UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 4, 2016
PARTY CITY HOLDCO INC.
(Exact name of registrant as specified in its charter)
Delaware | 001-37344 | 46-0539758 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification Number) |
80 Grasslands Road Elmsford, New York |
10523 | |
(Address of principal executive offices) | (Zip code) |
Registrants telephone number, including area code: (914) 345-2020
Former name or former address, if changed since last report: N/A
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition.
On August 4, 2016, Party City Holdco Inc. issued a press release announcing its financial results for the quarter ended June 30, 2016. A copy of the press release is furnished hereto as Exhibit 99.1.
The information contained in this Current Report on Form 8-K, including the exhibit attached hereto, is being furnished and shall not be deemed to be filed for any purpose, and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, regardless of general incorporation language in any such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit |
Description | |
99.1 | Press release issued by Party City Holdco Inc., dated August 4, 2016, announcing financial results. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PARTY CITY HOLDCO INC. | ||||||
Date: August 4, 2016 | By: | /s/ Michael A. Correale | ||||
Michael A. Correale | ||||||
Chief Financial Officer |
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EXHIBIT INDEX
Exhibit No. |
Description | |
99.1 | Press release issued by Party City Holdco Inc., dated August 4, 2016, announcing financial results. |
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Exhibit 99.1
Party City Announces Second Quarter 2016 Financial Results
| Net sales increased approximately 5% to $515 million |
| Gross margin expanded 200 basis points |
| Reported EPS improved to $0.19 from a loss of $0.20; adjusted EPS increased to $0.24 from $0.12 in 2Q15 |
| Brand comparable sales increased 3.8% |
ELMSFORD, N.Y., August 4, 2016 Party City Holdco Inc. (NYSE: PRTY) today announced its financial results for the quarter ended June 30, 2016.
Our performance this quarter reflects our strong global vertical model as well as the strength of our product category which has a steady demand and is generally unaffected by economic conditions. said James M. Harrison, Chief Executive Officer. On the retail side we are seeing more normalized shopping patterns driven, in part, by a strong summer/graduation season and positive customer reaction to our new advertising campaign. On the wholesale side, we are making good progress integrating our most recent acquisitions, which will continue to drive margins. Additionally, we are increasing our penetration into international markets and alternative customer channels. Based on our results for the first half of the year, we are maintaining our full year guidance.
Highlights for the second quarter:
| Total revenues of $519 million increased 4.8% on a reported basis or 5.4% on a constant currency basis. |
| Retail sales increased 7.3% on a reported basis (7.7% on a constant currency basis) driven by higher brand comparable sales and 33 net new Party City stores added in the past twelve months. |
| Brand comparable sales increased 3.8%, driven by strong summer/graduation sales and larger average purchase, as well as the shift of Easter Sunday (a day on which our stores are closed). In fiscal 2015 Easter Sunday fell in the second quarter while in fiscal 2016 the holiday fell in our first fiscal quarter. Year to date, as of June 30, 2016, brand comparable sales totaled 1.3%. |
| Net third-party wholesale revenues decreased 1% on a reported basis (increased 0.1% on a constant currency basis) principally due to the impact of the acquisition of 23 franchise stores in Dec 15/Jan 16 (which resulted in the associated elimination of previously reported third party sales) as well as lower sales of Grasslands Road gift products due to the de-emphasis and reorganization of this division. |
| Total gross profit margin increased 200 basis points to 40.3% of net sales, compared to 38.3% of net sales in the second quarter of fiscal 2015, primarily due to higher share of shelf and reduced product costs. |
| Wholesale share of shelf (the percentage of retail product cost of sales supplied by our wholesale operations) increased to 77.0% from 75.6% in the prior year quarter. |
| Operating expenses were slightly favorable as a percentage of revenues, and increased 4.4% over the second quarter of 2015 to $153.1 million, driven primarily by retail operating expenses resulting from the higher store count and additional advertising spend. Wholesale selling expenses declined 5.9% due to cost savings related to a reorganization of our gift sales group. |
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| Reported net income improved to $22.5 million compared to a loss of $23.1 million in the second quarter of fiscal 2015. The second quarter of fiscal 2015 included certain one-time items associated with the Companys initial public offering, including: 1) a management agreement termination fee of $30.7 million paid to THL and Advent and 2) charges totaling $15.6 million associated with the redemption of notes. Net income year to date totaled $22.1 million. |
| Adjusted EBITDA increased 13.5% to $85.1 million compared to $75.0 million in the second quarter of fiscal 2015, in line with expectations. |
| Adjusted net income improved to $28.3 million, compared to $14.2 million for the second quarter of fiscal 2015. The current quarter adjusted net income includes interest savings of $9.1 million resulting from debt reduction and refinancing during 2015. |
| Reported earnings per share improved to $0.19 from a loss of $0.20. Adjusted diluted income per share improved to $0.24 compared to $0.12 in the second quarter of fiscal 2015. |
| During the quarter, the Company opened four new stores and closed five stores. At June 30, 2016, there were 730 corporate stores and 183 franchise stores for a total store count of 913, as compared to 697 corporate stores and 205 franchise stores for a total store count of 902 at June 30, 2015. |
Balance sheet highlights as of June 30, 2016:
The Company ended the second quarter with $1,753 million in debt (net of cash) resulting in net debt leverage of 4.5 times and approximately $374 million in availability under its asset-based revolving credit facility.
Fiscal 2016 Outlook:
The Company is reiterating its 2016 outlook and has also included additional GAAP measures. For 2016, Party City anticipates results as follows:
| Total revenue of $2.35 to $2.42 billion |
| Brand comparable sales to be slightly positive |
| GAAP net income of $120 to $130 million |
| GAAP diluted EPS of $1.00 to 1.08 |
| Adjusted EBITDA guidance of $390 to $405 million |
| Adjusted net income of $140 to $150 million |
| Adjusted diluted EPS of $1.17 to $1.25 |
| Net debt leverage below 4 times by the end of 2016 |
The Company has reconciled Non-GAAP outlook measures to the most directly comparable GAAP measures later in this release. See Non-GAAP Information and Reconciliation of 2016 Outlook for a more detailed explanation, including definitions of the various Non-GAAP terms used in this release.
Conference Call Information:
A conference call to discuss second quarter fiscal 2016 financial results is scheduled for today, August 4, 2016, at 8:00 a.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial 877-201-0168 (U.S. domestic) and 647-788-4901 (international), and enter conference ID#47471306, approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investor.partycity.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. The webcast will be accessible for one year after the call.
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Website Information:
We routinely post important information for investors on the Investor Relations section of our website, http://investor.partycity.com/. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.
Non-GAAP Information:
This press release includes non-GAAP measures including Adjusted EBITDA and Adjusted Net Income/Loss and Adjusted Earnings per Share. We present these non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit facilities use Adjusted EBITDA to measure compliance with certain covenants. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in a table accompanying this release. We also evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results. We also provide net debt leverage, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, Excluding Current Portion, subtracting Cash and Cash Equivalents and dividing by Adjusted EBITDA for the trailing twelve month period. Adjusted Earnings per Share is calculated by dividing Adjusted Net Income by the Weighted Average Number of Common Shares-Diluted. We believe providing these non-GAAP measures provides valuable supplemental information regarding our results of operations and leverage, consistent with how we evaluate our performance. In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Companys presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as a means to evaluate the results of its core operations. Other companies in the Companys industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Companys results as reported under GAAP.
Forward-Looking Statements:
This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Party Citys expectations regarding revenues, brand comparable sales, Adjusted EBITDA, Adjusted net income/loss, adjusted diluted earnings per share, average common shares outstanding and the effective tax rate. The forward-looking statements contained in this press release are based on managements good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: our ability to compete effectively in a competitive industry; fluctuations in commodity prices; our ability to appropriately respond to changing merchandise trends and consumer preferences; successful implementation of our store growth strategy; decreases in our Halloween sales; 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; and the additional risks and uncertainties set forth in Risk Factors in Party Citys latest Form 10-K and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.
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About Party City
Party City Holdco Inc. (the Company or Party City Holdco) is the leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is the leading player in its category, vertically integrated and unique in its breadth and depth. Party City Holdco 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. The Companys retail operations include approximately 900 specialty retail party supply stores (including approximately 180 franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites, principally through the domain name PartyCity.com.
Contact Information
Deborah Belevan, VP of Investor Relations
(914) 784-8324
InvestorRelations@partycity.com
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PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, | December 31, | |||||||
2016 | 2015 | |||||||
(unaudited) | ||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 42,024 | $ | 42,919 | ||||
Accounts receivable, net |
113,919 | 132,287 | ||||||
Inventories, net |
624,934 | 564,259 | ||||||
Prepaid expenses and other current assets |
60,387 | 50,450 | ||||||
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Total current assets |
841,264 | 789,915 | ||||||
Property, plant and equipment, net |
277,749 | 272,420 | ||||||
Goodwill |
1,580,181 | 1,562,515 | ||||||
Trade names |
567,503 | 568,712 | ||||||
Other intangible assets, net |
80,990 | 89,157 | ||||||
Other assets, net |
5,685 | 9,684 | ||||||
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Total assets |
$ | 3,353,372 | $ | 3,292,403 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Loans and notes payable |
$ | 138,911 | $ | 126,136 | ||||
Accounts payable |
149,423 | 111,616 | ||||||
Accrued expenses |
137,895 | 146,319 | ||||||
Income taxes payable |
9,547 | 8,504 | ||||||
Current portion of long-term obligations |
14,438 | 14,552 | ||||||
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Total current liabilities |
450,214 | 407,127 | ||||||
Long-term obligations, excluding current portion |
1,641,262 | 1,646,121 | ||||||
Deferred income tax liabilities |
276,033 | 276,667 | ||||||
Deferred rent and other long-term liabilities |
54,310 | 49,471 | ||||||
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|
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Total liabilities |
2,421,819 | 2,379,386 | ||||||
Stockholders equity: |
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Common stock (119,329,354 and 119,258,374 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively) |
1,193 | 1,193 | ||||||
Additional paid-in capital |
906,634 | 904,425 | ||||||
Retained earnings |
62,310 | 40,189 | ||||||
Accumulated other comprehensive loss |
(38,584 | ) | (32,790 | ) | ||||
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Total stockholders equity |
931,553 | 913,017 | ||||||
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Total liabilities and stockholders equity |
$ | 3,353,372 | $ | 3,292,403 | ||||
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PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
UNAUDITED
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues: |
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Net sales |
$ | 515,426 | $ | 491,206 | $ | 969,712 | $ | 949,401 | ||||||||
Royalties and franchise fees |
3,987 | 4,314 | 7,441 | 8,224 | ||||||||||||
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Total revenues |
519,413 | 495,520 | 977,153 | 957,625 | ||||||||||||
Expenses: |
||||||||||||||||
Cost of sales |
307,865 | 302,863 | 595,632 | 597,137 | ||||||||||||
Wholesale selling expenses |
15,273 | 16,235 | 31,115 | 33,360 | ||||||||||||
Retail operating expenses |
90,615 | 85,229 | 177,324 | 165,543 | ||||||||||||
Franchise expenses |
3,574 | 3,530 | 7,137 | 6,989 | ||||||||||||
General and administrative expenses |
37,930 | 36,417 | 76,856 | 74,069 | ||||||||||||
Art and development costs |
5,676 | 5,179 | 11,053 | 10,456 | ||||||||||||
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Total expenses |
460,933 | 449,453 | 899,117 | 887,554 | ||||||||||||
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Income from operations |
58,480 | 46,067 | 78,036 | 70,071 | ||||||||||||
Interest expense, net |
22,781 | 33,397 | 45,433 | 71,876 | ||||||||||||
Other (income) expense, net |
(224 | ) | 48,810 | (3,202 | ) | 47,389 | ||||||||||
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Income (loss) before income taxes |
35,923 | (36,140 | ) | 35,805 | (49,194 | ) | ||||||||||
Income tax expense (benefit) |
13,408 | (13,090 | ) | 13,684 | (17,619 | ) | ||||||||||
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Net income (loss) |
$ | 22,515 | $ | (23,050 | ) | $ | 22,121 | $ | (31,575 | ) | ||||||
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Comprehensive income (loss) |
$ | 14,788 | $ | (16,331 | ) | $ | 16,327 | $ | (37,183 | ) | ||||||
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Net income (loss) per common share-Basic |
$ | 0.19 | $ | (0.20 | ) | $ | 0.19 | $ | (0.30 | ) | ||||||
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Net income (loss) per common share-Diluted |
$ | 0.19 | $ | (0.20 | ) | $ | 0.18 | $ | (0.30 | ) | ||||||
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Weighted-average number of common shares-Basic |
119,323,104 | 115,060,066 | 119,307,539 | 104,578,295 | ||||||||||||
Weighted-average number of common shares-Diluted |
120,323,581 | 115,060,066 | 120,232,590 | 104,578,295 |
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PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA
(In thousands)
UNAUDITED
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net income (loss) |
$ | 22,515 | $ | (23,050 | ) | $ | 22,121 | $ | (31,575 | ) | ||||||
Interest expense, net |
22,781 | 33,397 | 45,433 | 71,876 | ||||||||||||
Income taxes |
13,408 | (13,090 | ) | 13,684 | (17,619 | ) | ||||||||||
Depreciation and amortization |
20,282 | 19,650 | 41,171 | 39,801 | ||||||||||||
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EBITDA |
78,986 | 16,907 | $ | 122,409 | $ | 62,483 | ||||||||||
Non-cash purchase accounting adjustments |
2,288 | 3,937 | 3,689 | 5,755 | ||||||||||||
Management fee (a) |
| 30,697 | | 31,627 | ||||||||||||
Restructuring, retention and severance |
95 | 1,505 | 162 | 2,145 | ||||||||||||
Refinancing charges (b) |
| 15,596 | | 15,596 | ||||||||||||
Deferred rent (c) |
3,162 | 2,696 | 5,145 | 4,101 | ||||||||||||
Closed store expense (d) |
536 | 307 | 1,956 | 568 | ||||||||||||
Foreign currency (gains) losses, net |
(2,014 | ) | 1,558 | (5,178 | ) | 2,760 | ||||||||||
Equity based compensation |
933 | 728 | 1,881 | 1,124 | ||||||||||||
Undistributed non-cash loss in unconsolidated joint venture |
120 | 126 | 267 | 35 | ||||||||||||
Gain on sale of assets (e) |
| | | (2,660 | ) | |||||||||||
Corporate development expenses (f) |
946 | 994 | 1,212 | 1,129 | ||||||||||||
Other |
15 | (101 | ) | 57 | (218 | ) | ||||||||||
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Adjusted EBITDA |
$ | 85,067 | $ | 74,950 | $ | 131,600 | $ | 124,445 | ||||||||
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Adjusted EBITDA margin |
16.4 | % | 15.1 | % | 13.5 | % | 13.0 | % | ||||||||
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(a) | In 2012, the Company entered into a management agreement with THL and Advent under which THL and Advent provided advice to the Company on, among other things, financing, operations, acquisitions and dispositions. Under the agreement, THL and Advent were paid an annual management fee for such services. In connection with the initial public offering, the management agreement was terminated and the Company paid THL and Advent a termination fee. Such amount was recorded in other expense, net in the Companys condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015. |
(b) | The Company used proceeds from the initial public offering to redeem the Nextco Notes. The redemption required a prepayment penalty, $7,000. The Company recorded the prepayment penalty in other expense, net in the Companys condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015. Additionally, in conjunction with the redemption, the Company wrote off $8,596 of capitalized debt issuance costs and original issuance discounts related to the Nextco Notes. Such charge was recorded in other expense, net in the Companys condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015. |
(c) | The deferred rent adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Companys actual cash outlay for such items. |
(d) | Charges incurred related to closing unprofitable stores. |
(e) | During January 2015, the Company recorded a gain on the sale of certain assets obtained in the October 2014 acquisition of U.S. Balloon Manufacturing Co., Inc. |
(f) | Third-party costs related to acquisitions (principally legal expenses). |
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PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME
(In thousands)
UNAUDITED
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Income (loss) before income taxes |
$ | 35,923 | $ | (36,140 | ) | $ | 35,805 | $ | (49,194 | ) | ||||||
Intangible asset amortization |
3,988 | 4,747 | 8,133 | 9,516 | ||||||||||||
Non-cash purchase accounting adjustments (c) |
3,137 | 4,817 | 5,093 | 7,475 | ||||||||||||
Amortization of deferred financing costs and original issuance discount (b) |
1,270 | 11,377 | 2,544 | 14,451 | ||||||||||||
Management fee (a) |
| 30,697 | | 31,627 | ||||||||||||
Refinancing charges (b) |
| 7,000 | | 7,000 | ||||||||||||
Equity based compensation |
933 | 728 | 1,881 | 1,124 | ||||||||||||
Gain on sale of assets (d) |
| | | (2,660 | ) | |||||||||||
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Adjusted income before income taxes |
45,251 | 23,226 | 53,456 | 19,339 | ||||||||||||
Adjusted income tax expense (e) |
16,904 | 9,022 | 20,350 | 8,022 | ||||||||||||
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Adjusted net income |
$ | 28,347 | $ | 14,204 | $ | 33,106 | $ | 11,317 | ||||||||
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Adjusted net income per common sharediluted |
$ | 0.24 | $ | 0.12 | $ | 0.28 | $ | 0.11 | ||||||||
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Weighted-average number of common shares-diluted |
120,323,581 | 116,197,981 | 120,232,590 | 105,561,342 |
(a) | In 2012, the Company entered into a management agreement with THL and Advent under which THL and Advent provided advice to the Company on, among other things, financing, operations, acquisitions and dispositions. Under the agreement, THL and Advent were paid an annual management fee for such services. In connection with the initial public offering, the management agreement was terminated and the Company paid THL and Advent a termination fee. Such amount was recorded in other expense, net in the Companys condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015. |
(b) | The Company used proceeds from the initial public offering to redeem the Nextco Notes. The redemption required a prepayment penalty, $7,000. The Company recorded the prepayment penalty in other expense, net in the Companys condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015. Additionally, in conjunction with the redemption, the Company wrote off $8,596 of capitalized debt issuance costs and original issuance discounts related to the Nextco Notes. Such charge was recorded in other expense, net in the Companys condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2015. |
(c) | On July 27, 2012, PC Merger Sub, Inc., which was our wholly-owned indirect subsidiary, merged into Party City Holdings Inc. (PCHI), with PCHI being the surviving entity (the Transaction). As a result of the Transaction, the Company applied the acquisition method of accounting and increased the value of certain property, plant and equipment. The impact of such adjustments on depreciation expense increased the Companys expenses. These property, plant and equipment depreciation amounts are included in Non-cash purchase accounting adjustments for purposes of calculating adjusted net income, but are excluded from Non-cash purchase accounting adjustments for purposes of calculating adjusted EBITDA since they are included in depreciation expense. |
(d) | During January 2015, the Company recorded a gain on the sale of certain assets obtained in the October 2014 acquisition of U.S. Balloon Manufacturing Co., Inc. |
(e) | 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 which the adjustments were recorded. |
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PARTY CITY HOLDCO INC.
RECONCILIATION OF 2016 OUTLOOK
(In millions)
UNAUDITED
Full year 2016 | ||
Outlook | ||
Net income: |
$120 - $130 | |
Intangible asset amortization, net of tax: |
11 | |
Amortization of deferred financing costs and original issuance discount, net of tax: |
3 | |
Equity based compensation, net of tax: |
2 | |
Non-cash purchase accounting adjustments, net of tax: |
3 | |
Adjusted net income (a): |
$140 - $150 | |
Net income: |
$120 - $130 | |
Income taxes: |
76 - 82 | |
Interest expense, net: |
90 | |
Depreciation and amortization: |
83 | |
EBITDA: |
$369 - $385 | |
Deferred rent: |
14 | |
Foreign currency gains, net: |
(5) | |
Equity based compensation: |
3 | |
Non-cash purchase accounting adjustments: |
4 | |
Other (b): |
4 | |
Adjusted EBITDA (a): |
$390 - $405 |
(a) | Amounts may not total due to rounding. |
(b) | Includes adjustments for corporate development and store closing expenses, among other items. |
9
PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands)
UNAUDITED
Three Months Ended June 30, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
Total Revenues | Dollars in thousands |
Percentage of Total Revenues |
Dollars in thousands |
Percentage of Total Revenues |
||||||||||||
Net Sales: |
||||||||||||||||
Wholesale |
$ | 268,863 | 51.8 | % | $ | 254,554 | 51.4 | % | ||||||||
Eliminations |
(129,536 | ) | (25.0 | %) | (113,807 | ) | (23.0 | %) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net wholesale |
139,327 | 26.8 | % | 140,747 | 28.4 | % | ||||||||||
Retail |
376,099 | 72.4 | % | 350,459 | 70.7 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
515,426 | 99.2 | % | 491,206 | 99.1 | % | ||||||||||
Royalties and franchise fees |
3,987 | 0.8 | % | 4,314 | 0.9 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 519,413 | 100.0 | % | 495,520 | 100.0 | % | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Six Months Ended June 30, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
Total Revenues | Dollars in thousands |
Percentage of Total Revenues |
Dollars in thousands |
Percentage of Total Revenues |
||||||||||||
Net Sales: |
||||||||||||||||
Wholesale |
$ | 528,684 | 54.1 | % | $ | 505,270 | 52.7 | % | ||||||||
Eliminations |
(254,627 | ) | (26.1 | %) | (219,600 | ) | (22.9 | %) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net wholesale |
274,057 | 28.0 | % | 285,670 | 29.8 | % | ||||||||||
Retail |
695,655 | 71.2 | % | 663,731 | 69.3 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
969,712 | 99.2 | % | 949,401 | 99.1 | % | ||||||||||
Royalties and franchise fees |
7,441 | 0.8 | % | 8,224 | 0.9 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 977,153 | 100.0 | % | $ | 957,625 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Three Months Ended June 30, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
Total Gross Profit | Dollars in thousands |
Percentage of Net Sales |
Dollars in thousands |
Percentage of Net Sales |
||||||||||||
Retail |
$ | 162,080 | 43.1 | % | $ | 147,260 | 42.0 | % | ||||||||
Wholesale |
45,481 | 32.6 | % | 41,083 | 29.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 207,561 | 40.3 | % | $ | 188,343 | 38.3 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Six Months Ended June 30, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
Total Gross Profit | Dollars in thousands |
Percentage of Net Sales |
Dollars in thousands |
Percentage of Net Sales |
||||||||||||
Retail |
$ | 286,106 | 41.1 | % | $ | 266,736 | 40.2 | % | ||||||||
Wholesale |
87,974 | 32.1 | % | 85,528 | 29.9 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 374,080 | 38.6 | % | $ | 352,264 | 37.1 | % | ||||||||
|
|
|
|
|
|
|
|
10
PARTY CITY HOLDCO INC.
OPERATING METRICS
UNAUDITED
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Share of Shelf (a) |
77.0 | % | 75.6 | % | 76.3 | % | 73.7 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Store Count |
||||||||||||||||
Corporate Stores: |
||||||||||||||||
Beginning of period |
731 | 693 | 712 | 693 | ||||||||||||
New stores opened |
4 | 7 | 6 | 10 | ||||||||||||
Acquired |
| | 19 | 2 | ||||||||||||
Closed |
(5 | ) | (3 | ) | (7 | ) | (8 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
730 | 697 | 730 | 697 | ||||||||||||
Franchise Stores: |
||||||||||||||||
Beginning of period |
181 | 205 | 200 | 208 | ||||||||||||
Opened |
2 | | 3 | | ||||||||||||
Sold to Party City |
| | (19 | ) | (2 | ) | ||||||||||
Closed |
| | (1 | ) | (1 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
183 | 205 | 183 | 205 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Grand Total |
913 | 902 | 913 | 902 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Brand comparable sales increase (b) |
3.8 | % | 1.2 | % | 1.3 | % | 3.1 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | Share of shelf represents the percentage of our retail product cost of sales supplied by our wholesale operations |
(b) | Party City brand comparable sales include North American e-commerce sales. |
11