $56.67 per share that vest over an average period of 3 years. There were no such awards in the first half of 2012.
The Company also granted 17,600 and 18,707 time-vested restricted stock units in May 2012 and 2011, respectively, with fair values of $53.99 and $66.05 per share, respectively, that vest over one year from date of grant.
For the second quarters of 2012 and 2011, compensation expense associated with all employee and director restricted stock and restricted stock unit awards outstanding, including performance shares, was $3.0 million and $2.7 million, respectively. Such expense was $5.9 million and $5.8 million for the year-to-date periods of 2012 and 2011, respectively.
Restricted stock, restricted stock units, and performance share award activity for 2012 under all of the Company's incentive plans is summarized in the following table:
 
Shares
outstanding
 
Weighted average
grant date fair value
December 31, 2011
945,265

 

$34.93

Granted
85,600

 
60.51

Performance share adjustments
(5,467
)
 
54.60

Vested
(232,303
)
 
21.69

Forfeited
(2,394
)
 
48.18

June 30, 2012
790,701

 

$41.66

The fair value of performance awards, restricted stock and restricted stock units vested in the second quarters of 2012 and 2011 was $1.3 million and $1.6 million, respectively, and $14.3 million and $11.2 million in the respective year-to-date periods.

20
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

As of June 30, 2012, total unrecognized stock based compensation expense related to all stock based awards was $21.4 million, which is expected to be recognized over a weighted average period of 1.9 years. The average remaining contractual life on outstanding and exercisable stock options was 6.0 years and 5.1 years, respectively.

Note 16:
Allowance for Long-Term Receivables
The Company maintains current receivable amounts with most of its independent distributors and sales force in certain markets. It also maintains long-term receivable amounts with certain of these customers. The Company regularly monitors and assesses its risk of not collecting amounts owed to it by customers. This evaluation is based upon an analysis of amounts current and past due, along with relevant history and facts particular to the customer. It is also based upon estimates of distributor business prospects, particularly related to the evaluation of the recoverability of long-term amounts due. This evaluation is performed market by market and account by account, based upon historical experience, market penetration levels, access to alternative channels and similar factors. It also considers collateral of the customer that could be recovered to satisfy debts. The Company records its allowance for uncollectible accounts based on the results of this analysis. The analysis requires the Company to make significant estimates and as such, changes in facts and circumstances could result in material changes in the allowance for doubtful accounts. The Company considers any receivable balance not collected within its contractual terms past due. As of June 30, 2012, $31.4 million of long-term receivables from both active and inactive customers were considered past due, the majority of which were reserved through the Company's allowance for uncollectible accounts.
The balance of the allowance for long-term receivables as of June 30, 2012 was as follows (in millions):
December 31, 2011
$
23.3

Write-offs
(0.7
)
Provision
1.4

Currency translation adjustment
(0.8
)
June 30, 2012
$
23.2


Note 17:
Guarantor Information
The Company's payment obligations under the Notes are fully and unconditionally guaranteed by certain "Tupperware" trademarks and service marks owned by the Guarantor, as discussed in Note 9 to the Consolidated Financial Statements.
Condensed consolidated financial information as of June 30, 2012 and December 31, 2011 and for the quarter-to-date and year-to-date periods ended June 30, 2012 and July 2, 2011 for Tupperware Brands Corporation (the "Parent"), Dart Industries Inc. (the "Guarantor") and all other subsidiaries (the "Non-Guarantors") is as follows. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent and Guarantor of the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. The Guarantor is 100% owned by the Parent, and there are certain entities within the Non-Guarantors classification which the Parent owns directly. There are no significant restrictions on the ability of either the Parent or the Guarantor from obtaining adequate funds from their respective subsidiaries by dividend or loan that should interfere with their ability to meet their operating needs or debt repayment obligations.


21
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Condensed Consolidating Balance Sheet
 
June 30, 2012
(In millions)
Parent
 
Guarantor
 
Non-Guarantors
 
Eliminations
 
Total
ASSETS
 

 
 

 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
0.7

 
$
97.3

 
$
—

 
$
98.0

Accounts receivable, net
—

 
—

 
176.7

 
—

 
176.7

Inventories
—

 
—

 
321.1

 
—

 
321.1

Deferred income tax benefits, net
5.5

 
42.7

 
49.1

 
(0.3
)
 
97.0

Non-trade amounts receivable, net
—

 
16.1

 
37.7

 
—

 
53.8

Intercompany receivables
1,953.4

 
3,935.3

 
730.7

 
(6,619.4
)
 
—

Prepaid expenses and other current assets
0.7

 
113.9

 
107.4

 
(188.1
)
 
33.9

Total current assets
1,959.6

 
4,108.7

 
1,520.0

 
(6,807.8
)
 
780.5

Deferred income tax benefits, net
77.3

 
128.7

 
112.2

 
(0.6
)
 
317.6

Property, plant and equipment, net
—

 
28.7

 
248.0

 
—

 
276.7

Long-term receivables, net
—

 
0.1

 
23.2

 
—

 
23.3

Trademarks and tradenames
—

 
—

 
132.5

 
—

 
132.5

Other intangible assets, net
—

 
—

 
5.7

 
—

 
5.7

Goodwill
—

 
2.9

 
182.3

 
—

 
185.2

Investments in subsidiaries
2,778.8

 
2,178.0

 
—

 
(4,956.8
)
 
—

Intercompany notes receivable
64.1

 
524.1

 
1,730.4

 
(2,318.6
)
 
—

Other assets, net
4.8

 
8.1

 
91.1

 
(69.5
)
 
34.5

Total assets
$
4,884.6

 
$
6,979.3

 
$
4,045.4

 
$
(14,153.3
)
 
$
1,756.0

LIABILITIES AND SHAREHOLDERS' EQUITY
 

 
 

 
 

 
 

 
 

Accounts payable
$
—

 
$
—

 
$
115.6

 
$
—

 
$
115.6

Short-term borrowings and current portion of long-term debt and capital lease obligations
54.0

 
—

 
173.7

 
—

 
227.7

Intercompany payables
3,473.4

 
2,669.9

 
476.1

 
(6,619.4
)
 
—

Accrued liabilities
135.7

 
79.3

 
282.4

 
(188.4
)
 
309.0

Total current liabilities
3,663.1

 
2,749.2

 
1,047.8

 
(6,807.8
)
 
652.3

Long-term debt and capital lease obligations
396.3

 
—

 
18.0

 
—

 
414.3

Intercompany notes payable
345.0

 
1,385.4

 
588.2

 
(2,318.6
)
 
—

Other liabilities
19.5

 
85.9

 
193.4

 
(70.1
)
 
228.7

Shareholders' equity
460.7

 
2,758.8

 
2,198.0

 
(4,956.8
)
 
460.7

Total liabilities and shareholders' equity
$
4,884.6

 
$
6,979.3

 
$
4,045.4

 
$
(14,153.3
)
 
$
1,756.0



22
Table of Contents
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Condensed Consolidating Balance Sheet
 
December 31, 2011
(In millions)
Parent
 
Guarantor
 
Non-Guarantors
 
Eliminations
 
Total
ASSETS
 

 
 

 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
1.9

 
$
136.3

 
$
—

 
$
138.2

Accounts receivable, net
—

 
—

 
163.7

 
—

 
163.7

Inventories
—

 
—

 
302.5

 
—

 
302.5

Deferred income tax benefits, net
5.5

 
44.6

 
44.1

 
—

 
94.2

Non-trade amounts receivable, net
0.4

 
10.1

 
37.0

 
—

 
47.5

Intercompany receivables
1,674.7

 
3,757.3

 
257.7

 
(5,689.7
)
 
—

Prepaid expenses and other current assets
31.1

 
1.6

 
92.1

 
(101.5
)
 
23.3

Total current assets
1,711.7

 
3,815.5

 
1,033.4

 
(5,791.2
)
 
769.4

Deferred income tax benefits, net
68.7

 
128.7

 
141.8

 
—

 
339.2

Property, plant and equipment, net
—

 
28.7

 
244.4

 
—

 
273.1

Long-term receivables, net
—

 
0.1

 
23.1

 
—

 
23.2

Trademarks and tradenames
—

 
—

 
157.1

 
—

 
157.1

Other intangible assets, net
—

 
—

 
7.2

 
—

 
7.2

Goodwill
—

 
2.9

 
238.5

 
—

 
241.4

Investments in subsidiaries
2,695.0

 
1,734.6

 
—

 
(4,429.6
)
 
—

Intercompany notes receivable
85.9

 
506.0

 
1,088.5

 
(1,680.4
)
 
—

Other assets, net
4.7

 
7.9

 
120.9

 
(99.9
)
 
33.6

Total assets
$
4,566.0

 
$
6,224.4

 
$
3,054.9

 
$
(12,001.1
)
 
$
1,844.2

LIABILITIES AND SHAREHOLDERS' EQUITY