Tupperware Brands (TUPBQ) 10-K2020 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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TUPPERWARE BRANDS CORPORATION

(Exact name of registrant as specified in its charter)

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14901 South Orange Blossom Trail, Orlando Florida 32837

(Address of principal executive offices and Zip Code)

407 826-5050

Registrant's telephone number, including area code

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 definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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    ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 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 27, 2020 (the last business day of the registrant's most recently completed second fiscal quarter) was $208,576,844. For the purposes of making this calculation only, the registrant defines affiliates to include all of its directors and executive officers.

As of March 8, 2021, 49,574,365 shares of the common stock, $0.01 par value, of the registrant were outstanding.

Item 1. Business.

Description of Business

The Company is a Delaware corporation that was organized on February 8, 1996 in connection with the corporate reorganization of Premark International, Inc. (“Premark”).

New Leadership

In 2020, the Company welcomed a new President & Chief Executive Officer and Director in Miguel Fernandez, who quickly assembled a highly-skilled executive leadership team that he believed had proven track records in direct selling, e-commerce or retail, and who would be able to modernize, and optimize the Company's digital functions through developing an omnichannel, data driven approach in order to drive growth and enhance revenue. Additionally, this team led the reorganization of the Company's structure, simplifying the organization by dividing the Company between commercial activities, departments and individuals that drive sales and top-line growth, and operational activities, essential functions that enable sales and top-line growth. With this new structure, the Company believes it is better aligned to its priorities and that management has a direct line of sight into accountability in the nearly 80 markets around the world in which the Company distributes its products.

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COVID-19

Since early 2020, the Company has followed guidance from the Centers for Disease Control and Prevention (CDC) and the World Health Organization (WHO) on actions required by individuals and businesses following the declaration of COVID-19 as a pandemic. Over the course of 2020, the pandemic impacted worldwide economic activity and many governments implemented policies intended to stop or slow the further spread of the disease. These policies, such as shelter-in-place orders, remained in place for a significant period of time, resulting in the temporary closure of schools and non-essential businesses. The Company responded by taking actions to keep employees protected, support the Company’s global sales force and communities, and maintain business continuity. Actions taken included:

A top priority for the Company as it continues to navigate the impacts of the global COVID-19 pandemic is 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 Company will continue to proactively respond to the situation and may take further actions that alter the Company’s business operations as may be required by governmental authorities, or that the Company determines are in the best interests of its employees, sales force and consumers. In order to ensure continued safety and protect the health of the employees, and to comply with applicable government directives, the Company has modified its business practices to allow its employees to work remotely, incorporate virtual meetings and restrict all non-essential employee travel until further notice.

Liquidity and Capital Allocation

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Corporate Governance

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 Securities and Exchange Commission (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.”

I. Sales

Products

The Company primarily 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 continues to focus on introducing new, more sustainable materials to its product lines; new products designed to solve consumer needs identified by data and insights; and a refined product strategy tied to the Company’s renewed purpose to helping consumers reduce food waste and eliminate the use of single-use plastic materials.

In 2020, new product introductions included:

In addition to new products, the Company received a United States patent for Passive Orbital Nutrient Delivery System (PONDS), a device the Company, in partnership with Techshot, Inc., helped to create, to aid NASA in growing vegetables in outer space with minimal maintenance for future space exploration. The project also helps the Company better understand the conditions plants need to grow in various environments.

II. 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 22: Segment Information to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for further details regarding segments information.

Sales are to the ultimate customer principally through a combination of direct selling and marketing by approximately 3.2 million independent sales force members with approximately 534 thousand active at any designated point in time. 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 methods can differ based on the market.

A significant portion of the Company's business is operated through distributors, some of whom stock inventory and fulfill orders from the sales force that are generally placed after orders have been received from their customers. 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 distributor’s focus is on increasing the sales force size while the Company manages the stocking and distribution of inventory. 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 two or three weeks, to their circle of influence including; friends, neighbors and relatives. The brochures highlight new products and specially-priced 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.

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 2020, 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. As of December 26, 2020, the Company's distribution system had approximately 2 thousand distributors, 106 thousand managers (including directors and team leaders) and 3.2 million independent sales force members worldwide.

Business Strategy

As its business strategy evolves, as part of the Turnaround Plan, the Company is focused on accelerating modernization in two areas. First is improving the core direct sales business, introducing a data-driven approach to sales force marketing, communication and recruitment, and introducing new digital tools and training to make doing business more efficient. The Company is working on an approach to personalize the customer experience based on consumer behaviors. The Company has defined two distinct groups within its sales force – those who want to build a business or career with the Company (the “Business Builders”), and those who want access to discounted or exclusive products (the “Preferred Buyers”). Future communications, service, support and marketing approach will be tailored with these segmented audiences in mind.

Second, the Company is focused on business expansion opportunities, by shifting from a business model reliant solely on the direct sales channel to drive consumer demand, to a business model that creates a natural "pull and push" to the brand to lift up all channels in which Company products are available. This includes expanding into more product categories where the Tupperware brand is in demand and creating more access points for consumers to purchase Company products – both in person and online.

Company efforts are underway in creating a consumer-tailored product and pricing strategy intended to reach and address the needs of all consumer socioeconomic levels, while also exploring alternative revenue streams for incremental business-to-business opportunities and new licensing opportunities to leverage the value of its iconic brand. This strategy is designed to create additional brand awareness and create new leads for the Company’s independent sales force and increase revenue from channels and consumers that the Tupperware brand does not reach today.

III. 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. Due to the nature of the direct selling industry, it is critical that the Company provides a compelling earnings opportunity for the sales force, along with developing new and innovative products. The Company maintains its competitive position, in part, through a focus on product design, quality, and innovation, as well as the use of strong incentives and promotional programs.

Through its Tupperware brand, the Company competes in the food storage, serving and preparation, containers, children's toys and gifts categories. Through its beauty and personal care brands, the Company also competes in the skin care, cosmetics, toiletries, fragrances and nutritionals 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.

IV. 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 2020, the Company experienced shipping constraints and delays coming from sourced suppliers due to COVID-19.

Materials used in the Company's skin care, nutritionals, cosmetic and bath and body care products consist primarily of readily available ingredients, containers and packaging materials. Such raw materials and components used in goods manufactured and assembled by the Company and through outsource arrangements are available from a number of sources. 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.

V. 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.

VI. Human Capital

As of December 26, 2020, the Company had approximately 10,698 employees, of whom approximately 465 are based in the United States. With the new leadership team and Turnaround Plan introduced by the Company in 2020, the Company reinforced its corporate guiding principles. With a new core values statement defined as "doing what’s right, always improving and succeeding together", the Company updated its vision and strategy for people management to ensure alignment. The Company introduced five core areas related to human capital in order to create a performance-driven culture with employee pride:

As a result of defining the above areas, in 2020, the Company introduced the following initiatives:

VII. Environmental, Social and Governance

In 2020, the Company redefined its purpose to more closely align with its over 75 year commitment to being ‘environmentally friendly’, which reflect the concerns, desires, and needs of consumers for more reusable, durable and environmentally-friendly products. With this purpose to nurture a better future every day, the Company expects to make decisions that benefit people, the planet, and communities served by the Company and its sales force.

Recently, the Company was named to Newsweek’s list of America’s Most Responsible Companies 2021, an honor the Company believes is a reflection of its enhanced commitment to environmental, social, and governance initiatives. Key activities in 2020, as well as over the course of the Company's history, to build a more sustainable and environmentally-friendly organization include:

In 2021, the Company plans to conduct a new materiality assessment for environmental, social, and governance initiatives that will reflect developments in the Company’s business strategy and new stakeholder expectations in the wake of the impacts of COVID-19.

VIII. Other

On a quarterly basis, sales are impacted by holiday schedules, vacations by sales force members, as well as promotional activities during these periods, which vary by market. 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.

IX. Information About Our Executive Officers

The following is a list of the names and ages of all executive officers of the Company as of March 10, 2021, 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 on May 4, 2021).

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 in Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the other reports and materials filed by the Company with the SEC.

Operational Risk

Operational risk generally refers to the risk of loss resulting from the Company’s operations, including those operations performed for the Company by third parties. This would include but is not limited to the risk of fraud by employees or persons outside the Company, the execution of unauthorized transactions by employees or others, errors relating to transaction processing, breaches of the internal control system and compliance requirements, and unplanned interruptions in service. Certain of these types of activities were identified in the course of the Company’s review of its Mexico businesses. Over the past year, the Company, with the help of external legal and accounting resources, has investigated matters at its Mexico businesses primarily regarding the accounting for accounts payable and accrued liabilities and inventory. While the Company's review of these matters is now complete, there can be no assurances that the SEC or other governmental agencies will not determine to bring enforcement action with respect thereto or that similar issues will not be identified in the future.

The risk of operational loss also includes other potential legal or regulatory actions that could arise as a result of an operational deficiency, or as a result of noncompliance with applicable regulatory standards. The Company must comply with a number of legal and regulatory requirements, including those under the Sarbanes-Oxley Act of 2002, as amended.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. As described in Item 9A. Controls and Procedures, the Company concluded that its internal control over financial reporting was ineffective as of December 26, 2020 due to a material weakness in the control environment at its Tupperware Mexico location; specifically, with respect to information technology general controls, the Company did not maintain effective user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to financial applications and data to appropriate Company personnel; and there was override by plant and local management of certain internal controls at the Tupperware Mexico plant location resulting in immaterial misstatements in inventory and accrued liabilities. There were no changes to previously issued financial statements.

As further described in Item 9A. Controls and Procedures, the Company is implementing remedial measures and, while there can be no assurance that its efforts will be successful, the Company expects to remediate the material weakness prior to the end of fiscal year 2021. If the Company is unable to remediate the material weakness, or is otherwise unable to maintain effective internal control over financial reporting, the ability to record, process and report financial information accurately, and within required time periods, could be adversely affected. This could subject the Company to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in the Company’s financial statements and adversely impact its stock price. Furthermore, until the Company successfully remediates the material weakness, it is reasonably possible that this material weakness could result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected.

Sales Force Factors

The Company is largely dependent upon the independent sales organizations and individuals to reach end consumers, and any significant disruption of this distribution network would have a negative financial impact on the Company and its ability to generate sales, earnings, and operating cash flows. The Company’s distribution system depends upon successful addition, activation and retention of a large number of independent sales force members. 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.

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 the Company intends to exit markets.

Furthermore, due to the high level of competition in the Company’s industry, the Company 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. We compete globally for potential customers and independent sales force, and if we are unable to successfully compete with other direct selling and related businesses, our financial condition and operating results could be materially adversely affected.

Consumer Demand

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. The Company's ability to accurately predict and respond to these changes could impact the Company's financial results. The Company currently has an immaterial amount of its 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.

International Operations

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. An economic slowdown 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.

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 Brazilian Real, Chinese Renminbi, Argentine Peso, Euro, Indonesian Rupiah, Malaysian Ringgit, Mexican Peso and South African Rand. Although the Company's currency risk is partially mitigated by the natural hedge arising from its local product sourcing in many markets, a strengthening United States Dollar generally has a negative impact on the Company. In response to this fact, 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. 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 United States Dollar. There can be no assurance that foreign currency fluctuations and related hedging activities will not have a material adverse impact on the Company’s results of operations, cash flows and/or financial condition.

Another risk associated with the Company’s international operations is restrictions foreign governments may impose on currency remittances. Due to the possibility of government restrictions (or existing 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. As of the end of 2020, this was a particular issue in China, as the Company must apply locally for repatriation of dividends out of China, a process which can typically take approximately six months.

In addition, 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.

Finally, the Company's global operations expose the Company to a number of additional risks, including:

See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion regarding this risk.

Legal, Litigation and Regulatory Issues

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.

Furthermore, the Company may face material litigation outside the ordinary 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 plaintiffs seek to represent a class of stockholders who purchased the Company’s stock during the potential class period and demand unspecified monetary damages. While the Company's motion to dismiss the complaint was granted on January 25, 2021, the court permitted the lead plaintiff to file an amended complaint, which the plaintiff filed on February 16, 2021. The Company continues to believe the complaints and allegations to be without merit and intends to vigorously defend itself against the actions. 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. 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 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 motion to dismiss in the putative stockholder class action. Following dismissal of the consolidated amended complaint and filing of the consolidated second amended complaint, the Company intends to seek a further stay of the derivative cases. 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.

Financial Covenants, Liquidity and Existing Debt

The Company must meet certain financial covenants as defined in the applicable agreements to borrow under its credit facilities. In the event the Company fails to comply with any of the covenants or to meet its payment obligations, it could lead to an event of default which, if not cured or waived, could result in the acceleration of outstanding debt obligations. The Company may not have sufficient working capital or liquidity to satisfy its debt obligations in the event of an acceleration of all or a portion of its outstanding obligations. If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, it may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance its indebtedness. The Company’s ability to restructure or refinance its debt in the future will depend on market conditions and the Company’s financial performance at such time. Any refinancing, if at all, of the Company’s debt could be at higher interest rates and may require the Company to comply with more covenants, which could further restrict its business operations. The terms of existing or future debt instruments may restrict the Company from adopting some of these alternatives.

The Company's Tupperware trademark is collateral under the Credit Agreement and the Term Loan. 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 and Term Loan, 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. The Company’s commitment to product innovation and quality and its continuing investment in design and brand awareness may not have the desired impact on its brand image and reputation. In addition, the Company’s success in maintaining, extending and expanding its brand image depends on its ability to adapt to a rapidly changing social media environment and digital dissemination of branding campaigns. The Company could be adversely impacted if it fails to achieve any of these objectives.

Product Safety & Environmental

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.

In addition, 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.

Senior Leadership Team; Management Succession; Change in CEO

The Company’s success depends in part on the efforts and abilities of qualified 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 members of the senior management team could have an adverse effect on the Company’s results of operations, cash flows, and financial condition. During 2020, the composition of the Company’s senior management has changed substantially. On March 12, 2020, Richard Goudis became the Company’s Executive Vice Chairman. On April 6, 2020, Miguel Fernandez became the Company’s President & Chief Executive Officer. Mr. Fernandez replaced the Company's interim Chief Executive Officer, Christopher O’Leary, who remained a director. After the hiring of Messrs. Fernandez and Goudis, the Company continued to make significant leadership changes, including through the hiring of Patricio Cuesta as President, Commercial, Hector Lezama, as President, Commercial Business Expansion, and the promotion of Cassandra Harris to Chief Financial Officer & Chief Operating Officer. 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. A change in the senior management team may create uncertainty among investors, employees and others concerning the Company’s future direction and performance. Any disruption in the Company’s operations or uncertainty could have an adverse effect on its business, financial condition, or results of operations.

Technology and Cyber-Security

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 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 during COVID-19 restrictions. 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 controls over financial reporting. The Company is continuing to upgrade its systems on a worldwide basis, and as disclosed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, the Company incurred a $30.5 million write-off of capitalized software implementation costs related to the front and back office standardization project that was initiated in 2017, due to a shift in the business model and digital strategy set forward by the new leadership team.

Turnaround Plan

In 2020, the Company accelerated transformation initiatives, initiated in the past few years, and developed a comprehensive Turnaround Plan. As the Company works to implement the Turnaround Plan, it may not realize 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. It also may not realize the increase in sales intended to be enabled by the initiatives. The Company's ability to improve its operating results depends upon a significant number of factors, some of which are beyond its control. Other events and circumstances, such as financial and strategic difficulties and delays or unexpected costs, including the impact of foreign currency and inflationary pressures, may occur which could result in not realizing targets or in offsetting the financial benefits of reaching those targets. Reaching those targets may also depend on the level of acceptance by the Company's sales force of its compensation initiatives. The Company might also experience a decline in revenue in the short-term, as part of the implementation of the Turnaround Plan, with the goal of increasing profits in the future. If the Company is unable to realize the anticipated savings or benefits, or otherwise fails to invest in the growth initiatives, the business may be adversely affected. In addition, any plans to invest these savings and benefits ahead of future growth means that such costs will be incurred whether or not these savings and benefits are realized. The Company is also subject to the risks of labor unrest, negative publicity and business disruption in connection with these initiatives, and the failure to realize anticipated savings or benefits from such initiatives could have a material adverse effect on business, prospects, financial condition, liquidity, results of operations and cash flows.

Furthermore, success of the Turnaround Plan depends on the Company's ability to compete with other companies in the same markets. The business of marketing the Company’s products is highly competitive and sensitive to the introduction of new products, which may rapidly capture a significant share of the market. These market segments include numerous manufacturers, distributors, marketers, and retailers that actively compete for the business of consumers both in the United States and abroad. In addition, the Company is subject to increasing competition from sellers that utilize digital platforms. Some of these competitors have longer operating histories, significantly greater financial, technical, product development, marketing and sales resources, more innovative sales channels or platforms, greater name recognition, larger established customer bases and better-developed distribution channels than the Company does. The Company’s present or future competitors may be able to develop products that are comparable or superior to those offered by the Company, adapt more quickly than the Company does to new technologies, evolving industry trends and standards or customer requirements, or devote greater resources to the development, promotion and sale of their products than the Company does. For example, if the Company’s competitors develop other products to help store, serve and prepare food that prove to be more effective than the Company’s products, demand for Company’s products could be reduced. Accordingly, competition may intensify and the Company may not be able to compete effectively in its markets.

Finally, the Company might not be able to continue to keep pace with and meet consumer demands for the Company's products. The Company has experienced, and may continue to experience, challenges in supplying products to meet customer demands, 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. If the Company is unsuccessful in keeping pace with these demands, the Company's results of operations could be materially adversely effected.

Natural Disasters and Unusual Weather Conditions, Pandemic Outbreaks (Including COVID-19), Terrorist Acts, Global Political Events and Other Serious Catastrophic Events

These types of events could disrupt business and otherwise materially adversely affect business and financial condition. 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 has been declared by the World Health Organization to be a “pandemic,” has impacted worldwide economic activity. The Company's employees, contractors, suppliers, sales force, consumers, and other business partners have been forced to conduct more limited business activities for an extended period of time, including due to required shutdowns requested or mandated by governmental authorities. The Company's top priority is to protect its employees and their families, the sales force and consumers, and its operations from any adverse impacts. The Company has taken precautionary measures as directed by health authorities and local governments. COVID-19 has and may continue to have an impact on ports and trade into and out of countries around the world. Given the interconnectivity of global supply chain and global economy, the impact of COVID-19 has been extensive. While COVID-19 has had a negative impact on some of the Company's suppliers and customers, the Company believes it has also experienced a positive impact from COVID-19 on overall net sales (as many customers are working from home). We are unable to predict the impact on the Company's business when quarantining and other stay-at-home restrictions are lifted due to COVID-19, and the Company's business may be materially adversely effected upon cessation of restrictions related to COVID-19.

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.

General Business Factors

The Company’s business can be affected by a wide range of factors that affect other businesses. Weather, natural disasters, strikes, epidemics/pandemics, political instability, terrorist activity, public scrutiny of the direct selling channel, and changing attitudes regarding plastic products may have a significant impact on the willingness or ability of consumers to attend parties or otherwise purchase the Company’s products. 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 is also subject to frequent product 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. The Company can also experience volatility in its common stock due to various factors, including negative investor sentiment. Other risks, as discussed in the section entitled Forward-Looking Statements in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of this Report, can be relevant to performance as well.

As of December 26, 2020, the Company headquarters are leased by the Company and are located in Orlando, Florida. The Company owns and maintains significant manufacturing and/or distribution facilities in Brazil, France, Greece, Indonesia, Korea, Mexico, New Zealand, Portugal, South Africa and the United States, and leases manufacturing and distribution facilities in Belgium, China, Germany, India, Japan and Venezuela. The Company owns and maintains the headquarters in India. During 2020, the Company sold the manufacturing and distribution facility in Australia. The Company has initiated an early termination of the BeautiControl manufacturing and distribution facility lease in Texas. The Company completed the sale of the manufacturing facility in France for approximately $9.1 million in the first quarter of 2021.

The Company conducts a continuing program of new product design and development at its facilities in Belgium and Mexico. None of the owned principal properties is subject to any encumbrance material to the consolidated operations of the Company. Notwithstanding the planned dispositions noted above, the Company considers the condition and extent of utilization of its plants, warehouses and other properties to be good.

In addition to the above-described improved properties, the Company owns unimproved real estate surrounding its Company headquarters in Orlando, Florida. The Company prepared certain portions of this real estate for a variety of development purposes and, in 2002, began selling parts of this property. To date, approximately 607 acres (inclusive of Company headquarters in Orlando, Florida) have been sold and about 120 acres remain to be sold in connection with this project that is expected to continue for a number of years. It’s the Company’s goal to complete the sale of all Orlando properties in 2021 as part of its plan to sell non-core assets.

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.

As part of the 1986 reorganization involving the formation of Premark, Premark was spun-off by Dart & Kraft, Inc., and Kraft Foods, Inc. assumed any liabilities arising out of any legal proceedings in connection with certain divested or discontinued former businesses of Dart Industries Inc., a subsidiary of 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 plaintiffs seek to represent a class of stockholders who purchased the Company’s stock during the potential class period and demand unspecified monetary damages. While the Company's motion to dismiss the complaint was granted on January 25, 2021, the court permitted the lead plaintiff to file an amended complaint, which the plaintiff filed on February 16, 2021. The Company continues to believe the complaints and allegations to be without merit and intends to vigorously defend itself against the actions. 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. 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 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 motion to dismiss in the putative stockholder class action. Following dismissal of the consolidated amended complaint and filing of the consolidated second amended complaint, the Company intends to seek a further stay of the derivative cases. 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.

PART II

The following table presents the Company’s selected historical financial information for the last five years. The selected financial information has been derived from the Company's Consolidated Financial Statements which, for the data presented for fiscal years 2020 and 2019 and for some data presented for 2018, are included in Item 8. Financial Statements and Supplementary Data of this Report. This data should be read in conjunction with the Company's other financial information, including Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Item 8. Financial Statements and Supplementary Data in this Report.

The following is a discussion of the results of operations for 2020 compared with 2019, and changes in financial condition during 2020 and 2019. Discussion of the results of operations for 2019 compared with 2018 are included in the Form 10-K for the period ended December 28, 2019 and filed with the SEC on March 12, 2020. This information should be read in conjunction with the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report.

The Company primarily 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 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 methods can differ based on the market. The Company is largely dependent upon the sales force and individuals 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 2020, the Company continued to sell directly and/or through its sales force as well as to end consumers via the internet and through business-to-business transactions, in which it sells products to a partner company.

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 GAAP. Results on a local currency basis may not be comparable to similarly titled measures used by other companies.

COVID-19 impact in 2020 was most pronounced in Asia Pacific and Europe where the Company experienced partial or country-wide lockdowns of operations in various markets which affected financial results and liquidity. While the duration and severity of this pandemic is uncertain, the Company currently expects that its results of operations in the first quarter of 2021 may also be negatively impacted by COVID-19. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, availability and distribution of vaccines, additional and new variants of the virus, and how quickly and to what extent normal economic and operating conditions can resume.

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 in Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Net sales were $1,740.1 million and $1,797.9 million in 2020 and 2019, respectively. Excluding foreign exchange impact, sales increased $50.5 million or 3 percent, primarily due to:

The negative impact to net sales in 2020 as a result of COVID-19 is estimated at 4 percent. The average impact of higher prices was approximately 3 percent compared with 2019.

The Company continues to monitor the effects of COVID-19 on its sales and has taken several steps to mobilize its resources to ensure adequate liquidity, business continuity and employee safety during this pandemic. As a result of the pandemic, the Company has seen a rapid adoption of digital tools and techniques by its sales force to reach and sell product solutions to more customers than ever before. Additionally, a positive consumer trend resulting from COVID-19 is in the rise of more people cooking at home, and consumers concerned with food storage and food safety. This, along with new sales and marketing techniques, resulted in a 3 percent increase in our core sales as compared with 2019.

A more detailed discussion of the sales results by reporting segment is included in the segment results section in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. As discussed in Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report, the Company includes certain promotional costs in selling, general and administrative expense. As a result, the Company's net sales may not be comparable with other companies that treat these costs as a reduction of net sales.

Gross margin was $1,169.3 million and $1,187.1 million in 2020 and 2019, respectively. Gross margin as a percentage of sales was 67.2 percent and 66.0 percent in 2020 and 2019, respectively. The improvement of 1.2 percentage points ("pp") is primarily due to:

Selling, General and Administrative Expense

Selling, general and administrative expense were $949.6 million and $999.4 million in 2020 and 2019, respectively. Selling, general and administrative expense as a percentage of sales was 54.6 percent in 2020, compared with 55.6 percent in 2019. The 1.0 pp decrease is primarily due to:

The Company segregates corporate operating expenses into allocated and unallocated components based upon the estimated time spent managing segment operations. The allocated costs are then apportioned on a local currency basis to each segment based primarily upon segment revenues. The unallocated expenses reflect amounts unrelated to segment operations. Operating expenses to be allocated are determined at the beginning of the year based upon estimated expenditures.

Total unallocated expenses in 2020 decreased $0.1 million compared with 2019, primarily due to:

As discussed in Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report, the Company includes distribution costs of its products in selling, general and administrative expense. As a result, the Company’s gross margin may not be comparable with other companies which include this expense in cost of products sold.

Re-engineering Charges

The re-engineering charges were:

Costs incurred under these programs were included in Consolidated Statements of Income under the following captions:

The key elements of the Turnaround Plan include: increasing the Company's rightsizing plans to improve profitability, accelerating the divestiture of non-core assets to strengthen the balance sheet, restructuring the Company’s debt to enhance liquidity, and structurally fixing the Company’s core business to create a more sustainable business model. The Company incurred $32.2 million and $13.1 million in 2020 and 2019, respectively, primarily related to severance costs. In 2020 the Company realized cost savings of approximately $192 million. This plan is expected to run through 2021.

The 2017 program has incurred $87.2 million of pretax costs starting in the second quarter of 2017 through 2020 and expects to incur an additional $1.6 million of pretax re-engineering costs in 2021. The annualized benefit of these actions has been approximately $36 million. After reinvestment of a portion of the benefits, improved profitability is reflected most significantly through lower cost of products sold and also through lower selling, general and administrative expense.

Refer to Note 3: Re-engineering Charges to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for further information.

Gain on Disposal of Assets

Gain on disposal of assets was a gain of $14.0 million and gain of $12.9 million in 2020 and 2019, respectively. In 2020 the Company realized a gain of $13.2 million from the sale of a manufacturing and distribution facility in Australia and $31.6 million from the sale-leaseback of the Company headquarters in Orlando, Florida along with sale of certain surrounding land. The gain was offset by a $30.5 million write-off of capitalized software implementation costs related to the front and back office standardization project that was initiated in 2017, due to a shift in the business model and digital strategy set forward by the new leadership team. In 2019 the Company realized a gain of $8.8 million from sale of land near the Company headquarters in Orlando, Florida and $5.8 million for the sale of the marketing office in France.

Impairment Expense

Impairment expense was $0.0 million and $40.0 million in 2020 and 2019, respectively.

In the third quarter of 2020, the Company completed the annual impairment assessments for all of its reporting units and indefinite-lived intangible assets. As part of this testing, the Company analyzed certain qualitative and quantitative factors in completing the annual impairment assessment. The Company’s assessments reflected a number of significant management assumptions and estimates including the Company’s forecast of sales, profit margins, and discount rates, along with the royalty rate related to trade names. Changes in these assumptions could materially impact the Company’s conclusions. Based on its assessments, the Company concluded there were no impairments.

Although no reporting units failed the assessments noted above, in management’s opinion, the goodwill associated with the Japan reporting unit is at risk of impairment in the near term if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate. The significant assumptions for the goodwill associated with the Japan quantitative impairment assessment included annual revenue growth rates and a discount rate utilized within the analysis, which impacts the Company’s conclusion regarding the likelihood of goodwill impairment for the unit. Total goodwill associated with this reporting unit was $11.0 million as of September 26, 2020. Based on the 2020 annual impairment test, the estimated fair value of the Japan reporting unit exceeded its carrying value by approximately 11.0 percent. The projected future cash flows, which included revenue growth rates ranging from negative 15.5 percent to positive 9.0 percent with an average growth rate of 1.3 percent, were discounted at 9.0 percent. Based on the discounted cash flow model and holding other valuation assumptions constant, Japan’s projected operating profits across all future periods would have to be reduced approximately 13.3 percent, or the discount rate increased to 10.0 percent, in order for the estimated fair value to fall below the reporting unit’s carrying value.

Similarly, while no trade names failed the assessment, in management’s opinion, the NaturCare trade name is at risk of impairment in the near term if there is a negative change in the long-term outlook for the business or in other factors such as the royalty rate or discount rate. The significant assumptions for the quantitative impairment assessment of the NaturCare trade name included annual revenue growth rates, royalty rate, and the discount rate utilized within the analysis, which impacts the Company’s conclusion regarding the likelihood of impairment of the trade name. Total carrying value of the NaturCare trade name was $11.5 million as of September 26, 2020. Based on the 2020 annual impairment test, the estimated fair value of the NaturCare trade name exceeded its carrying value by approximately 11.0 percent. The projected future cash flows, which included annual revenue growth rates ranging from negative 4.0 percent to positive 2.0 percent with an average growth rate of 1.3 percent and a royalty rate of 4.0 percent, were discounted at 10.0 percent. Based on the discounted cash flow model and holding other valuation assumptions constant, the projected revenue associated with the trade name, across all future periods, would have to be reduced approximately 9.9 percent, the royalty rate reduced to 3.6 percent, or the discount rate increased to 10.9 percent, in order for the estimated fair value to fall below the trade name’s carrying value.

In 2019, the Company recorded goodwill impairment of $17.5 million and trade name impairment of $22.5 million which was primarily related to the Fuller Mexico reporting unit.

In the third quarter of 2019, the Company completed the annual assessments for all of its reporting units and indefinite-lived intangible assets, concluding $19.7 million impairment existed as of the third quarter 2019, mainly for the impairment of goodwill associated with the Fuller Mexico beauty and personal care products business in the amount of $17.5 million. This was a triggering event to assess the recoverability of the Fuller trade name, which concluded no impairment as of the third quarter of 2019 based on actual and forecasted results of the units which support the Fuller trade name value.

The Nutrimetics trade name was also impaired by $2.2 million due to declining sales trends, leaving a $3.5 million carrying value as of September 28, 2019.

The impairment evaluation of the goodwill associated with the Fuller Mexico reporting unit involved comparing the fair value of the reporting unit to its carrying value, including the goodwill balance, after consideration of impairment to its long-lived assets. There were no impairments of any long-lived assets. The fair value analysis for Fuller Mexico was completed using the income approach, which was considered a Level 3 measurement within the fair value hierarchy. The significant assumptions used in the income approach included estimates regarding future operations and the ability to generate cash flows, including projections of revenue, costs, utilization of assets and capital requirements. The income approach, or discounted cash flow approach, also requires an estimate as to the appropriate discount rate to be used. The most sensitive estimate in this valuation is the projection of operating cash flows, as these provide the basis for the estimate of fair market value. The Company’s cash flow model used a forecast period of ten years with annual revenue growth rates ranging from negative 8.0 percent to positive 4.0 percent, a compound average growth rate of 0.2 percent, and a 2.5 percent growth rate used in calculating the terminal value. The discount rate used was 14.9 percent. The growth rates were determined by reviewing historical results of the operating unit and the historical results of the Company’s other similar business units, along with the expected contribution from growth strategies being implemented. As the fair value of Fuller Mexico was less than the carrying value by more than the recorded goodwill balance, the remaining balance of goodwill recorded at Fuller Mexico was written off.

In the fourth quarter of 2019, as part of the on-going assessment of goodwill and intangible assets, the Company noted that the financial performance of the units selling Fuller products had fallen below their previous trend lines and it concluded that they would fall significantly short of previous expectations. Sales further declined in the fourth quarter of 2019 and margins significantly declined from third to fourth quarter resulting in an approximate 30 percent decrease in margins in the forecasted period. This significant impact to margins also impacted the royalty rate which was reduced from the rate utilized in the third quarter of 2019. These declines in the financial performance were deemed to be a triggering event and a test for recoverability and impairment was performed over the definite-lived intangible asset which included comparing the sum of the estimated undiscounted future cash flows attributable to the Fuller trade name to its carrying value. The result of the impairment test was to record a $20.3 million impairment to the Fuller trade name included in the impairment of goodwill and intangible assets caption of the Company's Consolidated Statements of Income. As the units that sell Fuller products are in different geographical areas, impairments of $6.0 million, $13.6 million and $0.7 million were recorded for the Asia Pacific, North America and South America segments, respectively. The Fuller trade name carrying value was $6.5 million as of December 28, 2019.

Refer to Note 12: Trade Names and Goodwill to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for further information.

Gain on Debt Extinguishment

Gain on debt extinguishment was $40.2 million and $0.0 million in 2020 and 2019, respectively. The change in interest expense is related to a decrease in the Company’s borrowings. During the second, third, and fourth quarters of 2020 the Company retired its Senior Notes in the aggregate principal amount of $600.0 million through tender offers, open-market purchases, and redemption.

Interest Expense

Interest Income

Other expense (income), net, was a gain of $11.6 million and $16.8 million in 2020 and 2019, respectively. The Company records foreign currency translation impacts and pension costs in this line item.

Provision for Income Taxes

Provision for income taxes was $100.1 million and $91.0 million in 2020 and 2019, respectively. The effective tax rate was 47.2 percent and 88.0 percent in 2020 and 2019, respectively. The change in effective tax rate in 2020 from 2019 was primarily due to:

Refer to Note 4: Income Taxes to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for further information.

Net Income

Net income was $112.2 million and $12.4 million in 2020 and 2019, respectively. See above discussion for the main drivers of changes in net income. A more detailed discussion of the results by reporting segment is included in the segment results section below.

International operations accounted for 90 percent of sales in 2020 and 93 percent in 2019. They accounted for 97 percent and 98 percent of segment profit in 2020 and 2019, respectively.

The Company, continues focusing on its core business while considering strategic alternatives for non-core assets, including potential divestitures of its beauty and personal care products businesses. During 2020, the beauty businesses in total generated $233.9 million in net sales and $15.4 million in operating income. In the first quarter of 2021, the Company completed the sale of its Avroy Shlain beauty business in South Africa for $33.6 million. In 2021, the Company will continue its efforts to divest non-core assets, specifically concentrating on its remaining beauty businesses.

The Company had a negative impact to sales and profit results by reporting segment in 2020 as a result of COVID-19. While the duration and severity of this pandemic is uncertain, the Company currently expects that its results of operations in the first quarter of 2021 may also be negatively impacted by COVID-19. The Company continues to monitor the effects of COVID-19 on its reported sales and profit and has taken several steps to mobilize its resources to ensure adequate liquidity, business continuity and employee safety during this pandemic.

Asia Pacific

Net sales were $523.3 million and $590.5 million in 2020 and 2019, respectively. Excluding foreign exchange impact, sales decreased $63.9 million or 11 percent, primarily due to:

The negative impact to net sales in 2020 as a result of COVID-19 is estimated at 6 percent. The average impact of higher prices was approximately 4 percent compared with 2019.

Segment profit was $123.7 million and $124.3 million in 2020 and 2019, respectively. Excluding foreign exchange impact, segment profit increased $0.4 million, primarily due to:

The Indonesian Rupiah had the most meaningful impact on the year-over-year net sales and segment profit comparisons.

Europe

Net sales were $446.2 million and $475.2 million in 2020 and 2019, respectively. Excluding foreign exchange impact, sales decreased $14.5 million or 3 percent, primarily due to:

The negative impact to net sales in 2020 as a result of COVID-19 is estimated at 9 percent. The average impact of higher prices was approximately 2 percent compared with 2019.

Segment profit was $78.6 million and $38.0 million in 2020 and 2019, respectively. Excluding foreign exchange impact, segment profit increased $44.8 million, primarily due to:

The South African Rand had the most meaningful impact on the year-over-year net sales and segment profit comparisons.

North America

Net sales were $525.7 million and $453.5 million in 2020 and 2019, respectively. Excluding foreign exchange impact, sales increased $100.7 million or 24 percent, primarily due to:

The positive impact to net sales in 2020 as a result of COVID-19 is estimated at 5 percent. The average impact of higher prices was approximately 2 percent compared with 2019.

Segment profit was $62.5 million and $40.2 million in 2020 and 2019, respectively. Excluding foreign exchange impact, segment profit increased $27.7 million or 82 percent, primarily due to:

The Mexican Peso had the most meaningful impact on the year-over-year net sales and segment profit comparisons.

South America

Net sales were $244.9 million and $278.7 million in 2020 and 2019, respectively. Excluding foreign exchange impact, sales increased $28.2 million or 13 percent, primarily due to:

The negative impact to net sales in 2020 as a result of COVID-19 is estimated at 3 percent. The average impact of higher prices was approximately 2 percent compared with 2019.

Segment profit was $48.4 million and $43.8 million in 2020 and 2019, respectively. Excluding foreign exchange impact, segment profit increased $15.3 million or 46 percent, primarily due to:

The Brazilian Real had the most meaningful impact on the year-over-year net sales and segment profit comparisons.

On February 26, 2020, S&P downgraded the Company’s credit rating from BB+ to B and placed all of its ratings on Credit Watch with negative implication. On February 27, 2020 Moody’s downgraded the Company’s credit rating from Baa3 to B1. Subsequent to those dates, the Company’s credit ratings have changed further by S&P and Moody’s, with S&P’s rating of the Company currently at B with a positive outlook, and Moody’s rating of the Company currently at B3 with a stable outlook. If the Company faces downgrades in its credit rating, the Company could also experience further strains on its liquidity and capital resources, higher cost of capital and decreased access to capital markets.

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Debt Summary

The debt portfolio consisted of:

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Term Loan

On December 3, 2020 (the “Closing Date”), Angelo, Gordon & Co., L.P. and JPMorgan Chase Bank, N.A. (the ‘Lenders’) and the Company entered into a credit agreement, by and among:

The Company used the aggregate borrowings of $275.0 million from the Term Loan and cash on hand to retire outstanding Senior Notes (as defined below). The Term Loan has an original issue discount and commitment fee of 4.5% or $12.4 million which has been recorded as a contra liability to the carrying value of the Term Loan and is included in the unamortized debt issuance costs balance noted above. The original issue discount and related debt issuance costs will be amortized over the term of the Term Loan. The Term Loan matures on December 3, 2023. The Company has prepayment options, as well as mandatory prepayments at the option of the Lenders. The prepayments have premium protections depending on the timing of the prepayment and the source of cash used for prepayment.

Interest is payable quarterly in arrears and on maturity. The Company has the option, to pay interest equal to either:

The applicable margin is initially 7.75% per annum for ABR borrowings and 8.75% per annum for Eurodollar Rate borrowings, and in each case, from and after the delivery of the applicable financial statements for the first full fiscal quarter following the Closing Date, the applicable margin shall then be:

The Parent Term Loan is fully and unconditionally guaranteed on a joint and several basis by all of the Company’s existing and future domestic subsidiaries that provide a guaranty under the Company’s Second Amended and Restated Credit Agreement, dated as of March 29, 2019 (as amended on August 28, 2019 and on February 28, 2020, the “Existing Revolving Credit Agreement”) among, inter alia, the Company, the other borrowers party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The Dart Term Loan is fully and unconditionally guaranteed on a joint and several basis by the Company and certain of the Company’s existing and future domestic and foreign subsidiaries. The Term Loan includes a financial covenant as well as customary affirmative and negative covenants, including, among other things, as to compliance with laws, delivery of quarterly and annual financial statements, restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments and other customary covenants. The Term Loan includes events of default relating to customary matters (and customary notice and cure periods), including, among other things, nonpayment of principal, interest or other amounts; violation of covenants; incorrectness of representations and warranties in any material respect; cross-payment default and cross acceleration with respect to material indebtedness; bankruptcy; material judgments; and certain ERISA events.

Credit Agreement

On March 29, 2019, the Company and its wholly owned subsidiaries, Tupperware Nederland B.V., Administradora Dart, S. de R.L. de C.V., and Tupperware Brands Asia Pacific Pte. Ltd. (the “Subsidiary Borrowers”), amended and restated their multicurrency Credit Agreement (as further amended via an Amendment No. 1 dated August 28, 2019, the “Credit Agreement”), with JPMorgan Chase Bank, N.A. as administrative agent (the “Administrative Agent”), swingline lender, joint lead arranger and joint bookrunner, and Credit Agricole Corporate and Investment Bank, HSBC Securities (USA) Inc., Mizuho Bank, Ltd. and Wells Fargo Securities, LLC, as syndication agents, joint lead arrangers and joint bookrunners. The Credit Agreement replaces the credit agreement dated September 11, 2013, and as amended (the “Old Credit Agreement”), and, other than an increased aggregate amount that may be borrowed, an improvement in the consolidated leverage ratio covenant and a slightly more favorable commitment fee rate, has terms and conditions similar to that of the Old Credit Agreement. The Credit Agreement makes available to the Company and the Subsidiary Borrowers a committed credit facility in an aggregate amount of $650.0 million (the “Facility Amount”). The Credit Agreement provides (i) a revolving credit facility, available up to the full amount of the Facility Amount, (ii) a letter of credit facility, available up to $50.0 million of the Facility Amount, and (iii) a swingline facility, available up to $100.0 million of the Facility Amount. Each of such facilities is fully available to the Company and the Facility Amount is available to the Subsidiary Borrowers up to an aggregate amount not to exceed $325.0 million. With the agreement of its lenders, the Company is permitted to increase, on up to three occasions, the Facility Amount by a total of up to $200.0 million (for a maximum aggregate Facility Amount of $850.0 million), subject to certain conditions. As of December 26, 2020, the Company had total borrowings of $423.3 million outstanding under its Credit Agreement, with $160.3 million of that amount denominated in Euro.

Loans made under the Credit Agreement will be composed of (i) “Eurocurrency Borrowings”, bearing interest determined in reference to the LIBOR or the EURIBOR rate for the applicable currency and interest period, plus a margin, and/or (ii) “ABR Borrowings”, bearing interest at the sum of (A) the greatest of (x) the Prime Rate, (y) the NYFRB rate plus 0.5 percent, and (z) adjusted LIBOR on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in United States Dollars with a maturity of one month plus 1.0 percent, and (B) a margin. The applicable margin in each case will be determined by reference to a pricing schedule and will be based upon the better for the Company of (a) the Consolidated Leverage Ratio (computed as consolidated funded indebtedness of the Company and its subsidiaries to the consolidated EBITDA (as defined in the Credit Agreement) of the Company and its subsidiaries for the four fiscal quarters then most recently ended) for the fiscal quarter referred to in the quarterly or annual financial statements most recently delivered, or (b) the Company’s then existing long-term debt securities rating by Moody’s Investor Service, Inc. or Standard and Poor’s Financial Services, Inc. Under the Credit Agreement, the applicable margin for ABR Borrowings ranges from 0.375 percent to 0.875 percent, the applicable margin for Eurocurrency Borrowings ranges from 1.375 percent to 1.875 percent, and the applicable margin for the commitment fee ranges from 0.150 percent to 0.275 percent. Loans made under the swingline facility will bear interest, if denominated in United States Dollars, at the same rate as an ABR Borrowing and, if denominated in another currency, at the same rate as a Eurocurrency Borrowing. As of December 26, 2020, the Company had a weighted average interest rate of 1.97 percent with a baser rate spread of 188 basis points on LIBOR-based borrowings under the Credit Agreement that has a final maturity date of March 29, 2024.

Similar to the Old Credit Agreement, the Credit Agreement contains customary covenants that, among other things, limit the ability of the Company’s subsidiaries to incur indebtedness and limit the ability of the Company and its subsidiaries to create liens on and sell assets, engage in certain liquidations or dissolutions, engage in certain mergers or consolidations, or change lines of business. These covenants are subject to significant exceptions and qualifications.

On February 28, 2020, the Company amended the Credit Agreement (the “Amendment”) in order to modify certain provisions, including the consolidated leverage ratio covenant. Previously, the Company had to maintain, at specified measurement periods, a Consolidated Leverage Ratio that was not greater than or equal to 3.75 to 1.00. Following the Amendment, the Company is required to maintain at the last day of each quarterly measurement period a Consolidated Leverage Ratio not greater than or equal to the ratio as set forth below opposite the period that includes such day (or, if such day does not end on the last day of the calendar quarter, that includes the last day of the calendar quarter that is nearest to such day):

Under the Credit Agreement and consistent with the Old Credit Agreement, Dart Industries Inc. (the “Guarantor”) unconditionally guarantees all obligations and liabilities of the Company and the Subsidiary Borrowers relating to the Credit Agreement, supported by a security interest in certain “Tupperware” trademarks and service marks. The Amendment eliminated the requirement that a Non-Investment Grade Ratings Event, as defined in the Credit Agreement, must occur before the Company is required to cause the Additional Guarantee and Collateral Requirement, as defined in the Credit Agreement, to be satisfied. Pursuant to the Amendment, the Company is required to cause certain of its domestic subsidiaries to become guarantors and the Company and certain of its domestic subsidiaries are required to pledge additional collateral (the “Additional Guarantee and Collateral”).

For purposes of the Credit Agreement, consolidated EBITDA represents earnings before interest, income taxes, depreciation and amortization, as adjusted to exclude unusual, non-recurring gains as well as non-cash charges and certain other items. The Company is in compliance with the financial covenants in the Credit Agreement. The Credit Agreement was amended to prevent the Company from exceeding the Consolidated Leverage Ratio for the four fiscal quarters ending in March 2020, and continuing through the calculation for the four fiscal quarters ending in March 2021. If the Company had exceeded the Consolidated Leverage Ratio, this could have constituted an Event of Default, potentially resulting in a cross-default under cross-default provisions with respect to other of the Company’s debt obligations, giving the lenders the ability to terminate the revolving commitments, accelerate outstanding amounts under the Credit Agreement, exercise certain remedies relating to the collateral securing the Credit Agreement and require the Company to post cash collateral for all outstanding letters of credit. In addition to the relief provided in the Amendment, the Company has reduced certain operating expenses beginning in 2020 and could use available cash, including repatriating cash held outside of the United States, to make debt repayments to lower its Consolidated Leverage Ratio.

The Company routinely increases its revolver borrowings under the Credit Agreement during each quarter to fund operating, investing and financing activities and uses cash available at the end of each quarter to temporarily reduce borrowing levels. As a result, the Company incurs more interest expense and has higher foreign exchange exposure on the value of its cash and debt during each quarter than would relate solely to the quarter end balances.

At December 26, 2020, the Company had $251.3 million of unused lines of credit, including $209.0 million under the committed, secured Credit Agreement, and $42.3 million available under various uncommitted lines around the world.

Senior Notes

During the second, third, and fourth quarters of 2020 the Company retired its Senior Notes in the aggregate principal amount of $600.0 million through tender offers, open-market purchases, and redemption by using cash on hand and the proceeds from the Term Loan received in December 2020. Any deferred debt issuance costs related to the purchased Senior Notes were expensed and recorded in the interest expense line item. The details of these Senior Notes retirement were as follows:

In 2020, proceeds from disposal of property, plant and equipment were $59.4 million, primarily from the sale-leaseback of the Company headquarters in Orlando, Florida along with sale of certain surrounding land and sale of the manufacturing and distribution facility in Australia.

In 2019, proceeds from disposal of property, plant and equipment were $34.0 million, primarily from sale of land near the Company headquarters in Orlando, Florida and sale of the marketing office in France.

Financing Activities

During 2020, the Company had $169.0 million of outflow primarily consisting of:

During 2019, the Company had $85.3 million of outflow primarily consisting of:

Dividends

Dividends paid to shareholders were $74.3 million during 2019. The Company suspended its dividend beginning in the fourth quarter of 2019.

Stock Repurchases

Open market stock repurchases by the Company were permitted under an authorization that ran through February 1, 2020 and allowed up to $2.0 billion to be spent and was not extended. Under this program, there were no stock repurchases in 2020 and 2019. Since 2007, the Company has spent $1.39 billion to repurchase 23.8 million shares under this program.

Stock repurchases under the Company’s incentive plans are made when employees use shares to satisfy the minimum statutorily required withholding taxes. In 2020 and 2019, 59,636 and 44,131 shares were retained to fund withholding taxes, totaling $1.6 million and $0.9 million, respectively.

The following summarizes the Company’s contractual obligations at December 26, 2020 and the effect such obligations are expected to have on its liquidity and cash flow in future periods.

Application of Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s Consolidated Financial Statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the implementation of the following critical accounting policies are the most significantly affected by its judgments and estimates.

Allowance for Doubtful Accounts

The Company maintains current receivable amounts with most of its independent distributors and sales force in certain markets. It also maintains long-term receivable amounts with certain of these customers. The Company regularly monitors and assesses its risk of not collecting amounts owed by customers. This evaluation is based upon an analysis of amounts current and past due, along with relevant history and facts particular to the customer. It is also based upon estimates of distributor business prospects, particularly related to the evaluation of the recoverability of long-term amounts due. This evaluation is performed by business unit and account by account, based upon historical experience, market penetration levels and similar factors. It also considers collateral of the customer that could be recovered to satisfy debts. The Company records its allowance for doubtful accounts based on the results of this analysis. The analysis requires the Company to make significant estimates and as such, changes in facts and circumstances could result in material changes in the allowance for doubtful accounts. The Company considers as past due any receivable balance not collected within its contractual terms.

The Company writes down its inventory for obsolescence or unmarketability in an amount equal to the difference between the cost of the inventory and estimated market value based upon expected future demand and pricing. The demand and pricing is estimated based upon the historical success of product lines as well as the projected success of promotional programs, new product introductions and the availability of new markets or distribution channels. The Company prepares projections of demand and pricing on an item by item basis for all of its products. If inventory on hand exceeds projected demand or the expected market value is less than the carrying value, the excess is written down to its net realizable value. If actual demand or the estimate of market value decreases, additional write-downs would be required.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities on the financial statements and their respective tax bases. Deferred tax assets also are recognized for net operating losses and credit carryforwards. Deferred tax assets and liabilities are measured using the enacted rates applicable to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets. This assessment requires estimates as to future operating results, as well as an evaluation of the effectiveness of the Company's tax planning strategies. These estimates are made on an ongoing basis based upon the Company's business plans and growth strategies in each market and consequently, future material changes in the valuation allowance are possible.

The Company accounts for uncertain tax positions in accordance with ASC 740, Income Taxes. This guidance prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

Interest and penalties related to tax contingency or settlement items are recorded as a component of the provision for income taxes in the Company's Consolidated Statements of Income. The Company records accruals for tax contingencies as a component of accrued liabilities or other long-term liabilities on its Consolidated Balance Sheet.

Refer to Note 4: Income Taxes to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for additional discussions of the Company's tax positions.

Promotional Costs

The Company frequently makes promotional offers to members of its independent sales force to encourage them to fulfill specific goals or targets for other activities, ancillary to the Company’s business, but considered separate and distinct services from sales, which are measured by defined group/team sales levels, party attendance, addition of new sales force members or other business-critical functions. The awards offered are in the form of product awards, special prizes or trips. The Company accrues for the costs of these awards during the period over which the sales force qualifies for the award and reports these costs primarily as a component of selling, general and administrative expense. These accruals require estimates as to the cost of the awards, based upon estimates of achievement and actual cost to be incurred. During the qualification period, actual results are monitored, and changes to the original estimates are made when known.

Trade Names and Goodwill

The Company's recorded goodwill relates primarily to the December 2005 acquisition of the direct selling businesses of Sara Lee Corporation. The Company does not amortize its goodwill. Instead, the Company performs an annual assessment during the third quarter of each year to evaluate the assets in each of its reporting units for impairment, or more frequently if events or changes in circumstances indicate that a triggering event for an impairment evaluation has occurred.

The annual process for evaluating goodwill begins with an assessment for each entity of qualitative factors to determine whether a quantitative evaluation of the unit's fair value compared with its carrying value is appropriate for determining potential goodwill impairment. The qualitative factors evaluated by the Company include: macro-economic conditions of the local business environment, overall financial performance, sensitivity analysis from the most recent quantitative fair value evaluation ("fair value test"), as prescribed under Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other, and other entity specific factors as deemed appropriate. When the Company determines a fair value test is appropriate, it estimates the fair value of the reporting unit and compares the result with its carrying amount, including goodwill, after any long-lived asset impairment charges. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recorded equal to the amount by which the carrying value exceeds the fair value, up to the amount of goodwill associated with the reporting unit.

Any fair value test necessary is done by using either the income approach or a combination of the income and market approaches, with generally a greater weighting on the income approach (75 percent). The income approach, or discounted cash flow approach, requires significant assumptions to estimate the fair value of each reporting unit. These include assumptions regarding future operations and the ability to generate cash flows, including projections of revenue, expenses, utilization of assets and capital requirements, along with an appropriate discount rate to be used. The most sensitive estimate in the fair value test is the projection of operating cash flows, as these provide the basis for the estimate of fair market value. The Company’s cash flow model uses a forecast period of 10 years and a terminal value. The growth rates are determined by reviewing historical results of the operating unit and the historical results of the Company’s similar business units, along with the expected contribution from growth strategies being implemented. The market approach relies on an analysis of publicly-traded companies similar to the Company and deriving a range of revenue and profit multiples. The publicly-traded companies used in the market approach are selected based on their having similar product lines of consumer goods, beauty products and/or companies using a direct selling distribution method. The resulting multiples are then applied to the reporting unit to determine fair value.

The Company's indefinite-lived trade names are evaluated for impairment annually during the third quarter of each year similarly to goodwill beginning with a qualitative assessment. The annual process for assessing the carrying value of indefinite-lived trade name begins with a qualitative assessment that is similar to the assessment performed for goodwill. When the Company determines it is appropriate, the quantitative impairment evaluation for the Company's indefinite-lived trade names involves comparing the estimated fair value of the assets to the carrying amounts, to determine if fair value is lower and a write-down required. If the carrying amount of a trade name exceeds its estimated fair value, an impairment charge is recognized in an amount equal to the excess. The fair value of these trade names is estimated using the relief from royalty method, which is a form of the income approach. Under this method, the value of the asset is calculated by selecting a royalty rate, which estimates the amount a company would be willing to pay for the use of the asset. This rate is applied to the reporting unit's projected revenue, tax affected and discounted to present value.

Retirement Benefit Plans

The Company records pension costs and the funded status of its defined benefit pension plans using the applicable accounting guidance for defined benefit pension and other post-retirement plans. This guidance requires that amounts recognized in the financial statements be determined on an actuarial basis. The measurement of the retirement obligations and costs of providing benefits under the Company’s pension plans involves various factors, including several assumptions. The Company believes the most critical of these assumptions are the discount rate and the expected long-term rate of return on plan assets.

The Company determines the discount rate primarily by reference to rates of high-quality, long-term corporate and government bonds that mature in a pattern similar to the expected payments to be made under the plans. The discount rate assumptions used to determine pension expense for the Company’s United States and foreign plans were as follows:

The Company has established strategic asset allocation percentage targets for significant asset classes with the aim of achieving an appropriate balance between risk and return. The Company periodically revises asset allocations, where appropriate, in an effort to improve return and manage risk. The estimated rate of return is based on long-term expectations given current investment objectives and historical results. The expected rate of return assumptions used by the Company for its United States and foreign plans were as follows:

The following table highlights the potential impact on the Company’s annual pension expense due to changes in certain key assumptions with respect to the Company’s plans, based on assets and liabilities as of December 26, 2020:

The Company accounts for its post-retirement benefit plan in accordance with applicable accounting guidance, which requires that amounts recognized in financial statements be determined on an actuarial basis. This determination requires the selection of various assumptions, including a discount rate, to value benefit obligations. The Company determines the discount rate primarily by reference to rates of return on high-quality, long-term corporate bonds that mature in a pattern similar to the expected payments to be made under the plan. The discount rate assumptions used by the Company to determine other post-retirement benefit expense were 3.3 percent for 2020, and 4.3 percent for 2019. A change in discount rate of 50 basis points would not materially change the annual expense associated with the plan.

The Company defines a contract, for revenue recognition purposes, as the order received from the Company's customer who, in most cases, is one of the Company's independent distributors or a member of its independent sales force. Revenue is recognized when control of the product passes to the customer, which is upon shipment, and is recognized at the amount that reflects the consideration the Company expects to receive for the products sold, including various forms of discounts and net of expected returns which is estimated using historical return patterns and current expectation of future returns. The Company elected to account for shipping and handling activities that occur after the customer has obtained control of the product as an activity to fulfill the promise to transfer the product rather than as an additional promised service. Generally, payment is either received in advance or in a relatively short period of time following shipment. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Contracts with customers are evaluated to determine if there are separate performance obligations that are not yet met. These obligations generally relate to product awards to be subsequently fulfilled. When that is the case, revenue is deferred until each performance obligation is met.

Incentive Compensation Plans

Compensation expense for stock-based awards is recorded on a straight-line basis over the required service period, based on the fair value of the award. The fair value of the stock option grants is estimated using the Black-Scholes option-pricing model, which requires assumptions, including dividend yield, risk-free interest rate, the estimated length of time employees will retain their stock options before exercising them (expected term) and the estimated volatility of the Company's common stock price over the expected term. These assumptions are generally based on historical averages of the Company.

Impact of Inflation

Inflation, as measured by consumer price indices, has continued at a low level in most of the countries in which the Company operates, except in South America, particularly in Argentina and Venezuela. Refer to Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for a discussion of inflation.

New Pronouncements

Refer to Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data of this Report for a discussion of new accounting pronouncements.

The Company may be impacted by interest rate changes on its borrowings. The Company accesses the short-term and long-term markets to obtain financing. Access to, and the availability of acceptable terms and conditions of, such financing are impacted by many factors, including: credit ratings, liquidity and volatility of the overall capital markets and the current state of the economy. The Company has elected to manage this risk through the maturity structure of its borrowings and the currencies in which it borrows.

Interest Rate Risk

Loans taken under the Credit Agreement are of a short duration and bear interest under a formula that includes, at the Company's option, one of four different base rates, plus an applicable spread. The Company generally selects LIBOR as its base rate. As of December 26, 2020, the Company had a weighted average interest rate of 1.97 percent with a base rate spread of 188 basis points on its United States Dollar and Euro denominated LIBOR/EURIBOR-based borrowings under the Credit Agreement.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase-out LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates. The Company cannot predict the effect of the potential changes to LIBOR or the establishment of alternative rates or benchmarks. The Credit Agreement allows for the use of select alternative rates and benchmarks and based on the assessment of such rates and benchmarks, the Company does not expect a material impact from the phase-out of LIBOR.

As of December 26, 2020, the Company had total borrowings of $423.3 million outstanding under its Credit Agreement, with $160.3 million denominated in Euro. If short-term interest rates varied by 10 percent, which in the Company’s case would mean short duration United States Dollar and Euro LIBOR, with all other variables remaining constant, the Company's annual interest expense would not be significantly impacted.

The Company routinely increases its revolver borrowings under the Credit Agreement during each quarter to fund operating, investing and financing activities and uses cash available at the end of each quarter to temporarily reduce borrowing levels. As a result, the Company incurs more interest expense and has higher foreign exchange exposure on the value of its cash and debt during each quarter than would relate solely to the quarter end balances.

Foreign Exchange Rate Risk

A significant portion of the Company’s sales and profit come from its international operations. Although these operations are geographically dispersed, which partially mitigates the risks associated with operating in particular countries, the Company is subject to the usual risks associated with international operations. These risks include local political and economic environments and relations between foreign and United States governments.

Another economic risk of the Company is exposure to changes in foreign currency exchange rates on the earnings, cash flows and financial position of its international operations. The Company is not able to project, in any meaningful way, the effect of these possible fluctuations on translated amounts or future earnings. This is due to the Company’s constantly changing exposure to various currencies, the fact that all foreign currencies do not react in the same manner in relation to the United States Dollar and the large number of currencies involved, although the Company’s most significant income and cash flow exposures are to the Brazilian Real, Chinese Renminbi, Indonesian Rupiah, Malaysian Ringgit, Mexican Peso and South African Rand.

Although this currency risk is partially mitigated by the natural hedge arising from the Company’s local product sourcing in many countries, a strengthening United States Dollar generally has a negative impact on the Company. In response to this fact, the Company uses financial instruments, such as forward contracts, to hedge its exposure to certain foreign exchange risks associated with a portion of its investment in international operations. In addition to hedging against the balance sheet impact of changes in exchange rates, the hedge of investments in international operations also has the effect of hedging cash flow generated by those operations. The Company also hedges, with these instruments, certain other exposures to various currencies arising from amounts payable and receivable, non-permanent intercompany transactions and a portion of purchases forecasted for generally up to the following 15 months. The Company 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.

While the Company’s derivatives that hedge a portion of its equity in its foreign subsidiaries and its fair value hedges of balance sheet risks all work together to mitigate its exposure to foreign exchange gains or losses, they result in an impact to operating cash flows as they are settled. The net cash flow impact of these currency hedges was an inflows of $3.6 million, outflow of $2.3 million and inflows of $2.9 million in 2020, 2019 and 2018, respectively.

The United States Dollar equivalent of the Company's most significant net open forward contracts as of December 26, 2020 were to buy South Korean Won worth $35.4 million and Swiss Franc worth $23.3 million, and to sell United States Dollars worth $79.9 million and Euros worth $16.8 million. In agreements to sell foreign currencies in exchange for United States Dollars, for example, an appreciating dollar versus the opposing currency would generate a cash inflow for the Company at settlement, with the opposite result in agreements to buy foreign currencies for United States Dollars. The notional amounts change based upon changes in the Company's outstanding currency exposures. Based on rates existing as of December 26, 2020, the Company had a net derivative liability of $0.1 million related to its currency hedges under forward contracts. Currency fluctuations could have a significant impact on the Company's cash flow upon the settlement of its forward contracts. Through the end of 2018, the Company recorded the impact of forward points in net interest expense and the same income statement line item that is used to present the earnings effect of the hedged item starting in 2019.

A precise calculation of the impact of currency fluctuations is not practical since some of the contracts are between non-United States Dollar currencies. The Company continuously monitors its foreign currency exposure and expects to enter into additional contracts to hedge exposure in the future. See further discussion regarding the Company's hedging activities for foreign currency in Note 14: Derivative Financial Instruments and Hedging Activities to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

The Company is subject to credit risks relating to the ability of counterparties of hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and non-performance have been considered in the determination of fair value for the Company's foreign currency forward exchange contracts. The Company continues to closely monitor its counterparties and will take action, as appropriate and possible, to further manage its counterparty credit risk.

Commodity Price Risk

The Company is also exposed to rising material prices in its manufacturing operations and, in particular, the cost of oil and natural gas-based resins, including the fact that in some cases resin prices are actually in, or are based on, currencies other than that of the unit buying the resin, which introduces a currency exposure that is incremental to the exposure to changing market prices. Resins are the primary material used in production of most Company products, and the Company estimates that 2021 cost of sales will include approximately $122.9 million for the cost of resin in the Tupperware brand products it produces and has contract manufactured. The Company uses many different kinds of resins in its products. About three-fourths of the value of its resin purchases are “polyolefins” (simple chemical structure, easily refined from oil and natural gas). The remaining one-fourth of the value of its resin purchases is more highly engineered. With a comparable product mix and exchange rates, the Company estimates that a 10 percent fluctuation in the cost of resin would impact the Company’s annual cost of sales by approximately $12.3 million compared with the prior year. The amount the Company pays for its resins is impacted by the relative changes in supply and demand. The Company partially manages its risk associated with rising resin costs by utilizing a centralized procurement function that is able to take advantage of bulk discounts while maintaining multiple suppliers, and also enters into short-term pricing arrangements. It also manages its margin through cash flow hedges in some cases when it purchases resin in currencies, or effectively in currencies, other than that of the purchasing unit. This is done through the pricing of its products, with price increases over time on its product offerings generally in line with consumer inflation in each market, and its mix of sales through its promotional programs and promotionally priced offers. It also, on occasion, makes advance material purchases to take advantage of current favorable pricing.

Real Estate Risk

The Company has a program to sell land held for development around the Company headquarters in Orlando, Florida. This program is exposed to the risks inherent in the real estate development process. Included among these risks is the impact of the COVID-19 pandemic on the commercial real estate market, the ability to obtain all necessary government approvals, the success of attracting tenants for commercial or residential developments in the Orlando real estate market, obtaining financing and other general economic conditions, such as interest rate increases. Based on the variety of factors that impact the Company's ability to close sales transactions, it cannot predict when the program will be completed.

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:

Other than updating for changes in foreign currency exchange rates through its monthly website updates, the Company does not intend to update forward-looking information, except through its quarterly earnings releases.

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.

TUPPERWARE BRANDS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

TUPPERWARE BRANDS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

TUPPERWARE BRANDS CORPORATION

CONSOLIDATED BALANCE SHEETS