10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
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x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the 13 weeks ended March 26, 2016
OR |
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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)
________________________________________
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Delaware | 36-4062333 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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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):
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Large accelerated filer | x | | Accelerated filer | o |
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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 April 27, 2016, 50,502,605 shares of the common stock, $0.01 par value, of the registrant were outstanding.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. | Financial Statements (Unaudited) | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. OTHER INFORMATION |
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Item 2. | | |
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Item 6. | | |
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Item 1. | Financial Statements (Unaudited) |
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| | | | | | | |
| 13 weeks ended |
(In millions, except per share amounts) | March 26,
2016 | | March 28,
2015 |
Net sales | $ | 525.7 |
| | $ | 581.8 |
|
Cost of products sold | 166.0 |
| | 191.6 |
|
Gross margin | 359.7 |
| | 390.2 |
|
| | | |
Delivery, sales and administrative expense | 288.7 |
| | 313.4 |
|
Re-engineering and impairment charges | 1.1 |
| | 16.2 |
|
Gains on disposal of assets | 0.1 |
| | 0.6 |
|
Operating income | 70.0 |
| | 61.2 |
|
| | | |
Interest income | 0.7 |
| | 0.5 |
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Interest expense | 12.1 |
| | 13.3 |
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Other expense | 0.4 |
| | 7.2 |
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Income before income taxes | 58.2 |
| | 41.2 |
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| | | |
Provision for income taxes | 14.8 |
| | 11.7 |
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Net income | $ | 43.4 |
| | $ | 29.5 |
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| | | |
Earnings per share: | | | |
Basic | $ | 0.86 |
| | $ | 0.59 |
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Diluted | 0.86 |
| | 0.59 |
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| | | |
Weighted-average shares outstanding: | | | |
Basic | 50.4 |
| | 49.7 |
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Diluted | 50.6 |
| | 50.3 |
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Dividends declared per common share | $ | 0.68 |
| | $ | 0.68 |
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See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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| 13 weeks ended |
(In millions) | March 26,
2016 | | March 28,
2015 |
Net income | $ | 43.4 |
| | $ | 29.5 |
|
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments | 2.3 |
| | (25.2 | ) |
Deferred gain (loss) on cash flow hedges, net of tax provision (benefit) of ($1.0) and ($0.4), respectively | (3.7 | ) | | (0.4 | ) |
Pension and other post-retirement income (loss), net of tax provision (benefit) of ($0.3) and $1.1, respectively | (0.9 | ) | | 2.9 |
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Other comprehensive income (loss) | (2.3 | ) | | (22.7 | ) |
Total comprehensive income | $ | 41.1 |
| | $ | 6.8 |
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See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In millions, except share amounts) | March 26,
2016 | | December 26,
2015 |
ASSETS | |
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Cash and cash equivalents | $ | 98.6 |
| | $ | 79.8 |
|
Accounts receivable, less allowances of $34.3 and $32.7, respectively | 164.5 |
| | 142.7 |
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Inventories | 274.4 |
| | 254.6 |
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Non-trade amounts receivable, net | 51.6 |
| | 45.5 |
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Prepaid expenses and other current assets | 33.8 |
| | 27.9 |
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Total current assets | 622.9 |
| | 550.5 |
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Deferred income tax benefits, net | 513.0 |
| | 524.9 |
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Property, plant and equipment, net | 252.9 |
| | 253.6 |
|
Long-term receivables, less allowances of $11.5 and $11.2, respectively | 12.7 |
| | 13.2 |
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Trademarks and tradenames, net | 80.9 |
| | 82.7 |
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Goodwill | 146.3 |
| | 146.3 |
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Other assets, net | 28.6 |
| | 27.0 |
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Total assets | $ | 1,657.3 |
| | $ | 1,598.2 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | |
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Accounts payable | $ | 94.4 |
| | $ | 126.7 |
|
Short-term borrowings and current portion of long-term debt and capital lease obligations | 234.8 |
| | 162.5 |
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Accrued liabilities | 347.5 |
| | 324.8 |
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Total current liabilities | 676.7 |
| | 614.0 |
|
Long-term debt and capital lease obligations | 608.1 |
| | 608.2 |
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Other liabilities | 202.9 |
| | 215.0 |
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Shareholders' equity: | |
| | |
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Preferred stock, $0.01 par value, 200,000,000 shares authorized; none issued | — |
| | — |
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Common stock, $0.01 par value, 600,000,000 shares authorized; 63,607,090 shares issued | 0.6 |
| | 0.6 |
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Paid-in capital | 202.2 |
| | 205.5 |
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Retained earnings | 1,380.8 |
| | 1,371.2 |
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Treasury stock, 13,106,052 and 13,170,517 shares, respectively, at cost | (889.7 | ) | | (894.3 | ) |
Accumulated other comprehensive loss | (524.3 | ) | | (522.0 | ) |
Total shareholders' equity | 169.6 |
| | 161.0 |
|
Total liabilities and shareholders' equity | $ | 1,657.3 |
| | $ | 1,598.2 |
|
See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| 13 weeks ended |
(In millions) | March 26,
2016 | | March 28,
2015 |
Operating Activities: | | | |
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Net income | $ | 43.4 |
| | $ | 29.5 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
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Depreciation and amortization | 14.9 |
| | 15.4 |
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Unrealized foreign exchange loss | 0.1 |
| | 7.0 |
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Equity compensation | 3.9 |
| | 3.8 |
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Amortization of deferred debt costs | 0.1 |
| | 0.2 |
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Net gains on disposal of assets | (0.1 | ) | | (0.6 | ) |
Provision for bad debts | 2.7 |
| | 3.2 |
|
Write-down of inventories | 3.4 |
| | 4.2 |
|
Non-cash impact of re-engineering and impairment costs | — |
| | 13.5 |
|
Net change in deferred income taxes | 2.9 |
| | (11.6 | ) |
Excess tax benefits from share-based payment arrangements | — |
| | (0.8 | ) |
Changes in assets and liabilities: | |
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Accounts and notes receivable | (20.2 | ) | | (12.6 | ) |
Inventories | (17.0 | ) | | (16.2 | ) |
Non-trade amounts receivable | (4.9 | ) | | (1.4 | ) |
Prepaid expenses | (5.8 | ) | | (7.8 | ) |
Other assets | 0.4 |
| | (0.2 | ) |
Accounts payable and accrued liabilities | (30.6 | ) | | (33.8 | ) |
Income taxes payable | (10.2 | ) | | (7.0 | ) |
Other liabilities | (1.5 | ) | | (0.3 | ) |
Net cash impact from hedging activity | 10.7 |
| | 3.6 |
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Other | 0.3 |
| | 0.1 |
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Net cash used in operating activities | (7.5 | ) | | (11.8 | ) |
Investing Activities: | |
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Capital expenditures | (9.4 | ) | | (13.9 | ) |
Proceeds from disposal of property, plant and equipment | 0.4 |
| | 2.1 |
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Net cash used in investing activities | (9.0 | ) | | (11.8 | ) |
Financing Activities: | |
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Dividend payments to shareholders | (35.0 | ) | | (35.7 | ) |
Proceeds from exercise of stock options | — |
| | 3.1 |
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Repurchase of common stock | (0.8 | ) | | (0.9 | ) |
Repayment of capital lease obligations | (0.4 | ) | | (0.9 | ) |
Net change in short-term debt | 66.7 |
| | 71.7 |
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Excess tax benefits from share-based payment arrangements | — |
| | 0.8 |
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Net cash provided by financing activities | 30.5 |
| | 38.1 |
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Effect of exchange rate changes on cash and cash equivalents | 4.8 |
| | (7.6 | ) |
Net change in cash and cash equivalents | 18.8 |
| | 6.9 |
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Cash and cash equivalents at beginning of year | 79.8 |
| | 77.0 |
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Cash and cash equivalents at end of period | $ | 98.6 |
| | $ | 83.9 |
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See accompanying Notes to Consolidated Financial Statements (Unaudited).
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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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 audited 2015 financial statements included in the Company's Annual Report on Form 10-K for the year ended December 26, 2015.
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 presentation of the results for the interim periods. Certain information and note disclosures normally included in the balance sheet, statements of income, 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. As a result, the 2016 fiscal year will include 53 weeks, as compared with 52 weeks for fiscal 2015, and the fourth quarter of 2016 will include 14 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.
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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, duties, purchasing and receiving costs, inspection costs, depreciation expense, internal transfer costs and warehousing costs of raw material, work in process and packing materials. The warehousing and distribution costs of finished goods are included in delivery, sales 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 first quarters of 2016 and 2015 were $31.7 million and $34.7 million, respectively.
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, addition of new sales force members or other business-critical functions. The awards offered are in the form of product awards, special prizes or trips.
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 $93.7 million and $102.0 million for the first quarters of 2016 and 2015, respectively.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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(In millions) | March 26,
2016 | | December 26,
2015 |
Finished goods | $ | 214.5 |
| | $ | 203.2 |
|
Work in process | 24.3 |
| | 21.0 |
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Raw materials and supplies | 35.6 |
| | 30.4 |
|
Total inventories | $ | 274.4 |
| | $ | 254.6 |
|
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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 elements of the earnings per share computations were as follows:
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| 13 weeks ended |
(In millions, except per share amounts) | March 26,
2016 | | March 28,
2015 |
Net income | $ | 43.4 |
| | $ | 29.5 |
|
Weighted-average shares of common stock outstanding | 50.4 |
| | 49.7 |
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Common equivalent shares: | | | |
Assumed exercise of dilutive options, restricted shares, restricted stock units and performance share units | 0.2 |
| | 0.6 |
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Weighted-average common and common equivalent shares outstanding | 50.6 |
| | 50.3 |
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Basic earnings per share | $ | 0.86 |
| | $ | 0.59 |
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Diluted earnings per share | $ | 0.86 |
| | $ | 0.59 |
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Shares excluded from the determination of potential common stock because inclusion would have been anti-dilutive | 1.8 |
| | 0.6 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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Note 6: | Accumulated Other Comprehensive Loss |
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| | | | | | | | | | | | | | | |
(In millions, net of tax) | Foreign Currency Items | | Cash Flow Hedges | | Pension and Other Post-retirement Items | | Total |
Balance at December 26, 2015 | $ | (490.6 | ) | | $ | 4.3 |
| | $ | (35.7 | ) | | $ | (522.0 | ) |
Other comprehensive income (loss) before reclassifications | 2.3 |
| | (1.4 | ) | | (1.0 | ) | | (0.1 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | (2.3 | ) | | 0.1 |
| | (2.2 | ) |
Net current-period other comprehensive income (loss) | 2.3 |
| | (3.7 | ) | | (0.9 | ) | | (2.3 | ) |
Balance at March 26, 2016 | $ | (488.3 | ) | | $ | 0.6 |
| | $ | (36.6 | ) | | $ | (524.3 | ) |
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| | | | | | | | | | | | | | | |
(In millions, net of tax) | Foreign Currency Items | | Cash Flow Hedges | | Pension and Other Post-retirement Items | | Total |
Balance at December 27, 2014 | $ | (368.3 | ) | | $ | 7.8 |
| | $ | (48.2 | ) | | $ | (408.7 | ) |
Other comprehensive income (loss) before reclassifications | (25.2 | ) | | 3.0 |
| | 2.4 |
| | (19.8 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | (3.4 | ) | | 0.5 |
| | (2.9 | ) |
Net current-period other comprehensive income (loss) | (25.2 | ) | | (0.4 | ) | | 2.9 |
| | (22.7 | ) |
Balance at March 28, 2015 | $ | (393.5 | ) | | $ | 7.4 |
| | $ | (45.3 | ) | | $ | (431.4 | ) |
Pretax amounts reclassified from accumulated other comprehensive loss that related to cash flow hedges consisted of net gains of $3.1 million and $4.3 million for the first quarters of 2016 and 2015, respectively. Associated with these items were tax provisions of $0.8 million and $0.9 million, respectively. See Note 10 for further discussion of derivatives.
For the first quarters of 2016 and 2015, pretax amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items consisted of prior service benefits of $0.3 million in each year, and actuarial losses of $0.4 million and $1.0 million, respectively. The tax benefit associated with these items was $0.2 million for the first quarter of 2015, and none for 2016. See Note 12 for further discussion of pension and other post-retirement benefit costs.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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Note 7: | Re-engineering and Impairment Costs |
The Company recorded $1.1 million and $2.7 million in re-engineering charges during the first quarters of 2016 and 2015, respectively. In both years, these charges were primarily related to severance costs incurred for headcount reductions in several of the Company’s operations in connection with changes in its management and organizational structures.
The balances included in accrued liabilities related to re-engineering and impairment charges as of March 26, 2016 and December 26, 2015 were as follows:
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(In millions) | March 26,
2016 | | December 26,
2015 |
Beginning of the year balance | $ | 1.7 |
| | $ | 2.4 |
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Provision | 1.1 |
| | 6.8 |
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Non-cash charges | — |
| | (0.2 | ) |
Cash expenditures: | | | |
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Severance | (0.8 | ) | | (5.8 | ) |
Other | (0.7 | ) | | (1.5 | ) |
End of period balance | $ | 1.3 |
| | $ | 1.7 |
|
The accrual balance as of March 26, 2016, related primarily to severance payments to be made by the end of the third quarter of 2016.
In February 2015, the Venezuelan government launched an overhaul of its foreign currency exchange structure and created a new exchange mechanism called Simadi that has provided an exchange rate significantly lower than the rate available to the Company under the previous SICAD 2 mechanism. As a result, and based on the perceived impact of this change to the operations of its Venezuelan unit, the Company deemed this change to be a triggering event to evaluate the $15.7 million of long-term fixed assets in Venezuela at that time. This evaluation involved performing an undiscounted cash flow analysis to determine if the carrying value of the assets were recoverable and whether the amount included on the balance sheet was greater than fair value. The Company considered many economic and operating factors, including uncertainty surrounding the interpretation and enforcement of certain product pricing restrictions in Venezuela, the inability at that time to obtain the necessary raw materials locally to meet production demands and the significant decline in the global price of oil. Due, at least in part, to the decline of the global price of oil, the Venezuelan government has not made U.S. dollars widely available through any of the exchange mechanisms it has had in place. Given the devaluation of the Venezuelan bolivar compared with the U.S. dollar, and the lack of U.S dollars available to use for the purchase of raw materials for on-going operations, the Company did not believe it would be able to operate the business profitably. As a result, the Company concluded that the carrying value of the long-term fixed assets in Venezuela was not recoverable. The Company then estimated the fair value of the long-term fixed assets using estimated selling prices available in Venezuela. The primary assets that were considered to continue to maintain a marketable value in Venezuela included commercial office space, a show room and parking spaces. As a result of this evaluation in the first quarter of 2015, the Company recorded an impairment charge of $13.5 million to reduce the long-term fixed asset carrying value in Venezuela to the estimated fair value at that time of $2.2 million, which is considered a non-recurring Level 3 measurement within the fair value hierarchy.
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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.
Effective from the first quarter of 2016, the Nutrimetics business in France previously reported in the Asia Pacific segment is being reported in the Europe segment. Comparable information from prior periods has been reclassified to conform with the new presentation. In full year 2015, Nutrimetics France generated less than one half percent of total sales.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The Company's reportable segments include the following:
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Europe | Primarily design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware® brand. Europe also includes Avroy Shlain® in South Africa and Nutrimetics® in France, which sell beauty and personal care products. 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® brand in the United States, Canada and Puerto Rico and Fuller Cosmetics® brands in Mexico and Central America. |
South America | Both housewares and beauty products under the Fuller®, Nutrimetics®, Nuvo® and Tupperware® brands. |
Worldwide sales of beauty and personal care products totaled $84.2 million and $113.1 million in the first quarters of 2016 and 2015, respectively. |
| | | | | | | |
| 13 weeks ended |
(In millions) | March 26,
2016 | | March 28,
2015 |
Net sales: | | | |
Europe | $ | 153.9 |
| | $ | 173.8 |
|
Asia Pacific | 171.6 |
| | 189.6 |
|
Tupperware North America | 83.2 |
| | 79.5 |
|
Beauty North America | 48.9 |
| | 62.9 |
|
South America | 68.1 |
| | 76.0 |
|
Total net sales | $ | 525.7 |
| | $ | 581.8 |
|
Segment profit (loss): | | | |
Europe | $ | 25.2 |
| | $ | 28.9 |
|
Asia Pacific | 36.9 |
| | 39.4 |
|
Tupperware North America | 14.6 |
| | 13.0 |
|
Beauty North America | (1.7 | ) | | (0.3 | ) |
South America | 13.0 |
| | 3.2 |
|
Total segment profit | $ | 88.0 |
| | $ | 84.2 |
|
Unallocated expenses | (17.4 | ) | | (14.6 | ) |
Re-engineering and impairment charges (a) | (1.1 | ) | | (16.2 | ) |
Gains on disposal of assets | 0.1 |
| | 0.6 |
|
Interest expense, net | (11.4 | ) | | (12.8 | ) |
Income before taxes | $ | 58.2 |
| | $ | 41.2 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | |
(In millions) | March 26,
2016 | | December 26,
2015 |
Identifiable assets: | | | |
Europe | $ | 286.5 |
| | $ | 271.6 |
|
Asia Pacific | 312.8 |
| | 295.1 |
|
Tupperware North America | 133.1 |
| | 121.2 |
|
Beauty North America | 239.4 |
| | 254.0 |
|
South America | 110.7 |
| | 96.9 |
|
Corporate | 574.8 |
| | 559.4 |
|
Total identifiable assets | $ | 1,657.3 |
| | $ | 1,598.2 |
|
_________________________
| |
(a) | See Note 7 to the unaudited Consolidated Financial Statements for a discussion of re-engineering and impairment charges. |
Debt Obligations
|
| | | | | | | |
(In millions) | March 26, 2016 | | December 26, 2015 |
Fixed rate senior notes due 2021 | $ | 599.3 |
| | $ | 599.3 |
|
Five year Revolving Credit Agreement (a) | 231.3 |
| | 155.8 |
|
Belgium facility capital lease | 10.6 |
| | 10.6 |
|
Other | 1.7 |
| | 5.0 |
|
Total debt obligations | $ | 842.9 |
| | $ | 770.7 |
|
____________________
| |
(a) | $194.3 million denominated in euros as of March 26, 2016. |
Credit Agreement
As of March 26, 2016, the Company had a weighted average interest rate on outstanding LIBOR based borrowings of 1.56 percent under the Credit Agreement.
At March 26, 2016, the Company had $597.4 million of unused lines of credit, including $336.9 million under the committed, secured Credit Agreement, and $260.5 million available under various uncommitted lines around the world.
The Credit Agreement has customary financial covenants related to interest coverage and leverage. These restrictions are not expected to impact the Company's operations. As of March 26, 2016, and currently, the Company had considerable cushion under its financial covenants.
| |
Note 10: | Derivative Instruments and Hedging Activities |
The Company is exposed to fluctuations in foreign currency exchange rates on the earnings, cash flows and financial position of its international operations. Although this currency risk is partially mitigated by the natural hedge arising from the Company's local manufacturing in many markets, a strengthening U.S. dollar generally has a negative impact on the Company. In response to these fluctuations, the Company uses financial instruments to hedge certain of its exposures and to manage the foreign exchange impact to its financial statements. At its inception, a derivative financial instrument is designated as a fair value, cash flow or net equity hedge.
Fair value hedges are entered into with financial instruments such as forward contracts, with the objective of limiting exposure to certain foreign exchange risks primarily associated with accounts payable and non-permanent intercompany transactions. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings. In assessing hedge effectiveness, 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 $3.9 million and $2.8 million in the first quarters of 2016 and 2015, respectively.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The Company also uses derivative financial instruments to hedge foreign currency exposures resulting from certain forecasted purchases and classifies these as cash flow hedges. At initiation, the Company's cash flow hedge contracts are generally for periods ranging from one to fifteen months. The effective portion of the gain or loss on the hedging instrument is recorded in other comprehensive income and is reclassified into earnings as the transactions being hedged are recorded. As such, the balance at the end of the current reporting period in other comprehensive income, related to cash flow hedges, will generally be reclassified 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.
The Company also uses financial instruments, such as forward contracts and certain euro denominated borrowings under the Company's Credit Agreement, to hedge a portion of its net equity investment in international operations and classifies these as net equity hedges. Changes in the value of these financial instruments, excluding any ineffective portion of the hedges, are included in foreign currency translation adjustments within accumulated other comprehensive loss. The Company recorded, net of tax, in other comprehensive income a net loss of $3.7 million associated with these hedges in the first quarter of 2016, and a net gain of $19.5 million associated with such hedges in the first quarter of 2015. Due to the permanent nature of the investments, the Company does not anticipate reclassifying any portion of these amounts to the income statement in the next twelve months. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense.
While the forward contracts used for 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 were inflows of $10.7 million and $3.6 million for the first quarters of 2016 and 2015, respectively.
The Company considers the total notional value of its forward contracts as the best measure of the volume of derivative transactions. As of March 26, 2016 and December 26, 2015, the notional amounts of outstanding forward contracts to purchase currencies were $125.6 million and $141.9 million, respectively, and the notional amounts of outstanding forward contracts to sell currencies were $139.5 million and $137.4 million, respectively. As of March 26, 2016, the notional values of the largest positions outstanding were to purchase Euro $66.4 million and to sell Mexican pesos $37.2 million.
The following table summarizes the Company's derivative positions, which are the only assets and liabilities recorded at fair value on a recurring basis, and the impact they had on the Company's financial position as of March 26, 2016 and December 26, 2015. Fair values were determined based on third party quotations (Level 2 fair value measurement):
|
| | | | | | | | | | | | | | | | | | | | |
| | Asset derivatives | | Liability derivatives |
| | | | Fair value | | | | Fair value |
Derivatives designated as hedging instruments (in millions) | | Balance sheet location | | Mar 26,
2016 | | Dec 26,
2015 | | Balance sheet location | | Mar 26,
2016 | | Dec 26,
2015 |
Foreign exchange contracts | | Non-trade amounts receivable | | $ | 20.3 |
| | $ | 21.5 |
| | Accrued liabilities | | $ | 31.2 |
| | $ | 14.6 |
|
The following table summarizes the impact of the Company's fair value hedging positions on the results of operations for the first quarters of 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | |
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 |
| | | | 2016 | | 2015 | | | | 2016 | | 2015 |
Foreign exchange contracts | | Other expense | | $ | 1.5 |
| | $ | (24.7 | ) | | Other expense | | $ | (1.5 | ) | | $ | 25.1 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table summarizes the impact of Company's hedging activities on comprehensive income for the first quarters of 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flow and net equity hedges (in millions) | | Amount of gain or (loss) recognized in OCI (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 (ineffective portion and amount excluded from effectiveness testing) | | Amount of gain or (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing) |
Cash flow hedging relationships | | 2016 | | 2015 | | | | 2016 | | 2015 | | | | 2016 | | 2015 |
Foreign exchange contracts | | $ | (1.6 | ) | | $ | 3.4 |
| | Cost of products sold | | $ | 3.1 |
| | $ | 4.3 |
| | Interest expense | | $ | (1.6 | ) | | $ | (2.9 | ) |
Net equity hedging relationships | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | (3.0 | ) | | 19.5 |
| | Other expense | | — |
| | — |
| | Interest expense | | (5.2 | ) | | (3.5 | ) |
Euro denominated debt | | (2.7 | ) | | 10.9 |
| | Other expense | | — |
| | — |
| | Interest expense | | — |
| | — |
|
| |
Note 11: | Fair Value Measurements |
Due to their short maturities or their insignificance, the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, accrued liabilities and short-term borrowings approximated their fair values at March 26, 2016 and December 26, 2015. The Company estimates that, based on current market conditions, the value of its 4.75% 2021 senior notes was $634.4 million at March 26, 2016, compared with the carrying value of $599.3 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. See Note 10 to the Consolidated Financial Statements for discussion of the Company's derivative instruments and related fair value measurements.
| |
Note 12: | Retirement Benefit Plans |
Components of net periodic benefit cost for the first quarters ended March 26, 2016 and March 28, 2015 were as follows:
|
| | | | | | | | | | | | | | | |
| First Quarter |
| Pension benefits | | Post-retirement benefits |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
Service cost | $ | 2.7 |
| | $ | 2.8 |
| | $ | — |
| | $ | — |
|
Interest cost | 1.6 |
| | 1.8 |
| | 0.2 |
| | 0.2 |
|
Expected return on plan assets | (1.4 | ) | | (1.4 | ) | | — |
| | — |
|
Net amortization | 0.4 |
| | 1.0 |
| | (0.3 | ) | | (0.3 | ) |
Net periodic benefit cost | $ | 3.3 |
| | $ | 4.2 |
| | $ | (0.1 | ) | | $ | (0.1 | ) |
During the first quarters of 2016 and 2015, approximately $0.1 million and $0.7 million, respectively, of pretax expenses 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.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The effective tax rate for the first quarter of 2016 was 25.4 percent, compared with 28.4 percent for the 2015 period. The higher 2015 rate was due to higher 2015 first quarter losses incurred related to the devaluation of the Venezuelan bolivar for which no tax benefit can be recognized. The effective tax rates are below the U.S. statutory rate primarily due to lower foreign effective tax rates.
As of March 26, 2016 and December 26, 2015, the Company's gross unrecognized tax benefit was $21.7 million and $21.8 million, respectively. The Company estimates that approximately $19.8 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 was $6.0 million as of the periods ended March 26, 2016 and December 26, 2015. The accrual for uncertain tax positions was decreased by $0.4 million due to the expiration of the statute of limitations in various jurisdictions for positions taken in various global tax filings.
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 $1.0 million. For the remaining balance as of March 26, 2016, 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. 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. This assessment requires estimates as to future operating results, as well as an evaluation of the effectiveness of the Company's tax planning strategies. 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.
| |
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 U.S. minimum statutorily required withholding taxes. In the first quarters of 2016 and 2015, 15,261 and 11,890 shares, respectively, were retained to fund withholding taxes, with values totaling $0.8 million and $0.9 million, respectively, which were included as a component of stock repurchases in the Consolidated Statements of Cash Flows.
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 15: | Stock Based Compensation |
Stock option activity for 2016 is summarized in the following table:
|
| | | | | | | | | | |
| Shares subject to option | | Weighted average exercise price per share | | Aggregate intrinsic value (in millions) |
Outstanding at December 26, 2015 | 2,100,478 |
| | $ | 56.92 |
| | |
Expired / Forfeited | (5,570 | ) | | 61.55 |
| | |
Outstanding at March 26, 2016 | 2,094,908 |
| | $ | 56.91 |
| | $ | 7.6 |
|
Exercisable at March 26, 2016 | 1,262,544 |
| | $ | 54.63 |
| | $ | 7.6 |
|
The intrinsic value of options exercised totaled $2.2 million in the first quarter of 2015. There were no options exercised in the 2016 quarter.
The Company also has time-vested, performance-vested and market-vested share awards. The activity for such awards in 2016 is summarized in the following table:
|
| | | | | | |
| Shares outstanding | | Weighted average grant date fair value |
December 26, 2015 | 550,467 |
| | $ | 69.71 |
|
Time-vested shares granted | 14,000 |
| | 56.86 |
|
Market-vested shares granted | 30,019 |
| | 49.55 |
|
Performance shares granted | 89,321 |
| | 49.95 |
|
Performance share adjustments | (14,151 | ) | | 62.85 |
|
Vested | (82,050 | ) | | 78.65 |
|
Forfeited | (14,393 | ) | | 74.40 |
|
March 26, 2016 | 573,213 |
| | $ | 63.96 |
|
Compensation expense related to the Company's stock based compensation was as follows:
|
| | | | | | | |
(In millions) | March 26, 2016 | | March 28, 2015 |
Stock options | $ | 0.6 |
| | $ | 0.6 |
|
Time, performance and market vested share awards | 3.3 |
| | 3.2 |
|
As of March 26, 2016, total unrecognized stock based compensation expense related to all stock based awards was $28.9 million, which is expected to be recognized over a weighted average period of 2.2 years.
| |
Note 16: | Allowance for Long-Term Receivables |
As of March 26, 2016, $13.0 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 March 26, 2016 was as follows:
|
| | | |
(In millions) | |
Balance at December 26, 2015 | $ | 11.2 |
|
Write-offs | (0.9 | ) |
Provision and reclassifications | 0.8 |
|
Currency translation adjustment | 0.4 |
|
Balance at March 26, 2016 | $ | 11.5 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 17: | Guarantor Information |
The Company's payment obligations under its senior notes due in 2021 are fully and unconditionally guaranteed, on a senior secured basis, by Dart Industries Inc. (the "Guarantor"). The guarantee is secured by certain "Tupperware" trademarks and service marks owned by the Guarantor.
Condensed consolidated financial information as of March 26, 2016 and December 26, 2015 and for the quarter-to-date periods ended March 26, 2016 and March 28, 2015 for Tupperware Brands Corporation (the "Parent"), 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 to obtain 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.
Consolidating Statement of Income
|
| | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended March 26, 2016 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Net sales | $ | — |
| | $ | — |
| | $ | 527.0 |
| | $ | (1.3 | ) | | $ | 525.7 |
|
Other revenue | — |
| | 25.3 |
| | 7.7 |
| | (33.0 | ) | | — |
|
Cost of products sold | — |
| | 7.7 |
| | 190.2 |
| | (31.9 | ) | | 166.0 |
|
Gross margin | — |
| | 17.6 |
| | 344.5 |
| | (2.4 | ) | | 359.7 |
|
Delivery, sales and administrative expense | 3.2 |
| | 22.4 |
| | 265.5 |
| | (2.4 | ) | | 288.7 |
|
Re-engineering and impairment charges | — |
| | — |
| | 1.1 |
| | — |
| | 1.1 |
|
Gains on disposal of assets | — |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
Operating income (loss) | (3.2 | ) | | (4.8 | ) | | 78.0 |
| | — |
| | 70.0 |
|
Interest income | 5.1 |
| | 0.4 |
| | 6.2 |
| | (11.0 | ) | | 0.7 |
|
Interest expense | 8.7 |
| | 12.3 |
| | 2.1 |
| | (11.0 | ) | | 12.1 |
|
Income from equity investments in subsidiaries | 47.8 |
| | 53.4 |
| | — |
| | (101.2 | ) | | — |
|
Other expense (income) | — |
| | (4.1 | ) | | 4.5 |
| | — |
| | 0.4 |
|
Income before income taxes | 41.0 |
| | 40.8 |
| | 77.6 |
| | (101.2 | ) | | 58.2 |
|
Provision (benefit) for income taxes | (2.4 | ) | | (7.2 | ) | | 24.4 |
| | — |
| | 14.8 |
|
Net income (loss) | $ | 43.4 |
| | $ | 48.0 |
| | $ | 53.2 |
| | $ | (101.2 | ) | | $ | 43.4 |
|
Comprehensive income (loss) | $ | 41.1 |
| | $ | 47.1 |
| | $ | 49.5 |
| | $ | (96.6 | ) | | $ | 41.1 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Consolidating Statement of Income
|
| | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended March 28, 2015 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Net sales | $ | — |
| | $ | — |
| | $ | 582.0 |
| | $ | (0.2 | ) | | $ | 581.8 |
|
Other revenue | — |
| | 28.3 |
| | 5.2 |
| | (33.5 | ) | | — |
|
Cost of products sold | — |
| | 5.2 |
| | 218.1 |
| | (31.7 | ) | | 191.6 |
|
Gross margin | — |
| | 23.1 |
| | 369.1 |
| | (2.0 | ) | | 390.2 |
|
Delivery, sales and administrative expense | 3.5 |
| | 17.9 |
| | 294.0 |
| | (2.0 | ) | | 313.4 |
|
Re-engineering and impairment charges | — |
| | — |
| | 16.2 |
| | — |
| | 16.2 |
|
Gains on disposal of assets | — |
| | — |
| | 0.6 |
| | — |
| | 0.6 |
|
Operating income (loss) | (3.5 | ) | | 5.2 |
| | 59.5 |
| | — |
| | 61.2 |
|
Interest income | 7.2 |
| | 6.5 |
| | 1.0 |
| | (14.2 | ) | | 0.5 |
|
Interest expense | 12.8 |
| | 8.1 |
| | 6.6 |
| | (14.2 | ) | | 13.3 |
|
Income from equity investments in subsidiaries | 35.3 |
| | 34.7 |
| | — |
| | (70.0 | ) | | — |
|
Other expense | — |
| | — |
| | 7.2 |
| | — |
| | 7.2 |
|
Income before income taxes | 26.2 |
| | 38.3 |
| | 46.7 |
| | (70.0 | ) | | 41.2 |
|
Provision (benefit) for income taxes | (3.3 | ) | | 1.6 |
| | 13.4 |
| | — |
| | 11.7 |
|
Net income (loss) | $ | 29.5 |
| | $ | 36.7 |
| | $ | 33.3 |
| | $ | (70.0 | ) | | $ | 29.5 |
|
Comprehensive income (loss) | $ | 6.8 |
| | $ | 7.6 |
| | $ | 4.8 |
| | $ | (12.4 | ) | | $ | 6.8 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | |
| March 26, 2016 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
ASSETS | |
| | |
| | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 0.6 |
| | $ | 98.0 |
| | $ | — |
| | $ | 98.6 |
|
Accounts receivable, net | — |
| | — |
| | 164.5 |
| | — |
| | 164.5 |
|
Inventories | — |
| | — |
| | 274.4 |
| | — |
| | 274.4 |
|
Non-trade amounts receivable, net | — |
| | 51.3 |
| | 96.4 |
| | (96.1 | ) | | 51.6 |
|
Intercompany receivables | 14.4 |
| | 749.1 |
| | 233.6 |
| | (997.1 | ) | | — |
|
Prepaid expenses and other current assets | 0.7 |
| | 2.0 |
| | 123.2 |
| | (92.1 | ) | | 33.8 |
|
Total current assets | 15.1 |
| | 803.0 |
| | 990.1 |
| | (1,185.3 | ) | | 622.9 |
|
Deferred income tax benefits, net | 142.7 |
| | 219.2 |
| | 151.1 |
| | — |
| | 513.0 |
|
Property, plant and equipment, net | — |
| | 45.7 |
| | 207.2 |
| | — |
| | 252.9 |
|
Long-term receivables, net | — |
| | 0.1 |
| | 12.6 |
| | — |
| | 12.7 |
|
Trademarks and tradenames, net | — |
| | — |
| | 80.9 |
| | — |
| | 80.9 |
|
Goodwill | — |
| | 2.9 |
| | 143.4 |
| | — |
| | 146.3 |
|
Investments in subsidiaries | 1,211.7 |
| | 1,237.8 |
| | — |
| | (2,449.5 | ) | | — |
|
Intercompany notes receivable | 468.0 |
| | 95.6 |
| | 605.4 |
| | (1,169.0 | ) | | — |
|
Other assets, net | 1.5 |
| | 0.8 |
| | 95.2 |
| | (68.9 | ) | | 28.6 |
|
Total assets | $ | 1,839.0 |
| | $ | 2,405.1 |
| | $ | 2,285.9 |
| | $ | (4,872.7 | ) | | $ | 1,657.3 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| | |
| | |
| | |
|
Accounts payable | $ | — |
| | $ | 1.8 |
| | $ | 92.6 |
| | $ | — |
| | $ | 94.4 |
|
Short-term borrowings and current portion of long-term debt and capital lease obligations | 128.0 |
| | 1.3 |
| | 105.5 |
| | — |
| | 234.8 |
|
Intercompany payables | 686.6 |
| | 231.6 |
| | 78.9 |
| | (997.1 | ) | | — |
|
Accrued liabilities | 158.4 |
| | 118.0 |
| | 259.4 |
| | (188.3 | ) | | 347.5 |
|
Total current liabilities | 973.0 |
| | 352.7 |
| | 536.4 |
| | (1,185.4 | ) | | 676.7 |
|
Long-term debt and capital lease obligations | 599.3 |
| | — |
| | 8.8 |
| | — |
| | 608.1 |
|
Intercompany notes payable | 85.0 |
| | 790.4 |
| | 293.6 |
| | (1,169.0 | ) | | — |
|
Other liabilities | 12.1 |
| | 93.3 |
| | 166.3 |
| | (68.8 | ) | | 202.9 |
|
Shareholders' equity | 169.6 |
| | 1,168.7 |
| | 1,280.8 |
| | (2,449.5 | ) | | 169.6 |
|
Total liabilities and shareholders' equity | $ | 1,839.0 |
| | $ | 2,405.1 |
| | $ | 2,285.9 |
| | $ | (4,872.7 | ) | | $ | 1,657.3 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | |
| December 26, 2015 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
ASSETS | |
| | |
| | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 79.8 |
| | $ | — |
| | $ | 79.8 |
|
Accounts receivable, net | — |
| | — |
| | 142.7 |
| | — |
| | 142.7 |
|
Inventories | — |
| | — |
| | 254.6 |
| | — |
| | 254.6 |
|
Non-trade amounts receivable, net | 0.1 |
| | 30.1 |
| | 109.6 |
| | (94.3 | ) | | 45.5 |
|
Intercompany receivables | 11.8 |
| | 754.2 |
| | 228.8 |
| | (994.8 | ) | | — |
|
Prepaid expenses and other current assets | 1.1 |
| | 3.3 |
| | 118.1 |
| | (94.6 | ) | | 27.9 |
|
Total current assets | 13.0 |
| | 787.6 |
| | 933.6 |
| | (1,183.7 | ) | | 550.5 |
|
Deferred income tax benefits, net | 143.5 |
| | 219.9 |
| | 161.5 |
| | — |
| | 524.9 |
|
Property, plant and equipment, net | — |
| | 46.6 |
| | 207.0 |
| | — |
| | 253.6 |
|
Long-term receivables, net | — |
| | 0.1 |
| | 13.1 |
| | — |
| | 13.2 |
|
Trademarks and tradenames, net | — |
| | — |
| | 82.7 |
| | — |
| | 82.7 |
|
Goodwill | — |
| | 2.9 |
| | 143.4 |
| | — |
| | 146.3 |
|
Investments in subsidiaries | 1,164.8 |
| | 1,190.1 |
| | — |
| | (2,354.9 | ) | | — |
|
Intercompany notes receivable | 462.0 |
| | 90.5 |
| | 579.7 |
| | (1,132.2 | ) | | — |
|
Other assets, net | 1.6 |
| | 0.6 |
| | 108.1 |
| | (83.3 | ) | | 27.0 |
|
Total assets | $ | 1,784.9 |
| | $ | 2,338.3 |
| | $ | 2,229.1 |
| | $ | (4,754.1 | ) | | $ | 1,598.2 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| | |
| | |
| | |
|
Accounts payable | $ | — |
| | $ | 3.3 |
| | $ | 123.5 |
| | $ | (0.1 | ) | | $ | 126.7 |
|
Short-term borrowings and current portion of long-term debt and capital lease obligations | 90.4 |
| | 1.2 |
| | 70.9 |
| | — |
| | 162.5 |
|
Intercompany payables | 688.2 |
| | 224.2 |
| | 82.4 |
| | (994.8 | ) | | — |
|
Accrued liabilities | 155.1 |
| | 111.5 |
| | 247.1 |
| | (188.9 | ) | | 324.8 |
|
Total current liabilities | 933.7 |
| | 340.2 |
| | 523.9 |
| | (1,183.8 | ) | | 614.0 |
|
Long-term debt and capital lease obligations | 599.3 |
| | — |
| | 8.9 |
| | — |
| | 608.2 |
|
Intercompany notes payable | 78.5 |
| | 768.1 |
| | 285.6 |
| | (1,132.2 | ) | | — |
|
Other liabilities | 12.4 |
| | 107.8 |
| | 178.0 |
| | (83.2 | ) | | 215.0 |
|
Shareholders' equity | 161.0 |
| | 1,122.2 |
| | 1,232.7 |
| | (2,354.9 | ) | | 161.0 |
|
Total liabilities and shareholders' equity | $ | 1,784.9 |
| | $ | 2,338.3 |
| | $ | 2,229.1 |
| | $ | (4,754.1 | ) | | $ | 1,598.2 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended March 26, 2016 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Operating Activities: | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 1.9 |
| | $ | (20.9 | ) | | $ | 10.1 |
| | $ | 1.4 |
| | $ | (7.5 | ) |
Investing Activities: | | | | | | | | | |
Capital expenditures | — |
| | (2.4 | ) | | (7.0 | ) | | — |
| | (9.4 | ) |
Proceeds from disposal of property, plant and equipment | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
Net intercompany loans | 0.5 |
| | (1.4 | ) | | (18.7 | ) | | 19.6 |
| | — |
|
Net cash provided by (used in) investing activities | 0.5 |
| | (3.8 | ) | | (25.3 | ) | | 19.6 |
| | (9.0 | ) |
Financing Activities: | | | | | | | | | |
Dividend payments to shareholders | (35.0 | ) | | — |
| | — |
| | — |
| | (35.0 | ) |
Dividend payments to parent | — |
| | — |
| | (1.5 | ) | | 1.5 |
| | — |
|
Repurchase of common stock | (0.8 | ) | | — |
| | — |
| | — |
| | (0.8 | ) |
Repayment of capital lease obligations | — |
| | — |
| | (0.4 | ) | | — |
| | (0.4 | ) |
Net change in short-term debt | 34.9 |
| | — |
| | 31.8 |
| | — |
| | 66.7 |
|
Net intercompany borrowings | (1.5 | ) | | 25.3 |
| | (1.3 | ) | | (22.5 | ) | | — |
|
Net cash provided by (used in) financing activities | (2.4 | ) | | 25.3 |
| | 28.6 |
| | (21.0 | ) | | 30.5 |
|
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | 4.8 |
| | — |
| | 4.8 |
|
Net change in cash and cash equivalents | — |
| | 0.6 |
| | 18.2 |
| | — |
| | 18.8 |
|
Cash and cash equivalents at beginning of year | — |
| | — |
| | 79.8 |
| | — |
| | 79.8 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 0.6 |
| | $ | 98.0 |
| | $ | — |
| | $ | 98.6 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended March 28, 2015 |
(In millions) | Parent | | Guarantor | | Non-Guarantors | | Eliminations | | Total |
Operating Activities: | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 470.8 |
| | $ | (29.3 | ) | | $ | 42.7 |
| | $ | (496.0 | ) | | $ | (11.8 | ) |
Investing Activities: | | | | | | | | | |
Capital expenditures | — |
| | (3.8 | ) | | (10.1 | ) | | — |
| | (13.9 | ) |
Proceeds from disposal of property, plant and equipment | — |
| | — |
| | 2.1 |
| | — |
| | 2.1 |
|
Net intercompany loans | (403.2 | ) | | 70.4 |
| | 29.1 |
| | 303.7 |
| | — |
|
Return of capital | — |
| | 105.5 |
| | — |
| | (105.5 | ) | | — |
|
Net cash provided by (used in) investing activities | (403.2 | ) | | 172.1 |
| | 21.1 |
| | 198.2 |
| | (11.8 | ) |
Financing Activities: | | | | | | | | | |
Dividend payments to shareholders | (35.7 | ) | | — |
| | — |
| | — |
| | (35.7 | ) |
Dividend payments to parent | — |
| | (400.0 | ) | | (76.4 | ) | | 476.4 |
| | — |
|
Proceeds from exercise of stock options | 3.1 |
| | — |
| | — |
| | — |
| | 3.1 |
|
Repurchase of common stock | (0.9 | ) | | — |
| | — |
| | — |
| | (0.9 | ) |
Repayment of capital lease obligations | — |
| | — |
| | (0.9 | ) | | — |
| | (0.9 | ) |
Net change in short-term debt | 80.5 |
| | (2.3 | ) | | (6.5 | ) | | — |
| | 71.7 |
|
Excess tax benefits from share-based payment arrangements | 0.8 |
| | — |
| | — |
| | — |
| | 0.8 |
|
Net intercompany borrowings | (115.4 | ) | | 260.0 |
| | 139.5 |
| | (284.1 | ) | | — |
|
Return of capital to parent | — |
| | — |
| | (105.5 | ) | | 105.5 |
| | — |
|
Net cash provided by (used in) financing activities | (67.6 | ) | | (142.3 | ) | | (49.8 | ) | | 297.8 |
| | 38.1 |
|
Effect of exchange rate changes on cash and cash equivalents | — |
| | (0.2 | ) | | (7.4 | ) | | — |
| | (7.6 | ) |
Net change in cash and cash equivalents | — |
| | 0.3 |
| | 6.6 |
| | — |
| | 6.9 |
|
Cash and cash equivalents at beginning of year | — |
| | — |
| | 77.0 |
| | — |
| | 77.0 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 0.3 |
| | $ | 83.6 |
| | $ | — |
| | $ | 83.9 |
|
TUPPERWARE BRANDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 18: | New Accounting Pronouncements |
In May 2014, the FASB issued an amendment to existing guidance regarding revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. In August 2015, the FASB issued an amendment to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. In March and April 2016, the FASB issued amendments to provide clarification on implementation guidance. The August 2015 amendment also allows early adoption of the revenue standard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the impact of the adoption of this amendment on its Consolidated Financial Statements.
In March 2016, the FASB issued an amendment to existing guidance regarding employee share-based payment. Under the amendment, all excess tax benefits and tax deficits will be recognized in the income statement. Regardless of the impact on taxes payable, the tax benefits will be recognized in the current period and excess tax benefits will be classified as an element of cash flow operating activities. In addition, the amendment included simplification to existing guidance on forfeitures, intrinsic value and the withholding of shares for participants' personal income taxes. This guidance is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this amendment on its Consolidated Financial Statements.
In February 2016, the FASB issued an amendment to existing guidance on lease accounting that requires the assets and liabilities arising from operating leases be presented in the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this amendment on its Consolidated Financial Statements.
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
The following is a discussion of the results of operations for the 13 weeks ended March 26, 2016, compared with the 13 weeks ended March 28, 2015, and changes in financial condition during the 13 weeks ended March 26, 2016. The Company's fiscal year ends on the last Saturday of December. As a result, the 2016 fiscal year will include 53 weeks, as compared with 52 weeks for fiscal 2015, and the fourth quarter of 2016 will include 14 weeks.
The Company's primary means of distributing its products is through independent sales organizations and individuals, which in many cases are also its customers. The vast majority of the Company's products are, in turn, sold to end customers who are not members of its sales force. The Company is largely dependent upon these independent sales organizations and individuals to reach end consumers, and any significant disruption of this distribution network would have a negative financial impact on the Company and its ability to generate sales, earnings and operating cash flows. The Company's primary business drivers are the size, activity, diversity and productivity of its independent sales organizations.
As the impacts of foreign currency translation are an important factor in understanding period-to-period comparisons, the Company believes the presentation of results on a local currency basis, as a supplement to reported results, helps improve readers' ability to understand the Company's operating results and evaluate performance in comparison with prior periods. The Company presents local currency information that compares results between periods as if current period exchange rates had been the exchange rates in the prior period. The Company uses results on a local currency basis as one measure to evaluate performance. The Company generally refers to such amounts as calculated on a "local currency" basis, or "excluding the impact of foreign currency." These results should be considered in addition to, not as a substitute for, results reported in accordance with generally accepted accounting principles in the United States ("GAAP"). Results on a local currency basis may not be comparable to similarly titled measures used by other companies.
Effective from the first quarter of 2016, the Nutrimetics business in France previously reported in the Asia Pacific segment is being reported in the Europe segment. Comparable information from prior periods has been reclassified to conform with the new presentation. In full year 2015, Nutrimetics France generated less than one half percent of total sales.
Overview
|
| | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | Change | | Change excluding the impact of foreign exchange | | Foreign exchange impact |
(In millions, except per share amounts) | | March 26,
2016 | | March 28,
2015 | | | |
Net sales | | $ | 525.7 |
| | $ | 581.8 |
| | (10 | )% | | 1 | % | | $ | (61.4 | ) |
Gross margin as percent of sales | | 68.4 | % | | 67.1 | % | | 1.3 |
| pp | na |
| | na |
|
DS&A as percent of sales | | 54.9 | % | | 53.9 | % | | 1.0 |
| pp | na |
| | na |
|
Operating income | | $ | 70.0 |
| | $ | 61.2 |
| | 15 | % | | 44 | % | | $ | (12.7 | ) |
Net income | | $ | 43.4 |
| | $ | 29.5 |
| | 47 | % | | + |
| | $ | (9.5 | ) |
Net income per diluted share | | $ | 0.86 |
| | $ | 0.59 |
| | 46 | % | | + |
| | $ | (0.19 | ) |
_________________________
|
| |
na | not applicable |
pp | percentage points |
+ | increase is greater than 100% |
Reported sales decreased 10 percent in the first quarter of 2016. Excluding the impact of changes in foreign currency exchange rates, sales increased 1 percent. The Company defines established market economies as those in Western Europe (including Scandinavia), Australia, Canada, Japan, New Zealand, and the United States. All other countries are classified as having emerging market economies. The Company's businesses operating in emerging market economies had a 3 percent increase in local currency sales, primarily in the Tupperware North America and South America segments. Local currency sales in the Company's businesses that operate in established economy markets, as a group, decreased 2 percent compared with 2015.
Operating and net income increased 15 percent and 47 percent, respectively, in the first quarter of 2016. Excluding the impact of changes in foreign currency exchange rates, operating and net income increased significantly in the first quarter of 2016, primarily reflecting the benefit of not incurring the $13.5 million impairment of long-term fixed assets in Venezuela recorded in 2015 and increased segment profit in Tupperware North America and South America. This was partially offset by lower segment profit in Europe and Beauty North America and higher unallocated corporate costs. Also impacting net income was $9.1 million lower expenses related to inventory and net monetary assets in connection with the devaluation of the currency exchange rate in Venezuela.
Net cash used in operating activities for the periods ended March 26, 2016 and March 28, 2015 was $7.5 million and $11.8 million, respectively. The favorable comparison primarily reflected a decrease in cash outflows from a positive impact from the company's hedging activities and to timing of cash tax payments related to withholding taxes on royalties and dividend payments. The net impact of these items was partially offset by an increase in outflows of cash related to other net working capital items, particularly trade receivables due to the higher sales in March.
Net Sales
Reported sales decreased 10 percent in the first quarter of 2016. Excluding the impact of changes in foreign currency exchange rates, sales increased 1 percent. The average impact of higher prices was 3 percent.
The Company's emerging market units accounted for 64 percent and 66 percent of the Company's reported sales in the first quarter of 2016 and 2015, respectively. Reported sales in these markets decreased $48.8 million, or 13 percent, which included a negative $57.5 million impact from weaker foreign currency exchange rates. The increase in local currency sales in the Company's emerging market units was primarily in Argentina, due to inflationary driven price increases along with increased volume, in Brazil, due to a larger sales force, China, from significant growth in the number of experience studios and higher productivity in the sites in residential areas, and in Tupperware Mexico, from a larger sales force. The sales growth in these units was partially offset by a decrease in Egypt from curtailed shipments in light of currency controls and new product certification requirements, Indonesia, the Philippines, due to the exit of the fashion category, and Turkey. The average impact of higher prices in the emerging market units was 4 percent.
Reported sales in the established market units decreased $7.3 million, or 4 percent. Excluding the impact of changes in foreign currency exchange rates, sales in these markets were down 2 percent compared with the first quarter of 2015. Among these units, the most significant local currency increase was in the United States and Canada business, reflecting a larger sales force. The most significant sales decrease was in BeautiControl due to a less active and productive sales force, in part reflecting the impact of a revised sales force compensation plan launched at the beginning of the second quarter 2015. The average price increase in the established market units was 1 percent.
A more detailed discussion of the sales results by reporting segment is included in the segment results section below.
As discussed in Note 3 to the Consolidated Financial Statements, the Company includes promotional costs in delivery, sales and administrative expense (DS&A). As a result, the Company's net sales may not be comparable with other companies that treat these costs as a reduction of revenue.
Gross Margin
Gross margin as a percentage of sales was 68.4 percent and 67.1 percent in the first quarters of 2016 and 2015, respectively. The improvement of 1.3 percentage points ("pp") primarily reflected the benefit of lower resin costs (0.8 pp), translation impact of changes in foreign currency exchange rates, mainly in South America (0.1 pp), more favorable country mix (0.2 pp), and the benefit of not incurring an impact of inventory in Venezuela being included in cost of goods sold in 2016 at its stronger, historical exchange rate rather than the rate used to translate it