UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20202021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-37344
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 RoadElmsford, NY | 10523 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(914) (914) 345-2020
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: $0.01/share | 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☒ No ☐☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐☐
Indicate by checkmark whetherwhether 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.
Large accelerated filer | ☐ | Accelerated filer | ☒ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒☒
As of July 29, 2020, 94,602,38626, 2021, 111,913,238 shares of the Registrant’s common stock were outstanding.
PARTY CITY HOLDCO INC.
Form 10-Q
June 30, 20202021
TABLE OF CONTENTS
Page | ||
PART I | ||
Item 1. Condensed Consolidated Financial Statements (Unaudited) | ||
3 | ||
| ||
| ||
| ||
| ||
| ||
9 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
| |
| ||
| ||
| ||
| ||
|
2
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| June 30, |
|
| December 31, |
|
| June 30, |
| |||||
|
| (Note 2) (Unaudited) |
|
| (Note 2) |
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 154,133 |
|
| $ | 34,917 |
|
| $ | 84,452 |
| $ | 119,532 |
| $ | 154,133 |
| ||
Accounts receivable, net |
|
| 85,081 |
|
|
| 149,109 |
|
| 86,745 |
| 90,879 |
| 85,081 |
| |||||
Inventories, net |
|
| 635,014 |
|
|
| 658,419 |
|
| 426,128 |
| 412,285 |
| 635,014 |
| |||||
Prepaid expenses and other current assets |
|
| 94,710 |
|
|
| 51,685 |
|
| 68,363 |
| 45,905 |
| 94,710 |
| |||||
Income tax receivable |
| 55,421 |
| 57,549 |
| 0 |
| |||||||||||||
Assets held for sale, net |
|
| 0 |
|
|
| 83,110 |
|
|
| 0 |
| ||||||||
Total current assets |
|
| 968,938 |
|
|
| 894,130 |
|
| 721,109 |
| 809,260 |
| 968,938 |
| |||||
Property, plant and equipment, net |
|
| 223,433 |
|
|
| 243,572 |
|
| 218,532 |
| 209,412 |
| 223,433 |
| |||||
Operating lease asset |
|
| 755,288 |
|
|
| 802,634 |
|
| 684,802 |
| 700,087 |
| 755,288 |
| |||||
Goodwill |
|
| 666,084 |
|
|
| 1,072,330 |
|
| 660,597 |
| 661,251 |
| 666,084 |
| |||||
Trade names |
|
| 394,203 |
|
|
| 530,320 |
|
| 383,761 |
| 384,428 |
| 394,203 |
| |||||
Other intangible assets, net |
|
| 39,402 |
|
|
| 45,060 |
|
| 27,825 |
| 32,134 |
| 39,402 |
| |||||
Other assets, net |
|
| 9,435 |
|
|
| 7,273 |
|
|
| 26,193 |
|
|
| 9,883 |
|
|
| 9,435 |
|
Total assets |
| $ | 3,056,783 |
|
| $ | 3,595,319 |
|
| $ | 2,722,819 |
|
| $ | 2,806,455 |
|
| $ | 3,056,783 |
|
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| |||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Loans and notes payable |
| $ | 325,754 |
|
| $ | 128,806 |
|
| $ | 99,933 |
| $ | 175,707 |
| $ | 325,754 |
| ||
Accounts payable |
|
| 144,849 |
|
|
| 152,300 |
|
| 129,802 |
| 118,928 |
| 144,849 |
| |||||
Accrued expenses |
|
| 179,159 |
|
|
| 150,921 |
|
| 190,347 |
| 160,605 |
| 179,159 |
| |||||
Liabilities held for sale |
| 0 |
| 68,492 |
| 0 |
| |||||||||||||
Current portion of operating lease liability |
|
| 202,971 |
|
|
| 155,471 |
|
| 136,749 |
| 176,045 |
| 202,971 |
| |||||
Income taxes payable |
|
| — |
|
|
| 35,905 |
|
| 2,537 |
| 524 |
| 0 |
| |||||
Current portion of long-term obligations |
|
| 13,810 |
|
|
| 71,524 |
|
|
| 1,265 |
|
|
| 13,576 |
|
|
| 13,810 |
|
Total current liabilities |
|
| 866,543 |
|
|
| 694,927 |
|
| 560,633 |
| 713,877 |
| 866,543 |
| |||||
Long-term obligations, excluding current portion |
|
| 1,557,576 |
|
|
| 1,503,987 |
|
| 1,358,916 |
| 1,329,808 |
| 1,557,576 |
| |||||
Long-term portion of operating lease liability |
|
| 685,290 |
|
|
| 720,735 |
|
| 625,157 |
| 654,729 |
| 685,290 |
| |||||
Deferred income tax liabilities, net |
|
| 67,458 |
|
|
| 126,081 |
|
| 37,052 |
| 34,705 |
| 67,458 |
| |||||
Other long-term liabilities |
|
| 16,932 |
|
|
| 16,517 |
|
|
| 33,288 |
|
|
| 22,815 |
|
|
| 16,932 |
|
Total liabilities |
|
| 3,193,799 |
|
|
| 3,062,247 |
|
| 2,615,046 |
| 2,755,934 |
| 3,193,799 |
| |||||
Redeemable securities |
|
| — |
|
|
| 3,351 |
| ||||||||||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Common stock (94,602,386 and 94,461,576 shares outstanding and 121,819,456 and 121,662,540 shares issued at June 30, 2020 and December 31, 2019, respectively) |
|
| 1,211 |
|
|
| 1,211 |
| ||||||||||||
Common stock (111,476,496, 110,781,613 and 94,602,386 shares outstanding and 122,790,983, 122,061,711 and 121,819,456 shares issued at June 30, 2021, December 31, 2020, and June 30, 2020 respectively) |
| 1,383 |
| 1,373 |
| 1,211 |
| |||||||||||||
Additional paid-in capital |
|
| 941,745 |
|
|
| 928,573 |
|
| 978,167 |
| 971,972 |
| 941,745 |
| |||||
Accumulated deficit |
|
| (708,747 | ) |
|
| (37,219 | ) |
| (549,693 | ) |
| (565,457 | ) |
| (708,747 | ) | |||
Accumulated other comprehensive loss |
|
| (43,849 | ) |
|
| (35,734 | ) | ||||||||||||
Accumulated other comprehensive income (loss) |
|
| 6,096 |
|
|
| (29,916 | ) |
|
| (43,849 | ) | ||||||||
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury |
|
| 190,360 |
|
|
| 856,831 |
|
| 435,953 |
| 377,972 |
| 190,360 |
| |||||
Less: Common stock held in treasury, at cost (27,217,070 and 27,200,964 shares at June 30, 2020 and December 31, 2019, respectively) |
|
| (327,170 | ) |
|
| (327,086 | ) | ||||||||||||
Less: Common stock held in treasury, at cost (11,314,487, 11,280,098 and 27,217,070 shares at June 30, 2021, December 31, 2020, and June 30, 2020, respectively) |
|
| (327,394 | ) |
|
| (327,182 | ) |
|
| (327,170 | ) | ||||||||
Total Party City Holdco Inc. stockholders’ equity |
|
| (136,810 | ) |
|
| 529,745 |
|
| 108,559 |
| 50,790 |
| (136,810 | ) | |||||
Noncontrolling interests |
|
| (206 | ) |
|
| (24 | ) |
|
| (786 | ) |
|
| (269 | ) |
|
| (206 | ) |
Total stockholders’ equity |
|
| (137,016 | ) |
|
| 529,721 |
|
|
| 107,773 |
|
|
| 50,521 |
|
|
| (137,016 | ) |
Total liabilities, redeemable securities and stockholders’ equity |
| $ | 3,056,783 |
|
| $ | 3,595,319 |
| ||||||||||||
Total liabilities and stockholders’ equity |
| $ | 2,722,819 |
|
| $ | 2,806,455 |
|
| $ | 3,056,783 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSINCOME (LOSS)
(Unaudited)
(In thousands, except share and per share data)
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Net sales |
| $ | 253,646 |
|
| $ | 561,702 |
|
Royalties and franchise fees |
|
| 1,045 |
|
|
| 2,189 |
|
Total revenues |
|
| 254,691 |
|
|
| 563,891 |
|
Cost of sales |
|
| 237,907 |
|
|
| 353,056 |
|
Wholesale selling expenses |
|
| 9,707 |
|
|
| 16,884 |
|
Retail operating expenses |
|
| 65,236 |
|
|
| 96,143 |
|
Franchise expenses |
|
| 3,121 |
|
|
| 3,236 |
|
General and administrative expenses |
|
| 59,931 |
|
|
| 41,510 |
|
Art and development costs |
|
| 3,516 |
|
|
| 5,712 |
|
Development stage expenses |
|
| 903 |
|
|
| 3,012 |
|
Gain on sale/leaseback transaction |
|
| — |
|
|
| (58,381 | ) |
Store impairment and restructuring charges |
|
| 1,164 |
|
|
| 5,234 |
|
Total expenses |
|
| 381,485 |
|
|
| 466,406 |
|
(Loss) income from operations |
|
| (126,794 | ) |
|
| 97,485 |
|
Interest expense, net |
|
| 25,412 |
|
|
| 30,176 |
|
Other expense, net |
|
| 1,484 |
|
|
| 3,342 |
|
(Loss) income before income taxes |
|
| (153,690 | ) |
|
| 63,967 |
|
Income tax (benefit) expense |
|
| (23,631 | ) |
|
| 15,962 |
|
Net (loss) income |
|
| (130,059 | ) |
|
| 48,005 |
|
Less: Net loss attributable to noncontrolling interests |
|
| (44 | ) |
|
| (69 | ) |
Net (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | (130,015 | ) |
| $ | 48,074 |
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | (1.39 | ) |
| $ | 0.52 |
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | (1.39 | ) |
| $ | 0.51 |
|
Weighted-average number of common shares-Basic |
|
| 93,419,078 |
|
|
| 93,293,176 |
|
Weighted-average number of common shares-Diluted |
|
| 93,419,078 |
|
|
| 93,703,546 |
|
Dividends declared per share |
| $ | — |
|
| $ | — |
|
Comprehensive (loss) income |
| $ | (125,961 | ) |
| $ | 48,327 |
|
Less: Comprehensive loss attributable to noncontrolling interests |
|
| (44 | ) |
|
| (89 | ) |
Comprehensive (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | (125,917 | ) |
| $ | 48,416 |
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net sales* |
| $ | 535,746 |
|
| $ | 254,691 |
|
| $ | 962,553 |
|
| $ | 668,734 |
|
Cost of sales |
|
| 318,574 |
|
|
| 237,907 |
|
|
| 593,095 |
|
|
| 534,664 |
|
Gross Profit |
|
| 217,172 |
|
|
| 16,784 |
|
|
| 369,458 |
|
|
| 134,070 |
|
Wholesale selling expenses |
|
| 7,358 |
|
|
| 9,707 |
|
|
| 16,474 |
|
|
| 25,165 |
|
Retail operating expenses |
|
| 97,179 |
|
|
| 65,236 |
|
|
| 186,075 |
|
|
| 153,402 |
|
General and administrative expenses |
|
| 45,795 |
|
|
| 63,955 |
|
|
| 91,833 |
|
|
| 129,289 |
|
Art and development costs |
|
| 5,004 |
|
|
| 3,516 |
|
|
| 9,975 |
|
|
| 8,838 |
|
Store impairment and restructuring charges |
|
| 0 |
|
|
| 1,164 |
|
|
| 0 |
|
|
| 18,892 |
|
Loss on disposal of assets in international operations |
|
| — |
|
|
| 0 |
|
|
| 3,211 |
|
|
| 0 |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 536,648 |
|
Income (loss) from operations |
|
| 61,836 |
|
|
| (126,794 | ) |
|
| 61,890 |
|
|
| (738,164 | ) |
Interest expense, net |
|
| 23,116 |
|
|
| 25,412 |
|
|
| 40,330 |
|
|
| 50,532 |
|
Other (income) expense, net |
|
| (1,300 | ) |
|
| 1,484 |
|
|
| (873 | ) |
|
| 7,160 |
|
Income (loss) before income taxes |
|
| 40,020 |
|
|
| (153,690 | ) |
|
| 22,433 |
|
|
| (795,856 | ) |
Income tax expense (benefit) |
|
| 10,209 |
|
|
| (23,631 | ) |
|
| 6,740 |
|
|
| (124,129 | ) |
Net income (loss) |
|
| 29,811 |
|
|
| (130,059 | ) |
|
| 15,693 |
|
|
| (671,727 | ) |
Less: Net (loss) attributable to noncontrolling interests |
|
| 0 |
|
|
| (44 | ) |
|
| (54 | ) |
|
| (199 | ) |
Net income (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | 29,811 |
|
| $ | (130,015 | ) |
| $ | 15,747 |
|
| $ | (671,528 | ) |
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | 0.27 |
|
| $ | (1.39 | ) |
| $ | 0.14 |
|
| $ | (7.19 | ) |
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | 0.26 |
|
| $ | (1.39 | ) |
| $ | 0.14 |
|
| $ | (7.19 | ) |
Weighted-average number of common shares-Basic |
|
| 111,340,295 |
|
|
| 93,419,078 |
|
|
| 111,128,822 |
|
|
| 93,407,344 |
|
Weighted-average number of common shares-Diluted |
|
| 116,251,151 |
|
|
| 93,419,078 |
|
|
| 115,499,304 |
|
|
| 93,407,344 |
|
Dividends declared per share |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Comprehensive income (loss) |
| $ | 30,761 |
|
| $ | (125,961 | ) |
| $ | 51,742 |
|
| $ | (679,842 | ) |
Less: Comprehensive (loss) attributable to noncontrolling interests |
|
| 0 |
|
|
| (44 | ) |
|
| (30 | ) |
|
| (199 | ) |
Comprehensive income (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | 30,761 |
|
| $ | (125,917 | ) |
| $ | 51,772 |
|
| $ | (679,643 | ) |
*Includes royalties and franchise fees. Prior year amounts conformed to current year presentation.
See accompanying notes to unaudited condensed consolidated financial statements.
4
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSSTOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share and per share data)thousands)
|
| Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Net sales |
| $ | 666,107 |
|
| $ | 1,072,804 |
|
Royalties and franchise fees |
|
| 2,627 |
|
|
| 4,203 |
|
Total revenues |
|
| 668,734 |
|
|
| 1,077,007 |
|
Cost of sales |
|
| 534,664 |
|
|
| 692,098 |
|
Wholesale selling expenses |
|
| 25,165 |
|
|
| 34,845 |
|
Retail operating expenses |
|
| 153,402 |
|
|
| 191,161 |
|
Franchise expenses |
|
| 6,430 |
|
|
| 6,539 |
|
General and administrative expenses |
|
| 119,927 |
|
|
| 83,435 |
|
Art and development costs |
|
| 8,838 |
|
|
| 11,641 |
|
Development stage expenses |
|
| 2,932 |
|
|
| 5,238 |
|
Gain on sale/leaseback transaction |
|
| — |
|
|
| (58,381 | ) |
Store impairment and restructuring charges |
|
| 18,892 |
|
|
| 23,243 |
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| — |
|
Total expense |
|
| 1,406,898 |
|
|
| 989,819 |
|
(Loss) income from operations |
|
| (738,164 | ) |
|
| 87,188 |
|
Interest expense, net |
|
| 50,532 |
|
|
| 59,433 |
|
Other expense, net |
|
| 7,160 |
|
|
| 4,596 |
|
(Loss) income before income taxes |
|
| (795,856 | ) |
|
| 23,159 |
|
Income tax (benefit) expense |
|
| (124,129 | ) |
|
| 5,443 |
|
Net (loss) income |
|
| (671,727 | ) |
|
| 17,716 |
|
Less: Net loss attributable to noncontrolling interests |
|
| (199 | ) |
|
| (140 | ) |
Net (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | (671,528 | ) |
| $ | 17,856 |
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | (7.19 | ) |
| $ | 0.19 |
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | (7.19 | ) |
| $ | 0.19 |
|
Weighted-average number of common shares-Basic |
|
| 93,407,344 |
|
|
| 93,233,865 |
|
Weighted-average number of common shares-Diluted |
|
| 93,407,344 |
|
|
| 93,791,763 |
|
Dividends declared per share |
| $ | — |
|
| $ | — |
|
Comprehensive (loss) income |
| $ | (679,842 | ) |
| $ | 21,690 |
|
Less: Comprehensive loss attributable to noncontrolling interests |
|
| (199 | ) |
|
| (151 | ) |
Comprehensive (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | (679,643 | ) |
| $ | 21,841 |
|
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total Party City |
|
| Common |
|
| Total Party City |
|
| Non- |
|
| Total |
| |||||||||
Balance at March 31, 2021 |
| $ | 1,383 |
|
| $ | 976,037 |
|
| $ | (579,486 | ) |
| $ | 5,134 |
|
| $ | 403,068 |
|
| $ | (327,388 | ) |
| $ | 75,680 |
|
| $ | (786 | ) |
| $ | 74,894 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 29,811 |
|
|
| — |
|
|
| 29,811 |
|
|
| — |
|
|
| 29,811 |
|
|
| 0 |
|
|
| 29,811 |
|
Stock option |
|
| — |
|
|
| 104 |
|
|
| — |
|
|
| — |
|
|
| 104 |
|
|
| — |
|
|
| 104 |
|
|
| — |
|
|
| 104 |
|
Restricted stock units – time-based |
|
| — |
|
|
| 415 |
|
|
| — |
|
|
| — |
|
|
| 415 |
|
|
| — |
|
|
| 415 |
|
|
| — |
|
|
| 415 |
|
Restricted stock unit expense – performance-based |
|
| — |
|
|
| 1,081 |
|
|
| — |
|
|
| — |
|
|
| 1,081 |
|
|
| — |
|
|
| 1,081 |
|
|
| — |
|
|
| 1,081 |
|
Director – non-cash compensation |
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| 57 |
|
|
| 0 |
|
|
| 57 |
|
Treasury Stock purchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| (6 | ) |
|
| — |
|
|
| (6 | ) |
Exercise of stock options |
|
| — |
|
|
| 467 |
|
|
| — |
|
|
| — |
|
|
| 467 |
|
|
| — |
|
|
| 467 |
|
|
| — |
|
|
| 467 |
|
Foreign currency adjustments |
|
| — |
|
|
| 6 |
|
|
| (18 | ) |
|
| 962 |
|
|
| 950 |
|
|
| — |
|
|
| 950 |
|
|
| — |
|
|
| 950 |
|
Balance at June 30, 2021 |
| $ | 1,383 |
|
| $ | 978,167 |
|
| $ | (549,693 | ) |
| $ | 6,096 |
|
| $ | 435,953 |
|
| $ | (327,394 | ) |
| $ | 108,559 |
|
| $ | (786 | ) |
| $ | 107,773 |
|
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total Party City |
|
| Common |
|
| Total Party City |
|
| Non- |
|
| Total |
| |||||||||
Balance at March 31, 2020 |
| $ | 1,211 |
|
| $ | 933,174 |
|
| $ | (578,732 | ) |
| $ | (47,947 | ) |
| $ | 307,706 |
|
| $ | (327,170 | ) |
| $ | (19,464 | ) |
| $ | (162 | ) |
| $ | (19,626 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| (130,015 | ) |
|
| — |
|
|
| (130,015 | ) |
|
| — |
|
|
| (130,015 | ) |
|
| (44 | ) |
|
| (130,059 | ) |
Stock option |
|
| — |
|
|
| 206 |
|
|
| — |
|
|
| — |
|
|
| 206 |
|
|
| — |
|
|
| 206 |
|
|
| — |
|
|
| 206 |
|
Stock option expense |
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
Restricted stock units – time-based |
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| 518 |
|
Foreign currency adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,014 |
|
|
| 4,014 |
|
|
| — |
|
|
| 4,014 |
|
|
| — |
|
|
| 4,014 |
|
Impact of foreign exchange |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 84 |
|
|
| 84 |
|
|
| — |
|
|
| 84 |
|
|
| — |
|
|
| 84 |
|
Balance at June 30, 2020 |
| $ | 1,211 |
|
| $ | 941,745 |
|
| $ | (708,747 | ) |
| $ | (43,849 | ) |
| $ | 190,360 |
|
| $ | (327,170 | ) |
| $ | (136,810 | ) |
| $ | (206 | ) |
| $ | (137,016 | ) |
5
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total Party City |
|
| Common |
|
| Total Party City |
|
| Non- |
|
| Total |
| |||||||||
Balance at December 31, 2020 |
| $ | 1,373 |
|
| $ | 971,972 |
|
| $ | (565,457 | ) |
| $ | (29,916 | ) |
| $ | 377,972 |
|
| $ | (327,182 | ) |
| $ | 50,790 |
|
| $ | (269 | ) |
| $ | 50,521 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| 15,747 |
|
|
| — |
|
|
| 15,747 |
|
|
| — |
|
|
| 15,747 |
|
|
| (54 | ) |
|
| 15,693 |
|
Stock option expense – time – based |
|
| — |
|
|
| 217 |
|
|
| — |
|
|
| — |
|
|
| 217 |
|
|
| — |
|
|
| 217 |
|
|
| — |
|
|
| 217 |
|
Restricted stock units – time – based |
|
| — |
|
|
| 767 |
|
|
| — |
|
|
| — |
|
|
| 767 |
|
|
| — |
|
|
| 767 |
|
|
| — |
|
|
| 767 |
|
Restricted stock unit expense – performance-based |
|
| — |
|
|
| 1,789 |
|
|
| — |
|
|
| — |
|
|
| 1,789 |
|
|
| — |
|
|
| 1,789 |
|
|
| — |
|
|
| 1,789 |
|
Director – non-cash compensation |
|
| — |
|
|
| 114 |
|
|
| — |
|
|
| — |
|
|
| 114 |
|
|
| — |
|
|
| 114 |
|
|
| — |
|
|
| 114 |
|
Warrant exercise (see Note 17 – |
|
| 4 |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Disposed non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (487 | ) |
|
| (487 | ) |
Treasury stock purchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (212 | ) |
|
| (212 | ) |
|
| — |
|
|
| (212 | ) |
Exercise of stock options |
|
| 6 |
|
|
| 3,316 |
|
|
| — |
|
|
| — |
|
|
| 3,322 |
|
|
| — |
|
|
| 3,322 |
|
|
| — |
|
|
| 3,322 |
|
Foreign currency adjustments |
|
| — |
|
|
| (4 | ) |
|
| 17 |
|
|
| 37,360 |
|
|
| 37,373 |
|
|
| — |
|
|
| 37,373 |
|
|
| 24 |
|
|
| 37,397 |
|
Impact of foreign exchange |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,348 | ) |
|
| (1,348 | ) |
|
| — |
|
|
| (1,348 | ) |
|
| — |
|
|
| (1,348 | ) |
Balance at June 30, 2021 |
| $ | 1,383 |
|
| $ | 978,167 |
|
| $ | (549,693 | ) |
| $ | 6,096 |
|
| $ | 435,953 |
|
| $ | (327,394 | ) |
| $ | 108,559 |
|
| $ | (786 | ) |
| $ | 107,773 |
|
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total Party City |
|
| Common |
|
| Total Party City |
|
| Non- |
|
| Total |
| |||||||||
Balance at December 31, 2019 |
| $ | 1,211 |
|
| $ | 928,573 |
|
| $ | (37,219 | ) |
| $ | (35,734 | ) |
| $ | 856,831 |
|
| $ | (327,086 | ) |
| $ | 529,745 |
|
| $ | (24 | ) |
| $ | 529,721 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (671,528 | ) |
|
| — |
|
|
| (671,528 | ) |
|
| — |
|
|
| (671,528 | ) |
|
| (199 | ) |
|
| (671,727 | ) |
Stock option expense – time – based |
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 560 |
|
Stock option expense |
|
|
|
|
| 7,847 |
|
|
| — |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
| |
Restricted stock units – time – based |
|
| — |
|
|
| 1,139 |
|
|
| — |
|
|
| — |
|
|
| 1,139 |
|
|
| — |
|
|
| 1,139 |
|
|
| — |
|
|
| 1,139 |
|
Director – non-cash compensation |
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| 75 |
|
Warrant expense (see Note 17 – |
|
| — |
|
|
| 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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,187 | ) |
|
| (8,187 | ) |
|
| — |
|
|
| (8,187 | ) |
|
| — |
|
|
| (8,187 | ) |
Impact of foreign exchange |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 72 |
|
|
| 72 |
|
|
| — |
|
|
| 72 |
|
|
| — |
|
|
| 72 |
|
Balance at June 30, 2020 |
| $ | 1,211 |
|
| $ | 941,745 |
|
| $ | (708,747 | ) |
| $ | (43,849 | ) |
| $ | 190,360 |
|
| $ | (327,170 | ) |
| $ | (136,810 | ) |
| $ | (206 | ) |
| $ | (137,016 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
6
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS
(Unaudited)
(In thousands)
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Accumulated 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 March 31, 2020 |
| $ | 1,211 |
|
| $ | 933,174 |
|
| $ | (578,732 | ) |
| $ | (47,947 | ) |
| $ | 307,706 |
|
| $ | (327,170 | ) |
| $ | (19,464 | ) |
| $ | (162 | ) |
| $ | (19,626 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| (130,015 | ) |
|
| — |
|
|
| (130,015 | ) |
|
| — |
|
|
| (130,015 | ) |
|
| (44 | ) |
|
| (130,059 | ) |
Stock option expense – time – based |
|
| — |
|
|
| 206 |
|
|
| — |
|
|
| — |
|
|
| 206 |
|
|
| — |
|
|
| 206 |
|
|
| — |
|
|
| 206 |
|
Stock option expense – performance – based |
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
Restricted stock units – time-based |
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| 518 |
|
Foreign currency adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,014 |
|
|
| 4,014 |
|
|
| — |
|
|
| 4,014 |
|
|
| — |
|
|
| 4,014 |
|
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 84 |
|
|
| 84 |
|
|
| — |
|
|
| 84 |
|
|
| — |
|
|
| 84 |
|
Balance at June 30, 2020 |
| $ | 1,211 |
|
| $ | 941,745 |
|
| $ | (708,747 | ) |
| $ | (43,849 | ) |
| $ | 190,360 |
|
| $ | (327,170 | ) |
| $ | (136,810 | ) |
| $ | (206 | ) |
| $ | (137,016 | ) |
|
| Six Months Ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows provided by (used in) operating activities: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 15,693 |
|
| $ | (671,727 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization expense |
|
| 34,860 |
|
|
| 40,518 |
|
Amortization of deferred financing costs and original issuance discounts |
|
| 1,937 |
|
|
| 2,401 |
|
Provision for doubtful accounts |
|
| 1,171 |
|
|
| 4,443 |
|
Deferred income tax expense (benefit) |
|
| 2,622 |
|
|
| (58,440 | ) |
Change in operating lease liability/asset |
|
| (52,315 | ) |
|
| 44,803 |
|
Undistributed (income) loss in equity method investments |
|
| (211 | ) |
|
| 415 |
|
Loss on disposal of assets |
|
| 109 |
|
|
| 93 |
|
Loss on disposal of assets in international operations |
|
| 3,211 |
|
|
| — |
|
Non-cash adjustment for store impairment and restructuring charges |
|
| — |
|
|
| 16,458 |
|
Goodwill, intangibles and long-lived assets impairment |
|
| — |
|
|
| 536,648 |
|
Non-employee equity-based compensation** |
|
| — |
|
|
| 1,033 |
|
Stock option expense – time – based |
|
| 217 |
|
|
| 560 |
|
Stock option expense – performance – based |
|
| — |
|
|
| 7,847 |
|
Restricted stock unit expense – time-based |
|
| 767 |
|
|
| 1,139 |
|
Restricted stock unit – performance-based |
|
| 1,789 |
|
|
| — |
|
Directors – non-cash compensation |
|
| 114 |
|
|
| 75 |
|
Net loss on debt repayment |
|
| 226 |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
(Increase) decrease in accounts receivable |
|
| (2,395 | ) |
|
| 56,315 |
|
(Increase) decrease in inventories |
|
| (15,191 | ) |
|
| 20,055 |
|
(Increase) in prepaid expenses and other current assets |
|
| (31,055 | ) |
|
| (47,700 | ) |
Increase (decrease) in accounts payable, accrued expenses and income taxes |
|
| 52,228 |
|
|
| (3,717 | ) |
Net cash provided by (used in) operating activities |
|
| 13,777 |
|
|
| (48,781 | ) |
Cash flows (used in) investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (40,452 | ) |
|
| (18,332 | ) |
Proceeds from disposal of property and equipment |
|
| — |
|
|
| 7 |
|
Proceeds from sale of international operations, net of cash disposed |
|
| 20,556 |
|
|
| — |
|
Net cash (used in) investing activities |
|
| (19,896 | ) |
|
| (18,325 | ) |
Cash flows (used in) provided by financing activities: |
|
|
|
|
|
| ||
Repayment of loans, notes payable and long-term obligations |
|
| (836,435 | ) |
|
| (79,763 | ) |
Proceeds from loans, notes payable and long-term obligations |
|
| 794,750 |
|
|
| 269,874 |
|
Treasury stock purchases |
|
| (212 | ) |
|
| (85 | ) |
Exercise of stock options |
|
| 3,322 |
|
|
| — |
|
Debt issuance costs |
|
| (21,437 | ) |
|
| — |
|
Net cash (used in) provided by financing activities |
|
| (60,012 | ) |
|
| 190,026 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 274 |
|
|
| (3,945 | ) |
Net (decrease) increase in cash and cash equivalents and restricted cash |
|
| (65,857 | ) |
|
| 118,975 |
|
Change in cash classified within current assets held for sale |
|
| 31,628 |
|
|
| — |
|
7
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury |
|
| Common Stock Held In Treasury |
|
| Total Party City Holdco Inc. Stockholders’ Equity |
|
| Non- Controlling Interests |
|
| Total Stockholders’ Equity |
| |||||||||
Balance at 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 |
|
Cash and cash equivalents and restricted cash at beginning of period |
|
| 119,681 |
|
|
| 35,176 |
|
Cash and cash equivalents and restricted cash at end of period* |
| $ | 85,452 |
|
| $ | 154,151 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid during the period for interest expense |
| $ | 16,594 |
|
| $ | 43,402 |
|
Cash paid during the period for income taxes, net of refunds |
| $ | 3,411 |
|
| $ | 11,854 |
|
*Includes $1,000 and $18 of restricted cash for the six months ended June 30, 2021 and 2020. The Company recorded restricted cash in other assets, net as presented in the consolidated balance sheet at June 30, 2021 and in prepaid expenses and other current assets as presented in the consolidated balance sheets at December 31, 2020 and June 30, 2020.
**See Note 17 – Kazzam, LLC.
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY8
(Unaudited)
(In thousands)
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Accumulated 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 |
|
| — |
|
|
| — |
|
|
| (671,528 | ) |
|
| — |
|
|
| (671,528 | ) |
|
| — |
|
|
| (671,528 | ) |
|
| (199 | ) |
|
| (671,727 | ) |
Stock option expense – time – based |
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 560 |
|
Stock option expense – performance – based |
|
|
|
|
|
| 7,847 |
|
|
| — |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
Restricted stock units – time – based |
|
| — |
|
|
| 1,139 |
|
|
| — |
|
|
| — |
|
|
| 1,139 |
|
|
| — |
|
|
| 1,139 |
|
|
| — |
|
|
| 1,139 |
|
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,187 | ) |
|
| (8,187 | ) |
|
| — |
|
|
| (8,187 | ) |
|
| — |
|
|
| (8,187 | ) |
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 72 |
|
|
| 72 |
|
|
| — |
|
|
| 72 |
|
|
| — |
|
|
| 72 |
|
Balance at June 30, 2020 |
| $ | 1,211 |
|
| $ | 941,745 |
|
| $ | (708,747 | ) |
| $ | (43,849 | ) |
| $ | 190,360 |
|
| $ | (327,170 | ) |
| $ | (136,810 | ) |
| $ | (206 | ) |
| $ | (137,016 | ) |
|
| 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 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 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
| Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows used in operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (671,727 | ) |
| $ | 17,716 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 40,518 |
|
|
| 43,225 |
|
Amortization of deferred financing costs and original issuance discounts |
|
| 2,401 |
|
|
| 2,289 |
|
Provision for doubtful accounts |
|
| 4,443 |
|
|
| 596 |
|
Deferred income tax benefit |
|
| (58,440 | ) |
|
| (10,779 | ) |
Change in operating lease liability/asset |
|
| 44,803 |
|
|
| (21,406 | ) |
Undistributed income (loss) in equity method investments |
|
| 415 |
|
|
| (202 | ) |
Loss (gain) on disposal of assets |
|
| 93 |
|
|
| (59,087 | ) |
Non-cash adjustment for store impairment and restructuring charges |
|
| 16,458 |
|
|
| 19,490 |
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| — |
|
Non-employee equity-based compensation (see Note 19 – Kazzam, LLC) |
|
| 1,033 |
|
|
| 258 |
|
Stock option expense – time – based |
|
| 560 |
|
|
| 741 |
|
Stock option expense – performance – based |
|
| 7,847 |
|
|
| — |
|
Restricted stock unit expense – time-based |
|
| 1,139 |
|
|
| 933 |
|
Restricted stock unit expense – performance-based |
|
| — |
|
|
| 476 |
|
Directors – non-cash compensation |
|
| 75 |
|
|
| 165 |
|
Changes in operating assets and liabilities, net of effects of acquired businesses: |
|
|
|
|
|
|
|
|
Decrease in accounts receivable |
|
| 56,315 |
|
|
| 6,588 |
|
Decrease (increase) in inventories |
|
| 20,055 |
|
|
| (31,145 | ) |
Increase in prepaid expenses and other current assets |
|
| (47,700 | ) |
|
| (4,333 | ) |
Decrease (increase) in accounts payable, accrued expenses and income taxes payable |
|
| (3,717 | ) |
|
| (71,438 | ) |
Net cash used in operating activities |
|
| (48,781 | ) |
|
| (105,913 | ) |
Cash flows (used in) provided by investing activities: |
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions, net of cash acquired |
|
| — |
|
|
| (545 | ) |
Capital expenditures |
|
| (18,332 | ) |
|
| (31,098 | ) |
Proceeds from disposal of property and equipment |
|
| 7 |
|
|
| 113,799 |
|
Net cash (used in) provided by investing activities |
|
| (18,325 | ) |
|
| 82,156 |
|
Cash flows provided by financing activities: |
|
|
|
|
|
|
|
|
Repayment of loans, notes payable and long-term obligations |
|
| (79,763 | ) |
|
| (148,526 | ) |
Proceeds from loans, notes payable and long-term obligations |
|
| 269,874 |
|
|
| 157,440 |
|
Stock repurchases |
|
| (85 | ) |
|
| (156 | ) |
Exercise of stock options |
|
| — |
|
|
| 1,088 |
|
Debt issuance costs |
|
| — |
|
|
| (343 | ) |
Net cash provided by financing activities |
|
| 190,026 |
|
|
| 9,503 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (3,945 | ) |
|
| 2,166 |
|
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
| 118,975 |
|
|
| (12,088 | ) |
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 |
| $ | 154,151 |
|
| $ | 47,131 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 43,402 |
|
| $ | 57,503 |
|
Cash paid during the period for income taxes, net of refunds |
| $ | 11,854 |
|
| $ | 31,924 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
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 the leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party 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 wholesaleWholesale 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 June 30, 2020 the
The Company’s retail operations include 854831 specialty retail party supply stores (including franchise stores) throughout the United States and Mexico operating under the names Party City and Halloween City, and e-commerce websites, including through the domain name PartyCity.com and others.PartyCity.com.
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.The Company began reopening stores on May 1, 2020, in accordance with state and local health ordinances, and as of June 12, 2020 had reopened 85% of its stores. By June 22, 2020, all stores were re-opened.
Party City Holdco is a holding company with no operating assets or operations. The Company owns 100%100% of PC Nextco Holdings, LLC (“PC Nextco”), which owns 100%100% of PC Intermediate Holdings, Inc. (“PC Intermediate”). PC Intermediate owns 100%100% of Party City Holdings Inc. (“PCHI”), which owns most of the Company’s operatingOperating subsidiaries.
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. These financial statements should be read in conjunction with the more detailed financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. 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 ourCompany’s retail operations define a fiscal year (“Fiscal Year”) as the 52-week period or 53-week period ended on the Saturday nearest December 31st of each year and define fiscal quarters (“Fiscal Quarter”) as the four interim 13-week periods following the end of the previous Fiscal Year, except in the case of a 53-week Fiscal Year when the fourth Fiscal Quarter is extended to 14 weeks. The condensed consolidated financial statements of the Company combine the Fiscal Quarters of our retail operations with the calendar quarters of our wholesale operations. The Company has determinedWholesale operations, as the differences between the retail operation’s Fiscal Year and Fiscal Quarters and the calendar year and calendar quarters to be insignificant.
Operating results for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 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 year-end holiday sales. We expect that this general pattern will continue. Our results of operations may also be affected by industry factors that may be specific to a particular period, such as movement in and the general level of raw material costs and the uncertainty surrounding the impact of the COVID-19 pandemic.significant.
Recently Issued and Adopted Accounting Pronouncements
In August 2018,March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes2020-04, which provides guidance providing optional expedients and exceptions for applying U.S. generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by 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 disclosurediscontinuation of the changesLondon Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. Additionally, 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. The Company has adopted this guidance effective January 1, 2020, prospectively and the adoption and application of this standard did not have a material impact to the consolidated financial statements.
In June 2018,2021, the FASB issued ASU 2018-07, “Compensation — Stock Compensation: Improvements2021-01, which allows entities to Nonemployee Share-Based Payment Accounting”. The ASU simplifies theelect certain optional expedients and exceptions when accounting for non-employee share-based payments.derivative contracts and certain hedging relationships affected by changes in the interest rates. The Company adopted the update during the first quarter of 2019. The pronouncement requires companies to record the impact of adoption, if any, as a cumulative-effect adjustment to retained earnings as of the adoption date. Therefore, on January 1, 2019, the Company decreased retained earnings by $503. Additionally, the Company increased additional paid-in capital by $662is currently evaluating this guidance and recorded a $159 deferred income tax asset.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities”. The pronouncement amends the existing hedge accounting model in order to enable entities to better portray the economics of their risk management activities in their financial statements. The Company adopted the update during the first quarter of 2019 and such adoption had nodoes not expect an impact on the Company’sour consolidated financial statements.
In January 2017 the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to measure a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in ASU 2017-04, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized will not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity will consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company adopted ASU No. 2017-04 during the first quarter of 2019 and such adoption had no impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU requires that an entity measure and recognize expected credit losses at the time the asset is recorded, while considering a broader range of information to estimate credit losses including macroeconomic conditions that correlate with historical loss experience, delinquency trends and aging behavior of receivables, among others. The Company has adopted this guidance effective January 1, 2020, prospectively, with respect to its receivables, and the adoption and application of this standard did not have a material impact to the consolidated financial statements during the first six months of 2020.
The Company maintains allowances for credit losses resulting from the inability of the Company’s customers to make required payments. Judgment is required 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 credit losses and occur only after all collection efforts have been exhausted. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected losses. At June 30, 2020 and December 31, 2019, the allowance for credit losses was $8,620 and $4,786, respectively.
In February 2016, the FASB issued ASU 2016-02, “Leases”. The ASU requires that companies recognize assets and liabilities for the rights and obligations created by companies’ leases. The Company’s lease portfolio is primarily comprised of store leases, manufacturing and distribution facility leases, warehouse leases and office leases. Most of the leases are operating leases. The Company’s finance leases are not material to its consolidated financial statements.
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 its operating lease arrangements with terms of greater than twelve months. The
pronouncement had no impact on the Company’s consolidated statement of operations and comprehensive loss and it did not impact the Company’s compliance with its debt covenants. Additionally, the standard requires companies to make certain annual disclosures, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
9
Note 3 – Store Impairment and Restructuring Charges
Each year,In 2019 and 2020 the Company typically closes approximately ten 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. The Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”). After careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of stores, which arewere primarily located in close proximity to other Party City stores. In 2019, 55 stores were identified for closure, out of which 35 stores were closed in 2019 and 20 stores were closed in January 2020. In addition, 2020, 21 stores were identified for closure in the first quarter of 2020 for closure at a future date.were closed in the third quarter of 2020. These closings should provideprovided the Company with capital flexibility to expand into underserved markets. In addition, the Company evaluated the recoverability of long lived assets at the open stores and recorded an impairment charge associated with the operating lease asset and property, plant and equipment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19. In conjunction with the store optimization program and store impairment, during During the three and six months ended June 30, 2020, and 2019, the Company recorded the following charges:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||
|
| 2020 |
|
| 2020 |
| ||
Inventory reserves |
| $ | 0 |
|
| $ | 11,696 |
|
Operating lease asset impairment |
|
| 181 |
|
|
| 14,393 |
|
Property, plant and equipment impairment |
|
| 0 |
|
|
| 2,065 |
|
Labor and other costs incurred closing stores |
|
| 983 |
|
|
| 2,434 |
|
Total |
| $ | 1,164 |
|
| $ | 30,588 |
|
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Inventory reserves |
| $ | — |
|
| $ | 3,656 |
|
Operating lease asset impairment |
|
| 181 |
|
|
| 940 |
|
Property, plant and equipment impairment |
|
| — |
|
|
| 541 |
|
Labor and other costs incurred closing stores |
|
| 983 |
|
|
| 3,753 |
|
Total |
| $ | 1,164 |
|
| $ | 8,890 |
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Inventory reserves |
| $ | 11,696 |
|
| $ | 21,285 |
|
Operating lease asset impairment |
|
| 14,393 |
|
|
| 14,149 |
|
Property, plant and equipment impairment |
|
| 2,065 |
|
|
| 4,680 |
|
Labor and other costs incurred closing stores |
|
| 2,434 |
|
|
| 3,753 |
|
Severance |
|
| — |
|
|
| 661 |
|
Total |
| $ | 30,588 |
|
| $ | 44,528 |
|
Amounts disclosed above represent the Company’s best estimate of the total charges that are expected to be recorded. As the Company closes the stores, it records 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 immaterial. Additionally, the Company incurs costs while moving inventory, cleaning the stores and returning them to their original condition. Such costs are also 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 sub-lease the stores.
The charge for inventory reserves is related torepresented inventory that iswas disposed of following the closures of the stores and inventory that is sold below cost prior to such closures.cost. The charge for inventory reserves was recorded in cost of sales in the Company’s statement of operations and comprehensive loss. The other charges were recorded in Storestore impairment and restructuring charges in the Company’s statement of operations and comprehensive loss.
The Company cannot guarantee that it will be able to achieve the anticipated benefits fromIn conjunction with the store optimization program. Ifprogram and store impairment, there were no charges for the Company is unable to achieve such benefits, its results of operationsthree and financial condition could be affected.six months ended June 30, 2021.
Note 4 – Goodwill, Intangibles and IntangiblesLong-Lived Assets 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$253,110 and $148,326$148,326 against the goodwill associated with its retail and wholesale reporting units, respectively.
In addition, during the three months ended March 31, 2020, the Company recorded an impairment charge of $131,287$131,287 and $3,925$3,925 on its Party City and Halloween City tradenames, respectively. There was 0 impairment for
During the threesix months ended June 30, 2020. During 2019, there was 0 impairment on the Party City trade name2021 and the Company recorded a Halloween City trade name impairment charge of $6,575.
There was 0 goodwill and other intangible assets impairment charge for the three months ended June 30, 2020, and 2019 and six months ended June 30, 2019.
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-year leases for each of the facilities. The aggregate sale price was $128,000 and, during the year ended December 31, 2019, the Company recorded a $58,381 gain on the sale, net of transaction costs, inthere were 0 impairment charges associated with the Company’s condensed consolidated statement of operations and comprehensive loss.
Under the terms of the lease agreements, the Company pays 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 resulted 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 proceeds as a financing lease. As of June 30, 2020 and December 31, 2019 $11,898 and $11,990 is recorded as a part of a Finance lease, respectively.
In conjunction with the sale/leaseback transaction, 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 required 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 extinguishmentgoodwill 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.other intangible assets balances.
During June 2019, the Company used proceeds from the sale (net of costs) described in this Note 5 – Sale/Leaseback Transaction to paydown outstanding loans under the Term Loan Credit Agreement and the ABL Facility in an aggregate amount of $125,864, of which $62,770 was used to prepay the outstanding term loans and the balance was used to paydown the ABL Facility. See Note 16 – Current and Long-Term Obligations.
10
Note 65 – Disposition of Assets
On October 1, 2019,In January 2021, the Company soldclosed the previously disclosed sale of a substantial portion of its Canadian-based Party City storesinternational operations. The final consideration for the sale amounted to a Canadian-based retailer for $131,711 and entered into a 10-year supply agreement under which$54.6 million. During the acquirer agreed to purchase product fromfourth quarter of 2020, the Company for such Party City stores, as well as acquirer’s other stores. Therecorded a loss reserve of $73,948 in connection with this sale, and during the first quarter of 2021, the Company has reinvested a significant portionrecorded an additional loss of $3,211, related to changes in working capital accounts through the cash proceeds (net of costs) received
from such sale in assets used or usefultransaction close date, which is reported in the businessConsolidated Statements of the CompanyOperations and its subsidiaries and expects to so reinvest the balance of those proceeds in the near future.Comprehensive Income (Loss).
Note 76 – Inventories, net
Inventories, net consisted of the following:
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| June 30, |
|
| December 31, |
|
| June 30, |
| |||||
Finished goods |
| $ | 587,327 |
|
| $ | 606,036 |
|
| $ | 384,949 |
|
| $ | 367,275 |
| $ | 587,327 |
| |
Raw materials |
|
| 30,958 |
|
|
| 34,259 |
|
| 22,274 |
|
|
| 27,111 |
| 30,958 |
| |||
Work in process |
|
| 16,729 |
|
|
| 18,124 |
|
|
| 18,905 |
|
|
| 17,899 |
|
|
| 16,729 |
|
|
| $ | 635,014 |
|
| $ | 658,419 |
|
| $ | 426,128 |
|
| $ | 412,285 |
|
| $ | 635,014 |
|
Inventories, net 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 store-by-store basis. Inventory shrinkage estimates can be affected by changes in merchandise mix and changes in actual shortage trends. The shrinkage rate from the most recent physical inventory, in combination with historical experience, is the basis for estimating shrinkage.
In the ordinary course of business the Company is involved in transactions with certain of its equity-method investees, primarily for the purchase of finished goods inventory. For the three and six months ended June 30, 2021, the Company purchased $22.6 million and $25.5 million, respectively. Substantially all of these purchases are reflected in finished goods inventory as of June 30, 2021. As of June 30, 2021, the Company had accounts payable of $19.7 million related to such transactions.
Note 87 – 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$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 three months ended June 30, 2021 of 25.5% is different from the statutory rate of 21.0% primarily due to state taxes and equity compensation.
The effective income tax rate for the six months ended June 30, 20202021 of 15.6%30.1% is different from the statutory rate of 21.0%21.0% primarily due to the non-deductible portions of goodwill impairment charges (see Note 4 – Goodwill and Intangibles Impairment above for further discussion), state taxes, equity compensation, the effect of foreign losses with no associated tax benefit and a rate benefitthe additional loss related to the carrybacksale of a net operating loss to years whensubstantial portion of the statutory income tax rate was 35.0%.international operations recorded in the three months ended March 31, 2021.
11
Note 98 – Changes in Accumulated Other Comprehensive LossIncome (Loss)
The changes in accumulated other comprehensive lossincome (loss) consisted of the following:
|
| Three Months Ended June 30, 2021 |
| |||||
|
| Foreign |
|
| Total, |
| ||
Balance at March 31, 2021 |
| $ | 5,134 |
|
| $ | 5,134 |
|
Other comprehensive income before reclassifications, |
|
| 962 |
|
|
| 962 |
|
Net current-period other comprehensive income |
|
| 962 |
|
|
| 962 |
|
Balance at June 30, 2021 |
| $ | 6,096 |
|
| $ | 6,096 |
|
|
| Three Months Ended June 30, 2020 |
| |||||||||
|
| Foreign |
|
| Impact of |
|
| Total, |
| |||
Balance at March 31, 2020 |
| $ | (49,635 | ) |
| $ | 1,688 |
|
| $ | (47,947 | ) |
Other comprehensive income before reclassifications, |
|
| 4,014 |
|
|
| 59 |
|
|
| 4,073 |
|
Amounts reclassified from accumulated other comprehensive |
|
| 0 |
|
|
| 25 |
|
|
| 25 |
|
Net current-period other comprehensive income |
|
| 4,014 |
|
|
| 84 |
|
|
| 4,098 |
|
Balance at June 30, 2020 |
| $ | (45,621 | ) |
| $ | 1,772 |
|
| $ | (43,849 | ) |
|
| Six Months Ended June 30, 2021 |
| |||||||||
|
| Foreign |
|
| Impact of |
|
| Total, |
| |||
Balance at December 31, 2020 |
| $ | (31,264 | ) |
| $ | 1,348 |
|
| $ | (29,916 | ) |
Other comprehensive income before reclassifications, net of tax |
|
| 771 |
|
|
| 77 |
|
|
| 848 |
|
Release of cumulative foreign currency translation adjustment to net loss as a result of disposition of international operations |
|
| 36,589 |
|
|
| (1,422 | ) |
|
| 35,167 |
|
Amounts reclassified from accumulated other comprehensive income to the condensed consolidated statement of operations and comprehensive income (loss), net of income tax |
|
| 0 |
|
|
| (3 | ) |
|
| (3 | ) |
Net current-period other comprehensive income (loss) |
|
| 37,360 |
|
|
| (1,348 | ) |
|
| 36,012 |
|
Balance at June 30, 2021 |
| $ | 6,096 |
|
| $ | 0 |
|
| $ | 6,096 |
|
12
|
| Six Months Ended June 30, 2020 |
| |||||||||
|
| Foreign |
|
| Impact of |
|
| Total, |
| |||
Balance at December 31, 2019 |
| $ | (37,434 | ) |
| $ | 1,700 |
|
| $ | (35,734 | ) |
Other comprehensive (loss) income before |
|
| (8,187 | ) |
|
| 70 |
|
|
| (8,117 | ) |
Amounts reclassified from accumulated other comprehensive |
|
| 0 |
|
|
| 2 |
|
|
| 2 |
|
Net current-period other comprehensive (loss) income |
|
| (8,187 | ) |
|
| 72 |
|
|
| (8,115 | ) |
Balance at June 30, 2020 |
| $ | (45,621 | ) |
| $ | 1,772 |
|
| $ | (43,849 | ) |
|
| Three Months Ended June 30, 2020 |
| |||||||||
|
| Foreign Currency Adjustments |
|
| Impact of Foreign Exchange Contracts, Net of Taxes |
|
| Total, Net of Taxes |
| |||
Balance at March 31, 2020 |
| $ | (49,635 | ) |
| $ | 1,688 |
|
| $ | (47,947 | ) |
Other comprehensive income before reclassifications, net of tax |
|
| 4,014 |
|
|
| 59 |
|
|
| 4,073 |
|
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax |
|
| — |
|
|
| 25 |
|
|
| 25 |
|
Net current-period other comprehensive income |
|
| 4,014 |
|
|
| 84 |
|
|
| 4,098 |
|
Balance at June 30, 2020 |
| $ | (45,621 | ) |
| $ | 1,772 |
|
| $ | (43,849 | ) |
|
| 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 |
|
| 556 |
|
|
| (3 | ) |
|
| 553 |
|
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, 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 | ) |
|
| Six Months Ended June 30, 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 |
|
| (8,187 | ) |
|
| 70 |
|
|
| (8,117 | ) |
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax |
|
| — |
|
|
| 2 |
|
|
| 2 |
|
Net current-period other comprehensive (loss) income |
|
| (8,187 | ) |
|
| 72 |
|
|
| (8,115 | ) |
Balance at June 30, 2020 |
| $ | (45,621 | ) |
| $ | 1,772 |
|
| $ | (43,849 | ) |
|
| 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 income tax |
|
| 4,712 |
|
|
| 60 |
|
|
| 4,772 |
|
Amounts 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 | ) |
Note 109 – Capital Stock
At June 30, 2020,2021, the Company’s authorized capital stock consisted of 300,000,000 shares of $0.01$0.01 par value common stock and 15,000,000 shares of $0.01$0.01 par value preferred stock.
During 2013, Party City Holdco granted performance-based stock options to key employees and independent directors. For those performance-based options, vesting was contingent on Thomas H. Lee Partners, L.P. (“THL”) achieving specified investment returns when it sold its entire ownership stake in Party City Holdco. In June 2020, THL distributed its remaining shares. At the time of the THL distribution, there were 2,539,600 performance options outstanding with an average grant date fair value of $3.09. NaN of the performance-based options vested as the specified investment returns were not attained. The Company recorded compensation expense of $7,847.
Note 1110 – Segment Information
Industry Segments
The Company has 2 identifiable business reportable operating segments. The Wholesale segment designs, manufactures, sourcescontracts for manufacture 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, 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. PartyCity.com. The Company’s industryreportable operating segment data for the three months ended June 30, 20202021 and June 30, 201931, 2020 was as follows:
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
| |||
Net sales* |
| $ | 230,961 |
|
| $ | 443,812 |
|
| $ | 674,773 |
|
Eliminations |
|
| (139,027 | ) |
|
| 0 |
|
|
| (139,027 | ) |
Net revenues |
|
| 91,934 |
|
|
| 443,812 |
|
|
| 535,746 |
|
Gross Profit* |
| $ | 23,607 |
|
| $ | 193,565 |
|
| $ | 217,172 |
|
(Loss) income from operations |
| $ | (3,225 | ) |
| $ | 65,061 |
|
| $ | 61,836 |
|
Interest expense, net |
|
|
|
|
|
|
|
| 23,116 |
| ||
Other (income), net |
|
|
|
|
|
|
|
| (1,300 | ) | ||
Income before income taxes |
|
|
|
|
|
|
| $ | 40,020 |
|
13
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Three Months Ended June 30, 2020 |
|
|
|
| �� |
|
|
|
| |||
Net sales* |
| $ | 131,296 |
|
| $ | 185,782 |
|
| $ | 317,078 |
|
Eliminations |
|
| (62,387 | ) |
|
| 0 |
|
|
| (62,387 | ) |
Net revenues |
|
| 68,909 |
|
|
| 185,782 |
|
|
| 254,691 |
|
Gross Profit* |
| $ | (13,118 | ) |
| $ | 29,902 |
|
| $ | 16,784 |
|
Loss from operations |
| $ | (55,892 | ) |
| $ | (70,902 | ) |
| $ | (126,794 | ) |
Interest expense, net |
|
|
|
|
|
|
|
| 25,412 |
| ||
Other expense, net |
|
|
|
|
|
|
|
| 1,484 |
| ||
Loss before income taxes |
|
|
|
|
|
|
| $ | (153,690 | ) |
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 131,296 |
|
| $ | 184,737 |
|
| $ | 316,033 |
|
Royalties and franchise fees |
|
| — |
|
|
| 1,045 |
|
|
| 1,045 |
|
Total revenues |
|
| 131,296 |
|
|
| 185,782 |
|
|
| 317,078 |
|
Eliminations |
|
| (62,387 | ) |
|
| — |
|
|
| (62,387 | ) |
Net revenues |
| $ | 68,909 |
|
| $ | 185,782 |
|
| $ | 254,691 |
|
Loss from operations |
| $ | (55,892 | ) |
| $ | (70,902 | ) |
| $ | (126,794 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 25,412 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| 1,484 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
| $ | (153,690 | ) |
|
| 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 |
|
The Company’s industrycompany's reportable operating segment data for the six months ended June 30, 20202021 and 20192020 was as follows:
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 346,094 |
|
| $ | 486,131 |
|
| $ | 832,225 |
|
Royalties and franchise fees |
|
| — |
|
|
| 2,627 |
|
|
| 2,627 |
|
Total revenues |
|
| 346,094 |
|
|
| 488,758 |
|
|
| 834,852 |
|
Eliminations |
|
| (166,118 | ) |
|
| — |
|
|
| (166,118 | ) |
Net revenues |
| $ | 179,976 |
|
| $ | 488,758 |
|
| $ | 668,734 |
|
Loss from operations |
| $ | (219,440 | ) |
| $ | (518,724 | ) |
| $ | (738,164 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 50,532 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| 7,160 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
| $ | (795,856 | ) |
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
| |||
Net sales* |
| $ | 443,098 |
|
| $ | 777,094 |
|
| $ | 1,220,192 |
|
Eliminations |
|
| (257,639 | ) |
|
| 0 |
|
|
| (257,639 | ) |
Net revenues |
|
| 185,459 |
|
|
| 777,094 |
|
|
| 962,553 |
|
Gross Profit* |
| $ | 52,715 |
|
| $ | 316,743 |
|
| $ | 369,458 |
|
Income from operations |
| $ | (3,817 | ) |
| $ | 65,707 |
|
| $ | 61,890 |
|
Interest expense, net |
|
|
|
|
|
|
|
| 40,330 |
| ||
Other (income), net |
|
|
|
|
|
|
|
| (873 | ) | ||
Income before income taxes |
|
|
|
|
|
|
| $ | 22,433 |
|
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Six Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
| |||
Net sales* |
| $ | 346,094 |
|
| $ | 488,758 |
|
| $ | 834,852 |
|
Eliminations |
|
| (166,118 | ) |
|
| 0 |
|
|
| (166,118 | ) |
Net revenues |
|
| 179,976 |
|
|
| 488,758 |
|
|
| 668,734 |
|
Gross Profit* |
| $ | 8,225 |
|
| $ | 125,845 |
|
| $ | 134,070 |
|
Loss from operations |
| $ | (219,440 | ) |
| $ | (518,724 | ) |
| $ | (738,164 | ) |
Interest expense, net |
|
|
|
|
|
|
|
| 50,532 |
| ||
Other expense, net |
|
|
|
|
|
|
|
| 7,160 |
| ||
Loss before income taxes |
|
|
|
|
|
|
| $ | (795,856 | ) |
*Includes royalties and franchise fees. Prior year amounts conformed to current year presentation.
|
| 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 |
|
14
In 2019, the Company initiated a store optimization program under which the Company identified approximately 55 Party City stores to be closed.closed, out of which 35 stores were closed in 2019 and 20 stores were closed in January 2020. In addition,in the first quarter of 2020, 21 stores were identified in 2020 for closure at a future date.and were closed throughout 2020. In conjunction with the program, during the three months ended June 30, 2020 and 2019 the Company’s Retail segment recorded $1,164 and $8,890 of store impairment and restructuring charges, respectively. In conjunction with the program, during six months ended June 30, 2020 and 2019 the Company’s Retailretail segment recorded $30,588$1,164 and $44,528$30,588 of store impairment and restructuring charges, respectively. See Note 3 – Store Impairment and Restructuring Charges for further detail.
During June 2019, the Company’s Wholesale segment sold its main distribution center in Chester, New York, its metallic balloons manufacturing facility in Eden Prairie, Minnesota and its injection molded plastics manufacturing facility in Los Lunas, New Mexico. The aggregate sale price was $128,000 and, during the three months ended June 30, 2019, the Company’s Wholesale segment recorded a $58,381 gain on the sale in the Company’s condensed consolidated statement of operations and comprehensive income. See Note 5 – Sale/Leaseback Transaction for further detail.
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. As a result, the Company recognized non-cash pre-tax goodwill and trade name impairment charges. See Note 4 – Goodwill, Intangibles and IntangiblesLong-Lived Assets Impairment for further detail.
In January 2021, the Company closed the previously disclosed sale of a substantial portion of its international operations. See 5 – Disposition of Asset Note 5 – Disposition of Assets for further detail.
Note 1211 – 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 1312 – 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 six months ended June 30, 2020 and 2019.
Foreign Exchange Risk Management
A portion of the Company’s cash flows areis derived from transactions denominated in foreign currencies. In order2020, 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 entersentered into foreign exchange contracts with major international financial institutions. These forward contracts, which typically maturematured within one year are and were designed to hedge anticipated foreign currency transactions, primarily inventory purchases and sales. For contracts that qualifyqualified for hedge accounting, the terms of the foreign exchange contracts arewere such that cash flows from the contracts should bewere highly effective in offsetting the expected cash flows from the underlying forecasted transactions.
The foreign currency exchange contracts arewere reflected in the condensed consolidated balance sheets at fair value. At June 30, 2020 and December 31, 2019,2020, 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%were 100% effective, there iswas 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 thesedid 0t have any foreign currency exchange contracts will be reclassified into earnings at a later date.
The following table displays the fair values of the Company’s derivatives at June 30, 2020 and December 31, 2019:2021.
15
|
| Derivative Assets |
|
| Derivative Liabilities |
| ||||||||||||||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 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 |
| $ | 70 |
|
| (a) PP |
| $ | — |
|
| (b) AE |
| $ | 35 |
|
| (b) AE |
| $ | — |
|
|
|
|
|
The following table displays the notional amounts of the Company’s derivatives at June 30, 2020 and December 31, 2019:
Derivative Instrument |
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Foreign Exchange Contracts |
| $ | 10,895 |
|
| $ | 300 |
|
Note 1413 – 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 3 — Unobservable inputs that are supported by little or no market activity and that are significant |
During 2017, the Company acquired a 28% ownership interest in Punchbowl, Inc. (“Punchbowl”), a provider of digital greeting cards and digital invitations. At such time, the Company provided Punchbowl’s other investors with the ability to “put” their interest in Punchbowl to the Company at a future date. Additionally, at such time, the Company received the ability to “call” the interestfair value of the other investors. During the twelve months ended December 31, 2019, the option was terminatedassets or liabilities. This includes certain pricing models, discounted cash flow methodologies and the Company wrote off its asset related to the call option and reversed its liability related to the put option. Prior to such time, the Company had been adjusting the put liability to fair value on a recurring basis. The liability represented a Level 3 fair value measurement as it was based onsimilar techniques that use significant unobservable inputs. In November 2019, the Company sold its ownership interest in Punchbowl, and recorded a net charge of $2,169 in other expenses, net for the option termination and the sale of its ownership interest.
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 had been recorded as redeemable securities in the mezzanine of the Company’s consolidated balance sheet as Ampology had the right to cause the Company to purchase the interest. The liability was 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 purchasepurchased all of Ampology’s interest in Kazzam. Refer to Note 1917 – Kazzam, LLC for further detail. As of December 31, 2019 the original value was greater and, therefore, the liabilities are not disclosed as fair value measurements. As of June 30, 2020 there is no liability.
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. See Note 3 – Store Impairment and Restructuring Charges and Note 4 – Goodwill, Intangibles and IntangiblesLong-Lived Assets 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, 20202021 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, 20202021 are as follows:
|
| June 30, 2020 |
| |||||||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| June 30, 2021 |
| |||||||
Term Loan Credit Agreement |
| $ | 713,531 |
|
| $ | 334,218 |
| ||||||||
|
| Gross Carrying |
|
| Fair |
| ||||||||||
8.75% Senior Secured First Lien Notes – due 2026 |
| $ | 750,000 |
|
| $ | 802,500 |
| ||||||||
6.125% Senior Notes – due 2023 |
|
| 347,427 |
|
|
| 73,500 |
|
| 22,924 |
|
|
| 20,202 |
| |
6.625% Senior Notes – due 2026 |
|
| 495,297 |
|
|
| 102,500 |
|
| 92,254 |
|
|
| 78,762 |
| |
First Lien Party City Notes – due 2025 |
| 202,588 |
|
|
| 193,725 |
| |||||||||
First Lien Anagram Notes – due 2025 |
| 151,313 |
|
|
| 173,632 |
| |||||||||
Second Lien Anagram Notes – due 2026 |
| 148,114 |
|
|
| 148,114 |
|
16
The fair values of the Term Loan Credit Agreement and the Senior 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, 2021 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.
Note 1514 – 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 loss per share is as follows:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | (130,015 | ) |
| $ | 48,074 |
|
| $ | (671,528 | ) |
| $ | 17,856 |
| ||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
Net income (loss) attributable to common shareholders of |
| $ | 29,811 |
| $ | (130,015 | ) |
| $ | 15,747 |
| $ | (671,528 | ) | ||||||||||||||||||
Weighted average shares - Basic |
|
| 93,419,078 |
|
|
| 93,293,176 |
|
|
| 93,407,344 |
|
|
| 93,233,865 |
|
| 111,340,295 |
| 93,419,078 |
| 111,128,822 |
| 93,407,344 |
| |||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 0 |
| 0 |
| 62,121 |
| 0 |
| |||||||
Restricted stock units |
|
| — |
|
|
| 19,228 |
|
|
| — |
|
|
| 23,628 |
|
| 4,568,313 |
| — |
| 3,971,807 |
| — |
| |||||||
Stock options |
|
| — |
|
|
| 391,142 |
|
|
| — |
|
|
| 534,270 |
|
|
| 342,543 |
|
|
| 0 |
|
|
| 336,554 |
|
|
| 0 |
|
Weighted average shares - Diluted |
|
| 93,419,078 |
|
|
| 93,703,546 |
|
|
| 93,407,344 |
|
|
| 93,791,763 |
|
|
| 116,251,151 |
|
|
| 93,419,078 |
|
|
| 115,499,304 |
|
|
| 93,407,344 |
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Basic |
| $ | (1.39 | ) |
| $ | 0.52 |
|
| $ | (7.19 | ) |
| $ | 0.19 |
| ||||||||||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Diluted |
| $ | (1.39 | ) |
| $ | 0.51 |
|
| $ | (7.19 | ) |
| $ | 0.19 |
| ||||||||||||||||
Net income (loss) per share attributable to common |
| $ | 0.27 |
|
| $ | (1.39 | ) |
| $ | 0.14 |
|
| $ | (7.19 | ) | ||||||||||||||||
Net income (loss) per share attributable to common |
| $ | 0.26 |
|
| $ | (1.39 | ) |
| $ | 0.14 |
|
| $ | (7.19 | ) |
During the three and six months ended June 30, 2021, 1,706,449 stock options and 133,406 restricted stock units were excluded from the calculation of net income per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive. During the three and six months ended June 30, 2020, 3,613,482 stock options, 1,000,000warrants and 413,968 restricted stock units were excluded from the calculation of net loss per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive. During the three and six months ended June 30, 2019, 2,118,443 stock options,
17596,000 warrants and 199,978 restricted stock units were excluded from the calculation of net loss per share attributable to common shareholders of Party City Holdco Inc. – diluted as they were anti-dilutive.
Note 1615 – Current and Long-Term Obligations
Long-term obligations at June 30, 2021, December 31, 2020 and December 31, 2019June 30, 2020 consisted of the following:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
Term Loan Credit Agreement |
| $ | 713,789 |
|
| $ | 718,596 |
| ||||||||||||||||||||||||
6.125% Senior Notes – due 2023 |
|
| 347,427 |
|
|
| 347,015 |
| ||||||||||||||||||||||||
6.625% Senior Notes – due 2026 |
|
| 495,297 |
|
|
| 494,910 |
| ||||||||||||||||||||||||
|
| June 30, |
|
| December 31, |
|
| June 30, |
| |||||||||||||||||||||||
|
| Principal Amount |
| Gross Carrying Amount |
| Deferred Financing Costs |
| Net Carrying Amount |
|
| Net Carrying Amount |
|
| Net Carrying Amount |
| |||||||||||||||||
Senior secured term loan facility (“Term Loan Credit Agreement”) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| $ | 690,165 |
| $ | 713,789 |
| ||||||||||
8.75% Senior Secured First Lien Notes – due 2026 |
| 750,000 |
|
|
| 750,000 |
|
|
| (18,695 | ) |
|
| 731,305 |
| — |
| — |
| |||||||||||||
6.125% Senior Notes – due 2023 |
| 22,924 |
|
|
| 22,924 |
|
|
| (118 | ) |
|
| 22,806 |
| 22,779 |
| 347,427 |
| |||||||||||||
6.625% Senior Notes – due 2026 |
| 92,254 |
|
|
| 92,254 |
|
|
| (735 | ) |
|
| 91,519 |
| 106,315 |
| 495,297 |
| |||||||||||||
First Lien Party City Notes – due 2025 |
| 161,669 |
|
|
| 202,588 |
|
|
| — |
|
|
| 202,588 |
| 206,775 |
| — |
| |||||||||||||
First Lien Anagram Notes – due 2025 |
| 112,979 |
|
|
| 151,313 |
|
|
| (862 | ) |
|
| 150,451 |
| 151,335 |
| — |
| |||||||||||||
Second Lien Anagram Notes – due 2026 |
| 86,981 |
|
|
| 148,114 |
|
|
| — |
|
|
| 148,114 |
| 152,032 |
| — |
| |||||||||||||
Finance lease obligations |
|
| 14,873 |
|
|
| 14,990 |
|
|
| 13,398 |
|
|
| 13,398 |
|
|
| — |
|
|
| 13,398 |
|
|
| 13,983 |
|
|
| 14,873 |
|
Total long-term obligations |
|
| 1,571,386 |
|
|
| 1,575,511 |
|
| 1,240,205 |
|
|
| 1,380,591 |
|
|
| (20,410 | ) |
|
| 1,360,181 |
| 1,343,384 |
| 1,571,386 |
| |||||
Less: current portion |
|
| (13,810 | ) |
|
| (71,524 | ) |
|
| (1,265 | ) |
|
| (1,265 | ) |
|
| — |
|
|
| (1,265 | ) |
|
| (13,576 | ) |
|
| (13,810 | ) |
Long-term obligations, excluding current portion |
| $ | 1,557,576 |
|
| $ | 1,503,987 |
|
| $ | 1,238,940 |
|
| $ | 1,379,326 |
|
| $ | (20,410 | ) |
| $ | 1,358,916 |
|
| $ | 1,329,808 |
|
| $ | 1,557,576 |
|
Prior to April 2019, the Company had a $540,000$540,000 asset-based revolving credit facility (with a seasonal increase to $640,000$640,000 during a certain period of each calendar year) (the “ABL Facility”), which matures during August 2023 (subject to a springing maturity at an earlier date if the maturity date of certain of the Company’s other debt has not been extended or refinanced). It provides for (a) revolving loans, subject to a borrowing base, and (b) letters of credit, in an aggregate face amount at any time outstanding not to exceed $50,000.$50,000. During April 2019, the Company amended the ABL Facility. Such amendment removed the seasonal component and made the ABL Facility a $640,000$640,000 facility with no seasonal modification component.
In connection with the first halfrefinancing transactions as follows, PCHI (1) reduced the ABL revolving commitments and prepaid the outstanding ABL revolving loans, in each case, in an aggregate principal amount equal to $44,000 in accordance with the ABL Facility credit agreement, and (2) designated Anagram Holdings and each of 2020 the Company drew down $269.9 millionits subsidiaries as an unrestricted subsidiary under the ABL Facility.Facility and the Term Loan Credit Agreement. Additionally, in February 2021 in conjunction with the transaction discussed below, the Company amended the ABL Facility by reducing the commitments to $475,000 and extending the maturity to February 2026, or earlier as provided for in the agreement.
The Company had approximately $170.2 million, $176.5 million and $136.1 million of availability under the ABL Facility as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. At June 30, 2020, $119.6$119.6 million was invested in US Treasury funds with maturities of less than three months. The CompanyAs discussed further below, Anagram had a separate asset-based revolving credit facility and there was approximately $136.1$14.6 million of availability under the Anagram ABL Facility as of June 30, 2020.2021.
ReferFebruary 2021 Debt Transaction
During February 2021, PCHI issued $750,000 of senior secured first lien notes at an interest rate of 8.750% (“8.750% Senior Notes”). The 8.750% Senior Notes will mature in February 2026. The Company used the proceeds from the 8.750% Senior Notes to Note 20 – Subsequent Events forprepay the outstanding balance of $694,220 under its existing Term Loan Credit Agreement. The prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement.further disclosure about
In connection with the transaction, the Company wrote-off a portion of the existing capitalized deferred financing costs and original issuance discounts. Additionally, the Company incurred $18,976 of third-party fees, principally banker fees. The amounts expensed were recorded in Other expense, net in the Company’s currentConsolidated Statement of Operations and long-term debt. Comprehensive (Loss) Income and included in Gain on debt repayment in the Company’s Consolidated Statement of Cash Flows.
In conjunction with the amendment of the ABL Facility, the Company wrote-off a portion of existing deferred financing costs. Such amount was recorded in Other expense, net in the Company’s Consolidated Statement of Operations and Comprehensive (Loss) Income and included in Gain on debt repayment in the Company’s Consolidated Statement of Cash Flows. The remaining capitalized costs, and $2,400 of new third-party costs incurred in conjunction with the amendment, will be amortized over the revised term of the ABL Facility.
18
Interest on the 8.750% Senior Notes is payable semi-annually in arrears on February 15th and August 15th of each year. The 8.750% Senior Notes are guaranteed, jointly and severally, on a senior secured basis by each of PCHI’s existing and future domestic subsidiaries. The 8.750% Senior Notes and related guarantees are secured by a first priority lien on substantially all assets of PCHI and the guarantors, except for the collateral that secures the senior credit facilities on a first lien basis, with respect to which the 8.750% Senior Notes and related guarantees will be secured by a second priority lien, in each case subject to permitted liens and certain exclusions and release provisions.
The indenture governing the 8.750% Senior Notes contains covenants that, among other things, limit the PCHI’s ability and the ability of its restricted subsidiaries to:
The indenture governing the notes also contains certain customary affirmative covenants and events of default.
On or after August 15, 2023, 2024, and 2025, respectively, PCHI may redeem some or all of the 8.750% Senior Notes at the redemption price of 104.375%, 102.188% and 100.000%, respectively, plus accrued and unpaid interest, if any. In addition, PCHI may redeem up to 40% of the aggregate principal amount outstanding on or before August 15, 2023 with the cash proceeds from certain equity offerings at a redemption price of 108.750% of the principal amount, plus accrued and unpaid interest. PCHI may also redeem some or all of the notes before August 15, 2023 at a redemption price of 100% of the principal amount plus a premium that is defined in the indenture. At any time prior to August 15, 2023, PCHI may also at its option redeem during each 12-month period commencing with the issue date up to 10% of the aggregate principal amount of the 8.750% Senior Notes at a redemption price of 103% of the aggregate principal amount, plus accrued and unpaid interest, if any. Also, if PCHI experiences certain types of change in control, as defined, it may be required to offer to repurchase the 8.750% Senior Notes at 101% of their principal amount
On May 7, 2021, Anagram Holdings, LLC (“Anagram”), a wholly owned subsidiary of the Company, entered into a $15 million asset-based revolving credit facility (“Anagram ABL Facility”), which matures during May 2024. It provides for (a) revolving loans, subject to a borrowing base described below, and (b) under the Anagram ABL Facility, Borrowers would be entitled to request letters of credit (“Letters of Credit”). The aggregate amount of outstanding Letters of Credit would be reserved against the credit availability and subject to a $3 million cap.
Under the Anagram ABL Facility, the borrowing base at any time equals (a) a percentage of eligible trade receivables, plus (b) a percentage of eligible inventory, plus (c) a percentage of eligible credit card receivables, less (d) certain reserves. The Anagram ABL Facility generally provides for the following pricing options: All revolving loans will bear interest, at the Anagram's election, at a per annum rate equal to either (a) a base rate, which represents for any day a rate equal to the greater of (i) the prime rate on such day subject to a 0% floor, (ii) the federal funds rate plus 5.0% and (iii) one-half of one percent per annum, in each case, plus a margin of 1.5% or (b) the Daily One Month LIBOR subject to a 0.5% floor, plus a margin of 2.5%.
In addition to paying interest on outstanding principal, Anagram is required to pay a commitment fee of 0.5% to 1% per annum in respect of unutilized commitments. Anagram must also pay customary letter of credit fees.
All obligations under the Anagram ABL Facility are jointly and severally guaranteed by Anagram and its subsidiaries. The Anagram ABL facility contains covenants and events of default customary for such credit facilities.
19
Note 1716 – Revenue from Contracts with Customers
The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2021 and 2020:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Retail Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
North American Party City Stores |
| $ | 441,675 |
|
| $ | 181,404 |
|
| $ | 771,720 |
|
| $ | 471,035 |
|
Other* |
|
| 2,137 |
|
|
| 4,378 |
|
|
| 5,374 |
|
|
| 17,723 |
|
Total Retail Net Sales |
| $ | 443,812 |
|
| $ | 185,782 |
|
| $ | 777,094 |
|
| $ | 488,758 |
|
Wholesale Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Domestic |
| $ | 61,789 |
|
| $ | 39,121 |
|
| $ | 117,146 |
|
| $ | 97,875 |
|
International |
|
| 30,145 |
|
|
| 29,788 |
|
|
| 68,313 |
|
|
| 82,101 |
|
Total Wholesale Net Sales |
| $ | 91,934 |
|
| $ | 68,909 |
|
| $ | 185,459 |
|
| $ | 179,976 |
|
Total Consolidated Revenue |
| $ | 535,746 |
|
| $ | 254,691 |
|
| $ | 962,553 |
|
| $ | 668,734 |
|
*Includes royalties and franchise fees. Prior year amounts conformed to current year presentation.
The Company maintains allowances for credit losses resulting from the inability of the Company’s customers to make required payments. Judgment is required 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 credit losses and occur only after all collection efforts have been exhausted. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected losses. At June 30, 2021, December 31, 2020 and 2019:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Retail Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Party City Stores |
| $ | 147,729 |
|
| $ | 387,308 |
|
| $ | 407,607 |
|
| $ | 733,448 |
|
Global E-commerce |
|
| 33,675 |
|
|
| 35,364 |
|
|
| 63,428 |
|
|
| 67,172 |
|
Other |
|
| 3,333 |
|
|
| 485 |
|
|
| 15,096 |
|
|
| 690 |
|
Total Retail Net Sales |
| $ | 184,737 |
|
| $ | 423,157 |
|
| $ | 486,131 |
|
| $ | 801,310 |
|
Royalties and Franchise Fees |
|
| 1,045 |
|
|
| 2,189 |
|
|
| 2,627 |
|
|
| 4,203 |
|
Total Retail Revenue |
| $ | 185,782 |
|
| $ | 425,346 |
|
| $ | 488,758 |
|
| $ | 805,513 |
|
Wholesale Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
| $ | 39,121 |
|
| $ | 74,766 |
|
| $ | 97,875 |
|
| $ | 148,587 |
|
International |
|
| 29,788 |
|
|
| 63,779 |
|
|
| 82,101 |
|
|
| 122,907 |
|
Total Wholesale Net Sales |
| $ | 68,909 |
|
| $ | 138,545 |
|
| $ | 179,976 |
|
| $ | 271,494 |
|
Total Consolidated Revenue |
| $ | 254,691 |
|
| $ | 563,891 |
|
| $ | 668,734 |
|
| $ | 1,077,007 |
|
Note 18 – Cash, Cash Equivalents and Restricted Cash
The Company’s June 30, 2020, consolidated balance sheet included $154,133 of cashthe allowance for credit losses was $7,933, $7,232 and cash equivalents (with maturities of less than three months) and $18 of restricted cash. The Company’s December 31, 2019 consolidated balance sheet included $34,917 of cash and cash equivalents and $259 of restricted cash.$8,620, respectively.
Restricted cash is recorded in Prepaid expenses and other current assets.
Note 1917 – Kazzam, LLC
During the first quarter of 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.
At December 31, 2019, although the Company owned 26%26% of Kazzam’s equity, Kazzam was a variable interest entity and the Company consolidated Kazzam into the Company’s financial statements. Further, the Company was funding all of Kazzam’s start-up activities via a loan to Kazzam and recorded its operating results in “development stage expenses” in the Company’s consolidated statement of operations and comprehensive (loss) income. Ampology’s ownership interest in Kazzam had been recorded in redeemable securities in the mezzanine of the Company’s consolidated balance sheet.
In January 2020, the Company and Ampology terminated certain services agreements and warrants that Ampology had in the Company stock. The parties concurrently entered into an interim transition agreement for which expenses are recorded as development stage expenses.
On March 23, 2020, the Company agreed to purchase Ampology’s interest in Kazzam in exchange for a three-year royalty on net service revenue and a warrant to purchase up to 1,000,000 shares of the Company’s common stock. The acquisition of Ampology’s interest in Kazzam is an equity transaction and the difference between the fair value of the consideration transferred and the carrying value of Ampology’s interest in Kazzam iswas recorded within the consolidated statement of stockholders’ equity.
Note 20 – Subsequent Events
CompletionDuring the first quarter of Refinancing Transactions
On July 30, 2020 (the “Settlement Date”), the Company and certain of its direct or indirect subsidiaries, including PCHI, Anagram Holdings, LLC,2021, Ampology exercised a Delaware limited liability company and wholly owned direct subsidiary of PCHI (“Anagram Holdings”), and Anagram International, Inc.,warrant in a Minnesota corporation and wholly owned direct subsidiary of Anagram Holdings, completed certain previously announced refinancing transactions, including, among other things: (i) the exchange of $327,076,000.00 of 6.125% Senior Notes due 2023 (the “2023 Notes”) and $392,746,000.00 of 6.625% Senior Notes due 2026 (the “2026 Notes” and, together with the 2023 Notes, the “Existing Notes”) issued by PCHI, in each case tenderedcashless redemption transaction which is reflected in the Company’s offers to exchange pursuant toconsolidated statement of stockholders’ equity for the terms described in a confidential offering memorandum, for (A) $156,669,177.00 of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by PCHI; (B) $84,686,977.00 of 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (the “Second Lien Anagram Notes”) issued by Anagram Holdings and Anagram International (together, the “Anagram Issuers”); and (C) 15,942,551 shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”); (ii) the issuance of $110,000,000.00 in the aggregate of 15.00% PIK/Cash Senior Secured First Lien Notes due 2025 (the “First Lien Anagram Notes”) by the Anagram Issuers and an additional $5,000,000 of First Lien Party City Notes in connection with a rights offering and a private placement, as applicable; and (iii) the solicitations of certain consents (the “Consent Solicitations”) with respect to the indentures governing Existing Notes.
The First Lien Party City Notes were issued pursuant to an indenture, dated as of the Settlement Date, among PCHI, as issuer, certain guarantors party thereto (the “Party City Guarantors”) and Ankura Trust Company, LLC (“Ankura”), as trustee and collateral trustee. The First Lien Party City Notes were issued in an aggregate amount of $161,669,177.00 and will mature on July 15, 2025. Interest on the First Lien Party City Notes accrues from the Settlement Date at a floating rate equal to the 6-month London Inter-Bank Offered Rate plus 500 basis points (with a floor of 75 basis points) per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2021. The First Lien Party City Notes are senior secured obligations of PCHI and the Party City Guarantors. The First Lien Party City Notes are pari passu in right of payment with all of PCHI’ other senior indebtedness, including the existing senior secured term loan facility and the ABL Facility, and are structurally subordinated to the First Lien Anagram Notes and the Second Lien Anagram Notes, to the extent of the value of the Anagram Collateral (as defined below). The First Lien Party City Notes are secured by a first priority lien on collateral that includes liens on substantially all assets (other than certain accounts, inventory, deposit accounts, securities accounts, related assets and general intangibles) of the Party City Guarantors, in each case subject to certain exceptions and permitted liens.
The First Lien Anagram Notes were issued pursuant to an indenture, dated as of the Settlement Date, among Anagram Holdings, as issuer, Anagram International, as co-issuer, certain guarantors party thereto (the “Anagram Guarantors”) and Ankura, as trustee and collateral trustee. The First Lien Anagram Notes were issued in an aggregate amount of $110,000,000.00 and will mature on August 15, 2025. Interest on the First Lien Anagram Notes accrues from the Settlement Date at (i) a rate of 10.00% per annum, payable in cash; and (ii) a rate of 5.00% per annum payable by increasing the principal amount of the outstanding First Lien Anagram Notes or issuing additional First Lien Anagram Notes, as the case may be, in each case payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2021. The First Lien Anagram Notes are senior secured obligations of the Anagram Issuers and are pari passu in right of payment with all of the Anagram Issuers’ other senior indebtedness. The First Lien Anagram Notes are secured by a first priority lien on collateral that consists of substantially all assets and properties of the Anagram Issuers and the Anagram Guarantors, subject to certain exceptions and permitted liens (the “Anagram Collateral”). Such security interests are senior in priority to the security interests in such assets that secure the Second Lien Anagram Notes.
The Second Lien Anagram Notes were issued pursuant to an indenture, dated as of the Settlement Date, among Anagram Holdings, as issuer, Anagram International, as co-issuer, the Anagram Guarantors and Ankura, as trustee and collateral trustee. The Second Lien Anagram Notes were issued in an aggregate amount of $84,686,977.00 and will mature on August 15, 2026. Interest on the Second Lien Anagram Notes accrues from the Settlement Date at (i) a rate of 5.00% per annum, payable, at the Anagram Issuers’ option, entirely in cash or entirely by increasing the principal amount of the outstanding Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes, as the case may be; and (ii) a rate of 5.00% per annum payable by increasing the principal amount of the outstanding Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes, as the case may be, in each case payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2021; provided, however, that on August 15, 2025, interest will be required to be paid by increasing the principal amount of the Second Lien Anagram Notes or issuing the principal amount of the Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes. On February 15, 2026, the Anagram Issuers will prepay in cash a portion of the Second Lien Anagram Notes then outstanding in an amount necessary such that the Second Lien Anagram Notes are not treated as “applicable high yield discount obligations” within the meaning of Section 163(i) of the Internal Revenue Code of 1986, as amended. The Second Lien Anagram Notes are senior secured obligations of the Anagram Issuers and are pari passu in right of payment with all of the Anagram Issuers’ other senior indebtedness. The Second Lien Anagram Notes are secured by a second priority lien on the Anagram Collateral. Such security interests are junior to the security interests in such assets that secure the First Lien Anagram Notes.
In connection with the refinancing transactions described above, PCHI (1) reduced the ABL revolving commitments and prepaid the outstanding ABL revolving loans, in each case, in an aggregate principal amount equal to $44,000,000.00, in accordance with the ABL Facility credit agreement, and (2) designated Anagram Holdings and each of its subsidiaries as an unrestricted subsidiary under the ABL Facility and the Term Loan Credit Agreement.
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 no longer in compliance with the NYSE continued listing standards set forth in Section 802.01C of the NYSE’s Listed Company Manual, which requires listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period.
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 was December 18, 2020. The Company regained compliance after its closing share price onended June 30, 2020 and its average closing price for the 30 trading-day period ending June 30, 2020 both exceeded $1.00.2021.
Registration of Additional Sharesand Share Activity.
On July 10, 2020, the Company filed a registration statement on Form S-8 to register an additional 1,600,000 shares under its Registrant’s Amended and Restated 2012 Omnibus Equity Incentive Plan.On July 18, 2020, 6,448,276 performance-based restricted stock units ("PRSUs") were granted to certain executive officers and other employees. Each PRSU represents the contingent right to receive one share of Common Stock. The PRSUs will vest in quarters if the volume weighted average of the fair market value per share of the Common Stock meets or exceeds $2.50, $5.00, $7.50, and $10.00, respectively, for a period of not less than 90 consecutive trading days on the New York Stock Exchange, subject to the each of the executive officers’ and employees’ continued employment by the Company through each vesting date.
20
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 party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party 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 throughout the world. As of June 30, 2020, theThe Company’s retail operations include 854831 specialty retail party supply stores (including franchise stores) throughout the United States and MexicoNorth America operating under the names Party City and Halloween City, and e-commerce websites, includingprincipally through the domain name PartyCity.com and others.PartyCity.com.
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, e-commerce merchandisers and dollar stores. Our products are available in over 100 countries with the United Kingdom (“U.K.”), Canada, Germany, Mexico and Australia among the largest end markets for our products outside of the United States.
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 reportable 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 reportingreportable operating 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. For the six months ended June 30, 2020, 81.7%2021, 81.2% of the product that was sold by our retail segment was supplied by our wholesale segment and 30.7%31.4 % 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 e-commerce merchandisers.
Intercompany sales between the Wholesalewholesale and the Retail segmentretail segments 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 operating segment reporting purposes, certain general and administrative expenses and art and development costs are allocated based on total revenues.
21
Financial Measures
Revenues. Revenue from retail store operations is recognized at the point of sale as control of the product is transferred to the customer at such time. Retail e-commerce sales are recognized when the consumer receives the product as control transfers upon delivery. We estimate future retail sales returns and record a provision in the period in which the related sales are recorded based on historical information. Retail sales are reported net of taxes collected.
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. The growth in same-store sales represents the percentage change in same-store sales in the period presented compared to the prior year. Same-store sales exclude the net sales of a store for any period if the store was not open during the same period of the prior year. Acquired stores are excluded from same-store sales until they are converted to the Party City format and included in our sales for the comparable period of the prior year. Comparable sales are calculated based upon stores that were open at least thirteen full months as of the end of the applicable reporting period.period and do not exclude stores closed due to state regulations regarding COVID-19. When a store is reconfigured or relocated within the same general territory, the store continues to be treated as the same store. If, during the period presented, a store was closed, sales from that store up to and including the closing day are included as same-store sales as long as the store was open during the same period of the prior year. Same-store sales for the Party City brand include North American retail e-commerce sales.
Cost of Sales. Cost of sales at wholesale reflects the production costs (i.e., raw materials, labor and overhead) of manufactured goods and the direct cost of purchased goods, inventory shrinkage, inventory adjustments, inbound freight to our manufacturing and distribution facilities, distribution costs including rent at distribution facilities, and outbound freight to get goods to our wholesale customers. At retail,Retail, cost of sales reflects the direct cost of goods purchased from third parties and the production or purchase costs of goods acquired from our wholesale segment. Retail cost of sales also includes inventory shrinkage, inventory adjustments, inbound freight, occupancy costs related to store operations (such as rent and common area maintenance, utilities and depreciation on assets) and all logistics costs associated with our retail e-commerce business.
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 on-going basis in order to identify slow-moving goods.
Cost of sales related to sales from our wholesale segment to our retail segment are eliminated in our consolidated financial statements.
Wholesale Selling Expenses. Wholesale selling expenses include the costs associated with our wholesale sales and marketing efforts, including merchandising and customer service. Costs include the salaries and benefits of the related work force, including sales-based bonuses and commissions. Other costs include catalogues, showroom expenses, travel and other operating costs. Certain selling expenses, such as sales-based bonuses and commissions, vary in proportion to sales, while other costs vary based on other factors, such as our marketing efforts, or are largely fixed and do not necessarily increase as sales volumes increase.
Retail Operating Expenses. Retail operating expenses include all of the costs associated with retail store operations, excluding occupancy-related costs included in cost of sales. Costs include store payroll and benefits, advertising, supplies and credit card costs. Retail expenses are largely variable but do not necessarily vary in proportion to net sales.
Franchise Expenses. Franchise expenses include the costs associated with operating our franchise network, including salaries and benefits of the administrative work force and other administrative costs. These expenses generally do not vary proportionally with royalties and franchise fees.
22
General and Administrative Expenses. General and administrative expenses include all operating costs and franchise expenses not included elsewhere in the statement of operations and comprehensive income (loss) income.. These expenses include payroll and other expenses related to operations at our corporate offices, including occupancy costs, related depreciation and amortization, legal and professional fees, stock and equity-based compensation and data-processing costs. These expenses generally do not vary proportionally with net sales.
Art and Development Costs. Art and development costs include the costs associated with art production, creative development and product management. Costs include the salaries and benefits of the related work force. These expenses generally do not vary proportionally with net sales.
Development Stage Expenses. Development stage expenses represent start-up activities related to Kazzam, LLC (“Kazzam”).
Adjusted EBITDA. We define EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers calculate Adjusted EBITDA in the same manner. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because we believe it assists investors in comparing our performance across reporting periods on a consistent basis by eliminating the impact of items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies, and (iii) because the credit facilities use Adjusted EBITDA to measure compliance with certain covenants.
Adjusted Net Income (Loss). Adjusted net income (loss) represents our net income (loss), adjusted for, among other items, intangible asset amortization, non-cash purchase accounting adjustments, amortization of deferred financing costs and original issue discounts, equity-based compensation and impairment charges. We present adjusted net income because we believe it assists investors in comparing our performance across reporting periods on a consistent basis by eliminating the impact of items that we do not believe are indicative of our core operating performance.
Adjusted Net Income (Loss) Per Common Share – Diluted. Adjusted net income (loss) per common share – diluted represents adjusted net income (loss) divided by the Company’s diluted weighted average common shares outstanding. We present the metric because we believe it assists investors in comparing our per share performance across reporting periods on a consistent basis by eliminating the impact of items that we do not believe are indicative of our core operating performance.
23
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.
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.
The Company began reopening stores on May 1, 2020, in accordance with state and local health ordinances, and as of June 12, 2020 had reopened 85% of its stores with store employees returning from furlough. By June 22, 2020, all stores were re-opened. 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 in the first quarter of 2020.
Three Months Ended June 30, 20202021 Compared To Three Months Ended June 30, 20192020
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, 20202021 and 2019.2020.
|
| Three Months Ended June 30, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 253,646 |
|
|
| 99.6 |
| % |
| $ | 561,702 |
|
|
| 99.6 |
| % |
Royalties and franchise fees |
|
| 1,045 |
|
|
| 0.4 |
|
|
|
| 2,189 |
|
|
| 0.4 |
|
|
Total revenues |
|
| 254,691 |
|
|
| 100.0 |
|
|
|
| 563,891 |
|
|
| 100.0 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 237,907 |
|
|
| 93.4 |
|
|
|
| 353,056 |
|
|
| 62.6 |
|
|
Wholesale selling expenses |
|
| 9,707 |
|
|
| 3.8 |
|
|
|
| 16,884 |
|
|
| 3.0 |
|
|
Retail operating expenses |
|
| 65,236 |
|
|
| 25.6 |
|
|
|
| 96,143 |
|
|
| 17.0 |
|
|
Franchise expenses |
|
| 3,121 |
|
|
| 1.2 |
|
|
|
| 3,236 |
|
|
| 0.6 |
|
|
General and administrative expenses |
|
| 59,931 |
|
|
| 23.5 |
|
|
|
| 41,510 |
|
|
| 7.4 |
|
|
Art and development costs |
|
| 3,516 |
|
|
| 1.4 |
|
|
|
| 5,712 |
|
|
| 1.0 |
|
|
Development stage expenses |
|
| 903 |
|
|
| 0.4 |
|
|
|
| 3,012 |
|
|
| 0.5 |
|
|
Gain on sale/leaseback transaction |
|
| — |
|
|
| 0.0 |
|
|
|
| (58,381 | ) |
|
| (10.4 | ) |
|
Store impairment and restructuring charges |
|
| 1,164 |
|
|
| 0.5 |
|
|
|
| 5,234 |
|
|
| 0.9 |
|
|
Total expenses |
|
| 381,485 |
|
|
| 149.8 |
|
|
|
| 466,406 |
|
|
| 82.7 |
|
|
(Loss) income from operations |
|
| (126,794 | ) |
|
| (49.8 | ) |
|
|
| 97,485 |
|
|
| 17.3 |
|
|
Interest expense, net |
|
| 25,412 |
|
|
| 10.0 |
|
|
|
| 30,176 |
|
|
| 5.4 |
|
|
Other expense, net |
|
| 1,484 |
|
|
| 0.6 |
|
|
|
| 3,342 |
|
|
| 0.6 |
|
|
(Loss) income before income taxes |
|
| (153,690 | ) |
|
| (60.3 | ) |
|
|
| 63,967 |
|
|
| 11.3 |
|
|
Income tax (benefit) expense |
|
| (23,631 | ) |
|
| (9.3 | ) |
|
|
| 15,962 |
|
|
| 2.8 |
|
|
Net (loss) income |
|
| (130,059 | ) |
|
| (51.1 | ) |
|
|
| 48,005 |
|
|
| 8.5 |
|
|
Less: Net loss attributable to noncontrolling interests |
|
| (44 | ) |
|
| — |
|
|
|
| (69 | ) |
|
| — |
|
|
Net (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | (130,015 | ) |
|
| (51.0 | ) | % |
| $ | 48,074 |
|
|
| 8.5 |
| % |
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | (1.39 | ) |
|
|
|
|
|
| $ | 0.52 |
|
|
|
|
|
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | (1.39 | ) |
|
|
|
|
|
| $ | 0.51 |
|
|
|
|
|
|
|
| Three Months Ended June 30, | ||||||||||||||||
|
| 2021 |
|
|
| 2020 | ||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Net sales |
| $ | 535,746 |
|
|
| 100.0 |
| % |
| $ | 254,691 |
|
|
| 100.0 |
| % |
Cost of sales |
|
| 318,574 |
|
|
| 59.5 |
|
|
|
| 237,907 |
|
|
| 93.4 |
|
|
Gross Profit |
|
| 217,172 |
|
|
| 40.5 |
|
|
|
| 16,784 |
|
|
| 6.6 |
|
|
Wholesale selling expenses |
|
| 7,358 |
|
|
| 1.4 |
|
|
|
| 9,707 |
|
|
| 3.8 |
|
|
Retail operating expenses |
|
| 97,179 |
|
|
| 18.1 |
|
|
|
| 65,236 |
|
|
| 25.6 |
|
|
General and administrative expenses |
|
| 45,795 |
|
|
| 8.5 |
|
|
|
| 63,955 |
|
|
| 25.1 |
|
|
Art and development costs |
|
| 5,004 |
|
|
| 0.9 |
|
|
|
| 3,516 |
|
|
| 1.4 |
|
|
Store impairment and restructuring charges |
|
| — |
|
|
| 0.0 |
|
|
|
| 1,164 |
|
|
| 0.5 |
|
|
Income (loss) from operations |
|
| 61,836 |
|
|
| 11.5 |
|
|
|
| (126,794 | ) |
|
| (49.8 | ) |
|
Interest expense, net |
|
| 23,116 |
|
|
| 4.3 |
|
|
|
| 25,412 |
|
|
| 10.0 |
|
|
Other (income) expense, net |
|
| (1,300 | ) |
|
| (0.2 | ) |
|
|
| 1,484 |
|
|
| 0.6 |
|
|
Income (loss) before income taxes |
|
| 40,020 |
|
|
| 7.5 |
|
|
|
| (153,690 | ) |
|
| (60.3 | ) |
|
Income tax expense (benefit) |
|
| 10,209 |
|
|
| 1.9 |
|
|
|
| (23,631 | ) |
|
| (9.3 | ) |
|
Net income (loss) |
|
| 29,811 |
|
|
| 5.6 |
|
|
|
| (130,059 | ) |
|
| (51.1 | ) |
|
Less: Net (loss) attributable to noncontrolling interests |
|
| — |
|
|
| - |
|
|
|
| (44 | ) |
|
| - |
|
|
Net income (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | 29,811 |
|
|
| 5.6 |
| % |
| $ | (130,015 | ) |
|
| (51.0 | ) | % |
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | 0.27 |
|
|
|
|
|
| $ | (1.39 | ) |
|
|
|
| ||
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | 0.26 |
|
|
|
|
|
| $ | (1.39 | ) |
|
|
|
|
Revenues
24
Revenues
Total revenues for the second quarter of 20202021 were $254.7$535.7 million and were $309.2$281.0 million, or 54.8%110.4%, lowerhigher than the second quarter of 2019.2020. The following table sets forth the Company’s total revenues for the three months ended June 30, 20202021 and 2019.2020.
|
| Three Months Ended June 30, |
| Three Months Ended June 30, | ||||||||||||||||||||||||||||||||
|
| 2020 |
|
|
| 2019 |
| 2021 |
|
|
| 2020 | ||||||||||||||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Total Revenues |
| Dollars in Thousands |
|
| Percentage of Total Revenues |
| Dollars in |
|
| Percentage of |
| Dollars in |
|
| Percentage of | ||||||||||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Wholesale |
| $ | 131,296 |
|
|
| 51.6 |
| % |
| $ | 289,067 |
|
|
| 51.3 |
| % |
| $ | 230,961 |
| 43.1 |
| % |
| $ | 131,296 |
| 51.6 |
| % | ||||
Eliminations |
|
| (62,387 | ) |
|
| (24.5 | ) |
|
|
| (150,522 | ) |
|
| (26.7 | ) |
|
|
| (139,027 | ) |
|
| (26.0 | ) |
|
|
| (62,387 | ) |
|
| (24.5 | ) |
|
Net wholesale |
|
| 68,909 |
|
|
| 27.1 |
|
|
|
| 138,545 |
|
|
| 24.6 |
|
|
| 91,934 |
| 17.2 |
| 68,909 |
| 27.1 |
| |||||||||
Retail |
|
| 184,737 |
|
|
| 72.5 |
|
|
|
| 423,157 |
|
|
| 75.0 |
|
| ||||||||||||||||||
Total net sales |
|
| 253,646 |
|
|
| 99.6 |
|
|
|
| 561,702 |
|
|
| 99.6 |
|
| ||||||||||||||||||
Royalties and franchise fees |
|
| 1,045 |
|
|
| 0.4 |
|
|
|
| 2,189 |
|
|
| 0.4 |
|
| ||||||||||||||||||
Retail* |
|
| 443,812 |
|
|
| 82.8 |
|
|
| 185,782 |
|
|
| 72.9 |
| ||||||||||||||||||||
Total revenues |
| $ | 254,691 |
|
|
| 100.0 |
| % |
| $ | 563,891 |
|
|
| 100.0 |
| % |
| $ | 535,746 |
|
|
| 100.0 |
| % |
| $ | 254,691 |
|
|
| 100.0 |
| % |
*Retail revenues include royalties and franchise fees. Prior year amount conformed to current year presentation.
Retail
Retail net sales during the second quarter of 20202021 were $184.7$ 443.8 million and were $238.5$ 258.0 million, or 56.3%138.9%, lowerhigher than during the second quarter of 2019.2020. Retail net sales at our North American Party City stores totaled $147.7$417.6 million and were $240.2$269.9 million, or 61.9% lower182.7% higher than in the second quarter of 2019 principally due to2020. Growth in same-store sales for the temporary closure of all Party City stores in response tobrand was partially offset the COVID-19 pandemic starting on March 18, 2020. All stores safely reopened asdivestiture of June 22, 2020.international retail operations. In addition, the decline instore sales was alsowere impacted by the sale of 65 Canadian Party City stores in October 2019, and the closure of 55 stores in conjunction with our 2019two store optimization program. These negative factors affecting sales were partially offset by the acquisition of three franchise and independent stores and the opening of one new store during the twelve months ended June 30, 2020. Global retail e-commerce sales totaled $36.7 millionclosures during the second quarter of 2020 and were $2.0 million, or 5.7% higher than during2021, as well as impact of closed stores in conjunction with the corresponding quarter of 2019. Sales at other store formats totaled $0.3 million during the second quarter of 2020.optimization program.
Same-store sales for the Party City brand (including North American retail e-commerce sales) decreasedincreased by 52.4%118.3% during the second quarter of 2020, due to the impact of the temporary closure of all Party City stores in response to the COVID-19 pandemic.
Our North American retail e-commerce sales, which include our Amazon marketplace sales, increased by 3.3%2021 compared to the second quarter of 201913 weeks ended June 27, 2020, principally due to growth in core sales particularly in the balloon, birthday, and when adjusting for the impact of our “buy online, pick-up in store” program which includes our curbside pickup and delivery (such sales are included in our store sales), increased by 83.2%.entertaining categories.
Excluding the impact of e-commerce, same-store sales decreased by 68.1%.
Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.
Wholesale
Wholesale net sales during the second quarter of 20202021 totaled $68.9$91.9 million and were $69.6$23.0 million, or 50.3%33.4%, lowerhigher than the second quarter of 2019. Net2020. This increase in sales to domestic party goods retailers and distributors (including our franchisee network) totaled $24.6 million and were $31.7 million, or 56.3% lower than during 2019 principally due to lower distributor demand and closed franchise and independent party goods stores as a result of the COVID-19 pandemic. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $14.5 million during the second quarter of 2020 and were $3.9 million, or 21.2%, lower than during the corresponding quarter of 2019is principally due to the significant disruption in 2020 operations due to COVID-19 pandemic. Ouroffset by the divestiture of a significant portion of our international operations in the first quarter of 2021. Excluding the impact of the divestiture, sales (which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $29.8 million and were $34.0increased $45.3 million, or 53.3%, lower than in 2019. Foreign currency translation negatively impacted sales by approximately $1.1 million.97.3%.
Intercompany sales to our retail affiliates totaled $62.4$139.0 million during the second quarter of 20202021 and were $88.1$76.6 million lowerhigher than during the corresponding quarter of 2019.2020. Intercompany sales represented 47.5%60.2% of total wholesale sales during the second quarter of 20202021 and were 58.6% lower than12.7% higher during the second quarter of 2019,2020, principally reflectingdue to increased sales to our Party City Corporate stores and channel mix changes with the impactdivestiture of the Party City store closures related to the COVID-19 pandemic.international operations. 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 fees25
Royalties and franchise fees for the second quarter of 2020 totaled $1.0 million and were $1.2 million lower than during the second quarter of 2019 primarily due to lower sales as a result of store closures resulting from the COVID-19 pandemic.
Gross Profit
The following table sets forth the Company’s gross profit for the three months ended June 30, 20202021 and 2019.2020.
|
| Three Months Ended June 30, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
| ||||
Retail |
| $ | 28,857 |
|
|
| 15.6 |
| % |
| $ | 172,051 |
|
|
| 40.7 |
| % |
Wholesale |
|
| (13,118 | ) |
|
| (19.0 | ) |
|
|
| 36,595 |
|
|
| 26.4 |
|
|
Total Gross Profit |
| $ | 15,739 |
|
|
| 6.2 |
| % |
| $ | 208,646 |
|
|
| 37.1 |
| % |
|
| Three Months Ended June 30, | ||||||||||||||||
|
| 2021 |
|
|
| 2020 | ||||||||||||
|
| Dollars in |
|
| Percentage |
|
|
| Dollars in |
|
| Percentage |
|
| ||||
Retail Gross Profit* |
| $ | 193,565 |
|
|
| 43.6 |
| % |
| $ | 29,902 |
|
|
| 16.1 |
| % |
Wholesale Gross Profit |
|
| 23,607 |
|
|
| 25.7 |
|
|
|
| (13,118 | ) |
|
| (19.0 | ) |
|
Total Gross Profit |
| $ | 217,172 |
|
|
| 40.5 |
| % |
| $ | 16,784 |
|
|
| 6.6 |
| % |
*Retail Gross Profit include royalties and franchise fees. Prior year amount conformed to current year presentation.
The gross profit margin on net sales at retail during the second quarter of 20202021 was 15.6%43.6 % or 2,5102,750 basis points lowerhigher than during the corresponding quarter of 2019.2020. The decreaseincrease was mainly due to sales deleverage from the temporary closure of allprimarily driven by leverage on occupancy expense and lower year over year markdowns in conjunction with the Company’s retail stores announced on March 18, 2020 in response to the COVID-19 pandemic. In addition, the increased costs of freight and helium contributed to the margin decline. The declines in margin were partially offset by margin increases due to favorable share of shelf gains.store optimization program. Our manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment) of 33.5%30.7 % during the second quarter of 20202021 was 6.4% higher2.8% lower as compared to the second quarter of 2019.2020. Our wholesale share of shelf at our Party City stores and our North American retail e-commerce operations (i.e., the percentage of our retail product cost of sales supplied by our wholesale segment) was 82.3%81.0% during the second quarter of 2021 or 4.7% higher1.3% lower than during the second quarter of 2019.2020.
The gross profit margin on net sales at wholesaleWholesale during the second quarters of 2021 and 2020 was 25.7% and 2019 was (19.0)% and 26.4%, respectively. The decrease was principallyThis improvement is primarily due to the deleveraging of distribution and manufacturing costs from lower sales to closed franchise and independent party stores due todeleverage caused by the COVID-19 pandemicshutdowns in the prior period, the divestiture of lower margin international operations, as well as increased rent associated withfavorable product mix.
Operating expenses
Operating expenses totaled $155.3 million or $11.7 million higher than the sale leaseback transaction.second quarter of 2020 primarily due to higher retail operating expenses offset by decreased general and administrative expenses.
Operating expenses
Wholesale selling expenses were $9.7$7.4 million during the second quarter of 20202021 and were $7.2$2.3 million lower than during the corresponding quarter of 2019,2020, principallylargely due to lower payroll costs as well as lower travel, marketing, and commission expenses.the international divestiture. Wholesale selling expenses were 14.1%8.0% and 12.2%14.1% of net wholesale sales during the second quarters of 2021 and 2020, and 2019, respectively.respectively, reflecting the leverage on higher sales.
Retail operating expenses during the second quarter of 20202021 were $65.2$97.2 million and were $30.9$32.0 million lowerhigher than the corresponding quarter of 2019. The decrease was mainly due to the COVID-19 pandemic impact on costs including employee2020, primarily driven by higher payroll, from furloughsadvertising spend and lower marketing and credit card fees. In addition,bank charges. Retail operating expenses were lower due to the sale of the 65 Canada Retail stores,21.9% and the closing of 55 US stores in conjunction with the store optimization program partially offset by higher costs associated with the acquisition of Livario and Webdots in November of 2019. Retail operating expenses were 35.3% and 22.7%35.1% of retail sales during the second quarters of 2021 and 2020, respectively, with the leverage attributable to higher sales and 2019, respectively.disciplined expense management.
Franchise expenses during the second quarter of 2020 and 2019 were $3.1 million and $3.2 million, respectively.
General and administrative expenses during the second quartersquarter of 20202021 totaled $59.9$45.8 million and were $18.4$18.2 million, or 44.4%28.4%, higherlower than in the second quarter of 20192020 principally due to higherlower professional fees stock compensation (see Note 10 – Capital Stock, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q), higher bad debt expense, and new executive leadership compensation partially offset by lower employee payroll from furloughs associated with the COVID-19 pandemic.international divestiture. General and administrative expenses as a percentage of total revenues were 23.5%8.5% and 7.4%25.1% during the second quarters of 2021 and 2020, and 2019, respectively.
Art and development costs were $3.5$5.0 million and $5.7$3.5 million during the second quarters of 2021 and 2020, and 2019, respectively.
Development stage expenses represent costs related to Kazzam.26
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.
During the three months ended March 31, 2020, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of approximately 21 stores which are primarily located in close proximity to other Party City stores. An additional $1.2 million expense was recorded for the stores during the three months ended June 30, 2020. These closings should provide the Company with capital flexibility to expand into underserved markets. In addition, for the three months ended March 31, 2020 the Company estimated lease impairment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19.
Interest expense, net
Interest expense, net, totaled $23.1 million during the second quarter of 2021, compared to $25.4 million during the second quarter of 2020, compared to $30.2 million during the second quarter of 2019.2020. The decrease in interest principallyprimarily reflects lower averageamounts of debt followingprincipal outstanding as a result of the debt repaymentrefinancing in the fourththird quarter of 2019.2020.
Other (income) expense, net
For the second quarters of 2021 and 2020, and 2019, other (income) expense, net, totaled $(1.3) million and $1.5 million, and $3.3 million, respectively.The change is mostlyprimarily due to terminationhigher income from equity method investments and recognition of Punchbowl “put” and “call” options during the second quarter of 2019.a currency loss in 2020 versus a gain in 2021.
Income tax benefitexpense
The effective income tax rate for the three months ended June 30, 2020, 15.4%2021 of 25.5%, is different from the statutory rate of 21.0% primarily due the non-deductible portions of the goodwill impairment charges noted above,to state taxes and a rate benefit related to the carryback of a net operating loss to years when the statutory income tax rate was 35.0%.equity compensation.
Six Months Ended June 30, 20202021 Compared To Six Months Ended June 30, 20192020
The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the sixthree months ended June 30, 20202021 and 2019.2020.
|
| Six Months Ended June 30, | ||||||||||||||||
|
| 2020 |
|
| 2019 | |||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 666,107 |
|
|
| 99.6 |
| % |
| $ | 1,072,804 |
|
|
| 99.6 |
| % |
Royalties and franchise fees |
|
| 2,627 |
|
|
| 0.4 |
|
|
|
| 4,203 |
|
|
| 0.4 |
|
|
Total revenues |
|
| 668,734 |
|
|
| 100.0 |
|
|
|
| 1,077,007 |
|
|
| 100.0 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 534,664 |
|
|
| 80.0 |
|
|
|
| 692,098 |
|
|
| 64.3 |
|
|
Wholesale selling expenses |
|
| 25,165 |
|
|
| 3.8 |
|
|
|
| 34,845 |
|
|
| 3.2 |
|
|
Retail operating expenses |
|
| 153,402 |
|
|
| 22.9 |
|
|
|
| 191,161 |
|
|
| 17.7 |
|
|
Franchise expenses |
|
| 6,430 |
|
|
| 1.0 |
|
|
|
| 6,539 |
|
|
| 0.6 |
|
|
General and administrative expenses |
|
| 119,927 |
|
|
| 17.9 |
|
|
|
| 83,435 |
|
|
| 7.7 |
|
|
Art and development costs |
|
| 8,838 |
|
|
| 1.3 |
|
|
|
| 11,641 |
|
|
| 1.1 |
|
|
Development stage expenses |
|
| 2,932 |
|
|
| 0.4 |
|
|
|
| 5,238 |
|
|
| 0.5 |
|
|
Gain on sale/leaseback transaction |
|
| — |
|
|
| 0.0 |
|
|
|
| (58,381 | ) |
|
| (5.4 | ) |
|
Store impairment and restructuring charges |
|
| 18,892 |
|
|
| 2.8 |
|
|
|
| 23,243 |
|
|
| 2.2 |
|
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| 80.2 |
|
|
|
| — |
|
|
| — |
|
|
Total expenses |
|
| 1,406,898 |
|
|
| 210.4 |
|
|
|
| 989,819 |
|
|
| 91.9 |
|
|
(Loss) income from operations |
|
| (738,164 | ) |
|
| (110.4 | ) |
|
|
| 87,188 |
|
|
| 8.1 |
|
|
Interest expense, net |
|
| 50,532 |
|
|
| 7.6 |
|
|
|
| 59,433 |
|
|
| 5.5 |
|
|
Other expense, net |
|
| 7,160 |
|
|
| 1.1 |
|
|
|
| 4,596 |
|
|
| 0.4 |
|
|
(Loss) income before income taxes |
|
| (795,856 | ) |
|
| (119.0 | ) |
|
|
| 23,159 |
|
|
| 2.2 |
|
|
Income tax (benefit) expense |
|
| (124,129 | ) |
|
| (18.6 | ) |
|
|
| 5,443 |
|
|
| 0.5 |
|
|
Net (loss) income |
|
| (671,727 | ) |
|
| (100.4 | ) |
|
|
| 17,716 |
|
|
| 1.6 |
|
|
Less: Net loss attributable to noncontrolling interests |
|
| (199 | ) |
|
| — |
|
|
|
| (140 | ) |
|
| — |
|
|
Net (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | (671,528 | ) |
|
| (100.4 | ) | % |
| $ | 17,856 |
|
|
| 1.7 |
| % |
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | (7.19 | ) |
|
|
|
|
|
| $ | 0.19 |
|
|
|
|
|
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | (7.19 | ) |
|
|
|
|
|
| $ | 0.19 |
|
|
|
|
|
|
|
| Six months ended June 30, | ||||||||||||||||
|
| 2021 |
|
| 2020 | |||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Net sales |
| $ | 962,553 |
|
|
| 100.0 |
| % |
| $ | 668,734 |
|
|
| 100.0 |
| % |
Cost of sales |
|
| 593,095 |
|
|
| 61.6 | �� |
|
|
| 534,664 |
|
|
| 80.0 |
|
|
Gross Profit |
|
| 369,458 |
|
|
| 38.4 |
|
|
|
| 134,070 |
|
|
| 20.0 |
|
|
Wholesale selling expenses |
|
| 16,474 |
|
|
| 1.7 |
|
|
|
| 25,165 |
|
|
| 3.8 |
|
|
Retail operating expenses |
|
| 186,075 |
|
|
| 19.3 |
|
|
|
| 153,402 |
|
|
| 22.9 |
|
|
General and administrative expenses |
|
| 91,833 |
|
|
| 9.5 |
|
|
|
| 129,289 |
|
|
| 19.3 |
|
|
Art and development costs |
|
| 9,975 |
|
|
| 1.0 |
|
|
|
| 8,838 |
|
|
| 1.3 |
|
|
Store impairment and restructuring charges |
|
| — |
|
|
| - |
|
|
|
| 18,892 |
|
|
| 2.8 |
|
|
Loss on disposal of assets in international operations |
|
| 3,211 |
|
|
| 0.3 |
|
|
|
| — |
|
|
| - |
|
|
Goodwill and intangibles impairment |
|
| — |
|
|
| - |
|
|
|
| 536,648 |
|
|
| 80.2 |
|
|
Income (loss) from operations |
|
| 61,890 |
|
|
| 6.4 |
|
|
|
| (738,164 | ) |
|
| (110.4 | ) |
|
Interest expense, net |
|
| 40,330 |
|
|
| 4.2 |
|
|
|
| 50,532 |
|
|
| 7.6 |
|
|
Other (income) expense, net |
|
| (873 | ) |
|
| (0.1 | ) |
|
|
| 7,160 |
|
|
| 1.1 |
|
|
Income (loss) before income taxes |
|
| 22,433 |
|
|
| 2.3 |
|
|
|
| (795,856 | ) |
|
| (119.0 | ) |
|
Income tax expense (benefit) |
|
| 6,740 |
|
|
| 0.7 |
|
|
|
| (124,129 | ) |
|
| (18.6 | ) |
|
Net income (loss) |
|
| 15,693 |
|
|
| 1.6 |
|
|
|
| (671,727 | ) |
|
| (100.4 | ) |
|
Less: Net (loss) attributable to noncontrolling interests |
|
| (54 | ) |
|
| - |
|
|
|
| (199 | ) |
|
| - |
|
|
Net income (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | 15,747 |
|
|
| 1.6 |
| % |
| $ | (671,528 | ) |
|
| (100.4 | ) | % |
Net income (loss) per share attributable to common shareholders of Party City Holdco |
| $ | 0.14 |
|
|
|
|
|
| $ | (7.19 | ) |
|
|
|
| ||
Net income (loss) per share attributable to common shareholders of Party City Holdco |
| $ | 0.14 |
|
|
|
|
|
| $ | (7.19 | ) |
|
|
|
|
27
Revenues
Total revenues for the first six months of 20202021 were $668.7$962.6 million and were $408.3$293.9 million, or 37.9%44%, lowerhigher than the firstsecond six months of 2019.2020. The following table sets forth the Company’s total revenues for the six months ended June 30, 20202021 and 2019.2020.
|
| Six Months Ended June 30, | ||||||||||||||||
|
| 2020 |
|
| 2019 | |||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Total Revenues |
| Dollars in Thousands |
|
| Percentage of Total Revenues | ||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
| $ | 346,094 |
|
|
| 51.8 |
| % |
| $ | 579,368 |
|
|
| 53.8 |
| % |
Eliminations |
|
| (166,118 | ) |
|
| (24.8 | ) |
|
|
| (307,874 | ) |
|
| (28.6 | ) |
|
Net wholesale |
|
| 179,976 |
|
|
| 26.9 |
|
|
|
| 271,494 |
|
|
| 25.2 |
|
|
Retail |
|
| 486,131 |
|
|
| 72.7 |
|
|
|
| 801,310 |
|
|
| 74.4 |
|
|
Total net sales |
|
| 666,107 |
|
|
| 99.6 |
|
|
|
| 1,072,804 |
|
|
| 99.6 |
|
|
Royalties and franchise fees |
|
| 2,627 |
|
|
| 0.4 |
|
|
|
| 4,203 |
|
|
| 0.4 |
|
|
Total revenues |
| $ | 668,734 |
|
|
| 100.0 |
| % |
| $ | 1,077,007 |
|
|
| 100.0 |
| % |
Retail
|
| Six months ended June 30, | ||||||||||||||||
|
| 2021 |
|
| 2020 | |||||||||||||
|
| Dollars in |
|
| Percentage of |
| Dollars in |
|
| Percentage | ||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wholesale |
| $ | 443,098 |
|
|
| 46.0 |
| % |
| $ | 346,094 |
|
|
| 51.8 |
| % |
Eliminations |
|
| (257,639 | ) |
|
| (26.8 | ) |
|
|
| (166,118 | ) |
|
| (24.8 | ) |
|
Net wholesale |
|
| 185,459 |
|
|
| 19.3 |
|
|
|
| 179,976 |
|
|
| 26.9 |
|
|
Retail* |
|
| 777,094 |
|
|
| 80.7 |
|
|
|
| 488,758 |
|
|
| 73.1 |
|
|
Total revenues |
| $ | 962,553 |
|
|
| 100.0 |
| % |
| $ | 668,734 |
|
|
| 100.0 |
| % |
*Retail revenues include royalties and franchise fees. Prior year amount conformed to current year presentation.
Retail
Retail net sales during the first six months of 20202021 were $486.1$ 777.1 million and were $315.2$ 288.3 million, or 39.3%59.0%, lowerhigher than during the first six months of 2019.2020. Retail net sales at our North American Party City stores totaled $407.6$728.2 million and were $326.5$320.6 million, or 44.5% lower78.7% higher than in the first six months of 2019 principally due to2020. Growth in same-store sales for the temporary closure of all Party City stores in response tobrand was partially offset by the COVID-19 pandemic starting on March 18, 2020, the saletiming of 65 Canadian Party City stores in October 2019,New Year’s Eve and the closuredivestiture of 55international retail operations. In addition, store sales were impacted by five new stores opened during the three months ended March 31, 2021, partially offset by two stores closed in the second quarter of 2021 along with impact of closed stores in conjunction with our 2019the store optimization program. These negative factors affecting sales were partially offset by the acquisition of three franchise and independent stores and the opening of one new store during the twelve months ended June 30, 2020. Global retail e-commerce sales totaled $77.6 million during the first six months of 2020 and were $11.1 million, or 16.6% higher than the first six months of 2019. Sales at other store formats totaled $0.9 million during the first six months of 2020.
Same-store sales for the Party City brand (including North American retail e-commerce sales) decreasedincreased by 35.6%73.4% during the first six months of 2021 compared to the 13 weeks ended April 4, 2020, principally due to growth in core sales particularly in the impact of the temporary closure of all Party City stores in response to the COVID-19 pandemic.balloon, birthday, and entertaining categories.
Our North American retail e-commerce sales, which include our Amazon marketplace sales, decreased by 5.3% compared to the first six months of 2019 and, when adjusting for the impact of our “buy online, pick-up in store” program which includes our curbside pickup and delivery launched on March 25, 2020 (such sales are included in our store sales), increased by 42.4%.
Excluding the impact of e-commerce, same-store sales decreased by 44.4%.
Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.
Wholesale
Wholesale net sales during the first six months of 20202021 totaled $180.0$185.5 million and were $91.5$5.5 million, or 33.7%3.1%, lowerhigher than the first six months of 2019. Net2020. This increase in sales to domestic party goods retailers and distributors (including our franchisee network) totaled $68.3 million and were $42.4 million, or 38.3%, lower than during 2019 principally due to lower distributor demand and closed franchise and independent party goods stores as a result of the COVID-19 pandemic. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $29.6 million during the first six months of 2020 and were $8.4 million, or 22.0%, lower than during the corresponding period of 2019is principally due to the disruption in 2020 operations due to the COVID-19 pandemic. Ourpandemic offset by the divestiture of a significant portion of our international operations. Excluding the impact of the divestiture, sales (which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $82.1 million and were $40.8increased $46.7 million, or 33.2%, lower than in 2019. Foreign currency translation negatively impacted sales by approximately $2.2 million.37.1%
Intercompany sales to our retail affiliates totaled $166.1$ 257.6 million during the first six months of 20202021 and were $141.8$91.5 million lowerhigher than during the first sixcorresponding months of 2019.2020. Intercompany sales represented 48.0%58.1% of total wholesale sales during the first six months of 2020 and were 46.0% lower10.1% higher than during the first six months of 2019,2020, principally reflectingdue to increased sales to our Party City Corporate stores and channel mix changes with the impactdivestiture of the Party City store closures related to the COVID-19 pandemic.international operations. 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 fees28
Royalties and franchise fees for the first six months of 2020 totaled $2.6 million and were $1.6 million lower than during the first six months of 2019 primarily due to lower sales as a result of store closures resulting from the COVID-19 pandemic.
Gross Profit
The following table sets forth the Company’s gross profit for the first six months ended June 30, 20202021 and 2019.2020.
|
| Six Months Ended June 30, | ||||||||||||||||
|
| 2020 |
|
| 2019 | |||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
| ||||
Retail |
| $ | 123,218 |
|
|
| 25.3 |
| % |
| $ | 308,069 |
|
|
| 38.4 |
| % |
Wholesale |
|
| 8,225 |
|
|
| 4.6 |
|
|
|
| 72,637 |
|
|
| 26.8 |
|
|
Total Gross Profit |
| $ | 131,443 |
|
|
| 19.7 |
| % |
| $ | 380,706 |
|
|
| 35.5 |
| % |
|
| Six months ended June 30, | ||||||||||||||||
|
| 2021 |
|
|
| 2020 | ||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
| ||||
Retail Gross Profit* |
| $ | 316,743 |
|
|
| 40.8 |
| % |
| $ | 125,845 |
|
|
| 25.7 |
| % |
Wholesale Gross Profit |
|
| 52,715 |
|
|
| 28.4 |
|
|
|
| 8,225 |
|
|
| 4.6 |
|
|
Total Gross Profit |
| $ | 369,458 |
|
|
| 38.4 |
| % |
| $ | 134,070 |
|
|
| 20.0 |
| % |
*Retail Gross Profit include royalties and franchise fees. Prior year amount conformed to current year presentation.
The gross profit margin on net sales at retail during the first six months of 20202021 was 25.3%40.8 % or 1,3101,510 basis points lowerhigher than during the corresponding six monthsquarter of 2019.2020. The decreaseincrease was mainly due to sales deleverage from the temporary closure of all the Company’s retail stores announcedprimarily driven by leverage on March 18, 2020 in response to the COVID-19 pandemic. In addition, the increased costs of freight and helium contributed to the margin decline. The declines in margin were partially offset by margin increases due to favorable share of shelf gainsoccupancy expense and lower year over year markdowns in conjunction with the Company’s “storestore optimization program” (see “operating expenses” below for further discussion).program. Our manufacturing share of shelf (i.e., the percentage of our retail product cost of sales manufactured by our wholesale segment) of 30.7%31.4 % during the first six months of 20202021 was 3.4%0.7% higher as compared to the first six months of 2019.2020. Our wholesale share of shelf at our Party City stores and our North American retail e-commerce operations (i.e., the percentage of our retail product cost of sales supplied by our wholesale segment) was 81.7%81.2% during the first six months of 2020quarter or 3.9% higher0.5% lower than during the first six months of 2019.2020.
The gross profit margin on net sales at wholesaleWholesale during the first six months of 2021 and 2020 was 28.4% and 2019 was 4.6% and 26.8%, respectively. The decrease was principallyThis improvement is primarily due to the deleveraging of distribution and manufacturing costs from lower sales to closed franchise and independent party stores due todeleverage caused by the COVID-19 pandemic as well as increased rent associated withshutdowns in the sale leaseback transaction.prior period and the divestiture of lower margin international operations.
Operating expenses
Wholesale sellingOperating expenses were $25.2totaled $307.6 million during the first six months of 20202021 and were $9.6$564.6 million lower than the first six months of 2021 primarily due to goodwill and intangibles impairment.
Wholesale selling expenses were $16.5 million during the first six months of 2021 and were $8.7 million lower than during the corresponding six monthsquarter of 20192020, principallylargely due to lower payroll costs as well as lower travel, marketing, and commission expenses.the international divestiture. Wholesale selling expenses were 14.0%8.9% and 12.8%14.0% of net wholesale sales during the first six months of 2021 and 2020, and 2019, respectively.respectively, reflecting the leverage on the higher sales.
Retail operating expenses during the first six monthsmonth of 20202021 were $153.4$186.1 million and were $37.8$32.7 million lowerhigher than the corresponding six monthsquarter of 2019. The decrease was mainly due to the COVID-19 pandemic impact on costs including employee payroll from furloughs and lower marketing and credit card fees. In addition, retail operating expenses were lower due to the sale of the 65 Canada Retail stores, and the closing of 55 US stores in conjunction with the store optimization program partially offset2020, primarily driven by higher costs associated with the acquisition of Livariopayroll, advertising spend and Webdots in December of 2019.bank charges. Retail operating expenses were 31.6%23.9% and 23.9%31.4% of retail sales during the first six months of 2021 and 2020, respectively, with the leverage attributable to higher sales and 2019, respectively.disciplined expense management.
Franchise expenses during the first six months of 2020 and 2019 were $6.4 million and $6.5 million, respectively.
General and administrative expenses during the first six months of 20202021 totaled $119.9$91.8 million and were $36.5$37.5 million, or 43.7%29.0%, higherlower than in the first six months of 2019 mainly2020 due to higher professional fees,the international divestiture and lower legal, stock compensation (see Note 10 – Capital Stock, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q), higher bad debt expense, and new executive leadership compensation partially offset by lower employee payroll from furloughs associated with the COVID-19 pandemic.depreciation costs. General and administrative expenses as a percentage of total revenues were 17.9%9.5% and 7.7%19.3% during the first six months of 2021 and 2020, and 2019, respectively.
Art and development costs were $8.8$10.0 million and $11.6$8.8 million during the first six months of 2021 and 2020, and 2019, respectively.
Development stage expenses represent costs related to Kazzam.29
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.
During the first six months of 2020 and 2019, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of approximately 21 stores which are primarily located in close proximity to other Party City stores. These closings should provide the Company with capital flexibility to expand into underserved markets. In addition, the Company estimated lease impairment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19.
Goodwill and intangibles impairment charges for the six months ended June 30, 2020 were $536.6 million. The non-cash pre-tax goodwill impairment charges were the result of a sustained decline in the Company’s market capitalization and significantly reduced customer demand for its products due to COVID-19. There were no goodwill impairment charges for the six months ended June 30, 2019. See Note 4 – Goodwill and Intangibles Impairment, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q for further discussion.
Interest expense, net
Interest expense, net, totaled $40.3 million during the first quarter of 2021, compared to $50.5 million during the first six months of 2020, compared to $59.4 million during the first six months of 2019.2020. The decrease in interest principallyprimarily reflects lower averageamounts of debt followingprincipal outstanding as a result of the debt repaymentrefinancing in the fourththird quarter of 2019.2020.
Other (income) expense, net
For the first six months of 2021 and 2020, and 2019, other (income) expense, net, totaled $(0.9) million and $7.2 million, and $4.6 million, respectively.The change is primarily due to realized foreign currency gains in 2021 versus foreign currency losses during the first six months ofin 2020 partially offset by termination of Punchbowl “put” and “call” options during the first six months of 2019.increased income from equity method investments.
Income tax benefitexpense
The effective income tax rate for the six months ended June 30, 2020, 15.6%2021, 30.1.%, is different from the statutory rate of 21.0% primarily due the non-deductible portions of the goodwill impairment charges noted above,to state taxes, equity compensation, the effect of foreign losses with no associated tax benefit and a rate benefitthe additional loss related to the carrybacksale of a net operating loss to years whensubstantial portion of the statutory income tax rate was 35.0%.international operations recorded in the three months ended March 31, 2021.
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, non-cash purchase accounting adjustments, amortization of deferred financing costs and original issue discounts, refinancing charges, equity-based compensation, and impairment charges. Adjusted net income per common share – diluted represents adjusted net income divided by diluted weighted average common shares outstanding. The Company presents these measures as supplemental measures of its operating performance. You are encouraged to evaluate these adjustments and the reasons the Company considers them appropriate for supplemental analysis. In evaluating the measures, you should be aware that in the future the Company may incur expenses that are the same as, or similar to, some of the adjustments in this presentation. The Company’s presentation of adjusted EBITDA, adjusted net income and adjusted net income per common share-diluted should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. The Company presents the measures because the Company believes they assist investors in comparing the Company’s performance across reporting periods on a consistent basis by eliminating items that the Company does not believe are indicative of its core operating performance. In addition, the Company uses adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of its business strategies and (iii) because its credit facilities use adjusted EBITDA to measure compliance with certain covenants. The Company also believes that adjusted net income and adjusted net income per common share - diluted are helpful benchmarks to evaluate its operating performance. The Company also utilized wholesale net sales excluding the impact of the international divestiture.
Adjusted EBITDA, adjusted net income, and adjusted net income per common share - diluted wholesale net sales excluding the impact of the divestiture, have limitations as analytical tools. Some of these limitations are:
|
|
|
|
|
|
|
|
|
|
30
|
|
| other companies in the Company’s industry may calculate |
Because of these limitations, adjusted EBITDA, adjusted net income and adjusted net income per common share – diluteddifferently than the Company does, limiting its usefulness as a comparative measure.
Because of these limitations, these supplemental measures 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.results. 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 June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 29,811 |
|
| $ | (130,059 | ) |
| $ | 15,693 |
|
| $ | (671,727 | ) |
Interest expense, net |
|
| 23,116 |
|
|
| 25,412 |
|
|
| 40,330 |
|
|
| 50,532 |
|
Income tax expense (benefit) |
|
| 10,209 |
|
|
| (23,631 | ) |
|
| 6,740 |
|
|
| (124,129 | ) |
Depreciation and amortization |
|
| 16,916 |
|
|
| 22,766 |
|
|
| 34,860 |
|
|
| 40,518 |
|
EBITDA |
|
| 80,052 |
|
|
| (105,512 | ) |
|
| 97,623 |
|
|
| (704,806 | ) |
Store impairment and restructuring charges (a) |
|
| — |
|
|
| 1,761 |
|
|
| — |
|
|
| 29,522 |
|
Inventory restructuring and early lease terminations (j) |
|
| 3,499 |
|
|
| — |
|
|
| 6,637 |
|
|
| — |
|
Other restructuring, retention and severance (b) |
|
| 31 |
|
|
| 5,697 |
|
|
| 2,082 |
|
|
| 8,744 |
|
Goodwill, intangibles and long-lived assets impairment (c) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 536,648 |
|
Deferred rent (d) |
|
| (398 | ) |
|
| (1,488 | ) |
|
| 1,128 |
|
|
| (2,872 | ) |
Closed store expense (e) |
|
| 1,543 |
|
|
| 400 |
|
|
| 3,136 |
|
|
| 1,635 |
|
Foreign currency losses/(gains), net |
|
| (772 | ) |
|
| 12 |
|
|
| (1,311 | ) |
|
| 4,267 |
|
Stock option expense – time-based |
|
| 104 |
|
|
| 206 |
|
|
| 217 |
|
|
| 560 |
|
Stock option expense – performance – based |
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
Restricted stock unit and restricted cash awards expense – performance-based |
|
| 1,161 |
|
|
| — |
|
|
| 1,978 |
|
|
| — |
|
Restricted stock units – time-based |
|
| 415 |
|
|
| 518 |
|
|
| 767 |
|
|
| 1,139 |
|
Non-employee equity-based compensation (f) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,033 |
|
Undistributed loss (income) in equity method |
|
| (547 | ) |
|
| 559 |
|
|
| (211 | ) |
|
| 415 |
|
Corporate development expenses (g) |
|
| — |
|
|
| 2,643 |
|
|
| — |
|
|
| 5,612 |
|
Non-recurring legal settlements/costs |
|
| — |
|
|
| 188 |
|
|
| — |
|
|
| 6,509 |
|
Gain or loss on sale of property, plant and equipment* |
|
| — |
|
|
| 83 |
|
|
| 111 |
|
|
| 51 |
|
COVID - 19 (i) |
|
| 655 |
|
|
| 44,200 |
|
|
| 1,270 |
|
|
| 70,380 |
|
Loss on disposal of assets |
|
| — |
|
|
| — |
|
|
| 3,211 |
|
|
| — |
|
Net loss on debt repayment |
|
| — |
|
|
| — |
|
|
| 226 |
|
|
| — |
|
Other* |
|
| 90 |
|
|
| 133 |
|
|
| 1,388 |
|
|
| 2,437 |
|
Adjusted EBITDA |
| $ | 85,833 |
|
| $ | (42,753 | ) |
| $ | 118,252 |
|
| $ | (30,879 | ) |
* Prior period amounts have been reclassified to conform with current period presentation.
31
|
| Three Months Ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income taxes |
| $ | 40,020 |
|
| $ | (153,690 | ) |
| $ | 22,433 |
|
| $ | (795,856 | ) |
Intangible asset amortization |
|
| 2,354 |
|
|
| 2,679 |
|
|
| 4,831 |
|
|
| 5,545 |
|
Amortization of deferred financing costs and original |
|
| 1,074 |
|
|
| 1,199 |
|
|
| 1,937 |
|
|
| 2,401 |
|
Store impairment and restructuring charges (a) |
|
| — |
|
|
| 181 |
|
|
| — |
|
|
| 28,154 |
|
Other restructuring charges (b) |
|
| 31 |
|
|
| 6,595 |
|
|
| 1,967 |
|
|
| 7,517 |
|
Goodwill, intangibles and long-lived assets impairment (c) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 536,648 |
|
Non-employee equity-based compensation (f) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,033 |
|
Non-recurring legal settlements/costs |
|
| — |
|
|
| 100 |
|
|
| — |
|
|
| 6,421 |
|
Stock option expense – time-based |
|
| 104 |
|
|
| 561 |
|
|
| 217 |
|
|
| 561 |
|
Stock option expense – performance – based |
|
| — |
|
|
| 7,493 |
|
|
| — |
|
|
| 7,847 |
|
Restricted stock unit expense – performance-based |
|
| 1,154 |
|
|
| — |
|
|
| 1,971 |
|
|
| — |
|
COVID - 19 (i) |
|
| 655 |
|
|
| 44,200 |
|
|
| 1,270 |
|
|
| 70,380 |
|
Loss on disposal of assets |
|
| — |
|
|
| — |
|
|
| 3,211 |
|
|
| — |
|
Inventory disposals |
|
| 162 |
|
|
| — |
|
|
| 926 |
|
|
| — |
|
Adjusted income (loss) before income taxes |
|
| 45,554 |
|
|
| (90,682 | ) |
|
| 38,763 |
|
|
| (129,349 | ) |
Adjusted income tax (benefit) (h) |
|
| 11,446 |
|
|
| (29,366 | ) |
|
| 10,064 |
|
|
| (41,650 | ) |
Adjusted net income (loss) |
| $ | 34,108 |
|
| $ | (61,316 | ) |
| $ | 28,699 |
|
| $ | (87,699 | ) |
Adjusted net income (loss) per common share – diluted |
| $ | 0.29 |
|
| $ | (0.66 | ) |
| $ | 0.25 |
|
| $ | (0.94 | ) |
Weighted-average number of common shares-diluted |
|
| 116,251,151 |
|
|
| 93,419,078 |
|
|
| 115,499,304 |
|
|
| 93,407,344 |
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (130,059 | ) |
| $ | 48,005 |
|
| $ | (671,727 | ) |
| $ | 17,716 |
|
Interest expense, net |
|
| 25,412 |
|
|
| 30,176 |
|
|
| 50,532 |
|
|
| 59,433 |
|
Income tax (benefit) expense |
|
| (23,631 | ) |
|
| 15,962 |
|
|
| (124,129 | ) |
|
| 5,443 |
|
Depreciation and amortization |
|
| 22,766 |
|
|
| 21,884 |
|
|
| 40,518 |
|
|
| 43,225 |
|
EBITDA |
|
| (105,512 | ) |
|
| 116,027 |
|
|
| (704,806 | ) |
|
| 125,817 |
|
Non-cash purchase accounting adjustments |
|
| — |
|
|
| 1,756 |
|
|
| — |
|
|
| 2,757 |
|
Store impairment and restructuring charges (a) |
|
| 1,761 |
|
|
| 10,628 |
|
|
| 29,522 |
|
|
| 46,266 |
|
Other restructuring, retention and severance (b) |
|
| 5,697 |
|
|
| 3,933 |
|
|
| 8,744 |
|
|
| 5,321 |
|
Goodwill and intangibles impairment (c) |
|
| — |
|
|
| — |
|
|
| 536,648 |
|
|
| — |
|
Deferred rent (d) |
|
| (1,488 | ) |
|
| (338 | ) |
|
| (2,872 | ) |
|
| (1,488 | ) |
Closed store expense (e) |
|
| 400 |
|
|
| 507 |
|
|
| 1,635 |
|
|
| 1,098 |
|
Foreign currency losses/(gains), net |
|
| 12 |
|
|
| 133 |
|
|
| 4,267 |
|
|
| (160 | ) |
Stock option expense – time – based (f) |
|
| 206 |
|
|
| 371 |
|
|
| 560 |
|
|
| 741 |
|
Stock option expense – performance – based (n) |
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
Non-employee equity-based compensation (g) |
|
| — |
|
|
| 129 |
|
|
| 1,033 |
|
|
| 258 |
|
Undistributed income (loss) in equity method investments |
|
| 559 |
|
|
| (4 | ) |
|
| 415 |
|
|
| (202 | ) |
Corporate development expenses (h) |
|
| 2,643 |
|
|
| 4,349 |
|
|
| 5,612 |
|
|
| 7,194 |
|
Restricted stock units – time-based (i) |
|
| 518 |
|
|
| 541 |
|
|
| 1,139 |
|
|
| 933 |
|
Restricted stock unit expense – performance-based (m) |
|
| — |
|
|
| 476 |
|
|
| — |
|
|
| 476 |
|
Non-recurring legal settlements/costs |
|
| 188 |
|
|
| 869 |
|
|
| 6,509 |
|
|
| 1,601 |
|
Gain on sale/leaseback transaction (o) |
|
| — |
|
|
| (58,381 | ) |
|
| — |
|
|
| (58,381 | ) |
COVID - 19 (l) |
|
| 44,200 |
|
|
| — |
|
|
| 70,380 |
|
|
| — |
|
Other |
|
| 216 |
|
|
| 44 |
|
|
| 2,488 |
|
|
| 291 |
|
Adjusted EBITDA |
| $ | (42,753 | ) |
| $ | 81,040 |
|
| $ | (30,879 | ) |
| $ | 132,522 |
|
|
|
|
|
| Three Months Ended June 30, 2020 EBITDA Adjustments |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
|
| June 30, 2020 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)(n) |
|
| Deferred Rent (d) |
|
| Other restructuring, retention and severance (b) |
|
| Closed store expense (e) |
|
| COVID- 19 (l) |
|
| Foreign currency losses |
|
| Other |
|
| June 30, 2020 Non-GAAP basis |
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 253,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 253,646 |
|
Royalties and franchise fees |
|
| 1,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,045 |
|
Total revenues |
|
| 254,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 254,691 |
|
Cost of sales |
|
| 237,907 |
|
|
| (597 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (134 | ) |
|
| (4,437 | ) |
|
|
|
|
|
| (28,376 | ) |
|
|
|
|
|
|
|
|
|
| 204,363 |
|
Wholesale selling expenses |
|
| 9,707 |
|
|
|
|
|
|
| (1,104 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (509 | ) |
|
|
|
|
|
|
|
|
|
| 8,094 |
|
Retail operating expenses |
|
| 65,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,573 |
|
|
|
|
|
|
| (342 | ) |
|
| (4,389 | ) |
|
|
|
|
|
|
|
|
|
| 62,078 |
|
Franchise expenses |
|
| 3,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (343 | ) |
|
|
|
|
|
|
|
|
|
| 2,778 |
|
General and administrative expenses |
|
| 59,931 |
|
|
|
|
|
|
| (100 | ) |
|
| (188 | ) |
|
| (8,571 | ) |
|
| 49 |
|
|
| (1,260 | ) |
|
| (58 | ) |
|
| (10,583 | ) |
|
|
|
|
|
|
|
|
|
| 39,220 |
|
Art and development costs |
|
| 3,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,516 |
|
Development stage expenses |
|
| 903 |
|
|
|
|
|
|
| (903 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 1,164 |
|
|
| (1,164 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 381,485 |
|
|
| (1,761 | ) |
|
| (2,107 | ) |
|
| (188 | ) |
|
| (8,571 | ) |
|
| 1,488 |
|
|
| (5,697 | ) |
|
| (400 | ) |
|
| (44,200 | ) |
|
| — |
|
|
| — |
|
|
| 320,049 |
|
Loss from operations |
|
| (126,794 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (65,358 | ) |
Interest expense, net |
|
| 25,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25,412 |
|
Other expense, net |
|
| 1,484 |
|
|
|
|
|
|
| (536 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12 | ) |
|
| (775 | ) |
|
| 161 |
|
Loss before income taxes |
|
| (153,690 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (90,931 | ) |
Interest expense, net |
|
| 25,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25,412 |
|
Depreciation and amortization |
|
| 22,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22,766 |
|
EBITDA |
|
| (105,512 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (42,753 | ) |
Adjustments to EBITDA |
|
| 62,759 |
|
|
| (1,761 | ) |
|
| (2,643 | ) |
|
| (188 | ) |
|
| (8,571 | ) |
|
| 1,488 |
|
|
| (5,697 | ) |
|
| (400 | ) |
|
| (44,200 | ) |
|
| (12 | ) |
|
| (775 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | (42,753 | ) |
| $ | (1,761 | ) |
| $ | (2,643 | ) |
| $ | (188 | ) |
| $ | (8,571 | ) |
| $ | 1,488 |
|
| $ | (5,697 | ) |
| $ | (400 | ) |
| $ | (44,200 | ) |
| $ | (12 | ) |
| $ | (775 | ) |
| $ | (42,753 | ) |
|
|
|
|
|
| Three Months Ended June 30, 2019 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| June 30, 2019 GAAP Basis (as reported) |
|
| Store impairment and restructuring charges (a) |
|
| Gain on sale/leaseback transaction (o) |
|
| Corporate development expenses (h) |
|
| Legal |
|
| Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units – time-based (f)(g)(i)(m) |
|
| Deferred Rent (d) |
|
| Other restructuring, retention and severance (b) |
|
| Closed store expense (e) |
|
| Non-Cash Purchase Accounting Adjustments |
|
| Foreign currency gains |
|
| Other |
|
| June 30, 2019 Non-GAAP basis |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 561,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 561,702 |
|
Royalties and franchise fees |
|
| 2,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,189 |
|
Total revenues |
|
| 563,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 563,891 |
|
Cost of sales |
|
| 353,056 |
|
|
| (5,394 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 348,000 |
|
Wholesale selling expenses |
|
| 16,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,884 |
|
Retail operating expenses |
|
| 96,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (393 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 95,750 |
|
Franchise expenses |
|
| 3,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,236 |
|
General and administrative expenses |
|
| 41,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (869 | ) |
|
| (1,517 | ) |
|
|
|
|
|
| (3,933 | ) |
|
| (114 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 35,077 |
|
Art and development costs |
|
| 5,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,712 |
|
Development stage expenses |
|
| 3,012 |
|
|
|
|
|
|
|
|
|
|
| (3,012 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Gain on sale/leaseback transaction |
|
| (58,381 | ) |
|
|
|
|
|
| 58,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 5,234 |
|
|
| (5,234 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 466,406 |
|
|
| (10,628 | ) |
|
| 58,381 |
|
|
| (3,012 | ) |
|
| (869 | ) |
|
| (1,517 | ) |
|
| 338 |
|
|
| (3,933 | ) |
|
| (507 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 504,659 |
|
Income from operations |
|
| 97,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 59,232 |
|
Interest expense, net |
|
| 30,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30,176 |
|
Other expense, net |
|
| 3,342 |
|
|
|
|
|
|
|
|
|
|
| (1,337 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,756 | ) |
|
| (133 | ) |
|
| (40 | ) |
|
| 76 |
|
Income before income taxes |
|
| 63,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 28,980 |
|
Interest expense, net |
|
| 30,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30,176 |
|
Depreciation and amortization |
|
| 21,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,884 |
|
EBITDA |
|
| 116,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 81,040 |
|
Adjustments to EBITDA |
|
| (34,987 | ) |
|
| (10,628 | ) |
|
| 58,381 |
|
|
| (4,349 | ) |
|
| (869 | ) |
|
| (1,517 | ) |
|
| 338 |
|
|
| (3,933 | ) |
|
| (507 | ) |
|
| (1,756 | ) |
|
| (133 | ) |
|
| (40 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 81,040 |
|
| $ | (10,628 | ) |
| $ | 58,381 |
|
| $ | (4,349 | ) |
| $ | (869 | ) |
| $ | (1,517 | ) |
| $ | 338 |
|
| $ | (3,933 | ) |
| $ | (507 | ) |
| $ | (1,756 | ) |
| $ | (133 | ) |
| $ | (40 | ) |
| $ | 81,040 |
|
|
|
|
|
|
| Six Months Ended June 30, 2020 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| June 30, 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 (f)(g)(i)(n) |
|
| Deferred Rent (d) |
|
| Other restructuring, retention and severance (b) |
|
| Closed store expense (e) |
|
| COVID- 19 (l) |
|
| Foreign currency losses |
|
| Other |
|
| June 30, 2020 Non-GAAP basis |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 666,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 666,107 |
|
Royalties and franchise fees |
|
| 2,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,627 |
|
Total revenues |
|
| 668,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 668,734 |
|
Cost of sales |
|
| 534,664 |
|
|
|
|
|
|
| (10,630 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (134 | ) |
|
| (4,437 | ) |
|
|
|
|
|
| (41,180 | ) |
|
|
|
|
|
| (429 | ) |
|
| 477,854 |
|
Wholesale selling expenses |
|
| 25,165 |
|
|
|
|
|
|
|
|
|
|
| (1,840 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (623 | ) |
|
|
|
|
|
|
|
|
|
| 22,702 |
|
Retail operating expenses |
|
| 153,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,909 |
|
|
|
|
|
|
| (1,508 | ) |
|
| (14,567 | ) |
|
|
|
|
|
|
|
|
|
| 140,236 |
|
Franchise expenses |
|
| 6,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (672 | ) |
|
|
|
|
|
|
|
|
|
| 5,758 |
|
General and administrative expenses |
|
| 119,927 |
|
|
|
|
|
|
|
|
|
|
| (200 | ) |
|
| (6,509 | ) |
|
| (9,546 | ) |
|
| 97 |
|
|
| (4,307 | ) |
|
| (127 | ) |
|
| (13,338 | ) |
|
|
|
|
|
|
|
|
|
| 85,997 |
|
Art and development costs |
|
| 8,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,838 |
|
Development stage expenses |
|
| 2,932 |
|
|
|
|
|
|
|
|
|
|
| (2,932 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 18,892 |
|
|
|
|
|
|
| (18,892 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Goodwill and intangibles impairment |
|
| 536,648 |
|
|
| (536,648 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 1,406,898 |
|
|
| (536,648 | ) |
|
| (29,522 | ) |
|
| (4,972 | ) |
|
| (6,509 | ) |
|
| (9,546 | ) |
|
| 2,872 |
|
|
| (8,744 | ) |
|
| (1,635 | ) |
|
| (70,380 | ) |
|
| — |
|
|
| (429 | ) |
|
| 741,385 |
|
Loss from operations |
|
| (738,164 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (72,651 | ) |
Interest expense, net |
|
| 50,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 50,532 |
|
Other expense, net |
|
| 7,160 |
|
|
|
|
|
|
|
|
|
|
| (640 | ) |
|
|
|
|
|
| (1,033 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,267 | ) |
|
| (2,474 | ) |
|
| (1,254 | ) |
Loss before income taxes |
|
| (795,856 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (121,929 | ) |
Interest expense, net |
|
| 50,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 50,532 |
|
Depreciation and amortization |
|
| 40,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 40,518 |
|
EBITDA |
|
| (704,806 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (30,879 | ) |
Adjustments to EBITDA |
|
| 673,927 |
|
|
| (536,648 | ) |
|
| (29,522 | ) |
|
| (5,612 | ) |
|
| (6,509 | ) |
|
| (10,579 | ) |
|
| 2,872 |
|
|
| (8,744 | ) |
|
| (1,635 | ) |
|
| (70,380 | ) |
|
| (4,267 | ) |
|
| (2,903 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | (30,879 | ) |
| $ | (536,648 | ) |
| $ | (29,522 | ) |
| $ | (5,612 | ) |
| $ | (6,509 | ) |
| $ | (10,579 | ) |
| $ | 2,872 |
|
| $ | (8,744 | ) |
| $ | (1,635 | ) |
| $ | (70,380 | ) |
| $ | (4,267 | ) |
| $ | (2,903 | ) |
| $ | (30,879 | ) |
|
|
|
|
|
| Six Months Ended June 30, 2019 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| June 30, 2019 GAAP Basis (as reported) |
|
| Store impairment and restructuring charges (a) |
|
| Gain on sale/leaseback transaction (o) |
|
| Corporate development expenses (h) |
|
| Legal |
|
| Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units (f)(g)(i)(m) |
|
| Deferred Rent (d) |
|
| Other restructuring, retention and severance (b) |
|
| Closed store expense (e) |
|
| Non-Cash Purchase Accounting Adjustments |
|
| Foreign currency gains |
|
| Other |
|
| June 30, 2019 Non-GAAP basis |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 1,072,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,072,804 |
|
Royalties and franchise fees |
|
| 4,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,203 |
|
Total revenues |
|
| 1,077,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,077,007 |
|
Cost of sales |
|
| 692,098 |
|
|
| (23,023 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 670,563 |
|
Wholesale selling expenses |
|
| 34,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 34,845 |
|
Retail operating expenses |
|
| 191,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (31 | ) |
|
| (872 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 190,258 |
|
Franchise expenses |
|
| 6,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,539 |
|
General and administrative expenses |
|
| 83,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,601 | ) |
|
| (2,408 | ) |
|
|
|
|
|
| (5,290 | ) |
|
| (226 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 73,910 |
|
Art and development costs |
|
| 11,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,641 |
|
Development stage expenses |
|
| 5,238 |
|
|
|
|
|
|
|
|
|
|
| (5,238 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Gain on sale/leaseback transaction |
|
| (58,381 | ) |
|
|
|
|
|
| 58,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 23,243 |
|
|
| (23,243 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 989,819 |
|
|
| (46,266 | ) |
|
| 58,381 |
|
|
| (5,238 | ) |
|
| (1,601 | ) |
|
| (2,408 | ) |
|
| 1,488 |
|
|
| (5,321 | ) |
|
| (1,098 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 987,756 |
|
Income from operations |
|
| 87,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 89,251 |
|
Interest expense, net |
|
| 59,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 59,433 |
|
Other expense, net |
|
| 4,596 |
|
|
|
|
|
|
|
|
|
|
| (1,956 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,757 | ) |
|
| 160 |
|
|
| (89 | ) |
|
| (46 | ) |
Income before income taxes |
|
| 23,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,864 |
|
Interest expense, net |
|
| 59,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 59,433 |
|
Depreciation and amortization |
|
| 43,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 43,225 |
|
EBITDA |
|
| 125,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 132,522 |
|
Adjustments to EBITDA |
|
| 6,705 |
|
|
| (46,266 | ) |
|
| 58,381 |
|
|
| (7,194 | ) |
|
| (1,601 | ) |
|
| (2,408 | ) |
|
| 1,488 |
|
|
| (5,321 | ) |
|
| (1,098 | ) |
|
| (2,757 | ) |
|
| 160 |
|
|
| (89 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 132,522 |
|
| $ | (46,266 | ) |
| $ | 58,381 |
|
| $ | (7,194 | ) |
| $ | (1,601 | ) |
| $ | (2,408 | ) |
| $ | 1,488 |
|
| $ | (5,321 | ) |
| $ | (1,098 | ) |
| $ | (2,757 | ) |
| $ | 160 |
|
| $ | (89 | ) |
| $ | 132,522 |
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
| $ | (153,690 | ) |
| $ | 63,967 |
|
| $ | (795,856 | ) |
| $ | 23,159 |
|
Intangible asset amortization |
|
| 2,679 |
|
|
| 3,546 |
|
|
| 5,545 |
|
|
| 6,975 |
|
Non-cash purchase accounting adjustments |
|
| — |
|
|
| 2,459 |
|
|
| — |
|
|
| 3,776 |
|
Amortization of deferred financing costs and original issuance discounts (j) |
|
| 1,199 |
|
|
| 1,146 |
|
|
| 2,401 |
|
|
| 2,289 |
|
Store impairment and restructuring charges (a) |
|
| 181 |
|
|
| 10,628 |
|
|
| 28,154 |
|
|
| 46,266 |
|
Other restructuring charges (b) |
|
| 6,595 |
|
|
| 3,085 |
|
|
| 7,517 |
|
|
| 3,085 |
|
Goodwill and intangibles impairment (c) |
|
| — |
|
|
| — |
|
|
| 536,648 |
|
|
| — |
|
Non-employee equity-based compensation (g) |
|
| — |
|
|
| 129 |
|
|
| 1,033 |
|
|
| 258 |
|
Refinancing charges (j) |
|
| — |
|
|
| 36 |
|
|
| — |
|
|
| 36 |
|
Non-recurring legal settlements/costs |
|
| 100 |
|
|
| — |
|
|
| 6,421 |
|
|
| — |
|
Stock option expense – time – based (f) |
|
| 561 |
|
|
| 371 |
|
|
| 561 |
|
|
| 741 |
|
Stock option expense – performance – based (n) |
|
| 7,493 |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
Gain on sale/leaseback transaction (o) |
|
| — |
|
|
| (58,381 | ) |
|
| — |
|
|
| (58,381 | ) |
Restricted stock unit expense – performance-based (m) |
|
| — |
|
|
| 476 |
|
|
| — |
|
|
| 476 |
|
COVID - 19 (l) |
|
| 44,200 |
|
|
| — |
|
|
| 70,380 |
|
|
| — |
|
Adjusted (loss) income before income taxes |
|
| (90,682 | ) |
|
| 27,462 |
|
|
| (129,349 | ) |
|
| 28,680 |
|
Adjusted income tax (benefit) expense (k) |
|
| (29,366 | ) |
|
| 7,227 |
|
|
| (41,650 | ) |
|
| 7,342 |
|
Adjusted net (loss) income |
| $ | (61,316 | ) |
| $ | 20,235 |
|
| $ | (87,699 | ) |
| $ | 21,338 |
|
Adjusted net (loss) income per common share – diluted |
| $ | (0.66 | ) |
| $ | 0.22 |
|
| $ | (0.94 | ) |
| $ | 0.23 |
|
Weighted-average number of common shares-diluted |
|
| 93,419,078 |
|
|
| 93,703,546 |
|
|
| 93,407,344 |
|
|
| 93,791,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
AsThe Company performed a comprehensive review of June 30, 2020,its store locations aimed at improving the Company’s indebtedness principally consisted of: (i) a senior secured term loan facilityoverall productivity of such locations (“Term Loan Credit Agreement”store optimization program”), (ii) $350 million. After careful consideration and evaluation of 6.125% Senior Notes (the “2023 Notes”) and (iii) $500 millionthe store locations, the Company made the decision to accelerate the optimization of 6.625% Senior Notes (the “2026 Notes” and, togetherits store portfolio with the 2023 Notes, the “Existing Notes”). Additionally, the Company had a $640 million asset-based revolving credit facility (“ABL Facility”) that it draws downclosure of stores, which are primarily located in close proximity to other Party City stores. For further detail, refer to Note 3 – Store Impairment and Restructuring Charges of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on as necessary (see the consolidated statement of cash flows in Item 1).
During the temporary store closures asForm 10-Q 2021.
32
Liquidity
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 twelve 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. The Company had approximately $170.2 million of availability under the ABL Facility and approximately $14.6 million of availability under the Anagram ABL Facility as of June 30, 2021.
As disclosed inPer Note 20 – Subsequent Events,15, Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, on Julyas of June 30, 2020, (i) the Company exchanged $327,076,000.00 of the 2023 Notes and $392,746,000.00 of the 2026 Notes (the “2026 Notes”) issued by PCHI, in each case tendered in2021, the Company’s offers to exchange pursuant to the terms described in a confidential offering memorandum, for (A) $156,669,177.00 of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by PCHI; (B) $84,686,977.00 of 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (the “Second Lien Anagram Notes”) issued by Anagram Holdings, LLC, a Delaware limited liability company and wholly owned direct subsidiary of PCHI (the “Anagram Holdings”), and Anagram International, Inc., a Minnesota corporation and wholly owned direct subsidiary of Anagram Holdings (together with Anagram Holdings, the “Anagram Issuers”); and (C) 15,942,551 shares of the Company’s common stock, $0.01 par value per share; and (ii) the Anagram Issuers issued $110,000,000.00 in the aggregate of 15.00% PIK/Cashindebtedness principally consisted of: (i) 8.750% Senior Secured First Lien Notes due 2025 (the “First Lien Anagram Notes”) and PCHI issued an additional $5,000,000 of2026, (ii) 6.125% Senior Notes, (iii) 6.625% Senior Notes, (iv) First Lien Party City Notes, (v) First Lien Anagram Notes, and (vi) Second Lien Anagram Notes. Additionally, the Company had an asset-based revolving credit facility (“ABL Facility”) that it draws down on as necessary and Anagram had a separate asset-based revolving credit facility.
During February 2021, PCHI issued $750,000 of senior secured first lien notes at an interest rate of 8.750% (“8.750% Senior Notes”). The 8.750% Senior Notes will mature in February 2026. The Company used the proceeds from the 8.750% Senior Notes to prepay the outstanding balance of $694,220 under its existing Term Loan Credit Agreement. The prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement.
Interest on the 8.750% Senior Notes is payable semi-annually in arrears on February 15th and August 15th of each year. The 8.750% Senior Notes are guaranteed, jointly and severally, on a senior secured basis by each of PCHI’s existing and future domestic subsidiaries. The 8.750% Senior Notes and related guarantees are secured by a first priority lien on substantially all assets of PCHI and the guarantors, except for the collateral that secures the senior credit facilities on a first lien basis, with respect to which the 8.750% Senior Notes and related guarantees will be secured by a second priority lien, in each case subject to permitted liens and certain exclusions and release provisions.
The indenture governing the 8.750% Senior Notes contains covenants that, among other things, limit the PCHI’s ability and the ability of its restricted subsidiaries to:
The indenture governing the notes also contains certain customary affirmative covenants and events of default.
On or after August 15, 2023, 2024, and 2025, respectively, PCHI may redeem some or all of the 8.750% Senior Notes at the redemption price of 104.375%, 102.188% and 100.000%, respectively, plus accrued and unpaid interest, if any. In addition, PCHI may redeem up to 40% of the aggregate principal amount outstanding on or before August 15, 2023 with the cash proceeds from certain equity offerings at a redemption price of 108.750% of the principal amount, plus accrued and unpaid interest. PCHI may also redeem some or all of the notes before August 15, 2023 at a redemption price of 100% of the principal amount plus a premium that is defined in the indenture. At any time prior to August 15, 2023, PCHI may also at its option redeem during each 12-month period commencing with the issue date up to 10% of the aggregate principal amount of the 8.750% Senior Notes at a redemption price of 103% of the aggregate principal amount, plus accrued and unpaid interest, if any. Also, if PCHI experiences certain types of change in control, as defined, it may be required to offer to repurchase the 8.750% Senior Notes at 101% of their principal amount.
33
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) (the “ABL Facility”), which matures during August 2023 (subject to a springing maturity at an earlier date if the maturity date of certain of the Company’s other debt has not been extended or refinanced). It provides for (a) revolving loans, subject to a borrowing base, and (b) letters of credit, in an aggregate face amount at any time outstanding not to exceed $50,000. During April 2019, the Company amended the ABL Facility. Such amendment removed the seasonal component and made the ABL Facility a $640,000 facility with no seasonal modification component. In connection with a rights offering and a private placement, as applicable. In addition, in connection with thesethe refinancing transactions as follows, PCHI (1) reduced the ABL revolving commitments and prepaid the outstanding ABL revolving loans, in each case, in an aggregate principal amount equal to $44,000,000.00,$44,000 in accordance with the ABL Facility credit agreement, and (2) designated Anagram Holdings and each of its subsidiaries as an unrestricted subsidiary under the ABL Facility and the Term Loan Credit Agreement. Additionally, in February 2021 in conjunction with the transaction discussed above, the Company amended the ABL Facility by reducing the commitments to $475,000 and extending the maturity to February 2026, or earlier as provided for in the agreement.
In accordance with the 8.75% Senior Notes, the Company is required to provide quarterly and annual disclosure of certain financial metrics for Anagram Holdings, LLC and its subsidiary (“Anagram”). For the three and six months ended June 30, 2021, Anagram reported:
On May 7, 2021, Anagram, entered into a $15 million asset-based revolving credit facility (“Anagram ABL Facility”), which matures during May 2024. It provides for (a) revolving loans, subject to a borrowing base described below, and (b) under the Anagram ABL Facility, Borrowers would be entitled to request letters of credit (“Letters of Credit”). The aggregate amount of outstanding Letters of Credit would be reserved against the credit availability and subject to a $3 million cap.
Under the Anagram ABL Facility, the borrowing base at any time equals (a) a percentage of eligible trade receivables, plus (b) a percentage of eligible inventory, plus (c) a percentage of eligible credit card receivables, less (d) certain reserves. The Anagram ABL Facility generally provides for the following pricing options: All revolving loans will bear interest, at the Anagram's election, at a per annum rate equal to either (a) a base rate, which represents for any day a rate equal to the greater of (i) the prime rate on such day subject to a 0% floor, (ii) the federal funds rate plus 5.0% and (iii) one-half of one percent per annum, in each case, plus a margin of 1.5% or (b) the Daily One Month LIBOR subject to a 0.5% floor, plus a margin of 2.5%.
In addition to paying interest on outstanding principal, Anagram is required to pay a commitment fee of 0.5% to1% per annum in respect of unutilized commitments. Anagram must also pay customary letter of credit fees.
All obligations under the Anagram ABL Facility are jointly and severally guaranteed by Anagram and its subsidiaries. The Anagram ABL facility contains covenants and events of default customary for such credit facilities.
Cash Flow
Net cash provided by operating activities totaled $13.8 million during the six months ended June 30, 2021. Net cash used in operating activities totaled $48.8 million during the six months ended June 30, 2020. The increase in cash provided by operating activities is primarily attributable to the recognition of net income in the current years as compared with a net loss in the prior year, partially offset by the change in working capital (accounts receivable, inventory, prepaid expenses and $105.9other current assets, and accounts payable).
Net cash used in investing activities totaled $19.9 million during the six months ended June 30, 2020 and 2019, respectively. The variance principally reflects decrease in accounts receivable due to decreased sales as well as reduced payments from lower inventory levels partially offset by increase in prepaid expenses and other current assets. Changes in operating assets and liabilities during the first six months of 2020 resulted in cash provided of $25.0 million and during the first six months of 2019 resulted in the cash used of $100.3 million.
Net cash used in investing activities totaled $18.3 million during the six months ended June 30, 2020,2021, as compared to $82.2$18.3 million provided byused in investing activities during the six months ended June 30, 2019.2020. The increase in cash used in investing activities is primarily due to higher capital expenditures offset by the proceeds from the sale of international operations. Capital expenditures during the six months ended June 30, 2021 and 2020 were $40.5 million ($30.4 million for Retail and 2019 were$10.1 million for Wholesale) and $18.3 million, and $31.1 million, respectively. Retail capital expenditures totaled $10.0 million during 2020. Wholesale capital expenditures during 2020 totaled $8.4 million.
34
Net cash provided byused in financing activities was $190.0$60.0 million during the six months ended June 30, 20202021 and $9.5$190.0 million was provided during the six months ended June 30, 2019.2020. The variance was principally due to a $269.9 million draw downincreased borrowings under the ABL Facility $119.6in the prior year.
Cash interest paid of $16.6 million as disclosed in the Condensed Consolidated Statements of which were investedCash Flows provides the amount of cash paid in US Treasury funds atrelation to GAAP interest expense for the six months ended June 30, 2020.
As2021. In addition, cash payments made in relation to contractual coupon interest amounts included in the carrying value of the debt accounted for as a troubled debt restructuring were $8.8 million for the six months ended June 30, 2020, the Company had approximately $136.1 million of availability under the ABL Facility.2021.
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 condensed 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 re-evaluated and adjustments are made when facts and circumstances dictate a change. Historically, we have found the application of accounting policies to be reasonable, and actual results generally do not differ materially from those determined using necessary estimates.
Long-Lived and Intangible Assets (including Goodwill)
We review the recoverability of our long-lived assets, including finite-lived intangible assets, whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. For purposes of recognizing and measuring impairment, we evaluate long-lived assets/asset groups, other than goodwill, based upon the lowest level of independent cash flows ascertainable to evaluate impairment. If an impairment indicator exists, we compare the undiscounted future cash flows of the asset/asset group to the carrying value of the asset/asset group. If the sum of the undiscounted future cash flows is less than the carrying value of the asset/asset group, we would calculate discounted future cash flows based on market participant assumptions. If the sum of discounted cash flows is less than the carrying value of the asset/asset group, we would recognize an impairment loss. The impairment related to long-lived assets is measured as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). When fair values are not readily available, we estimate fair values using discounted expected future cash flows. Such estimates of fair value require significant judgment, and actual fair value could differ due to changes in the expectations of cash flows or other assumptions, including discount rates.
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 isand other intangibles that have indefinite lives are 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 reportable operating 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 reportable operating segments, wholesaleWholesale and retail,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 first quarter of 2020, the Company identified 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. As a result, the Company recorded a $536.6 million
35
goodwill, intangibles and long-lived assets impairment charge. See Note 4 – Goodwill, Intangibles and IntangiblesLong-Lived Assets 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”, there were no material changes to our future minimum contractual obligations as of December 31, 2019 as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
Off BalanceOff-Balance Sheet Arrangements
We had no off-balance sheet arrangements during the three months ended June 30, 2020 and2021, the year ended December 31, 2019.2020 and the three months ended June 30, 2020.
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, and Christmas, the inventory balances of ourthe Company’s wholesale operations are slightly higher during the third quarter than during the remainder of the year. Additionally, the promotional activities of the Company’s wholesale business, including special dating terms, particularly with respect to Halloween products sold to retailers and other distributors, result in slightly higher accounts receivable balances during the third 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, year-end holiday sales. Halloween business represents approximately 20% of our total domestic retail sales. To maximize our seasonal opportunity, we operate a chain of temporary Halloween stores, under the Halloween City banner, during the months of September and October of each year.
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 that could cause actual results to differ materially from expectations. These risks, as well as other risks and uncertainties, are detailed in the section titled “Risk Factors” included 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.11, 2021. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. All forward-looking statements are qualified by these cautionary statements and are made only as of the date of this filing. Any such forward-looking statements, whether made in this filing or elsewhere, should be considered in context with the various disclosures made by us about our business. The following risks related to our business, among others, could cause actual results to differ materially from those described in the forward-looking statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
36
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risks since December 31, 20192020 as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
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 Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Act”)) as of June 30, 2020.2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is: (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the three and six months ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this Item is incorporated herein by reference from Note 1211 – Commitments and Contingencies, to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
"With respect to Risks Related to Our Indebtedness, per Note 15, Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, as of June 30, 2021, during February 2021, PCHI issued $750,000 of senior secured first lien notes at an interest rate of 8.750% (“8.750% Senior Notes”). The 8.750% Senior Notes will mature in February 2026. The Company used the proceeds from the 8.750% Senior Notes to prepay the outstanding balance of $694,220 under its existing Term Loan Credit Agreement. The prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement. Our indebtedness has decreased as a result of that transaction.
Under the heading "Item 1A, Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, as filed with the Securities Exchange Commission on March 12, 2020, includes11, 2021, the Company identified increases in transportation costs as 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 that may negatively affect our operating results. During the quarter ended June 30, 2021, the Company experienced contraction in freight capacity from suppliers to our distribution centers at a time of increasing consumer demand, which has resulted in less reliable availability for shipping and increased costs across our supply chain. While mitigation strategies and actions have the additional effect of heightening many of the risks noted in our Annual Reportbeen taken a negative impact on Form 10-K. operating results could still occur.
Otherwise, except as presented below, there have been no material changes to the risk factors disclosed inunder the “Risk Factors” section ofheading "Item 1A, Risk Factors" in our Annual Report on Form 10-K for the year ended February 1, 2020, as filed with the Securities Exchange Commission on March 27,December 31, 2020.
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.38
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.
Our unrestricted subsidiaries under the Term Loan Credit Agreement, the ABL Facility credit agreement and the indenture governing the First Lien Party City Notes are not subject to any of the covenants under such agreements and do not guarantee the Term Loan Credit Agreement, the ABL Facility and the First Lien Party City Notes, and we may not be able to rely on the cash flow or assets of those unrestricted subsidiaries to pay certain of our debt, including the Term Loan Credit Agreement, the ABL Facility and the First Lien Party City Notes.
Our unrestricted subsidiaries under the Term Loan Credit Agreement, the ABL Facility credit agreement and the indenture governing the First Lien Party City Notes are not subject to the covenants under such agreements and do not guarantee or pledge assets to secure the Term Loan Credit Agreement, the ABL Facility and the First Lien Party City Notes or any future indebtedness not incurred by such unrestricted subsidiaries. As of the date of this report on Form 10-Q, the Anagram Issuers and their subsidiaries were unrestricted subsidiaries. Subject to compliance with the covenants contained in the Term Loan Credit Agreement, the ABL Facility credit agreement and the indenture governing the First Lien Party City Notes, we will be permitted to designate further subsidiaries as unrestricted subsidiaries. The creditors of the Anagram Issuers and their subsidiaries, including under the First Lien Anagram Notes and the Second Lien Anagram Notes will generally be entitled to payment of their claims from the assets of the Anagram Issuers and their subsidiaries before those assets would be available for distribution to us. In addition, the indentures governing the First Lien Anagram Notes and the Second Lien Anagram Notes limit the Anagram Issuers and their subsidiaries’ ability to make loans or other payments to fund payments in respect of the Term Loan Credit Agreement, the ABL Facility and the First Lien Party City Notes and the indenture governing the First Lien Anagram Notes requires the maintenance of certain minimum liquidity. As a result, the cash flow or assets of the Anagram Issuers and their subsidiaries may not be available to pay any of our debt other than debt incurred by the Anagram Issuers and their subsidiaries.
Item 6. Exhibits
Exhibit Number | Description | |
3.1 | ||
3.2 | ||
| ||
|
| |
| ||
|
| |
| ||
|
| |
| ||
| ||
| ||
| ||
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 Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith. 39 SIGNATURE
|
|
|
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
PARTY CITY HOLDCO INC. | |||
By: | /s/ Todd Vogensen | ||
Todd Vogensen | |||
Chief Financial Officer (Principal Financial Officer) |
Date: August 7, 20205, 2021
40
47