UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission file number
Party City Holdco Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 46-0539758 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
80 Grasslands Road Elmsford, NY | 10523 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(914)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, Par Value: $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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
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
As of October 25, 2019, 94,461,57630, 2020, 110,646,150 shares of the Registrant’s common stock were outstanding.
PARTY CITY HOLDCO INC.
Form
September 30, 2019
TABLE OF CONTENTS
Page | ||||
PART I | ||||
Item 1. Condensed Consolidated Financial Statements (Unaudited) | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 | ||||
9 | ||||
23 | ||||
45 | ||||
45 | ||||
46 | ||||
46 | ||||
47 | ||||
48 |
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
| September 30, 2020 |
|
| December 31, 2019 |
| |||
|
| (Note 2) (Unaudited) |
|
| (Note 2) |
| |||
ASSETS |
|
|
|
|
|
|
|
| |
Current assets: |
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
| $ | 170,562 |
|
| $ | 34,917 |
| |
Accounts receivable, net |
|
| 149,825 |
|
|
| 149,109 |
| |
Inventories, net |
|
| 630,357 |
|
|
| 658,419 |
| |
Prepaid expenses and other current assets |
|
| 112,038 |
|
|
| 51,685 |
| |
Total current assets |
|
| 1,062,782 |
|
|
| 894,130 |
| |
Property, plant and equipment, net |
|
| 206,447 |
|
|
| 243,572 |
| |
Operating lease asset |
|
| 741,524 |
|
|
| 802,634 |
| |
Goodwill |
|
| 669,564 |
|
|
| 1,072,330 |
| |
Trade names |
|
| 383,666 |
|
|
| 530,320 |
| |
Other intangible assets, net |
|
| 34,505 |
|
|
| 45,060 |
| |
Other assets, net |
|
| 9,521 |
|
|
| 7,273 |
| |
Total assets |
| $ | 3,108,009 |
|
| $ | 3,595,319 |
| |
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| |
Current liabilities: |
|
|
|
|
|
|
|
| |
Loans and notes payable |
| $ | 303,894 |
|
| $ | 128,806 |
| |
Accounts payable |
|
| 179,938 |
|
|
| 152,300 |
| |
Accrued expenses |
|
| 202,636 |
|
|
| 150,921 |
| |
Current portion of operating lease liability |
|
| 194,476 |
|
|
| 155,471 |
| |
Income taxes payable |
|
| — |
|
|
| 35,905 |
| |
Current portion of long-term obligations |
|
| 14,342 |
|
|
| 71,524 |
| |
Total current liabilities |
|
| 895,286 |
|
|
| 694,927 |
| |
Long-term obligations, excluding current portion |
|
| 1,334,338 |
|
|
| 1,503,987 |
| |
Long-term portion of operating lease liability |
|
| 677,183 |
|
|
| 720,735 |
| |
Deferred income tax liabilities, net |
|
| 49,508 |
|
|
| 126,081 |
| |
Other long-term liabilities |
|
| 15,559 |
|
|
| 16,517 |
| |
Total liabilities |
|
| 2,971,874 |
|
|
| 3,062,247 |
| |
Redeemable securities |
|
| — |
|
|
| 3,351 |
| |
Commitments and contingencies |
|
|
|
|
|
|
|
| |
Stockholders’ equity: |
|
|
|
|
|
|
|
| |
Common stock (110,573,555 and 94,461,576 shares outstanding and 121,848,074 and 121,662,540 shares issued at September 30, 2020 and December 31, 2019, respectively) |
|
| 1,371 |
|
|
| 1,211 |
| |
Additional paid-in capital |
|
| 970,145 |
|
|
| 928,573 |
| |
Accumulated deficit |
|
| (469,040 | ) |
|
| (37,219 | ) | |
Accumulated other comprehensive loss |
|
| (38,907 | ) |
|
| (35,734 | ) | |
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury |
|
| 463,569 |
|
|
| 856,831 |
| |
Less: Common stock held in treasury, at cost (11,274,519 and 27,200,964 shares at September 30, 2020 and December 31, 2019, respectively) |
|
| (327,170 | ) |
|
| (327,086 | ) | |
Total Party City Holdco Inc. stockholders’ equity |
|
| 136,399 |
|
|
| 529,745 |
| |
Noncontrolling interests |
|
| (264 | ) |
|
| (24 | ) | |
Total stockholders’ equity |
|
| 136,135 |
|
|
| 529,721 |
| |
Total liabilities, redeemable securities and stockholders’ equity |
| $ | 3,108,009 |
|
| $ | 3,595,319 |
|
September 30, 2019 | December 31, 2018 | |||||||
(Note 2) (Unaudited) | (Note 2) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 34,572 | $ | 58,909 | ||||
Accounts receivable, net | 168,124 | 146,983 | ||||||
Inventories, net | 760,179 | 756,038 | ||||||
Prepaid expenses and other current assets | 75,919 | 61,905 | ||||||
Assets held for sale | 172,189 | — | ||||||
Total current assets | 1,210,983 | 1,023,835 | ||||||
Property, plant and equipment, net | 241,413 | 321,044 | ||||||
Operating lease asset | 827,817 | — | ||||||
Goodwill | 1,358,137 | 1,656,950 | ||||||
Trade names | 534,611 | 568,031 | ||||||
Other intangible assets, net | 46,258 | 60,164 | ||||||
Other assets, net | 12,578 | 12,323 | ||||||
Total assets | $ | 4,231,797 | $ | 3,642,347 | ||||
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Loans and notes payable | $ | 461,016 | $ | 302,751 | ||||
Accounts payable | 140,112 | 208,149 | ||||||
Accrued expenses | 166,609 | 161,228 | ||||||
Liabilities held for sale | 48,618 | |||||||
Current portion of operating lease liability | 140,781 | — | ||||||
Income taxes payable | — | 25,993 | ||||||
Current portion of long-term obligations | 13,498 | 13,316 | ||||||
Total current liabilities | 970,634 | 711,437 | ||||||
Long-term obligations, excluding current portion | 1,564,098 | 1,621,963 | ||||||
Long-term portion of operating lease liability | 747,079 | — | ||||||
Deferred income tax liabilities, net | 147,904 | 174,427 | ||||||
Other long-term liabilities | 16,305 | 87,548 | ||||||
Total liabilities | 3,446,020 | 2,595,375 | ||||||
Redeemable securities | 3,351 | 3,351 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock (94,448,333 and 93,622,934 shares outstanding and 121,629,237 and 120,788,159 shares issued at September 30, 2019 and December 31, 2018, respectively) | 1,211 | 1,208 | ||||||
Additional paid-in capital | 928,749 | 922,476 | ||||||
Retained earnings | 231,597 | 495,777 | ||||||
Accumulated other comprehensive loss | (52,043 | ) | (49,201 | ) | ||||
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury | 1,109,514 | 1,370,260 | ||||||
Less: Common stock held in treasury, at cost (27,180,904 and 27,165,225 shares at September 30, 2019 and December 31, 2018) | (327,086 | ) | (326,930 | ) | ||||
Total Party City Holdco Inc. stockholders’ equity | 782,428 | 1,043,330 | ||||||
Noncontrolling interests | (2 | ) | 291 | |||||
Total stockholders’ equity | 782,426 | 1,043,621 | ||||||
Total liabilities, redeemable securities and stockholders’ equity | $ | 4,231,797 | $ | 3,642,347 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)
|
| Three Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Net sales |
| $ | 532,053 |
|
| $ | 538,345 |
|
Royalties and franchise fees |
|
| 1,722 |
|
|
| 1,886 |
|
Total revenues |
|
| 533,775 |
|
|
| 540,231 |
|
Cost of sales |
|
| 355,923 |
|
|
| 373,413 |
|
Wholesale selling expenses |
|
| 11,950 |
|
|
| 16,084 |
|
Retail operating expenses |
|
| 97,100 |
|
|
| 111,595 |
|
Franchise expenses |
|
| 2,795 |
|
|
| 3,274 |
|
General and administrative expenses |
|
| 42,191 |
|
|
| 43,062 |
|
Art and development costs |
|
| 4,257 |
|
|
| 5,927 |
|
Development stage expenses |
|
| — |
|
|
| 2,728 |
|
Store impairment and restructuring charges |
|
| 1,926 |
|
|
| 2,574 |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 44,732 |
|
|
| 259,100 |
|
Total expenses |
|
| 560,874 |
|
|
| 817,757 |
|
(Loss) from operations |
|
| (27,099 | ) |
|
| (277,526 | ) |
Interest expense, net |
|
| 13,422 |
|
|
| 29,424 |
|
Other (income) expense, net |
|
| (2,873 | ) |
|
| 2,047 |
|
(Gain) on debt refinancing |
|
| (273,149 | ) |
|
| — |
|
Income (loss) before income taxes |
|
| 235,501 |
|
|
| (308,997 | ) |
Income tax (benefit) |
|
| (4,164 | ) |
|
| (27,252 | ) |
Net income (loss) |
|
| 239,665 |
|
|
| (281,745 | ) |
Less: Net (loss) attributable to noncontrolling interests |
|
| (42 | ) |
|
| (212 | ) |
Net income (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | 239,707 |
|
| $ | (281,533 | ) |
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | 2.25 |
|
| $ | (3.02 | ) |
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | 2.24 |
|
| $ | (3.02 | ) |
Weighted-average number of common shares-Basic |
|
| 106,709,307 |
|
|
| 93,346,448 |
|
Weighted-average number of common shares-Diluted |
|
| 106,875,631 |
|
|
| 93,346,448 |
|
Dividends declared per share |
| $ | — |
|
| $ | — |
|
Comprehensive income (loss) |
| $ | 244,607 |
|
| $ | (288,573 | ) |
Less: Comprehensive (loss) attributable to noncontrolling interests |
|
| (42 | ) |
|
| (213 | ) |
Comprehensive income (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | 244,649 |
|
| $ | (288,360 | ) |
Three Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Revenues: | ||||||||
Net sales | $ | 538,345 | $ | 550,840 | ||||
Royalties and franchise fees | 1,886 | 2,206 | ||||||
Total revenues | 540,231 | 553,046 | ||||||
Cost of sales | 373,413 | 349,641 | ||||||
Wholesale selling expenses | 16,084 | 17,538 | ||||||
Retail operating expenses | 111,595 | 103,833 | ||||||
Franchise expenses | 3,274 | 862 | ||||||
General and administrative expenses | 43,062 | 42,239 | ||||||
Art and development costs | 5,927 | 5,573 | ||||||
Development stage expenses | 2,728 | 1,622 | ||||||
Store impairment and restructuring charges | 2,574 | — | ||||||
Goodwill impairment | 259,100 | — | ||||||
Total expenses | 817,757 | 521,308 | ||||||
(Loss) income from operations | (277,526 | ) | 31,738 | |||||
Interest expense, net | 29,424 | 27,705 | ||||||
Other expense, net | 2,047 | 5,696 | ||||||
Loss before income taxes | (308,997 | ) | (1,663 | ) | ||||
Income tax (benefit) expense | (27,252 | ) | 777 | |||||
Net loss | (281,745 | ) | (2,440 | ) | ||||
Add: Net loss attributable to redeemable securities holder | — | (8 | ) | |||||
Less: Net loss attributable to noncontrolling interests | (212 | ) | (28 | ) | ||||
Net loss attributable to common shareholders of Party City Holdco Inc. | $ | (281,533 | ) | $ | (2,420 | ) | ||
Net loss per share attributable to common shareholders of Party City Holdco Inc.–Basic | $ | (3.02 | ) | $ | (0.03 | ) | ||
Net loss per share attributable to common shareholders of Party City Holdco Inc.–Diluted | $ | (3.02 | ) | $ | (0.03 | ) | ||
Weighted-average number of common shares-Basic | 93,346,448 | 96,494,565 | ||||||
Weighted-average number of common shares-Diluted | 93,346,448 | 96,494,565 | ||||||
Dividends declared per share | $ | 0.00 | $ | 0.00 | ||||
Comprehensive loss | $ | (288,573 | ) | $ | (2,003 | ) | ||
Add: Comprehensive loss attributable to redeemable securities holder | — | (8 | ) | |||||
Less: Comprehensive loss attributable to noncontrolling interests | (213 | ) | (35 | ) | ||||
Comprehensive loss attributable to common shareholders of Party City Holdco Inc. | $ | (288,360 | ) | $ | (1,976 | ) | ||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In thousands, except share and per share data)
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Net sales |
| $ | 1,198,160 |
|
| $ | 1,611,149 |
|
Royalties and franchise fees |
|
| 4,349 |
|
|
| 6,089 |
|
Total revenues |
|
| 1,202,509 |
|
|
| 1,617,238 |
|
Cost of sales |
|
| 890,587 |
|
|
| 1,065,511 |
|
Wholesale selling expenses |
|
| 37,115 |
|
|
| 50,929 |
|
Retail operating expenses |
|
| 250,502 |
|
|
| 302,756 |
|
Franchise expenses |
|
| 9,225 |
|
|
| 9,813 |
|
General and administrative expenses |
|
| 162,118 |
|
|
| 126,497 |
|
Art and development costs |
|
| 13,095 |
|
|
| 17,568 |
|
Development stage expenses |
|
| 2,932 |
|
|
| 7,966 |
|
(Gain) on sale/leaseback transaction |
|
| — |
|
|
| (58,381 | ) |
Store impairment and restructuring charges |
|
| 20,818 |
|
|
| 25,817 |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 581,380 |
|
|
| 259,100 |
|
Total expense |
|
| 1,967,772 |
|
|
| 1,807,576 |
|
(Loss) from operations |
|
| (765,263 | ) |
|
| (190,338 | ) |
Interest expense, net |
|
| 63,954 |
|
|
| 88,857 |
|
Other expense, net |
|
| 4,287 |
|
|
| 6,643 |
|
(Gain) on debt refinancing |
|
| (273,149 | ) |
|
| — |
|
(Loss) before income taxes |
|
| (560,355 | ) |
|
| (285,838 | ) |
Income tax (benefit) |
|
| (128,293 | ) |
|
| (21,809 | ) |
Net (loss) |
|
| (432,062 | ) |
|
| (264,029 | ) |
Less: Net (loss) attributable to noncontrolling interests |
|
| (241 | ) |
|
| (352 | ) |
Net (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | (431,821 | ) |
| $ | (263,677 | ) |
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | (4.41 | ) |
| $ | (2.83 | ) |
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | (4.41 | ) |
| $ | (2.83 | ) |
Weighted-average number of common shares-Basic |
|
| 97,872,174 |
|
|
| 93,271,392 |
|
Weighted-average number of common shares-Diluted |
|
| 97,872,174 |
|
|
| 93,271,392 |
|
Dividends declared per share |
| $ | — |
|
| $ | — |
|
Comprehensive (loss) |
| $ | (435,235 | ) |
| $ | (266,883 | ) |
Less: Comprehensive (loss) attributable to noncontrolling interests |
|
| (241 | ) |
|
| (364 | ) |
Comprehensive (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | (434,994 | ) |
| $ | (266,519 | ) |
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Revenues: | ||||||||
Net sales | $ | 1,611,149 | $ | 1,614,049 | ||||
Royalties and franchise fees | 6,089 | 7,832 | ||||||
Total revenues | 1,617,238 | 1,621,881 | ||||||
Cost of sales | 1,065,511 | 996,084 | ||||||
Wholesale selling expenses | 50,929 | 53,581 | ||||||
Retail operating expenses | 302,756 | 285,019 | ||||||
Franchise expenses | 9,813 | 8,624 | ||||||
General and administrative expenses | 126,497 | 136,230 | ||||||
Art and development costs | 17,568 | 17,278 | ||||||
Development stage expenses | 7,966 | 5,620 | ||||||
Gain on sale/leaseback transaction | (58,381 | ) | — | |||||
Store impairment and restructuring charges | 25,817 | — | ||||||
Goodwill impairment | 259,100 | — | ||||||
Total expense | 1,807,576 | 1,502,436 | ||||||
(Loss) i | (190,338 | ) | 119,445 | |||||
Interest expense, net | 88,857 | 76,481 | ||||||
Other expense, net | 6,643 | 9,076 | ||||||
(Loss) income before income taxes | (285,838 | ) | 33,888 | |||||
Income tax (benefit) expense | (21,809 | ) | 9,443 | |||||
Net (loss) income | (264,029 | ) | 24,445 | |||||
Add: Net income attributable to redeemable securities holder | — | 402 | ||||||
Less: Net loss attributable to noncontrolling interests | (352 | ) | (87 | ) | ||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (263,677 | ) | $ | 24,934 | |||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Basic | $ | (2.83 | ) | $ | 0.26 | |||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.–Diluted | $ | (2.83 | ) | $ | 0.26 | |||
Weighted-average number of common shares-Basic | 93,271,392 | 96,449,011 | ||||||
Weighted-average number of common shares-Diluted | 93,271,392 | 97,684,290 | ||||||
Dividends declared per share | $ | 0.00 | $ | 0.00 | ||||
Comprehensive (loss) income | $ | (266,883 | ) | $ | 20,889 | |||
Add: Comprehensive income attributable to redeemable securities holder | — | 402 | ||||||
Less: Comprehensive loss attributable to noncontrolling interests | (364 | ) | (108 | ) | ||||
Comprehensive (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (266,519 | ) | $ | 21,399 | |||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(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 June 30, 2020 |
| $ | 1,211 |
|
| $ | 941,745 |
|
| $ | (708,747 | ) |
| $ | (43,849 | ) |
| $ | 190,360 |
|
| $ | (327,170 | ) |
| $ | (136,810 | ) |
| $ | (206 | ) |
| $ | (137,016 | ) |
Net income (loss) |
|
| — |
|
|
| — |
|
|
| 239,707 |
|
|
| — |
|
|
| 239,707 |
|
|
| — |
|
|
| 239,707 |
|
|
| (42 | ) |
|
| 239,665 |
|
Stock option expense – time – based |
|
| — |
|
|
| 111 |
|
|
| — |
|
|
| — |
|
|
| 111 |
|
|
| — |
|
|
| 111 |
|
|
| — |
|
|
| 111 |
|
Restricted stock units – time-based |
|
| — |
|
|
| 429 |
|
|
| — |
|
|
| — |
|
|
| 429 |
|
|
| — |
|
|
| 429 |
|
|
| — |
|
|
| 429 |
|
Restricted stock unit expense – performance-based |
|
| — |
|
|
| 481 |
|
|
| — |
|
|
| — |
|
|
| 481 |
|
|
| — |
|
|
| 481 |
|
|
| — |
|
|
| 481 |
|
Acquired non-controlling interest |
|
| — |
|
|
| (202 | ) |
|
| — |
|
|
| — |
|
|
| (202 | ) |
|
| — |
|
|
| (202 | ) |
|
| (16 | ) |
|
| (218 | ) |
Issuance of Stock for New Debt |
|
| 160 |
|
|
| 27,581 |
|
|
| — |
|
|
| — |
|
|
| 27,741 |
|
|
| — |
|
|
| 27,741 |
|
|
| — |
|
|
| 27,741 |
|
Foreign currency adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,076 |
|
|
| 5,076 |
|
|
| — |
|
|
| 5,076 |
|
|
| — |
|
|
| 5,076 |
|
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (134 | ) |
|
| (134 | ) |
|
| — |
|
|
| (134 | ) |
|
| — |
|
|
| (134 | ) |
Balance at September 30, 2020 |
| $ | 1,371 |
|
| $ | 970,145 |
|
| $ | (469,040 | ) |
| $ | (38,907 | ) |
| $ | 463,569 |
|
| $ | (327,170 | ) |
| $ | 136,399 |
|
| $ | (264 | ) |
| $ | 136,135 |
|
|
| 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 June 30, 2019 |
| $ | 1,210 |
|
| $ | 926,838 |
|
| $ | 513,130 |
|
| $ | (45,216 | ) |
| $ | 1,395,962 |
|
| $ | (327,086 | ) |
| $ | 1,068,876 |
|
| $ | 211 |
|
| $ | 1,069,087 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| (281,533 | ) |
|
| — |
|
|
| (281,533 | ) |
|
| — |
|
|
| (281,533 | ) |
|
| (212 | ) |
|
| (281,745 | ) |
Stock option expense |
|
| — |
|
|
| 409 |
|
|
| — |
|
|
| — |
|
|
| 409 |
|
|
| — |
|
|
| 409 |
|
|
| — |
|
|
| 409 |
|
Restricted stock units – time-based |
|
| — |
|
|
| 610 |
|
|
| — |
|
|
| — |
|
|
| 610 |
|
|
| — |
|
|
| 610 |
|
|
| — |
|
|
| 610 |
|
Restricted stock units – performance-based |
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 560 |
|
Director – non-cash compensation |
|
| — |
|
|
| 148 |
|
|
| — |
|
|
| — |
|
|
| 148 |
|
|
| — |
|
|
| 148 |
|
|
| — |
|
|
| 148 |
|
Warrant expense |
|
| — |
|
|
| 128 |
|
|
| — |
|
|
| — |
|
|
| 128 |
|
|
| — |
|
|
| 128 |
|
|
| — |
|
|
| 128 |
|
Exercise of stock option |
|
| 1 |
|
|
| 56 |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| 57 |
|
Foreign currency adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,920 | ) |
|
| (6,920 | ) |
|
| — |
|
|
| (6,920 | ) |
|
| (1 | ) |
|
| (6,921 | ) |
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 93 |
|
|
| 93 |
|
|
| — |
|
|
| 93 |
|
|
| — |
|
|
| 93 |
|
Balance at September 30, 2019 |
| $ | 1,211 |
|
| $ | 928,749 |
|
| $ | 231,597 |
|
| $ | (52,043 | ) |
| $ | 1,109,514 |
|
| $ | (327,086 | ) |
| $ | 782,428 |
|
| $ | (2 | ) |
| $ | 782,426 |
|
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 June 30, 2019 | $ | 1,210 | $ | 926,838 | $ | 513,130 | $ | (45,216 | ) | $ | 1,395,962 | $ | (327,086 | ) | $ | 1,068,876 | $ | 211 | $ | 1,069,087 | ||||||||||||||||
Net loss | — | — | (281,533 | ) | — | (281,533 | ) | — | (281,533 | ) | (212 | ) | (281,745 | ) | ||||||||||||||||||||||
Stock option expense | — | 409 | — | — | 409 | — | 409 | — | 409 | |||||||||||||||||||||||||||
Restricted stock units – time- based | — | 610 | — | — | 610 | — | 610 | — | 610 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | — | 560 | — | — | 560 | — | 560 | — | 560 | |||||||||||||||||||||||||||
Director – non-cash compensation | — | 148 | — | — | 148 | — | 148 | — | 148 | |||||||||||||||||||||||||||
Warrant expense | — | 128 | — | — | 128 | — | 128 | — | 128 | |||||||||||||||||||||||||||
Exercise of stock options | 1 | 56 | — | — | 57 | — | 57 | — | 57 | |||||||||||||||||||||||||||
Foreign currency | — | — | — | (6,920 | ) | (6,920 | ) | — | (6,920 | ) | (1 | ) | (6,921 | ) | ||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | 93 | 93 | — | 93 | — | 93 | |||||||||||||||||||||||||||
Balance at September 30, 2019 | $ | 1,211 | $ | 928,749 | $ | 231,597 | $ | (52,043 | ) | $ | 1,109,514 | $ | (327,086 | ) | $ | 782,428 | $ | (2 | ) | $ | 782,426 | |||||||||||||||
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 June 30, 2018 | $ | 1,199 | $ | 919,845 | $ | 399,872 | $ | (39,797 | ) | $ | 1,281,119 | $ | (286,733 | ) | $ | 994,386 | $ | 282 | $ | 994,668 | ||||||||||||||||
Net loss | — | — | (2,412 | ) | — | (2,412 | ) | — | (2,412 | ) | (28 | ) | (2,440 | ) | ||||||||||||||||||||||
Net loss attributable to redeemable securities holder | — | — | (8 | ) | — | (8 | ) | — | (8 | ) | — | (8 | ) | |||||||||||||||||||||||
Stock option expense | — | 550 | — | — | 550 | — | 550 | — | 550 | |||||||||||||||||||||||||||
Restricted stock units – time-based | 1 | 469 | — | — | 470 | — | 470 | — | 470 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | 5 | 884 | — | — | 889 | — | 889 | — | 889 | |||||||||||||||||||||||||||
Director – non-cash compensation | — | 137 | — | — | 137 | — | 137 | — | 137 | |||||||||||||||||||||||||||
Warrant expense | — | (84 | ) | — | — | (84 | ) | — | (84 | ) | — | (84 | ) | |||||||||||||||||||||||
Exercise of stock options | — | 396 | — | — | 396 | — | 396 | — | 396 | |||||||||||||||||||||||||||
Foreign currency | — | — | — | 419 | 419 | — | 419 | (7 | ) | 412 | ||||||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | 25 | 25 | — | 25 | — | 25 | |||||||||||||||||||||||||||
Balance at September 30, 2018 | $ | 1,205 | $ | 922,197 | $ | 397,452 | $ | (39,353 | ) | $ | 1,281,501 | $ | (286,733 | ) | $ | 994,768 | $ | 247 | $ | 995,015 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(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 |
|
| — |
|
|
| — |
|
|
| (431,821 | ) |
|
| — |
|
|
| (431,821 | ) |
|
| — |
|
|
| (431,821 | ) |
|
| (241 | ) |
|
| (432,062 | ) |
Stock option expense – time – based |
|
| — |
|
|
| 671 |
|
|
| — |
|
|
| — |
|
|
| 671 |
|
|
| — |
|
|
| 671 |
|
|
| — |
|
|
| 671 |
|
Stock option expense – performance – based |
|
|
|
|
|
| 7,847 |
|
|
| — |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
|
| 7,847 |
|
Restricted stock units – time – based |
|
| — |
|
|
| 1,568 |
|
|
| — |
|
|
| — |
|
|
| 1,568 |
|
|
| — |
|
|
| 1,568 |
|
|
| — |
|
|
| 1,568 |
|
Restricted stock unit expense – performance-based |
|
| — |
|
|
| 481 |
|
|
| — |
|
|
| — |
|
|
| 481 |
|
|
| — |
|
|
| 481 |
|
|
| — |
|
|
| 481 |
|
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 |
|
| — |
|
|
| 2,316 |
|
|
| — |
|
|
| — |
|
|
| 2,316 |
|
|
| — |
|
|
| 2,316 |
|
|
| 1 |
|
|
| 2,317 |
|
Treasury stock purchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (84 | ) |
|
| (84 | ) |
|
| — |
|
|
| (84 | ) |
Issuance of Stock for Debt exchange including costs |
|
| 160 |
|
|
| 27,581 |
|
|
| — |
|
|
| — |
|
|
| 27,741 |
|
|
| — |
|
|
| 27,741 |
|
|
| — |
|
|
| 27,741 |
|
Foreign currency adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,111 | ) |
|
| (3,111 | ) |
|
| — |
|
|
| (3,111 | ) |
|
| — |
|
|
| (3,111 | ) |
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (62 | ) |
|
| (62 | ) |
|
| — |
|
|
| (62 | ) |
|
| — |
|
|
| (62 | ) |
Balance at September 30, 2020 |
| $ | 1,371 |
|
| $ | 970,145 |
|
| $ | (469,040 | ) |
| $ | (38,907 | ) |
| $ | 463,569 |
|
| $ | (327,170 | ) |
| $ | 136,399 |
|
| $ | (264 | ) |
| $ | 136,135 |
|
|
| 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) |
|
| — |
|
|
| — |
|
|
| (263,677 | ) |
|
| — |
|
|
| (263,677 | ) |
|
| — |
|
|
| (263,677 | ) |
|
| (352 | ) |
|
| (264,029 | ) |
Stock option expense |
|
| — |
|
|
| 1,150 |
|
|
| — |
|
|
| — |
|
|
| 1,150 |
|
|
| — |
|
|
| 1,150 |
|
|
| — |
|
|
| 1,150 |
|
Restricted stock units – time-based |
|
| — |
|
|
| 1,543 |
|
|
| — |
|
|
| — |
|
|
| 1,543 |
|
|
| — |
|
|
| 1,543 |
|
|
| — |
|
|
| 1,543 |
|
Restricted stock units – performance-based |
|
| — |
|
|
| 1,036 |
|
|
| — |
|
|
| — |
|
|
| 1,036 |
|
|
| — |
|
|
| 1,036 |
|
|
| — |
|
|
| 1,036 |
|
Director – non-cash compensation |
|
| — |
|
|
| 313 |
|
|
| — |
|
|
| — |
|
|
| 313 |
|
|
| — |
|
|
| 313 |
|
|
| — |
|
|
| 313 |
|
Warrant expense |
|
| — |
|
|
| 386 |
|
|
| — |
|
|
| — |
|
|
| 386 |
|
|
| — |
|
|
| 386 |
|
|
| — |
|
|
| 386 |
|
Exercise of stock options |
|
| 3 |
|
|
| 1,142 |
|
|
| — |
|
|
| — |
|
|
| 1,145 |
|
|
| — |
|
|
| 1,145 |
|
|
| — |
|
|
| 1,145 |
|
Acquired non-controlling interest |
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| 41 |
|
|
| 71 |
|
|
| 112 |
|
Treasury Stock purchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (156 | ) |
|
| (156 | ) |
|
| — |
|
|
| (156 | ) |
Foreign currency adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,208 | ) |
|
| (2,208 | ) |
|
| — |
|
|
| (2,208 | ) |
|
| (12 | ) |
|
| (2,220 | ) |
Impact of foreign exchange contracts, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (634 | ) |
|
| (634 | ) |
|
| — |
|
|
| (634 | ) |
|
| — |
|
|
| (634 | ) |
Balance at September 30, 2019 |
| $ | 1,211 |
|
| $ | 928,749 |
|
| $ | 231,597 |
|
| $ | (52,043 | ) |
| $ | 1,109,514 |
|
| $ | (327,086 | ) |
| $ | 782,428 |
|
| $ | (2 | ) |
| $ | 782,426 |
|
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury | Common Stock Held In Treasury | Total Party City Holdco Inc. Stockholders’ Equity | Non- Controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance at December 31, 2018 | $ | 1,208 | $ | 922,476 | $ | 495,777 | $ | (49,201 | ) | $ | 1,370,260 | $ | (326,930 | ) | $ | 1,043,330 | $ | 291 | $ | 1,043,621 | ||||||||||||||||
Cumulative effect of change in accounting principle, net (see Note 2) | — | 662 | (503 | ) | — | 159 | — | 159 | — | 159 | ||||||||||||||||||||||||||
Balance at December 31, 2018, as adjusted | $ | 1,208 | $ | 923,138 | $ | 495,274 | $ | (49,201 | ) | $ | 1,370,419 | $ | (326,930 | ) | $ | 1,043,489 | $ | 291 | $ | 1,043,780 | ||||||||||||||||
Net loss | — | — | (263,677 | ) | — | (263,677 | ) | — | (263,677 | ) | (352 | ) | (264,029 | ) | ||||||||||||||||||||||
Stock option expense | — | 1,150 | — | — | 1,150 | — | 1,150 | — | 1,150 | |||||||||||||||||||||||||||
Restricted stock units – time - based | — | 1,543 | — | — | 1,543 | — | 1,543 | — | 1,543 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | — | 1,036 | — | — | 1,036 | — | 1,036 | — | 1,036 | |||||||||||||||||||||||||||
Director – non-cas h compensation | — | 313 | — | — | 313 | — | 313 | — | 313 | |||||||||||||||||||||||||||
Warrant expense | — | 386 | — | — | 386 | — | 386 | — | 386 | |||||||||||||||||||||||||||
Exercise of stock options | 3 | 1,142 | — | — | 1,145 | — | 1,145 | — | 1,145 | |||||||||||||||||||||||||||
Acquired non-controlling interest | — | 41 | — | — | 41 | — | 41 | 71 | 112 | |||||||||||||||||||||||||||
Treasury stock purchases | — | — | — | — | — | (156 | ) | (156 | ) | — | (156 | ) | ||||||||||||||||||||||||
Foreign currency adjustments | — | — | — | (2,208 | ) | (2,208 | ) | — | (2,208 | ) | (12 | ) | (2,220 | ) | ||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | (634 | ) | (634 | ) | — | (634 | ) | — | (634 | ) | |||||||||||||||||||||||
Balance at September 30, 2019 | $ | 1,211 | $ | 928,749 | $ | 231,597 | $ | (52,043 | ) | $ | 1,109,514 | $ | (327,086 | ) | $ | 782,428 | $ | (2 | ) | $ | 782,426 | |||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Party City Holdco Inc. Stockholders’ Equity Before Common Stock Held In Treasury | Common Stock Held In Treasury | Total Party City Holdco Inc. Stockholders’ Equity | Non- Controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 1,198 | $ | 917,192 | $ | 372,596 | $ | (35,818 | ) | $ | 1,255,168 | $ | (286,733 | ) | $ | 968,435 | $ | 355 | $ | 968,790 | ||||||||||||||||
Cumulative effect of change in accounting principle, net | — | — | (78 | ) | — | (78 | ) | — | (78 | ) | — | (78 | ) | |||||||||||||||||||||||
Balance at December 31, 2017, as adjusted | $ | 1,198 | $ | 917,192 | $ | 372,518 | $ | (35,818 | ) | $ | 1,255,090 | $ | (286,733 | ) | $ | 968,357 | $ | 355 | $ | 968,712 | ||||||||||||||||
Net income | — | — | 24,532 | — | 24,532 | — | 24,532 | (87 | ) | 24,445 | ||||||||||||||||||||||||||
Net income attributable to redeemable securities holder | — | — | 402 | — | 402 | — | 402 | — | 402 | |||||||||||||||||||||||||||
Stock option expense | — | 1,492 | — | — | 1,492 | — | 1,492 | — | 1,492 | |||||||||||||||||||||||||||
Restricted stock units – time - based | 1 | 721 | — | — | 722 | — | 722 | — | 722 | |||||||||||||||||||||||||||
Restricted stock units – performance-based | 5 | 1,477 | — | — | 1,482 | — | 1,482 | — | 1,482 | |||||||||||||||||||||||||||
Director – non-cash compensation | — | 196 | — | — | 196 | — | 196 | — | 196 | |||||||||||||||||||||||||||
Warrant expense | — | 242 | — | — | 242 | — | 242 | — | 242 | |||||||||||||||||||||||||||
Exercise of stock options | 1 | 877 | — | — | 878 | — | 878 | — | 878 | |||||||||||||||||||||||||||
Foreign currency adjustments | — | — | — | (4,888 | ) | (4,888 | ) | — | (4,888 | ) | (21 | ) | (4,909 | ) | ||||||||||||||||||||||
Impact of foreign exchange contracts, net | — | — | — | 1,353 | 1,353 | — | 1,353 | — | 1,353 | |||||||||||||||||||||||||||
Balance at September 30, 2018 | $ | 1,205 | $ | 922,197 | $ | 397,452 | $ | (39,353 | ) | $ | 1,281,501 | $ | (286,733 | ) | $ | 994,768 | $ | 247 | $ | 995,015 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows used in operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (432,062 | ) |
| $ | (264,029 | ) |
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 57,796 |
|
|
| 62,380 |
|
Amortization of deferred financing costs and original issuance discounts |
|
| 3,276 |
|
|
| 3,511 |
|
Provision for doubtful accounts |
|
| 5,746 |
|
|
| 1,110 |
|
Deferred income tax benefit |
|
| (76,833 | ) |
|
| (26,458 | ) |
Change in operating lease liability/asset |
|
| 32,121 |
|
|
| (23,361 | ) |
Undistributed (income) loss in equity method investments |
|
| 356 |
|
|
| (195 | ) |
Loss (gain) on disposal of assets |
|
| 83 |
|
|
| (59,088 | ) |
Non-cash adjustment for store impairment and restructuring charges |
|
| 16,595 |
|
|
| 19,443 |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 581,380 |
|
|
| 259,100 |
|
Non-employee equity-based compensation (see Note 19 – Kazzam, LLC) |
|
| 1,033 |
|
|
| 386 |
|
Stock option expense – time – based |
|
| 671 |
|
|
| 1,150 |
|
Stock option expense – performance – based |
|
| 7,847 |
|
|
| — |
|
Restricted stock unit expense – time-based |
|
| 1,568 |
|
|
| 1,543 |
|
Restricted stock unit and restricted cash awards expense – performance-based |
|
| 510 |
|
|
| 1,036 |
|
Directors – non-cash compensation |
|
| 75 |
|
|
| 313 |
|
Gain on debt refinancing |
|
| (273,149 | ) |
|
| — |
|
Changes in operating assets and liabilities, net of effects of acquired businesses: |
|
|
|
|
|
|
|
|
(Increase) in accounts receivable |
|
| (8,562 | ) |
|
| (23,712 | ) |
Decrease (increase) in inventories |
|
| 27,959 |
|
|
| (35,628 | ) |
Increase in prepaid expenses and other current assets |
|
| (64,715 | ) |
|
| (11,009 | ) |
Decrease (increase) in accounts payable, accrued expenses and income taxes payable |
|
| 61,478 |
|
|
| (88,771 | ) |
Net cash used in operating activities |
|
| (56,827 | ) |
|
| (182,279 | ) |
Cash flows (used in) provided by investing activities: |
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions, net of cash acquired |
|
| (362 | ) |
|
| (9,485 | ) |
Capital expenditures |
|
| (32,095 | ) |
|
| (45,769 | ) |
Proceeds from disposal of property and equipment |
|
| 82 |
|
|
| 113,845 |
|
Net cash (used in) provided by investing activities |
|
| (32,375 | ) |
|
| 58,591 |
|
Cash flows provided by financing activities: |
|
|
|
|
|
|
|
|
Repayment of loans, notes payable and long-term obligations |
|
| (122,373 | ) |
|
| (106,133 | ) |
Proceeds from loans, notes payable and long-term obligations |
|
| 369,785 |
|
|
| 203,381 |
|
Stock repurchases |
|
| (85 | ) |
|
| (156 | ) |
Exercise of stock options |
|
| — |
|
|
| 1,145 |
|
Debt issuance costs |
|
| (19,955 | ) |
|
| (411 | ) |
Net cash provided by financing activities |
|
| 227,372 |
|
|
| 97,826 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (2,659 | ) |
|
| 1,220 |
|
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
| 135,511 |
|
|
| (24,642 | ) |
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 |
| $ | 170,687 |
|
| $ | 34,577 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 55,999 |
|
| $ | 97,744 |
|
Cash paid during the period for income taxes, net of refunds |
| $ | 24,421 |
|
| $ | 34,357 |
|
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Cash flows used in operating activities: | ||||||||
Net (loss) income | $ | (264,029 | ) | $ | 24,445 | |||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 62,380 | 57,786 | ||||||
Amortization of deferred financing costs and original issuance discounts | 3,511 | 9,834 | ||||||
Provision for doubtful accounts | 1,110 | 726 | ||||||
Deferred income tax (benefit) expense | (26,458 | ) | 1,075 | |||||
Deferred rent | — | 3,623 | ||||||
Change in operating lease liability/asset | (23,361 | ) | — | |||||
Undistributed income in equity method investments | (195 | ) | (580 | ) | ||||
(Gain) loss on disposal of assets | (59,088 | ) | 23 | |||||
Store impairment and restructuring charges | 19,443 | — | ||||||
Goodwill impairment | 259,100 | — | ||||||
Non-employee equity-based compensation | 386 | 352 | ||||||
Stock option expense | 1,150 | 1,492 | ||||||
Restricted stock unit expense – time-based | 1,543 | 722 | ||||||
Restricted stock unit expense – performance-based | 1,036 | 1,482 | ||||||
Directors – non-cash compensation | 313 | 196 | ||||||
Changes in operating assets and liabilities, net of effects of acquired businesses: | ||||||||
Increase in accounts receivable | (23,712 | ) | (32,802 | ) | ||||
Increase in inventories | (35,628 | ) | (194,419 | ) | ||||
Increase in prepaid expenses and other current assets | (11,009 | ) | (13,890 | ) | ||||
( Decrease) increase in accounts payable, accrued expenses and income taxes payable | (88,771 | ) | 53,744 | |||||
Net cash used in operating activities | (182,279 | ) | (86,191 | ) | ||||
Cash flows provided by (used in) investing activities: | ||||||||
Cash paid in connection with acquisitions, net of cash acquired | (9,485 | ) | (63,840 | ) | ||||
Capital expenditures | (45,769 | ) | (65,491 | ) | ||||
Proceeds from disposal of property and equipment | 113,845 | 22 | ||||||
Net cash provided by (used in) investing activities | 58,591 | (129,309 | ) | |||||
Cash flows provided by financing activities: | ||||||||
Repayment of loans, notes payable and long-term obligations | (106,133 | ) | (417,281 | ) | ||||
Proceeds from loans, notes payable and long-term obligations | 203,381 | 636,884 | ||||||
Stock repurchases | (156 | ) | — | |||||
Exercise of stock options | 1,145 | 878 | ||||||
Debt issuance costs | (411 | ) | (10,343 | ) | ||||
Net cash provided by financing activities | 97,826 | 210,138 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 1,220 | (772 | ) | |||||
Net decrease in cash and cash equivalents and restricted cash | (24,642 | ) | (6,134 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period | 59,219 | 54,408 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 34,577 | $ | 48,274 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 97,744 | $ | 77,371 | ||||
Cash paid during the period for income taxes, net of refunds | $ | 34,357 | $ | 56,683 |
See accompanying notes to unaudited condensed consolidated financial statements.
(Unaudited)
(Dollars in thousands, except per share)
Note 1 – Description of Business
Party City Holdco Inc. (the “Company” or “Party City Holdco”) is athe leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods.goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is a leading player in its category and vertically integrated in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery. Thestationery throughout the world. As of September 30, 2020 the Company’s retail operations include approximately 900829 specialty retail party supply stores (including franchise stores) inthroughout the United States
In March 2020, the World Health Organization declared COVID-19 a networkglobal pandemic, and governmental authorities around the world have implemented measures to reduce the spread of approximately 250 - 300the virus. The global spread of COVID-19 and the measures to contain it have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets. In response to COVID-19, to safeguard the health and safety of its team members and customers, the Company temporarily closed all of its corporate retail stores as of March 18, 2020. During the temporary Halloween City stores. In addition tostore closures, the Company offered curbside pickup and the Company’s retail operations, it is also a global designer, manufacturere-commerce site, www.partycity.com, remained fully operational.The Company began reopening stores on May 1, 2020, in accordance with state and distributorlocal health ordinances, and as of decorated party supplies, with products found in over 40,000 retail outlets, including independent party supplyJune 22, 2020, all stores mass merchants, grocery retailers,
Party City Holdco is a holding company with no operating assets or operations. The Company owns 100% of PC Nextco Holdings, LLC (“PC Nextco”), which owns 100% of PC Intermediate Holdings, Inc. (“PC Intermediate”). PC Intermediate owns 100% of Party City Holdings Inc. (“PCHI”), which owns most of the Company’s operating 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. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included in the unaudited condensed consolidated financial statements.
The majority of our retail operations define a fiscal year (“Fiscal Year”) as the
Operating results for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2019.2020. Our business is subject to substantial seasonal variations as our retail segment has historically realized a significant portion of its net sales, cash flows and net income in the fourth quarter of each year, principally due to its Halloween season sales in October and, to a lesser extent, other
Recently Issued and Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
In June 2018, the FASB issued ASU
In August 2017, the FASB issued ASU
In January 2017 the FASB issued ASU No. 2017-04, “Intangibles – “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.
In
The Company maintains allowances for credit losses resulting from the inability of the Company’s customers to make required payments. Judgment is still evaluatingrequired in assessing the ultimate realization of these receivables, including consideration of the Company’s history of receivable write-offs, the level of past due accounts and the economic status of the Company’s customers. In an effort to identify adverse trends relative to customer economic status, the Company assesses the financial health of the markets it operates in and performs periodic credit evaluations of its customers and ongoing reviews of account balances and aging of receivables. Amounts are considered past due when payment has not been received within the time frame of the credit terms extended. Write-offs are charged directly against the allowance for credit losses and occur only after all collection efforts have been exhausted. The Company will continue to actively monitor the impact of the ASUCOVID-19 pandemic on its consolidated financial statements.
In February 2016, the FASB issued ASU
The Company adopted the new lease standard during the first quarter of 2019 and, to the extent required by the pronouncement, recognized a right of use asset and liability for its operating lease arrangements with terms of greater than twelve months. See the Company’s September 30, 2019 consolidated balance sheet for the impact of such adoption.
Note 3 – Store Impairment and Restructuring Charges
The Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after. 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 55 stores, which are 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, 21 stores identified for closure in the first quarter of 2020 were closed in the third quarter. These closings should provide 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 the three and nine months ended September 30, 2020 and 2019, the Company recorded the following charges:
|
| Three Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Inventory reserves |
| $ | 1,184 |
|
| $ | — |
|
Operating lease asset impairment |
|
| 137 |
|
|
| — |
|
Labor and other costs incurred closing stores |
|
| 1,789 |
|
|
| 2,574 |
|
Total |
| $ | 3,110 |
|
| $ | 2,574 |
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Inventory reserves |
| $ | 12,880 |
|
| $ | 21,285 |
|
Operating lease asset impairment |
|
| 14,530 |
|
|
| 14,149 |
|
Property, plant and equipment impairment |
|
| 2,065 |
|
|
| 4,680 |
|
Labor and other costs incurred closing stores |
|
| 4,223 |
|
|
| 6,327 |
|
Severance |
|
| — |
|
|
| 661 |
|
Total |
| $ | 33,698 |
|
| $ | 47,102 |
|
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
Inventory reserves | $ | — | $ | 21,285 | ||||
Operating lease asset impairment | — | 14,149 | ||||||
Property, plant and equipment impairment | — | 4,680 | ||||||
Labor and other costs incurred closing stores | 2,574 | 6,327 | ||||||
Severance | — | 661 | ||||||
Total | $ | 2,574 | $ | 47,102 | ||||
Amounts disclosed above represent the Company’s best estimate of the total charges that are expected to be recorded for such items.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
The charge for inventory reserves representsis related to inventory that is disposed of following the closures of the stores and inventory that is sold below cost prior to such closures. The charge for inventory reserves was recorded in cost of sales in the Company’s statement of operations and comprehensive loss. The other charges were recorded in Store 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 from the store optimization program. If the Company is unable to achieve such benefits, its results of operations and financial condition could be affected.
Note 4 – Goodwill, Intangibles and Long-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 t
During the three months ended March 31, 2020, the Company identified intangible assets’ impairment indicators associated with its market capitalization and significantly reduced customer demand for its products due to COVID-19. As a result, the Company performed interim impairment tests on the goodwill at its retail and wholesale reporting units and its other indefinite lived intangible assets as of March 31, 2020. The interim impairment tests were performed using an income approach. The Company recognized non-cash pre-tax goodwill impairment charges at March 31, 2020 of $253,110 and $148,326 against the goodwill associated with its retail and wholesale reporting units, respectively.
In addition, during the three months ended March 31, 2020, the Company recorded an impairment charge of $131,287 and $3,925 on its Party City and Halloween City tradenames, respectively. During 2019, there was 0 impairment on the Party City trade name and the Company recorded a Halloween City trade name impairment charge of $6,575.
During the three months ended September 30, 2019, the Company identified an impairment indicator associated with its market capitalization and performed interim impairment tests on the goodwill at its retail and wholesale reporting units and its other indefinite lived intangible assets as of September 30, 2019. The interim impairment tests were performed using a combination of a market approach and an income approach. As a result of a sustained decline in the Company’s market capitalization, the Company recognized
During the ninethree months ended September 30, 2018.
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 nine monthsyear ended September 30,December 31, 2019, the Company recorded a $58,381 gain on the sale, net of transaction costs, in the Company’s condensed consolidated statement of operations and comprehensive loss.
Under the terms of the lease agreements, the Company will paypays total rent of $8,320 during the first year and the annual rent will increase by 2% thereafter.
The Chester and Eden Prairie leases are being accounted for as operating leases and the sale of such properties is includedresulted in the gain above.
However, for the Los Lunas property, the present value of the lease payments is greater than substantially all of the fair value of the assets. Therefore, the lease is a finance lease and sale accounting treatment is prohibited. As such, the Company is accounting for the $12,080 of proceeds as a financing lease and has recorded such amount in long-term obligations in itslease. As of September 30, 2020 and December 31, 2019 condensed consolidated balance sheet.
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
During June 2019, the Company used proceeds from the sale (net of costs) of $125,864described in this Note 5 – Sale/LeasebackTransaction to paydown outstanding debt.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.
Note 6 – Disposition of Assets and Liabilities Held for Sale
On October 1, 2019, the Company sold its Canadian-based Party City stores to a Canadian-based retailer for $174,500 Canadian dollars$131,711 and enterentered into a
At September 30, 2019 | ||||
Inventories, net | $ | 31,302 | ||
Property, plant and equipment, net | 14,779 | |||
Operating lease asset | 40,470 | |||
Goodwill | 51,370 | |||
Trade names | 33,044 | |||
Other assets, net | 1,224 | |||
Total, net | $ | 172,189 | ||
Note
Inventories consisted of the following:
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Finished goods |
| $ | 581,735 |
|
| $ | 606,036 |
|
Raw materials |
|
| 28,640 |
|
|
| 34,259 |
|
Work in process |
|
| 19,982 |
|
|
| 18,124 |
|
|
| $ | 630,357 |
|
| $ | 658,419 |
|
September 30, 2019 | December 31, 2018 | |||||||
Finished goods | $ | 709,830 | $ | 706,327 | ||||
Raw materials | 34,045 | 33,423 | ||||||
Work in process | 16,304 | 16,288 | ||||||
$ | 760,179 | $ | 756,038 | |||||
Inventories are valued at the lower of cost or net realizable value. The Company principally determines the cost of inventory using the weighted average method.
The Company estimates retail inventory shrinkage for the period between physical inventory dates on a
Note
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“the CARES Act”) was signed into law. The CARES Act is a $2 trillion legislative package intended to provide economic relief to companies impacted by the COVID-19 pandemic, and it enacted a number of Internal Revenue Code modifications which are of particular benefit to the Company, including: 5-year net operating loss carryback, temporary relaxation of the limitations on interest deductions, qualified improvement property eligible for bonus depreciation, employee retention tax credits, and deferral of payment of payroll tax.
The effective income tax rate for the nine months ended September 30, 2019, 7.6%,2020 of 22.9% is
Note
The changes in accumulated other comprehensive loss consisted of the following:
|
| Three Months Ended September 30, 2020 |
| |||||||||
|
| Foreign Currency Adjustments |
|
| Impact of Foreign Exchange Contracts, Net of Taxes |
|
| Total, Net of Taxes |
| |||
Balance at June 30, 2020 |
| $ | (45,621 | ) |
| $ | 1,772 |
|
| $ | (43,849 | ) |
Other comprehensive (loss) income before reclassifications, net of tax |
|
| 5,076 |
|
|
| (321 | ) |
|
| 4,755 |
|
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax |
|
| — |
|
|
| 187 |
|
|
| 187 |
|
Net current-period other comprehensive income |
|
| 5,076 |
|
|
| (134 | ) |
|
| 4,942 |
|
Balance at September 30, 2020 |
| $ | (40,545 | ) |
| $ | 1,638 |
|
| $ | (38,907 | ) |
|
| Three Months Ended September 30, 2019 |
| |||||||||
|
| Foreign Currency Adjustments |
|
| Impact of Foreign Exchange Contracts, Net of Taxes |
|
| Total, Net of Taxes |
| |||
Balance at June 30, 2019 |
| $ | (45,344 | ) |
| $ | 128 |
|
| $ | (45,216 | ) |
Other comprehensive (loss) income before reclassifications |
|
| (6,920 | ) |
|
| 166 |
|
|
| (6,754 | ) |
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax |
|
| — |
|
|
| (73 | ) |
|
| (73 | ) |
Net current-period other comprehensive income (loss) |
|
| (6,920 | ) |
|
| 93 |
|
|
| (6,827 | ) |
Balance at September 30, 2019 |
| $ | (52,264 | ) |
| $ | 221 |
|
| $ | (52,043 | ) |
Three Months Ended September 30, 2019 | ||||||||||||
Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at June 30, 2019 | $ | (45,344 | ) | $ | 128 | $ | (45,216 | ) | ||||
Other comprehensive (loss) income before reclassifications, net of tax | (6,920 | ) | 166 | (6,754 | ) | |||||||
Gains reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax | — | (73 | ) | (73 | ) | |||||||
Net current-period other comprehensive (loss) income | (6,920 | ) | 93 | (6,827 | ) | |||||||
Balance at September 30, 2019 | $ | (52,264 | ) | $ | 221 | $ | (52,043 | ) | ||||
|
| Nine Months Ended September 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) before reclassifications, net of tax |
|
| (3,111 | ) |
|
| (251 | ) |
|
| (3,362 | ) |
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax |
|
| — |
|
|
| 189 |
|
|
| 189 |
|
Net current-period other comprehensive (loss) income |
|
| (3,111 | ) |
|
| (62 | ) |
|
| (3,173 | ) |
Balance at September 30, 2020 |
| $ | (40,545 | ) |
| $ | 1,638 |
|
| $ | (38,907 | ) |
|
| Nine Months Ended September 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 (loss) income before reclassifications, net of income tax |
|
| (2,208 | ) |
|
| 226 |
|
|
| (1,982 | ) |
Amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax |
|
| — |
|
|
| (860 | ) |
|
| (860 | ) |
Net current-period other comprehensive income (loss) |
|
| (2,208 | ) |
|
| (634 | ) |
|
| (2,842 | ) |
Balance at September 30, 2019 |
| $ | (52,264 | ) |
| $ | 221 |
|
| $ | (52,043 | ) |
Three Months Ended September 30, 2018 | ||||||||||||
Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at June 30, 2018 | $ | (40,917 | ) | $ | 1,120 | $ | (39,797 | ) | ||||
Other comprehensive income before reclassifications | 419 | 217 | 636 | |||||||||
Gain reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax | — | (192 | ) | (192 | ) | |||||||
Net current-period other comprehensive income | 419 | 25 | 444 | |||||||||
Balance at September 30, 2018 | $ | (40,498 | ) | $ | 1,145 | $ | (39,353 | ) | ||||
Nine Months Ended September 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 (loss) income before reclassifications, net of tax | (2,208 | ) | 226 | (1,982 | ) | |||||||
Gain reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss, net of income tax | — | (860 | ) | (860 | ) | |||||||
Net current-period other comprehensive loss | (2,208 | ) | (634 | ) | (2,842 | ) | ||||||
Balance at September 30, 2019 | $ | (52,264 | ) | $ | 221 | $ | (52,043 | ) | ||||
Nine Months Ended September 30, 2018 | ||||||||||||
Foreign Currency Adjustments | Impact of Foreign Exchange Contracts, Net of Taxes | Total, Net of Taxes | ||||||||||
Balance at December 31, 2017 | $ | (35,610 | ) | $ | (208 | ) | $ | (35,818 | ) | |||
Other comprehensive (loss) income before reclassifications, net of income tax | (4,888 | ) | 1,188 | (3,700 | ) | |||||||
Loss reclassified from accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive income, net of income tax | — | 165 | 165 | |||||||||
Net current-period other comprehensive (loss) income | (4,888 | ) | 1,353 | (3,535 | ) | |||||||
Balance at September 30, 2018 | $ | (40,498 | ) | $ | 1,145 | $ | (39,353 | ) | ||||
Note
At September 30, 2019,2020, the Company’s auth
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 for the nine months ended September 30, 2020.
Note 1
Industry Segments
The Company has two2 identifiable business segments. The Wholesale segment designs, manufactures, sources and distributes decorated party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Retail segment operates specialty retail party supply stores in the United States, and, through September 30, 2019, Canada, principally under the names Party City and Halloween City, and it operates
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Three Months Ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 346,621 |
|
| $ | 364,481 |
|
| $ | 711,102 |
|
Royalties and franchise fees |
|
| — |
|
|
| 1,722 |
|
|
| 1,722 |
|
Total revenues |
|
| 346,621 |
|
|
| 366,203 |
|
|
| 712,824 |
|
Eliminations |
|
| (179,049 | ) |
|
| — |
|
|
| (179,049 | ) |
Net revenues |
| $ | 167,572 |
|
| $ | 366,203 |
|
| $ | 533,775 |
|
Loss from operations |
| $ | (12,738 | ) |
| $ | (14,361 | ) |
| $ | (27,099 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 13,422 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| (2,873 | ) |
Gain on debt refinancing |
|
|
|
|
|
|
|
|
|
| (273,149 | ) |
Income before income taxes |
|
|
|
|
|
|
|
|
| $ | 235,501 |
|
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 383,425 |
|
| $ | 369,467 |
|
| $ | 752,892 |
|
Royalties and franchise fees |
|
| — |
|
|
| 1,886 |
|
|
| 1,886 |
|
Total revenues |
|
| 383,425 |
|
|
| 371,353 |
|
|
| 754,778 |
|
Eliminations |
|
| (214,547 | ) |
|
| — |
|
|
| (214,547 | ) |
Net revenues |
| $ | 168,878 |
|
| $ | 371,353 |
|
| $ | 540,231 |
|
Loss from operations |
| $ | (32,424 | ) |
| $ | (245,102 | ) |
| $ | (277,526 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 29,424 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| 2,047 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
| $ | (308,997 | ) |
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended September 30, 2019 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 383,425 | $ | 369,467 | $ | 752,892 | ||||||
Royalties and franchise fees | — | 1,886 | 1,886 | |||||||||
Total revenues | 383,425 | 371,353 | 754,778 | |||||||||
Eliminations | (214,547 | ) | — | (214,547 | ) | |||||||
Net revenues | $ | 168,878 | $ | 371,353 | $ | 540,231 | ||||||
L oss from operations | $ | (32,424 | ) | $ | (245,102 | ) | $ | (277,526 | ) | |||
Interest expense, net | 29,424 | |||||||||||
Other expense, net | 2,047 | |||||||||||
Loss before income tax benefits | $ | (308,997 | ) | |||||||||
Wholesale | Retail | Consolidated | ||||||||||
Three Months Ended September 30, 2018 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 424,569 | $ | 375,680 | $ | 800,249 | ||||||
Royalties and franchise fees | — | 2,206 | 2,206 | |||||||||
Total revenues | 424,569 | 377,886 | 802,455 | |||||||||
Eliminations | (249,409 | ) | — | (249,409 | ) | |||||||
Net revenues | $ | 175,160 | $ | 377,886 | $ | 553,046 | ||||||
Income from operations | $ | 15,501 | $ | 16,237 | $ | 31,738 | ||||||
Interest expense, net | 27,705 | |||||||||||
Other expense, net | 5,696 | |||||||||||
Loss before income taxes | $ | (1,663 | ) | |||||||||
The Company’s industry segment data for the nine months ended September 30, 2020 and 2019 andwas as follows:
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Nine Months Ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 692,715 |
|
| $ | 850,612 |
|
| $ | 1,543,327 |
|
Royalties and franchise fees |
|
| — |
|
|
| 4,349 |
|
|
| 4,349 |
|
Total revenues |
|
| 692,715 |
|
|
| 854,961 |
|
|
| 1,547,676 |
|
Eliminations |
|
| (345,167 | ) |
|
| — |
|
|
| (345,167 | ) |
Net revenues |
| $ | 347,548 |
|
| $ | 854,961 |
|
| $ | 1,202,509 |
|
Loss from operations |
| $ | (232,178 | ) |
| $ | (533,085 | ) |
| $ | (765,263 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 63,954 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| 4,287 |
|
Gain on debt refinancing |
|
|
|
|
|
|
|
|
|
| (273,149 | ) |
Loss before income taxes |
|
|
|
|
|
|
|
|
| $ | (560,355 | ) |
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 962,793 |
|
| $ | 1,170,777 |
|
| $ | 2,133,570 |
|
Royalties and franchise fees |
|
| — |
|
|
| 6,089 |
|
|
| 6,089 |
|
Total revenues |
|
| 962,793 |
|
|
| 1,176,866 |
|
|
| 2,139,659 |
|
Eliminations |
|
| (522,421 | ) |
|
| — |
|
|
| (522,421 | ) |
Net revenues |
| $ | 440,372 |
|
| $ | 1,176,866 |
|
| $ | 1,617,238 |
|
Income (loss) from operations |
| $ | 30,096 |
|
| $ | (220,434 | ) |
| $ | (190,338 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
| 88,857 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
| 6,643 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
| $ | (285,838 | ) |
In 2019, the Company initiated a store optimization program under which the Company identified approximately 55 Party City stores to be closed. In addition, 21 stores were identified for closure in the first quarter of 2020 were closed in the third quarter. In conjunction with the program, during the three months ended September 30, 2018 was as follows:
Wholesale | Retail | Consolidated | ||||||||||
Nine Months Ended September 30, 2019 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 962,793 | $ | 1,170,777 | $ | 2,133,570 | ||||||
Royalties and franchise fees | — | 6,089 | 6,089 | |||||||||
Total revenues | 962,793 | 1,176,866 | 2,139,659 | |||||||||
Eliminations | (522,421 | ) | — | (522,421 | ) | |||||||
Net revenues | $ | 440,372 | $ | 1,176,866 | $ | 1,617,238 | ||||||
Income (loss) from operations | $ | 30,096 | $ | (220,434 | ) | $ | (190,338 | ) | ||||
Interest expense, net | 88,857 | |||||||||||
Other expense, net | 6,643 | |||||||||||
Loss before income tax benefits | $ | (285,838 | ) | |||||||||
Wholesale | Retail | Consolidated | ||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||
Revenues: | ||||||||||||
Net sales | $ | 988,129 | $ | 1,150,609 | $ | 2,138,738 | ||||||
Royalties and franchise fees | — | 7,832 | 7,832 | |||||||||
Total revenues | 988,129 | 1,158,441 | 2,146,570 | |||||||||
Eliminations | (524,689 | ) | — | (524,689 | ) | |||||||
Net revenues | $ | 463,440 | $ | 1,158,441 | $ | 1,621,881 | ||||||
Income from operations | $ | 31,997 | $ | 87,448 | $ | 119,445 | ||||||
Interest expense, net | 76,481 | |||||||||||
Other expense, net | 9,076 | |||||||||||
Income before income taxes | $ | 33,888 | ||||||||||
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 ninethree months ended SeptemberJune 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
During the three months ended September 30, 2019,March 31, 2020, the Company identified anintangible assets’ impairment indicatorindicators associated with its market capitalization and significantly reduced customer demand for its products due to COVID-19. As a result, the Company performed interim impairment tests on the goodwill at its retail and wholesale reporting units and its other indefinite lived intangible assets as of September 30, 2019.March 31, 2020. As a result, of a sustained decline in the Company’s market capitalization, the Company recognized
Note 1
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 1
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.
Foreign Exchange Risk Management
A portion of the Company’s cash flows are derived from transactions denominated in foreign currencies. In order to reduce the uncertainty of foreign exchange rate movements on transactions denominated in foreign currencies, including the British Pound Sterling, the Canadian Dollar, the Euro, the Malaysian Ringgit, the Australian Dollar, and the Mexican Peso, the Company enters into foreign exchange contracts with major international financial institutions. These forward contracts, which typically mature within one year, are designed to hedge anticipated foreign currency transactions, primarily inventory purchases and sales. For contracts that qualify for hedge accounting, the terms of the foreign exchange contracts are such that cash flows from the contracts should be highly effective in offsetting the expected cash flows from the underlying forecasted transactions.
The foreign currency exchange contracts are reflected in the condensed consolidated balance sheets at fair value. At September
The following table displays the fair values of the Company’s derivatives at September 30, 20192020 and December 31, 2018:2019:
|
| Derivative Assets |
|
| Derivative Liabilities |
| ||||||||||||||||||
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 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 |
| $ | 131 |
|
| (a) PP |
| $ | — |
|
| (b) AE |
| $ | 30 |
|
| (b) AE |
| $ | — |
|
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||
Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | Balance Sheet Line | Fair Value | |||||||||||||||||||||||||
Derivative Instrument | September 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | ||||||||||||||||||||||||||||
Foreign Exchange Contracts | (a) PP | $ | 151 | (a) PP | $ | 115 | (b) AE | $ | 22 | (b) AE | $ | — | ||||||||||||||||||||
(a) | PP = Prepaid expenses and other current assets |
(b) | AE = Accrued expenses |
The following table displays the notional amounts of the Company’s derivatives at September 30, 20192020 and December 31, 2018:2019:
Derivative Instrument |
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Foreign Exchange Contracts |
| $ | 6,449 |
|
| $ | 300 |
|
Derivative Instrument | September 30, 2019 | December 31, 2018 | ||||||
Foreign Exchange Contracts | $ | 3,650 | $ | 10,942 | ||||
Note 1
The provisions of ASC Topic 820, “Fair Value Measurement”, define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
• | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
• | Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
• | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
During 2017, the Company acquired a 28% 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 interest of the other investors. During the ninetwelve months ended September 30,December 31, 2019, the option was terminated and the Company wrote off its asset related to the call option and reversed its liability related to the put option and recorded a net charge of $1,890 in other expenses, net.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 on unobservable inputs.
During 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity, Kazzam, LLC (“Kazzam”), for the purpose of designing, developing and launching an online exchange platform for party-related services. As part of Ampology’s compensation for designing, developing and launching the exchange platform, Ampology received an ownership interest in Kazzam. The interest hashad been recorded as redeemable securities in the mezzanine of the Company’s consolidated balance sheet as in the future, Ampology hashad the right to cause the Company to purchase the interest. On a recurring basis, theThe liability iswas adjusted to the greater of the current fair value or the original fair value at the time at which the ownership interest was issued (adjusted for any subsequent changes in the ownership interest percentage).On March 23, 2020, the Company agreed to purchase all of Ampology’s interest in Kazzam. Refer to Note 19 – Kazzam, LLC for further detail. As of both September 30, 2019 and December 31, 2018,2019 the original value was greater and, therefore, the liabilities are not included in the table below.
Level 1 | Level 2 | Level 3 | Total as of September 30, 2019 | |||||||||||||
Derivative assets | $ | — | $ | 151 | $ | — | $ | 151 | ||||||||
Derivative liabilities | — | 22 | — | 22 |
Level 1 | Level 2 | Level 3 | Total as of December 31, 2018 | |||||||||||||
Derivative assets | $ | — | $ | 115 | $ | — | $ | 115 | ||||||||
Derivative liabilities | — | — | — | — | ||||||||||||
Punchbowl put liability | — | — | 316 | 316 |
The majority of the Company’s
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 September 30, 20192020 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 September 30, 20192020 are as follows:
|
| September 30, 2020 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Term Loan Credit Agreement |
| $ | 693,906 |
|
| $ | 569,034 |
|
6.125% Senior Notes – due 2023 |
|
| 22,765 |
|
|
| 8,253 |
|
6.625% Senior Notes – due 2026 |
|
| 106,273 |
|
|
| 23,730 |
|
First Lien Party City Notes |
|
| 207,925 |
|
|
| 155,153 |
|
First Lien Anagram Notes |
|
| 150,958 |
|
|
| 158,056 |
|
Second Lien Anagram Notes |
|
| 152,104 |
|
|
| 120,162 |
|
September 30, 2019 | ||||||||
Carrying Amount | Fair Value | |||||||
Term Loan Credit Agreement | $ | 720,743 | $ | 722,488 | ||||
6.125% Senior Notes – due 2023 | 346,809 | 356,125 | ||||||
6.625% Senior Notes – due 2026 | 494,717 | 493,125 |
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 September 30, 2019 based on the discounted future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturity.
Note 1
Basic earnings per share are computed by dividing net income attributable to common shareholders of Party City Holdco Inc. by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated based on the weighted average number of outstanding common shares plus the dilutive effect of stock options and warrants, as if they were exercised, and restricted stock units, as if they vested.
Basic and diluted income (loss)loss per share is as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. |
| $ | 239,707 |
|
| $ | (281,533 | ) |
| $ | (431,821 | ) |
| $ | (263,677 | ) |
Weighted average shares - Basic |
|
| 106,709,307 |
|
|
| 93,346,448 |
|
|
| 97,872,174 |
|
|
| 93,271,392 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Restricted stock units |
|
| 166,324 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Stock options |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Weighted average shares - Diluted |
|
| 106,875,631 |
|
|
| 93,346,448 |
|
|
| 97,872,174 |
|
|
| 93,271,392 |
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Basic |
| $ | 2.25 |
|
| $ | (3.02 | ) |
| $ | (4.41 | ) |
| $ | (2.83 | ) |
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Diluted |
| $ | 2.24 |
|
| $ | (3.02 | ) |
| $ | (4.41 | ) |
| $ | (2.83 | ) |
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | |||||||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (281,533 | ) | $ | (2,420 | ) | $ | (263,677 | ) | $ | 24,934 | |||||
Weighted average shares - Basic | 93,346,448 | 96,494,565 | 93,271,392 | 96,449,011 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Warrants | — | — | — | — | ||||||||||||
Restricted stock units | — | — | — | 9,004 | ||||||||||||
Stock options | — | — | — | 1,226,275 | ||||||||||||
Weighted average shares - Diluted | 93,346,448 | 96,494,565 | 93,271,392 | 97,684,290 | ||||||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Basic | $ | (3.02 | ) | $ | (0.03 | ) | $ | (2.83 | ) | $ | 0.26 | |||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Diluted | $ | (3.02 | ) | $ | (0.03 | ) | $ | (2.83 | ) | $ | 0.26 | |||||
During the three months ended September 30, 2019 and September 30, 2018, 3,544,5012020, 3,475,621 stock options, 1,000,000 warrants and 4,157,559 stock options, respectively, were excluded from the calculation of diluted earnings per share as they were anti-dilutive. Additionally, during the three months ended September 30, 2019 and September 30, 2018, 596,000 warrants were excluded from the calculation of diluted earnings per share as they were anti-dilutive. Further, during the three months ended September 30, 2019 and September 30, 2018, 416,260 restricted stock units and 191,033 restricted stock units, respectively, were excluded from the calculation of diluted earnings per share as they were anti-dilutive.
Note 1
Long-term obligations at September 30, 20192020 and December 31, 20182019 consisted of the following:
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Term Loan Credit Agreement |
| $ | 693,906 |
|
| $ | 718,596 |
|
6.125% Senior Notes – due 2023 |
|
| 22,765 |
|
|
| 347,015 |
|
6.625% Senior Notes – due 2026 |
|
| 106,273 |
|
|
| 494,910 |
|
First Lien Party City Notes |
|
| 207,925 |
|
|
| — |
|
First Lien Anagram Notes |
|
| 150,958 |
|
|
| — |
|
Second Lien Anagram Notes |
|
| 152,104 |
|
|
| — |
|
Finance lease obligations |
|
| 14,749 |
|
|
| 14,990 |
|
Total long-term obligations |
|
| 1,348,680 |
|
|
| 1,575,511 |
|
Less: current portion |
|
| (14,342 | ) |
|
| (71,524 | ) |
Long-term obligations, excluding current portion |
| $ | 1,334,338 |
|
| $ | 1,503,987 |
|
September 30, 2019 | December 31, 2018 | |||||||
Term Loan Credit Agreement | $ | 720,743 | $ | 791,135 | ||||
6.125% Senior Notes – due 2023 | 346,809 | 346,191 | ||||||
6.625% Senior Notes – due 2026 | 494,717 | 494,138 | ||||||
Finance lease obligations | 15,327 | 3,815 | ||||||
Total long-term obligations | 1,577,596 | 1,635,279 | ||||||
Less: current portion | (13,498 | ) | (13,316 | ) | ||||
Long-term obligations, excluding current portion | $ | 1,564,098 | $ | 1,621,963 | ||||
Prior to April 2019, the Company had a $540,000 asset-based revolving credit facility (with a seasonal increase to $640,000 during a certain period of each calendar year) (“ABL(the “ABL Facility”), which matures during 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.
In the first nine months of 2020 the Company drew down $269.8 million under the ABL Facility. At September 30, 2020, $100.1 million was invested in US Treasury funds with maturities of less than three months. The Company had approximately $178.5 million of availability under the ABL Facility as of September 30, 2020.
Completion of Refinancing Transactions
On July 30, 2020 (the “Settlement Date”), the Company and financedcertain of its Los Lunas, New Mexico facility. See Note 5direct or indirect subsidiaries, including PCHI, Anagram Holdings, LLC, a Delaware limited liability company and wholly owned direct subsidiary of PCHI (“Anagram Holdings”), and Anagram International, Inc., a Minnesota corporation and wholly owned direct subsidiary of Anagram Holdings, completed certain refinancing transactions, including, among other things: (i) the exchange of $327,076 of 6.125% Senior Notes due 2023 (the “2023 Notes”) and $392,746 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 tendered in the Company’s offers to exchange pursuant to the terms described in a confidential offering memorandum, for further detail. (A) $156,669 of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by PCHI; (B) $84,687 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 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 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 with respect to the indentures governing Existing Notes.
The finance leaseFirst 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 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 above include $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 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 $84,687 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.
The Company evaluated the refinancing transaction in accordance with ASC 470-60 Troubled Debt Restructuring. The exchange of the 2023 Notes and 2026 Notes for the First Lien Party City Notes, Second Lien Anagram Notes and shares of Company Common Stock, as well as the concurrent purchase by the participants in the exchange of First Lien Anagram Notes represents a troubled debt restructuring (“TDR”). As the future undiscounted cash flows of the restructured debt were less than the net carrying value of the Existing Notes (including accrued interest and unamortized discount) adjusted for Common Stock issued to the participants in the exchange and such participants’ purchase of and lenders’ participation in the First Lien Anagram Notes, the Company recognized a gain of $273,149 which reflects $18,902 of third-party fees incurred, and $27,007 of Common Stock issued in the exchange. The Company received $39,544 of cash from the participants in the exchange related to $44,500 of principal amount of First Lien Anagram Notes with an undiscounted value of $82,160, which includes interest expense. Interest expense is not currently recognized for this portion of the Los Lunas, New Mexico facility.restructured debt.
Another portion of the restructured debt related to one holder of Existing Notes did not result in gain recognition as the undiscounted cash flows of the restructured debt was higher than the carrying value of the existing debt. The carrying amount of this portion of the restructured debt is $32,328 and the interest expense will be recognized prospectively at a 3.5% effective interest rate. Amounts attributed to purchasers of the First Lien Anagram Notes who were not participants in the exchange (principal balance of $50,500) are recognized at consideration received less allocated transaction costs (netting to $45,678) and the effective interest method will be used to recognize interest expense prospectively.
Note 1
The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 20192020 and September 30, 2018:2019:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Retail Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Party City Stores |
| $ | 358,246 |
|
| $ | 363,633 |
|
| $ | 829,281 |
|
| $ | 1,164,253 |
|
Other |
|
| 6,235 |
|
|
| 5,834 |
|
|
| 21,331 |
|
|
| 6,524 |
|
Total Retail Net Sales |
| $ | 364,481 |
|
| $ | 369,467 |
|
| $ | 850,612 |
|
| $ | 1,170,777 |
|
Royalties and Franchise Fees |
|
| 1,722 |
|
|
| 1,886 |
|
|
| 4,349 |
|
|
| 6,089 |
|
Total Retail Revenue |
| $ | 366,203 |
|
| $ | 371,353 |
|
| $ | 854,961 |
|
| $ | 1,176,866 |
|
Wholesale Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
| $ | 79,388 |
|
| $ | 82,670 |
|
| $ | 177,263 |
|
| $ | 231,257 |
|
International |
|
| 88,184 |
|
|
| 86,208 |
|
|
| 170,285 |
|
|
| 209,115 |
|
Total Wholesale Net Sales |
| $ | 167,572 |
|
| $ | 168,878 |
|
| $ | 347,548 |
|
| $ | 440,372 |
|
Total Consolidated Revenue |
| $ | 533,775 |
|
| $ | 540,231 |
|
| $ | 1,202,509 |
|
| $ | 1,617,238 |
|
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | |||||||||||||
Retail Net Sales: | ||||||||||||||||
North American Party City Stores | $ | 326,810 | $ | 336,355 | $ | 1,060,258 | $ | 1,043,422 | ||||||||
Global E-commerce | 36,823 | 34,221 | 103,995 | 102,083 | ||||||||||||
Other | 5,834 | 5,104 | 6,524 | 5,104 | ||||||||||||
Total Retail Net Sales | $ | 369,467 | $ | 375,680 | $ | 1,170,777 | $ | 1,150,609 | ||||||||
Royalties and Franchise Fees | 1,886 | 2,206 | 6,089 | 7,832 | ||||||||||||
Total Retail Revenue | $ | 371,353 | $ | 377,886 | $ | 1,176,866 | $ | 1,158,441 | ||||||||
Wholesale Net Sales: | ||||||||||||||||
Domestic | $ | 82,670 | $ | 88,287 | $ | 231,257 | $ | 247,243 | ||||||||
International | 86,208 | 86,873 | 209,115 | 216,197 | ||||||||||||
�� | ||||||||||||||||
Total Wholesale Net Sales | $ | 168,878 | $ | 175,160 | $ | 440,372 | $ | 463,440 | ||||||||
Total Consolidated Revenue | $ | 540,231 | $ | 553,046 | $ | 1,617,238 | $ | 1,621,881 | ||||||||
Note 1
The Company’s September 30, 2019 consol
Restricted cash is recorded in Prepaid expenses and other current assets.
Note 1
During the first quarter of 2019.
At December 31, 2019, although the Company entersowned 26% of Kazzam’s equity, Kazzam was a variable interest entity and the Company consolidated Kazzam into short leases (generally less than four months) in order to operate its temporary stores.the Company’s financial statements. Further, the Company enters into leases of equipment, copiers, printers and automobiles.
In January 2020, the Company and Ampology terminated certain services agreements and warrants that Ampology had in the Company stock. The liabilitiesparties concurrently entered into an interim transition agreement for which expenses are recorded as development stage expenses.
On March 23, 2020, the Company’s finance leases are includedCompany agreed to purchase Ampology’s interest in Current portion of long-term obligationsKazzam in exchange for a three-year royalty on net service revenue and Long-term obligations, excluding current portion, on the Company’s consolidated balance sheet.
Three months ended December 31, 2019 | $ | 35,386 | ||
2020 | 197,177 | |||
2021 | 182,950 | |||
2022 | 163,685 | |||
2023 | 135,792 | |||
Thereafter | 480,287 | |||
Total Undiscounted Cash Flows | $ | 1,195,277 | ||
Less: Interest | (307,417 | ) | ||
Total Operating Lease Liability | 887,860 | |||
Less: Current Portion of Operating Lease Liability | (140,781 | ) | ||
Long-Term Portion of Operating Lease Liability | $ | 747,079 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References throughout this document to the “Company” include Party City Holdco Inc. and its subsidiaries. In this document the words “we,” “our,” “ours” and “us” refer only to the Company and its subsidiaries and not to any other person.
Business Overview
Our Company
We are the leading decorated party goods omni-channel retailer,company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. With approximately 900 locations (inclusiveThe Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is a leading player in its category and vertically integrated in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. As of franchised stores), we have the only
In addition to our retail operations, we are also one of the largest global designers, manufacturers and distributors of decorated consumer party products, with items found in over 40,000 retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers,
How We Assess the Performance of Our Company
In assessing the performance of our company, we consider a variety of performance and financial measures for our two operating segments, Retail and Wholesale. These key measures include revenues and gross profit, comparable retail same-store sales and operating expenses. We also review other metrics such as adjusted net income (loss), adjusted net income (loss) per common share – diluted and adjusted EBITDA. For a discussion of our use of these measures and a reconciliation of adjusted net income (loss) and adjusted EBITDA to net income (loss), please refer to “Financial Measures - Adjusted EBITDA,” “Financial Measures - Adjusted Net Income (Loss)” and “Financial Measures - Adjusted Net Income (Loss) Per Common Share – Diluted” below.
Segments
We have two reporting segments: Retail and Wholesale.
Our retail segment generates revenue primarily through the sale of our party supplies, which are sold under the Amscan, Designware, Anagram and Costumes USA brand names through Party City, Halloween City and PartyCity.com. During 2018, 79%For the nine months ended September 30, 2020, 81.4% of the product that was sold by our retail segment was supplied by our wholesale segment and 23%30.2% of the product that was sold by our retail segment was self-manufactured.
Our wholesale revenues are generated from the sale of decorated party goods for all occasions, including paper and plastic tableware, accessories and novelties, costumes, metallic and latex balloons and stationery. Our products are sold at wholesale to party goods superstores (including our franchise stores), other party goods retailers, mass merchants, independent card and gift stores, dollar stores and
Intercompany sales between the Wholesale and the Retail segment are eliminated, and the wholesale profits on intercompany sales are deferred and realized at the time the merchandise is sold to the retail consumer. For segment reporting purposes, certain general and administrative expenses and art and development costs are allocated based on total revenues.
Financial Measures
Revenues.
Under the terms of our agreements with our franchisees, we provide both: 1) brand value (via significant advertising spend) and 2) support with respect to planograms, in exchange for a royalty fee that ranges from 4% to 6% of the franchisees’ sales. The Company records the royalty fees at the time that the franchisees’ sales are recorded.
For most of our wholesale sales, control transfers upon the shipment of the product as: 1) legal title transfers on such date and 2) we have a present right to payment at such time. Wholesale sales returns are not significant as we generally only accept the return of goods that were shipped to the customer in error or that were damaged when received by the customer. Additionally, due to our extensive history operating as a leading party goods wholesaler, we have sufficient history with which to estimate future sales returns and we use the expected value method to estimate such activity.
Intercompany sales from our wholesale operations to our retail stores are eliminated in our consolidated total revenues.
Comparable Retail Same-Store Sales.
Cost of Sales.
Our cost of sales increases in higher volume periods as the direct costs of manufactured and purchased goods, inventory shrinkage and freight are generally tied to net sales. However, other costs are largely fixed or vary based on other factors and do not necessarily increase as sales volume increases. Changes in the mix of our products may also impact our overall cost of sales. The direct costs of manufactured and purchased goods are influenced by raw material costs (principally paper, petroleum-based resins and cotton), domestic and international labor costs in the countries where our goods are purchased or manufactured and logistics costs associated with transporting our goods. We monitor our inventory levels on an
Cost of sales related to sales from our wholesale segment to our retail segment are eliminated in our consolidated financial statements.
Wholesale Selling Expenses.
Retail Operating Expenses.
Franchise Expenses.
General and Administrative Expenses.
Art and Development Costs.
Development Stage Expenses.
Adjusted EBITDA.
Adjusted Net Income (Loss).
Adjusted Net Income (Loss) Per Common Share – Diluted.
Results of Operations
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of the virus. The global spread of COVID-19 and the measures to contain it have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets. In response to COVID-19, to safeguard the health and safety of its team members and customers, the Company temporarily closed all of its corporate retail stores as of March 18, 2020. During the temporary store closures, the Company offered curbside pickup and the Company’s e-commerce site, www.partycity.com, remained fully operational.
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 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, the sustained decline in market capitalization, and reduced fair value of certain intangibles and long-lived assets, resulted in the Company recognizing non-cash pre-tax impairment charges for the nine months ended September 30, 2020.
As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the Company recognized a gain on debt refinancing transactions.
Three Months Ended September 30, 20192020 Compared To Three Months Ended September 30, 2018
The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the three months ended September 30, 20192020 and 2018.2019.
|
| Three Months Ended September 30, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 532,053 |
|
|
| 99.7 |
| % |
| $ | 538,345 |
|
|
| 99.7 |
| % |
Royalties and franchise fees |
|
| 1,722 |
|
|
| 0.3 |
|
|
|
| 1,886 |
|
|
| 0.3 |
|
|
Total revenues |
|
| 533,775 |
|
|
| 100.0 |
|
|
|
| 540,231 |
|
|
| 100.0 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 355,923 |
|
|
| 66.7 |
|
|
|
| 373,413 |
|
|
| 69.1 |
|
|
Wholesale selling expenses |
|
| 11,950 |
|
|
| 2.2 |
|
|
|
| 16,084 |
|
|
| 3.0 |
|
|
Retail operating expenses |
|
| 97,100 |
|
|
| 18.2 |
|
|
|
| 111,595 |
|
|
| 20.7 |
|
|
Franchise expenses |
|
| 2,795 |
|
|
| 0.5 |
|
|
|
| 3,274 |
|
|
| 0.6 |
|
|
General and administrative expenses |
|
| 42,191 |
|
|
| 7.9 |
|
|
|
| 43,062 |
|
|
| 8.0 |
|
|
Art and development costs |
|
| 4,257 |
|
|
| 0.8 |
|
|
|
| 5,927 |
|
|
| 1.1 |
|
|
Development stage expenses |
|
| — |
|
|
| 0.0 |
|
|
|
| 2,728 |
|
|
| 0.5 |
|
|
Store impairment and restructuring charges |
|
| 1,926 |
|
|
| 0.4 |
|
|
|
| 2,574 |
|
|
| 0.5 |
|
|
Goodwill, intangibles and long-lived assets impairment |
|
| 44,732 |
|
|
| 8.4 |
|
|
|
| 259,100 |
|
|
| 48.0 |
|
|
Total expenses |
|
| 560,874 |
|
|
| 105.1 |
|
|
|
| 817,757 |
|
|
| 151.4 |
|
|
(Loss) from operations |
|
| (27,099 | ) |
|
| (5.1 | ) |
|
|
| (277,526 | ) |
|
| (51.4 | ) |
|
Interest expense, net |
|
| 13,422 |
|
|
| 2.5 |
|
|
|
| 29,424 |
|
|
| 5.4 |
|
|
Other (income) expense, net |
|
| (2,873 | ) |
|
| (0.5 | ) |
|
|
| 2,047 |
|
|
| 0.4 |
|
|
(Gain) on debt refinancing |
|
| (273,149 | ) |
|
| (51.2 | ) |
|
|
| — |
|
|
| 0.0 |
|
|
Income (loss) before income taxes |
|
| 235,501 |
|
|
| 44.1 |
|
|
|
| (308,997 | ) |
|
| (57.2 | ) |
|
Income tax (benefit) |
|
| (4,164 | ) |
|
| (0.8 | ) |
|
|
| (27,252 | ) |
|
| (5.0 | ) |
|
Net income (loss) |
|
| 239,665 |
|
|
| 44.9 |
|
|
|
| (281,745 | ) |
|
| (52.2 | ) |
|
Less: Net (loss) attributable to noncontrolling interests |
|
| (42 | ) |
|
| — |
|
|
|
| (212 | ) |
|
| — |
|
|
Net income (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | 239,707 |
|
|
| 44.9 |
| % |
| $ | (281,533 | ) |
|
| (52.1 | ) | % |
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | 2.25 |
|
|
|
|
|
|
| $ | (3.02 | ) |
|
|
|
|
|
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | 2.24 |
|
|
|
|
|
|
| $ | (3.02 | ) |
|
|
|
|
|
Three Months Ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Net sales | $ | 538,345 | 99.7 | % | $ | 550,840 | 99.6 | % | ||||||||
Royalties and franchise fees | 1,886 | 0.3 | 2,206 | 0.4 | ||||||||||||
Total revenues | 540,231 | 100.0 | 553,046 | 100.0 | ||||||||||||
Cost of sales | 373,413 | 69.1 | 349,641 | 63.2 | ||||||||||||
Wholesale selling expenses | 16,084 | 3.0 | 17,538 | 3.2 | ||||||||||||
Retail operating expenses | 111,595 | 20.7 | 103,833 | 18.8 | ||||||||||||
Franchise expenses | 3,274 | 0.6 | 862 | 0.2 | ||||||||||||
General and administrative expenses | 43,062 | 8.0 | 42,239 | 7.6 | ||||||||||||
Art and development costs | 5,927 | 1.1 | 5,573 | 1.0 | ||||||||||||
Development stage expenses | 2,728 | 0.5 | 1,622 | 0.3 | ||||||||||||
Store impairment and restructuring charges | 2,574 | 0.5 | — | — | ||||||||||||
Goodwill impairment | 259,100 | 48.0 | — | — | ||||||||||||
Total expenses | 817,757 | 151.4 | 521,308 | 94.3 | ||||||||||||
(Loss) income from operations | (277,526 | ) | (51.4 | ) | 31,738 | 5.7 | ||||||||||
Interest expense, net | 29,424 | 5.4 | 27,705 | 5.0 | ||||||||||||
Other expense, net | 2,047 | 0.4 | 5,696 | 1.0 | ||||||||||||
Loss before income taxes | (308,997 | ) | (57.2 | ) | (1,663 | ) | (0.3 | ) | ||||||||
Income tax (benefit) expense | (27,252 | ) | (5.0 | ) | 777 | 0.1 | ||||||||||
Net loss | (281,745 | ) | (52.2 | ) | (2,440 | ) | (0.4 | ) | ||||||||
Add: Net loss attributable to redeemable securities holder | — | — | (8 | ) | (0.0 | ) | ||||||||||
Less: Net loss attributable to noncontrolling interests | (212 | ) | (0.0 | ) | (28 | ) | (0.0 | ) | ||||||||
Net loss attributable to common shareholders of Party City Holdco Inc. | $ | (281,533 | ) | (52.1 | )% | $ | (2,420 | ) | (0.4 | )% | ||||||
Net loss per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | (3.02 | ) | $ | (0.03 | ) | ||||||||||
Net loss per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | (3.02 | ) | $ | (0.03 | ) |
Revenues
Total revenues for the third quarter of 20192020 were $540.2$533.8 million and were $12.8$6.4 million, or 2.3%1.2%, lower than the third quarter of 2018.2019. The following table sets forth the Company’s total revenues for the three months ended September 30, 20192020 and 2018.2019.
|
| Three Months Ended September 30, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Total Revenues |
| Dollars in Thousands |
|
| Percentage of Total Revenues | ||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
| $ | 346,621 |
|
|
| 64.9 |
| % |
| $ | 383,425 |
|
|
| 71.0 |
| % |
Eliminations |
|
| (179,049 | ) |
|
| (33.5 | ) |
|
|
| (214,547 | ) |
|
| (39.7 | ) |
|
Net wholesale |
|
| 167,572 |
|
|
| 31.4 |
|
|
|
| 168,878 |
|
|
| 31.3 |
|
|
Retail |
|
| 364,481 |
|
|
| 68.3 |
|
|
|
| 369,467 |
|
|
| 68.4 |
|
|
Total net sales |
|
| 532,053 |
|
|
| 99.7 |
|
|
|
| 538,345 |
|
|
| 99.7 |
|
|
Royalties and franchise fees |
|
| 1,722 |
|
|
| 0.3 |
|
|
|
| 1,886 |
|
|
| 0.3 |
|
|
Total revenues |
| $ | 533,775 |
|
|
| 100.0 |
| % |
| $ | 540,231 |
|
|
| 100.0 |
| % |
Three Months Ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||
Net Sales: | ||||||||||||||||
Wholesale | $ | 383,425 | 71.0 | % | $ | 424,569 | 76.8 | % | ||||||||
Eliminations | (214,547 | ) | (39.7 | )% | (249,409 | ) | (45.1 | )% | ||||||||
Net wholesale | 168,878 | 31.3 | % | 175,160 | 31.7 | % | ||||||||||
Retail | 369,467 | 68.4 | % | 375,680 | 67.9 | % | ||||||||||
Total net sales | 538,345 | 99.7 | % | 550,840 | 99.6 | % | ||||||||||
Royalties and franchise fees | 1,886 | 0.3 | % | 2,206 | 0.4 | % | ||||||||||
Total revenues | $ | 540,231 | 100.0 | % | $ | 553,046 | 100.0 | % | ||||||||
Retail
Retail net sales during the third quarter of 20192020 were $369.5$364.5 million and were $6.2$5.0 million, or 1.7%1.3%, lower than during the third quarter of 2018.2019. Retail net sales at our North American Party City stores totaled $326.8$329.9 million and were $9.5$3.5 million, or 2.8%, lower1.1% higher than in the third quarter of 2018 principally due to2019. Growth in same-store sales for the continued impactParty City brand was partially offset by lower non-comp sales from the divestiture of the ongoing helium shortage65 Canadian Party City stores in October 2019 and the closure of 3455 and 21 stores in conjunction with ourthe 2019 and 2020 store optimization program. These negative factors affectingprograms, respectively. In addition, store sales were partially offset byincreased due to the acquisition of sixtwo franchise and independent stores and the opening of ninetwo new stores during the twelve months ended September 30, 2019, as well as the acquisition of 37 franchise stores throughout the third quarter of 2018.2020. Global retail
Same-store sales for the Party City brand (including North American retail
Our North American retail
Excluding the impact of
Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.
Wholesale
Wholesale net sales during the third quarter of 20192020 totaled $168.9$167.6 million and were $6.3$1.3 million, or 3.6%0.8%, lower than the third quarter of 2018.2019. Net sales to domestic party goods retailers and distributors (including our franchisee network) totaled $65.9$57.9 million and were $4.5$8.0 million, or 6.4%,12.1% lower than during 2018. The acquisition of six franchise and2019 principally due to lower demand from independent stores during the twelve months ended September 30, 2019, together with the acquisition of 37third party customers partially offset by growth in Party City franchise stores late in the third quarter of 2018, negatively impacted sales as post-acquisition sales to such stores (approximately $2.5 million during the third quarter of 2018) are now eliminated as intercompany sales. Adjusted for the acquisitions, sales to domestic party goods retailers and distributors decreased by approximately $2.0 million, or 2.9%, versus the third quarter of 2018.mass channel business. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $16.8$21.5 million during the third quarter of 20192020 and were $1.1$4.7 million, or 6.2%27.9%, lowerhigher than during the corresponding quarter of 20182019 principally due to the ongoing helium shortage.demand growth in domestic distributor and value channels. Our international sales (which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $86.2$88.2 million and were $0.7$2.0 million, or 0.8%2.3%, lowerhigher than in 2018.2019. Foreign currency translation negativelypositively impacted sales by approximately $4.1 million and more than offset $3.4 million of sales growth on a constant currency basis.
Intercompany sales to our retail affiliates totaled $214.5$179.0 million during the third quarter of 20192020 and were $34.9$35.5 million lower than during the corresponding quarter of 2018.2019. Intercompany sales represented 56.0%51.7% of total wholesale sales during the third quarter of 20192020 and were 2.7%16.5% lower than during the third quarter of 2018,2019, principally reflectingdue to a planned reduction in purchases as part of the initiative to reduce the overall product assortment as well as the impact of ourfewer Party City Corporate stores due to the sale of 65 Canadian Party City stores in October 2019 and the closure of 55 and 21 stores in conjunction with the 2019 and 2020 store optimization program, strong seasonal
Royalties and franchise fees
Royalties and franchise fees for the third quarter of 20192020 totaled $1.9$1.7 million and were $0.3$0.2 million lower than during the third quarter of 2018 principally2019 primarily due to the acquisition of 2 franchise stores.stores and closure of 6 franchise stores during the twelve months ended September 30, 2020.
Gross Profit
The following table sets forth the Company’s gross profit for the three months ended September 30, 20192020 and September 30, 2018.2019.
|
| Three Months Ended September 30, | ||||||||||||||||
|
| 2020 |
|
|
| 2019 | ||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
| ||||
Retail |
| $ | 133,817 |
|
|
| 36.7 |
| % |
| $ | 128,692 |
|
|
| 34.8 |
| % |
Wholesale |
|
| 42,313 |
|
|
| 25.3 |
|
|
|
| 36,240 |
|
|
| 21.5 |
|
|
Total Gross Profit |
| $ | 176,130 |
|
|
| 33.1 |
| % |
| $ | 164,932 |
|
|
| 30.6 |
| % |
Three Months Ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||
Retail | $ | 128,692 | 34.8 | % | $ | 151,860 | 40.4 | % | ||||||||
Wholesale | 36,240 | 21.5 | 49,339 | 28.2 | ||||||||||||
Total | $ | 164,932 | 30.6 | % | $ | 201,199 | 36.5 | % | ||||||||
The gross profit margin on net sales at retail during the third quarter of 20192020 was 34.8%36.7% or 560190 basis points lowerhigher than during the corresponding quarter of 2018.2019. The decreaseincrease was partiallyprimarily due to the increased costslower sales promotions, favorable share of helium,shelf gains, and lower year over year markdowns in conjunction with the Company’s “store optimization program” (see “operating expenses” below for further discussion) and the impactpartially offset by increased costs of aggressive promotional programs during the quarter. Additionally, the decrease was partially due to a flow through of higher freight and distribution costs for product acquired from the Company’s wholesale operations during the second half of 2018 as the China tariffs caused
The gross profit margin on net sales at wholesale during the third quarters of 2020 and 2019 was 25.3% and 2018 was 21.5% and 28.2%, respectively. The decreased wholesale gross profit marginincrease was principally due to a significant reduction in high-margin salesfavorable product mix including increased sale of metallic balloons and sales to franchisees (due to the store acquisitions discussed above) and, to a lesser extent, the deleveraging of distribution and manufacturing costs.
Operating expenses
Wholesale selling expenses were $16.1$12.0 million during the third quarter of 20192020 and were $1.5$4.1 million lower than during the corresponding quarter of 2018,2019,largely due partially to the impact of foreign currency translation.lower payroll costs as well as lower travel, marketing, merchant and commission expenses. Wholesale selling expenses were 9.5%7.1% and 10.0%9.5% of net wholesale sales during the third quarters of 2020 and 2019, and 2018, respectively.
Retail operating expenses during the third quarter of 20192020 were $111.6$97.1 million and were $7.8$14.5 million higherlower than the corresponding quarter of 2018.2019. The increasedecrease was principallyprimarily due to increasesthe divestiture of 65 Canada Retail stores in October 2019, lower advertising spend, and e-commercelower payroll and occupancy costs due to the closure of 55 and 21 stores in conjunction with the 2019 and 2020 store optimization programs, respectively. These lower expenses as well aswere partially offset by higher average store count, including temporary Halloween stores, duringcosts associated with the third quarteracquisition of Livario and Webdots in November of 2019. Retail operating expenses were 30.2%26.6% and 27.6%30.2% of retail sales during the third quarters of 2020 and 2019, and 2018, respectively.
Franchise expenses during the third quarter of 2018 reflects a
General and administrative expenses during the third quarterquarters of 20192020 totaled $43.1$42.2 million and were $0.8$0.9 million, or 1.9%2.0%, higherlower than in the third quarter of 20182019 principally due to increaseslower travel expenses, employee payroll costs, and stock compensation (see Note 10 – Capital Stock, of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in compensation and other impacts of inflation,this Quarterly Report on Form 10-Q), partially offset by the impact of foreign currency translation.higher bad debt, depreciation, and insurance expenses. General and administrative expenses as a percentage of total revenues were 8.0%7.9% and 7.6%8.0% during the third quarters of 2020 and 2019, and 2018, respectively.
Art and development costs were $5.9$4.3 million and $5.6$5.9 million during the third quarters of 2020 and 2019, and 2018, respectively.
Development stage expenses represent
During the ninethree months ended September 30, 2019,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”). Each year, the Company typically closes approximately 10 Party City stores as part of its typical network rationalization process and, in response to ongoing consumer, market and economic changes that naturally arise in the business. During the first nine months of 2019, after careful consideration and evaluation of the store locations, the Company made the decision in the first quarter of 2020 to accelerate the optimization of its store portfolio with the closure of approximately 5521 stores which arein the third quarter of 2020. Closed stores were primarily located in close proximity to other Party City stores. An additional $3.1 million expense was recorded for the stores during the three months ended September 30, 2020. These closings should provide the Company with capital flexibility to expand into underserved markets. In conjunction withaddition, for the store optimization program,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 $13.4 million during the third quarter of 2019, the Company recorded $2.6 million of labor and other costs related2020, compared to closing the stores.
Other (income) expense, net
For the third quarters of 2020 and 2019, and 2018, other (income) expense, net, totaled $(2.9) million and $2.0 million, respectively.The change is mostly due to termination of Punchbowl “put” and $5.7 million, respectively. During“call” options during 2019.
(Gain) on debt refinancing
As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the third quarterCompany recognized a gain of 2018, other expense included costs associated with the August 2018$273,149 on debt refinancing of our debt portfolio.
Income tax (benefit) expense
The effective income tax rate for the three months ended September 30, 2019, 8.8%,2020, (1.8)% is lower thandifferent from the statutory rate primarily due the non-deductible portionsexcludable portion of the goodwill impairment charges noted above.
Nine Months Ended September 30, 20192020 Compared To Nine Months Ended September 30, 2018
The following table sets forth the Company’s operating results and operating results as a percentage of total revenues for the nine months ended September 30, 20192020 and 2018.2019.
|
| Nine Months Ended September 30, | ||||||||||||||||
|
| 2020 |
|
| 2019 | |||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 1,198,160 |
|
|
| 99.6 |
| % |
| $ | 1,611,149 |
|
|
| 99.6 |
| % |
Royalties and franchise fees |
|
| 4,349 |
|
|
| 0.4 |
|
|
|
| 6,089 |
|
|
| 0.4 |
|
|
Total revenues |
|
| 1,202,509 |
|
|
| 100.0 |
|
|
|
| 1,617,238 |
|
|
| 100.0 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 890,587 |
|
|
| 74.1 |
|
|
|
| 1,065,511 |
|
|
| 65.9 |
|
|
Wholesale selling expenses |
|
| 37,115 |
|
|
| 3.1 |
|
|
|
| 50,929 |
|
|
| 3.1 |
|
|
Retail operating expenses |
|
| 250,502 |
|
|
| 20.8 |
|
|
|
| 302,756 |
|
|
| 18.7 |
|
|
Franchise expenses |
|
| 9,225 |
|
|
| 0.8 |
|
|
|
| 9,813 |
|
|
| 0.6 |
|
|
General and administrative expenses |
|
| 162,118 |
|
|
| 13.5 |
|
|
|
| 126,497 |
|
|
| 7.8 |
|
|
Art and development costs |
|
| 13,095 |
|
|
| 1.1 |
|
|
|
| 17,568 |
|
|
| 1.1 |
|
|
Development stage expenses |
|
| 2,932 |
|
|
| 0.2 |
|
|
|
| 7,966 |
|
|
| 0.5 |
|
|
Gain on sale/leaseback transaction |
|
| — |
|
|
| 0.0 |
|
|
|
| (58,381 | ) |
|
| (3.6 | ) |
|
Store impairment and restructuring charges |
|
| 20,818 |
|
|
| 1.7 |
|
|
|
| 25,817 |
|
|
| 1.6 |
|
|
Goodwill and intangibles impairment |
|
| 581,380 |
|
|
| 48.3 |
|
|
|
| 259,100 |
|
|
| 16 |
|
|
Total expenses |
|
| 1,967,772 |
|
|
| 163.6 |
|
|
|
| 1,807,576 |
|
|
| 111.8 |
|
|
(Loss) from operations |
|
| (765,263 | ) |
|
| (63.6 | ) |
|
|
| (190,338 | ) |
|
| (11.8 | ) |
|
Interest expense, net |
|
| 63,954 |
|
|
| 5.3 |
|
|
|
| 88,857 |
|
|
| 5.5 |
|
|
Other expense, net |
|
| 4,287 |
|
|
| 0.4 |
|
|
|
| 6,643 |
|
|
| 0.4 |
|
|
(Gain) on debt refinancing |
|
| (273,149 | ) |
|
| (22.7 | ) |
|
|
| — |
|
|
| 0.0 |
|
|
(Loss) before income taxes |
|
| (560,355 | ) |
|
| (46.6 | ) |
|
|
| (285,838 | ) |
|
| (17.7 | ) |
|
Income tax (benefit) |
|
| (128,293 | ) |
|
| (10.7 | ) |
|
|
| (21,809 | ) |
|
| (1.3 | ) |
|
Net (loss) |
|
| (432,062 | ) |
|
| (35.9 | ) |
|
|
| (264,029 | ) |
|
| (16.3 | ) |
|
Less: Net (loss) attributable to noncontrolling interests |
|
| (241 | ) |
|
| — |
|
|
|
| (352 | ) |
|
| — |
|
|
Net (loss) attributable to common shareholders of Party City Holdco Inc. |
| $ | (431,821 | ) |
|
| (35.9 | ) | % |
| $ | (263,677 | ) |
|
| (16.3 | ) | % |
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic |
| $ | (4.41 | ) |
|
|
|
|
|
| $ | (2.83 | ) |
|
|
|
|
|
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted |
| $ | (4.41 | ) |
|
|
|
|
|
| $ | (2.83 | ) |
|
|
|
|
|
Nine Months Ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Net sales | $ | 1,611,149 | 99.6 | % | $ | 1,614,049 | 99.5 | % | ||||||||
Royalties and franchise fees | 6,089 | 0.4 | 7,832 | 0.5 | ||||||||||||
Total revenues | 1,617,238 | 100.0 | 1,621,881 | 100.0 | ||||||||||||
Cost of sales | 1,065,511 | 65.9 | 996,084 | 61.4 | ||||||||||||
Wholesale selling expenses | 50,929 | 3.1 | 53,581 | 3.3 | ||||||||||||
Retail operating expenses | 302,756 | 18.7 | 285,019 | 17.6 | ||||||||||||
Franchise expenses | 9,813 | 0.6 | 8,624 | 0.5 | ||||||||||||
General and administrative expenses | 126,497 | 7.8 | 136,230 | 8.4 | ||||||||||||
Art and development costs | 17,568 | 1.1 | 17,278 | 1.1 | ||||||||||||
Development stage expenses | 7,966 | 0.5 | 5,620 | 0.3 | ||||||||||||
Gain on sale/leaseback transaction | (58,381 | ) | (3.6 | ) | — | — | ||||||||||
Store impairment and restructuring charges | 25,817 | 1.6 | — | — | ||||||||||||
Goodwill impairment | 259,100 | 16.0 | — | — | ||||||||||||
Total expenses | 1,807,576 | 111.8 | 1,502,436 | 92.6 | ||||||||||||
(Loss) income from operations | (190,338 | ) | (11.8 | ) | 119,445 | 7.4 | ||||||||||
Interest expense, net | 88,857 | 5.5 | 76,481 | 4.7 | ||||||||||||
Other expense, net | 6,643 | 0.4 | 9,076 | 0.6 | ||||||||||||
(Loss) income before income taxes | (285,838 | ) | (17.7 | ) | 33,888 | 2.1 | ||||||||||
Income tax (benefit) expense | (21,809 | ) | (1.4 | ) | 9,443 | 0.6 | ||||||||||
Net (loss) income | (264,029 | ) | (16.3 | ) | 24,445 | 1.5 | ||||||||||
Add: Net income attributable to redeemable securities holder | — | — | 402 | 0.0 | ||||||||||||
Less: Net loss attributable to noncontrolling interests | (352 | ) | (0.0 | ) | (87 | ) | 0.0 | |||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (263,677 | ) | 16.3 | % | $ | 24,934 | 1.5 | % | |||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | (2.83 | ) | $ | 0.26 | |||||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | (2.83 | ) | $ | 0.26 |
Revenues
Total revenues for the first nine months of 20192020 were $1,617.2$1,202.5 million and were $4.6$414.7 million, or 25.6%, lower than the first nine months of 2018.2019. The following table sets forth the Company’s total revenues for the nine months ended September 30, 20192020 and 2018.2019.
|
| Nine Months Ended September 30, | ||||||||||||||||
|
| 2020 |
|
| 2019 | |||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Total Revenues |
| Dollars in Thousands |
|
| Percentage of Total Revenues | ||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
| $ | 692,715 |
|
|
| 57.6 |
| % |
| $ | 962,793 |
|
|
| 59.5 |
| % |
Eliminations |
|
| (345,167 | ) |
|
| (28.7 | ) |
|
|
| (522,421 | ) |
|
| (32.3 | ) |
|
Net wholesale |
|
| 347,548 |
|
|
| 28.9 |
|
|
|
| 440,372 |
|
|
| 27.2 |
|
|
Retail |
|
| 850,612 |
|
|
| 70.7 |
|
|
|
| 1,170,777 |
|
|
| 72.4 |
|
|
Total net sales |
|
| 1,198,160 |
|
|
| 99.6 |
|
|
|
| 1,611,149 |
|
|
| 99.6 |
|
|
Royalties and franchise fees |
|
| 4,349 |
|
|
| 0.4 |
|
|
|
| 6,089 |
|
|
| 0.4 |
|
|
Total revenues |
| $ | 1,202,509 |
|
|
| 100.0 |
| % |
| $ | 1,617,238 |
|
|
| 100.0 |
| % |
Nine Months Ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||
Net Sales: | ||||||||||||||||
Wholesale | $ | 962,793 | 61.4 | % | $ | 988,129 | 60.9 | % | ||||||||
Eliminations | (522,421 | ) | (34.2 | )% | (524,689 | ) | (32.3 | )% | ||||||||
Net wholesale | 440,372 | 27.2 | % | 463,440 | 28.6 | % | ||||||||||
Retail | 1,170,777 | 72.4 | % | 1,150,609 | 70.9 | % | ||||||||||
Total net sales | 1,611,149 | 99.6 | % | 1,614,049 | 99.5 | % | ||||||||||
Royalties and franchise fees | 6,089 | 0.4 | % | 7,832 | 0.5 | % | ||||||||||
Total revenues | $ | 1,617,238 | 100.0 | % | $ | 1,621,881 | 100.0 | % | ||||||||
Retail
Retail net sales during the first nine months of 20192020 were $1,170.8$850.6 million and increased $20.2were $320.2 million, or 1.8% compared to27.3%, lower than during the first nine months of 2018.2019. Retail net sales at our North American Party City stores totaled $1,060.3$737.5 million and were $16.9$323.0 million, or 1.6%, higher30.5% lower than 2018,in the first nine months of 2019 principally due to the temporary closure of all Party City stores in response to the COVID-19 pandemic starting on March 18, 2020 with all stores reopened by June 22, 2020. Additional factors impacting the sales decline included the divestiture of 65 Canadian Party City stores in October 2019, and the closure of 55 and 21 Party City stores in conjunction with the 2019 and 2020 store optimization programs, respectively. These negative factors affecting sales were partially offset by the acquisition of sixtwo franchise and independent stores and the opening of ninetwo new stores during the twelve months ended September 30, 2019, as well as the acquisition of 37 franchise stores late in the third quarter of 2018. These positive factors were partially offset by the closure of 34 stores in the second and third quarters, in conjunction with our 2019 store optimization program and the continued impact of the ongoing helium shortage.2020. Global retail
Same-store sales for the Party City brand (including North American retail
Our North American retail
Excluding the impact of
Same-store sales percentages were not affected by foreign currency as such percentages are calculated in local currency.
Wholesale
Wholesale net sales during the first nine months of 20192020 totaled $440.4$347.5 million and were $23.1$92.9 million, or 5.0%21.1%, lower than during the first nine months of 2018.2019. Net sales to domestic party goods retailers and distributors (including our franchisee network) totaled $176.5$126.2 million and were $9.3$50.3 million, or 5.0%28.5%, lower than during 2018. The decrease was partially2019 principally due to our acquisition of sixlower distributor demand and closed franchise and independent stores during the twelve months ended September 30, 2019, together with the acquisition of 37 franchise stores throughout the third quarter of 2018; as post-acquisition sales to such stores (approximately $13.7 million during the first nine months of 2018) are now eliminated as intercompany sales. Adjusted for the acquisitions, sales to domestic party goods retailers and distributors increased by approximately $4.4 million or 2.3%.stores as a result of the COVID-19 pandemic. Net sales of metallic balloons to domestic distributors and retailers (including our franchisee network) totaled $54.7$51.1 million during the first nine months of 20192020 and were $6.7$3.7 million, or 10.9%6.7%, lower than during the corresponding period of 20182019 principally due to the ongoing helium shortage.negative impact of the COVID-19 pandemic earlier in the year partially offset by demand recovery in the domestic distributer and value channels later in the year. Our international sales (which include U.S. export sales and exclude U.S. import sales from foreign subsidiaries) totaled $209.1$170.3 million and were $7.1$38.8 million, or 3.3%18.6%, lower than in 2018.2019. Foreign currency translation negatively impacted sales by approximately $10.0 million and more than offset $2.9 million in sales growth on a constant currency basis.$0.7 million.
Intercompany sales to our retail affiliates totaled $522.4$345.2 million during the first nine months ended September 30, 2019of 2020 and were $2.3$177.2 million lower than during the corresponding periodfirst nine months of 2018.2019. Intercompany sales represented 55.6%49.8% of total wholesale sales during the first nine months of 2019, compared to 53.1%2020 and were 33.9% lower than during the comparable periodfirst nine months of 2018. The increase in percentage was2019, principally due toreflecting the impact of franchise/independentthe Party City store acquisitions, partially offset byclosures related to the impact of strong seasonin-stockpositions from the prior year and a reduction in sales of metallic balloons to our retail operations.COVID-19 pandemic. The intercompany sales of our wholesale segment are eliminated against the intercompany purchases of our retail segment in the consolidated financial statements.
Royalties and franchise fees
Royalties and franchise fees for the first nine months ended September 30, 2019of 2020 totaled $6.1$4.3 million and were $1.7$1.8 million lower than during the comparable periodfirst nine months of 2018 principally2019 primarily due to lower sales as a result of store closures resulting from the acquisition of franchise stores.
Gross Profit
The following table sets forth the Company’s gross profit for the nine months ended September 30, 20192020 and September 30, 2018.2019.
|
| Nine Months Ended September 30, | ||||||||||||||||
|
| 2020 |
|
| 2019 | |||||||||||||
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
|
| Dollars in Thousands |
|
| Percentage of Net Sales |
|
| ||||
Retail |
| $ | 257,035 |
|
|
| 30.2 |
| % |
| $ | 436,761 |
|
|
| 37.3 |
| % |
Wholesale |
|
| 50,538 |
|
|
| 14.5 |
|
|
|
| 108,877 |
|
|
| 24.7 |
|
|
Total Gross Profit |
| $ | 307,573 |
|
|
| 25.7 |
| % |
| $ | 545,638 |
|
|
| 33.9 |
| % |
Nine Months Ended September 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||
Retail | $ | 436,761 | 37.3 | % | $ | 482,609 | 41.9 | % | ||||||||
Wholesale | 108,877 | 24.7 | 135,356 | 29.2 | ||||||||||||
Total | $ | 545,638 | 33.9 | % | $ | 617,965 | 38.3 | % | ||||||||
The gross profit margin on net sales at retail during the first nine months of 20192020 was 37.3%. Such percentage was 46030.2% or 710 basis points lower than during the corresponding periodnine months of 2018.2019. The decrease was principallymainly due to sales deleverage from the temporary closure of all the Company’s retail storesin response to the COVID-19 pandemic starting on March 18, 2020 with all stores reopened by June 22, 2020. 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 and lower year over year markdowns in conjunction with the Company’s “store optimization program” and provisions against inventory recorded in conjunction with such program (see “operating expenses” below for further discussion) and the impact of an aggressive coupon program during the third quarter of 2019. Additionally, the decrease was partially due to a flow through of higher freight and distribution costs for product acquired from the Company’s wholesale operations during the second half of 2018 as the China tariffs caused
The gross profit margin on net sales at wholesale during the first nine months of 2020 and 2019 was 14.5% and 2018 was 24.7% and 29.2%, respectively. The decrease was principally due to the decrease in high-margin salesdeleveraging of metallic balloonsdistribution and manufacturing costs from lower sales to franchisees (dueclosed franchise and independent party stores due to the store acquisitions discussed above).
Operating expenses
Wholesale selling expenses were $50.9$37.1 million during the first nine months of 20192020 and were $2.7$13.8 million or 4.9% lower than during the corresponding periodnine months of 2018,2019principally due partially to the impact of foreign currency translation.lower payroll costs as well as lower travel, marketing, merchant and commission expenses. Wholesale selling expenses were 10.7% and 11.6% of net wholesale sales during each of the first nine months of 2020 and 2019, and 2018.
Retail operating expenses during the first nine months of 20192020 were $302.8$250.5 million and were $17.7$52.3 million or 6.2%, higherlower than the corresponding period of 2018. The increase was principally due to higher average store count during the first nine months of 2019 as well as an increase in advertising, e-commerce and information technology related expenses compared2019. The decrease was mainly due to the corresponding periodCOVID-19 pandemic impact on costs including employee payroll from furloughs and lower advertising 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 2018.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 25.9%29.4% and 24.8%25.9% of retail sales during the first nine months of 2020 and 2019, and 2018, respectively.
Franchise expenses during the first nine months of 2020 and 2019 were $9.2 million and 2018 were $9.8 million, and $8.6 million, respectively. Franchise expenses for 2018 reflect a third quarter
General and administrative expenses during the first nine months of 20192020 totaled $126.5$162.1 million and were $9.7$35.6 million, or 7.1%28.2%, lowerhigher than in the first nine months of 2018. The decrease for2019 mainly due to higher professional fees, increased depreciation, 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 first nine months of 2019 was principally due tonon-recurringconsulting costsCOVID-19 pandemic andnon-recurringexecutive severance charges incurred during 2018. less travel. General and administrative expenses as a percentage of total revenues were 7.8%13.5% and 8.4%7.8% during the first nine months of 2020 and 2019, and 2018, respectively.
Art and development costs were $17.6$13.1 million and $17.3$17.6 million during the first nine months of 2020 and 2019, and 2018, respectively.
Development stage expenses represent
During SeptemberJune 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 nine months ended September 30,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”). Each year, the Company typically closes approximately 10 Party City stores as part of its typical network rationalization process and, in response to ongoing consumer, market and economic changes that naturally arise in the business. During the first nine months of, 2019, 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 and 55 stores which arein the first nine months of 2020 and 2019, respectively. Closed stores were 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 conjunction with the store optimization program, during the first nine months of 2019,addition, the Company recorded a $14.1 millionestimated lease impairment charge for its operating lease asset, a $4.7 million impairment charge for property, plantopen stores where sales were affected due to the outbreak of, and equipment, $6.3 million of laborlocal, state and other costs relatedfederal governmental responses to, closing the storesCOVID-19.
Goodwill, intangibles and $0.7 million of severance.
Interest expense, net
Interest expense, net, totaled $64.0 million during the first nine months of 2020, compared to $88.9 million during the first nine months of 2019, compared2019. The decrease in interest principally reflects lower debt following a debt refinancing in the third quarter of 2020. Refer to $76.5 million during the comparable periodNote 16 – Current and Long-Term Obligations of 2018. The variance principally relates to the impact of the Company’s August 2018 refinancing (see the Company’s 2018Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form
Other expense, net
For the first nine months of 20192020 and 2018,2019, other expense, net, totaled $4.3 million and $6.6 million, respectively.The change is primarily due the termination of Punchbowl “put” and $9.1 million, respectively. During“call” options in 2019.
(Gain) on debt refinancing
As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the first nine monthsCompany recognized a gain of 2018, other expense included costs associated with the August 2018$273,149 on debt refinancing of our debt portfolio.
Income tax expense
The effective income tax rate for the nine months ended September 30, 2019, 7.6%2020, 22.9%, is lower thandifferent from the statutory rate primarily due to the non-deductible portions of the goodwill impairment charges noted above.above, the excludable portion of the cancellation of debt income, 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%.
Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per Common Share – Diluted
The Company presents adjusted EBITDA, adjusted net income and adjusted net income per common share - diluted as supplemental measures of its operating performance. The Company defines EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization and defines adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of our core operating performance. These further adjustments are itemized below. Adjusted net income represents the Company’s net income (loss) adjusted for, among other items, intangible asset amortization,
Adjusted EBITDA, adjusted net income, and adjusted net income per common share - diluted have limitations as analytical tools. Some of these limitations are:
• | they do not reflect the Company’s cash expenditures or future requirements for capital expenditures or contractual commitments; |
• | they do not reflect changes in, or cash requirements for, the Company’s working capital needs; |
• | adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s indebtedness; |
• | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; |
• | non-cash compensation is and will remain a key element of the Company’s overall long-term incentive compensation package, although the Company excludes it as an expense when evaluating its core operating performance for a particular period; |
• | they do not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations; and |
• | other companies in the Company’s industry may calculate adjusted EBITDA, adjusted net income and adjusted net income per common share differently than the Company does, limiting its usefulness as a comparative measure. |
Because of these limitations, adjusted EBITDA, adjusted net income and adjusted net income per common share – diluted should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA, adjusted net income and adjusted net income per common share – diluted only on a supplemental basis. The reconciliations from net income (loss) to adjusted EBITDA and income (loss) before income taxes to adjusted net income (loss) for the periods presented are as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | 239,665 |
|
| $ | (281,745 | ) |
| $ | (432,062 | ) |
| $ | (264,029 | ) |
Interest expense, net |
|
| 13,422 |
|
|
| 29,424 |
|
|
| 63,954 |
|
|
| 88,857 |
|
Income tax (benefit) |
|
| (4,164 | ) |
|
| (27,252 | ) |
|
| (128,293 | ) |
|
| (21,809 | ) |
Depreciation and amortization |
|
| 17,278 |
|
|
| 19,155 |
|
|
| 57,796 |
|
|
| 62,380 |
|
EBITDA |
|
| 266,201 |
|
|
| (260,418 | ) |
|
| (438,605 | ) |
|
| (134,601 | ) |
Non-cash purchase accounting adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,757 |
|
Store impairment and restructuring charges (a) |
|
| 6,763 |
|
|
| 8,694 |
|
|
| 36,285 |
|
|
| 54,960 |
|
Other restructuring, retention and severance (b) |
|
| 2,957 |
|
|
| (73 | ) |
|
| 11,701 |
|
|
| 5,248 |
|
Goodwill, intangibles and long-lived assets impairment (c) |
|
| 44,732 |
|
|
| 259,100 |
|
|
| 581,380 |
|
|
| 259,100 |
|
Deferred rent (d) |
|
| 254 |
|
|
| 446 |
|
|
| (2,618 | ) |
|
| (1,042 | ) |
Closed store expense (e) |
|
| 1,247 |
|
|
| 2,326 |
|
|
| 2,882 |
|
|
| 3,424 |
|
Foreign currency losses/(gains), net |
|
| (3,312 | ) |
|
| 646 |
|
|
| 955 |
|
|
| 486 |
|
Stock option expense – time – based (f) |
|
| 111 |
|
|
| 409 |
|
|
| 671 |
|
|
| 1,150 |
|
Stock option expense – performance – based (n) |
|
| — |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
Restricted stock unit and restricted cash awards expense – performance-based |
|
| 510 |
|
|
| — |
|
|
| 510 |
|
|
| — |
|
Non-employee equity-based compensation (g) |
|
| — |
|
|
| 128 |
|
|
| 1,033 |
|
|
| 386 |
|
Undistributed income (loss) in equity method investments |
|
| (59 | ) |
|
| 7 |
|
|
| 356 |
|
|
| (195 | ) |
Corporate development expenses (h) |
|
| 581 |
|
|
| 4,588 |
|
|
| 6,193 |
|
|
| 11,782 |
|
Restricted stock units – time-based (i) |
|
| 429 |
|
|
| 610 |
|
|
| 1,568 |
|
|
| 1,543 |
|
Restricted stock unit expense – performance-based (m) |
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 1,036 |
|
Non-recurring legal settlements/costs |
|
| 661 |
|
|
| 194 |
|
|
| 7,170 |
|
|
| 1,795 |
|
(Gain) on debt refinancing (p) |
|
| (273,149 | ) |
|
| — |
|
|
| (273,149 | ) |
|
| — |
|
Gain on sale/leaseback transaction (o) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (58,381 | ) |
COVID - 19 (l) |
|
| 679 |
|
|
| — |
|
|
| 71,059 |
|
|
| — |
|
Other |
|
| 546 |
|
|
| (75 | ) |
|
| 3,034 |
|
|
| 217 |
|
Adjusted EBITDA |
| $ | 49,151 |
|
| $ | 17,142 |
|
| $ | 18,272 |
|
| $ | 149,665 |
|
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Net (loss) income | $ | (281,745 | ) | $ | (2,440 | ) | $ | (264,029 | ) | $ | 24,445 | |||||
Interest expense, net | 29,424 | 27,705 | 88,857 | 76,481 | ||||||||||||
Income taxes | (27,252 | ) | 777 | (21,809 | ) | 9,443 | ||||||||||
Depreciation and amortization | 19,155 | 16,974 | 62,380 | 57,786 | ||||||||||||
EBITDA | (260,418 | ) | 43,016 | (134,601 | ) | 168,155 | ||||||||||
Non-cash purchase accounting adjustments | — | 2,154 | 2,757 | 2,696 | ||||||||||||
Store impairment and restructuring charges (a) | 8,694 | — | 54,960 | — | ||||||||||||
Other restructuring, retention and severance (b) | (73 | ) | 951 | 5,248 | 3,105 | |||||||||||
Goodwill impairment (c) | 259,100 | — | 259,100 | — | ||||||||||||
Deferred rent (d) | 446 | 2,468 | (1,042 | ) | 3,623 | |||||||||||
Closed store expense (e) | 2,326 | 825 | 3,424 | 3,430 | ||||||||||||
Foreign currency losses/(gains), net | 646 | (314 | ) | 486 | 128 | |||||||||||
Stock option expense (f) | 409 | 550 | 1,150 | 1,492 | ||||||||||||
Non-employee equity-based compensation (g) | 128 | (13 | ) | 386 | 352 | |||||||||||
Undistributed (loss) income in equity method investments | 7 | (279 | ) | (195 | ) | (580 | ) | |||||||||
Corporate development expenses (h) | 4,588 | 3,057 | 11,782 | 8,409 | ||||||||||||
Non-recurring consulting charges (i) | — | 624 | — | 12,243 | ||||||||||||
Refinancing charges (j) | — | 5,091 | — | 6,237 | ||||||||||||
Restricted stock units – time-based (k) | 610 | 470 | 1,543 | 722 | ||||||||||||
Restricted stock units – performance-based (l) | 560 | 889 | 1,036 | 1,482 | ||||||||||||
Non-recurring legal settlements/costs | 194 | — | 1,795 | — | ||||||||||||
Gain on sale/leaseback transaction (m) | — | — | (58,381 | ) | — | |||||||||||
Other | (75 | ) | (44 | ) | 217 | (295 | ) | |||||||||
Adjusted EBITDA | $ | 17,142 | $ | 59,445 | $ | 149,666 | $ | 211,199 | ||||||||
|
|
|
|
| Three Months Ended September 30, 2020 EBITDA Adjustments |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2020 GAAP Basis (as reported) |
|
| Goodwill, intangibles and long-lived assets impairment (c) |
|
| Store impairment and restructuring charges (a) |
|
| Gain on debt refinancing (p) |
|
| 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 |
|
| September 30, 2020 Non-GAAP basis |
| ||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 532,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 532,053 |
|
Royalties and franchise fees |
|
| 1,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,722 |
|
Total revenues |
|
| 533,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 533,775 |
|
Cost of sales |
|
| 355,923 |
|
|
|
|
|
|
| (4,837 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (80 | ) |
|
|
|
|
|
|
|
|
|
| (1,266 | ) |
|
|
|
|
|
| (469 | ) |
|
| 349,271 |
|
Wholesale selling expenses |
|
| 11,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,950 |
|
Retail operating expenses |
|
| 97,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (224 | ) |
|
|
|
|
|
| (1,225 | ) |
|
| (1,745 | ) |
|
|
|
|
|
|
|
|
|
| 93,906 |
|
Franchise expenses |
|
| 2,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,795 |
|
General and administrative expenses |
|
| 42,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (370 | ) |
|
| (661 | ) |
|
| (1,050 | ) |
|
| 50 |
|
|
| (2,957 | ) |
|
| (22 | ) |
|
| 2,332 |
|
|
|
|
|
|
|
|
|
|
| 39,513 |
|
Art and development costs |
|
| 4,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,257 |
|
Store impairment and restructuring charges |
|
| 1,926 |
|
|
|
|
|
|
| (1,926 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 44,732 |
|
|
| (44,732 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 560,874 |
|
|
| (44,732 | ) |
|
| (6,763 | ) |
|
| — |
|
|
| (370 | ) |
|
| (661 | ) |
|
| (1,050 | ) |
|
| (254 | ) |
|
| (2,957 | ) |
|
| (1,247 | ) |
|
| (679 | ) |
|
| — |
|
|
| (469 | ) |
|
| 501,692 |
|
(Loss) from operations |
|
| (27,099 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 32,083 |
|
Interest expense, net |
|
| 13,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,422 |
|
Other (income) expense, net |
|
| (2,873 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (211 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,312 |
|
|
| (18 | ) |
|
| 210 |
|
(Gain) on debt refinancing |
|
| (273,149 | ) |
|
|
|
|
|
|
|
|
|
| 273,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Income (loss) before income taxes |
|
| 235,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 18,451 |
|
Interest expense, net |
|
| 13,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,422 |
|
Depreciation and amortization |
|
| 17,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,278 |
|
EBITDA |
|
| 266,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 49,151 |
|
Adjustments to EBITDA |
|
| (217,050 | ) |
|
| (44,732 | ) |
|
| (6,763 | ) |
|
| 273,149 |
|
|
| (581 | ) |
|
| (661 | ) |
|
| (1,050 | ) |
|
| (254 | ) |
|
| (2,957 | ) |
|
| (1,247 | ) |
|
| (679 | ) |
|
| 3,312 |
|
|
| (487 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 49,151 |
|
| $ | (44,732 | ) |
| $ | (6,763 | ) |
| $ | 273,149 |
|
| $ | (581 | ) |
| $ | (661 | ) |
| $ | (1,050 | ) |
| $ | (254 | ) |
| $ | (2,957 | ) |
| $ | (1,247 | ) |
| $ | (679 | ) |
| $ | 3,312 |
|
| $ | (487 | ) |
| $ | 49,151 |
|
|
|
|
|
|
| Three Months Ended September 30, 2019 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 GAAP Basis (as reported) |
|
| Goodwill, intangibles and long-lived assets impairment (c) |
|
| 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) |
|
| Foreign currency gains |
|
| Other |
|
| September 30, 2019 Non-GAAP basis |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 538,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 538,345 |
|
Royalties and franchise fees |
|
| 1,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,886 |
|
Total revenues |
|
| 540,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 540,231 |
|
Cost of sales |
|
| 373,413 |
|
|
|
|
|
|
| (6,120 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (656 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 366,637 |
|
Wholesale selling expenses |
|
| 16,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,084 |
|
Retail operating expenses |
|
| 111,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,240 | ) |
|
|
|
|
|
|
|
|
|
| 109,355 |
|
Franchise expenses |
|
| 3,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,274 |
|
General and administrative expenses |
|
| 43,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (194 | ) |
|
| (1,707 | ) |
|
| 210 |
|
|
| 73 |
|
|
| (86 | ) |
|
|
|
|
|
|
|
|
|
| 41,358 |
|
Art and development costs |
|
| 5,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,927 |
|
Development stage expenses |
|
| 2,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,728 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 2,574 |
|
|
|
|
|
|
| (2,574 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 259,100 |
|
|
| (259,100 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 817,757 |
|
|
| (259,100 | ) |
|
| (8,694 | ) |
|
| — |
|
|
| (2,728 | ) |
|
| (194 | ) |
|
| (1,707 | ) |
|
| (446 | ) |
|
| 73 |
|
|
| (2,326 | ) |
|
| — |
|
|
| — |
|
|
| 542,635 |
|
Income from operations |
|
| (277,526 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,404 | ) |
Interest expense, net |
|
| 29,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,424 |
|
Other expense, net |
|
| 2,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,860 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (646 | ) |
|
| 68 |
|
|
| (391 | ) |
Income before income taxes |
|
| (308,997 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (31,437 | ) |
Interest expense, net |
|
| 29,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,424 |
|
Depreciation and amortization |
|
| 19,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 19,155 |
|
EBITDA |
|
| (260,418 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,142 |
|
Adjustments to EBITDA |
|
| 277,560 |
|
|
| (259,100 | ) |
|
| (8,694 | ) |
|
| — |
|
|
| (4,588 | ) |
|
| (194 | ) |
|
| (1,707 | ) |
|
| (446 | ) |
|
| 73 |
|
|
| (2,326 | ) |
|
| (646 | ) |
|
| 68 |
|
|
| — |
|
Adjusted EBITDA |
| $ | 17,142 |
|
| $ | (259,100 | ) |
| $ | (8,694 | ) |
| $ | — |
|
| $ | (4,588 | ) |
| $ | (194 | ) |
| $ | (1,707 | ) |
| $ | (446 | ) |
| $ | 73 |
|
| $ | (2,326 | ) |
| $ | (646 | ) |
| $ | 68 |
|
| $ | 17,142 |
|
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | |||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||
(Loss) income before income taxes | $ | (308,997 | ) | $ | (1,663 | ) | $ | (285,838 | ) | $ | 33,888 | |||||
Intangible asset amortization | 3,553 | 591 | 10,528 | 7,959 | ||||||||||||
Non-cash purchase accounting adjustments | 424 | 1,659 | 4,200 | 2,622 | ||||||||||||
Amortization of deferred financing costs and original issuance discounts (j) | 1,222 | 6,268 | 3,511 | 9,834 | ||||||||||||
Store impairment and restructuring charges (a) | 8,694 | — | 54,960 | — | ||||||||||||
Other restructuring charges (b) | (263 | ) | 809 | 2,822 | 809 | |||||||||||
Goodwill impairment (c) | 259,100 | — | 259,100 | — | ||||||||||||
Non-employee equity-based compensation (g) | 128 | (13 | ) | 386 | 352 | |||||||||||
Refinancing charges (j) | — | — | 36 | — | ||||||||||||
Non-recurring consulting charges (i) | — | 624 | — | 12,243 | ||||||||||||
Stock option expense (f) | 409 | 550 | 1,150 | 1,492 | ||||||||||||
Gain on sale/leaseback transaction (m) | — | — | (58,381 | ) | — | |||||||||||
Restricted stock units - performance-based (l) | 560 | 889 | 1,036 | 1,482 | ||||||||||||
Adjusted (loss) income before income taxes | (35,170 | ) | 9,714 | (6,490 | ) | 70,681 | ||||||||||
Adjusted income tax (benefit) expense (n) | (9,459 | ) | 2,364 | (2,117 | ) | 17,213 | ||||||||||
Adjusted net (loss) income | $ | (25,711 | ) | $ | 7,350 | $ | (4,373 | ) | $ | 53,468 | ||||||
Adjusted net (loss) income per common share – diluted | $ | (0.28 | ) | $ | 0.08 | $ | (0.05 | ) | $ | 0.55 | ||||||
Weighted-average number of common shares-diluted | 93,346,448 | 97,714,252 | 93,271,392 | 97,684,290 |
|
|
|
|
|
| Nine Months Ended September 30, 2020 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2020 GAAP Basis (as reported) |
|
| Goodwill, intangibles and long-lived assets impairment (c) |
|
| Store impairment and restructuring charges (a) |
|
| Gain on debt refinancing (p) |
|
| 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 |
|
| September 30, 2020 Non-GAAP basis |
| ||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 1,198,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,198,160 |
|
Royalties and franchise fees |
|
| 4,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,349 |
|
Total revenues |
|
| 1,202,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,202,509 |
|
Cost of sales |
|
| 890,587 |
|
|
|
|
|
|
| (15,467 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (214 | ) |
|
| (4,437 | ) |
|
|
|
|
|
| (42,446 | ) |
|
|
|
|
|
| (898 | ) |
|
| 827,125 |
|
Wholesale selling expenses |
|
| 37,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,840 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (623 | ) |
|
|
|
|
|
|
|
|
|
| 34,652 |
|
Retail operating expenses |
|
| 250,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,685 |
|
|
|
|
|
|
| (2,733 | ) |
|
| (16,312 | ) |
|
|
|
|
|
|
|
|
|
| 234,142 |
|
Franchise expenses |
|
| 9,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (672 | ) |
|
|
|
|
|
|
|
|
|
| 8,553 |
|
General and administrative expenses |
|
| 162,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (570 | ) |
|
| (7,170 | ) |
|
| (10,596 | ) |
|
| 147 |
|
|
| (7,264 | ) |
|
| (149 | ) |
|
| (11,006 | ) |
|
|
|
|
|
|
|
|
|
| 125,510 |
|
Art and development costs |
|
| 13,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,095 |
|
Development stage expenses |
|
| 2,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,932 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
(Gain) on sale/leaseback transaction |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 20,818 |
|
|
|
|
|
|
| (20,818 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 581,380 |
|
|
| (581,380 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expense |
|
| 1,967,772 |
|
|
| (581,380 | ) |
|
| (36,285 | ) |
|
| — |
|
|
| (5,342 | ) |
|
| (7,170 | ) |
|
| (10,596 | ) |
|
| 2,618 |
|
|
| (11,701 | ) |
|
| (2,882 | ) |
|
| (71,059 | ) |
|
| — |
|
|
| (898 | ) |
|
| 1,243,077 |
|
(Loss) from operations |
|
| (765,263 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (40,568 | ) |
Interest expense, net |
|
| 63,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 63,954 |
|
Other expense, net |
|
| 4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (851 | ) |
|
|
|
|
|
| (1,033 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (955 | ) |
|
| (2,492 | ) |
|
| (1,044 | ) |
(Gain) on debt refinancing |
|
| (273,149 | ) |
|
|
|
|
|
|
|
|
|
| 273,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
(Loss) before income taxes |
|
| (560,355 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103,478 | ) |
Interest expense, net |
|
| 63,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 63,954 |
|
Depreciation and amortization |
|
| 57,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 57,796 |
|
EBITDA |
|
| (438,605 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 18,272 |
|
Adjustments to EBITDA |
|
| 456,877 |
|
|
| (581,380 | ) |
|
| (36,285 | ) |
|
| 273,149 |
|
|
| (6,193 | ) |
|
| (7,170 | ) |
|
| (11,629 | ) |
|
| 2,618 |
|
|
| (11,701 | ) |
|
| (2,882 | ) |
|
| (71,059 | ) |
|
| (955 | ) |
|
| (3,390 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 18,272 |
|
| $ | (581,380 | ) |
| $ | (36,285 | ) |
| $ | 273,149 |
|
| $ | (6,193 | ) |
| $ | (7,170 | ) |
| $ | (11,629 | ) |
| $ | 2,618 |
|
| $ | (11,701 | ) |
| $ | (2,882 | ) |
| $ | (71,059 | ) |
| $ | (955 | ) |
| $ | (3,390 | ) |
| $ | 18,272 |
|
|
|
|
|
|
| Nine Months Ended September 30, 2019 EBITDA Adjustments |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2019 GAAP Basis (as reported) |
|
| Goodwill, intangibles and long-lived assets impairment (c) |
|
| 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 |
|
| September 30, 2019 Non-GAAP basis |
| ||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 1,611,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,611,149 |
|
Royalties and franchise fees |
|
| 6,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,089 |
|
Total revenues |
|
| 1,617,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,617,238 |
|
Cost of sales |
|
| 1,065,511 |
|
|
|
|
|
|
| (29,143 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,037,199 |
|
Wholesale selling expenses |
|
| 50,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 50,929 |
|
Retail operating expenses |
|
| 302,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (31 | ) |
|
| (3,111 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 299,614 |
|
Franchise expenses |
|
| 9,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,813 |
|
General and administrative expenses |
|
| 126,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,795 | ) |
|
| (4,115 | ) |
|
| 211 |
|
|
| (5,217 | ) |
|
| (313 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 115,268 |
|
Art and development costs |
|
| 17,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,568 |
|
Development stage expenses |
|
| 7,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,965 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 |
|
Gain on sale/leaseback transaction |
|
| (58,381 | ) |
|
|
|
|
|
|
|
|
|
| 58,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Store impairment and restructuring charges |
|
| 25,817 |
|
|
|
|
|
|
| (25,817 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Goodwill, intangibles and long-lived assets impairment |
|
| 259,100 |
|
|
| (259,100 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Total expenses |
|
| 1,807,576 |
|
|
| (259,100 | ) |
|
| (54,960 | ) |
|
| 58,381 |
|
|
| (7,965 | ) |
|
| (1,795 | ) |
|
| (4,115 | ) |
|
| 1,042 |
|
|
| (5,248 | ) |
|
| (3,424 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,530,392 |
|
Income from operations |
|
| (190,338 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 86,846 |
|
Interest expense, net |
|
| 88,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 88,857 |
|
Other expense, net |
|
| 6,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,817 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,757 | ) |
|
| (486 | ) |
|
| (22 | ) |
|
| (439 | ) |
(Loss) before income taxes |
|
| (285,838 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,572 | ) |
Interest expense, net |
|
| 88,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 88,857 |
|
Depreciation and amortization |
|
| 62,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 62,380 |
|
EBITDA |
|
| (134,601 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 149,665 |
|
Adjustments to EBITDA |
|
| 284,266 |
|
|
| (259,100 | ) |
|
| (54,960 | ) |
|
| 58,381 |
|
|
| (11,782 | ) |
|
| (1,795 | ) |
|
| (4,115 | ) |
|
| 1,042 |
|
|
| (5,248 | ) |
|
| (3,424 | ) |
|
| (2,757 | ) |
|
| (486 | ) |
|
| (22 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 149,665 |
|
| $ | (259,100 | ) |
| $ | (54,960 | ) |
| $ | 58,381 |
|
| $ | (11,782 | ) |
| $ | (1,795 | ) |
| $ | (4,115 | ) |
| $ | 1,042 |
|
| $ | (5,248 | ) |
| $ | (3,424 | ) |
| $ | (2,757 | ) |
| $ | (486 | ) |
| $ | (22 | ) |
| $ | 149,665 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
| $ | 235,501 |
|
| $ | (308,997 | ) |
| $ | (560,355 | ) |
| $ | (285,838 | ) |
Intangible asset amortization |
|
| 2,899 |
|
|
| 3,553 |
|
|
| 8,444 |
|
|
| 10,528 |
|
Non-cash purchase accounting adjustments |
|
| — |
|
|
| 424 |
|
|
| — |
|
|
| 4,200 |
|
Amortization of deferred financing costs and original issuance discounts (j) |
|
| 875 |
|
|
| 1,222 |
|
|
| 3,276 |
|
|
| 3,511 |
|
Store impairment and restructuring charges (a) |
|
| 1,321 |
|
|
| 8,694 |
|
|
| 29,475 |
|
|
| 54,960 |
|
Other restructuring charges (b) |
|
| 2,622 |
|
|
| (263 | ) |
|
| 10,139 |
|
|
| 2,822 |
|
Goodwill, intangibles and long-lived assets impairment (c) |
|
| 44,732 |
|
|
| 259,100 |
|
|
| 581,380 |
|
|
| 259,100 |
|
Non-employee equity-based compensation (g) |
|
| — |
|
|
| 128 |
|
|
| 1,033 |
|
|
| 386 |
|
Refinancing charges (j) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
Non-recurring legal settlements/costs |
|
| 605 |
|
|
| — |
|
|
| 7,026 |
|
|
| — |
|
Stock option expense – time – based (f) |
|
| 110 |
|
|
| 409 |
|
|
| 671 |
|
|
| 1,150 |
|
Stock option expense – performance – based (n) |
|
| — |
|
|
| — |
|
|
| 7,847 |
|
|
| — |
|
Gain on sale/leaseback transaction (o) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (58,381 | ) |
(Gain) on debt refinancing (p) |
|
| (273,149 | ) |
|
| — |
|
|
| (273,149 | ) |
|
| — |
|
Restricted stock unit expense – performance-based (m) |
|
| — |
|
|
| 560 |
|
|
| — |
|
|
| 1,036 |
|
COVID - 19 (l) |
|
| 733 |
|
|
| — |
|
|
| 71,113 |
|
|
| — |
|
Adjusted income (loss) before income taxes |
|
| 16,249 |
|
|
| (35,170 | ) |
|
| (113,100 | ) |
|
| (6,490 | ) |
Adjusted income tax (benefit) expense (k) |
|
| 5,234 |
|
|
| (9,459 | ) |
|
| (36,416 | ) |
|
| (2,117 | ) |
Adjusted net (loss) income |
| $ | 11,015 |
|
| $ | (25,711 | ) |
| $ | (76,684 | ) |
| $ | (4,373 | ) |
Adjusted net (loss) income per common share – diluted |
| $ | 0.10 |
|
| $ | (0.28 | ) |
| $ | (0.78 | ) |
| $ | (0.05 | ) |
Weighted-average number of common shares-diluted |
|
| 106,875,631 |
|
|
| 93,346,448 |
|
|
| 97,872,174 |
|
|
| 93,271,392 |
|
(a) | During the three and nine months ended September 30, 2019, the Company initiated a store optimization program under which it |
(b) | Amounts expensed during the first nine months of 2020 principally relate to severance due to organizational changes. Amounts expensed during 2019 principally relate to executive severance and the write-off of inventory for a section of the Company’s Party City stores that |
(c) | As a result of a sustained decline in market capitalization and reduced fair value of certain intangibles and long-lived assets, the Company recognized non-cash pre-tax goodwill and intangibles impairment |
(d) | The “deferred rent” adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items. During the first quarter of 2019, the Company adopted ASC 842. Under the standard, the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items is now incorporated in the Company’s operating lease asset. |
(e) | Charges incurred related to closing and relocating stores in the ordinary course of business. |
(f) | Represents non-cash charges related to stock |
(g) | The acquisition of Ampology’s interest in Kazzam, |
(h) | Primarily represents |
(i) | Non-cash charges |
(j) | During February 2018, the Company amended |
(k) | Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to the pre-tax adjustments the effective income tax rates for the specific legal entities in |
(l) | Represents COVID-19 expenses for employees on temporary furlough for whom the Company |
(m) | Non-cash |
(n) | Represents non-cash charges related to stock options that vest based on performance conditions. For the three and nine months ended September 30, 2020, this includes a one-time compensation expense of $7,847 that resulted from THL not achieving specified investment returns. See Note 10, Capital Stock of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q. |
(o) | During June 2019, the Company reported a $58,381 gain from the sale and leaseback of its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The aggregate sale price for the three properties was $128,000. Simultaneous with the sale, the Company entered into twenty-year leases for each of the facilities. |
(p) | As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the |
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.
Per Note 16, Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, as of September 30, 2020, the Company’s indebtedness principally consisted of: (i) a senior secured term loan facility (“Term Loan Credit Agreement”), (ii) 6.125% Senior Notes (the “2023 Notes”), (iii) 6.625% Senior Notes, (iv) First Lien Party City Notes (as defined below), (v) First Lien Anagram Notes (as defined below), and (vi) Second Lien Anagram Notes (as defined below). Additionally, the Company had an asset-based revolving credit facility (“ABL Facility”) that it draws down on as necessary.
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 the 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 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.
In the first nine months of 2020 the Company drew down $269.8 million under the ABL Facility. At September 30, 2020, $100.1 million was invested in US Treasury funds with maturities of less than three months. The Company had approximately $ 178.5 million of availability under the ABL Facility as of September 30, 2020.
On July 30, 2020 (the “Settlement Date”), the Company and certain of its direct or indirect subsidiaries, including PCHI, Anagram Holdings, LLC, a Delaware limited liability company and wholly owned direct subsidiary of PCHI (“Anagram Holdings”), and Anagram International, Inc., a Minnesota corporation and wholly owned direct subsidiary of Anagram Holdings, completed certain refinancing transactions, including, among other things: (i) the exchange of $327,076 of 6.125% Senior Notes due 2023 (the “2023 Notes”) and $392,746 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 tendered in the Company’s offers to exchange pursuant to the terms described in a confidential offering memorandum, for (A) $156,669 of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by PCHI; (B) $84,687 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 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 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 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 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 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 $84,687 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.
The Company evaluated the refinancing transaction in accordance with ASC 470-60 Troubled Debt Restructuring. The exchange of the 2023 Notes and 2026 Notes for the First Lien Party City Notes, Second Lien Anagram Notes, and shares of Common Stock, as well as the purchase by the participants in the exchange of First Lien Anagram Notes represents a troubled debt restructuring (“TDR”). As the future undiscounted cash flows of the restructured debt were less than the net carrying value of the Existing Notes (including accrued interest and unamortized discount) adjusted for Common Stock issued to the participants in the exchange and such participants’ purchase of the First Lien Anagram Notes, the Company recognized a gain of $273,149 which reflects $18,902 of third-party fees incurred and, $27,007 of Common Stock issued in the exchange. The Company received $39,544 of cash from the participants in the exchange related to $44,500 of principal amount of First Lien Anagram Notes with an undiscounted value of $82,160. Interest expense is not currently recognized for this portion of the restructured debt.
Another portion of the restructured debt related to one holder of Existing Notes not result in gain recognition as the undiscounted cash flows of the restructured debt was higher than the carrying value of the existing debt. The carrying amount of this portion of the restructured debt is $32,328 and the interest expense will be recognized prospectively at a 3.5% effective interest rate. Amounts attributed to purchasers of the First Lien Anagram Notes who were not participants in the exchange (principal balance of $50,500) are recognized at consideration received less allocated transaction costs (netting to $45,678) and the effective interest method will be used to recognize interest expense prospectively.
Cash Flow
Net cash used in operating activities totaled $182.3$56.8 million and $86.2$182.3 million during the nine months ended September 30, 20192020 and 2018,2019, respectively. The variance principally reflects the net lossdecrease in accounts receivable due to decreased sales as well as reduced payments from operations for the nine months ended September 30, 2019 compared to the net income for the nine month ended September 30, 2018. Net cash flows usedlower inventory levels partially offset by increase in operating activities before changes in operating assetsprepaid expenses and liabilities were $23.2 million during the first nine months of 2019, compared to positive cash flows of $101.2 million during the corresponding period of 2018.other current assets. Changes in operating assets and liabilities during the first nine months of 20192020 resulted in cash provided of $16.2 million and 2018during the first nine months of 2019 resulted in the use of cash used of $159.1 million and $187.4 million, respectively.
Net cash provided byused in investing activities totaled $58.6$32.4 million during the nine months ended September 30, 2019,2020, as compared to $129.3$58.6 million usedprovided by investing activities during the nine months ended September 30, 2018. During September 2019, the Company sold and leased back its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The net sale price for the properties is included in “Proceeds from disposal of property and equipment” in the Company’s condensed consolidated statement of cash flows. See Note 5 to the Company’s consolidated financial statements for further detail.2019. Capital expenditures during the nine months ended September 30, 2020 and 2019 and 2018 were $45.8$32.1 million and $65.5$45.8 million, respectively. Retail capital expenditures totaled $25.8$17.7 million during 2019.2020. Wholesale capital expenditures during 20192020 totaled $20.0$14.4 million.
Net cash provided by financing activities was $227.4 million during the nine months ended September 30, 2020 and $97.8 million during the nine months ended September 30, 2019 and $210.1 million during the first nine months of 2018.2019. The variance was principally due to lessa $100.5 million of a need to borrow funds during 2019 due to proceeds from the saledebt refinancing. For more information refer to Note 16, Current and Long-Term Obligations of certain properties (see above).
As of September 30, 2019,2020, the Company had approximately $152$178.5 million of availability under the ABL Facility, after considering borrowing base restrictions.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements included herein.
We believe our application of accounting policies, and the estimates inherently required by these policies, are reasonable. These accounting policies and estimates are constantly
In the evaluation of the fair value and future benefits of finite long-lived assets attached to retail stores, we perform our cash flow analysis generally on a store-by-store basis. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or strategies change, the conclusion regarding impairment may differ from the current estimates.
Goodwill 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 componentsoperating segments within our organization which constitute a business for which discrete financial information is available and is reviewed by management. Components within a segment are aggregated to the extent that they have similar economic characteristics. Based on this evaluation, we have determined that our operating segments, wholesale and retail, represent our reporting units for the purposes of our goodwill impairment test.
If it is concluded that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we estimate the fair value of the reporting unit using a combination of a market approach and an income approach. If such carrying value exceeds the fair value, an impairment loss will be recognized in an amount equal to such excess. The fair value of a reporting unit refers to the amount at which the unit as a whole could be sold in a current transaction between willing parties. The determination of such fair value is subjective, and actual fair value could differ due to changes in the expectations of cash flows or other assumptions, including discount rates.
During the thirdfirst and thirds quarter of 2019,2020, the Company identified an impairment indicatorindicators associated with its market capitalization and significantly reduced customer demand for its products due to COVID-19. As a result, the Company performed an interim impairment testtests on the goodwill at its retail and wholesale reporting units. As a result, the Company recorded a $259.1$581.4 million goodwill, intangibles and long-lived assets impairment charge. See footnoteNote 4 to the condensed consolidated financial statements– Goodwill, Intangibles and Long-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 and Capital Resources”“Liquidity”, there were no material changes to our future minimum contractual obligations as of December 31, 20182019 as previously disclosed in our Annual Report on Form
Off Balance Sheet Arrangements
We had no
Seasonality
Wholesale Operations
Despite a concentration of holidays in the fourth quarter of the year, as a result of our expansive product lines, customer base and increased promotional activities, the impact of seasonality on the quarterly results of our wholesale operations has been limited. However, due to Halloween, the inventory balances of our wholesale operations are slightly higher during the second and third quarter than during the remainder of the year.quarters. Additionally, Halloween products sold to retailers and other distributors result in slightly higher accounts receivable balances during the quarter.
Retail Operations
Our retail operations are subject to significant seasonal variations. Historically, this segment has realized a significant portion of its revenues, cash flow and net income in the fourth quarter of the year, principally due to our Halloween sales in October and, to a lesser extent,
Cautionary Note Regarding Forward-Looking Statements
From time to time, including in this filing and, in particular, the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we make “forward-looking statements” within the meaning of federal and state securities laws. Disclosures that use words such as the company “believes,” “anticipates,” “expects,” “estimates,” “intends,” “will,” “may” or “plans” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect our current expectations and are based upon data available to us at the time the statements were made. An example of a forward-looking statement is our belief that our cash generated from operating activities and availability under our credit facilities will be adequate to meet our liquidity needs for at least the next 12 months. Such statements are subject to certain risks and uncertainties 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
• | potential risks and uncertainties relating to the ultimate geographic spread of COVID-19; |
• | economic slowdown affecting consumer spending and general economic conditions, including as a result of the COVID-19 pandemic; |
• | the severity of the COVID-19 pandemic; |
• | the duration of the COVID-19 pandemic; |
• | actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact; |
• | the potential negative impacts of COVID-19 on the global economy and foreign sourcing; |
• | the impacts of COVID-19 on the Company’s financial condition and business operation; |
• | our ability to compete effectively in a competitive industry; |
• | fluctuations in commodity prices; |
• | helium shortages; |
• | our ability to appropriately respond to changing merchandise trends and consumer preferences; |
• | successful implementation of our business strategy; |
• | decreases in our Halloween sales; |
• | unexpected or unfavorable consumer responses to our promotional or merchandising programs; |
• | failure to comply with existing or future laws relating to our marketing programs, e-commerce initiatives and the use of consumer information; |
• | disruption to the transportation system or increases in transportation costs; |
• | product recalls or product liability; |
• | economic slowdown affecting consumer spending and general economic conditions; |
• | loss or actions of third-party vendors and loss of the right to use licensed material; |
• | disruptions at our manufacturing facilities; |
• | failure by suppliers or third-party manufacturers to follow acceptable labor practices or to comply with other applicable laws and guidelines; |
• | changes in regulations or enforcement, or our failure to comply with existing or future regulations; |
• | our international operations subjecting us to additional risks; |
• | potential litigation and claims; |
• | risks related to international trade disputes and the U.S. government’s trade policy; |
• | lack of available additional capital; |
• | our inability to retain or hire key personnel; |
• | risks associated with leasing substantial amounts of space; |
• | risks arising from the results of the public referendum held in United Kingdom and its membership in the European Union; |
• | failure of existing franchisees to conduct their business in accordance with agreed upon standards; |
• | adequacy of our information systems, order fulfillment and distribution facilities; |
• | our ability to adequately maintain the security of our electronic and other confidential information; |
• | our inability to successfully identify and integrate acquisitions; |
• | adequacy of our intellectual property rights; |
• | potential negative effect of certain aspects of recent U.S. federal income tax reform; |
• | risks related to our substantial indebtedness; |
• | risks associated with interest rate changes; |
• | straining of resources and ability to attract and retain qualified board members due to maintaining and improving our financial controls; |
• | decline of our common stock market price due to the large number of outstanding shares of our common stock eligible for sale; and |
• | the other factors set forth under “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on March 12, 2020, and in the “Risk Factors” section of this Quarterly Report on Form 10-Q. |
Except as required by law, we undertake no obligation to update publicly any forward-looking statements after the date of this filing to conform these statements to actual results or to changes in our expectations.
You should read this filing with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risks since December 31, 20182019 as previously disclosed in our Annual Report on Form
Item 4. Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules
There were no changes in our internal control over financial reporting (as defined in Rules
PART
Item 1. Legal Proceedings
Information in response to this Item is incorporated herein by reference from Note 11,12 – Commitments and Contingencies, to our Condensed Consolidated Financial Statements in this Quarterly Report on Form
Item 1A. Risk Factors
"Item 1A, Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities Exchange Commission on March 12, 2020, includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K. The effects of the events and circumstances described in the following risk factor may have the additional effect of heightening many of the risks noted in our Annual Report on Form 10-K. Otherwise, except as presented below, there have been no material changes to the risk factors disclosed underin the heading “Risk Factors” in the Company’ssection of our Annual Report on Form
Our business, operations, financial condition and liquidity have been and may continue to be materially and adversely affected by the outbreak of COVID-19, a novel coronavirus.
In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of the virus. The global spread of COVID-19 and the measures to contain it have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets. Quarantines, stay-at-home orders and related measures have significantly reduced consumer spending as well as customer demand for our products. In addition, although all of our stores have reopened, 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. 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 | ||||
31.1* | ||||
31.2* | ||||
32.1* | ||||
32.2* | ||||
101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||
101.SCH* | Inline XBRL Taxonomy Extension Schema | |||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |||
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase |
Document | ||||
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
† | Management contract of compensatory plan or arrangement |
* | Filed herewith. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form
PARTY CITY HOLDCO INC. | |||
By: | /s/ | ||
Todd Vogensen | |||
Chief Financial Officer ( Financial Officer) |
Date: November 12, 2019
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