UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission file number
Party City Holdco Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 46-0539758 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
80 Grasslands Road Elmsford, NY | 10523 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(914)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, Par Value: | PRTY | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||
Emerging | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
As of July 25, 2019, 94,437,133May 31, 2020, 94,491,352 shares of the Registrant’s common stock were outstanding.
EXPLANATORY NOTE
On May 8, 2020, Party City Holdco Inc. (the “Company” or “Party City Holdco”) filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission (the “SEC”) indicating its reliance on the SEC’s March 25, 2020 Order (Release No. 34-88465) (the “Order”). The Order allows for the delay of Contents
The Company filed the Form 8-K indicating its intension to rely on the Order permitting extensions in filings due to circumstances related to the novel coronavirus (“COVID-19”) pandemic. As stated in the Form 8-K, the Company’s operations and business have experienced disruptions due to the unprecedented conditions surrounding the spread of COVID-19 throughout North America. In particular, COVID-19 and measures implemented to reduce the spread of the virus have limited access to the Company’s facilities and disrupted its normal interactions with its accounting personnel, legal advisors, auditors and others involved in the preparation of the Quarterly Report. Due to the factors listed above, the Company required additional time to finalize its Quarterly Report on Form 10-Q as of and for the quarter ended March 31, 2020, (the “Quarterly Report”) by the original deadline of May 13, 2020.
In light of the impact of the factors described above, the Company was unable to compile and review certain information required in order to permit it to timely file the Quarterly Report by May 13, 2020, the original filing deadline, without unreasonable effort or expense. The Company relied on the Order in furnishing the Form 8-K by the original filing deadline of the Quarterly Report.
PARTY CITY HOLDCO INC.
Form 10-Q
March 31, 2020
TABLE OF CONTENTS
Page | ||||
PART I | ||||
Item 1. Condensed Consolidated Financial Statements (Unaudited) | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | |||
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 35 | |||
35 | ||||
36 | ||||
36 | ||||
37 | ||||
38 | ||||
39 |
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
|
| (Note 2) (Unaudited) |
|
| (Note 2) |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 194,433 |
|
| $ | 34,917 |
|
Accounts receivable, net |
|
| 116,223 |
|
|
| 149,109 |
|
Inventories, net |
|
| 629,875 |
|
|
| 658,419 |
|
Prepaid expenses and other current assets |
|
| 76,698 |
|
|
| 51,685 |
|
Total current assets |
|
| 1,017,229 |
|
|
| 894,130 |
|
Property, plant and equipment, net |
|
| 235,577 |
|
|
| 243,572 |
|
Operating lease asset |
|
| 773,775 |
|
|
| 802,634 |
|
Goodwill |
|
| 665,129 |
|
|
| 1,072,330 |
|
Trade names |
|
| 394,221 |
|
|
| 530,320 |
|
Other intangible assets, net |
|
| 41,960 |
|
|
| 45,060 |
|
Other assets, net |
|
| 6,904 |
|
|
| 7,273 |
|
Total assets |
| $ | 3,134,795 |
|
| $ | 3,595,319 |
|
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Loans and notes payable |
| $ | 381,422 |
|
| $ | 128,806 |
|
Accounts payable |
|
| 96,383 |
|
|
| 152,300 |
|
Accrued expenses |
|
| 154,847 |
|
|
| 150,921 |
|
Current portion of operating lease liability |
|
| 153,614 |
|
|
| 155,471 |
|
Income taxes payable |
|
| — |
|
|
| 35,905 |
|
Current portion of long-term obligations |
|
| 98,588 |
|
|
| 71,524 |
|
Total current liabilities |
|
| 884,854 |
|
|
| 694,927 |
|
Long-term obligations, excluding current portion |
|
| 1,474,854 |
|
|
| 1,503,987 |
|
Long-term portion of operating lease liability |
|
| 707,734 |
|
|
| 720,735 |
|
Deferred income tax liabilities, net |
|
| 70,943 |
|
|
| 126,081 |
|
Other long-term liabilities |
|
| 16,036 |
|
|
| 16,517 |
|
Total liabilities |
|
| 3,154,421 |
|
|
| 3,062,247 |
|
Redeemable securities |
|
| — |
|
|
| 3,351 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Common stock (94,491,352 and 94,461,576 shares outstanding and 121,708,422 and 121,662,540 shares issued at March 31, 2020 and December 31, 2019, respectively) |
|
| 1,211 |
|
|
| 1,211 |
|
Additional paid-in capital |
|
| 933,174 |
|
|
| 928,573 |
|
Retained deficit |
|
| (578,732 | ) |
|
| (37,219 | ) |
Accumulated other comprehensive loss |
|
| (47,947 | ) |
|
| (35,734 | ) |
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury |
|
| 307,706 |
|
|
| 856,831 |
|
Less: Common stock held in treasury, at cost (27,217,070 and 27,200,964 shares at March 31, 2020 and December 31, 2019, respectively) |
|
| (327,170 | ) |
|
| (327,086 | ) |
Total Party City Holdco Inc. stockholders’ equity |
|
| (19,464 | ) |
|
| 529,745 |
|
Noncontrolling interests |
|
| (162 | ) |
|
| (24 | ) |
Total stockholders’ equity |
|
| (19,626 | ) |
|
| 529,721 |
|
Total liabilities, redeemable securities and stockholders’ equity |
| $ | 3,134,795 |
|
| $ | 3,595,319 |
|
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 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except share and per share data)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Net sales |
| $ | 412,461 |
|
| $ | 511,102 |
|
Royalties and franchise fees |
|
| 1,582 |
|
|
| 2,014 |
|
Total revenues |
|
| 414,043 |
|
|
| 513,116 |
|
Cost of sales |
|
| 296,757 |
|
|
| 339,042 |
|
Wholesale selling expenses |
|
| 15,458 |
|
|
| 17,961 |
|
Retail operating expenses |
|
| 88,166 |
|
|
| 95,018 |
|
Franchise expenses |
|
| 3,309 |
|
|
| 3,303 |
|
General and administrative expenses |
|
| 59,996 |
|
|
| 41,925 |
|
Art and development costs |
|
| 5,322 |
|
|
| 5,929 |
|
Development stage expenses |
|
| 2,029 |
|
|
| 2,226 |
|
Store impairment and restructuring charges |
|
| 17,728 |
|
|
| 18,009 |
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| — |
|
Total expenses |
|
| 1,025,413 |
|
|
| 523,413 |
|
Loss from operations |
|
| (611,370 | ) |
|
| (10,297 | ) |
Interest expense, net |
|
| 25,120 |
|
|
| 29,257 |
|
Other expense, net |
|
| 5,676 |
|
|
| 1,254 |
|
Loss before income taxes |
|
| (642,166 | ) |
|
| (40,808 | ) |
Income tax benefit |
|
| (100,498 | ) |
|
| (10,519 | ) |
Net loss |
|
| (541,668 | ) |
|
| (30,289 | ) |
Less: Net loss attributable to noncontrolling interests |
|
| (155 | ) |
|
| (71 | ) |
Net loss attributable to common shareholders of Party City Holdco Inc. |
| $ | (541,513 | ) |
| $ | (30,218 | ) |
Net loss per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | (5.80 | ) |
| $ | (0.32 | ) |
Net loss per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | (5.80 | ) |
| $ | (0.32 | ) |
Weighted-average number of common shares-Basic |
|
| 93,395,609 |
|
|
| 93,174,553 |
|
Weighted-average number of common shares-Diluted |
|
| 93,395,609 |
|
|
| 93,174,553 |
|
Dividends declared per share |
| $ | — |
|
| $ | — |
|
Comprehensive loss |
| $ | (553,881 | ) |
| $ | (26,637 | ) |
Less: Comprehensive loss attributable to noncontrolling interests |
|
| (155 | ) |
|
| (62 | ) |
Comprehensive loss attributable to common shareholders of Party City Holdco Inc. |
| $ | (553,726 | ) |
| $ | (26,575 | ) |
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 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except share and per share data)thousands)
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Deficit |
|
| 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, 2019 |
| $ | 1,211 |
|
| $ | 928,573 |
|
| $ | (37,219 | ) |
| $ | (35,734 | ) |
| $ | 856,831 |
|
| $ | (327,086 | ) |
| $ | 529,745 |
|
| $ | (24 | ) |
| $ | 529,721 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (541,513 | ) |
|
| — |
|
|
| (541,513 | ) |
|
| — |
|
|
| (541,513 | ) |
|
| (155 | ) |
|
| (541,668 | ) |
Stock option expense |
|
| — |
|
|
| 354 |
|
|
| — |
|
|
| — |
|
|
| 354 |
|
|
| — |
|
|
| 354 |
|
|
| — |
|
|
| 354 |
|
Restricted stock units – time – based |
|
| — |
|
|
| 621 |
|
|
| — |
|
|
| — |
|
|
| 621 |
|
|
| — |
|
|
| 621 |
|
|
| — |
|
|
| 621 |
|
Director – non-cash compensation |
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| 75 |
|
Warrant expense (see Note 19 – Kazzam, LLC) |
|
| — |
|
|
| 1,033 |
|
|
| — |
|
|
| — |
|
|
| 1,033 |
|
|
| — |
|
|
| 1,033 |
|
|
| — |
|
|
| 1,033 |
|
Acquired non-controlling interest |
|
| — |
|
|
| 2,518 |
|
|
| — |
|
|
| — |
|
|
| 2,518 |
|
|
| — |
|
|
| 2,518 |
|
|
| 17 |
|
|
| 2,535 |
|
Treasury Stock purchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (84 | ) |
|
| (84 | ) |
|
| — |
|
|
| (84 | ) |
Foreign currency adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,201 | ) |
|
| (12,201 | ) |
|
| — |
|
|
| (12,201 | ) |
|
| — |
|
|
| (12,201 | ) |
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| (12 | ) |
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (12 | ) |
Balance at March 31, 2020 |
| $ | 1,211 |
|
| $ | 933,174 |
|
| $ | (578,732 | ) |
| $ | (47,947 | ) |
| $ | 307,706 |
|
| $ | (327,170 | ) |
| $ | (19,464 | ) |
| $ | (162 | ) |
| $ | (19,626 | ) |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings (Deficit) |
|
| 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 loss |
|
| — |
|
|
| — |
|
|
| (30,218 | ) |
|
| — |
|
|
| (30,218 | ) |
|
| — |
|
|
| (30,218 | ) |
|
| (71 | ) |
|
| (30,289 | ) |
Stock option expense |
|
| — |
|
|
| 370 |
|
|
| — |
|
|
| — |
|
|
| 370 |
|
|
| — |
|
|
| 370 |
|
|
| — |
|
|
| 370 |
|
Restricted stock units – time based |
|
| — |
|
|
| 392 |
|
|
| — |
|
|
| — |
|
|
| 392 |
|
|
| — |
|
|
| 392 |
|
|
| — |
|
|
| 392 |
|
Director – non-cash compensation |
|
| — |
|
|
| 77 |
|
|
| — |
|
|
| — |
|
|
| 77 |
|
|
| — |
|
|
| 77 |
|
|
| — |
|
|
| 77 |
|
Warrant expense |
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| 129 |
|
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,156 |
|
|
| 4,156 |
|
|
| — |
|
|
| 4,156 |
|
|
| 9 |
|
|
| 4,165 |
|
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (513 | ) |
|
| (513 | ) |
|
| — |
|
|
| (513 | ) |
|
| — |
|
|
| (513 | ) |
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 |
|
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 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows used in operating activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (541,668 | ) |
| $ | (30,289 | ) |
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 17,752 |
|
|
| 21,341 |
|
Amortization of deferred financing costs and original issuance discounts |
|
| 1,202 |
|
|
| 1,143 |
|
Provision for doubtful accounts |
|
| 1,119 |
|
|
| 371 |
|
Deferred income tax benefit |
|
| (54,991 | ) |
|
| (9,383 | ) |
Change in operating lease liability/asset |
|
| (389 | ) |
|
| (19,693 | ) |
Undistributed income in equity method investments |
|
| (144 | ) |
|
| (198 | ) |
Loss on disposal of assets |
|
| 40 |
|
|
| 94 |
|
Non-cash adjustment for store impairment and restructuring charges |
|
| 16,277 |
|
|
| 18,009 |
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| — |
|
Non-employee equity-based compensation (see Note 19 – Kazzam, LLC) |
|
| 1,033 |
|
|
| 129 |
|
Stock option expense |
|
| 354 |
|
|
| 370 |
|
Restricted stock unit expense – time-based |
|
| 621 |
|
|
| 392 |
|
Directors – non-cash compensation |
|
| 75 |
|
|
| 77 |
|
Changes in operating assets and liabilities, net of effects of acquired businesses: |
|
|
|
|
|
|
|
|
Decrease in accounts receivable |
|
| 27,635 |
|
|
| 8,022 |
|
Decrease (increase) in inventories |
|
| 23,205 |
|
|
| (6,426 | ) |
Increase in prepaid expenses and other current assets |
|
| (26,661 | ) |
|
| (7,935 | ) |
Decrease in accounts payable, accrued expenses and income taxes payable |
|
| (76,138 | ) |
|
| (76,911 | ) |
Net cash used in operating activities |
|
| (74,030 | ) |
|
| (100,887 | ) |
Cash flows used in investing activities: |
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions, net of cash acquired |
|
| — |
|
|
| (545 | ) |
Capital expenditures |
|
| (10,726 | ) |
|
| (12,393 | ) |
Proceeds from disposal of property and equipment |
|
| 7 |
|
|
| 10 |
|
Net cash used in investing activities |
|
| (10,719 | ) |
|
| (12,928 | ) |
Cash flows provided by financing activities: |
|
|
|
|
|
|
|
|
Repayment of loans, notes payable and long-term obligations |
|
| (3,932 | ) |
|
| (23,495 | ) |
Proceeds from loans, notes payable and long-term obligations |
|
| 253,030 |
|
|
| 114,260 |
|
Stock repurchases |
|
| (85 | ) |
|
| (156 | ) |
Exercise of stock options |
|
| — |
|
|
| 1,088 |
|
Net cash provided by financing activities |
|
| 249,013 |
|
|
| 91,697 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (4,863 | ) |
|
| 2,216 |
|
Net decrease in cash and cash equivalents and restricted cash |
|
| 159,401 |
|
|
| (19,902 | ) |
Cash and cash equivalents and restricted cash at beginning of period |
|
| 35,176 |
|
|
| 59,219 |
|
Cash and cash equivalents and restricted cash at end of period |
| $ | 194,577 |
|
| $ | 39,317 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 35,927 |
|
| $ | 42,484 |
|
Cash paid during the period for income taxes, net of refunds |
| $ | 11,368 |
|
| $ | 3,708 |
|
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 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share)
Note 1 – Description of Business
Party City Holdco Inc. (the “Company” or “Party City Holdco”) is athe leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods.goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is a leading player in its category and vertically integrated in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery. Thestationery throughout the world. As of March 31, 2020 the Company’s retail operations include over 900854 specialty retail party supply stores (including franchise stores) inthroughout the United States and Canada,Mexico operating under the namenames Party City
In March 2020, the World Health Organization declared COVID-19 a networkglobal pandemic, and governmental authorities around the world have implemented measures to reduce the spread of approximately 250 - 300the virus. The global spread of COVID-19 and the measures to contain it have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets. In response to COVID-19, to safeguard the health and safety of its team members and customers, the Company temporarily closed all of its corporate retail stores as of March 18, 2020. During the temporary Halloween City stores.store closures, the Company offered curbside pickup and the Company’s e-commerce site, www.partycity.com, remained fully operational. However, quarantines, stay-at-home orders and related measures had significantly reduced consumer spending as well as customer demand for our products. In addition, these restrictions and other dislocations caused by the outbreak have disrupted, and may continue to the Company’s retail operations, it is also a global designer, manufacturerdisrupt, our planning, branding and distributoradministrative functions, as well as that of decorated party supplies, with products found in over 40,000 retail outlets, including independent party supply stores, mass merchants, grocery retailers,
Note 2 – Basis of Presentation and Recently Issued Accounting Pronouncements
The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its majority-owned and controlled entities. All intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included in the unaudited condensed consolidated financial statements.
The majority of our retail operations define a fiscal year (“Fiscal Year”) as the
Operating results for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2019.2020. Our business is subject to substantial seasonal variations as our retail segment has historically realized a significant portion of its net sales, cash flows and net income in the fourth quarter of each year, principally due to its Halloween season sales in October and, to a lesser extent, other
Recently Issued and Adopted Accounting Pronouncements
In JuneAugust 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. The new guidance improves and clarifies the fair value measurement disclosure requirements of ASC 820. The new disclosure requirements include the disclosure of the changes in unrealized gains or losses included in other comprehensive (loss)
income for recurring Level 3 fair value measurements held at the end of the reporting period and the explicit requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The other provisions of ASU 2018-13 also include eliminated and modified disclosure requirements. The guidance was effective for fiscal years beginning after December 15, 2019. This ASU had no significant impact on the Company’s condensed consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
In August 2017, the FASB issued ASU
In June 2016, the FASB issued ASU
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. Judgment is still evaluatingrequired in assessing the ultimate realization of these receivables, including consideration of the Company’s history of receivable write-offs, the level of past due accounts and the economic status of the Company’s customers. In an effort to identify adverse trends relative to customer economic status, the Company assesses the financial health of the markets it operates in and performs periodic credit evaluations of its customers and ongoing reviews of account balances and aging of receivables. Amounts are considered past due when payment has not been received within the time frame of the credit terms extended. Write-offs are charged directly against the allowance for doubtful accounts and occur only after all collection efforts have been exhausted. The Company will continue to actively monitor the impact of the ASUCOVID-19 pandemic on its consolidated financial statements.
In February 2016, the FASB issued ASU
The Company adopted the new lease standard during the first quarter of 2019 and, to the extent required by the pronouncement, recognized a right of use asset and liability for all of its operating lease arrangements with terms of greater than twelve months. See the Company’s June 30, 2019 consolidated balance sheet for the impact of such adoption.
Note 3 – Store Impairment and Restructuring Charges
Each year, the Company typically closes approximately 10ten Party City stores as part of its typical network rationalization process and in response to ongoing consumer, market and economic changes that naturally arise in the business. During the six months ended June 30, 2019,
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Inventory reserves |
| $ | 11,696 |
|
| $ | 17,629 |
|
Operating lease asset impairment |
|
| 14,212 |
|
|
| 13,209 |
|
Property, plant and equipment impairment |
|
| 2,065 |
|
|
| 4,139 |
|
Labor and other costs incurred closing stores |
|
| 1,451 |
|
|
| — |
|
Severance |
|
| — |
|
|
| 661 |
|
Total |
| $ | 29,424 |
|
| $ | 35,638 |
|
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 | ||||
Amounts disclosed above represent the Company’s best estimate of the total charges that are expected to be recorded for such items. Whenrecorded. As the Company closes the stores, it will recordrecords charges for common area maintenance, insurance and taxes to be paid subsequent to such closures in accordance with the stores’ lease agreements. However, such amounts are expected to be immaterial. Additionally, the Company will continue to incurincurs costs while moving inventory, cleaning the stores and returning them to their original condition. Such costs are also expected to be immaterial.
The fair values of the operating lease assets and property, plant and equipment were determined based on estimated future discounted cash flows for such assets using market participant assumptions, including data on the ability to
The charge for inventory reserves is related to both an estimate of the inventory that will beis disposed of following the closures of the stores and an estimate of inventory that will beis sold below cost prior to such closures. The charge for inventory reserves was recorded in cost of sales in the Company’s statement of operations and comprehensive income (loss).loss. The other charges were recorded in Store impairment and restructuring charges in the Company’s statement of operations and comprehensive income (loss).
The Company cannot guarantee that it will be able to achieve the anticipated benefits from the store optimization program. If the Company is unable to achieve such benefits, its results of operations and financial condition could be affected.
Note 4 – Goodwill and Intangibles Impairment
The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of October 1 or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and other assumptions, to estimate the fair value of goodwill and indefinite lived intangible assets. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.
During the three months ended March 31, 2020, the Company identified intangible assets’ impairment indicators associated with its market capitalization and significantly reduced customer demand for its products due to COVID-19. As a result, the Company performed interim impairment tests on the goodwill at its retail and wholesale reporting units and its other indefinite lived intangible assets as of March 31, 2020. The interim impairment tests were performed using an income approach. The Company recognized non-cash pre-tax goodwill impairment charges at March 31, 2020 of $253,110 and $148,326 against the goodwill associated with its retail and wholesale reporting units, respectively.
There was 0 goodwill impairment charge for the three months ended March 31, 2019.
In addition, during the three months ended March 31, 2020, the Company recorded an impairment charge of $131,287 and $3,925 on its Party City and Halloween City tradenames, respectively. During 2019, there was 0 impairment on the Party City trade name and the Company recorded a Halloween City trade name impairment charge of $6,575.
Note 5 – Sale/Leaseback Transaction
In June 2019, the Company 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. Simultaneously, the Company entered into twenty yeartwenty-year leases for each of the facilities. The aggregate sale price was $128,000 and, during the three monthsyear ended June 30,December 31, 2019, the Company recorded a $58,381 gain on the sale, net of transaction costs, in the Company’s condensed consolidated statement of operations and comprehensive income.
Under the terms of the lease agreements, the Company will paypays total rent of $8,320 during the first year and the annual rent will increase by 2% thereafter.
The Chester and Eden Prairie leases are being accounted for as operating leases and the sale of such properties is includedresulted in the gain above.
However, for the Los Lunas property, the present value of the lease payments is greater than substantially all of the fair value of the assets. Therefore, the lease is a finance lease and sale accounting treatment is prohibited. As such, the Company is accounting for the $12,080 of proceeds as a finance lease and hasfinancing lease. As of March 31, 2020, $11,944 is recorded such amount in long-term obligations in its June 30, 2019 condensed consolidated balance sheet.
In conjunction with the sale/leaseback transaction, during June 2019, the Company amended its Term Loan Credit Agreement. The amendment required the Company to use half of the proceeds from the transaction, net of costs, to paydown part of the outstanding balance under such debt agreement. Additionally, the amendment requiresrequired the Company to pay an immaterial “consent fee” to the lenders. As the Term Loan Credit Agreement is a loan syndication, the Company assessed, on a creditor-by-creditor basis, whether the amendment should be accounted for as an extinguishment or a modification. The Company concluded that, for each creditor, the amendment should be accounted for as a modification. Therefore, no capitalized deferred financing costs or original issuance discounts were written off in conjunction with the amendment.
During June 2019, the Company used proceeds from the sale (net of costs) of $125,864 to paydown outstanding debt.
Note 6 – Disposition of Assets
On October 1, 2019, the Company sold its Canadian-based Party City stores to a Canadian-based retailer for $131,711 and entered into a 10-year supply agreement under which the acquirer agreed to purchase product from the Company for such Party City stores, as well as the acquirer’s other stores. The Company expects to use $85 million of the net proceeds to paydown principal on the Term Loan, see Note 16 – Current and Long-Term Obligations.
Note 7 – Inventories
Inventories consisted of the following:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Finished goods |
| $ | 583,662 |
|
| $ | 606,036 |
|
Raw materials |
|
| 30,795 |
|
|
| 34,259 |
|
Work in process |
|
| 15,418 |
|
|
| 18,124 |
|
|
| $ | 629,875 |
|
| $ | 658,419 |
|
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 | |||||
Inventories are valued at the lower of cost or net realizable value. The Company principally determines the cost of inventory using the weighted average method.
The Company estimates retail inventory shrinkage for the period between physical inventory dates on a
Note 68 – Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“the CARES Act”) was signed into law. The CARES Act is a $2 trillion legislative package intended to provide economic relief to companies impacted by the COVID-19 pandemic, and it enacted a number of Internal Revenue Code modifications which are of particular benefit to the Company, including: 5-year net operating loss carryback, temporary relaxation of the limitations on interest deductions, qualified improvement property eligible for bonus depreciation, employee retention tax credits and deferral of payment of payroll tax.
The effective income tax rate for the sixthree months ended June 30, 2019, 23.5%,March 31, 2020 of 15.7% is higher thandifferent from the statutory rate of 21.0% primarily due to
Note 79 – Changes in Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss consisted of the following:
|
| Three Months Ended March 31, 2020 |
| |||||||||
|
| Foreign Currency Adjustments |
|
| Impact of Foreign Exchange Contracts, Net of Taxes |
|
| Total, Net of Taxes |
| |||
Balance at December 31, 2019 |
| $ | (37,434 | ) |
| $ | 1,700 |
|
| $ | (35,734 | ) |
Other comprehensive (loss) income before reclassifications, net of tax |
|
| (12,201 | ) |
|
| 11 |
|
|
| (12,190 | ) |
Gains reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax |
|
| — |
|
|
| (23 | ) |
|
| (23 | ) |
Net current-period other comprehensive loss |
|
| (12,201 | ) |
|
| (12 | ) |
|
| (12,213 | ) |
Balance at March 31, 2020 |
| $ | (49,635 | ) |
| $ | 1,688 |
|
| $ | (47,947 | ) |
|
| Three Months Ended March 31, 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 |
|
| 4,156 |
|
|
| 62 |
|
|
| 4,218 |
|
Gain reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax |
|
| — |
|
|
| (575 | ) |
|
| (575 | ) |
Net current-period other comprehensive income |
|
| 4,156 |
|
|
| (513 | ) |
|
| 3,643 |
|
Balance at March 31, 2019 |
| $ | (45,900 | ) |
| $ | 342 |
|
| $ | (45,558 | ) |
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 | ) | ||||
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 | ) | ||||
Note 810 – Capital Stock
At June 30, 2019,March 31, 2020, the Company’s authorized capital stock consisted of 300,000,000 shares of $0.01 par value common stock and 15,000,000 shares of $0.01 par value preferred stock.
Note 911 – Segment Information
Industry Segments
The Company has two2 identifiable business segments. The Wholesale segment designs, manufactures, sources and distributes decorated party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Retail segment operates specialty retail party supply stores in the United States, and Canada, principally under the names Party City and Halloween City, and it operates e-commerce websites, principally through the domain name Partycity.com. The Retail segment also franchises both individual stores and franchise areas throughout the United States, Mexico and Puerto Rico, principally under the name Party City. The Company’s industry segment data for the three months ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018 was as follows:
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 214,798 |
|
| $ | 301,394 |
|
| $ | 516,192 |
|
Royalties and franchise fees |
|
| — |
|
|
| 1,582 |
|
|
| 1,582 |
|
Total revenues |
|
| 214,798 |
|
|
| 302,976 |
|
|
| 517,774 |
|
Eliminations |
|
| (103,731 | ) |
|
| — |
|
|
| (103,731 | ) |
Net revenues |
| $ | 111,067 |
|
| $ | 302,976 |
|
| $ | 414,043 |
|
Loss from operations |
| $ | (163,548 | ) |
| $ | (447,822 | ) |
| $ | (611,370 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 25,120 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| 5,676 |
|
Loss before income tax benefits |
|
|
|
|
|
|
|
|
| $ | (642,166 | ) |
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 290,301 |
|
| $ | 378,153 |
|
| $ | 668,454 |
|
Royalties and franchise fees |
|
| — |
|
|
| 2,014 |
|
|
| 2,014 |
|
Total revenues |
|
| 290,301 |
|
|
| 380,167 |
|
|
| 670,468 |
|
Eliminations |
|
| (157,352 | ) |
|
| — |
|
|
| (157,352 | ) |
Net revenues |
| $ | 132,949 |
|
| $ | 380,167 |
|
| $ | 513,116 |
|
Income (loss) from operations |
| $ | 2,223 |
|
| $ | (12,520 | ) |
| $ | (10,297 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 29,257 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| 1,254 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
| $ | (40,808 | ) |
In 2019, the Company executedinitiated a store optimization program under which the Company plans to closeidentified approximately 55 Party City stores during the course of 2019.to be closed. In addition, 21 stores were identified in 2020 for closure at a future date. In conjunction with the program, during the three months and six months ended June 30, 2019, the Company’s Retail segment recorded $29,424 and $35,638 of store impairment and restructuring charges in the first quarter of $8,8902020 and $44,528,2019, respectively. See Note 3 – Store Impairment and Restructuring Charges for further detail.
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 | ||||||||||
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 | ||||||||||
During the three months ended March 31, 2019,2020, the Company adopted ASU
Note 1012 – Commitments and Contingencies
The Company is a party to certain claims and litigation in the ordinary course of business. The Company does not believe these proceedings will result, individually or in the aggregate, in a material adverse effect on its financial condition or future results of operations.
Note 1113 – Derivative Financial Instruments
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, when deemed appropriate, uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed through the use of derivative financial instruments are interest rate risk and foreign currency exchange rate risk.
Interest Rate Risk Management
As part of the Company’s risk management strategy, the Company periodically uses interest rate swap agreements to hedge the variability of cash flows on floating rate debt obligations. Accordingly, interest rate swap agreements are reflected in the consolidated balance sheets at fair value and the related gains and losses on these contracts are deferred in equity and recognized in interest expense over the same period in which the related interest payments being hedged are recognized in income. The Company did not utilize interest rate swap agreements during the sixthree months ended June 30, 2019March 31, 2020 and the six months ended June 30, 2018.
Foreign Exchange Risk Management
A portion of the Company’s cash flows are derived from transactions denominated in foreign currencies. In order to reduce the uncertainty of foreign exchange rate movements on transactions denominated in foreign currencies, including the British Pound Sterling, the Canadian Dollar, the Euro, the Malaysian Ringgit, the Australian Dollar, and the Mexican Peso, the Company enters into foreign exchange contracts with major international financial institutions. These forward contracts, which typically mature within
The foreign currency exchange contracts are reflected in the condensed consolidated balance sheets at fair value. At June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company had foreign currency exchange contracts that qualified for hedge accounting. No components of these agreements were excluded in the measurement of hedge effectiveness. As these hedges are 100% effective, there is no current impact on earnings due to hedge ineffectiveness. The Company anticipates that substantially all unrealized gains and losses in accumulated other comprehensive loss related to these foreign currency exchange contracts will be reclassified into earnings by June 2020.
The following table displays the fair values of the Company’s derivatives at June 30, 2019March 31, 2020 and December 31, 2018:2019:
|
| Derivative Assets |
|
| Derivative Liabilities |
| ||||||||||||||||||
|
| March 31, 2020 |
|
| December 31, 2019 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||
|
| Balance Sheet Line |
| Fair Value |
|
| Balance Sheet Line |
| Fair Value |
|
| Balance Sheet Line |
| Fair Value |
|
| Balance Sheet Line |
| Fair Value |
| ||||
Foreign Exchange Contracts |
| (a) PP |
| $ | 2 |
|
| (a) PP |
| $ | — |
|
| (b) AE |
| $ | — |
|
| (b) AE |
| $ | — |
|
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 |
The following table displays the notional amounts of the Company’s derivatives at June 30, 2019March 31, 2020 and December 31, 2018:2019:
Derivative Instrument |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Foreign Exchange Contracts |
| $ | 1,800 |
|
| $ | 300 |
|
Derivative Instrument | June 30, 2019 | December 31, 2018 | ||||||
Foreign Exchange Contracts | $ | 6,200 | $ | 10,942 | ||||
Note 1214 – Fair Value Measurements
The provisions of ASC Topic 820, “Fair Value Measurement”, define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
• | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
• | Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
• | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
During 2017, the Company acquired a 28%
During 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity, Kazzam, LLC (“Kazzam”), for the purpose of designing, developing and launching an online exchange platform for party-related services. As part of Ampology’s compensation for designing, developing and launching the exchange platform, Ampology received an ownership interest in Kazzam. The interest hashad been recorded as redeemable securities in the mezzanine of the Company’s consolidated balance sheet as in the future, Ampology hashad the right to cause the Company to purchase the interest. On a recurring basis, theThe liability iswas adjusted to the greater of the current fair value or the original fair value at the time at which the ownership interest was issued (adjusted for any subsequent changes in the ownership interest percentage).On March 23, 2020, the Company agreed to purchase all of Ampology’s interest in Kazzam. Refer to Note 19 – Kazzam, LLC for further detail. As of both June 30, 2019March 31, 2020 and December 31, 2018,2019 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 December 31, 2018 | |||||||||||||
Derivative assets | $ | — | $ | 115 | $ | — | $ | 115 | ||||||||
Derivative liabilities | — | — | — | — | ||||||||||||
Punchbowl put liability | — | — | 316 | 316 |
The majority of the Company’s non-financial instruments, which include goodwill, intangible assets, lease assets, inventories and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for goodwill and indefinite-lived intangible assets), a non-financial instrument is required to be evaluated for impairment. If the Company determines that the non-financial instrument is impaired, the Company would be required to write down the non-financial instrument to its fair value. During the six months ended June 30, 2019, the Company initiated a store optimization program under which it plans to close approximately 55 Party City stores during the course of 2019. In conjunction with the program, during the six months ended June 30, 2019, the Company recorded impairment charges for its property, plant and equipment and operating lease assets. See Note 3 – Store Impairment and Restructuring Charges and Note 4 – Goodwill and Intangibles Impairment for further detail.
The carrying amounts for cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximated fair value at June 30, 2019March 31, 2020 because of the short-term maturities of the instruments and/or their variable rates of interest.
The carrying amounts and fair values of borrowings under the Term Loan Credit Agreement and the Company’s senior notes as of June 30, 2019March 31, 2020 are as follows:
|
| March 31, 2020 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Term Loan Credit Agreement |
| $ | 715,940 |
|
| $ | 349,178 |
|
6.125% Senior Notes – due 2023 |
|
| 347,221 |
|
|
| 80,500 |
|
6.625% Senior Notes – due 2026 |
|
| 495,104 |
|
|
| 55,000 |
|
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 |
The fair values of the Term Loan Credit Agreement and the senior notesSenior Notes represent Level 2 fair value measurements as the debt instruments trade in inactive markets. The carrying amounts for other long-term debt approximated fair value at June 30, 2019 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.
Note 1315 – Earnings Per Share
Basic earnings per share are computed by dividing net income attributable to common shareholders of Party City Holdco Inc. by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated based on the weighted average number of outstanding common shares plus the dilutive effect of stock options and warrants, as if they were exercised, and restricted stock units, as if they vested.
Basic and diluted income (loss)loss per share is as follows:
|
| Three Months Ended |
| |||||
|
| March 31, 2020 |
|
| March 31, 2019 |
| ||
Net loss attributable to common shareholders of Party City Holdco Inc. |
| $ | (541,513 | ) |
| $ | (30,218 | ) |
Weighted average shares - Basic |
|
| 93,395,609 |
|
|
| 93,174,553 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Warrants |
|
| — |
|
|
| — |
|
Restricted stock units |
|
| — |
|
|
| — |
|
Stock options |
|
| — |
|
|
| — |
|
Weighted average shares - Diluted |
|
| 93,395,609 |
|
|
| 93,174,553 |
|
Net loss per share attributable to common shareholders of Party City Holdco Inc. - Basic |
| $ | (5.80 | ) |
| $ | (0.32 | ) |
Net loss per share attributable to common shareholders of Party City Holdco Inc. - Diluted |
| $ | (5.80 | ) |
| $ | (0.32 | ) |
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 | ||||||||
During the three months ended June 30, 2019 and June 30, 2018, 2,118,443March 31, 2020, 3,450,209 stock options, 1,000,000 warrants and 2,494,428413,968 restricted stock options, respectively, units were excluded from the calculation of diluted earningsnet loss per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive. Additionally, duringDuring the three months ended June 30,March 31, 2019, and June 30, 2018, 3,613,408 stock options, 596,000 warrants and 596,000 warrants, respectively,142,130 restricted stock units were excluded from the calculation of diluted earningsnet loss per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive. Further, during the three months ended June 30, 2019
Note 16 – Current and June 30, 2018, 199,978 restricted stock units and 201,270 restricted stock units, respectively, were excluded from the calculation of diluted earnings per share as they were anti-dilutive.
Long-term obligations at June 30, 2019March 31, 2020 and December 31, 20182019 consisted of the following:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Term Loan Credit Agreement |
| $ | 716,195 |
|
| $ | 718,596 |
|
6.125% Senior Notes – due 2023 |
|
| 347,221 |
|
|
| 347,015 |
|
6.625% Senior Notes – due 2026 |
|
| 495,104 |
|
|
| 494,910 |
|
Finance lease obligations |
|
| 14,922 |
|
|
| 14,990 |
|
Total long-term obligations |
|
| 1,573,442 |
|
|
| 1,575,511 |
|
Less: current portion |
|
| (98,588 | ) |
|
| (71,524 | ) |
Long-term obligations, excluding current portion |
| $ | 1,474,854 |
|
| $ | 1,503,987 |
|
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 disclosed in Note 6 – Disposition of Assets, the Company expects to use $85 million of the net proceeds from the sale of its Canadian-based stores to paydown the Term Loan.
Prior to April 2019, the Company had a $540,000 asset-based revolving credit facility (with a seasonal increase to $640,000 during a certain period of each calendar year) (“ABL(the “ABL Facility”), which matures during
In the first quarter of 2020 the Company amended its Term Loan Credit Agreement and financed its Los Lunas, New Mexico facility via a finance lease, which is includeddrew down $253.0 million under the ABL Facility. At March 31, 2020, $150 million was invested in US Treasury funds with maturities of less than three months at March 31, 2020. The Company had approximately $71.3 million of availability under the table above. SeeABL Facility as of March 31, 2020.
Refer to Note 420 – Subsequent Events forfurther detail.
Note 1517 – Revenue from Contracts with Customers
The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2019March 31, 2020 and June 30, 2018:2019:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Retail Net Sales: |
|
|
|
|
|
|
|
|
North American Party City Stores |
| $ | 259,878 |
|
| $ | 346,140 |
|
Global E-commerce |
|
| 29,753 |
|
|
| 31,808 |
|
Other |
|
| 11,763 |
|
|
| 205 |
|
Total Retail Net Sales |
| $ | 301,394 |
|
| $ | 378,153 |
|
Royalties and Franchise Fees |
|
| 1,582 |
|
|
| 2,014 |
|
Total Retail Revenue |
| $ | 302,976 |
|
| $ | 380,167 |
|
Wholesale Net Sales: |
|
|
|
|
|
|
|
|
Domestic |
| $ | 58,754 |
|
| $ | 73,821 |
|
International |
|
| 52,313 |
|
|
| 59,128 |
|
Total Wholesale Net Sales |
| $ | 111,067 |
|
| $ | 132,949 |
|
Total Consolidated Revenue |
| $ | 414,043 |
|
| $ | 513,116 |
|
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 | ||||||||
Note 1618 – Cash, Cash Equivalents and Restricted Cash
The Company’s June 30, 2019March 31, 2020 consolidated balance sheet included $47,131$194,433 of cash and cash equivalents (with maturities of less than three months) and $0$144 of restricted cash and the Company’s December 31, 20182019 consolidated balance sheet included $58,909$34,917 of cash and cash equivalents and $310$259 of restricted cash.
Restricted cash is recorded in Prepaid expenses and other current assets.
Note 1719 – Leases
During the first quarter of 2019.
At December 31, 2019, though the Company entersowned 26% of Kazzam’s equity, Kazzam was a variable interest entity and the Company consolidated Kazzam into short leases (generally less than four months) in order to operate its temporary stores.the Company’s financial statements. Further, the Company enters into leases of equipment, copiers, printers and automobiles.
In January 2020, the Company and Ampology terminated certain services agreements and warrants that Ampology had in the Company stock. The liabilitiesparties concurrently entered into an interim transition agreement for which expenses are recorded as development stage expenses.
On March 23, 2020, the Company’s finance leases are includedCompany agreed to purchase Ampology’s interest in Current portion of long-term obligationsKazzam in exchange for a three-year royalty on net service revenue and Long-term obligations, excluding current portion, on the Company’s consolidated balance sheet.
Note 20 – Subsequent Events
Transaction Support Agreement with Certain Existing Noteholders
On May 28, 2020, the Company and an ad hoc committee of holders (the “Consenting Noteholders”) of approximately 52% of the aggregate principal amount of the 6.125% Senior Notes due 2023 (the “2023 Notes”) and the 6.625% Senior Notes due 2026 (the “2026 Notes” and, together with the 2023 Notes, the “Existing Notes”), each issued by Party City Holdings Inc. (“Holdings”), entered into an agreement (together with all exhibits, annexes and schedules thereto and as subsequently amended on June 9, 2020, the “Transaction Support Agreement”), whereby the Consenting Noteholders agreed to support a set of transactions to be paid based on sales levels. The Company’s cost for such leases is immaterial. Variable lease consideration is not included in lease payments until the contingency is resolved.
Under the Transaction Support Agreement, each of the Company’s store leases,Company and certainthe Consenting Noteholders have undertaken customary commitments to one another. The Company has agreed, among other things, to solicit approval of the Company’sTransactions by the holders of the Existing Notes through the Exchange Offer (as defined below) and to negotiate in good faith the definitive documents that will govern the Transactions. The Consenting Noteholders have agreed, among other leases, contain renewal options. However,things, to timely vote, exchange, and tender their Existing Notes in connection with the renewal periodsTransactions, to use commercially reasonable efforts to support approval and implementation of the Transactions, and to negotiate in good faith the definitive documents that will govern the Transactions.
The Transactions consist of the Exchange Offer, the Consent Solicitation (as defined below), the Rights Offering (as defined below) and the Private Placement (as defined below).
As of June 12, 2020, the Consenting Noteholders held a total of approximately 54% of the aggregate principal amount of the Existing Notes.
Exchange Offer
Under the Transaction Support Agreement, the Company will conduct an exchange offer (the “Exchange Offer”) in respect of the Existing Notes in which the Company will offer to exchange any and all Existing Notes, including accrued and unpaid interest on account of such notes to, but not including, the settlement date (the “Settlement Date”) of the Exchange Offer, (in each case assuming all Existing Notes are generallyvalidly tendered and not includedvalidly withdrawn in the Exchange Offer) for:
• | shares of common stock of Party City Holdco Inc., par value $0.01 per share, representing 19.90% of such common stock outstanding on the Settlement Date prior to the settlement of the Exchange Offer (the “Shares”); |
• | $100.0 million aggregate principal amount of 10.00% Senior Secured Notes due 2026 (the “Second Lien Issuer Exchange Notes”) to be issued by a newly formed limited liability company, a direct wholly owned subsidiary of Holdings, and Anagram International, Inc. (together, the “Issuer”). The Second Lien Issuer Exchange Notes will be secured by second-priority liens on all assets of the Issuer and its subsidiaries guaranteeing such notes and all of the Issuer’s capital stock, subject to certain agreed upon exceptions; and |
• | $185.0 million aggregate principal amount of variable rate Senior Secured Notes due 2025 (the “First Lien Party City Exchange Notes”) to be issued by Holdings and secured by first-priority liens on all assets of Holdings and its subsidiaries that currently secure the Company’s existing senior credit facilities. |
Consent Solicitation
The Company will seek, and lease liabilities for such leases as exerciseholders of Existing Notes who tender pursuant to the Exchange Offer will be required to deliver, consents to certain amendments (the “Proposed Amendments”) to each of the optionsindentures governing the Existing Notes (together, the “Existing Indentures”). The Proposed Amendments will:
• | allow for the issuance of the New Money First Lien Issuer Notes (as defined below), the Second Lien Issuer Exchange Notes and the First Lien Party City Exchange Notes; |
• | allow for the issuance of the Shares; |
• | eliminate substantially all of the restrictive covenants and certain events of default and related provisions contained in the Existing Indentures; |
• | waive any related cross-defaults under the Existing Indentures; |
• | release any guarantees provided by guarantors (or groups of guarantors) under the Existing Indentures that do not constitute Significant Subsidiaries (as defined in the Existing Indentures); |
• | prohibit the designation of any future guarantors under the Existing Indentures; and |
• | waive any requirement to use excess proceeds from any previous asset sales to make an offer to repurchase the Existing Notes under the provisions of the asset sales covenant in the Existing Indentures. |
Rights Offering
Simultaneously with the launch of the Exchange Offer and the Consent Solicitation, the Company will initiate a rights offering (the “Rights Offering”) whereby holders of the Existing Notes eligible to participate in the Exchange Offer (“Eligible Holders”) who validly tender (and do not validly withdraw) their Existing Notes for exchange in the Exchange Offer will be provided the right (a “Right”) to purchase a pro rata portion of $41.5 million of 15.00% Senior Secured Notes due 2025 (the “New Money First Lien Issuer Notes”) to be issued by the Issuer and secured by first-priority liens on all assets of the Issuer and its subsidiaries guaranteeing such notes and all of the Issuer’s capital stock, subject to certain agreed upon exceptions.
Certain of the Consenting Noteholders (as designated from time to time, the “Backstop Parties”) have agreed in the Transaction Support Agreement to, and will, enter into a backstop and private placement agreement (the “Backstop and Private Placement Agreement”) with the Company prior to launch of the Transactions, to purchase up to $41.5 million of New Money First Lien Issuer Notes. The Backstop and Private Placement Agreement will include a $41.5 million commitment by the Backstop Parties to purchase the amount of New Money First Lien Issuer Notes that may be issued in the Rights Offering, representing the aggregate amount the Backstop Parties may purchase in the Rights Offering plus an additional amount of New Money First Lien Issuer Notes that are otherwise available to be purchased in the Rights Offering but for which applicable Rights have not been exercised by other Eligible Holders.
As consideration for entering into the Backstop and Private Placement Agreement and providing their respective commitments, the Company has agreed to pay to each of the Backstop Parties (i) its pro rata portion of an aggregate premium of $5.275 million in the form of New Money First Lien Issuer Notes plus (ii) its pro rata portion of an aggregate premium of $5.0 million in the form of First Lien Party City Exchange Notes.
Private Placement
On May 28, 2020, the Company and Barings LLC (including certain funds or advisory accounts managed, advised or sub-advised by it, “Barings”) entered into a private placement commitment agreement (the “Private Placement Commitment Agreement”). The Private Placement Commitment Agreement includes a commitment by Barings to purchase $40.0 million of New Money First Lien Issuer Notes in a private transaction (the “Private Placement”) exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the terms of the Transaction Support Agreement, the Backstop and Private Placement Agreement will also contain commitments by certain parties, including Barings, to purchase $58.5 million of New Money First Lien Issuer Notesin the Private Placement. As consideration for entering into the Backstop and Private Placement Agreement (and, with respect to Barings, the Private Placement Commitment Agreement) and providing commitments in the aggregate amount of
$58.5 million, the Company will pay to each party participating in the Private Placement an agreed portion of an aggregate premium of $4.725 million in the form of New Money First Lien Issuer Notes.
As of June 12, 2020, the Company has secured commitments in an aggregate amount of $58.5 million of New Money First Lien Issuer Notes in connection with the Private Placement.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
On April 9, 2020, the Company received written notice (the “Notice”) from the New York Stock Exchange (the “NYSE”) that the Company is not reasonably certain.
Under NYSE continued listing standards, the Company has a period of six months following the receipt of the Notice to regain compliance with the minimum share price requirement. However, on April 20, 2020, the NYSE made a rule filing with the Securities and Exchange Commission for relief on the $1.00 share closing price standard, which became effective on April 21, 2020. The relief provides issuers additional time to cure noncompliance with the $1.00 share closing price standard. As a result, the Company’s new noncompliance cure expiration date is December 18, 2020. In order to regain compliance, on the last trading day of any calendar month during the cure period, the Company’s common stock, $0.01 par value per share (the “Common Stock”), must have (i) a closing price of at least $1.00 per share and (ii) an average closing price of at least $1.00 per share over the 30-trading day period ending on the last trading day of such month. If the Company is unable to determineregain compliance, the discount rates that are implicit in its operating leases. Therefore, forNYSE will initiate procedures to suspend and delist the Common Stock.
The Notice has no immediate impact on the listing of the Company’s Common Stock, which will continue to be listed and traded on the NYSE during the cure period, subject to the Company’s compliance with the other listing requirements of the NYSE. The Common Stock will continue to trade under the symbol “PRTY” but will have an added designation of “.BC” to indicate the status of the Common Stock as “below compliance” with the NYSE continued listing standards. The “.BC” indicator will be removed at such leases,time as the Company is utilizing its incremental borrowing rate.
The Notice does not affect the Company’s operating lease cost was $49,152 and $97,447, respectively. Such amount excludes impairment charges recorded in conjunctionbusiness operations or its reporting obligations with the Company’s store optimization program (see Note 3).
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 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References throughout this document to the “Company” include Party City Holdco Inc. and its subsidiaries. In this document the words “we,” “our,” “ours” and “us” refer only to the Company and its subsidiaries and not to any other person.
Business Overview
Our Company
We are the leading decorated party goods omni-channel retailer,company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. With over 900 locations (inclusiveThe Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is a leading player in its category and vertically integrated in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. As of franchisedMarch 31, 2020, the Company’s retail operations include 854 specialty retail party supply stores (including franchise stores), we have throughout the only
In addition to our retail operations, we are also one of the largest global designers, manufacturers and distributors of decorated consumer party products, with items found in over 40,000 retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers,
How We Assess the Performance of Our Company
In assessing the performance of our company, we consider a variety of performance and financial measures for our two operating segments, Retail and Wholesale. These key measures include revenues and gross profit, comparable retail same-store sales and operating expenses. We also review other metrics such as adjusted net income (loss), adjusted net income (loss) per common share – diluted and adjusted EBITDA. For a discussion of our use of these measures and a reconciliation of adjusted net income (loss) and adjusted EBITDA to net income (loss), please refer to “Financial Measures - Adjusted EBITDA,” “Financial Measures - Adjusted Net Income (Loss)” and “Financial Measures - Adjusted Net Income (Loss) Per Common Share – Diluted” below.
Segments
We have two reporting segments: Retail and Wholesale.
Our retail segment generates revenue primarily through the sale of our party supplies, which are sold under the Amscan, Designware, Anagram and Costumes USA brand names through Party City, Halloween City and PartyCity.com. During 2018, 79%2019, 80% of the product that was sold by our retail segment was supplied by our wholesale segment and 23%24% of the product that was sold by our retail segment was self-manufactured.
Our wholesale revenues are generated from the sale of decorated party goods for all occasions, including paper and plastic tableware, accessories and novelties, costumes, metallic and latex balloons and stationery. Our products are sold at wholesale to party goods superstores (including our franchise stores), other party goods retailers, mass merchants, independent card and gift stores, dollar stores and
Intercompany sales between the Wholesale and the Retail segment are eliminated, and the wholesale profits on intercompany sales are deferred and realized at the time the merchandise is sold to the retail consumer. For segment reporting purposes, certain general and administrative expenses and art and development costs are allocated based on total revenues.
Financial Measures
Revenues.
Under the terms of our agreements with our franchisees, we provide 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.
For most of our wholesale sales, control transfers upon the shipment of the product as: 1) legal title transfers on such date and 2) we have a present right to payment at such time. Wholesale sales returns are not significant as we generally only accept the return of 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.
Intercompany sales from our wholesale operations to our retail stores are eliminated in our consolidated total revenues.
Comparable Retail Same-Store Sales.
Cost of Sales.
Our cost of sales increases in higher volume periods as the direct costs of manufactured and purchased goods, inventory shrinkage and freight are generally tied to net sales. However, other costs are largely fixed or vary based on other factors and do not necessarily increase as sales volume increases. Changes in the mix of our products may also impact our overall cost of sales. The direct costs of manufactured and purchased goods are influenced by raw material costs (principally paper, petroleum-based resins and cotton), domestic and international labor costs in the countries where our goods are purchased or manufactured and logistics costs associated with transporting our goods. We monitor our inventory levels on an
Cost of sales related to sales from our wholesale segment to our retail segment are eliminated in our consolidated financial statements.
Wholesale Selling Expenses.
Retail Operating Expenses.
Franchise Expenses.
General and Administrative Expenses.
Art and Development Costs.
Development Stage Expenses.
Adjusted EBITDA.
Adjusted Net Income (Loss).
Adjusted Net Income (Loss) Per Common Share – Diluted.
Results of Operations
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of the virus. The global spread of COVID-19 and the measures to contain it have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets. In response to COVID-19, to safeguard the health and safety of its team members and customers, the Company temporarily closed all of its corporate retail stores as of March 18, 2020. During the temporary store closures, the Company offered curbside pickup and the Company’s e-commerce site, www.partycity.com, remained fully operational. However, quarantines, stay-at-home orders and related measures had significantly reduced consumer spending as well as customer demand for our products. In addition, these restrictions and other dislocations caused by the outbreak have disrupted, and may continue to disrupt, our planning, branding and administrative functions, as well as that of our suppliers, transporters and customers.
This led to a temporary furlough of approximately 90% of store employees and 70% of wholesale, manufacturing and corporate employees for whom the Company provides health benefits. In addition, there were non-payroll expense reductions including advertising and other store operating expenses, as well as professional and consulting fees, and cancellation of orders and negotiated receipt delays to manage inventory levels.
As of June 5, 2020, approximately 85% of our corporate retail stores have opened with store employees returning from furlough. But our business, operations, financial condition and liquidity have been and may continue to be materially and adversely affected. The disruption to the global economy and to our business, along with the decline in our stock price, negatively impacted the recoverability value of certain assets, including intangibles, and goodwill.
Three Months Ended June 30, 2019March 31, 2020 Compared To Three Months Ended June 30, 2018
The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the three months ended June 30, 2019March 31, 2020 and 2018.2019.
|
| Three Months Ended March 31, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 412,461 |
|
|
| 99.6 |
| % |
| $ | 511,102 |
|
|
| 99.6 |
| % |
Royalties and franchise fees |
|
| 1,582 |
|
|
| 0.4 |
|
|
|
| 2,014 |
|
|
| 0.4 |
|
|
Total revenues |
|
| 414,043 |
|
|
| 100.0 |
|
|
|
| 513,116 |
|
|
| 100.0 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 296,757 |
|
|
| 71.7 |
|
|
|
| 339,042 |
|
|
| 66.1 |
|
|
Wholesale selling expenses |
|
| 15,458 |
|
|
| 3.7 |
|
|
|
| 17,961 |
|
|
| 3.5 |
|
|
Retail operating expenses |
|
| 88,166 |
|
|
| 21.3 |
|
|
|
| 95,018 |
|
|
| 18.5 |
|
|
Franchise expenses |
|
| 3,309 |
|
|
| 0.8 |
|
|
|
| 3,303 |
|
|
| 0.6 |
|
|
General and administrative expenses |
|
| 59,996 |
|
|
| 14.5 |
|
|
|
| 41,925 |
|
|
| 8.2 |
|
|
Art and development costs |
|
| 5,322 |
|
|
| 1.3 |
|
|
|
| 5,929 |
|
|
| 1.2 |
|
|
Development stage expenses |
|
| 2,029 |
|
|
| 0.5 |
|
|
|
| 2,226 |
|
|
| 0.4 |
|
|
Store impairment and restructuring charges |
|
| 17,728 |
|
|
| 4.3 |
|
|
|
| 18,009 |
|
|
| 3.5 |
|
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| 129.6 |
|
|
|
| — |
|
|
| — |
|
|
Total expenses |
|
| 1,025,413 |
|
|
| 247.7 |
|
|
|
| 523,413 |
|
|
| 102.0 |
|
|
Loss from operations |
|
| (611,370 | ) |
|
| (147.7 | ) |
|
|
| (10,297 | ) |
|
| (2.0 | ) |
|
Interest expense, net |
|
| 25,120 |
|
|
| 6.1 |
|
|
|
| 29,257 |
|
|
| 5.7 |
|
|
Other expense, net |
|
| 5,676 |
|
|
| 1.4 |
|
|
|
| 1,254 |
|
|
| 0.2 |
|
|
Loss before income taxes |
|
| (642,166 | ) |
|
| (155.1 | ) |
|
|
| (40,808 | ) |
|
| (8.0 | ) |
|
Income tax benefit |
|
| (100,498 | ) |
|
| (24.3 | ) |
|
|
| (10,519 | ) |
|
| (2.1 | ) |
|
Net loss |
|
| (541,668 | ) |
|
| (130.8 | ) |
|
|
| (30,289 | ) |
|
| (5.9 | ) |
|
Less: Net loss attributable to noncontrolling interests |
|
| (155 | ) |
|
| — |
|
|
|
| (71 | ) |
|
| — |
|
|
Net loss attributable to common shareholders of Party City Holdco Inc. |
| $ | (541,513 | ) |
|
| (130.8 | ) | % |
| $ | (30,218 | ) |
|
| (5.9 | ) | % |
Net loss per share attributable to common shareholders of Party City Holdco Inc. – Basic |
| $ | (5.80 | ) |
|
|
|
|
|
| $ | (0.32 | ) |
|
|
|
|
|
Net loss per share attributable to common shareholders of Party City Holdco Inc. – Diluted |
| $ | (5.80 | ) |
|
|
|
|
|
| $ | (0.32 | ) |
|
|
|
|
|
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 |
Revenues
Total revenues for the secondfirst quarter of 20192020 were $563.9$414.0 million and were $2.9$99.1 million, or 0.5%19.3%, higherlower than the secondfirst quarter of 2018.2019. The following table sets forth the Company’s total revenues for the three months ended June 30, 2019March 31, 2020 and 2018.2019.
|
| Three Months Ended March 31, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Total Revenues |
| Dollars in Thousands |
|
| Percentage of Total Revenues | ||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
| $ | 214,798 |
|
|
| 51.9 |
| % |
| $ | 290,301 |
|
|
| 56.6 |
| % |
Eliminations |
|
| (103,731 | ) |
|
| (25.1 | ) |
|
|
| (157,352 | ) |
|
| (30.7 | ) |
|
Net wholesale |
|
| 111,067 |
|
|
| 26.8 |
|
|
|
| 132,949 |
|
|
| 25.9 |
|
|
Retail |
|
| 301,394 |
|
|
| 72.8 |
|
|
|
| 378,153 |
|
|
| 73.7 |
|
|
Total net sales |
|
| 412,461 |
|
|
| 99.6 |
|
|
|
| 511,102 |
|
|
| 99.6 |
|
|
Royalties and franchise fees |
|
| 1,582 |
|
|
| 0.4 |
|
|
|
| 2,014 |
|
|
| 0.4 |
|
|
Total revenues |
| $ | 414,043 |
|
|
| 100.0 |
| % |
| $ | 513,116 |
|
|
| 100.0 |
| % |
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 | % | ||||||||
Retail
Retail net sales during the secondfirst quarter of 20192020 were $423.2$301.4 million and increased $11.8were $76.8 million, or 2.9%20.3%, compared tolower than during the secondfirst quarter of 2018.2019. Retail net sales at our North American Party City stores totaled $387.3$259.9 million and were $11.1$86.3 million, or 2.9%, higher24.9% lower than 2018in the first quarter of 2019 principally due to the temporary closure of all Party City stores in response to the COVID-19 pandemic starting on March 18, 2020, the sale of 65 Canadian Party City stores in October 2019, and the closure of 55 stores in conjunction with our 2019 store optimization program. These negative factors affecting sales were partially offset by the acquisition of six franchise and independent stores. Duringstores and the opening of one new store during the twelve months ended June 30, 2019, we acquired 44 franchise and independent stores, opened 16 new stores and closed 9 stores.March 31, 2020. Global retail
Same-store sales for the Party City brand (including North American retail
Our North American
Excluding the impact of
Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.
Wholesale
Wholesale net sales during the secondfirst quarter of 20192020 totaled $138.5$111.1 million and were $8.2$21.8 million, or 5.6%16.5%, lower than the secondfirst quarter of 2018.2019. Net sales to domestic party goods retailers and distributors (including our franchisee network) totaled $56.3$43.7 million and were $0.8$10.6 million, or 1.4%19.6%, lower than during 2018. The acquisition of 442019 principally due to lower distributor demand and closed franchise and independent stores during the twelve months ended June 30, 2019 negatively impacted sales as post-acquisition sales to such stores (approximately $4.5 million during the second quarter of 2018) are now eliminated as intercompany sales. Adjusted for the acquisitions, sales to domestic party goods retailers and distributors increased by approximately $3.7 million, or 6.7%, versusstores as a result of the second quarter of 2018.COVID-19 pandemic. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $18.4$15.1 million during the secondfirst quarter of 20192020 and were $3.8$4.4 million, or 17.2%22.8%, lower than during the corresponding quarter of 20182019 principally due to the ongoing helium shortage.COVID-19 pandemic. Our international sales (which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $63.8$52.3 million and were $3.6$6.8 million, or 5.3%11.5%, lower than in 2018. The decrease was principally due to the impact of foreign2019. Foreign currency translation which negatively impacted sales by approximately $2.5$1.1 million.
Intercompany sales to our retail affiliates totaled $150.5$103.7 million during the secondfirst quarter of 20192020 and were $11.5$53.6 million higherlower than during the corresponding quarter of 2018.2019. Intercompany sales represented 52.1%48.3% of total wholesale sales during the secondfirst quarter of 2020 and were 34.1% lower than during the first quarter of 2019, compared to 48.6% duringprincipally reflecting the second quarterimpact of 2018. The increase was principally duethe Party City store closures related to the acquisition of franchise/independent stores.COVID-19 pandemic. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.
Royalties and franchise fees
Royalties and franchise fees for the secondfirst quarter of 20192020 totaled $2.2$1.6 million and were $0.7$0.4 million lower than during the secondfirst quarter of 2018 principally2019 primarily due to lower sales as a result of store closures resulting from the acquisition of franchise stores.
Gross Profit
The following table sets forth the Company’s gross profit for the three months ended June 30, 2019March 31, 2020 and June 30, 2018.2019.
|
| Three Months Ended March 31, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
| ||||
Retail |
| $ | 94,361 |
|
|
| 31.3 |
| % |
| $ | 136,018 |
|
|
| 36.0 |
| % |
Wholesale |
|
| 21,343 |
|
|
| 19.2 |
|
|
|
| 36,042 |
|
|
| 27.1 |
|
|
Total |
| $ | 115,704 |
|
|
| 28.1 |
| % |
| $ | 172,060 |
|
|
| 33.7 |
| % |
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 | % | ||||||||
The gross profit margin on net sales at retail during the secondfirst quarter of 20192020 was 40.7%. Such percentage was 40031.3% or 470 basis points lower than during the corresponding quarter of 2018.2019. The decrease was partiallymainly due to sales deleverage from the temporary closure of all the Company’s retail stores announced on March 18, 2020 in response to the COVID-19 pandemic. In addition, the increased costs of helium, and unfavorable product mix due to lower sales of higher margin products contributed to the margin decline. The declines in margin were partially offset by margin increases due to favorable share of shelf gains and lower year over year markdowns in conjunction with the Company’s “store optimization program” and provisions against inventory recorded in conjunction with such program (see “operating expenses” below for further discussion). Additionally, the decrease was partially due to a flow through of higher freight and distribution costs for product acquired from the Company’s wholesale operations during the second half of 2018 as the China tariffs causednon-recurringlogistical challenges. Our manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment) decreased from 27.6%of 29.0% during the secondfirst quarter of 20182020 was 1.4% higher as compared to 27.1% during the secondfirst quarter of 2019. Our wholesale share of shelf at our Party City stores and our North American retail77.6%81.3% during the quarter and was slightly loweror 3.2% higher than during the secondfirst quarter of 2018.
The gross profit margin on net sales at wholesale during the secondfirst quarters of 2020 and 2019 was 19.2% and 2018 was 26.4% and 30.5%27.1%, respectively. The decrease was principally due to lower high-margin salesthe deleveraging of metallic balloonsdistribution and manufacturing costs from lower sales to franchisees (dueclosed franchise and independent party stores due to the store acquisitions discussed above),COVID-19 pandemic as well as increased rent associated with the impact of foreign currency on product costs.
Operating expenses
Wholesale selling expenses were $16.9$15.5 million during the secondfirst quarter of 20192020 and were $0.4$2.5 million lower than during the corresponding quarter of 2018.2019principally due to lower travel, commissions, marketing, and impact of foreign exchange. Wholesale selling expenses were 12.2%13.9% and 11.8%13.5% of net wholesale sales during the secondfirst quarters of 2020 and 2019, and 2018, respectively.
Retail operating expenses during the secondfirst quarter of 20192020 were $96.1$88.2 million and were $4.0$6.8 million higherlower than the corresponding quarter of 2018.2019. The increasedecrease was principallymainly due to the sale of the 65 Canada Retail stores, 55 closed US stores in conjunction with the store optimization program, and lower credit card fees and marketing due to the COVID-19 pandemic partially offset by higher store count (discussed above).costs associated with the acquisition of Livario and Webdots in December of 2019. Retail operating expenses were 22.7%29.3% and 22.4%25.1% of retail sales during the secondfirst quarters of 2020 and 2019, and 2018, respectively.
Franchise expenses during each of the second quartersfirst quarter of 2020 and 2019 and 2018 were $3.2 million and $4.0 million, respectively.
General and administrative expenses during the secondfirst quarters of 2020 totaled $60.0 million and were $18.1 million, or 43.1%, higher than in the first quarter of 2019 totaled $41.5 million and were $3.8 million, or 8.4%, lower than in the second quarter of 2018. The decrease for the second quarter of 2019 was principally due to
Art and development costs were $5.7$5.3 million and $5.9 million during the secondfirst quarters of 2020 and 2019, and 2018.
Development stage expenses represent
During June 2019, the Company reported a $58.4 million 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 $128.0 million. Simultaneous with the sale, the Company entered into twenty year leases for each of the facilities.
Goodwill and intangibles impairment charges for the three months ended March 31, 2020 were $536.6 million. The non-cash pre-tax goodwill impairment charges were the result of a $0.9 million impairment chargesustained decline in the Company’s market capitalization and significantly reduced customer demand for its operating lease asset, a $0.5 millionproducts due to COVID-19. There were no goodwill impairment chargecharges for property, plantthe three months ended March 31, 2019. See Note 4 – Goodwill and equipment and $3.8 millionIntangibles Impairment, of labor and other costs related to closing the stores.
Interest expense, net
Interest expense, net, totaled $30.2$25.1 million during the secondfirst quarter of 2019,2020, compared to $25.5$29.3 million during the secondfirst quarter of 2018.2019. The variancedecrease in interest principally relates toreflects lower average debt following a debt repayment in the impactfourth quarter of increasing LIBOR rates on our Term Loan Credit Agreement and our ABL Facility and the impact of the Company’s August 2018 refinancing (see the Company’s 2018 Form2019.
Other expense, net
For the secondfirst quarters of 20192020 and 2018,2019, other expense, net, totaled $3.3$5.7 million and $2.5$1.3 million, respectively.
Income tax expense
The effective income tax rate for the three months ended June 30, 2019, 25.0%March 31, 2020, 15.7%, is higher thandifferent from the statutory rate primarily due tothe non-deductible portions of the goodwill impairment charges noted above, state taxes.
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 | % | ||||||||
Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per Common Share – Diluted
The Company presents adjusted EBITDA, adjusted net income and adjusted net income per common share - diluted as supplemental measures of its operating performance. The Company defines EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization and defines adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of our core operating performance. These further adjustments are itemized below. Adjusted net income represents the Company’s net income (loss) adjusted for, among other items, intangible asset amortization,
Adjusted EBITDA, adjusted net income, and adjusted net income per common share - diluted have limitations as analytical tools. Some of these limitations are:
• | they do not reflect the Company’s cash expenditures or future requirements for capital expenditures or contractual commitments; |
• | they do not reflect changes in, or cash requirements for, the Company’s working capital needs; |
• | adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s indebtedness; |
• | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; |
• | non-cash compensation is and will remain a key element of the Company’s overall long-term incentive compensation package, although the Company excludes it as an expense when evaluating its core operating performance for a particular period; |
• | they do not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations; and |
• | other companies in the Company’s industry may calculate adjusted EBITDA, adjusted net income and adjusted net income per common share differently than the Company does, limiting its usefulness as a comparative measure. |
Because of these limitations, adjusted EBITDA, adjusted net income and adjusted net income per common share – diluted should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA, adjusted net income and adjusted net income per common share – diluted only on a supplemental basis. The reconciliations from net income (loss) to adjusted EBITDA and income (loss) before income taxes to adjusted net income (loss) for the periods presented are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Net loss |
| $ | (541,668 | ) |
| $ | (30,289 | ) |
Interest expense, net |
|
| 25,120 |
|
|
| 29,257 |
|
Income taxes |
|
| (100,498 | ) |
|
| (10,519 | ) |
Depreciation and amortization |
|
| 17,752 |
|
|
| 21,341 |
|
EBITDA |
|
| (599,294 | ) |
|
| 9,790 |
|
Non-cash purchase accounting adjustments |
|
| — |
|
|
| 1,001 |
|
Store impairment and restructuring charges (a) |
|
| 27,761 |
|
|
| 35,638 |
|
Other restructuring, retention and severance (b) |
|
| 3,047 |
|
|
| 1,388 |
|
Goodwill and intangibles impairment (c) |
|
| 536,648 |
|
|
| — |
|
Deferred rent (d) |
|
| (1,384 | ) |
|
| (1,150 | ) |
Closed store expense (e) |
|
| 1,235 |
|
|
| 591 |
|
Foreign currency losses/(gains), net |
|
| 4,255 |
|
|
| (293 | ) |
Stock option expense (f) |
|
| 354 |
|
|
| 370 |
|
Non-employee equity-based compensation (g) |
|
| 1,033 |
|
|
| 129 |
|
Undistributed income in equity method investments |
|
| (144 | ) |
|
| (198 | ) |
Corporate development expenses (h) |
|
| 2,969 |
|
|
| 2,845 |
|
Restricted stock units – time-based (i) |
|
| 621 |
|
|
| 392 |
|
Non-recurring legal settlements/costs |
|
| 6,321 |
|
|
| 732 |
|
COVID - 19 (l) |
|
| 26,180 |
|
|
| — |
|
Other |
|
| 2,272 |
|
|
| 247 |
|
Adjusted EBITDA |
| $ | 11,874 |
|
| $ | 51,482 |
|
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 | ||||||||
|
|
|
|
|
| March 31, 2020 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| March 31, 2020 GAAP Basis (as reported) |
|
| Goodwill and intangibles impairment (c) |
|
| Store impairment and restructuring charges (a) |
|
| Corporate development expenses (h) |
|
| Legal |
|
| Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units – time-based (f)(g)(i) |
|
| Deferred Rent (d) |
|
| Other restructuring, retention and severance (b) |
|
| Closed store expense (e) |
|
| COVID- 19 (l) |
|
| Foreign currency losses |
|
| Other |
|
| March 31, 2020 Non-GAAP basis |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 412,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 412,461 |
|
Royalties and franchise fees |
|
| 1,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,582 |
|
Total revenues |
|
| 414,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 414,043 |
|
Cost of sales |
|
| 296,757 |
|
|
|
|
|
|
| (10,033 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12,804 | ) |
|
|
|
|
|
| (429 | ) |
|
| 273,491 |
|
Wholesale selling expenses |
|
| 15,458 |
|
|
|
|
|
|
|
|
|
|
| (736 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (114 | ) |
|
|
|
|
|
|
|
|
|
| 14,608 |
|
Retail operating expenses |
|
| 88,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,336 |
|
|
|
|
|
|
| (1,166 | ) |
|
| (10,178 | ) |
|
|
|
|
|
|
|
|
|
| 78,158 |
|
Franchise expenses |
|
| 3,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (329 | ) |
|
|
|
|
|
|
|
|
|
| 2,980 |
|
General and administrative expenses |
|
| 59,996 |
|
|
|
|
|
|
|
|
|
|
| (100 | ) |
|
| (6,321 | ) |
|
| (975 | ) |
|
| 48 |
|
|
| (3,047 | ) |
|
| (69 | ) |
|
| (2,755 | ) |
|
|
|
|
|
|
|
|
|
| 46,777 |
|
Art and development costs |
|
| 5,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,322 |
|
Development stage expenses |
|
| 2,029 |
|
|
|
|
|
|
|
|
|
|
| (2,029 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 17,728 |
|
|
|
|
|
|
| (17,728 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| (536,648 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 1,025,413 |
|
|
| (536,648 | ) |
|
| (27,761 | ) |
|
| (2,865 | ) |
|
| (6,321 | ) |
|
| (975 | ) |
|
| 1,384 |
|
|
| (3,047 | ) |
|
| (1,235 | ) |
|
| (26,180 | ) |
|
| — |
|
|
| (429 | ) |
|
| 421,336 |
|
Loss from operations |
|
| (611,370 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,293 | ) |
Interest expense, net |
|
| 25,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25,120 |
|
Other expense, net |
|
| 5,676 |
|
|
|
|
|
|
|
|
|
|
| (104 | ) |
|
|
|
|
|
| (1,033 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,255 | ) |
|
| (1,699 | ) |
|
| (1,415 | ) |
Loss before income taxes |
|
| (642,166 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (30,998 | ) |
Interest expense, net |
|
| 25,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25,120 |
|
Depreciation and amortization |
|
| 17,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,752 |
|
EBITDA |
|
| (599,294 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,874 |
|
Adjustments to EBITDA |
|
| 611,168 |
|
|
| (536,648 | ) |
|
| (27,761 | ) |
|
| (2,969 | ) |
|
| (6,321 | ) |
|
| (2,008 | ) |
|
| 1,384 |
|
|
| (3,047 | ) |
|
| (1,235 | ) |
|
| (26,180 | ) |
|
| (4,255 | ) |
|
| (2,128 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 11,874 |
|
| $ | (536,648 | ) |
| $ | (27,761 | ) |
| $ | (2,969 | ) |
| $ | (6,321 | ) |
| $ | (2,008 | ) |
| $ | 1,384 |
|
| $ | (3,047 | ) |
| $ | (1,235 | ) |
| $ | (26,180 | ) |
| $ | (4,255 | ) |
| $ | (2,128 | ) |
| $ | 11,874 |
|
|
|
|
|
|
| March 31, 2019 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
| March 31, 2019 GAAP Basis (as reported) |
|
| Store impairment and restructuring charges (a) |
|
| Corporate development expenses (h) |
|
| Legal |
|
| Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units – time-based (f)(g)(i) |
|
| Deferred Rent (d) |
|
| Other restructuring, retention and severance (b) |
|
| Closed store expense (e) |
|
| Non-Cash Purchase Accounting Adjustments |
|
| Foreign currency gains |
|
| Other |
|
| March 31, 2019 Non-GAAP basis |
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 511,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 511,102 |
|
Royalties and franchise fees |
|
| 2,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,014 |
|
Total revenues |
|
| 513,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 513,116 |
|
Cost of sales |
|
| 339,042 |
|
|
| (17,629 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 322,563 |
|
Wholesale selling expenses |
|
| 17,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,961 |
|
Retail operating expenses |
|
| 95,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (31 | ) |
|
| (479 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 94,508 |
|
Franchise expenses |
|
| 3,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,303 |
|
General and administrative expenses |
|
| 41,925 |
|
|
|
|
|
|
|
|
|
|
| (732 | ) |
|
| (891 | ) |
|
|
|
|
|
| (1,357 | ) |
|
| (112 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 38,833 |
|
Art and development costs |
|
| 5,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,929 |
|
Development stage expenses |
|
| 2,226 |
|
|
|
|
|
|
| (2,226 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 18,009 |
|
|
| (18,009 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Goodwill and intangibles impairment |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 523,413 |
|
|
| (35,638 | ) |
|
| (2,226 | ) |
|
| (732 | ) |
|
| (891 | ) |
|
| 1,150 |
|
|
| (1,388 | ) |
|
| (591 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 483,097 |
|
Loss from operations |
|
| (10,297 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30,019 |
|
Interest expense, net |
|
| 29,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,257 |
|
Other expense, net |
|
| 1,254 |
|
|
|
|
|
|
| (619 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,001 | ) |
|
| 293 |
|
|
| (49 | ) |
|
| (122 | ) |
Loss before income taxes |
|
| (40,808 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 884 |
|
Interest expense, net |
|
| 29,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,257 |
|
Depreciation and amortization |
|
| 21,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,341 |
|
EBITDA |
|
| 9,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 51,482 |
|
Adjustments to EBITDA |
|
| 41,692 |
|
|
| (35,638 | ) |
|
| (2,845 | ) |
|
| (732 | ) |
|
| (891 | ) |
|
| 1,150 |
|
|
| (1,388 | ) |
|
| (591 | ) |
|
| (1,001 | ) |
|
| 293 |
|
|
| (49 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 51,482 |
|
| $ | (35,638 | ) |
| $ | (2,845 | ) |
| $ | (732 | ) |
| $ | (891 | ) |
| $ | 1,150 |
|
| $ | (1,388 | ) |
| $ | (591 | ) |
| $ | (1,001 | ) |
| $ | 293 |
|
| $ | (49 | ) |
| $ | 51,482 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
Loss before income taxes |
| $ | (642,166 | ) |
| $ | (40,808 | ) |
Intangible asset amortization |
|
| 2,866 |
|
|
| 3,429 |
|
Non-cash purchase accounting adjustments |
|
| — |
|
|
| 1,317 |
|
Amortization of deferred financing costs and original issuance discounts (j) |
|
| 1,202 |
|
|
| 1,143 |
|
Store impairment and restructuring charges (a) |
|
| 27,973 |
|
|
| 35,638 |
|
Other restructuring charges (b) |
|
| 922 |
|
|
| — |
|
Goodwill and intangibles impairment (c) |
|
| 536,648 |
|
|
| — |
|
Non-employee equity-based compensation (g) |
|
| 1,033 |
|
|
| 129 |
|
Non-recurring legal settlements/costs |
|
| 6,321 |
|
|
| — |
|
Stock option expense (f) |
|
| 354 |
|
|
| 370 |
|
COVID - 19 (l) |
|
| 26,180 |
|
|
| — |
|
Adjusted (loss) income before income taxes |
|
| (38,667 | ) |
|
| 1,218 |
|
Adjusted income tax (benefit) expense (k) |
|
| (12,284 | ) |
|
| 115 |
|
Adjusted net (loss) income |
| $ | (26,383 | ) |
| $ | 1,103 |
|
Adjusted net (loss) income per common share – diluted |
| $ | (0.28 | ) |
| $ | 0.01 |
|
Weighted-average number of common shares-diluted |
|
| 93,395,609 |
|
|
| 93,879,979 |
|
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) | During the |
(b) | Amounts expensed during |
(c) | As a result of a sustained decline in market capitalization, the Company recognized a non-cash pre-tax goodwill and intangibles impairment charge at March 31, 2020 of $536,648. |
(d) | The “deferred rent” adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items. During the first quarter of 2019, the Company adopted ASC 842. Under the standard, the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items is now incorporated in the Company’s operating lease asset. |
(e) | Charges incurred related to closing and relocating stores in the ordinary course of business. |
(f) | Represents non-cash charges related to stock options. |
(g) | The acquisition of Ampology’s interest in Kazzam, |
(h) | Primarily represents |
(i) | Non-cash charges |
(j) | During February 2018, the Company amended the Term Loan Credit Agreement. In conjunction with the amendment, the Company wrote-off capitalized deferred financing costs, original issue discounts and call premiums. The amounts are included |
(k) | 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. |
(l) | Represents COVID-19 expenses for employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses. |
Liquidity
The Company’s indebtedness principally consists of: (i) a senior secured term loan facility (“Term Loan Credit Agreement”), (ii) $350 million of 6.125% senior notesSenior Notes (the “2023 Notes”) and (iii) $500 million of 6.625% senior notes.Senior Notes (the “2026 Notes”). 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).
During the temporary store closures as a result of COVID-19, quarantines, stay-at-home orders and related measures had significantly reduced consumer spending as well as customer demand for our products. The Company reduced cash outflow through reduction of employee and non-employee expenses, cancellation of orders and negotiated receipt delays to manage inventory levels.
We expect that cash generated from operating activities and availability under our credit agreements will be our principal sources of liquidity. Based on our current level of operations, we believe that these sources will be adequate to meet our liquidity needs for at least the next 12twelve months. We cannot provide assurance, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the ABL Facility and the Term Loan Credit Agreement in amounts sufficient to enable us to repay our indebtedness or to fund our other liquidity needs.
As a result and as disclosed in Note 20 – Subsequent Events, on May 28, 2020, the Company entered into an exchange offer transaction support agreement with an ad hoc committee of holders of at least 52% of the aggregate principal amount of the 2023 and 2026 Notes whereby the Consenting Noteholders have agreed to support a set of transactions to be commenced by the Company.The contemplated transactions are expected to deleverage the Company’s balance sheet by approximately $450 million and the Company intends to raise $100.0 million in new capital to increase its financial strength and support PCHI’s global operations and ongoing transformation initiatives.
Cash Flow
Net cash used in operating activities totaled $105.9$74.0 million and $23.0$100.9 million during the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, respectively. The variance was principally due to the timing of rent payments for the Company’s stores, increased interest payments and areflects decrease in accounts payablereceivable due to decreased sales as a result of the timing ofwell as reduced payments from lower inventory payments. Net cash flows used in operating activities before changes in operating assets and liabilities were $5.6 million during the first six months of 2019, compared to positive cash flows of $75.3 million during the corresponding period of 2018.levels. Changes in operating assets and liabilities during the first sixthree months of 20192020 and 20182019 resulted in the use of cash of $100.3$52.0 million and $98.3$83.3 million, respectively.
Net cash provided byused in investing activities totaled $82.2$10.7 million during the sixthree months ended June 30, 2019,March 31, 2020, as compared to $65.7$12.9 million used in investing activities during the sixthree months ended June 30, 2018. During June 2019, the Company sold and leased back its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The net sale price for the properties is included in “Proceeds from disposal of property and equipment” in the Company’s condensed consolidated statement of cash flows. See Note 4 to the Company’s consolidated financial statements for further detail.March 31, 2019. Capital expenditures during the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 were $31.1$10.7 million and $44.4$12.4 million, respectively. Retail capital expenditures totaled $17.1$5.0 million during 2019.2020. Wholesale capital expenditures during 20192020 totaled $14.0$6.0 million.
Net cash provided by financing activities was $9.5$249.0 million during the sixthree months ended June 30, 2019March 31, 2020 and $86.7$91.7 million during the first half of 2018.three months ended March 31, 2019. The variance was principally due to less of a need to borrow$150.0 million draw down under the ABL Facility, which were invested in US Treasury funds during 2019 due to proceeds from the sale of certain properties (see above).
As of June 30, 2019,March 31, 2020, the Company had approximately $296$71.3 million of availability under the ABL Facility, after considering borrowing base restrictions.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements included herein.
We believe our application of accounting policies, and the estimates inherently required by these policies, are reasonable. These accounting policies and estimates are constantly
In the evaluation of the fair value and future benefits of finite long-lived assets attached to retail stores, we perform our cash flow analysis generally on a store-by-store basis. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or strategies change, the conclusion regarding impairment may differ from the current estimates.
Goodwill is reviewed for potential impairment on an annual basis or more frequently if circumstances indicate a possible impairment. For purposes of testing goodwill for impairment, reporting units are determined by identifying individual componentsoperating segments within our organization which constitute a business for which discrete financial information is available and is reviewed by management. Components within a segment are aggregated to the extent that they have similar economic characteristics. Based on this evaluation, we have determined that our operating segments, wholesale and retail, represent our reporting units for the purposes of our goodwill impairment test.
If it is concluded that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we estimate the fair value of the reporting unit using a combination of a market approach and an income approach. If such carrying value exceeds the fair value, an impairment loss will be recognized in an amount equal to such excess. The fair value of a reporting unit refers to the amount at which the unit as a whole could be sold in a current transaction between willing parties. The determination of such fair value is subjective, and actual fair value could differ due to changes in the expectations of cash flows or other assumptions, including discount rates.
During the secondfirst quarter of 2019,2020, the Company identified an impairment indicatorindicators associated with its market capitalization and significantly reduced customer demand for its products due to COVID-19. As a result, the Company performed an interim impairment testtests on the $509 million of goodwill at its wholesale reporting unit and the $1,151 million of goodwill at its retail reporting unit. The interim impairment test, which was performed using a combination of a market approach and an income approach, concluded that the fair value of the wholesale reporting unitunits. As a result, the Company recorded a $536.6 million goodwill impairment charge. See Note 4 – Goodwill and the retail reporting unit exceeded carrying value by approximately 10% and 20%, respectively.Intangibles Impairment, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q for further discussion. Should actual results differ from certain key assumptions used in the interim impairment test, including revenue and EBITDA growth, which are both impacted by economic conditions, or should other key assumptions change, including discount rates and market multiples, in subsequent periods the Company could record additional impairment charges for the goodwill of such reporting units.
Contractual Obligations
Other than as described above under “Liquidity and Capital Resources”“Liquidity”, there were no material changes to our future minimum contractual obligations as of December 31, 20182019 as previously disclosed in our Annual Report on Form
Off Balance Sheet Arrangements
We had no off balanceoff-balance sheet arrangements during the sixthree months ended June 30, 2019March 31, 2020 and the year ended December 31, 2018.
Seasonality
Wholesale Operations
Despite a concentration of holidays in the fourth quarter of the year, as a result of our expansive product lines, customer base and increased promotional activities, the impact of seasonality on the quarterly results of our wholesale operations has been limited. However, due to Halloween, the inventory balances of our wholesale operations are slightly higher during the third quarter than during the remainder of the year. Additionally, Halloween products sold to retailers and other distributors result in slightly higher accounts receivable balances during the quarter.
Retail Operations
Our retail operations are subject to significant seasonal variations. Historically, this segment has realized a significant portion of its revenues, cash flow and net income in the fourth quarter of the year, principally due to our Halloween sales in October and, to a lesser extent,
Cautionary Note Regarding Forward-Looking Statements
From time to time, including in this filing and, in particular, the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we make “forward-looking statements” within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “expects,” “estimates,” “intends,” “will,” “may” or “plans” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect our current expectations and are based upon data available to us at the time the statements were made. An example of a forward-looking statement is our belief that our cash generated from operating activities and availability under our credit facilities will be adequate to meet our liquidity needs for at least the next 12 months. Such statements are subject to certain risks and uncertainties
• | potential risks and uncertainties relating to the ultimate geographic spread of COVID-19; |
• | economic slowdown affecting consumer spending and general economic conditions, including as a result of the COVID-19 pandemic; |
• | the severity of the COVID-19 pandemic; |
• | the duration of the COVID-19 pandemic; |
• | actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact; |
• | the potential negative impacts of COVID-19 on the global economy and foreign sourcing; |
• | the impacts of COVID-19 on the Company’s financial condition and business operation; |
• | our ability to satisfy the conditions to, and consummate, a series of expected refinancing transactions and, if such transactions are consummated, our ability to realize the expected benefits of such transactions from improving our capital structure and our near term liquidity; |
• | our ability to compete effectively in a competitive industry; |
• | fluctuations in commodity prices; |
• | helium shortages; |
• | our ability to appropriately respond to changing merchandise trends and consumer preferences; |
• | successful implementation of our business strategy; |
• | decreases in our Halloween sales; |
• | unexpected or unfavorable consumer responses to our promotional or merchandising programs; |
• | failure to comply with existing or future laws relating to our marketing programs, e-commerce initiatives and the use of consumer information; |
• | disruption to the transportation system or increases in transportation costs; |
• | product recalls or product liability; |
• | economic slowdown affecting consumer spending and general economic conditions; |
• | loss or actions of third-party vendors and loss of the right to use licensed material; |
• | disruptions at our manufacturing facilities; |
• | failure by suppliers or third-party manufacturers to follow acceptable labor practices or to comply with other applicable laws and guidelines; |
• | changes in regulations or enforcement, or our failure to comply with existing or future regulations; |
• | our international operations subjecting us to additional risks; |
• | potential litigation and claims; |
• | risks related to international trade disputes and the U.S. government’s trade policy; |
• | lack of available additional capital; |
• | our inability to retain or hire key personnel; |
• | risks associated with leasing substantial amounts of space; |
• | risks arising from the results of the public referendum held in United Kingdom and its membership in the European Union; |
• | failure of existing franchisees to conduct their business in accordance with agreed upon standards; |
• | adequacy of our information systems, order fulfillment and distribution facilities; |
• | our ability to adequately maintain the security of our electronic and other confidential information; |
• | our inability to successfully identify and integrate acquisitions; |
• | adequacy of our intellectual property rights; |
• | potential negative effect of certain aspects of recent U.S. federal income tax reform; |
• | risks related to our substantial indebtedness; |
• | risks associated with interest rate changes; |
• | straining of resources and ability to attract and retain qualified board members due to maintaining and improving our financial controls; |
• | decline of our common stock market price due to the large number of outstanding shares of our common stock eligible for sale; and |
• | the other factors set forth under “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on March 12, 2020, and in the “Risk Factors” section of this Quarterly Report on Form 10-Q. |
Except as required by law, we undertake no obligation to update publicly any forward-looking statements after the date of this filing to conform these statements to actual results or to changes in our expectations.
You should read this filing with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risks since December 31, 20182019 as previously disclosed in our Annual Report on Form
Item 4. Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules
There were no changes in our internal control over financial reporting (as defined in Rules
PART
Item 1. Legal Proceedings
Information in response to this Item is incorporated herein by reference from Note 9,12 – Commitments and Contingencies, to our Condensed Consolidated Financial Statements in this Quarterly Report on Form
Item 1A. Risk Factors
"Item 1A, Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities Exchange Commission on March 12, 2020, includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K. The effects of the events and circumstances described in the following risk factor may have the additional effect of heightening many of the risks noted in our Annual Report on Form 10-K. Otherwise, except as presented below, there have been no material changes to the risk factors disclosed underin the heading “Risk Factors” in the Company’ssection of our Annual Report on Form
Our business, operations, financial condition and liquidity have been and may continue to be materially and adversely affected by the outbreak of COVID-19, a novel coronavirus.
In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of the virus. The global spread of COVID-19 and the measures to contain it have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets. In response to COVID-19, to safeguard the health and safety of its team members and customers, the Company temporarily closed all of its corporate retail stores as of March 18, 2020. Although the Company’s e-commerce site, www.partycity.com, remains fully operational and the number of stores offering curbside pickup continues to expand, quarantines, stay-at-home orders and related measures have significantly reduced consumer spending as well as customer demand for our products. In addition, these restrictions and other dislocations caused by the outbreak have disrupted our planning, branding and administrative functions, as well as that of our suppliers, transporters and customers, which will make it more difficult for our business to recover even after we are able to reopen. As a result, our business, operations, financial condition and liquidity have been and may continue to be materially and adversely affected. Further, the disruption to the global economy and to our business, along with the decline in our stock price, may negatively impact the carrying value of certain assets, including inventories, accounts receivables, intangibles, and goodwill. The full extent to which COVID-19 and the measures to contain it will impact our business, operations financial condition and liquidity will depend on the severity and duration of the COVID-19 outbreak and other future developments related to the response to the virus all of which are highly uncertain. As a result, we cannot predict the ultimate impact of COVID-19 on the Company and its operational and financial performance.
We are currently contemplating a series of refinancing transactions. We may not be able to complete such transactions or any other alternative transaction, on favorable terms or at all, and our financial condition could be materially adversely affected.
The Company and certain consenting holders of its outstanding Senior Notes (the "Existing Notes") entered into a transaction support agreement whereby such consenting noteholders have agreed to support a series of transactions expected to be commenced by the Company, including an offer to exchange the Existing Notes for newly issued Senior Secured Notes, solicitation of consents to certain amendments to the indentures governing the Existing Notes and issuance of additional Senior Secured Notes to raise new capital through a rights offering and a private placement. The closing of such transactions is conditioned on the satisfaction or waiver of a number of conditions precedent, including finalizing all definitive documents and achieving certain participation thresholds. Specifically, the transaction support agreement requires the valid tender, without valid withdrawal, of a minimum of 98.00%, or $833 million, of the outstanding aggregate principal amount of the Existing Notes. Among other things, these transactions are conditioned on, and would only be consummated concurrently with, each other and as a result, this series of transactions may not be completed as contemplated or at all. If the Company is unable to complete these transactions or any other alternative transaction, on favorable terms or at all, due to market conditions or otherwise, its financial condition could be materially adversely affected. Nothing contained in this Quarterly Report on Form 10-Q should be construed as an offer to sell, or a solicitation of an offer to purchase, any securities of the Company. See Note 20 – "Subsequent Events" to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.
Item 5. Other Information
On June 9, 2020, the Company and certain consenting holders of the Company’s outstanding 6.125% Senior Notes due 2023 and 6.625% Senior Notes due 2026 (collectively, the “Existing Notes”) entered into an amendment (the “Amendment”) to the Transaction Support Agreement, dated as of May 28, 2020 (the “Original Agreement”), among the Company and an ad hoc committee of holders of at least 52% of the aggregate principal of the Existing Notes. The Original Agreement is described in the Company’s Current Report on Form 8-K, dated May 29, 2020. The full text of the Original Agreement is attached hereto as Exhibit 10.3 and is incorporated herein by reference.
Among other things, the Amendment provides for the following modifications to the Original Agreement:
• | with respect to the contemplated private placement (the “Private Placement”) of 15.00% Senior Secured Notes due 2025 (the “New Money First Lien Issuer Notes”), the Amendment provides for the increase of the aggregate size of commitments by private placement parties (the “Private Placement Parties”) from $50.0 million to $58.5 million; |
• | with respect to a contemplated offering of rights (the “Rights Offering”) to purchase a pro rata portion of New Money First Lien Issuer Notes, the Amendment provides for the decrease of the aggregate size of the Rights Offering it decreases the aggregate size of such offering from $50.0 million to $41.5 million; |
• | with respect to the consideration payable to the Private Placement Parties in the form of New Money First Lien Issuer Notes, the Amendment modifies it from a pro rata allocation of an aggregate premium of $5.0 million to an agreed allocation of an aggregate premium of $4.725 million; and |
• | with respect to the portion of the total consideration payable in the form of New Money First Lien Issuer Notes to certain holders of Existing Notes in exchange for backstopping the Rights Offering, the Amendment increases it from $5.0 million to $5.275 million. |
The foregoing is a summary of the material terms of, and is qualified by, the full text of the Amendment, which is attached hereto as Exhibit 10.5 and is incorporated herein by reference. Nothing contained in this Quarterly Report on Form 10-Q should be construed as an offer to sell, or a solicitation of an offer to purchase, any securities of the Company.
Item 6. Exhibits
Exhibit Number | Description | |
3.1 | ||
3.2 | ||
10.1†* | ||
10.2†* | ||
10.3 | ||
10.4 | ||
10.5* | ||
10.6†* | ||
21.1* | . | |
31.1* | ||
. | ||
31.2* | . | |
32.1* | ||
32.2* | ||
101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |
104.1* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
† | Management contract of compensatory plan or arrangement |
* | Filed herewith. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form
PARTY CITY HOLDCO INC. | ||||||
By: | /s/ | |||||
Todd Vogensen | ||||||
Chief Financial Officer ( |
Date:
39