UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-K
________________________________________
| (Mark One) | |||||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the Transition period from to
Commission file number 001-11657
–—————————————————————————————————————————————————————————
(Exact name of registrant as specified in its charter)
——————————————————————————————————————————————————————————
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol (s) | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ *
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ *
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates on the New York Stock Exchange-Composite Transaction Listing on June 24, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter) was $305,591,838 . For the purposes of making this calculation only, the registrant defines affiliates to include all of its directors and executive officers.
As of October 5, 2023, 46,269,320 shares of the common stock, $0.01 par value per share, of the registrant were outstanding.
*Per SEC guidance, these checkboxes are included on the cover page but no disclosure is required until the effectiveness of related stock exchange listing standards.
TABLE OF CONTENTS
| Item | Page | ||||
Forward-Looking Statements
Certain statements made or incorporated by reference in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not based on historical facts or information are forward-looking statements. Statements that include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future tense or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, the Company expresses an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations at the time this report is filed with the SEC or, with respect to any documents or statements incorporated by reference, on the then current plans and expectations at the time such document was filed with the SEC, or statement was made. Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. Except as required by law, and as outlined below the Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise. Such risks and uncertainties include, among others, the following:
•the Company’s ability to implement and maintain effective internal control over financial reporting;
•the Company’s ability to remediate the material weaknesses identified, as well as the reasonable possibility that, until such material weaknesses are remediated, the material weaknesses could result in a material misstatement to the Company’s annual or interim Consolidated Financial Statements that would not be prevented or detected;
•the potential impact to the Company of management’s conclusion regarding its substantial doubt about the Company’s ability to continue to operate as a going concern, including any continuing impact on payment and other trade terms with suppliers, and sales force productivity;
•the Company’s substantial level of indebtedness and current liquidity constraints;
•the costs and covenant restrictions associated with the Company’s current credit facility with Wells Fargo Bank, N.A. and the other lenders;
•the Company’s ability to comply with, or further amend, financial covenants under its credit agreement and its ability to repay or refinance the debt outstanding under its current credit facility and take other actions to address its capital structure, as well as potential downgrades to the Company’s credit ratings;
•the financial risks resulting from the Company’s international operations, including exposure to foreign currency restrictions, the Company’s ability to repatriate cash from jurisdictions outside of the United States, the impact of international sanctions on the Company’s ability to generate strong operating cash flow and the ability of obtaining financing sources, and the absence of foreign exchange lines of credit to hedge the Company’s exposure to foreign exchange;
•the Company’s ability to file its 2023 quarterly and annual financial statements within the extension periods approved by the New York Stock Exchange (“NYSE”), given material weakness remediation and resource constraints;
•the potential need to engage new independent auditors for fiscal year 2023 if the current auditors are dismissed, resign, or refuse to stand for re-appointment;
•the Company’s compliance with the NYSE listing standards, and other consequences of the recent high volatility of the price of our common stock and volume of daily trading;
•the continued service of our senior management and other key employees, and our ability to attract and retain highly talented personnel at all levels;
•the potential timing and impact of anticipated changes in the composition of the Company’s Board of Directors to support compliance with the Debt Restructuring Agreement and the Company’s Turnaround Plan;
•the successful execution of the Company’s Turnaround Plan and other operating or cost-saving initiatives;
•the successful recruitment, retention and productivity levels of the Company’s independent sales force and the Company’s employees, the ability of our sales force to adapt to changing consumer needs, the Company’s ability to anticipate and respond to market trends and changes in consumer preferences;
•the Company’s ability to accurately forecast demand for our products, pricing, revenues and costs of the business;
•the quality and safety of our products;
•the inability of our suppliers to supply certain raw materials, a disruption or interruption in the supply chain;
•change in economic environment, including the effects of inflation, rising interest rates and/or recession on the Company’s business;
•the effects of political, legal, tax, and regulatory risks on our U.S. and international markets;
•risk that direct selling laws and regulations in any of the Company’s markets may be modified, interpreted, or enforced in a manner that results in negative changes to the Company’s business models or negatively impacts its revenue, sales force, or business, including through the interruption of recruiting and sales activities, loss of licenses, imposition of fines, or any other adverse actions or events;
•our compliance with the U.S. Foreign Corrupt Practices Act or similar U.S. or foreign anti-bribery and anti-corruption laws and regulations in the jurisdictions in which we operate;
•risks arising from the application of environmental laws and regulations;
•risks related to litigation against the Company, including pending securities class action lawsuits filed against the Company and certain of its current and former officers and directors;
•the Company’s ability to protect its intellectual property rights, or our conflict with the rights of others;
•security incidents and attacks on our information technology systems;
•unpredictable economic and political conditions and events globally, including any public health emergencies, such as the COVID-19 pandemic; and
•other risks discussed in Part I, Item 1A. Risk Factors, of the Company’s 2022 Form 10-K and the Company’s other filings with the SEC.
The Company does not intend to update forward-looking information, except as required by law.
Investors should also be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company’s policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, it should not be assumed that the Company agrees with any statement or report issued by any analyst irrespective of the content of the confirming financial forecasts or projections issued by others.
PART I
Item 1. Business.
Description of Business
Tupperware Brands Corporation (“Tupperware,” the “Company,” “we” “us” or “our”) is a global consumer products company that designs innovative, functional, and environmentally responsible products. Founded in 1946, the Company’s signature container created the modern food storage category that revolutionized the way the world stores, serves, and prepares food. Today, this iconic brand has more than 8,500 functional design and utility patents for solution-oriented kitchen and home products. The Company distributes its products into nearly 70 countries around the world, primarily through independent sales force members, with an annual average active sales force of approximately 313 thousand in 2022. Worldwide, the Company engages in the marketing, manufacture, and sale of design-centric preparation, storage, and serving solutions for the kitchen and home through the Tupperware brand name. The Company primarily uses a direct selling business model to distribute and market products, while continuing to expand digital and retail distribution channels. The Company is a Delaware corporation that was organized on February 8, 1996 in connection with the corporate reorganization of Premark International, Inc. (“Premark”).
In 2019, the Company began facing financial headwinds and operational challenges that contributed to a multi-year decline in the Company’s financial performance. The Company’s net sales and revenues declined as the Company struggled to return its direct selling business to long-term revenue growth. Furthermore, changes in sales force business model and compensation plan changes did not deliver the expected results. In 2020, under new executive leadership and facing COVID-19 related shutdowns globally, the Company developed and began executing a turnaround plan (the “Turnaround Plan”). The Company continues to execute on its Turnaround Plan, which includes right-sizing plans to improve profitability, accelerating the divestiture of non-core assets to strengthen the balance sheet, restructuring the Company’s debt, and structurally fixing the Company’s core business to improve liquidity. See Business Strategy section below and Note 3: Re-engineering and Impairment Charges to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (this “Form 10-K” or this “Report”) for additional information.
As of September 25, 2021, the Company has classified the results of certain key brands of the beauty business including Avroy Shlain, House of Fuller, Nutrimetics, and Nuvo as held for sale and as discontinued operations. As such, the results of the beauty businesses are reflected as discontinued operations including all comparative prior period information in the Consolidated Financial Statements. Subsequently, all of these key brands have been sold to third parties. See Note 12: Assets Held for Sale and Discontinued Operations to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for additional information.
In 2022, in an effort to respond to a deteriorating macroeconomic environment, post-COVID worldwide inflation, and the increases in resin prices, along with continued lockdowns in China and the ongoing conflict in Ukraine, the Company executed a series of initiatives to increase product prices, enhance sales force incentives, change sales force compensation, and right-size the supply chain network and back office functions. It was a challenging year of increased competition in fast growing gig jobs for the sales force, and some of the Company’s initiatives did not deliver the expected results. After evaluating the results of the prior initiatives, the Company is developing a plan to focus on restoring sales force recruiting, increasing productivity, and adjusting product prices informed by elasticity studies across different geographies.
Restatement of Previously Issued Financial Statements - Explanatory Note
On March 16, 2023, the Company announced that it would restate certain of its previously issued financial statements for misstatements identified. Therefore, these Consolidated Financial Statements include the following restated financial information:
•restated Consolidated Financial Statements as of and for the years ended December 25, 2021 and December 26, 2020; and
•restated unaudited interim Condensed Consolidated Financial Information for the first three quarters of 2022 and all quarters of 2021
1
The restatement resulted in the following net impacts to the Company’s previously reported income from continuing operations and diluted earnings per share from continuing operations (in millions, except per share data):
| 39 Weeks Ended September 24, 2022 | Year Ended December 25, 2021 | Year Ended December 26, 2020 | ||||||||||||||||||
| (Loss) income from continuing operations | $ | (5.7) | $ | (4.6) | $ | 11.9 | ||||||||||||||
| Diluted (loss) earnings from continuing operations - per share | $ | (0.12) | $ | (0.09) | $ | 0.23 | ||||||||||||||
For more information see Note 22: Restated Previously Issued 2021 and 2020 Financial Statements and Note 23: Quarterly Financial Summary (Unaudited) to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report.
In connection with the restatement, the Audit Committee concluded, with concurrence of management, that there were deficiencies in the Company’s internal control over financial reporting that constituted material weaknesses as of December 31, 2022. As further discussed in Item 9A. Controls and Procedures of this Report, the Audit Committee and management have concluded that the Company did not maintain effective internal control over financial reporting at December 31, 2022 and the Company’s disclosure controls and procedures were not effective as of December 31, 2022.
Substantial Doubt Regarding the Company’s Ability to Continue as a Going Concern
In accordance with Accounting Standards Codification (“ASC”) Topic 205-40, Going Concern, the Company evaluates whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern. This evaluation includes considerations related to financial and other covenants contained in the Company’s Credit Agreement (the “Credit Agreement”, as amended), as well as the Company’s liquidity, described in Note 16: Debt to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report, as well as the Company’s forecasted liquidity.
As previously disclosed in the Company’s Current Reports on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 7, 2023, May 8, 2023, May 30, 2023, July 7, 2023, and August 3, 2023, the Company had no ability to borrow further under its revolving credit facility (the “Revolver”) until August 2, 2023, when it entered into a Debt Restructuring Agreement (the “Debt Restructuring Agreement”), which enabled immediate access to up to $21.0 million on the Revolver subject to liquidity and other cash covenants. While the Company believes that the Debt Restructuring Agreement provides additional flexibility to fund its operations and satisfy its obligations as currently anticipated in the near term, it also imposes new covenants, including liquidity covenants requiring the use of excess cash for debt reduction. Given the uncertainties around the Company’s liquidity, ability to execute its Turnaround Plan, and ability to comply with covenants, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance of these Consolidated Financial Statements. Refer to Note 16: Debt in Item 8. Financial Statements and Supplementary Data of this Report for additional details around the Debt Restructuring Agreement.
The Company's Board of Directors is actively engaged with management and financial advisors to further explore strategic alternatives and advise on potential means to improve the Company’s liquidity and capital structure. If the Company raises funds in the future by issuing equity securities, such as warrants issued under the Debt Restructuring Agreement (as defined below) or through the future sale of the Company’s common stock, it is highly likely that existing stockholders will be diluted. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of common stock. If the Company raises funds in the future by issuing additional debt securities, these debt securities will likely have rights, preferences, and privileges senior to those of stockholders. The ability to raise additional debt is subject to the limitations, conditions and preferences of the Credit Agreement and anticipated future increases in federal fund rates set by the Federal Reserve, which serve as a benchmark for rates on borrowing, which will continue to impact the cost of debt financing. In addition, the Company is reviewing its real property portfolio for real estate available for potential dispositions, or sale-leaseback transactions, and is exploring right-sizing efforts, monetization of fixed assets, enhancing cash management, and marketing and channel optimization, to deliver additional liquidity, within this calendar year; however the timing, amount and ability to effect such dispositions is uncertain. As the aforementioned actions are conditional upon the receipt of offers and execution of agreements with new or existing investors or the execution of sales agreements with third parties, which are considered outside of the Company’s control, there is no assurance of the timing or outcome of these actions, and as a result they are not considered probable of occurring until such time as they are completed. If the Company is unable to execute its Turnaround Plan, it will not be able to continue to operate its business pursuant to its current business plan, which would have a material adverse effect on the Company’s performance, or it may be forced to file for bankruptcy protection, which could include either reorganization or liquidation.
2
To address substantial doubt, the Company has embarked on the following actions:
•engaged a financial advisor to assist in securing supplemental financing,
•appointed a Chief Restructuring Officer,
•appointed a new director to its Board of Directors with significant restructuring experience,
•entered into the Debt Restructuring Agreement with its bank group,
•engaging in discussions with potential investors or financing partners, with respect to potential financing transactions, such as issuing equity securities where dilution to stockholders is highly likely to occur,
•reviewing its real property portfolio for potential monetization opportunities,
•deferring certain growth capital spending with payback of more than a year, and
•prioritizing re-engineering actions with short-term return.
For additional information about the Credit Agreement and the amendments to the Credit Agreement, refer to Note 1: Summary of Significant Accounting Policies and Note 16: Debt to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report.
Furthermore, liquidity constraints as of December 31, 2022 triggered the re-assessment of the valuation of certain Company assets and liabilities, resulting in a $179.4 million valuation allowance of deferred tax assets, the recognition of additional deferred tax liabilities of $12.3 million related to jurisdictions where the Company had previously asserted permanent reinvestment, a $3.6 million abandonment of capitalized software, a $3.2 million impairment of certain goodwill and intangible assets, and the reclassification of long-term intercompany loans to short-term beginning in 2023, resulting in increased exposure to foreign exchange volatility on the Consolidated Statements of (Loss) Income, amongst other impacts.
COVID-19
While the spread of COVID-19 and its variants continued into 2022, the impact from continued partial lockdowns was isolated primarily to the Company’s operations in China. The Company continues to navigate the impacts of the global COVID-19 pandemic to ensure the safety of its employees and their families, sales force, and consumers, and to mitigate the impact of the pandemic on its operations and financial results. Refer to Segment Analysis Current Year vs. Prior Year in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report.
The Company adopted a hybrid approach to working and started to phase in a return to global offices with a combination of work from home and in-office days where possible.
Available Information
Investors can obtain access to periodic reports and corporate governance documents, including board committee charters, corporate governance principles and codes of conduct and ethics for financial executives, and information regarding the Company’s transfer agent and registrar through the Company’s website free of charge (as soon as reasonably practicable after reports are filed with the SEC, in the case of periodic reports, by going to www.tupperwarebrands.com, clicking on the “Investors” tab and searching under “Financial Information”, “Corporate Governance” or “IR Resources.” The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
Sales
Products
The Company designs innovative, functional, and environmentally responsible products to help store, serve, and prepare food. The core of the Tupperware brand product line consists of design-centric preparation, storage, and serving solutions for the kitchen and home, in addition to lines of cookware, knives, microwave products, microfiber textiles, water-filtration related items, and an array of products for on-the-go consumers.
The Company believes its ability to continually and successfully offer consumers innovative, differentiated, high quality and award-winning products is one of its most valuable assets. For example, in 2022, Tupperware was honored with a Good Design Award for its UrbanMax™ Portable Blender by The Chicago Athenaeum as well as a German Design Award 2023 Special Mention by the German Design Council. The XtremAqua®™ Freezable Bottle, RiceSmart Junior and SuperSonic™ Chopper received the 2022 IF Seal from the Industrie Forum Design, Hanover, and the Dish Caddy also received a Reddot honor from the Design Centre Nordrhein Westfalen, Essen. In addition to these recognitions, new product introductions in 2022 included:
3
•The Bamboo and Glass Storage Jars made with FSC® Certified bamboo material for the lids – a new, sustainably sourced material for the Company. This product line, intended to keep dry ingredients fresh, doubles as a storage solution across the entire home. Beyond storing dry ingredients, like spices, dried beans, nuts, granola, pasta and more, consumers can use the jars in other parts of the home for stylish organization. The jars are designed to stack securely for space efficiency, and launched in Australia, Mexico, United States and Canada, and in some markets in the Asia Pacific and Europe segments.
•The Company built upon its category experience in reusable drinkware with the launch of the Tupperware Pure&Go™ Water Filter Bottle, which allows consumers to bring filtered, better tasting water wherever they go. Up to seventy-nine gallons of water can be filtered before replacing the element and the product is certified by NSF International. The bottle comes with an easy-sip straw for easy drinking and it is dishwasher-safe.
•Tupperware One Touch Fresh™ Storage brings a practical design, with the Company’s signature one touch close and easy open lid and a clear material that allows users to quickly identify its contents. These containers optimize organization in the pantry or fridge, thanks to their modularity, and provide peace of mind to the consumer by reducing food waste. Plus, when not in use, nesting bases and lid snapping features provide a compact storage solution.
•The Tupperware Ultra Clear™, a range of beautiful, transparent containers with the look of glass that feature an easy open lid, are stackable and modular, and are intended to keep dry foods fresher, longer, with the airtight seal.
•As consumers continue to seek healthier meal options, the Company introduced the UrbanMax™ Portable Blender that operates with a rechargeable battery so there is no need to be plugged in to prepare a smoothie. The battery has enough of a charge to make 10 drinks, and allows consumers to prepare and enjoy fresh smoothies, shakes, juices and other liquid beverages virtually anywhere and everywhere. The blender is also a convenient way to prepare other foods, like sauces, dressings or milkshakes in small quantities without the hassle of cleaning a whole blender or other large appliance.
•The Tupperware Air Fryer, which features a digital touchscreen display, and captures a growing consumer set who seeks quicker, healthier meals. The Air Fryer has six preset times and temperature icons for the most popular foods, and includes a non-stick basket making cleanup quick and easy.
•The Company continued its focus on creating on-the-go products with the launch of Xploris™ Thermal Tumblers. The tumblers come in two earth-tone colors, are highly functional, reusable, stylish and include double-wall insulation. The tumblers come in three sizes and include a closeable silicone-made plug and drinking spout for easy drinking. The tumblers, made with a spill control lid for minimal spillage, launched in the United States, Canada and markets across Asia Pacific, with plans to launch in Brazil, Europe, Middle East and Africa markets, and Mexico in 2023.
Markets
The Company operates its business under four reportable segments in four broad geographic regions: (1) Asia Pacific, (2) Europe (Europe, Africa and the Middle East), (3) North America, and (4) South America. See Note 21: Segment Information to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for further details regarding segment information.
Sales are to the ultimate customer principally through direct selling by an annual average active sales force of approximately 313 thousand in 2022. Products are primarily sold directly to independent distributors, directors, managers, and dealers (the “sales force”) throughout the world. Sales force members purchase products at a discount from the Company and then sell them to their customers. Sales force compensation plans and sales methods can differ based on the market.
A significant portion of the Company’s business operates through distributors, some of whom stock inventory and fulfill orders from the sales force. In a stocking model, the distributor orders product, stocks it in a warehouse and picks, packs, and ships it to the sales force for distribution to the end consumer. In a non-stocking model, the Company manages the stocking and distribution of inventory while distributors focus on commercial activities. Discounts to the distributor are adjusted depending on the level of service provided. Where distributorships are granted, they have the right to market the Company’s products and to utilize Tupperware’s trademarks, subject to certain limitations. The vast majority of the sales force members are independent contractors and not employees of the Company.
Some business units utilize a campaign merchandising system whereby sales force members sell through brochures generated every three or four weeks to their circle of influence including friends, neighbors, and relatives. The brochures highlight new products and promotional items for each sales campaign and allow the sales force to connect one-on-one with the consumer. Generally, the sales force forwards an order to a designated Tupperware distribution center where the product is packaged and shipped to the sales force for delivery to the consumer.
4
The Company also uses retail stores and studios, owned by independent sales force members, in certain markets, most predominantly in China. These physical locations provide an entrepreneurial opportunity for independent owners to connect with consumers to demonstrate and sell products while also creating visibility and reinforcing Tupperware’s image with consumers. As part of the Company’s Turnaround Plan, the new growth strategy will expand to offer additional in-person product purchasing opportunities to complement the current retail store and studio strategy.
Accelerated by the global pandemic, the Company has seen a worldwide shift by its sales force to incorporate digital methods of doing business. The adoption of digital demonstrations has grown as a result of more people staying at home, thus enabling a sales force member’s ability to reach new customers. Geographic location is no longer a limiting factor for the Company’s independent sales force members and the Company sees this adoption of digital tools and methods to selling as a key element of building a more sustainable and predictable business. In both 2022 and 2021, Tupperware provided its sales force with various digital tools to connect with consumers directly through social media and personalized web pages, offered digital training and virtual meetings for sales force development, and maintained direct websites in several countries including, but not limited to, Brazil, Mexico, and the United States and Canada, for consumers to purchase products.
Business Strategy
Given current concerns about its liquidity and capital structure, the Company has increased its focus on improving its cash generation capabilities and capital structure through the efforts outlined above, including developing plans to generate additional liquidity to address substantial doubt and has engaged advisors to address the capital structure.
Due to the sharp rise in inflation in 2022, the Company raised prices on its products to protect gross margins, at rates in some markets, such as the United States and Western Europe, that were much greater than in the recent past. The increased prices coupled with falling consumer confidence resulted in fewer unit volumes shipped than were expected.
The Company also found that during the pandemic, when it initiated a starter kit at a much lower cost than traditional starter kits, many members were joining mostly for the product discount, and were not building business organizations at the same rate as in the past. Those member cohorts also did not benefit from in-person meetings, which the Company believes is critical to the success of a direct selling organization. Therefore, the Company believes that retention rates suffered as a result. With the return to in-person events, particularly in the second half of 2022, coupled with the elimination of the low-cost starter kits in early 2023, the Company expects that productivity of post-pandemic member cohorts will improve and will return to levels that more closely mirror pre-pandemic levels.
Two milestones achieved in 2022 give the Company confidence that when it expands access to the Tupperware brand beyond its traditional channels, consumers respond favorably. In the U.S. a successful launch into a major retailer exceeded expectations, and the Company believes it paves the way for future retail expansion, while its omnichannel approach in Korea augmented the continued growth in the traditional studio channel it deploys in that market, resulting in Korea moving up to be the third largest market in the Company’s Asia Pacific segment. In total, the Company has approximately 50 retail customers around the world in 2022, and now have multi-channel activity in 22 of its markets. While retail sales now represent four percent of the Company’s total revenue, positive results in this channel were not enough to offset declining trends in the direct selling channel.
In 2022, the Company continued to execute on its Turnaround Plan, one that leverages consumer acceptance of the iconic Tupperware brand, which is expected to give the Company the ability to expand into new product categories, increase consumer access points, and grow distribution channels, all while strengthening the Company’s core direct selling business. A deteriorating macroeconomic environment, which included increasing inflationary pressures, sharply rising interest rates, and the strengthening of the U.S. Dollar against most major currencies, coupled with increasing geopolitical tensions and deteriorating consumer confidence, eroded the Company’s underlying business economics and liquidity in 2022. The Company elected to take additional restructuring actions, which has pushed out the Turnaround Plan timeline. The Turnaround Plan will focus on further simplifying the Company’s core business with digital transformation and global exchange of best-selling practices. The Company will continue shifting from a distributor push model to a consumer pull model to capture the needs of today’s customer sets; opening up access to Tupperware products in channels where today’s consumers want to shop as part of our omnichannel evolution; and expanding into new product categories to bring more innovative solutions to the market. The timing and investment in support of the Turnaround Plan could most likely be constrained by the Company’s liquidity.
5
Competition
The Company has many competitors both domestically and internationally. The principal bases of competition generally are marketing, price, quality, and innovation of products, as well as competition with other companies for independent sales force and new business models promoting a gig economy. Due to the nature of the direct selling industry, it is critical that the Company provide a compelling earnings opportunity for the sales force, along with developing new and innovative products.
Through its Tupperware brand, the Company competes in the food storage, serving and preparation, containers, and gifts categories. The Company works to differentiate itself from its competitors through its brand names, product innovation, quality, value-added services, celebrity endorsements, technological sophistication, new product introductions, and its channel of distribution, including the training, motivation, and compensation arrangements for its independent sales force.
Resources
Many of the products manufactured by and for the Company require specialty polymers including plastic resins that meet its rigorous design and quality specifications. These resins are purchased through various arrangements with a number of large chemical companies located in many of the markets in which the Company has a presence or sells its products. Research and development relating to these polymers and resins used in Tupperware brand name products is performed by both the Company and its suppliers. In 2022 and 2021, the Company experienced shipping constraints and delays coming from sourced suppliers due to COVID-19. To date, the Company has been able to secure an adequate supply of raw materials for its products, and it endeavors to maintain relationships with backup suppliers in an effort to ensure that no interruptions occur in its operations.
The Company considers its trademarks and patents to be of material importance to its business. Except for the Tupperware trademark, which the Company considers to be among its most valuable assets, the Company is not dependent upon any single patent or trademark, or group of patents or trademarks. The Tupperware trademark, as well as its other trademarks, is registered on a country-by-country basis. The current duration for such registration ranges from five years to ten years; however, each such registration may be renewed an unlimited number of times. The patents used in the Company’s business are registered and maintained on a country-by-country basis, with a variety of durations. The Company has followed the practice of applying for design and utility patents with respect to most of its significant patentable developments.
The Tupperware trademark is pledged as collateral under the Credit Agreement. See “Substantial Doubt Regarding the Company’s Ability to Continue as a Going Concern” above for more information. Should the Company be in default of the Credit Agreement, and fails to cure or obtain waivers for said default, then the lenders could, among other things, foreclose upon any collateral under the Credit Agreement, including the Tupperware trademark.
Government Regulations
Compliance with government regulations, including those relating to environmental protection, has not had in the past, and is not expected to have in the future, a material effect upon the Company’s capital expenditures, liquidity, earnings, or competitive position.
Human Capital
As of December 31, 2022, the Company had approximately 6,600 employees, about 35 percent fewer than at December 25, 2021. The primary reasons for the headcount reductions were the sale of certain non-core beauty brands, as well as accelerated re-engineering programs to right-size the Company’s core business. These actions, coupled with employee turnover, have resulted in a loss of continuity of knowledge and have created resource constraints. See Note 3: Re-engineering and Impairment Charges and Note 12: Assets Held for Sale and Discontinued Operations to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for more information.
The decision to layoff employees discussed above is one of the most difficult changes that the Company has and continues to implement to help address its liquidity concerns. The Company has made it a priority to treat outgoing employees with respect and has provided and will continue to provide separation agreements in line with statutory requirements across the world.
Environmental, Social and Governance (“ESG”)
For over 75 years, Tupperware has provided innovative, functional, and environmentally responsible products as alternatives to single-use plastic products. Since its foundation, the Company has offered career paths and opportunities for women and has been committed to gender and racial diversity. In 2022, Tupperware accelerated its ESG efforts as part of the Turnaround Plan.
6
2022 was a transformational year for further integrating ESG initiatives into the Company’s business, with the recalibration of priorities, reaffirming the most material topics and setting clear strategies toward the achievement of the Company’s ESG goals.
Highlights of Tupperware’s progress and focus areas to enhance its ESG strategy and priorities include the following:
•Improvement of ESG oversight and governance, which now includes the Board of Directors’ Nominating, Governance and Social Responsibility Committee, a cross-functional ESG Steering Committee that drives the integration, empowerment, and ownership of the ESG strategies across the business units. In addition, ESG is now an integral part of its leadership’s Management Business Objectives (“MBOs”), to enhance the integration of sustainability into the business.
•Publication of the Company’s 2022 ESG Report reflects the priority sustainability areas of the business on stakeholders as defined in the 2021 materiality assessment. The report outlines the Company’s environmental, social, and governance strategies, goals, and progress. The report is accompanied by a disclosure index aligned with the Global Reporting Initiative (“GRI”) Standards and the Sustainability Accounting Standards Board (“SASB”) Standard for the containers and packaging industry in the resource transformation sector.
•Reduction of Tupperware products’ environmental footprint by engaging with the Company’s global manufacturing facilities to expand existing ESG data monitoring and collection processes and ensure accurate performance and impact measurements for improvement.
•Recognition for continued commitment to ESG by being named to Newsweek’s list of America’s Most Responsible Companies for 2022 and among the top 100 companies in the Forbes Halo list that measures how well, and how responsibly, brands are serving their U.S. customers. The Company believes these designations are a testament to Tupperware’s cultural impact, social engagement, and authentic communication of its mission and values.
Other
The Company’s business is not dependent on a small number of customers, nor is any of its business subject to renegotiation of profits or termination of contracts or subcontracts at the election of the United States government.
7
Information About Our Executive Officers
The following is a list of the names and ages of all executive officers of the Company as of September 30, 2023, indicating all positions and offices held by each such person with the Company, and each such person’s principal occupations or employment during the past five years. Each such person has been elected to serve until the next annual election of officers of the Company (expected to occur during the fourth quarter of 2023.
| Name | Age | Positions and Offices Held and Principal Occupations of Employment - During Past Five Years | ||||||||||||
| Miguel Fernandez | 52 | President and Chief Executive Officer and Director of Tupperware Brands Corporation, since April 2020. Mr. Fernandez previously served as Executive Vice President, Global President of Avon Products, Inc. from 2017 to January 2020. Prior thereto, Mr. Fernandez spent nearly 10 years in senior positions with increasing responsibility at Herbalife Nutrition Ltd., including Executive Vice President for the Americas and Worldwide Member Operations from 2013 to 2017 and Senior Vice President and Managing Director Mexico from 2009 to 2013. | ||||||||||||
Richard Goudis(3) | 62 | Executive Vice Chair and Director of Tupperware Brands Corporation, since March 2020. Mr. Goudis is the former Chief Executive Officer of Herbalife Nutrition Ltd. from 2017 to 2019. He also served as Chief Operating Officer of Herbalife Nutrition Ltd. from 2010 to 2017, and as Chief Financial Officer of Herbalife Nutrition Ltd. from 2004 to 2010. | ||||||||||||
| Hector Lezama | 51 | President, Chief Commercial Officer since October 2022. Previously, President, Commercial Business Expansion, since February 2021 and Senior Vice President, Expansion & Turnaround Markets, since April 2020. Prior to joining the Company, Mr. Lezama was Chief Executive Officer of Oprimax Group from 2014 through April 2020. | ||||||||||||
| Mariela Matute | 47 | Chief Financial Officer since May 2022. Prior to joining Tupperware, Ms. Matute was Chief Financial Officer of Calavo Growers, Inc. Prior thereto, Ms. Matute spent nearly five years at Amazon.com as Chief Financial Officer of Amazon Business from February 2019 to October 2021, and previously as Director of Finance and Operations from February 2017 to February 2019. | ||||||||||||
Madeline Otero(2) | 47 | Senior Vice President, Chief Accounting Officer since July 2021, Senior Vice President, Finance and Accounting since May 2020, and Vice President and Controller since November 2018. Previously Vice President, Internal Audit and Enterprise Risk Management since November 2015, and Vice President and CFO, BeautiControl since January 2011. | ||||||||||||
Karen M. Sheehan(1) | 50 | Executive Vice President, Chief Legal Officer and Secretary since January 2018, after serving as Senior Vice President, General Counsel and Secretary since January 2017, and as Vice President and Deputy General Counsel since December 2014. | ||||||||||||
| Jim Van Ingen | 59 | Executive Vice President of Supply Chain since July 2022. Prior to joining Tupperware, Mr. Van Ingen was President of the Automotive Powertrain Components business at Novares Group from February 2020 to July 2022. Prior to Novares, Mr. Van Ingen served as President and CEO of Bway Corporation from September 2017 to September 2018, and before that as Senior Vice President for a Marmon Group/Berkshire Hathaway portfolio of companies. | ||||||||||||
| Brian J. Fox | 57 | Brian J. Fox, Chief Restructuring Officer since May 4, 2023 and Managing Director for Alvarez & Marsal since May 2016. As a Leader for Alvarez & Marsal North American Commercial Restructuring Practice, Mr. Fox provides a full range of financial advisory, operational improvement, and interim management services in restructurings and other special situations. Mr. Fox has worked with companies to develop operational improvement programs around customer and product profitability, working capital reduction and expense reduction. | ||||||||||||
(1) On August 7, 2023, Ms. Sheehan informed the Company of her intention to resign from her position effective September 30, 2023 and has entered into a consulting arrangement for continued service as disclosed in the Form 8-K filed on August 11, 2023.
(2) On September 12, 2023, Ms. Otero informed the Company of her intention to resign from her position effective following the filing of this Report.
(3) On October 6, 2023, Mr. Goudis informed the Company of his intention to resign from his position effective following the filing of this Report.
Item 1A. Risk Factors.
There are inherent risks and uncertainties associated with the Company that could adversely affect its business, financial condition, or results of operations. Set forth below are descriptions of those risks and uncertainties that the Company currently believes to be material, but the risks and uncertainties described below are not the only ones that could adversely affect the Company. Other events that the Company does not currently anticipate or that the Company currently deems immaterial also may affect its business, financial condition, or results of operations. Before making an investment in the Company’s securities, investors should carefully consider the risk factors discussed below, together with the other information in this Report, including the section entitled Forward-Looking Statements at the beginning of this Report, in Item 7A. Quantitative and Qualitative Disclosures About Market Risk, and the other reports and materials filed by the Company with the SEC.
8
Risks Related to Liquidity
There is substantial doubt about the Company’s ability to continue as a going concern, and this may adversely affect the Company’s stock price, the Company’s ability to raise capital, and the Company’s relationship with its vendors.
Pursuant to ASC 205, Presentation of Financial Statements, the Company is required to and does evaluate at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance of these Consolidated Financial Statements. Based on the definitions in the relevant accounting standards, the Company evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern. This evaluation includes considerations related to financial and other covenants contained in the Company’s Credit Agreement as well as the Company’s forecasted liquidity. In fiscal year 2022, the Company generated negative operating cash flow and, based on its current business plan, the Company expects to continue to spend substantial amounts in future periods, which may result in further periods of negative operating cash flow, further impacted by an increase in the number of vendors requiring more frequent payment or prepayment for goods and services.
The Company had no ability to borrow further under its Revolver until August 2, 2023, when it entered into the Debt Restructuring Agreement, which enabled immediate access to up to $21.0 million on the Revolver subject to liquidity and other cash covenants as outlined in the Debt Restructuring Agreement. While the Company believes that the Debt Restructuring Agreement provides additional flexibility to fund its operations and satisfy its obligations as currently anticipated in the near term, it also imposes new covenants, including liquidity covenants which require the use of excess cash for debt reduction. Given the uncertainties around the Company’s liquidity, ability to execute its Turnaround Plan, and ability to comply with financial and non-financial covenants, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance of these Consolidated Financial Statements. Refer to Note 16: Debt to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for additional details around the Debt Restructuring Agreement.
To address these covenant and liquidity concerns, the Company is taking the following actions:
•engaged a financial advisor to assist in securing supplemental financing,
•appointed a Chief Restructuring Officer,
•appointed a new director to its Board of Directors with significant restructuring experience,
•entered into the Debt Restructuring Agreement with its bank group,
•engaging in discussions with potential investors or financing partners, with respect to potential financing transactions, such as issuing equity securities where dilution to stockholders is highly likely to occur,
•reviewing its real property portfolio for potential monetization opportunities,
•deferring certain growth capital spending with payback of more than a year, and
•prioritizing re-engineering actions with short-term return.
These actions are conditioned upon the receipt of offers and the execution of agreements with new or existing investors or the execution of sales agreements with third parties, which are considered outside of the Company’s control. There is no assurance of the timing and outcome of these actions and as a result they are not considered probable of occurring until such time as they are completed.
Unless the Company is able to successfully execute its Turnaround Plan, it will not be able to continue to operate its business pursuant to its current business plan. This would require management to modify its operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of the Company’s ongoing or planned investments in corporate infrastructure, business development, sales and marketing, research and development and other activities, which would have a material impact on the Company’s operations, its ability to increase revenues, and the Company’s relationship with its vendors. Alternatively, the Company may be forced to file for bankruptcy protection, which could include either reorganization or liquidation.
Current and future indebtedness could restrict the Company’s operations, particularly its ability to respond to changes in its business or to take specified actions.
The Company is also dependent upon its Revolver to fund its operations and satisfy obligations. Prior to execution of the Debt Restructuring Agreement on August 2, 2023, the Company was in default with certain amended financial and non-financial covenants included in the Credit Agreement and had no access to its Revolver.
9
The Company must meet certain financial and non-financial covenants to be in compliance with the Credit Agreement. Under the terms of the Credit Agreement, non-compliance with covenants is an event of default, which provides the lenders with, among other things, the ability to demand repayment of outstanding borrowings and restrict future borrowings under the Revolver. If such demand for repayment were to occur, the Company does not have the financial resources to repay such obligations.
If the Company is unable to effectively execute its Turnaround Plan, it may violate covenants in the future, which could result in the acceleration of outstanding debt obligations. Were the lenders to take action to accelerate the debt, the Company’s liquidity, results of operations, and financial condition would be materially adversely impacted and the Company may be forced to file for bankruptcy protection, which could include either reorganization or liquidation.
The Company may not fully realize the anticipated benefits of the Turnaround Plan and other operating or cost-saving initiatives, which may have a material adverse effect on the Company.
In 2020, the Company accelerated transformation initiatives, initiated in the years prior to 2020, and developed a Turnaround Plan. The multi-year implementation of the Turnaround Plan, which is still being operationalized, is expected to result in changes to business priorities and operations, capital allocation priorities, operational and organizational structure, and increased demands on management. Such changes could result in short-term costs, lost customers, reduced sales volume, higher than expected restructuring costs, further loss of key personnel, additional supply chain disruptions, higher costs of supply and other negative impacts on the Company’s business. Implementation of the Turnaround Plan may take longer than anticipated, and, once implemented, the Company may not realize, in full or in part, the anticipated savings or benefits from one or more of the various restructuring and cost-savings programs undertaken as part of these efforts in full or in part or within the time periods expected. The Company’s remediation efforts in response to the material weaknesses could further delay the implementation of the Turnaround Plan. It also may not realize the increase in sales intended to be enabled by the initiatives. The Company is also subject to the risks of labor unrest, negative publicity, and business disruption in connection with these initiatives. The failure to realize anticipated savings or benefits from such initiatives, which may be due to the Company’s inability to execute plans, delays in the implementation of the Turnaround Plan, global or local economic conditions, competition and the other risks described herein, could have a material adverse effect on business, prospects, financial condition, liquidity, results of operations, and cash flows. The timing and investment in support of the Turnaround Plan could be constrained by the Company’s liquidity. If the Turnaround Plan is not successful, the Company may be forced to file for bankruptcy protection, which could include either reorganization or liquidation.
The Company is subject to financial risks as a result of its international operations, including exposure to foreign currency fluctuations, the impact of foreign currency restrictions, its ability to repatriate cash from jurisdictions outside of the United States, and the impact of international sanctions.
The Company is subject to risks of doing business internationally. The Company has derived, for a number of years, most of its net sales from operations outside the United States. As a result, the Company faces exposure to adverse movements in currency exchange rates as the financial results of its international operations are translated from local currency into U.S. Dollars. Upon translation, operating results may differ materially from expectations, and the Company may record significant gains or losses on the remeasurement of intercompany balances. Doing business in developing international markets exposes the Company to greater risks than companies of a similar size who focus on developed markets.
Movement in exchange rates has had and may continue to have a significant impact on the Company’s earnings, cash flows, and financial position. The Company’s most significant exposures are to the Argentine Peso, Euro, Indonesian Rupiah, Japanese Yen, Mexican Peso, and Swiss Franc. Although the Company’s currency risk is partially mitigated by the natural hedge arising from its local product sourcing in many markets, a strengthening U.S. Dollar generally has a negative impact on the Company. To mitigate such negative impact, the Company continues to implement foreign currency hedging and risk management strategies to reduce the exposure to fluctuations in earnings associated with changes in foreign currency exchange rates, however, as a result of substantial doubt about the Company’s ability to continue as a going concern, the Company is currently limited in its ability to execute hedging transactions. The Company generally does not seek to hedge the impact of currency fluctuations on the translated value of the sales, profit, or cash flow generated by its operations. Some of the hedging strategies implemented have a positive or negative impact on cash flows as foreign currencies fluctuate versus the U.S. Dollar. In past periods the movement of foreign currency exchange rates has had a material effect on the Company’s results of operations. There can be no assurance that the Company’s hedging strategies will be successful and foreign currency fluctuations and related hedging activities may not have a material adverse impact on the Company’s results of operations, cash flows, and/or financial condition.
Furthermore, foreign governments have imposed restrictions on currency remittances, including, but not limited to, remittances from Argentina and Ukraine of $8.3 million and $4.9 million, respectively. Due to existing and potential future government restrictions on transfers of cash out of countries and control of exchange rates and currency convertibility, the Company may not be able to immediately access its cash at the exchange rate used to translate its financial statements. A substantial majority of the
10
Company’s cash is held outside of the United States, and if the Company experienced additional restrictions on its ability to move cash into the United States, the Company’s liquidity position could be materially adversely affected.
Due to the challenging internal and external business economics, coupled with the increased levels and cost of borrowings under its Credit Facility, the Company is facing liquidity constraints, which require repatriation of cash from international jurisdictions when available. As a result, the Company has determined that it can no longer assert permanent reinvestment on any of the outside basis differences of its foreign subsidiaries, as it will likely need to repatriate cash and assets globally to the United States to meet its debt obligations. In light of these new facts identified in the financial statement close process at the end of the most recent fiscal year, the Company has revisited its earlier position. The Company lifted all indefinite assertion positions for all of its foreign subsidiaries and has increased its deferred tax liability to $24.0 million in the fourth quarter of 2022 related to the estimated income tax, withholding tax costs and capital gain impacts associated with repatriation of these earnings. As this amount is estimated based on the current outside basis differences of the foreign subsidiaries, the actual withholding costs incurred for repatriation of cash may differ and result in additional tax costs.
In addition, the United States government may impose material sanctions and restrictions on doing business with certain countries, businesses, and individuals, including, as an example, the sanctions against countries such as Russia or within specific regions of Ukraine. Such events could have a material adverse effect on the Company’s business and financial performance, including through increased costs of compliance, reduced net sales as a result of restrictions on the Company’s ability to sell into specific regions of the world, higher volatility in foreign currency exchange rates, and increased input costs (such as energy).
The conflict in Ukraine could continue to impact business and financial performance in Europe and the Company’s results of operations on a consolidated basis. Management continues to monitor the political and economic situation and has taken several measures, including cash repatriation, to proactively manage the risk. In addition, sanctions imposed on Russia could impact the fulfillment of existing orders, any future revenue streams from impacted customers, and the recoverability of certain financial assets. Management will continue to assess the Company’s mitigation activities in light of the evolving situation and the related risks, but there can be no assurances that the conflict will not have a material adverse impact on the Company’s results of operations, cash flows, and/or financial condition.
Risks Related to Internal Controls
Management has identified material weaknesses in the Company’s internal control over financial reporting, which could, if not remediated, result in additional material misstatements in the Company’s interim or annual consolidated financial statements.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Under the direction of the Company’s Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting. As a result of this evaluation, management identified material weaknesses in the Company’s internal control over financial reporting. Because of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2022. Refer to Item 9A. Controls and Procedures of this Report for further information.
As described in Management’s Report on Internal Control Over Financial Reporting in Item 9A. Controls and Procedures of this Report, these material weaknesses resulted in the restatement of the Company’s annual Consolidated Financial Statements in 2021 and 2020 and the 2022 and 2021 unaudited interim Condensed Consolidated Financial Statements. Accordingly, the Company has restated the accompanying 2021 and 2020 Consolidated Financial Statements in this Report. See Note 22: Restated Previously Issued 2021 and 2020 Financial Statements. The Company will effectuate restatement of the unaudited interim condensed consolidated financial information for the first three quarters of 2022 as part of filing of the 2023 interim Forms 10-Q. See Note 23: Quarterly Financial Summary (Unaudited) for additional information regarding the interim misstatements and resulting restatement impacts.
Management intends to implement enhancements to its internal control over financial reporting, which are expected to include refinements and enhancements to the complement of personnel, design and operation of its controls related to the risk assessment process, income taxes, leases, intercompany loans, goodwill, account reconciliations, and the Consolidated Statements of Cash Flows. The Company intends to begin to implement these enhancements to the design of its controls during 2023 and to continue in 2024. However, these material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. The Company will monitor the effectiveness of the remediation plan and will refine the remediation plan, as needed. Until remediated, the material weaknesses could result in future errors to the Company’s financial statements.
Remediation measures are time-consuming, require significant costs and place significant demands on the Company’s financial and operational resources. In order to improve the effectiveness of its internal control over financial reporting, the Company has expended, and will need to continue to expend, significant resources, including accounting-related costs and significant management
11
oversight. In view of the Company’s liquidity position, employee turnover, and anticipated additional headcount reductions, the Company can give no assurance that the measures the Company takes will remediate the material weaknesses or that additional material weaknesses will not arise in the future. Additionally, the Company may not have sufficient resources to successfully execute its remediation plan. The Company is recruiting to fill vacancies in key areas resulting from recent resignations, including of its Chief Accounting Officer and Vice President of Internal Audit, but there can be no assurance that turnover in these positions will not cause delay in remediation efforts. Any failure to remediate the material weaknesses, or the development of new material weaknesses in the Company’s internal control over financial reporting, could result in additional material misstatements in our financial statements and cause the Company to fail to meet its reporting and financial obligations, which in turn could have a negative impact on its reputation, brand and financial condition.
The Company has restated certain of its previously issued consolidated financial statements, which has resulted in unanticipated costs and may affect investor confidence and raise reputational issues.
As discussed in Note 1: Summary of Significant Accounting Policies and Note 22: Restated Previously Issued 2021 and 2020 Financial Statements to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report, the Company has restated its 2021 and 2020 annual Consolidated Financial Statements following the identification of misstatements. These newly identified misstatements are in addition to misstatements previously identified by the Company during 2022, as well as misstatements that were previously identified and disclosed in the Company’s Annual Reports on Form 10-K as of and for the years ended December 25, 2021 and December 26, 2020 and in certain 2022 and 2021 Quarterly Reports on Form 10-Q.
As a result of the misstatements and the restatements, the Company has become subject to additional risks, uncertainties and costs. The Company may become subject to enforcement proceedings brought by the SEC or other regulatory or governmental authorities, or subject to other legal proceedings, the misstatements or the related restatements, and actions and proceedings could also be brought against the Company’s current and former employees, officers, or directors. These actions, lawsuits or other legal proceedings related to the misstatements or the restatements could result in reputational harm, additional defense and other costs, regardless of the outcome of the lawsuit or proceeding. If the Company does not prevail in any such lawsuit or proceeding, the Company could be subject to substantial damages or settlement costs, criminal and civil penalties and other remedial measures, including, but not limited to, injunctive relief, disgorgement, civil and criminal fines and penalties. In addition, the Company continues to be at risk for loss of investor confidence, loss of key employees, changes in management or the Company’s Board of Directors and other reputational issues, all of which could have a material adverse effect on the Company’s business, financial position and results of operation.
The outcome of pending and future claims and litigation could have a material adverse impact on the Company’s business, financial condition, and results of operations and damage the Company’s reputation.
The Company is party to claims and litigation in the normal course of business. Furthermore, the Company may face material litigation outside the ordinary course of business that could materially adversely impact the Company’s results of operations, financial condition, or cash flows. In February 2020, putative stockholder class actions were filed against the Company and certain current and former officers and directors in the United States District Court for the Central District of California and in the United States District Court for the Middle District of Florida. The actions were consolidated in the United States District Court for the Middle District of Florida, and a lead plaintiff was appointed. On July 31, 2020, the lead plaintiff filed a consolidated amended complaint, which alleges that statements in public filings between January 31, 2018 and February 24, 2020 (the “potential class period”) regarding the Company’s disclosure of controls and procedures, as well as the need for an amendment of its credit facility, violated Section 10(b) and 20(a) of the Securities Act of 1934. The lead plaintiff seeks to represent a class of stockholders who purchased the Company’s stock during the potential class period and demand unspecified monetary damages. The Company’s motion to dismiss the complaint was granted on January 25, 2021, but the court permitted the lead plaintiff to file an amended complaint, which the plaintiff filed on February 16, 2021. The Company filed a motion to dismiss the second amended complaint on April 2, 2021. The Court granted the Company’s motion to dismiss the second amended complaint on August 9, 2021, but again permitted the lead plaintiff to file an amended complaint, which the plaintiff filed on August 30, 2021. The Company filed a motion to dismiss the third amended complaint on October 14, 2021, and on February 4, 2022, the Court dismissed the third amended complaint with prejudice. The plaintiff filed an appeal on April 11, 2022, and the 11th Circuit Court of Appeals affirmed dismissal of the complaint on August 8, 2023. The plaintiff petitioned for rehearing en banc before the 11th Circuit Court of Appeals on August 29, 2023. The Court of Appeals denied the petition for rehearing on October 2, 2023. The Company is unable at this time to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition or cash flows.
Additionally, several putative stockholders filed stockholder derivative complaints in the United States District Court for the Middle District of Florida against certain of the Company’s current and former officers and directors relating to the allegations in the securities class action referenced in the preceding paragraph. The cases were consolidated, and plaintiffs filed a consolidated amended complaint on August 5, 2020. The consolidated amended complaint asserts claims against certain current and former officers and directors for breach of fiduciary duty, unjust enrichment, and contribution for violations of the securities laws based on allegations that
12
the officers and directors allowed the Company to make false or misleading statements in violation of the securities laws. The court stayed proceedings in this action pending resolution of the appeal of the third motion to dismiss in the putative stockholder class action. A similar stockholder derivative complaint was filed in the Ninth Judicial Circuit Court of Florida. The parties reached an agreement to stay this action pending the resolution of the appeal of the third motion to dismiss in the putative stockholder class action. The court has set a status conference on the matter in February 2024. The Company is unable at this time to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition or cash flows.
In June 2022, a putative stockholder class action was filed against the Company and certain current and former officers in the United States District Court for the Southern District of New York. The complaint alleged that statements made in public filings between November 3, 2021 and May 3, 2022 regarding the Company’s earnings and sales performance and full year 2022 guidance violated Sections 10(b) and 20(a) of the Securities Act of 1934. The plaintiff sought to represent a class of stockholders who purchased the Company’s shares during the alleged class period and demands unspecified monetary damages. On August 17, 2022, the Southern District of New York entered an order transferring the case to the Middle District of Florida. On September 16, 2022, the court appointed co-lead plaintiffs. On November 30, 2022, the plaintiffs filed a First Amended Class Action Complaint. The First Amended Class Action Complaint is based on alleged misstatements about the Company’s profitability and pricing leading up to May 4, 2022; the plaintiffs also proposed a new class period of May 5, 2021 - May 4, 2022. On September 28, 2023, the Court denied the defendant’s motion to dismiss the First Amended Class Action Complaint. The Company is unable at this time to determine whether the outcome of this action would have a material impact on its results of operations, financial condition or cash flows.
In August 2022, a stockholder derivative complaint was filed in the Circuit Court of the Ninth Judicial Circuit, in and for Orange County, Florida against certain of the Company’s current and former officers and directors relating to the allegations in the securities class action referenced in the preceding paragraph. The derivative complaint asserts claims against the officers and directors for breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on allegations that, among other things, the officers and directors allowed the Company to make false or misleading statements in violation of the securities laws. On July 28, 2023, the defendants filed a motion to dismiss. On September 21, 2023, the plaintiff filed an amended complaint. The defendants’ response to the amended complaint is due on or before November 1, 2023. The Company is unable at this time to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition or cash flows.
In 2022, the SEC completed its inquiry into the Company’s accounting practices relating to its previously-owned Fuller Mexico business and its Tupperware Mexico business. On September 29, 2022, the SEC issued a final order approving the settlement of the inquiry. Under the terms of the order, the Company neither admits nor denies the SEC’s findings and paid an immaterial civil penalty, which was fully accrued in the second quarter of 2022.
In March 2023, a putative stockholder class action was filed against the Company and certain current and former officers in the United States District Court for the Middle District of Florida. The complaint alleges that statements made in public filings between March 10, 2021 and March 16, 2023 regarding the Company’s income taxes and internal controls violated Sections 10(b) and 20(a) of the Securities Act of 1934. On June 5, 2023, the District Court appointed a lead plaintiff, who intends to file an amended complaint by November 13, 2023. Once the lead plaintiff has filed an amended complaint, the Company will be required to respond to the complaint. The Company is unable at this time to determine whether the outcome of this action would have a material impact on its results of operations, financial condition or cash flows.
Legal proceedings in general, and securities and class action litigation and regulatory investigations in particular, can be expensive and disruptive. The Company’s insurance may not cover all claims that may be asserted against the Company, and the Company is unable to predict how long the legal proceedings to which the Company is currently subject will continue. An unfavorable outcome of any legal proceeding may have an adverse impact on the Company’s business, financial condition and results of operations, or its stock price. Any proceeding could negatively impact the Company’s reputation among its customers or its shareholders.
Risks Related to Our Operations
The Company’s success is substantially dependent on the strength and continued service of its Board of Directors, senior management and other key employees, and its continued ability to attract and retain highly talented new team members with necessary skills to execute against the Company’s key strategies.
The Company’s success depends in part on the efforts and abilities of qualified board members and personnel at all levels, including its senior management team and other key employees. Their motivation, skills, experience, contacts, and industry knowledge significantly benefit the Company’s operations and administration. The failure to attract, motivate, and retain highly qualified members of the Board of Directors and senior management team could have an adverse effect on the Company’s results of operations, cash flows, and financial condition. During 2022, the composition of the Company’s senior management changed substantially, with
13
the Company appointing a new Chief Financial Officer, a new Executive Vice President - Supply Chain, and the restructuring of its commercial officer functions to move one officer into an advisory role and to promote another officer to Chief Commercial Officer. Management subsequently determined that as of December 31, 2022 the Company did not maintain a sufficient complement of personnel with an appropriate degree of internal controls and accounting knowledge, experience, and training commensurate with its accounting and financial reporting requirements. Furthermore, in 2023 the Company appointed a new Chief Restructuring Officer. Ms. Sheehan, Executive Vice President, Chief Legal Officer and Corporate Secretary resigned from her position effective September 30, 2023 and currently serves as a consultant, and Ms. Otero, Senior Vice President and Chief Accounting Officer and Richard Goudis, Executive Vice Chair and Director, informed the Company of their intentions to resign from their respective positions, effective following the filing of this Report. Also in 2023, the Company’s Vice President, Internal Audit, and its Vice President, Treasurer, resigned from their positions. In addition, the Company’s Board of Directors has been evaluating changes to its composition, to ensure it is best positioned to support compliance with its Debt Restructuring Agreement and the Company’s Turnaround Plan. Any significant leadership change or senior management transition involves inherent risk and any failure to ensure a smooth transition could hinder the Company’s strategic planning, execution, and future performance. The Company’s recent financial and operational difficulties could lead to the loss of additional senior executives. Further changes in the Board of Directors or senior management team may create additional uncertainty among investors, employees, and others concerning the Company’s future direction and performance. Furthermore, the Company-initiated headcount reductions, coupled with employee turnover, have resulted in a loss of continuity of knowledge and has created resource constraints. Any disruption in the Company’s operations or uncertainty could have an adverse effect on its business, financial condition, or results of operations.
The Company’s success depends on its ability to maintain and enhance its brand protection, image and reputation.
The Company’s iconic Tupperware® brand has worldwide recognition, and the Company’s continuing success, including the value of its collateral under the Credit Agreement, depends on its ability to maintain and enhance its brand protection, image, and reputation. Maintaining, promoting, and growing the Tupperware brand will depend on design and marketing efforts, sales force and consumer promotions and campaigns, product innovation, and product quality. If the Company is unable to obtain adequate capital resources, then management would have to, among other things, delay, scale back or eliminate some or all of these activities, which would have a material adverse effect on the Company’s operations, brand protection, image and reputation. Furthermore, should there be events of default under the Credit Agreement, the administrative agent and the lenders party to the Credit Agreement have the current right to exercise remedies against the intellectual property and other collateral of the Company and its subsidiaries pledged as collateral security pursuant to the Credit Agreement, including the right to sell or otherwise dispose of such collateral security, which remedial exercises could also have a material adverse effect on the Company’s operations, brand protection, image, and reputation.
Failure to protect the Company’s intellectual property rights, or the Company’s conflict with the rights of others, could damage the Company’s brand, weaken its competitive position and negatively impact its results of operations.
The Company’s success depends in large part on its brand image. The Company currently relies on a combination of copyright, trademark, patent and unfair competition laws, confidentiality procedures, and licensing arrangements to establish and protect its intellectual property rights. The steps taken by the Company to protect its proprietary rights may not be adequate to prevent infringement of its trademarks and proprietary rights by others, including imitation of its products and misappropriation of its brand. In addition, intellectual property protection may be unavailable or limited in some jurisdictions.
Preventing unauthorized use or infringement of the Company’s intellectual property rights is inherently difficult. The Company’s products are subject to frequent counterfeiting and other intellectual property infringement, which may be difficult to police and prevent, depending upon the ability to identify infringers and the availability and/or enforceability of intellectual property rights. Such counterfeit sales, to the extent they replace otherwise legitimate sales, could adversely affect the Company’s operating results. If the Company is unable to protect its proprietary rights, the Company may be at a disadvantage to others who do not incur the substantial time and expense the Company incurs to create its products. Any of these events could harm the Company’s business and have a material adverse effect on its results of operations and financial condition.
The Company’s success depends, in part, on the quality and safety of its products.
Certain of the materials used in the Company’s product lines may give rise to concerns of consumers based upon scientific theories which are espoused from time to time, including the risk of certain materials leaching out of plastic containers used for their intended purposes or the ingredients used in cosmetics, personal care, or nutritional products causing harm to human health. This includes polycarbonate, which contains the chemical Bisphenol A, and polyethersulfone, which contains the chemical Bisphenol S. It is the Company’s policy to market products in each of its business units containing only those materials or ingredients that are approved by relevant regulatory authorities for contact with food or skin or for ingestion by consumers, as applicable.
Product safety or quality failures, actual or perceived, or allegations of product contamination, even when false or unfounded, or inclusion of regulated ingredients could tarnish the image of the Company’s brands and could cause consumers to choose other
14
products. Allegations of contamination, allergens, or other adverse effects on product safety or suitability for use by a particular consumer, even if untrue, may require the Company from time to time to recall a product from all of the markets in which the affected production was distributed. Such issues or recalls and any related litigation could negatively affect the Company’s profitability and brand image.
The Company is subject to environmental laws and regulations that expose the Company to a number of risks and could result in significant liabilities and costs.
The Company operates manufacturing facilities in the United States and around the world, and is subject to numerous environmental regulations with respect to the operation of those facilities. If the Company were to experience a material adverse environmental event at one of those facilities, or if the Company were to experience any material product safety issue or other significant issue with respect to its products or resins, the Company’s results of operations and financial condition could be materially adversely affected.
Furthermore, concern over plastics products may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment. Increased regulatory requirements, including in relation to various aspects of ESG including disclosure requirements, or environmental causes may result in increased compliance or input costs of raw materials, which may cause disruptions in the manufacture of the Company’s products or an increase in operating costs. If the Company does not adapt to or comply with new regulations, or fails to meet evolving investor, industry, or stakeholder expectations and standards, or if the Company is perceived to have not responded appropriately to the growing concern for ESG issues, customers and consumers may choose to stop purchasing the Company’s products or purchase products from another company or a competitor, and the Company’s reputation, business, or financial condition may be adversely affected.
Security incidents and attacks on the Company’s information technology systems could lead to significant costs and disruptions that could harm the Company’s business, financial results, and reputation.
The Company relies extensively on information technology systems to conduct its business, some of which are managed by third-party service providers. These systems include, but are not limited to, programs and processes relating to internal communications and communications with other parties, ordering and managing materials from suppliers, converting materials to finished products, receiving orders and shipping product to customers, billing customers and receiving and applying payments, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, collecting and storing certain customer, employee, investor, and other stakeholder information and personal data, and other processes necessary to manage the Company’s business. Current and increased information technology security threats, and current and more sophisticated computer crime, including advanced persistent threats, pose a risk to the security of the information technology systems, networks, and services of the Company, its customers and other business partners, as well as the confidentiality, availability, and integrity of the data of the Company, its customers and other business partners. Furthermore, the risk of a cybersecurity incident is heightened as more of the Company’s employees work remotely. As a result, the Company’s information technology systems, networks, or service providers could be damaged or cease to function properly or the Company could suffer a loss or disclosure of business, personal, or stakeholder information, due to any number of causes, including catastrophic events, power outages and security breaches. Although the Company has business continuity plans in place, if these plans do not provide effective alternative processes on a timely basis, the Company may suffer interruptions in its ability to manage or conduct its operations, which may adversely affect its business. The Company may need to expend additional resources in the future to continue to protect against, or to address problems caused by, any business interruptions or data security breaches. Any business interruptions or data security breaches, including cyber-security breaches resulting in private data disclosure, could result in lawsuits or regulatory proceedings, damage the Company’s reputation or adversely impact the Company’s results of operations, cash flows, and financial condition. While the Company maintains insurance coverage that could cover some of these types of issues, the coverage has limitations and includes deductibles such that it may not be adequate to offset losses incurred. The Company has experienced various security threats and incidents, including, for example, email compromise events, vulnerabilities, malware, phishing, and non-compliance with internal security requirements and procedures, that have not had a material impact on the Company; however, if the Company were to experience material threats or incidents in the future, there could be significant costs and disruptions that could harm the Company’s business, financial results, and reputation.
The Company could also be adversely affected by system or network disruptions if new or upgraded information technology systems or software are defective, not installed properly, or not properly integrated into its operations, as well as if the capacity and system limitations of the Company’s information technology systems or software are exceeded due to the number of the Company’s employees working from home due to flexible schedules and work-from-home arrangements. Various measures have been implemented to manage the risks related to the implementation and modification of hardware and software, but any significant disruption or deficiency in the design and implementation of new or upgraded information technology systems or software could have a material adverse effect on the Company’s business, financial position, and results of operations and could, if not successfully implemented, adversely impact the effectiveness of internal control over financial reporting.
15
Risks Related to Our Business Model
The Company is largely dependent upon the independent sales organizations and individuals to reach end consumers, and any significant disruption of this distribution network may materially adversely affect the Company’s financial condition and operating results.
The Company’s distribution system depends upon successful addition, activation, and retention of a large number of independent sales force members. A significant decline in the number of the Company’s independent sales force members could lead to a decline in sales. The Company’s active sales force declined 18 percent, 15 percent and 16 percent as of the end of the fourth quarter of 2022, the first quarter of 2023 and the second quarter of 2023, respectively, compared to the prior year.
The addition, retention, and activation of sales force members is dependent upon the competitive environment among other companies who also use this channel of distribution and upon the general labor market, unemployment levels, general economic conditions, demographic and cultural changes in the workforce and the level of penetration of the Company’s sales force in the geographies in which it operates, as well as the introduction of new products. In addition, if the sales force fails to find the Company’s product development pipeline to be compelling, or if the Company fails to maintain public confidence in its competitive position due to the Company’s disclosures regarding liquidity pressures, doubts regarding continuing as a going concern, or otherwise, the Company’s ability to attract and retain sales force members may be adversely affected.
The Company’s sales are directly tied to the activity levels of its sales force, which is in large part a temporary working activity for many sales force members. Activity levels may be affected by the degree to which a market is penetrated by the presence of the Company’s sales force, the amount of average sales per order, the amount of sales per sales force member, the mix of high-margin and low-margin products sold at group demonstrations and elsewhere, and the activities and actions of the Company’s product line and channel competitors. The Company’s sales force members may be affected by initiatives undertaken by the Company to grow its revenue base or change its cost base which may lead to the inaccurate perception that the independent sales force system is at risk of being phased out or that the Company intends to exit markets, as well as by external factors such as media coverage associated to the Company’s liquidity position.
Furthermore, due to the high level of competition in the Company’s industry, it might fail to retain its independent sales force and their customers, which would harm the Company’s financial condition and operating results. The Company is subject to significant competition for the recruitment of independent sales force from other direct selling businesses. Furthermore, the Company faces competition from newer business models that provide a stream of revenue opportunities which the sales force only has to accept (rather than identify on their own). The Company competes globally for potential customers and independent sales force, and if the Company is unable to successfully compete with other direct selling and related businesses, the Company’s financial condition and operating results could be materially adversely affected.
The Company relies on its sales force to adapt to changing consumer needs.
The Company currently has sales derived from channels other than direct selling. The reliance on this dominant channel in an environment where the consumer expects a frictionless experience could impact the Company’s business. Furthermore, reliance on this dominant channel was impacted by the pandemic, and while the Company’s sales force was able to utilize digital tools and social media to compensate for quarantine restrictions, this sales channel could be impacted further if other avenues for communicating with customers are unavailable.
The Company’s ability to improve its financial performance depends on its ability to anticipate and respond to market trends and changes in consumer preferences.
The Company’s business is subject to changes in consumer trends and demands such as the types of products and materials the Company offers, the ease of finding and ordering the product, and the speed at which the products can be delivered. Consumer preferences and trends may change due to a variety of factors, such as changes in demographic trends, changes in the characteristics and materials used in its products, new market trends, or a weak economy in one or more of the markets in which the Company operates. The Company’s ability to accurately predict and respond to these changes could impact the Company’s financial results. If the Company is unable to anticipate changes in consumer preferences and trends, the Company’s business, financial condition, and operating results could be materially adversely affected.
The Company’s results of operations, liquidity, and cash flows could be materially harmed if the Company is unable to accurately forecast demand for its products, which could result in a shortage of products or increased inventory levels.
If the Company fails to accurately forecast customer demand it may experience excess inventory levels or a shortage of products to deliver to its customers, which could materially adversely impact the Company’s results of operations, liquidity, and cash flows.
16
The Company has experienced, and may continue to experience, challenges in supplying products to meet customer demands, has also experienced high inventory levels due to its supply of products not meeting projected demand, and might not be able to modify its internal systems, business practices, supply chain arrangements, and logistical support mechanisms quickly enough to meet these demands or decrease its production efficiently. If the Company is unsuccessful in forecasting the overall demand for its products, the Company’s results of operations, liquidity, and cash flows could be materially adversely affected.
Risks associated with the Company’s international operations and sales and changes in economic environments, including inflation, rising interest rates, and/or a recession, could adversely affect the Company’s business and earnings.
Changes in the economic environment or other governmental restrictions (including, but not limited to, inflation, rising interest rates, and/or a recession) in any of the countries where the Company operates could materially affect the Company’s revenues and operating results. Although these operations are geographically dispersed, which partially mitigates the risks associated with operating in particular countries, the Company is subject to the usual risks associated with international operations. Among others, these risks include local political and economic environments, adverse new tax regulations, potentially burdensome privacy protocols, including the EU General Data Protection Regulation, and relations between the United States and foreign governments. In addition, the Company does business in developing countries, some of which have higher risk profiles, and some of the international jurisdictions in which the Company operates have a different, or less developed, legal system that lacks transparency in certain respects relative to that of the United States, and can accord local government authorities a higher degree of control and discretion over business than is customary in the United States.
The Company could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act or similar U.S. or foreign anti-bribery and anti-corruption laws and regulations in the jurisdictions in which it operates.
The Company operates in many different jurisdictions, including jurisdictions that are considered high-risk countries, and the Company could be adversely affected by violations of the United States Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-corruption laws. The FCPA and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. The Company operates in many parts of the world that have experienced corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. Despite the Company’s training and compliance programs, the Company cannot assure you that its internal control policies and procedures always will protect the Company from reckless or criminal acts committed by Company’s employees or agents. The Company’s continued expansion outside the United States, including in developing countries, could increase the risk of such violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in a material adverse effect on the Company’s results of operations or financial condition.
The Company’s ability to conduct business in its international markets may be affected by political, legal, tax and regulatory risks.
The Company’s global operations expose the Company to a number of additional risks, including:
•changes in a specific country’s or region’s political, social, or economic conditions, particularly in emerging markets;
•civil unrest, turmoil, or outbreak of disease or illness, such as the novel coronavirus, in any of the countries in which the Company sells its products or in which the Company or its suppliers operate;
•tariffs, other trade protection measures, as discussed in more detail below, and import or export licensing requirements;
•potential adverse changes in trade agreements between the United States and foreign countries;
•potentially negative consequences from changes in United States and international tax laws;
•difficulty in staffing and managing geographically widespread operations;
•differing labor regulations;
•requirements relating to withholding taxes on remittances and other payments by subsidiaries;
•different regulatory regimes controlling the protection of the Company’s intellectual property;
•restrictions on its ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions;
•restrictions on its ability to repatriate dividends from the Company’s foreign subsidiaries;
•difficulty in collecting international accounts receivable;
•difficulty in enforcement of contractual obligations not within United States legal jurisdiction;
•transportation delays or interruptions;
•changes in regulatory requirements; and
•the burden of complying with multiple and potentially conflicting laws, including, but not limited to, conflicting labor and employment laws.
17
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion regarding these risks.
Evolving global regulations on direct selling companies could harm the Company’s business and financial results.
The Company’s business may also be affected by actions of domestic and foreign governments to restrict the activities of direct selling companies for various reasons, including a limitation on the ability of direct selling companies to operate without the involvement of a traditional retail channel. Foreign governments may also introduce other forms of protectionist legislation, such as limitations or requirements on where the products can or must be produced or requirements that non-domestic companies doing or seeking to do business place a certain percentage of ownership of legal entities in the hands of local nationals to protect the commercial interests of its citizens. Customs laws, tariffs, import duties, export and import quotas, and restrictions on repatriation of foreign earnings and/or other methods of accessing cash generated internationally, may negatively affect the Company’s local or corporate operations. Governments may seek either to impose taxes on independent sales force members, to classify independent sales force members as employees of direct selling companies with whom they may be associated, triggering employment-related taxes on the Company’s sales force and/or the direct selling companies, or to impose registration requirements that could impact prospects’ willingness to join the sales force. Some governments prohibit or impose limitations on the requirement to purchase demonstration products upon joining a direct selling business and/or the types of activities for which sales force can be compensated. The United States government may impose restrictions on the Company’s ability to engage in business in other countries in connection with the foreign policy of the United States.
Risks Related to Our Common Stock
The New York Stock Exchange may delist the Company’s common stock from quotation on its exchange, which could limit investors’ ability to sell and purchase the Company’s securities and subject the Company to additional trading restrictions.
The Company is currently out of compliance with the New York Stock Exchange (“NYSE”) annual report and quarterly report filing requirements and minimum market capitalization continued listing requirements. As a result, the Company is at risk of the NYSE delisting its common stock. If the Company’s common stock is delisted from the NYSE, the Company could face material adverse consequences, including:
•a limited availability of market quotations for the Company’s securities;
•reduced liquidity;
•a determination that the Company’s common stock is a “penny stock” which will require brokers trading in the Company’s shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for its common stock;
•a limited amount of news and analyst coverage for the Company; and
•a decreased ability to issue additional securities or obtain additional financing in the future.
On June 1, 2023, the Company received written notification from the NYSE that it no longer satisfied the continued listing compliance standards set forth under Sections 802.01B and 802.01C of the NYSE Listed Company Manual because (i) its average global market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same time, its last reported stockholders’ equity was less than $50 million and (ii) the average closing price of the Company’s common stock was less than $1.00 over a consecutive 30 trading-day period.
In accordance with NYSE procedures, the Company has submitted a business plan to the NYSE demonstrating how it intends to regain compliance with the minimum stock price standard within 6 months, and the global market capitalization standards within 18 months. On August 1, 2023, NYSE provided notice that the Company had regained compliance with the minimum stock price standard, however, the Company continues to be out of compliance with the global market capitalization standard. On August 29, 2023 NYSE provided the Company with a notice of acceptance of its business plan concerning regaining compliance with the global market capitalization standard. The NYSE will perform quarterly reviews during the 18 months from receipt of the Company’s June 1, 2023 letter for compliance with the goals and initiatives as outlined in the Company’s plan. During the cure period, the Company’s common stock will continue to be listed on the NYSE, subject to its compliance with other continued listing requirements. If the Company fails to regain compliance during the cure period, or if the Company fails to meet material aspects of the plan, then the NYSE may commence suspension and delisting procedures.
Further, on April 7, 2023, the Company received written notice from the NYSE indicating that the Company was not in compliance with Section 802.01E of the NYSE Manual, as a result of its failure to timely file this Report with the SEC. In connection with the April notice, the Company notified the NYSE that it intended to file this Report and its Form 10-Q for the first fiscal quarter of 2023 (the “Q1 Form 10-Q”) within the six-month cure period, which ended on September 30, 2023. The Company previously disclosed on Current Reports on Form 8-K dated March 16, 2023, April 7, 2023, May 8, 2023, May 30, 2023, July 7, 2023, August 3,
18
2023, and September 18, 2023 that it had identified multiple prior period misstatements and material weaknesses in internal control over financial reporting for the periods covered by the Form 10-K, and as a result, efforts to complete the financial close process for the first and second quarters of 2023 were delayed until the filing of this Report. Furthermore, as a result of the Company’s challenging financial condition and extensive efforts to complete the restatement of the historical Consolidated Financial Statements, the Company’s Accounting department has experienced, and continues to experience significant attrition, including recent departures and expected departures in key control positions within the Accounting department and other supporting departments. The employee attrition has resulted in resource and skill set gaps, strained resources, and a loss of continuity of knowledge – all of which have contributed to delays in the filing of Forms 10-Q for the first and second quarters of 2023, and are expected to contribute to delays in the filing of the Form 10-Q for the third quarter of 2023 and Annual Report on Form 10-K for fiscal year 2023.
On September 20, 2023, the Company submitted a late filer extension request for an additional six-month cure period in which the Company would be requested to file this Report as well as quarterly reports on Forms 10-Q for the first, second, and third quarters of 2023. On October 3, 2023, NYSE approved the Company’s late filer extension requests and the Company now has until March 31, 2024 to file its Forms 10-Q for the first, second and third quarters of 2023. If the Company fails to file quarterly reports on Forms 10-Q for each of the first, second and third quarters of 2023 within the six-month cure period extension, then the NYSE may commence suspension or delisting procedures. The Company currently expects to file the first quarter Form 10-Q in the fourth quarter of 2023 and the Forms 10-Q for the second and third fiscal quarters of 2023 in the first quarter of 2024; however, there can be no assurance that the Forms 10-Q for the first, second, and third quarters of 2023 will be filed by such time. Given the current delays, the Company cannot reasonably predict when the Annual Report on Form 10-K for fiscal year 2023 will be filed. In addition, the Company’s current independent auditor could be dismissed, resign or refuse to stand for re-appointment as a result of these issues, and the process for retaining a new auditor for fiscal year 2023 SEC filings could cause further delays in the Company’s SEC filings.
A delisting of the Company’s common stock from the NYSE could negatively impact the Company as it would likely reduce the liquidity and market price of the Company’s common stock and thus (i) reduce the number of investors willing to hold or acquire the Company’s common stock, which would negatively impact the Company’s ability to access equity markets and obtain financing, and (ii) impair the Company’s ability to provide equity incentives to its employees.
The Company’s stock price has been and may continue to be subject to volatility.
The Company’s stock price has experienced volatility over time and this volatility may continue. Stock volatility in itself may adversely affect shareholder confidence as well as employee morale and retention for those associates who receive equity grants as part of their compensation packages. The impact on employee morale and retention could adversely affect the Company’s business performance and financial results. Stock volatility and other factors may also affect elements of the Company’s capital allocation strategy, and its ability to use equity to fund acquisitions or raise capital.
In addition, the Company has received, and may continue to receive, significant media attention, including from blogs, articles, message boards and social media. Information provided by third parties may not be reliable or accurate, or contain misleading, incomplete or otherwise damaging information, which could influence trading activity in the Company’s stock. As a result, the Company’s stock has experienced, and could continue to experience, extreme price and volume fluctuations that may be unrelated to its operating performance, financial position or other business fundamentals. This activity along with other factors, including the involvement of short sellers or activist investors in the Company’s stock, has materially impacted in the past, and could materially impact in the future, the trading price of the Company’s stock, put pressure on the supply and demand for its stock, limit the Company’s shareholders from readily selling their shares and result in significant loss of investment.
The market prices and trading volume of our shares of common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our common stock to incur substantial losses.
The market prices and trading volume of the Company’s shares of common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of the Company’s common stock to incur substantial losses. From December 30, 2022 to October 5, 2023, the market price of the Company’s common stock has had extreme fluctuations, ranging from a closing day low of $0.62 per share on July 18, 2023, to a closing day high of $5.38 on August 1, 2023, and the last reported sale price of the Company’s common stock on NYSE on October 5, 2023, was $1.26 per share. From December 30, 2022 to October 5, 2023, daily trading volume of the Company’s common stock ranged from as low as 0.5 million shares to as high as 209.1 million shares.
The Company believes that the recent volatility and the Company’s current market prices reflect market and trading dynamics and macro or industry fundamentals, and the Company does not know how long these dynamics will last. Under the circumstances, the Company cautions investors against investing in the Company’s common stock, unless investors are prepared to incur the risk of incurring substantial losses.
19
Extreme fluctuations in the market price of the Company’s common stock over the past year have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums. The market volatility and trading patterns the Company has experienced create several risks for investors, including the following:
•the market price of the Company’s common stock has experienced and may continue to experience rapid and substantial increases or decreases unrelated to the Company’s operating performance, prospects, macro or industry fundamentals, and substantial increases may be significantly inconsistent with the risks and uncertainties that the Company continues to face;
•factors in the public trading market for the Company’s common stock include the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in the Company’s securities, access to margin debt, trading in options and other derivatives on the Company’s common stock and any related hedging and other trading factors;
•to the extent volatility in the Company’s common stock is caused, as has widely been reported, by a “short squeeze” in which coordinated trading activity causes a spike in the market price of the Company’s common stock as traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to the Company’s financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated; and
•if the market price of the Company’s common stock declines, investors may be unable to resell their shares at or above the price at which investors acquired them. The value of newly issued shares of the Company’s common stock may fluctuate or decline significantly in the future, in which case investors could incur substantial losses.
The Company may continue to incur rapid and substantial increases or decreases in its stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting the Company. Accordingly, the market price of the Company’s shares of common stock may fluctuate dramatically and may decline rapidly, regardless of any developments in its business. See “—Risk Factor — A “short squeeze” due to a sudden increase in demand for shares of the Company’s common stock that largely exceeds supply and/or focused investor trading in anticipation of a potential short squeeze have led to, may be currently leading to, and could again lead to, extreme price volatility in shares of the Company’s common stock.” Overall, there are various factors, many of which are beyond the Company’s control, that could negatively affect the market price of the Company’s common stock or result in fluctuations in the price or trading volume of its common stock, including:
•actual or anticipated quarterly variations in operational results and reactions to earning releases or other presentations or reports issued by the Company;
•failure to meet the expectations of securities analysts and investors;
•rating agency credit rating actions;
•the contents of published research reports about the Company or its industry or the failure of securities analysts to cover the Company’s common stock;
•any increased indebtedness the Company may incur in the future or the Company’s inability to refinance any such indebtedness;
•actions by institutional shareholders;
•speculation or reports by the press or the investment community with respect to the Company or the Company’s industry in general;
•short interest in the Company’s common stock and the market response to such short interest;
•the dramatic increase in the number of individual holders of the Company’s common stock and their participation in social media platforms targeted at speculative investing;
•increases in market interest rates that may lead purchasers of the Company’s shares to demand a higher yield;
•changes in the Company’s capital structure;
•future sales of the Company’s common stock by the Company, members of the Company’s management or any significant shareholders;
•announcements by the Company, its competitors or vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;
•third-party claims or proceedings against the Company or adverse developments in pending proceedings;
•additions or departures of key personnel;
•changes in applicable laws and regulations;
•negative publicity for the Company, its business or the Company’s industry;
•changes in expectations or estimates as to the Company’s future financial performance or market valuations of competitors, customers or travel suppliers;
•results of operations of the Company’s competitors;
•the Company’s ability to manage supply chain-related expenses and disruptions in its supply chain;
•the impact of the COVID-19 pandemic; and
20
•general market, political and economic conditions, including any such conditions and local conditions in the markets in which the customers are located.
In addition, in the past, shareholders have instituted securities class action litigation following periods of market volatility. If the Company is involved in additional securities litigation, the Company could incur substantial costs and the Company’s resources and the attention of management could be diverted from the Company’s business.
A “short squeeze” due to a sudden increase in demand for shares of the Company’s common stock that largely exceeds supply and/or focused investor trading in anticipation of a potential short squeeze have led to, may be currently leading to, and could again lead to, extreme price volatility in shares of the Company’s common stock.
Investors may purchase shares of the Company’s common stock to hedge existing exposure or to speculate on the price of its common stock. Speculation on the price of the Company’s common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of the Company’s common stock available for purchase on the open market, investors with short exposure may have to pay a premium to repurchase shares of the Company’s common stock for delivery to lenders of the Company’s common stock. Those repurchases may, in turn, dramatically increase the price of shares of the Company’s common stock until additional shares of the Company’s common stock are available for trading or borrowing. This is often referred to as a “short squeeze.” A large proportion of the Company’s common stock has been in the past and may be traded in the future by short sellers, which may increase the likelihood that the Company’s common stock will be the target of a short squeeze, and there is widespread speculation that the Company’s recent volatility in trading price is the result of a short squeeze. A short squeeze and/or focused investor trading in anticipation of a short squeeze have led to, may be currently leading to, and could again lead to volatile price movements in shares of the Company’s common stock that may be unrelated or disproportionate to its operating performance or prospects and, once investors purchase the shares of the Company’s common stock necessary to cover their short positions, or if investors no longer believe a short squeeze is viable, the price of its common stock may rapidly decline.
In addition, the Company does not record or have access to information regarding any share lending or short selling transactions other than what is publicly available from third-party providers. The Company does not have reliable information about synthetic shares and fake shares and only maintains records regarding shares that the Company has legally issued and are outstanding. The Company also understands that there has been considerable trading in derivatives on the Company’s shares including both put and call options. These derivative securities can have the effect of increasing the volatility of the Company’s share price.
Investors that purchase shares of the Company’s common stock during a short squeeze may lose a significant portion of their investment. Under the circumstances, the Company cautions investors against investing in the Company’s common stock, unless investors are prepared to incur the risk of losing all or a substantial portion of their investment.
Information available in public media that is published by third parties, including blogs, articles, online forums, message boards and social and other media may include statements not attributable to the Company and may not be reliable or accurate.
The Company has received, and may continue to receive, a high degree of media coverage that is published or otherwise disseminated by third parties, including blogs, articles, online forums, message boards and social and other media. This includes coverage that is not attributable to statements made by the Company’s directors, officers or employees. Investors should read carefully, evaluate and rely only on the information contained in or incorporated in the documents filed with the SEC in determining whether to purchase the Company’s shares of common stock. Information provided by third parties may not be reliable or accurate and could materially impact the trading price of the Company’s common stock which could cause losses to your investments.
General Risk Factors
The Company relies on third-party suppliers for raw materials and the loss of these suppliers, a supplier’s inability to supply a raw material or a disruption or interruption in the supply chain may adversely affect the Company’s business.
The supply and cost of raw materials, particularly petroleum and natural gas-based resins, may have an impact on the availability or cost of the Company’s plastic products. The Company may experience a significant disruption in the supply of raw materials from current sources or, in the event of a disruption, the Company may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. Moreover, the Company’s suppliers may not be able to fill the Company’s orders in a timely manner depending on market conditions or increased demand for product. The Company’s lack of liquidity could also impair the Company’s relationships with its third-party suppliers. In addition, if the Company loses or needs to replace an existing supplier as a result of adverse economic conditions or other reasons, additional supplies of raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to the Company, or at all, or suppliers or manufacturers may not be able to allocate sufficient capacity to the Company in order to meet the Company’s requirements. Even if the Company is able to expand existing sources, the Company may encounter delays in production and added costs as a result of the time it takes to train its suppliers
21
on its methods, products and quality control standards. Any delays, interruption or increased costs in the supply of raw materials could have an adverse effect on its ability to meet consumer demand for its products and result in lower net revenues and net income (or higher net loss) both in the short and long-term.
The Company’s financial results and ability to grow its business may be negatively impacted by global events beyond its control.
With operations in many states and multiple foreign countries, the Company is subject to numerous risks outside of its control, including risks arising from natural disasters, such as fires, earthquakes, hurricanes, floods, tornadoes, unusual weather conditions, pandemic outbreaks and other global health emergencies, terrorist acts or disruptive global political events, or similar disruptions that could materially adversely affect business and financial performance.
Any public health emergencies, including a real or potential global pandemic such as those caused by the avian flu, SARS, Ebola, coronavirus, or even a particularly virulent flu, could decrease demand for the Company’s products and ability to offer them through parties held by the sales force. The worldwide outbreak of the Coronavirus Disease 2019 (“COVID-19”), which was declared by the World Health Organization to be a “pandemic,” has impacted worldwide economic activity. While COVID-19 and its variants continued into 2022, the impact from continued partial lockdowns was isolated primarily to China. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report for further information. The Company continued to navigate the impacts of the global COVID-19 pandemic to ensure the safety of its employees and their families, sales force, and consumers, and to mitigate the impact of the pandemic on its operations and financial results.
Uncharacteristic or significant weather conditions can affect travel and the ability of businesses to remain open, which could lead to decreased ability for sales force to connect with customers and materially adversely affect short-term results of operations. Although it is not possible to predict such events or their consequences, these events could materially adversely affect the Company’s reputation, business and financial condition.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
As of December 31, 2022, the Company’s headquarters are leased by the Company and are located in Orlando, Florida. Tupperware owns and maintains manufacturing and/or distribution facilities in Brazil, Greece, Indonesia, Korea, Mexico, Portugal, South Africa, and the United States, and leases manufacturing and distribution facilities in Belgium, Brazil, China, India, and Japan. The Company owns and maintains commercial offices in India, Indonesia and Mexico. The Indonesia warehouse and commercial office, and the Hemingway, South Carolina manufacturing plant were sold in 2023, refer to Note 24: Subsequent Events to the Consolidated Financial Statements of this Report for additional information.
The Company conducts a continuing program of new product design and development at its facilities in Belgium and Mexico. None of the Company’s owned principal properties are currently subject to any encumbrance material to the consolidated operations of the Company. For additional information about the Credit Agreement and the amendments to the Credit Agreement, refer to Note 1: Summary of Significant Accounting Policies and Note 16: Debt to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report. The Company considers the condition and extent of utilization of its manufacturing facilities, warehouses, and other properties to be good.
Item 3. Legal Proceedings.
A number of ordinary-course legal and administrative proceedings against the Company or its subsidiaries are pending. In addition to such proceedings, there are certain proceedings that involve the discharge of materials into, or otherwise relating to the protection of, the environment. Certain of such proceedings involve federal environmental laws such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as well as state and local laws. The Company has established reserves with respect to certain of such proceedings. Because of the involvement of other parties and the uncertainty of potential environmental impacts, the eventual outcomes of such actions and the cost and timing of expenditures cannot be determined with certainty. It is not expected that the outcome of such proceedings, either individually or in the aggregate, will have a material adverse effect upon the Company.
22
As part of the 1986 reorganization involving the formation of Premark, Premark was spun-off by Dart & Kraft, Inc., and Mondelez International Inc. assumed any liabilities arising out of any legal proceedings in connection with certain divested or discontinued former businesses of Dart Industries Inc., a subsidiary of the Company, including matters alleging product and environmental liability. The assumption of liabilities by Kraft Foods, Inc. (now Mondelez International, Inc.) remains effective subsequent to the distribution of the equity of the Company to Premark shareholders in 1996.
In February 2020, putative stockholder class actions were filed against the Company and certain current and former officers and directors in the United States District Court for the Central District of California and in the United States District Court for the Middle District of Florida. The actions were consolidated in the United States District Court for the Middle District of Florida, and a lead plaintiff was appointed. On July 31, 2020, the lead plaintiff filed a consolidated amended complaint, which alleges that statements in public filings between January 31, 2018 and February 24, 2020 (the “potential class period”) regarding the Company’s disclosure of controls and procedures, as well as the need for an amendment of its credit facility, violated Section 10(b) and 20(a) of the Securities Act of 1934. The lead plaintiff seeks to represent a class of stockholders who purchased the Company’s stock during the potential class period and demand unspecified monetary damages. The Company’s motion to dismiss the complaint was granted on January 25, 2021, but the court permitted the lead plaintiff to file an amended complaint, which the plaintiff filed on February 16, 2021. The Company filed a motion to dismiss the second amended complaint on April 2, 2021. The Court granted the Company’s motion to dismiss the second amended complaint on August 9, 2021, but again permitted the lead plaintiff to file an amended complaint, which the plaintiff filed on August 30, 2021. The Company filed a motion to dismiss the third amended complaint on October 14, 2021, and on February 4, 2022, the Court dismissed the third amended complaint with prejudice. The plaintiff filed an appeal on April 11, 2022, and the 11th Circuit Court of Appeals affirmed dismissal of the complaint on August 8, 2023. The plaintiff petitioned for rehearing en banc before the 11th Circuit Court of Appeals on August 29, 2023. The Court of Appeals denied the petition for rehearing on October 2, 2023. The Company is unable at this time to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition or cash flows.
Additionally, several putative stockholders filed stockholder derivative complaints in the United States District Court for the Middle District of Florida against certain of the Company’s current and former officers and directors relating to the allegations in the securities class action referenced in the preceding paragraph. The cases were consolidated, and plaintiffs filed a consolidated amended complaint on August 5, 2020. The consolidated amended complaint asserts claims against certain current and former officers and directors for breach of fiduciary duty, unjust enrichment, and contribution for violations of the securities laws based on allegations that the officers and directors allowed the Company to make false or misleading statements in violation of the securities laws. The court stayed proceedings in this action pending resolution of the appeal of the third motion to dismiss in the putative stockholder class action. A similar stockholder derivative complaint was filed in the Ninth Judicial Circuit Court of Florida. The parties reached an agreement to stay this action pending the resolution of the appeal of the third motion to dismiss in the putative stockholder class action. The court has set a status conference on the matter in February 2024. The Company is unable at this time to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition or cash flows.
In October 2020, the Company entered into a leaseback agreement on the Company’s headquarters in Orlando, Florida and prior to the lease expiration in October 2031, the Company is obligated to restore the building to its original condition including the removal of asbestos. As of December 31, 2022, the Company recorded an asset retirement obligation of $0.9 million for the present value of the asbestos abatement costs and a reserve of $3.1 million for the present value of the restoration liability.
In June 2022, a putative stockholder class action was filed against the Company and certain current and former officers in the United States District Court for the Southern District of New York. The complaint alleged that statements made in public filings between November 3, 2021 and May 3, 2022 regarding the Company’s earnings and sales performance and full year 2022 guidance violated Sections 10(b) and 20(a) of the Securities Act of 1934. The plaintiff sought to represent a class of stockholders who purchased the Company’s shares during the alleged class period and demands unspecified monetary damages. On August 17, 2022, the Southern District of New York entered an order transferring the case to the Middle District of Florida. On September 16, 2022, the court appointed co-lead plaintiffs. On November 30, 2022, the plaintiffs filed a First Amended Class Action Complaint. The First Amended Class Action Complaint is based on alleged misstatements about the Company’s profitability and pricing leading up to May 4, 2022; the plaintiffs also proposed a new class period of May 5, 2021 - May 4, 2022. On September 28, 2023, the Court denied the defendant’s motion to dismiss the First Amended Class Action Complaint. The Company is unable at this time to determine whether the outcome of this action would have a material impact on its results of operations, financial condition or cash flows.
In August 2022, a stockholder derivative complaint was filed in the Circuit Court of the Ninth Judicial Circuit, in and for Orange County, Florida against certain of the Company’s current and former officers and directors relating to the allegations in the securities class action referenced in the preceding paragraph. The derivative complaint asserts claims against the officers and directors for breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on allegations that, among other things, the officers and directors allowed the Company to make false or misleading statements in violation of the securities laws. On July 28, 2023, the defendants filed a motion to dismiss. On September 21, 2023, the plaintiff filed an amended complaint. The defendants’ response to
23
the amended complaint is due on or before November 1, 2023. The Company is unable at this time to determine whether the outcome of these actions would have a material impact on its results of operations, financial condition or cash flows.
In 2022, the SEC completed its inquiry into the Company’s accounting practices relating to its previously-owned Fuller Mexico business and its Tupperware Mexico business. On September 29, 2022, the SEC issued a final order approving the settlement of the inquiry. Under the terms of the order, the Company neither admits nor denies the SEC’s findings and paid an immaterial civil penalty, which was fully accrued in the second quarter of 2022.
In March 2023, a putative stockholder class action was filed against the Company and certain current and former officers in the United States District Court for the Middle District of Florida. The complaint alleges that statements made in public filings between March 10, 2021 and March 16, 2023 regarding the Company’s income taxes and internal controls violated Sections 10(b) and 20(a) of the Securities Act of 1934. On June 5, 2023, the District Court appointed a lead plaintiff, who intends to file an amended complaint by November 13, 2023. Once the lead plaintiff has filed an amended complaint, the Company will be required to respond to the complaint. The Company is unable at this time to determine whether the outcome of this action would have a material impact on its results of operations, financial condition or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
24
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The principal United States market on which the Company’s common stock is traded on the New York Stock Exchange under the symbol “TUP.” As of October 5, 2023, the Company had 61,674 shareholders of record and beneficial holders.
Item 5a. Performance Graph.
The following performance graph compares the performance of the Company’s common stock to the Standard & Poor’s 400 Mid-Cap Stock Index and the Standard & Poor’s 400 Mid-Cap Consumer Discretionary Index. The Company’s stock is included in both indices. The graph assumes that the value of the investment in the Company’s common stock and each index was 100 at December 30, 2017 and that all dividends were reinvested.
Measurement Period (Fiscal Year Ended) | Tupperware Brands Corporation | S&P 400 Mid-Cap | S&P 400 Mid-Cap Consumer Discretionary Index | ||||||||||||||
| 12/30/2017 | 100.00 | 100.00 | 100.00 | ||||||||||||||
| 12/29/2018 | 53.29 | 88.00 | 81.58 | ||||||||||||||
| 12/28/2019 | 14.64 | 112.10 | 103.90 | ||||||||||||||
| 12/26/2020 | 62.99 | 127.91 | 138.02 | ||||||||||||||
| 12/25/2021 | 28.24 | 156.77 | 170.48 | ||||||||||||||
| 12/31/2022 | 7.22 | 136.70 | 136.30 | ||||||||||||||
Item 5c. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
None.
Item 6. Reserved
Not applicable.
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following is a discussion of the results of operations for 2022 and 2021, and changes in financial condition during 2022 and 2021. The Consolidated Financial Statements for the years ended December 25, 2021 and December 26, 2020 have been restated to correct prior period misstatements. The discussion and tables included below have been corrected to reflect these restatements. For more information see Note 22: Restated Previously Issued 2021 and 2020 Financial Statements in the Consolidated Financial Statements of this Report. This information should be read in conjunction with the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report.
The Business
The Company designs innovative, functional, and environmentally responsible products to help store, serve, and prepare food. The core of the Tupperware brand product line consists of design-centric preparation, storage, and serving solutions for the kitchen and home, in addition to lines of cookware, knives, microwave products, microfiber textiles, water-filtration related items, and an array of products for on-the-go consumers. Products are primarily sold directly to the sales force throughout the world. Sales force members purchase products at a discount from the Company and then sell them to their customers. Sales force compensation plans and sales methods can differ based on the market. The Company is largely dependent upon its independent sales force to reach the end customer, 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. In 2022, the Company continued to sell directly and/or through its sales force as well as to end consumers via the internet and through retail transactions, in which it sells products to different companies around the world, primarily retailers. The Company’s average active sales force declined 18 percent to 313 thousand in 2022 compared to the prior year.
The Company has derived, for a number of years, most of its net sales from operations outside the United States. Thus, 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 the 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 used to translate results 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 foreign exchange impact.” These results should be considered in addition to, not as a substitute for, results reported in accordance with United States generally accepted accounting principles (“GAAP”). Results on a local currency basis may not be comparable to similarly titled measures used by other companies.
In 2022, the U.S. Dollar strengthened against the Chinese Renminbi, Euro, Japanese Yen, and other currencies. This created a headwind for the Company as its foreign denominated revenues were translated into the U.S. Dollar at lower exchange rates negatively impacting results. The Company estimates that the negative impact on revenues for 2022 was approximately 5 percent compared to 2021.
In line with the strategy of the Turnaround Plan, as described in Note 3: Re-engineering and Impairment Charges of Item 8. Financial Statements and Supplementary Data of this Report, the Company decided to dispose of the operations of certain key brands of the Company’s beauty business including Avroy Shlain, House of Fuller, Nutrimetics, and Nuvo to better focus on the core business. The Company completed the sale of Avroy Shlain in the first quarter of 2021, House of Fuller was sold in the second quarter of 2022, and Nutrimetics was sold in the third quarter of 2022. The Company executed a Letter of Intent for the sale of 100% of its shares in Nuvo on April 28, 2023, entered into a Sales and Purchase Agreement on July 27, 2023, and completed the sale on August 7, 2023.
The Company has determined that these dispositions represent a strategic shift that will have a major effect on its results of operations. The Company has reflected the results of the beauty businesses as discontinued operations including all comparative prior period information in these Consolidated Financial Statements. Certain costs previously allocated to the beauty business for segment reporting purposes do not qualify for classification within discontinued operations and have been reallocated to continuing operations. See Note 12: Assets Held for Sale and Discontinued Operations of this Report, for additional information.
The Company continued to navigate the impacts of the global COVID-19 pandemic to ensure the safety of its employees and their families, sales force and consumers, and to mitigate the impact of the pandemic on its operations and financial results. The negative impact from COVID-19 on net sales in 2022 was primarily the result of continued partial lockdowns resulting in limited mobility of consumers, restrictions to open stores, and logistics delays impacting product availability in the outlets, mainly in China.
Estimates included herein are those of the Company’s management and are subject to the risks and uncertainties as described in the section entitled Forward-Looking Statements at the beginning of this Report.
26
Overview of the Company’s Performance
Net sales were $1,304.0 million in 2022 compared to $1,600.6 million in 2021, primarily driven by lower recruiting and overall sales force activity, continued COVID-19 lock-downs for most of 2022 particularly in the Asia Pacific segment, changes in sales force business model and compensation plan changes that did not deliver the expected results, and to lower productivity, higher inflation, higher gas prices, and negative impact from price increases.
Cash from operations was a $34.0 million outflow in 2022 compared to $108.8 million inflow in 2021, primarily due to a decrease in income from continuing operations. While debt levels remained fairly consistent in 2022 versus 2021, during the third and fourth quarters of 2022, the Company determined that, with the lower income from operations, it would not be able to meet certain debt covenants of the Credit Agreement. Therefore, during the third and fourth quarters of 2022 and in the first, second, third, and fourth quarters of 2023, the Company entered into five amendments, a waiver to the Credit Agreement, and a Debt Restructuring Agreement to obtain relief from those covenants as well as adjustments and waivers of contractual interest and principal payments.
Under the Debt Restructuring Agreement executed on August 2, 2023, the Company is subject to liquidity covenants requiring the use of excess cash for debt reduction. Given the uncertainties around the Company’s liquidity, ability to execute its Turnaround Plan, and ability to comply with covenants, management concluded there is substantial doubt about its ability to continue as a going concern for at least one year from the issuance date of this Form 10-K. See Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for further information.
27
Results of Continuing Operations - 2022 Versus 2021 (Restated)
| Year Ended | Change | Foreign Exchange Impact | Change Excluding the Foreign Exchange Impact | ||||||||||||||||||||||||||||||||||||||
| (In millions of U.S. Dollars, except per share amounts) | December 31, 2022 | December 25, 2021 (Restated) | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,304.0 | $ | 1,600.6 | $ | (296.6) | (19)% | $ | (81.2) | $ | (215.4) | (14)% | |||||||||||||||||||||||||||||
| Gross margin as a percent of sales | 64.0 | % | 66.6 | % | N/A | (2.6) pp | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expense as a percent of sales | 56.4 | % | 51.7 | % | N/A | 4.7 pp | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
| Re-engineering and impairment charges | $ | 29.4 | $ | 14.8 | $ | 14.6 | 99% | $ | (1.1) | $ | 15.7 | + | |||||||||||||||||||||||||||||
| Loss (gain) on disposal of assets | $ | 9.3 | $ | (32.3) | $ | 41.6 | + | $ | 0.8 | $ | 40.8 | + | |||||||||||||||||||||||||||||
| Impairment of goodwill and intangible assets | $ | 36.8 | $ | 9.1 | $ | 27.7 | + | $ | 0.2 | $ | 27.5 | + | |||||||||||||||||||||||||||||
| Operating income | $ | 23.6 | $ | 247.2 | $ | (223.6) | (90)% | $ | (25.1) | $ | (198.5) | (89)% | |||||||||||||||||||||||||||||
| Loss (gain) on debt extinguishment | $ | — | $ | 19.9 | |||||||||||||||||||||||||||||||||||||