☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware 46-0539758
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, Par Value: $0.01/share | PRTY | New York Stock Exchange |
Large accelerated filer | ☒ | Accelerated filer ☐ | Non-accelerated filer | ☐ | ||||||
Smaller reporting company | ☐ | |||||||||
Emerging growth company | ☐ | |||||||||
September
2019
Page | |||||
PART I | |||||
Item 1. Condensed Consolidated Financial Statements (Unaudited) | |||||
| 3 | |||||
| 4 | |||||
| 5 | |||||
| 6 | |||||
| 7 | |||||
| 8 | |||||
| 9 | |||||
| 21 | |||||
| 36 | |||||
| 36 | |||||
| 37 | |||||
| 37 | |||||
| 37 | |||||
| 38 | |||||
| September 30, 2018 | December 31, 2017 | |||||||
| (Note 2) (Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 48,097 | $ | 54,291 | ||||
Accounts receivable, net | 171,428 | 140,980 | ||||||
Inventories, net | 810,782 | 604,066 | ||||||
Prepaid expenses and other current assets | 95,162 | 77,816 | ||||||
|
|
|
| |||||
Total current assets | 1,125,469 | 877,153 | ||||||
Property, plant and equipment, net | 319,220 | 301,141 | ||||||
Goodwill | 1,661,837 | 1,619,253 | ||||||
Trade names | 568,326 | 568,681 | ||||||
Other intangible assets, net | 60,064 | 75,704 | ||||||
Other assets, net | 12,465 | 12,824 | ||||||
|
|
|
| |||||
Total assets | $ | 3,747,381 | $ | 3,454,756 | ||||
|
|
|
| |||||
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Loans and notes payable | $ | 415,419 | $ | 286,291 | ||||
Accounts payable | 233,252 | 160,994 | ||||||
Accrued expenses | 201,509 | 176,609 | ||||||
Income taxes payable | — | 45,568 | ||||||
Current portion of long-term obligations | 13,231 | 13,059 | ||||||
|
|
|
| |||||
Total current liabilities | 863,411 | 682,521 | ||||||
Long-term obligations, excluding current portion | 1,622,969 | 1,532,090 | ||||||
Deferred income tax liabilities, net | 171,134 | 175,836 | ||||||
Deferred rent and other long-term liabilities | 91,554 | 91,929 | ||||||
|
|
|
| |||||
Total liabilities | 2,749,068 | 2,482,376 | ||||||
Redeemable securities | 3,298 | 3,590 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock (97,147,907 and 96,380,102 shares outstanding and 120,527,474 and 119,759,669 shares issued at September 30, 2018 and December 31, 2017, respectively) | 1,205 | 1,198 | ||||||
Additionalpaid-in capital | 922,197 | 917,192 | ||||||
Retained earnings | 397,452 | 372,596 | ||||||
Accumulated other comprehensive loss | (39,353 | ) | (35,818 | ) | ||||
|
|
|
| |||||
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury | 1,281,501 | 1,255,168 | ||||||
Less: Common stock held in treasury, at cost (23,379,567 shares at September 30, 2018 and December 31, 2017) | (286,733 | ) | (286,733 | ) | ||||
|
|
|
| |||||
Total Party City Holdco Inc. stockholders’ equity | 994,768 | 968,435 | ||||||
Noncontrolling interests | 247 | 355 | ||||||
|
|
|
| |||||
Total stockholders’ equity | 995,015 | 968,790 | ||||||
|
|
|
| |||||
Total liabilities, redeemable securities and stockholders’ equity | $ | 3,747,381 | $ | 3,454,756 | ||||
|
|
|
| |||||
June 30, 2019 | December 31, 2018 | |||||||
(Note 2) (Unaudited) | (Note 2) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 47,131 | $ | 58,909 | ||||
Accounts receivable, net | 140,070 | 146,983 | ||||||
Inventories, net | 788,097 | 756,038 | ||||||
Prepaid expenses and other current assets | 66,707 | 61,905 | ||||||
Total current assets | 1,042,005 | 1,023,835 | ||||||
Property, plant and equipment, net | 257,395 | 321,044 | ||||||
Operating lease asset | 869,345 | — | ||||||
Goodwill | 1,659,653 | 1,656,950 | ||||||
Trade names | 568,014 | 568,031 | ||||||
Other intangible assets, net | 49,663 | 60,164 | ||||||
Other assets, net | 12,894 | 12,323 | ||||||
Total assets | $ | 4,458,969 | $ | 3,642,347 | ||||
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Loans and notes payable | $ | 307,379 | $ | 302,751 | ||||
Accounts payable | 159,515 | 208,149 | ||||||
Accrued expenses | 151,459 | 161,228 | ||||||
Current portion of operating lease liability | 145,472 | — | ||||||
Income taxes payable | 10,279 | 25,993 | ||||||
Current portion of long-term obligations | 76,251 | 13,316 | ||||||
Total current liabilities | 850,355 | 711,437 | ||||||
Long-term obligations, excluding current portion | 1,565,315 | 1,621,963 | ||||||
Long-term portion of operating lease liability | 793,976 | — | ||||||
Deferred income tax liabilities, net | 163,657 | 174,427 | ||||||
Other long-term liabilities | 13,228 | 87,548 | ||||||
Total liabilities | 3,386,531 | 2,595,375 | ||||||
Redeemable securities | 3,351 | 3,351 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock (94,501,055 and 93,622,934 shares outstanding and 121,681,959 and 120,788,159 shares issued at June 30, 2019 and December 31, 2018, respectively) | 1,210 | 1,208 | ||||||
Additional paid-in capital | 926,838 | 922,476 | ||||||
Retained earnings | 513,130 | 495,777 | ||||||
Accumulated other comprehensive loss | (45,216 | ) | (49,201 | ) | ||||
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury | 1,395,962 | 1,370,260 | ||||||
Less: Common stock held in treasury, at cost (27,180,904 and 27,165,225 shares at June 30, 2019 and December 31, 2018) | (327,086 | ) | (326,930 | ) | ||||
Total Party City Holdco Inc. stockholders’ equity | 1,068,876 | 1,043,330 | ||||||
Noncontrolling interests | 211 | 291 | ||||||
Total stockholders’ equity | 1,069,087 | 1,043,621 | ||||||
Total liabilities, redeemable securities and stockholders’ equity | $ | 4,458,969 | $ | 3,642,347 | ||||
3
Three Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
Revenues: | ||||||||
Net sales | $ | 550,840 | $ | 557,350 | ||||
Royalties and franchise fees | 2,206 | 2,759 | ||||||
|
|
|
| |||||
Total revenues | 553,046 | 560,109 | ||||||
Expenses: | ||||||||
Cost of sales | 349,641 | 357,523 | ||||||
Wholesale selling expenses | 17,538 | 16,274 | ||||||
Retail operating expenses | 103,833 | 100,739 | ||||||
Franchise expenses | 862 | 3,636 | ||||||
General and administrative expenses | 42,239 | 37,971 | ||||||
Art and development costs | 5,573 | 5,898 | ||||||
Development stage expenses | 1,622 | 680 | ||||||
|
|
|
| |||||
Total expenses | 521,308 | 522,721 | ||||||
|
|
|
| |||||
Income from operations | 31,738 | 37,388 | ||||||
Interest expense, net | 27,705 | 23,228 | ||||||
Other expense, net | 5,696 | 593 | ||||||
|
|
|
| |||||
(Loss) income before income taxes | (1,663 | ) | 13,567 | |||||
Income tax expense | 777 | 3,483 | ||||||
|
|
|
| |||||
Net (loss) income | (2,440 | ) | 10,084 | |||||
Add: Net loss attributable to redeemable securities holder | (8 | ) | — | |||||
Less: Net loss attributable to noncontrolling interests | (28 | ) | — | |||||
|
|
|
| |||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (2,420 | ) | $ | 10,084 | |||
|
|
|
| |||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | (0.03 | ) | $ | 0.08 | |||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | (0.03 | ) | $ | 0.08 | |||
Weighted-average number of common shares-Basic | 96,494,565 | 119,587,339 | ||||||
Weighted-average number of common shares-Diluted | 96,494,565 | 120,912,849 | ||||||
Dividends declared per share | $ | 0.00 | $ | 0.00 | ||||
Comprehensive (loss) income | $ | (2,003 | ) | $ | 15,329 | |||
Add: Comprehensive loss attributable to redeemable securities holder | (8 | ) | — | |||||
Less: Comprehensive loss attributable to noncontrolling interests | (35 | ) | — | |||||
|
|
|
| |||||
Comprehensive (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (1,976 | ) | $ | 15,329 | |||
|
|
|
| |||||
4
Three Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Revenues: | ||||||||
Net sales | $ | 561,702 | $ | 558,101 | ||||
Royalties and franchise fees | 2,189 | 2,910 | ||||||
Total revenues | 563,891 | 561,011 | ||||||
Cost of sales | 353,056 | 329,477 | ||||||
Wholesale selling expenses | 16,884 | 17,256 | ||||||
Retail operating expenses | 96,143 | 92,094 | ||||||
Franchise expenses | 3,236 | 3,980 | ||||||
General and administrative expenses | 41,510 | 45,326 | ||||||
Art and development costs | 5,712 | 5,732 | ||||||
Development stage expenses | 3,012 | 1,695 | ||||||
| Gain on sale/leaseback transaction | (58,381 | ) | — | |||||
Store impairment and restructuring charges | 5,234 | — | ||||||
466,406 | 495,560 | |||||||
Income from operations | 97,485 | 65,451 | ||||||
Interest expense, net | 30,176 | 25,501 | ||||||
Other expense, net | 3,342 | 2,532 | ||||||
Income before income taxes | 63,967 | 37,418 | ||||||
Income tax expense | 15,962 | 9,370 | ||||||
Net income | 48,005 | 28,048 | ||||||
Add: Net income attributable to redeemable securities holder | — | 410 | ||||||
Less: Net loss attributable to noncontrolling interests | (69 | ) | (29 | ) | ||||
Net income attributable to common shareholders of Party City Holdco Inc. | $ | 48,074 | $ | 28,487 | ||||
Net income per share attributable to common shareholders of Party City Holdco Inc.–Basic | $ | 0.52 | $ | 0.30 | ||||
Net income per share attributable to common shareholders of Party City Holdco Inc.–Diluted | $ | 0.51 | $ | 0.29 | ||||
Weighted-average number of common shares-Basic | 93,293,176 | 96,453,884 | ||||||
Weighted-average number of common shares-Diluted | 93,703,546 | 97,688,233 | ||||||
Dividends declared per share | $ | 0.00 | $ | 0.00 | ||||
Comprehensive income | $ | 48,327 | $ | 18,825 | ||||
Add: Comprehensive income attributable to redeemable securities holder | — | 410 | ||||||
Less: Comprehensive loss attributable to noncontrolling interests | (89 | ) | (55 | ) | ||||
Comprehensive income attributable to common shareholders of Party City Holdco Inc. | $ | 48,416 | $ | 19,290 | ||||
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except share and per share data)
Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
Revenues: | ||||||||
Net sales | $ | 1,614,049 | $ | 1,572,966 | ||||
Royalties and franchise fees | 7,832 | 9,020 | ||||||
|
|
|
| |||||
Total revenues | 1,621,881 | 1,581,986 | ||||||
Expenses: | ||||||||
Cost of sales | 996,084 | 978,142 | ||||||
Wholesale selling expenses | 53,581 | 47,946 | ||||||
Retail operating expenses | 285,019 | 281,981 | ||||||
Franchise expenses | 8,624 | 10,666 | ||||||
General and administrative expenses | 136,230 | 125,763 | ||||||
Art and development costs | 17,278 | 17,638 | ||||||
Development stage expenses | 5,620 | 7,092 | ||||||
|
|
|
| |||||
Total expenses | 1,502,436 | 1,469,228 | ||||||
|
|
|
| |||||
Income from operations | 119,445 | 112,758 | ||||||
Interest expense, net | 76,481 | 65,214 | ||||||
Other expense, net | 9,076 | 860 | ||||||
|
|
|
| |||||
Income before income taxes | 33,888 | 46,684 | ||||||
Income tax expense | 9,443 | 16,301 | ||||||
|
|
|
| |||||
Net income | 24,445 | 30,383 | ||||||
Add: Net income attributable to redeemable securities holder | 402 | — | ||||||
Less: Net loss attributable to noncontrolling interests | (87 | ) | — | |||||
|
|
|
| |||||
Net income attributable to common shareholders of Party City Holdco Inc. | $ | 24,934 | $ | 30,383 | ||||
|
|
|
| |||||
Net income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | 0.26 | $ | 0.25 | ||||
Net income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | 0.26 | $ | 0.25 | ||||
Weighted-average number of common shares-Basic | 96,449,011 | 119,546,451 | ||||||
Weighted-average number of common shares-Diluted | 97,684,290 | 120,907,979 | ||||||
Dividends declared per share | $ | 0.00 | $ | 0.00 | ||||
Comprehensive income | $ | 20,889 | $ | 45,839 | ||||
Add: Comprehensive income attributable to redeemable securities holder | 402 | — | ||||||
Less: Comprehensive loss attributable to noncontrolling interests | (108 | ) | — | |||||
|
|
|
| |||||
Comprehensive income attributable to common shareholders of Party City Holdco Inc. | $ | 21,399 | $ | 45,839 | ||||
|
|
|
| |||||
5
OPERATIONS AND COMPREHENSIVE INCOME
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury | Common Stock Held In Treasury | Total Party City Holdco Inc. Stockholders’ Equity | Non- Controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 1,198 | $ | 917,192 | $ | 372,596 | $ | (35,818 | ) | $ | 1,255,168 | $ | (286,733 | ) | $ | 968,435 | $ | 355 | $ | 968,790 | ||||||||||||||||
Cumulative effect of change in accounting principle, net (see Note 2) | — | — | (78 | ) | — | (78 | ) | — | (78 | ) | — | (78 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at December 31, 2017, as adjusted | $ | 1,198 | $ | 917,192 | $ | 372,518 | $ | (35,818 | ) | $ | 1,255,090 | $ | (286,733 | ) | $ | 968,357 | $ | 355 | $ | 968,712 | ||||||||||||||||
Net income | — | — | 24,532 | — | 24,532 | — | 24,532 | (87 | ) | 24,445 | ||||||||||||||||||||||||||
Net income attributable to redeemable securities holder | — | — | 402 | — | 402 | — | 402 | — | 402 | |||||||||||||||||||||||||||
Stock option expense | — | 1,492 | — | — | 1,492 | — | 1,492 | — | 1,492 | |||||||||||||||||||||||||||
Restricted stock units – time-based | 1 | 721 | — | — | 722 | — | 722 | — | 722 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | 5 | 1,477 | — | — | 1,482 | — | 1,482 | — | 1,482 | |||||||||||||||||||||||||||
Director –non-cash compensation | — | 196 | — | — | 196 | — | 196 | — | 196 | |||||||||||||||||||||||||||
Warrant expense | — | 242 | — | — | 242 | — | 242 | — | 242 | |||||||||||||||||||||||||||
Exercise of stock options | 1 | 877 | — | — | 878 | — | 878 | — | 878 | |||||||||||||||||||||||||||
Foreign currency adjustments | — | — | — | (4,888 | ) | (4,888 | ) | — | (4,888 | ) | (21 | ) | (4,909 | ) | ||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | 1,353 | 1,353 | — | 1,353 | — | 1,353 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at September 30, 2018 | $ | 1,205 | $ | 922,197 | $ | 397,452 | $ | (39,353 | ) | $ | 1,281,501 | $ | (286,733 | ) | $ | 994,768 | $ | 247 | $ | 995,015 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
thousands, except share and per share data)
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Revenues: | ||||||||
Net sales | $ | 1,072,804 | $ | 1,063,209 | ||||
Royalties and franchise fees | 4,203 | 5,626 | ||||||
Total revenues | 1,077,007 | 1,068,835 | ||||||
Cost of sales | 692,098 | 646,443 | ||||||
Wholesale selling expenses | 34,845 | 36,043 | ||||||
Retail operating expenses | 191,161 | 181,186 | ||||||
Franchise expenses | 6,539 | 7,762 | ||||||
General and administrative expenses | 83,435 | 93,991 | ||||||
Art and development costs | 11,641 | 11,705 | ||||||
Development stage expenses | 5,238 | 3,998 | ||||||
| Gain on sale/leaseback transaction | (58,381 | ) | — | |||||
Store impairment and restructuring charges | 23,243 | — | ||||||
989,819 | 981,128 | |||||||
Income from operations | 87,188 | 87,707 | ||||||
Interest expense, net | 59,433 | 48,776 | ||||||
Other expense, net | 4,596 | 3,380 | ||||||
Income before income taxes | 23,159 | 35,551 | ||||||
Income tax expense | 5,443 | 8,666 | ||||||
Net income | 17,716 | 26,885 | ||||||
Add: Net income attributable to redeemable securities holder | — | 410 | ||||||
Less: Net loss attributable to noncontrolling interests | (140 | ) | (59 | ) | ||||
Net income attributable to common shareholders of Party City Holdco Inc. | $ | 17,856 | $ | 27,354 | ||||
Net income per share attributable to common shareholders of Party City Holdco Inc. –Basic | $ | 0.19 | $ | 0.28 | ||||
Net income per share attributable to common shareholders of Party City Holdco Inc. –Diluted | $ | 0.19 | $ | 0.28 | ||||
Weighted-average number of common shares-Basic | 93,233,865 | 96,426,235 | ||||||
Weighted-average number of common shares-Diluted | 93,791,763 | 97,669,309 | ||||||
Dividends declared per share | $ | 0.00 | $ | 0.00 | ||||
Comprehensive income | $ | 21,690 | $ | 22,892 | ||||
Add: Comprehensive income attributable to redeemable securities holder | — | 410 | ||||||
Less: Comprehensive loss attributable to noncontrolling interests | (151 | ) | (73 | ) | ||||
Comprehensive income attributable to common shareholders of Party City Holdco Inc. | $ | 21,841 | $ | 23,375 | ||||
6
STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, | ||||||||
| 2018 | 2017 (Adjusted, see Note 2) | |||||||
Cash flows (used in) provided by operating activities: | ||||||||
Net income | $ | 24,445 | $ | 30,383 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization expense | 57,786 | 62,519 | ||||||
Amortization of deferred financing costs and original issuance discounts | 9,834 | 3,699 | ||||||
Provision for doubtful accounts | 726 | 432 | ||||||
Deferred income tax expense | 1,075 | 3,221 | ||||||
Deferred rent | 3,623 | 5,634 | ||||||
Undistributed income in unconsolidated joint ventures | (580 | ) | (92 | ) | ||||
Loss on disposal of assets | 23 | 533 | ||||||
Non-employee equity based compensation | 352 | 3,286 | ||||||
Stock option expense | 1,492 | 3,852 | ||||||
Restricted stock units – time-based | 722 | — | ||||||
Restricted stock units – performance-based | 1,482 | — | ||||||
Director –non-cash compensation | 196 | — | ||||||
Changes in operating assets and liabilities, net of effects of acquired businesses: | ||||||||
Increase in accounts receivable | (32,802 | ) | (25,370 | ) | ||||
Increase in inventories | (194,419 | ) | (46,292 | ) | ||||
Increase in prepaid expenses and other current assets | (13,890 | ) | (11,382 | ) | ||||
Increase (decrease) in accounts payable, accrued expenses and income taxes payable | 53,744 | (24,244 | ) | |||||
|
|
|
| |||||
Net cash (used in) provided by operating activities | (86,191 | ) | 6,179 | |||||
Cash flows used in investing activities: | ||||||||
Cash paid in connection with acquisitions, net of cash acquired | (63,840 | ) | (72,804 | ) | ||||
Capital expenditures | (65,491 | ) | (47,916 | ) | ||||
Proceeds from disposal of property and equipment | 22 | 26 | ||||||
|
|
|
| |||||
Net cash used in investing activities | (129,309 | ) | (120,694 | ) | ||||
Cash flows provided by financing activities: | ||||||||
Repayment of loans, notes payable and long-term obligations | (417,281 | ) | (25,311 | ) | ||||
Proceeds from loans, notes payable and long-term obligations | 636,884 | 129,150 | ||||||
Exercise of stock options | 878 | 787 | ||||||
Debt issuance costs | (10,343 | ) | — | |||||
|
|
|
| |||||
Net cash provided by financing activities | 210,138 | 104,626 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (772 | ) | 3,339 | |||||
|
|
|
| |||||
Net decrease in cash and cash equivalents and restricted cash | (6,134 | ) | (6,550 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period | 54,408 | 64,765 | ||||||
|
|
|
| |||||
Cash and cash equivalents and restricted cash at end of period | $ | 48,274 | $ | 58,215 | ||||
|
|
|
| |||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period | ||||||||
Interest | $ | 77,371 | $ | 60,871 | ||||
Income taxes, net of refunds | $ | 56,683 | $ | 65,002 | ||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury | Common Stock Held In Treasury | Total Party City Holdco Inc. Stockholders’ Equity | Non- Controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance at March 31, 2019 | $ | 1,210 | $ | 925,233 | $ | 465,056 | $ | (45,558 | ) | $ | 1,345,941 | $ | (327,086 | ) | $ | 1,018,855 | $ | 300 | $ | 1,019,155 | ||||||||||||||||
Net income (loss) | — | — | 48,074 | — | 48,074 | — | 48,074 | (69 | ) | 48,005 | ||||||||||||||||||||||||||
Stock option expense | — | 371 | — | — | 371 | — | 371 | — | 371 | |||||||||||||||||||||||||||
Restricted stock units – time-based | — | 541 | — | — | 541 | — | 541 | — | 541 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | — | 476 | — | — | 476 | — | 476 | — | 476 | |||||||||||||||||||||||||||
Director – non-cash compensation | — | 88 | — | — | 88 | — | 88 | — | 88 | |||||||||||||||||||||||||||
Warrant expense | — | 129 | — | — | 129 | — | 129 | — | 129 | |||||||||||||||||||||||||||
Foreign currency adjustments | — | — | — | 556 | 556 | — | 556 | (20 | ) | 536 | ||||||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | (214 | ) | (214 | ) | — | (214 | ) | — | (214 | ) | |||||||||||||||||||||||
Balance at June 30, 2019 | $ | 1,210 | $ | 926,838 | $ | 513,130 | $ | (45,216 | ) | $ | 1,395,962 | $ | (327,086 | ) | $ | 1,068,876 | $ | 211 | $ | 1,069,087 | ||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury | Common Stock Held In Treasury | Total Party City Holdco Inc. Stockholders’ Equity | Non- Controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance at March 31, 2018 | $ | 1,198 | $ | 918,205 | $ | 371,385 | $ | (30,600 | ) | $ | 1,260,188 | $ | (286,733 | ) | $ | 973,455 | $ | 337 | $ | 973,792 | ||||||||||||||||
Net income (loss) | — | — | 28,077 | — | 28,077 | — | 28,077 | (29 | ) | 28,048 | ||||||||||||||||||||||||||
Net income attributable to redeemable securities holder | — | — | 410 | — | 410 | — | 410 | — | 410 | |||||||||||||||||||||||||||
Stock option expense | — | 482 | — | — | 482 | — | 482 | — | 482 | |||||||||||||||||||||||||||
Restricted stock units – time-based | — | 252 | — | — | 252 | — | 252 | — | 252 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | — | 593 | — | — | 593 | — | 593 | — | 593 | |||||||||||||||||||||||||||
Director – non-cash compensation | — | 59 | — | — | 59 | — | 59 | — | 59 | |||||||||||||||||||||||||||
Warrant expense | — | 65 | — | — | 65 | — | 65 | — | 65 | |||||||||||||||||||||||||||
Exercise of stock options | 1 | 189 | — | — | 190 | — | 190 | — | 190 | |||||||||||||||||||||||||||
Foreign currency adjustments | — | — | — | (10,713 | ) | (10,713 | ) | — | (10,713 | ) | (26 | ) | (10,739 | ) | ||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | 1,516 | 1,516 | — | 1,516 | — | 1,516 | |||||||||||||||||||||||||||
Balance at June 30, 2018 | $ | 1,199 | $ | 919,845 | $ | 399,872 | $ | (39,797 | ) | $ | 1,281,119 | $ | (286,733 | ) | $ | 994,386 | $ | 282 | $ | 994,668 | ||||||||||||||||
7
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury | Common Stock Held In Treasury | Total Party City Holdco Inc. Stockholders’ Equity | Non- Controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance at December 31, 2018 | $ | 1,208 | $ | 922,476 | $ | 495,777 | $ | (49,201 | ) | $ | 1,370,260 | $ | (326,930 | ) | $ | 1,043,330 | $ | 291 | $ | 1,043,621 | ||||||||||||||||
Cumulative effect of change in accounting principle, net (see Note 2) | — | 662 | (503 | ) | — | 159 | — | 159 | — | 159 | ||||||||||||||||||||||||||
Balance at December 31, 2018, as adjusted | $ | 1,208 | $ | 923,138 | $ | 495,274 | $ | (49,201 | ) | $ | 1,370,419 | $ | (326,930 | ) | $ | 1,043,489 | $ | 291 | $ | 1,043,780 | ||||||||||||||||
Net income (loss) | — | ��� | 17,856 | — | 17,856 | — | 17,856 | (140 | ) | 17,716 | ||||||||||||||||||||||||||
Stock option expense | — | 741 | — | — | 741 | — | 741 | — | 741 | |||||||||||||||||||||||||||
Restricted stock units – time-based | — | 933 | — | — | 933 | — | 933 | — | 933 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | — | 476 | — | — | 476 | — | 476 | — | 476 | |||||||||||||||||||||||||||
Director – non-cash compensation | — | 165 | — | — | 165 | — | 165 | — | 165 | |||||||||||||||||||||||||||
Warrant expense | — | 258 | — | — | 258 | — | 258 | — | 258 | |||||||||||||||||||||||||||
Exercise of stock options | 2 | 1,086 | — | — | 1,088 | — | 1,088 | — | 1,088 | |||||||||||||||||||||||||||
Acquired non-controlling interest | — | 41 | — | — | 41 | — | 41 | 71 | 112 | |||||||||||||||||||||||||||
Treasury stock purchases | — | — | — | — | — | (156 | ) | (156 | ) | — | (156 | ) | ||||||||||||||||||||||||
Foreign currency adjustments | — | — | — | 4,712 | 4,712 | — | 4,712 | (11 | ) | 4,701 | ||||||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | (727 | ) | (727 | ) | — | (727 | ) | — | (727 | ) | |||||||||||||||||||||||
Balance at June 30, 2019 | $ | 1,210 | $ | 926,838 | $ | 513,130 | $ | (45,216 | ) | $ | 1,395,962 | $ | (327,086 | ) | $ | 1,068,876 | $ | 211 | $ | 1,069,087 | ||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury | Common Stock Held In Treasury | Total Party City Holdco Inc. Stockholders’ Equity | Non- Controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 1,198 | $ | 917,192 | $ | 372,596 | $ | (35,818 | ) | $ | 1,255,168 | $ | (286,733 | ) | $ | 968,435 | $ | 355 | $ | 968,790 | ||||||||||||||||
Cumulative effect of change in accounting principle, net | — | — | (78 | ) | — | (78 | ) | — | (78 | ) | — | (78 | ) | |||||||||||||||||||||||
Balance at December 31, 2017, as adjusted | $ | 1,198 | $ | 917,192 | $ | 372,518 | $ | (35,818 | ) | $ | 1,255,090 | $ | (286,733 | ) | $ | 968,357 | $ | 355 | $ | 968,712 | ||||||||||||||||
Net income | — | — | 26,944 | — | 26,944 | — | 26,944 | (59 | ) | 26,885 | ||||||||||||||||||||||||||
Net income attributable to redeemable securities holder | — | — | 410 | — | 410 | — | 410 | — | 410 | |||||||||||||||||||||||||||
Stock option expense | — | 942 | — | — | 942 | — | 942 | — | 942 | |||||||||||||||||||||||||||
Restricted stock units – time-based | — | 252 | — | — | 252 | — | 252 | — | 252 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | — | 593 | — | — | 593 | — | 593 | — | 593 | |||||||||||||||||||||||||||
Director – non-cash compensation | — | 59 | — | — | 59 | — | 59 | — | 59 | |||||||||||||||||||||||||||
Warrant expense | — | 326 | — | — | 326 | — | 326 | — | 326 | |||||||||||||||||||||||||||
Exercise of stock options | 1 | 481 | — | — | 482 | — | 482 | — | 482 | |||||||||||||||||||||||||||
Foreign currency adjustments | — | — | — | (5,307 | ) | (5,307 | ) | — | (5,307 | ) | (14 | ) | (5,321 | ) | ||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | 1,328 | 1,328 | — | 1,328 | — | 1,328 | |||||||||||||||||||||||||||
Balance at June 30, 2018 | $ | 1,199 | $ | 919,845 | $ | 399,872 | $ | (39,797 | ) | $ | 1,281,119 | $ | (286,733 | ) | $ | 994,386 | $ | 282 | $ | 994,668 | ||||||||||||||||
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows used in operating activities: | ||||||||
Net income | $ | 17,716 | $ | 26,885 | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 43,225 | 40,812 | ||||||
Amortization of deferred financing costs and original issuance discounts | 2,289 | 2,766 | ||||||
Provision for doubtful accounts | 596 | 304 | ||||||
Deferred income tax (benefit) expense | (10,779 | ) | 1,443 | |||||
Deferred rent | — | 1,155 | ||||||
Change in operating lease liability/asset | (21,406 | ) | — | |||||
Undistributed income in equity method investments | (202 | ) | (301 | ) | ||||
(Gain) loss on disposal of assets | (59,087 | ) | 24 | |||||
Store impairment and restructuring charges | 19,490 | — | ||||||
Non-employee equity based compensation | 258 | 365 | ||||||
Stock option expense | 741 | 942 | ||||||
Restricted stock units expense – time-based | 933 | 252 | ||||||
Restricted stock units expense – performance-based | 476 | 593 | ||||||
Directors – non-cash compensation | 165 | 59 | ||||||
Changes in operating assets and liabilities, net of effects of acquired businesses: | ||||||||
Decrease in accounts receivable | 6,588 | 8,791 | ||||||
Increase in inventories | (31,145 | ) | (68,741 | ) | ||||
Increase in prepaid expenses and other current assets | (4,333 | ) | (9,137 | ) | ||||
Decrease in accounts payable, accrued expenses and income taxes payable | (71,438 | ) | (29,220 | ) | ||||
Net cash used in operating activities | (105,913 | ) | (23,008 | ) | ||||
| Cash flows provided by (used in) investing activities: | ||||||||
Cash paid in connection with acquisitions, net of cash acquired | (545 | ) | (21,325 | ) | ||||
Capital expenditures | (31,098 | ) | (44,406 | ) | ||||
Proceeds from disposal of property and equipment | 113,799 | 21 | ||||||
| Net cash provided by (used in) investing activities | 82,156 | (65,710 | ) | |||||
| Cash flows provided by financing activities: | ||||||||
Repayment of loans, notes payable and long-term obligations | (148,526 | ) | (26,062 | ) | ||||
Proceeds from loans, notes payable and long-term obligations | 157,440 | 112,293 | ||||||
Stock repurchases | (156 | ) | — | |||||
Exercise of stock options | 1,088 | 482 | ||||||
Debt issuance costs | (343 | ) | (56 | ) | ||||
Net cash provided by financing activities | 9,503 | 86,657 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 2,166 | (780 | ) | |||||
| Net decrease in cash and cash equivalents and restricted cash | (12,088 | ) | (2,841 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period | 59,219 | 54,408 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 47,131 | $ | 51,567 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 57,503 | $ | 49,489 | ||||
Cash paid during the period for income taxes, net of refunds | $ | 31,924 | $ | 46,617 | ||||
Company decreased retained earnings by $503. Additionally, the Company increased additional
8
In November 2016, the FASB issued ASU2016-18, “Statement of Cash Flows: Restricted Cash”. The pronouncement requires companies to show changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted the pronouncement, which requires retrospective application, during the first quarter of 2018. The impact of such adoption was immaterial to the Company’s consolidated financial statements. See Note 15 for further discussion.
In August 2016, the FASB issued ASU2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”. The pronouncement clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The Company adopted the pronouncement during the first quarter of 2018 and such adoption did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU “Leases”the companies’ leases. The update is effective for the Company during the first quarter of 2019. The Company’s current lease portfolio is primarily comprised of store leases, manufacturing and distribution facility leases, warehouse leases and office leases. Upon adoptionMost of thisthe leases are operating leases. The Company’s finance leases are not material to its consolidated financial statements.
In January 2016, the FASB issued ASU2016-01, “Financial Instruments – Overall: Recognition and Measurementimpact of Financial Assets and Financial Liabilities”. such adoption.
statement of operations and comprehensive income (loss) and it did not impact the Company’s compliance with its debt covenants. Additionally, the standard requires companies to make certain disclosures. See Note 17.
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
Inventory reserves | $ | 3,656 | $ | 21,285 | ||||
Operating lease asset impairment | 940 | 14,149 | ||||||
Property, plant and equipment impairment | 541 | 4,680 | ||||||
| Labor and other costs incurred closing stores | 3,753 | 3,753 | ||||||
Severance | — | 661 | ||||||
Total | $ | 8,890 | $ | 44,528 | ||||
Note 35 – Inventories
| September 30, 2018 | December 31, 2017 | |||||||
Finished goods | $ | 760,923 | $ | 562,809 | ||||
Raw materials | 33,686 | 30,346 | ||||||
Work in process | 16,173 | 10,911 | ||||||
|
|
|
| |||||
| $ | 810,782 | $ | 604,066 | |||||
|
|
|
| |||||
June 30, 2019 | December 31, 2018 | |||||||
Finished goods | $ | 738,404 | $ | 706,327 | ||||
Raw materials | 33,030 | 33,423 | ||||||
Work in process | 16,663 | 16,288 | ||||||
| $ | 788,097 | $ | 756,038 | |||||
9
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law.
While these amounts represent the Company’s best estimates of the impacts of the reduction in the federal corporate income tax rate and the deemed repatriation Transition Tax, the final impacts of the Act may differ from the Company’s estimates due to, among other things, changes in the Company’s interpretations and assumptions, additional guidance to be issued by the IRS, and actions the Company may take. As provided in SAB 118, any adjustments to these provisional amounts will be recorded as they are identified during the measurement period, which ends no later than December 22, 2018.
Additionally, the Act subjects a U.S. shareholder to current tax on “global intangiblelow-taxed income” (“GILTI”) of its controlled foreign corporations. GILTI is based on the excess of the aggregate of a U.S. shareholder’s pro rata share of net income of its controlled foreign corporations over a specified return. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the provisions. Therefore, during the nine months ended September 30, 2018, the Company has included an estimate of the tax on GILTI as a period cost in its full-year estimated effective income tax rate and it has not accounted for any tax on GILTI in its deferred balances.
| Three Months Ended September 30, 2018 | ||||||||||||
| Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at June 30, 2018 | $ | (40,917 | ) | $ | 1,120 | $ | (39,797 | ) | ||||
Other comprehensive income before reclassifications | 419 | 217 | 636 | |||||||||
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss | — | (192 | ) | (192 | ) | |||||||
|
|
|
|
|
| |||||||
Net current-period other comprehensive income | 419 | 25 | 444 | |||||||||
|
|
|
|
|
| |||||||
Balance at September 30, 2018 | $ | (40,498 | ) | $ | 1,145 | $ | (39,353 | ) | ||||
|
|
|
|
|
| |||||||
| Three Months Ended September 30, 2017 | ||||||||||||
| Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at June 30, 2017 | $ | (41,650 | ) | $ | (378 | ) | $ | (42,028 | ) | |||
Other comprehensive income (loss) before reclassifications | 5,297 | (281 | ) | 5,016 | ||||||||
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income | — | 229 | 229 | |||||||||
|
|
|
|
|
| |||||||
Net current-period other comprehensive income (loss) | 5,297 | (52 | ) | 5,245 | ||||||||
|
|
|
|
|
| |||||||
Balance at September 30, 2017 | $ | (36,353 | ) | $ | (430 | ) | $ | (36,783 | ) | |||
|
|
|
|
|
| |||||||
10
Three Months Ended June 30, 2019 | ||||||||||||
Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at March 31, 2019 | $ | (45,900 | ) | $ | 342 | $ | (45,558 | ) | ||||
| Other comprehensive income (loss) before reclassifications, net of tax | 556 | (3 | ) | 553 | ||||||||
| Gains reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax | — | (211 | ) | (211 | ) | |||||||
Net current-period other comprehensive income (loss) | 556 | (214 | ) | 342 | ||||||||
Balance at June 30, 2019 | $ | (45,344 | ) | $ | 128 | $ | (45,216 | ) | ||||
| Nine Months Ended September 30, 2018 | ||||||||||||
| Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at December 31, 2017 | $ | (35,610 | ) | $ | (208 | ) | $ | (35,818 | ) | |||
Other comprehensive (loss) income before reclassifications, net of income tax | (4,888 | ) | 1,188 | (3,700 | ) | |||||||
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax | — | 165 | 165 | |||||||||
|
|
|
|
|
| |||||||
Net current-period other comprehensive (loss) income | (4,888 | ) | 1,353 | (3,535 | ) | |||||||
|
|
|
|
|
| |||||||
Balance at September 30, 2018 | $ | (40,498 | ) | $ | 1,145 | $ | (39,353 | ) | ||||
|
|
|
|
|
| |||||||
| Nine Months Ended September 30, 2017 | ||||||||||||
| Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at December 31, 2016 | $ | (53,171 | ) | $ | 932 | $ | (52,239 | ) | ||||
Other comprehensive income (loss) before reclassifications, net of income tax | 16,818 | (1,077 | ) | 15,741 | ||||||||
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax | — | (285 | ) | (285 | ) | |||||||
|
|
|
|
|
| |||||||
Net current-period other comprehensive income (loss) | 16,818 | (1,362 | ) | 15,456 | ||||||||
|
|
|
|
|
| |||||||
Balance at September 30, 2017 | $ | (36,353 | ) | $ | (430 | ) | $ | (36,783 | ) | |||
|
|
|
|
|
| |||||||
Three Months Ended June 30, 2018 | ||||||||||||
Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
| Balance at March 31, 2018 | $ | (30,204 | ) | $ | (396 | ) | $ | (30,600 | ) | |||
| Other comprehensive (loss) income before reclassifications | (10,713 | ) | 1,398 | (9,315 | ) | |||||||
| Loss reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income | — | 118 | 118 | |||||||||
| Net current-period other comprehensive (loss) income | (10,713 | ) | 1,516 | (9,197 | ) | |||||||
| Balance at June 30, 2018 | $ | (40,917 | ) | $ | 1,120 | $ | (39,797 | ) | ||||
Six Months Ended June 30, 2019 | ||||||||||||
Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at December 31, 2018 | $ | (50,056 | ) | $ | 855 | $ | (49,201 | ) | ||||
| Other comprehensive income before reclassifications, net of tax | 4,712 | 60 | 4,772 | |||||||||
| Gains reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax | — | (787 | ) | (787 | ) | |||||||
Net current-period other comprehensive income (loss) | 4,712 | (727 | ) | 3,985 | ||||||||
Balance at June 30, 2019 | $ | (45,344 | ) | $ | 128 | $ | (45,216 | ) | ||||
Six Months Ended June 30, 2018 | ||||||||||||
Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at December 31, 2017 | $ | (35,610 | ) | $ | (208 | ) | $ | (35,818 | ) | |||
Other comprehensive (loss) income before reclassifications, net of income tax | (5,307 | ) | 971 | (4,336 | ) | |||||||
Loss reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax | — | 357 | 357 | |||||||||
Net current-period other comprehensive (loss) income | (5,307 | ) | 1,328 | (3,979 | ) | |||||||
Balance at June 30, 2018 | $ | (40,917 | ) | $ | 1,120 | $ | (39,797 | ) | ||||
11
| Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended September 30, 2018 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 424,569 | $ | 375,680 | $ | 800,249 | ||||||
Royalties and franchise fees | — | 2,206 | 2,206 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 424,569 | 377,886 | 802,455 | |||||||||
Eliminations | (249,409 | ) | — | (249,409 | ) | |||||||
|
|
|
|
|
| |||||||
Net revenues | $ | 175,160 | $ | 377,886 | $ | 553,046 | ||||||
|
|
|
|
|
| |||||||
Income from operations | $ | 15,501 | $ | 16,237 | $ | 31,738 | ||||||
|
|
|
| |||||||||
Interest expense, net | 27,705 | |||||||||||
Other expense, net | 5,696 | |||||||||||
|
| |||||||||||
Loss before income taxes | $ | (1,663 | ) | |||||||||
|
| |||||||||||
| Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended September 30, 2017 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 381,858 | $ | 364,057 | $ | 745,915 | ||||||
Royalties and franchise fees | — | 2,759 | 2,759 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 381,858 | 366,816 | 748,674 | |||||||||
Eliminations | (188,565 | ) | 0 | (188,565 | ) | |||||||
|
|
|
|
|
| |||||||
Net revenues | $ | 193,293 | $ | 366,816 | $ | 560,109 | ||||||
|
|
|
|
|
| |||||||
Income from operations | $ | 22,808 | $ | 14,580 | $ | 37,388 | ||||||
|
|
|
| |||||||||
Interest expense, net | 23,228 | |||||||||||
Other income, net | 593 | |||||||||||
|
| |||||||||||
Income before income taxes | $ | 13,567 | ||||||||||
|
| |||||||||||
During June 2019, the Company’s Wholesale segment sold its main distribution center in Chester, New York, its metallic balloons manufacturing facility in Eden Prairie, Minnesota and its injection molded plastics manufacturing facility in Los Lunas, New Mexico. The aggregate sale price was $
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended June 30, 2019 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 289,067 | $ | 423,157 | $ | 712,224 | ||||||
Royalties and franchise fees | — | 2,189 | 2,189 | |||||||||
Total revenues | 289,067 | 425,346 | 714,413 | |||||||||
Eliminations | (150,522 | ) | — | (150,522 | ) | |||||||
Net revenues | $ | 138,545 | $ | 425,346 | $ | 563,891 | ||||||
| Income from operations | $ | 60,297 | $ | 37,188 | $ | 97,485 | ||||||
| Interest expense, net | 30,176 | |||||||||||
| Other expense, net | 3,342 | |||||||||||
| Income before income taxes | $ | 63,967 | ||||||||||
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended June 30, 2018 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 285,733 | $ | 411,353 | $ | 697,086 | ||||||
Royalties and franchise fees | — | 2,910 | 2,910 | |||||||||
Total revenues | 285,733 | 414,263 | 699,996 | |||||||||
Eliminations | (138,985 | ) | — | (138,985 | ||||||||
Net revenues | $ | 146,748 | $ | 414,263 | $ | 561,011 | ||||||
Income from operations | $ | 11,148 | $ | 54,303 | $ | 65,451 | ||||||
Interest expense, net | 25,501 | |||||||||||
Other expense, net | 2,532 | |||||||||||
Income before income taxes | $ | 37,418 | ||||||||||
| Wholesale | Retail | Consolidated | ||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 988,129 | $ | 1,150,609 | $ | 2,138,738 | ||||||
Royalties and franchise fees | — | 7,832 | 7,832 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 988,129 | 1,158,441 | 2,146,570 | |||||||||
Eliminations | (524,689 | ) | — | (524,689 | ) | |||||||
|
|
|
|
|
| |||||||
Net revenues | $ | 463,440 | $ | 1,158,441 | $ | 1,621,881 | ||||||
|
|
|
|
|
| |||||||
Income from operations | $ | 31,997 | $ | 87,448 | $ | 119,445 | ||||||
|
|
|
| |||||||||
Interest expense, net | 76,481 | |||||||||||
Other expense, net | 9,076 | |||||||||||
|
| |||||||||||
Income before income taxes | $ | 33,888 | ||||||||||
|
| |||||||||||
| Wholesale | Retail | Consolidated | ||||||||||
Nine Months Ended September 30, 2017 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 929,255 | $ | 1,103,127 | $ | 2,032,382 | ||||||
Royalties and franchise fees | — | 9,020 | 9,020 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 929,255 | 1,112,147 | 2,041,402 | |||||||||
Eliminations | (459,416 | ) | — | (459,416 | ) | |||||||
|
|
|
|
|
| |||||||
Net revenues | $ | 469,839 | $ | 1,112,147 | $ | 1,581,986 | ||||||
|
|
|
|
|
| |||||||
Income from operations | $ | 49,258 | $ | 63,500 | $ | 112,758 | ||||||
|
|
|
| |||||||||
Interest expense, net | 65,214 | |||||||||||
Other expense, net | 860 | |||||||||||
|
| |||||||||||
Income before income taxes | $ | 46,684 | ||||||||||
|
| |||||||||||
12
Wholesale | Retail | Consolidated | ||||||||||
Six Months Ended June 30, 2019 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 579,368 | $ | 801,310 | $ | 1,380,678 | ||||||
Royalties and franchise fees | — | 4,203 | 4,203 | |||||||||
Total revenues | 579,368 | 805,513 | 1,384,881 | |||||||||
Eliminations | (307,874 | ) | — | (307,874 | ) | |||||||
Net revenues | $ | 271,494 | $ | 805,513 | $ | 1,077,007 | ||||||
| Income from operations | $ | 62,520 | $ | 24,668 | $ | 87,188 | ||||||
Interest expense, net | 59,433 | |||||||||||
| Other expense, net | 4,596 | |||||||||||
| Income before income taxes | $ | 23,159 | ||||||||||
Wholesale | Retail | Consolidated | ||||||||||
Six Months Ended June 30, 2018 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 563,560 | $ | 774,929 | $ | 1,338,489 | ||||||
Royalties and franchise fees | — | 5,626 | 5,626 | |||||||||
Total revenues | 563,560 | 780,555 | 1,344,115 | |||||||||
Eliminations | (275,280 | ) | — | (275,280 | ) | |||||||
Net revenues | $ | 288,280 | $ | 780,555 | $ | 1,068,835 | ||||||
Income from operations | $ | 16,496 | $ | 71,211 | $ | 87,707 | ||||||
Interest expense, net | 48,776 | |||||||||||
Other expense, net | 3,380 | |||||||||||
Income before income taxes | $ | 35,551 | ||||||||||
On April 5, 2016, a derivative complaint was filed in the Supreme Court for the State of New York, naming certain directors and executives as defendants, and naming the Company as a nominal defendant. The complaint seeks unspecified damages and costs, and corporate governance reforms, for alleged injury to the Company in connection with public filings related to the Company’s April 2015 IPO, compensation paid to executives, and the termination of the management agreement disclosed in the initial public offering-related public filings. The Company intends to vigorously defend itself against this action. The Company is unable, at this time, to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition or cash flows.
2018.
2020.
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||
| Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | |||||||||||||||||||||||||
Derivative Instrument | September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | ||||||||||||||||||||||||||||
Foreign Exchange Contracts | (a | ) PP | $ | 728 | (a | ) PP | $ | 95 | (b | ) AE | $ | — | (b | ) AE | $ | 99 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||
Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | |||||||||||||||||||||||||
Derivative Instrument | June 30, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | ||||||||||||||||||||||||||||
Foreign Exchange Contracts | (a | ) PP | $ | 58 | (a | ) PP | $ | 115 | (b | ) AE | $ | 7 | (b | ) AE | $ | — | ||||||||||||||||
| (a) | PP = Prepaid expenses and other current assets |
| (b) | AE = Accrued expenses |
13
Derivative Instrument | September 30, 2018 | December 31, 2017 | ||||||
Foreign Exchange Contracts | $ | 10,743 | $ | 21,672 | ||||
|
|
|
| |||||
Derivative Instrument | June 30, 2019 | December 31, 2018 | ||||||
Foreign Exchange Contracts | $ | 6,200 | $ | 10,942 | ||||
Level 1 — Quoted prices in active markets for identical assets or liabilities.
at the time at which the ownership interest was issued (adjusted for any subsequent changes in the ownership interest percentage). As of both June 30, 2019 and December 31, 2018, the original value was greater and, therefore, the liabilities are not included in the table below.
Level 1 | Level 2 | Level 3 | Total as of June 30, 2019 | |||||||||||||
Derivative assets | $ | — | $ | 58 | $ | — | $ | 58 | ||||||||
Derivative liabilities | — | 7 | — | 7 | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total as of September 30, 2018 | |||||||||||||
Derivative assets | $ | — | $ | 728 | $ | — | $ | 728 | ||||||||
Derivative liabilities | — | — | — | — | ||||||||||||
Kazzam liability | — | — | 3,298 | 3,298 | ||||||||||||
Punchbowl put liability | — | — | 299 | 299 | ||||||||||||
The following table shows assets and liabilities as of December 31, 2017 that are measured at fair value on a recurring basis:
| Level 1 | Level 2 | Level 3 | Total as of December 31, 2017 | |||||||||||||
Derivative assets | $ | — | $ | 95 | $ | — | $ | 95 | ||||||||
Derivative liabilities | — | 99 | — | 99 | ||||||||||||
Kazzam liability | — | — | 3,590 | 3,590 | ||||||||||||
Punchbowl put liability | — | — | 2,122 | 2,122 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total as of December 31, 2018 | |||||||||||||
Derivative assets | $ | — | $ | 115 | $ | — | $ | 115 | ||||||||
Derivative liabilities | — | — | — | — | ||||||||||||
Punchbowl put liability | — | — | 316 | 316 | ||||||||||||
14
| September 30, 2018 | ||||||||
| Carrying Amount | Fair Value | |||||||
Term Loan Credit Agreement | $ | 792,664 | $ | 808,084 | ||||
Senior Notes – due 2023 | 345,986 | 355,282 | ||||||
Senior Notes – due 2026 | 493,897 | 505,755 | ||||||
June 30, 2019 | ||||||||
Carrying Amount | Fair Value | |||||||
Term Loan Credit Agreement | $ | 784,994 | $ | 787,913 | ||||
6.125% Senior Notes – due 2023 | 346,603 | 352,625 | ||||||
6.625% Senior Notes – due 2026 | 494,524 | 485,000 | ||||||
| Three Months Ended September 30, 2018 | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | |||||||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (2,420 | ) | $ | 10,084 | $ | 24,934 | $ | 30,383 | |||||||
Weighted average shares – Basic | 96,494,565 | 119,587,339 | 96,449,011 | 119,546,451 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Warrants | — | — | — | — | ||||||||||||
Restricted stock units | — | — | 9,004 | — | ||||||||||||
Stock options | — | 1,325,510 | 1,226,275 | 1,361,528 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average shares – Diluted | 96,494,565 | 120,912,849 | 97,684,290 | 120,907,979 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | (0.03 | ) | $ | 0.08 | $ | 0.26 | $ | 0.25 | |||||||
|
|
|
|
|
|
|
| |||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | (0.03 | ) | $ | 0.08 | $ | 0.26 | $ | 0.25 | |||||||
|
|
|
|
|
|
|
| |||||||||
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||||||||
Net income attributable to common shareholders of Party City Holdco Inc. | $ | 48,074 | $ | 28,487 | $ | 17,856 | $ | 27,354 | ||||||||
Weighted average shares - Basic | 93,293,176 | 96,453,884 | 93,233,865 | 96,426,235 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Warrants | — | — | — | — | ||||||||||||
Restricted stock units | 19,228 | — | 23,628 | — | ||||||||||||
Stock options | 391,142 | 1,234,350 | 534,270 | 1,243,074 | ||||||||||||
Weighted average shares - Diluted | 93,703,546 | 97,688,233 | 93,791,763 | 97,669,309 | ||||||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. - Basic | $ | 0.52 | $ | 0.30 | $ | 0.19 | $ | 0.28 | ||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. - Diluted | $ | 0.51 | $ | 0.29 | $ | 0.19 | $ | 0.28 | ||||||||
15
| September 30, 2018 | December 31, 2017 | |||||||
Term Loan Credit Agreement | $ | 792,664 | $ | 1,196,505 | ||||
Capital lease obligations | 3,653 | 3,276 | ||||||
Senior Notes - due 2026 | 493,897 | — | ||||||
Senior Notes - due 2023 | 345,986 | 345,368 | ||||||
|
|
|
| |||||
Total long-term obligations | 1,636,200 | 1,545,149 | ||||||
Less: current portion | (13,231 | ) | (13,059 | ) | ||||
|
|
|
| |||||
Long-term obligations, excluding current portion | $ | 1,622,969 | $ | 1,532,090 | ||||
|
|
|
| |||||
Term Loan Credit Agreement Amendment
June 30, 2019 | December 31, 2018 | |||||||
Term Loan Credit Agreement | $ | 784,994 | $ | 791,135 | ||||
6.125% Senior Notes – due 2023 | 346,603 | 346,191 | ||||||
6.625% Senior Notes – due 2026 | 494,524 | 494,138 | ||||||
| Finance lease obligations | 15,445 | 3,815 | ||||||
| Total long-term obligations | 1,641,566 | 1,635,279 | ||||||
Less: current portion | (76,251 | ) | (13,316 | ) | ||||
Long-term obligations, excluding current portion | $ | 1,565,315 | $ | 1,621,963 | ||||
As the Term Loan Credit Agreement isfinanced its Los Lunas, New Mexico facility via a loan syndication, the Company assessed, on acreditor-by-creditor basis, whether the refinancing should be accounted for as an extinguishment for each creditor and, during the first quarter of 2018, the Companywrote-off $186 of existing deferred financing costs, a $102 capitalized original issue discount and $58 of capitalized call premium. The write-offs were recorded in other expense in the Company’s consolidated statement of income and comprehensive income. The remaining deferred financing costs, original issue discount and capitalized call premium will continue to be amortized over the life of the Term Loan Credit Agreement, using the effective interest method. Additionally, in conjunction with the amendment, the Company incurred $856 of banker and legal fees, $800 of which were recorded in other expense during the first quarter of 2018. The rest of the costs are being amortized over the life of the debt. The write-offs of the deferred financing costs, original issuance discount and call premium were included in amortization of deferred financing costs and original issuance discount in the Company’s consolidated statement of cash flows.
August 2018 Refinancing
During August 2018, the Company executed a refinancing of its debt portfolio and issued $500,000 of new senior notes at an interest rate of 6.625%. The notes will mature in August 2026. The Company used the proceeds from the notes to: (i) reduce the outstanding balance under its existing ABL Facility,finance lease, which is included in loans and notes payable on the Company’s condensed consolidated balance sheet, by $90,000 and (ii) voluntarily prepay $400,000 of the outstanding balance under its existing Term Loan Credit Agreement. Additionally, as part of the refinancing, the Company extended the maturity of the ABL Facility to August 2023.
As the partial prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement, at the time of such prepayment the Companywrote-off apro-rata portion of the existing capitalized deferred financing costs and original issuance discounts, $1,824,table above. See Note 4 for investors who did not participate in the new notes. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive income and included in amortization of deferred financing costs and original issuance discounts in the Company’s consolidated statement of cash flows.
To the extent that investors in the Term Loan Credit Agreement participated in the new notes, the Company assessed whether the refinancing should be accounted for as an extinguishment on acreditor-by-creditor basis andwrote-off $968 of existing deferred financing costs and original issuance discounts. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive income and included in amortization of deferred financing costs and original issuance discounts in the Company’s consolidated statement of cash flows.
Additionally, in conjunction with the issuance of the notes, the Company incurred third-party fees (principally banker fees). To the extent that such fees related to investors for whom their original debt was not extinguished, the Company expensed the portion of such fees, $2,270 in aggregate, that related to such investors. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive income and included in financing activities in the Company’s consolidated statement of cash flows. The remainder of the third-party fees, $6,230, have been capitalized and will be amortized over the remaining life of the debt using the effective interest method.
Further, in conjunction with the extension of the ABL Facility, the Company compared the borrowing capacities of thepre-amendment facility and the post-amendment facility, on acreditor-by-creditor basis, and concluded that $29 of existing deferred
16
financing costs should bewritten-off. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive income and included in amortization of deferred financing costs and original issuance discounts in the Company’s consolidated statement of cash flows. The remaining capitalized costs, and $986 of new third-party costs incurred in conjunction with the extension, are being amortized over the revised term of the ABL Facility.
Senior Notes – due 2026
Interest on the new notes is payable semi-annually in arrears on February 1st and August 1st of each year.
The notes are guaranteed, jointly and severally, on a senior basis by each of Party City Holdings Inc.’s existing and future domestic subsidiaries. The notes and the guarantees are general unsecured senior obligations and are effectively subordinated to all other secured debt to the extent of the assets securing such secured debt.
The indenture governing the notes contains certain covenants limiting, among other things and subject to certain exceptions, Party City Holdings Inc.’s ability to:
incur additional indebtedness or issue certain disqualified stock and preferred stock;
pay dividends or distributions, redeem or repurchase equity;
prepay subordinated debt or make certain investments;
engage in transactions with affiliates;
consolidate, merge or transfer all or substantially all of PCHI’s assets;
create liens; and
transfer or sell certain assets.
The indenture governing the notes also contains certain customary affirmative covenants and events of default.
On or after August 1, 2021, the Company may redeem the notes, in whole or in part, at the following (expressed as a percentage of the principal amount to be redeemed):
Twelve-month period beginning on August 1, | Percentage | |||
2021 | 103.313 | % | ||
2022 | 101.656 | % | ||
2023 and thereafter | 100.000 | % | ||
In addition, the Company may redeem up to 40% of the aggregate principal amount outstanding on or before August 1, 2021 with the cash proceeds from certain equity offerings at a redemption price of 106.625% of the principal amount. The Company may also redeem some or all of the notes before August 1, 2021 at a redemption price of 100% of the principal amount plus a premium that is defined in the indenture.
Also, if the Company experiences certain types of change in control, as defined, the Company may be required to offer to repurchase the notes at 101% of their principal amount.
Note 13 – Acquisitions
During March 2018, the Company acquired 11 franchise stores, which are located in Maryland, for total cash consideration of approximately $14,000. The Company is in the process of finalizing purchase accounting.
Additionally, during March 2018, the Company entered into an agreement to acquire 11 independent stores, which are located in Texas, for total consideration of approximately $6,000. The Company will take control of the stores one at a time over a period of approximately one year. The Company is in the process of finalizing purchase accounting for the stores for which it has already taken control.
During July 2018, the Company acquired an additional 16 franchise stores, which are located in Pennsylvania, for total cash consideration of approximately $18,800. The Company is in the process of finalizing purchase accounting.
Also, during September 2018, the Company acquired an additional 21 franchise stores, which are located in Minnesota, North Dakota and Texas, for total cash consideration of approximately $22,900. The Company is in the process of finalizing purchase accounting.
17
During the three months ended September 30, 2018, the Company recorded anon-recurring $2,638 reduction to franchise intangible asset amortization expense as a result of recent franchise store acquisitions. Such amount was recorded in franchise expenses in the Company’s consolidated statement of operations and comprehensive income.
During 2017, the Company acquired 85% of the common stock of Granmark, S.A. de C.V., a Mexican manufacturer and wholesaler of party goods. Based on the terms of the acquisition agreement, the Company is required to acquire the remaining 15% interest over the next four years and it has recorded a liability for the estimated purchase price of such interest, $3,021 at September 30, 2018.
During 2017, the Company acquired 60% of Print Appeal, Inc. Based on the terms of the acquisition agreement, the Company will acquire the remaining 40% interest in Print Appeal over the next five years and the Company’s liability for the estimated purchase price of such interest was $2,312 at September 30, 2018.
In May 2014, the FASB issued ASU2014-09, “Revenue from Contracts with Customers (Topic 606)”. The pronouncement contains a five-step model which replaces most existing revenue recognition guidance. The Company adopted the standard on January 1, 2018 via a modified retrospective approach and recognized the cumulative effect of the adoption as an adjustment to January 1, 2018 retained earnings.
Revenue Transactions - Retail
Revenue from retail store operations is recognized at the point of sale as control of the product is transferred to the customer at such time. Retaile-commerce sales are recognized when the consumer receives the product as control transfers upon delivery. Due to its extensive history operating as the largest party goods retailer in North America, the Company has sufficient history with which to estimate future retail sales returns and it uses the expected value method to estimate such activity.
The transaction price for the majority of the Company’s retail sales is based on either: 1) the item’s stated price or 2) the stated price adjusted for the impact of a coupon which can only be applied to such transaction. To the extent that the Company charges customers for freight costs one-commerce sales, the Company records such amounts in revenue. The Company has chosen the pronouncement’s policy election which allows it to exclude all sales taxes and value-added taxes from revenue.
Under the terms of its agreements with its franchisees, the Company provides both: 1) brand value (via significant advertising spend) and 2) support with respect to planograms, in exchange for a royalty fee that ranges from 4% to 6% of the franchisees’ sales. The Company records the royalty fees at the time that the franchisees’ sales are recorded. Additionally, although the Company anticipates that future franchise store openings will be limited, when a franchisee opens a new store, the Company receives and records aone-time fee which is earned by the Company for its assistance with site selection and development of the new location. Both the sales-based royalty fee and theone-time fee are recorded in royalties and franchise fees in the Company’s consolidated statement of operations and comprehensive income.
Revenue Transactions - Wholesale
For most of the Company’s wholesale sales, control transfers upon the Company’s shipment of the product as: 1) legal title transfers on such date and 2) the Company has a present right to payment at such time. Wholesale sales returns are not significant as the Company generally only accepts the return of goods that were shipped to the customer in error or that were damaged when received by the customer. Additionally, due to its extensive history operating as a leading party goods wholesaler, the Company has sufficient history with which to estimate future sales returns and it uses the expected value method to estimate such activity.
In most cases, the determination of the transaction price is straight-forward as it is fixed based on the contract and/or purchase order. However, a limited number of customers receive volume-based rebates. Additionally, certain customers receive small discounts for early payment (generally 1% of the transaction price). Based on the business’ long history as a leading party goods wholesaler, the Company has sufficient history with which to estimate variable consideration for such volume-based rebates and early payment discounts. To the extent that the Company charges customers for freight costs, the Company records such amounts in revenue. The Company has chosen the pronouncement’s policy election which allows it to exclude all sales taxes and value-added taxes from revenue.
The majority of the sales for the Company’s wholesale business are due within 30 to 120 days from the transfer of control of the product and substantially all of the sales are collected within a year from such transfer. For all transactions for which the Company expects to collect the transaction price within a year from the transfer of control, the Company applies one of the pronouncement’s practical expedients and does not adjust the consideration for the effects of a significant financing component.
Judgments
Although most of the Company’s revenue transactions consist of fixed transaction prices and the transfer of control at either the point of sale (for retail) or when the product is shipped (for wholesale), certain transactions involve a limited number of judgments.
18
For transactions for which control transfers to the customer when the freight carrier delivers the product to the customer, the Company estimates the date of such receipt based on historical shipping times. Additionally, the Company utilizes historical data to estimate sales returns, volume-based rebates and discounts for early payments by customers. Due to its extensive history operating as a leading party goods retailer and wholesaler, the Company has sufficient history with which to estimate such amounts.
Other Revenue Topics
During the three and nine months ended September 30, 2018 and September 30, 2017, impairment losses recognized on receivables and contract assets arising from the Company’s contracts with customers were immaterial.
As a significant portion of the Company’s revenue is either: 1) part of a contract with an original expected duration of one year or less or 2) related to sales-based royalties promised in exchange for licenses of intellectual property, the Company has elected to apply the optional exemptions in paragraphs ASC606-10-50-14 through ASC606-10-50-14A.
Additionally, the Company has elected to apply the practical expedient which allows companies to recognize the incremental costs of obtaining a contract as an expense if the amortization period of the asset that the entity otherwise would have recognized would have been one year or less.
Disaggregation of Revenue
| Three Months Ended September 30, 2018 | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | |||||||||||||
Retail Net Sales: | ||||||||||||||||
Party City Stores | $ | 336,355 | $ | 324,766 | $ | 1,043,422 | $ | 993,652 | ||||||||
GlobalE-commerce | 34,221 | 34,130 | 102,083 | 104,314 | ||||||||||||
Temporary Stores | 5,104 | 5,161 | 5,104 | 5,161 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Retail Net Sales | $ | 375,680 | $ | 364,057 | $ | 1,150,609 | $ | 1,103,127 | ||||||||
Royalties and Franchise Fees | 2,206 | 2,759 | 7,832 | 9,020 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Retail Revenue | $ | 377,886 | $ | 366,816 | $ | 1,158,441 | $ | 1,112,147 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Wholesale Net Sales: | ||||||||||||||||
Domestic | $ | 88,287 | $ | 98,801 | $ | 247,243 | $ | 264,496 | ||||||||
International | 86,873 | 94,492 | 216,197 | 205,343 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Wholesale Net Sales | $ | 175,160 | $ | 193,293 | $ | 463,440 | $ | 469,839 | ||||||||
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Total Consolidated Revenue | $ | 553,046 | $ | 560,109 | $ | 1,621,881 | $ | 1,581,986 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Financial Statement Impact of Adopting the Pronouncement
All of the Company’s revenue is recognized from contracts with customers and, therefore, is subject to the pronouncement.
The Company adopted the pronouncement using a modified retrospective approach and applied the guidance to all contracts as of January 1, 2018. On such date, the Company reduced its retained earnings by $78, reduced its accounts receivable by $141, increased its inventory by $11, reduced its accrued expenses by $26, increased its deferred tax asset by $28 and increased its income taxes payable by $2. The cumulative adjustment principally related to certain discounts within the Company’s wholesale business.
Additionally, the adoption of the pronouncement impacted the Company’s financial statements for the three and nine months ended September 30, 2018 as it decreasedpre-tax income by $5 during the three month period and increasedpre-tax income by $34 during the nine month period.
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||||||||
Retail Net Sales: | ||||||||||||||||
| North American Party City Stores | $ | 387,308 | $ | 376,222 | $ | 733,448 | $ | 707,067 | ||||||||
Global E-commerce | 35,364 | 35,131 | 67,172 | 67,862 | ||||||||||||
Other | 485 | — | 690 | — | ||||||||||||
Total Retail Net Sales | $ | 423,157 | $ | 411,353 | $ | 801,310 | $ | 774,929 | ||||||||
Royalties and Franchise Fees | 2,189 | 2,910 | 4,203 | 5,626 | ||||||||||||
Total Retail Revenue | $ | 425,346 | $ | 414,263 | $ | 805,513 | $ | 780,555 | ||||||||
Wholesale Net Sales: | ||||||||||||||||
Domestic | $ | 74,766 | $ | 79,397 | $ | 148,587 | $ | 158,956 | ||||||||
International | 63,779 | 67,351 | 122,907 | 129,324 | ||||||||||||
Total Wholesale Net Sales | $ | 138,545 | $ | 146,748 | $ | 271,494 | $ | 288,280 | ||||||||
Total Consolidated Revenue | $ | 563,891 | $ | 561,011 | $ | 1,077,007 | $ | 1,068,835 | ||||||||
In November 2016, the FASB issued ASU2016-18, “Statement of Cash Flows: Restricted Cash”.
19
As a result, the Company’s statement of cash flows for the nine months ended September 30, 2017 has been adjusted to include $155and $310 of restricted cash at December 31, 2016 and $72 of restricted cash at September 30, 2017. The restricted cash, which principally relates to funds that are required to be spent on advertising, is included in “prepaid expenses and other current assets” in the Company’s consolidated balance sheet. Therefore, in the Company’s adjusted consolidated statement of cash flows for the nine months ended September 30, 2017, the change in “prepaid expenses and other current assets” has been adjusted from a cash outflow of $11,299 to a cash outflow of $11,382.
cash.
The ASU requires that companies recognize assets and liabilities for the rights and obligations created by the companies’ leases. The update was effective for the Company during the first quarter of 2019.
Six months ended December 31, 2019 | $ | 89,895 | ||
2020 | 201,578 | |||
2021 | 185,305 | |||
2022 | 165,815 | |||
2023 | 137,724 | |||
Thereafter | 477,022 | |||
Total Undiscounted Cash Flows | $ | 1,257,339 | ||
Less: Interest | (317,891 | ) | ||
Total Operating Lease Liability | 939,448 | |||
Less: Current Portion of Operating Lease Liability | (145,472 | ) | ||
Long-Term Portion of Operating Lease Liability | $ | 793,976 | ||
stores.
segment and 23% of the product that was sold by our retail segment was self-manufactured.
21
goods that were shipped to the customer in error or that were damaged when received by the customer. Additionally, due to our extensive history operating as a leading party goods wholesaler, we have sufficient history with which to estimate future sales returns and we use the expected value method to estimate such activity.
22
LLC (“Kazzam”).
23
2018
| Three Months Ended September 30, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Net sales | $ | 550,840 | 99.6 | % | $ | 557,350 | 99.5 | % | ||||||||
Royalties and franchise fees | 2,206 | 0.4 | 2,759 | 0.5 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | 553,046 | 100.0 | 560,109 | 100.0 | ||||||||||||
Expenses: | ||||||||||||||||
Cost of sales | 349,641 | 63.2 | 357,523 | 63.8 | ||||||||||||
Wholesale selling expenses | 17,538 | 3.2 | 16,274 | 2.9 | ||||||||||||
Retail operating expenses | 103,833 | 18.8 | 100,739 | 18.0 | ||||||||||||
Franchise expenses | 862 | 0.2 | 3,636 | 0.6 | ||||||||||||
General and administrative expenses | 42,239 | 7.6 | 37,971 | 6.8 | ||||||||||||
Art and development costs | 5,573 | 1.0 | 5,898 | 1.1 | ||||||||||||
Development stage expenses | 1,622 | 0.3 | 680 | 0.1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total expenses | 521,308 | 94.3 | 522,721 | 93.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 31,738 | 5.7 | 37,388 | 6.7 | ||||||||||||
Interest expense, net | 27,705 | 5.0 | 23,228 | 4.1 | ||||||||||||
Other expense, net | 5,696 | 1.0 | 593 | 0.1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Loss) income before income taxes | (1,663 | ) | (0.3 | ) | 13,567 | 2.4 | ||||||||||
Income tax expense | 777 | 0.1 | 3,483 | 0.6 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net (loss) income | (2,440 | ) | (0.4 | ) | 10,084 | 1.8 | ||||||||||
Add: Net loss attributable to redeemable securities holder | (8 | ) | (0.0 | ) | — | 0.0 | ||||||||||
Less: Net loss attributable to noncontrolling interests | (28 | ) | (0.0 | ) | — | 0.0 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (2,420 | ) | (0.4 | )% | $ | 10,084 | 1.8 | % | |||||||
|
|
|
|
|
|
|
| |||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | (0.03 | ) | $ | 0.08 | |||||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | (0.03 | ) | $ | 0.08 | |||||||||||
2018.
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Net sales | $ | 561,702 | 99.6 | % | $ | 558,101 | 99.5 | % | ||||||||
Royalties and franchise fees | 2,189 | 0.4 | 2,910 | 0.5 | ||||||||||||
Total revenues | 563,891 | 100.0 | 561,011 | 100.0 | ||||||||||||
Cost of sales | 353,056 | 62.6 | 329,477 | 58.7 | ||||||||||||
Wholesale selling expenses | 16,884 | 3.0 | 17,256 | 3.1 | ||||||||||||
Retail operating expenses | 96,143 | 17.0 | 92,094 | 16.4 | ||||||||||||
Franchise expenses | 3,236 | 0.6 | 3,980 | 0.7 | ||||||||||||
General and administrative expenses | 41,510 | 7.4 | 45,326 | 8.1 | ||||||||||||
Art and development costs | 5,712 | 1.0 | 5,732 | 1.0 | ||||||||||||
Development stage expenses | 3,012 | 0.5 | 1,695 | 0.3 | ||||||||||||
Gain on sale/leaseback transaction | (58,381 | ) | (10.4 | ) | — | — | ||||||||||
Store impairment and restructuring charges | 5,234 | 0.9 | — | — | ||||||||||||
466,406 | 82.7 | 495,560 | 88.3 | |||||||||||||
Income from operations | 97,485 | 17.3 | 65,451 | 11.7 | ||||||||||||
Interest expense, net | 30,176 | 5.4 | 25,501 | 4.5 | ||||||||||||
Other expense, net | 3,342 | 0.6 | 2,532 | 0.5 | ||||||||||||
Income before income taxes | 63,967 | 11.3 | 37,418 | 6.7 | ||||||||||||
Income tax expense | 15,962 | 2.8 | 9,370 | 1.7 | ||||||||||||
Net income | 48,005 | 8.5 | 28,048 | 5.0 | ||||||||||||
Add: Net income attributable to redeemable securities holder | — | — | 410 | 0.1 | ||||||||||||
Less: Net loss attributable to noncontrolling interests | (69 | ) | (0.0 | ) | (29 | ) | (0.0 | ) | ||||||||
Net income attributable to common shareholders of Party City Holdco Inc. | $ | 48,074 | 8.5 | % | $ | 28,487 | 5.1 | % | ||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | 0.52 | $ | 0.30 | ||||||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | 0.51 | $ | 0.29 | ||||||||||||
| Three Months Ended September 30, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||
Net Sales: | ||||||||||||||||
Wholesale | $ | 424,569 | 76.8 | % | $ | 381,858 | 68.2 | % | ||||||||
Eliminations | (249,409 | ) | (45.1 | )% | (188,565 | ) | (33.7 | )% | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net wholesale | 175,160 | 31.7 | % | 193,293 | 34.5 | % | ||||||||||
Retail | 375,680 | 67.9 | % | 364,057 | 65.0 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total net sales | 550,840 | 99.6 | % | 557,350 | 99.5 | % | ||||||||||
Royalties and franchise fees | 2,206 | 0.4 | % | 2,759 | 0.5 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | $ | 553,046 | 100.0 | % | $ | 560,109 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
2018.
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||
Net Sales: | ||||||||||||||||
Wholesale | $ | 289,067 | 51.3 | % | $ | 285,733 | 50.9 | % | ||||||||
Eliminations | (150,522 | ) | (26.7 | )% | (138,985 | ) | (24.8 | )% | ||||||||
Net wholesale | 138,545 | 24.6 | % | 146,748 | 26.2 | % | ||||||||||
Retail | 423,157 | 75.0 | % | 411,353 | 73.3 | % | ||||||||||
Total net sales | 561,702 | 99.6 | % | 558,101 | 99.5 | % | ||||||||||
Royalties and franchise fees | 2,189 | 0.4 | % | 2,910 | 0.5 | % | ||||||||||
Total revenues | $ | 563,891 | 100.0 | % | $ | 561,011 | 100.0 | % | ||||||||
24
2018 principally due to the acquisition of franchise and independent stores. During the twelve months ended SeptemberJune 30, 2018,2019, we acquired 6544 franchise and independent stores, opened 1416 new stores and closed 119 stores. Global retail$34.2$35.4 million during the thirdsecond quarter of 20182019 and were principally consistent with$0.3 million, or 0.8%, higher than during the corresponding quarter of 2017.2018. Sales at our temporary Halloween City and Toy City storesother store formats totaled $5.1$0.5 million and were also consistent withduring the thirdsecond quarter of 2017, despite operating 23 fewer stores than a year ago.
2019.
| Three Months Ended September 30, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||
Retail | $ | 151,860 | 40.4 | % | $ | 141,334 | 38.8 | % | ||||||||
Wholesale | 49,339 | 28.2 | 58,493 | 30.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 201,199 | 36.5 | % | $ | 199,827 | 35.9 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
2018.
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||
Retail | $ | 172,051 | 40.7 | % | $ | 183,915 | 44.7 | % | ||||||||
Wholesale | 36,595 | 26.4 | 44,709 | 30.5 | ||||||||||||
Total | $ | 208,646 | 37.1 | % | $ | 228,624 | 41.0 | % | ||||||||
Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Net sales | $ | 1,072,804 | 99.6 | % | $ | 1,063,209 | 99.5 | % | ||||||||
Royalties and franchise fees | 4,203 | 0.4 | 5,626 | 0.5 | ||||||||||||
Total revenues | 1,077,007 | 100.0 | 1,068,835 | 100.0 | ||||||||||||
Cost of sales | 692,098 | 64.3 | 646,443 | 60.5 | ||||||||||||
Wholesale selling expenses | 34,845 | 3.2 | 36,043 | 3.4 | ||||||||||||
Retail operating expenses | 191,161 | 17.7 | 181,186 | 17.0 | ||||||||||||
Franchise expenses | 6,539 | 0.6 | 7,762 | 0.7 | ||||||||||||
General and administrative expenses | 83,435 | 7.7 | 93,991 | 8.8 | ||||||||||||
Art and development costs | 11,641 | 1.1 | 11,705 | 1.1 | ||||||||||||
Development stage expenses | 5,238 | 0.5 | 3,998 | 0.4 | ||||||||||||
Gain on sale/leaseback transaction | (58,381 | ) | (5.4 | ) | — | — | ||||||||||
Store impairment and restructuring charges | 23,243 | 2.2 | — | — | ||||||||||||
989,819 | 91.9 | 981,128 | 91.8 | |||||||||||||
Income from operations | 87,188 | 8.1 | 87,707 | 8.2 | ||||||||||||
Interest expense, net | 59,433 | 5.5 | 48,776 | 4.6 | ||||||||||||
Other expense, net | 4,596 | 0.4 | 3,380 | 0.3 | ||||||||||||
Income before income taxes | 23,159 | 2.2 | 35,551 | 3.3 | ||||||||||||
Income tax expense | 5,443 | 0.5 | 8,666 | 0.8 | ||||||||||||
Net income | 17,716 | 1.6 | 26,885 | 2.5 | ||||||||||||
Add: Net income attributable to redeemable securities holder | — | — | 410 | 0.0 | ||||||||||||
Less: Net loss attributable to noncontrolling interests | (140 | ) | (0.0 | ) | (59 | ) | (0.0 | ) | ||||||||
Net income attributable to common shareholders of Party City Holdco Inc. | $ | 17,856 | 1.7 | % | $ | 27,354 | 2.6 | % | ||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | 0.19 | $ | 0.28 | ||||||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | 0.19 | $ | 0.28 | ||||||||||||
Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||
Net Sales: | ||||||||||||||||
Wholesale | $ | 579,368 | 53.8 | % | $ | 563,560 | 52.7 | % | ||||||||
Eliminations | (307,874 | ) | (28.6 | )% | (275,280 | ) | (25.8 | )% | ||||||||
Net wholesale | 271,494 | 25.2 | % | 288,280 | 27.0 | % | ||||||||||
Retail | 801,310 | 74.4 | % | 774,929 | 72.5 | % | ||||||||||
Total net sales | 1,072,804 | 99.6 | % | 1,063,209 | 99.5 | % | ||||||||||
Royalties and franchise fees | 4,203 | 0.4 | % | 5,626 | 0.5 | % | ||||||||||
Total revenues | $ | 1,077,007 | 100.0 | % | $ | 1,068,835 | 100.0 | % | ||||||||
Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||
Retail | $ | 308,069 | 38.4 | % | $ | 330,750 | 42.7 | % | ||||||||
Wholesale | 72,637 | 26.8 | 86,016 | 29.8 | ||||||||||||
Total | $ | 380,706 | 35.5 | % | $ | 416,766 | 39.2 | % | ||||||||
25
The gross profit on net sales at wholesale during the third quarters of 2018 and 2017 was 28.2% and 30.3%, respectively. The decrease was principally due to inflationary pressures in both distribution and labor costs and rising commodity costs.
Operating expenses
Wholesale selling expenses were $17.5 million during the third quarter of 2018 and $16.3 million during the corresponding quarter of 2017. The increase of $1.3 million was primarily due to wage inflation and slightly higher costs at Granmark (acquired during 2017).
Retail operating expenses during the third quarter of 2018 were $103.8 million and were $3.1 million, or 3.1%, higher than the corresponding quarter of 2017. The higher store count (discussed above) and the impact of wage inflation were partially offset by further realized savings associated with improved productivity and efficiency in our stores. Retail operating expenses were 27.6% and 27.7% of net retail sales during the third quarters of 2018 and 2017, respectively.
Franchise expenses during the third quarters of 2018 and 2017 were $0.9 million and $3.6 million, respectively. The decrease was due to anon-recurring reduction to franchise intangible asset amortization expense as a result of recent franchise store acquisitions.
General and administrative expenses during the third quarter of 2018 totaled $42.2 million and were $4.3 million, or 11.2%, higher than in the third quarter of 2017. The variance was primarily due to increased share-based compensation,non-recurring executive severance charges and the impact of inflation. General and administrative expenses as a percentage of total revenues were 7.6% and 6.8% during the third quarters of 2018 and 2017, respectively.
Art and development costs were $5.6 million and $5.9 million during the third quarters of 2018 and 2017, respectively.
Development stage expenses representstart-up costs related to Kazzam (see the 2017 Form10-K for further detail and a discussion of the charges recorded during 2017).
Interest expense, net
Interest expense, net, totaled $27.7 million during the third quarter of 2018, compared to $23.2 million during the third quarter of 2017. The variance principally relates to the impact of increasing LIBOR rates on our Term Loan Credit Agreement and our ABL Facility, increased borrowings under our ABL Facility due to share repurchases during the fourth quarter of 2017 and the impact of the Company’s August 2018 refinancing (see Note 12 to the Company’s consolidated financial statements above for further detail).
Other expense, net
For the third quarter of 2018, other expense, net, totaled $5.7 million.
During August 2018, the Company executed a refinancing of its debt portfolio and issued $500 million of new senior notes at an interest rate of 6.625%. The notes will mature in August 2026. The Company used the proceeds from the notes to: (i) reduce the outstanding balance under its existing ABL Facility by $90 million and (ii) voluntarily prepay $400 million of the outstanding balance under its existing Term Loan Credit Agreement. Additionally, as part of the refinancing, the Company extended the maturity of the ABL Facility to August 2023. As the partial prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement, at the time of such prepayment the Companywrote-off apro-rata portion of the existing capitalized deferred financing costs and original issuance discounts, $1.8 million, for investors who did not participate in the new notes. To the extent that investors in the Term Loan Credit Agreement participated in the new notes, the Company assessed whether the refinancing should be accounted for as an extinguishment on acreditor-by-creditor basis andwrote-off $1.0 million of existing deferred financing costs and original issuance discounts. Additionally, in conjunction with the issuance of the notes, the Company incurred third-party fees (principally banker fees). To the extent that such fees related to investors for whom their original debt was not extinguished, the Company expensed the portion of such fees, $2.3 million in aggregate, that related to such investors.
26
Income tax expense
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law. The Act significantly changed U.S. tax law, including lowering the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. Due to the complexities of accounting for the Act, the SEC issued Staff Accounting Bulletin No. 118 which allows entities to include a provisional estimate of the impact of the Act in its financial statements. Therefore, based on currently available information, during the fourth quarter of 2017, the Company recorded a provisional estimate of the impact of the Act, which included an income tax benefit related to the remeasurement of its domestic net deferred tax liabilities and deferred tax assets due to the lower U.S. corporate tax rate. The Company did not adjust the estimate during the third quarter of 2018.
Nine Months Ended September 30, 2018 Compared To Nine Months Ended September 30, 2017
The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the nine months ended September 30, 2018 and 2017.
| Nine Months Ended September 30, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Net sales | $ | 1,614,049 | 99.5 | % | $ | 1,572,966 | 99.4 | % | ||||||||
Royalties and franchise fees | 7,832 | 0.5 | 9,020 | 0.6 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | 1,621,881 | 100.0 | 1,581,986 | 100.0 | ||||||||||||
Expenses: | ||||||||||||||||
Cost of sales | 996,084 | 61.4 | 978,142 | 61.8 | ||||||||||||
Wholesale selling expenses | 53,581 | 3.3 | 47,946 | 3.0 | ||||||||||||
Retail operating expenses | 285,019 | 17.6 | 281,981 | 17.8 | ||||||||||||
Franchise expenses | 8,624 | 0.5 | 10,666 | 0.7 | ||||||||||||
General and administrative expenses | 136,230 | 8.4 | 125,763 | 7.9 | ||||||||||||
Art and development costs | 17,278 | 1.1 | 17,638 | 1.1 | ||||||||||||
Development stage expenses | 5,620 | 0.3 | 7,092 | 0.4 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total expenses | 1,502,436 | 92.6 | 1,469,228 | 92.9 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 119,445 | 7.4 | 112,758 | 7.1 | ||||||||||||
Interest expense, net | 76,481 | 4.7 | 65,214 | 4.1 | ||||||||||||
Other expense, net | 9,076 | 0.6 | 860 | 0.1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 33,888 | 2.1 | 46,684 | 3.0 | ||||||||||||
Income tax expense | 9,443 | 0.6 | 16,301 | 1.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 24,445 | 1.5 | 30,383 | 1.9 | ||||||||||||
Add: Net income attributable to redeemable securities holder | 402 | 0.0 | — | 0.0 | ||||||||||||
Less: Net loss attributable to noncontrolling interests | (87 | ) | (0.0 | ) | — | 0.0 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to common shareholders of Party City Holdco Inc. | $ | 24,934 | 1.5 | % | $ | 30,383 | 1.9 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. - Basic | $ | 0.26 | $ | 0.25 | ||||||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc. - Diluted | $ | 0.26 | $ | 0.25 | ||||||||||||
27
Revenues
Total revenues for the first nine months of 2018 were $1,621.9 million and were $39.9 million, or 2.5%, higher than the corresponding period of 2017. The following table sets forth the Company’s total revenues for the nine months ended September 30, 2018 and 2017.
| Nine Months Ended September 30, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||
Net Sales: | ||||||||||||||||
Wholesale | $ | 988,129 | 60.9 | % | $ | 929,255 | 58.7 | % | ||||||||
Eliminations | (524,689 | ) | (32.3 | )% | (459,416 | ) | (29.0 | )% | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net wholesale | 463,440 | 28.6 | % | 469,839 | 29.7 | % | ||||||||||
Retail | 1,150,609 | 70.9 | % | 1,103,127 | 69.7 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total net sales | 1,614,049 | 99.5 | % | 1,572,966 | 99.4 | % | ||||||||||
Royalties and franchise fees | 7,832 | 0.5 | % | 9,020 | 0.6 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | $ | 1,621,881 | 100.0 | % | $ | 1,581,986 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Retail
Retail net sales during the first nine months of 2018 were $1,150.6 million and increased $47.5 million, or 4.3%, compared to the corresponding period of 2017. Retail net sales at our Party City stores totaled $1,043.4 million and were $49.8 million, or 5.0%, higher than 2017 due to the acquisition of franchise and independent stores and increased same store sales, reflecting the favorable impact of a shift in the calendar related to the timing of certain New Year’s Eve sales, which shifted into the first quarter of fiscal 2018. During the twelve months ended September 30, 2018, we acquired 65 franchise and independent stores, opened 14 new stores and closed 11 stores. Global retaile-commerce sales totaled $102.1 million during the first nine months of 2018 and were $2.2 million, or 2.1%, lower than during the corresponding period of 2017. The North Americane-commerce sales that are included in our Party City brand comp decreased by 4.3% during the period. However, they increased by 9.5% when adjusting for the impact of our “buy online,pick-up in store” program (as such sales are included in our store sales). Sales at our temporary Halloween City and Toy City stores totaled $5.1 million and were consistent with 2017, despite operating 23 fewer stores than a year ago.
Same-store sales for the Party City brand (including North American retaile-commerce sales) increased by 0.5% during the first nine months of 2018. Excluding the impact ofe-commerce, same-store sales increased by 0.9%. Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.
Wholesale
Wholesale net sales during the first nine months of 2018 totaled $463.4 million and were $6.4 million, or 1.4%, lower than the first nine months of 2017. Net sales to domestic party goods retailers and distributors (including our franchisee network) totaled $185.8 million and were $16.2 million, or 8.0%, lower than during 2017. The decrease was due, in part, to our acquisition of 65 franchise and independent stores during the twelve months ended September 30, 2018; as post-acquisition sales to such stores (approximately $13 million during the first nine months of 2017) are now eliminated as intercompany sales. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $61.4 million during the first nine months of 2018 and were $1.1 million lower than during the corresponding period of 2017 as certain Valentine’s Day shipments accelerated into the fourth quarter of 2017 (during the 2017 Valentine’s Day season the corresponding shipments took place during the first quarter of 2017). Our international sales (which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $216.2 million and were $10.9 million, or 5.3%, higher than in 2017. The increase was driven by continued strong performance in the German market, the acquisition of Granmark S.A. de C.V. (“Granmark”) in March 2017 and the impact of foreign currency translation (approximately $5 million).
Intercompany sales to our retail affiliates totaled $524.7 million during the first nine months of 2018 and were $65.3 million higher than during the corresponding period of the prior year, principally due to 2017 intercompany sales being impacted by carryover inventory from the 2016 Halloween selling season. Additionally, the increase was partially due to the higher corporate store count. Intercompany sales represented 53.1% of total wholesale sales during the first nine months of 2018, compared to 49.4% during the first nine months of 2017. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.
28
Royalties and franchise fees
Royalties and franchise fees for the first nine months of 2018 totaled $7.8 million and were $1.2 million lower than during the first nine months of 2017 due to the acquisition of franchise stores.
Gross Profit
The following table sets forth the Company’s gross profit for the nine months ended September 30, 2018 and September 30, 2017.
| Nine Months Ended September 30, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||
Retail | $ | 482,609 | 41.9 | % | $ | 447,787 | 40.6 | % | ||||||||
Wholesale | 135,356 | 29.2 | % | 147,037 | 31.3 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 617,965 | 38.3 | % | $ | 594,824 | 37.8 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
The gross profit margin on net sales at retail during the first nine months of 2018 was 41.9%. Such percentage was 130 basis points higher than during the corresponding period of 2017. The increase was principally due to the continued realization of productivity initiatives positively impacting occupancy costs, a higher POS margin, the benefit of leverage associated with increased sales and increased manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment). Our manufacturing share of shelf increased from 25.1% during the first nine months of 2017 to 26.6% during the corresponding period of 2018, driven by higher sales of metallic balloons and the scaling up of recent acquisitions in our wholesale business. Our wholesale share of shelf at our Party City stores and our North American retaile-commerceoperations (i.e., the percentage of our retail product cost of sales supplied by our wholesale segment) was 77.8% during the period and was principally consistent with 2017.
the first half of 2018.
to franchisees (due to the store acquisitions discussed above), as well as the impact of foreign currency on product costs.
2019 and 2018, respectively.
acquisitions discussed above.
respectively.
29
During August 2018, the Company executed a refinancing of its debt portfolio and issued $500 million of new senior notes at an interest rate of 6.625%. The notes will mature in August 2026. The Company used the proceeds from the notes to: (i) reduce the outstanding balance under its existing ABL Facility by $90$4.6 million and (ii) voluntarily prepay $400$3.4 million, of the outstanding balance under its existing Term Loan Credit Agreement. Additionally, as part of the refinancing, the Company extended the maturity of the ABL Facility to August 2023. As the partial prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement, at the time of such prepayment the Companywrote-off apro-rata portion of the existing capitalized deferred financing costs and original issuance discounts, $1.8 million, for investors who did not participate in the new notes. To the extent that investors in the Term Loan Credit Agreement participated in the new notes, the Company assessed whether the refinancing should be accounted for as an extinguishment on acreditor-by-creditor basis andwrote-off $1.0 million of existing deferred financing costs and original issuance discounts. Additionally, in conjunction with the issuance of the notes, the Company incurred third-party fees (principally banker fees). To the extent that such fees related to investors for whom their original debt was not extinguished, the Company expensed the portion of such fees, $2.3 million in aggregate, that related to such investors.
respectively.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law. The Act significantly changed U.S. tax law, including lowering the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. Due to the complexities of accounting for the Act, the SEC issued Staff Accounting Bulletin No. 118 which allows entities to include a provisional estimate of the impact of the Act in its financial statements. Therefore, based on currently available information, during the fourth quarter of 2017, the Company recorded a provisional estimate of the impact of the Act, which included an income tax benefit related to the remeasurement of its domestic net deferred tax liabilities and deferred tax assets due to the lower U.S. corporate tax rate. The Company did not adjust the estimate during the first nine months of 2018.
30
•
| Three Months Ended September 30, 2018 | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Net (loss) income | $ | (2,440 | ) | $ | 10,084 | $ | 24,445 | $ | 30,383 | |||||||
Interest expense, net | 27,705 | 23,228 | 76,481 | 65,214 | ||||||||||||
Income taxes | 777 | 3,483 | 9,443 | 16,301 | ||||||||||||
Depreciation and amortization | 16,974 | 20,694 | 57,786 | 62,519 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
EBITDA | 43,016 | 57,489 | 168,155 | 174,417 | ||||||||||||
Non-cash purchase accounting adjustments | 2,154 | 1,500 | 2,696 | 6,350 | ||||||||||||
Restructuring, retention and severance (a) | 951 | 212 | 3,105 | 8,839 | ||||||||||||
Deferred rent (b) | 2,468 | 2,719 | 3,623 | 5,634 | ||||||||||||
Closed store expense (c) | 825 | 1,285 | 3,430 | 4,164 | ||||||||||||
Foreign currency (gains) losses, net | (314 | ) | 36 | 128 | (1,684 | ) | ||||||||||
Stock option expense (d) | 550 | 630 | 1,492 | 3,852 | ||||||||||||
Restricted stock units expense – time-based (e) | 470 | — | 722 | — | ||||||||||||
Restricted stock units expense – performance-based (f) | 889 | — | 1,482 | — | ||||||||||||
Non-employee equity based compensation (g) | (13 | ) | 21 | 352 | 3,286 | |||||||||||
Undistributed (income) loss in unconsolidated joint ventures | (279 | ) | 134 | (580 | ) | (92 | ) | |||||||||
Corporate development (h) | 3,057 | 1,634 | 8,409 | 6,078 | ||||||||||||
Non-recurring consulting charges (i) | 624 | — | 12,243 | — | ||||||||||||
Refinancing charges (j) | 5,091 | — | 6,237 | — | ||||||||||||
Other | (44 | ) | 469 | (295 | ) | 947 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted EBITDA | $ | 59,445 | $ | 66,129 | $ | 211,199 | $ | 211,791 | ||||||||
|
|
|
|
|
|
|
| |||||||||
31
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Net income | $ | 48,005 | $ | 28,048 | $ | 17,716 | $ | 26,885 | ||||||||
Interest expense, net | 30,176 | 25,501 | 59,433 | 48,776 | ||||||||||||
Income taxes | 15,962 | 9,370 | 5,443 | 8,666 | ||||||||||||
Depreciation and amortization | 21,884 | 20,255 | 43,225 | 40,812 | ||||||||||||
EBITDA | 116,027 | 83,174 | 125,817 | 125,139 | ||||||||||||
Non-cash purchase accounting adjustments | 1,756 | 1,098 | 2,757 | 542 | ||||||||||||
Store impairment and restructuring charges (a) | 10,628 | — | 46,266 | — | ||||||||||||
Other restructuring, retention and severance (b) | 3,933 | (457 | ) | 5,321 | 2,154 | |||||||||||
Deferred rent (c) | (338 | ) | 787 | (1,488 | ) | 1,155 | ||||||||||
Closed store expense (d) | 507 | 793 | 1,098 | 2,605 | ||||||||||||
Foreign currency losses/(gains), net | 133 | 505 | (160 | ) | 442 | |||||||||||
Stock option expense (e) | 371 | 482 | 741 | 942 | ||||||||||||
Non-employee equity based compensation (f) | 129 | 104 | 258 | 365 | ||||||||||||
Undistributed income in equity method investments | (4 | ) | (90 | ) | (202 | ) | (301 | ) | ||||||||
Corporate development expenses (g) | 4,349 | 2,778 | 7,194 | 5,352 | ||||||||||||
Non-recurring consulting charges (h) | — | 6,869 | — | 11,619 | ||||||||||||
Refinancing charges (i) | — | — | — | 1,146 | ||||||||||||
Restricted stock units – time-based (j) | 541 | 252 | 933 | 252 | ||||||||||||
Restricted stock units – performance-based (k) | 476 | 593 | 476 | 593 | ||||||||||||
Non-recurring legal settlements/costs | 869 | — | 1,601 | — | ||||||||||||
Gain on sale/leaseback transaction (l) | (58,381 | ) | — | (58,381 | ) | — | ||||||||||
Other | 44 | (282 | ) | 291 | (251 | ) | ||||||||||
Adjusted EBITDA | $ | 81,040 | $ | 96,606 | $ | 132,522 | $ | 151,754 | ||||||||
| Three Months Ended September 30, 2018 | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
(Loss) Income before income taxes | $ | (1,663 | ) | $ | 13,567 | $ | 33,888 | $ | 46,684 | |||||||
Intangible asset amortization | 591 | 3,879 | 7,959 | 11,704 | ||||||||||||
Non-cash purchase accounting adjustments | 1,659 | 2,241 | 2,622 | 8,165 | ||||||||||||
Amortization of deferred financing costs and original issuance discounts (j) | 6,268 | 1,240 | 9,834 | 3,699 | ||||||||||||
Executive severance (a) | 809 | (323 | ) | 809 | 4,296 | |||||||||||
Non-employee equity based compensation (g) | (13 | ) | 21 | 352 | 3,286 | |||||||||||
Hurricane-related costs | — | 385 | — | 385 | ||||||||||||
Restructuring (a) | — | — | — | 3,195 | ||||||||||||
Non-recurring consulting charges (i) | 624 | — | 12,243 | — | ||||||||||||
Stock option expense (d) | 550 | 630 | 1,492 | 3,852 | ||||||||||||
Restricted stock units expense - performance-based (f) | 889 | — | 1,482 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted income before income taxes | 9,714 | 21,640 | 70,681 | 85,266 | ||||||||||||
Adjusted income tax expense (k) | 2,364 | 6,467 | 17,213 | 30,713 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted net income | $ | 7,350 | $ | 15,173 | $ | 53,468 | $ | 54,553 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted net income per common share – diluted | $ | 0.08 | $ | 0.13 | $ | 0.55 | $ | 0.45 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted-average number of common shares-diluted | 97,714,252 | 120,912,849 | 97,684,290 | 120,907,979 | ||||||||||||
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||
Income before income taxes | $ | 63,967 | $ | 37,418 | $ | 23,159 | $ | 35,551 | ||||||||
Intangible asset amortization | 3,546 | 3,705 | 6,975 | 7,368 | ||||||||||||
Non-cash purchase accounting adjustments | 2,459 | 1,668 | 3,776 | 963 | ||||||||||||
Amortization of deferred financing costs and original issuance discounts (i) | 1,146 | 1,210 | 2,289 | 2,766 | ||||||||||||
Store impairment and restructuring charges (a) | 10,628 | — | 46,266 | — | ||||||||||||
Other restructuring charges (b) | 3,085 | — | 3,085 | — | ||||||||||||
Non-employee equity based compensation (f) | 129 | 104 | 258 | 365 | ||||||||||||
Refinancing charges (i) | 36 | — | 36 | 800 | ||||||||||||
Non-recurring consulting charges (h) | — | 6,869 | — | 11,619 | ||||||||||||
Stock option expense (e) | 371 | 482 | 741 | 942 | ||||||||||||
Gain on sale/leaseback transaction (l) | (58,381 | ) | — | (58,381 | ) | — | ||||||||||
Restricted stock units - performance-based (k) | 476 | 593 | 476 | 593 | ||||||||||||
Adjusted income before income taxes | 27,462 | 52,049 | 28,680 | 60,967 | ||||||||||||
Adjusted income tax expense (m) | 7,227 | 12,813 | 7,342 | 14,849 | ||||||||||||
Adjusted net income | $ | 20,235 | $ | 39,236 | $ | 21,338 | $ | 46,118 | ||||||||
Adjusted net income per common share – diluted | $ | 0.22 | $ | 0.40 | $ | 0.23 | $ | 0.47 | ||||||||
Weighted-average number of common shares-diluted | 93,703,546 | 97,688,233 | 93,791,763 | 97,669,309 | ||||||||||||
| (a) |
|
| (b) | Amounts expensed during 2019 principally relate to executive severance and the write-off of inventory for a |
| (c) | The |
| (d) |
|
| (e) | Represents |
|
| (f) |
|
Principally represents shares of Kazzam awarded to Ampology as compensation for Ampology’s services. See the |
| (g) | Primarily represents |
| (h) |
Non-recurring consulting charges related to the Company’s retail operations. |
| (i) | During wrote-off capitalized deferred financing costs, original issue discounts and call premiums. The amounts are included in “Refinancing charges” in the |
32
Additionally, during February 2018, the Company amended the Term Loan Credit Agreement. In conjunction with the amendment, the Companywrote-off $0.3 million of capitalized deferred financing costs, original issue discounts and call premiums. Further, in conjunction with the February 2018 amendment, the Company expensed $0.8 million of investment banking and legal fees. Such amounts are included in “Refinancing Charges” in the “Adjusted EBITDA” table above and in “Amortization of Deferred Financing Costs and Original Issuance Discounts” in the “Adjusted Net Income” table above.
| (j) | Non-cash charges for restricted stock units that vest based on service conditions. |
| (k) | Non-cash charges for restricted stock units that vest based on performance conditions. |
| (l) | During June 2019, the Company reported a $58,381 gain from the sale and leaseback of its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The aggregate sale price for the three properties was $128,000. Simultaneous with the sale, the Company entered into twenty year leases for each of the facilities. |
| (m) | Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to thepre-tax adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded. |
Additionally, the Company has a $640 million asset-based revolving credit facility (“ABL Facility”) that it draws down on as necessary (see the consolidated statement of cash flows in Item 1).
$14.0 million.
At September
33
2018.
2018.
34
35
Concentration of ownership by investment funds affiliated with Thomas H. Lee Partners, L.P. (“THL”) could limit other stockholders’ ability to influence the outcome of key transactions, including a change of control.
THL beneficially owns approximately 37% of our outstanding common stock as of September 30, 2018. As a result, THL will be able to exert a significant degree of influence over our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends. Similarly, THL may effectively control matters submitted to a vote of our stockholders without the consent of our other stockholders, may have the power to prevent a change in our control and could take other actions that might be favorable to them.
3.1 | ||
3.2 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 †* | ||
10.6 †* | ||
10.7 †* | ||
10.8 †* | ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data | |
101.SCH* | XBRL Taxonomy Extension Schema Document. | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. | |
| † | Management contract of compensatory plan or arrangement |
| * | Filed herewith. |
36
PARTY CITY HOLDCO INC. | ||||||
By: | /s/ | |||||
Michael A. Correale | ||||||
Interim Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer) |
37